Peru Gets Second I-Grade Nod

S&P has raised Peru’s debt to BBB minus from BB+, the second investment grade endorsement for the sovereign following Fitch’s April promotion. The shop’s decision was based on a “significant decline in Peru’s fiscal and external vulnerabilities within a context of high and diversifying sources of growth with low inflation and strengthening macroeconomic fundamentals.” S&P expects GDP growth of 6.5% and investment reaching 25% of GDP in the medium term. Peru’s growth has also diversified, it notes, relying more on domestically driven demand and private consumption. “Peru’s political and social stability will continue to constitute a credit weakness compared with peers,” S&P cautions. The outlook is stable, with continued improvement in debt management within a stable political context supporting the case for moving further up the ratings ladder. Increased political polarization that weakens support for sound macroeconomic policy, however, would add downward pressure to the rating. Goldman Sachs says the upgrade is well deserved, citing strong macro fundamentals, large fiscal surpluses, low inflation, strong real GDP growth, and low and declining levels of public and external debt. “The current economic policies are likely to be maintained over the next few years, on the back of which we believe the ongoing virtuous economic growth cycle is poised to continue,” it says. The two-out-of-three status allows Peru’s inclusion in Lehman’s Global Aggregate Index, opening it up to investors limited to trading there. Peru’s benchmark Global 2037 bond traded at 101.00-101.50 late Monday, after opening at 100.25-101.00. Lima’s Bolsa gained 2%, outpacing Brazil’s Bovespa, up 0.95%.