Exclusive: Peru says has economic "contingency plan"

Reuters News
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Posted: Jun 05, 2011 6:43 PM
Exclusive: Peru says has economic "contingency plan"

By Patricia Velez

LIMA (Reuters) - Peru's government has a "contingency plan" ready to implement if markets sink in the event of a victory by leftist Ollanta Humala in Sunday's presidential election, Finance Minister Ismael Benavides said.

Humala, a former army officer, has a lead of at least 5 percentage points in three exit polls. He has moderated his anti-capitalist views over the last few years, but many investors still fear he would roll back free-market policies if elected in the fast-growing economy.

"We have a contingency plan (which aims to) provide liquidity in the market via the Treasury ... to give a hand to the central bank," Benavides told Reuters.

Benavides stressed that whoever wins the presidency must quickly move to win the confidence of markets.

Meanwhile, Humala's chief economics adviser said stability would be assured if Humala wins but that the central bank must intervene if the country suffers a speculative attack.

Peru's stocks and sol currency have been highly volatile in recent weeks as investors worry that Humala would pursue an interventionist agenda in Peru's fast-growing economy. Analysts said markets could plunge on Monday if Humala is confirmed.

"There is no reason to worry, monetary policy will be maintained, responsible fiscal policy will guarantee the sustainability of fiscal accounts," economist Felix Jimenez, who authored Humala's campaign platform, told journalists.

Peru has investment grade credit ratings and record international reserves of $44 billion, equal to about one third of annual gross domestic product.

But Jimenez also warned of potential volatility in financial markets.

"If there is a speculative attack, I reiterate that I would ask the central bank to do its job. The central bank has the instruments to avert a speculative attack," he said shortly after exit polls gave Humala a narrow lead following voting.

Peru's central bank has periodically raised deposit requirements on bank accounts, especially those tied to foreign loans, in a bid to limit speculation on the sol and has sold dollars on the local spot market to prop up the sol.

Central Bank President Julio Velarde told Reuters in April that the central bank was studying ways to respond in case confidence undermined markets.

(Additional reporting by Teresa Cespedes)