Issuance Proceeding on the 23rd to Secure COVID-19 Response Funds
"Favorable External Position and Low Debt Level... Investment Grade Likely to be Maintained"
[Asia Economy Reporter Jeong Hyunjin] Peru, which is experiencing political turmoil due to the presidential impeachment crisis, has issued 100-year maturity government bonds. This move aims to secure funds to respond to the novel coronavirus disease (COVID-19) crisis. Despite the political crisis, Peru has shown rapid economic growth so far, and its debt levels are low, earning it a solid national credit rating.
According to Bloomberg News and others on the 23rd (local time), the Peruvian government issued $1 billion worth of 100-year maturity government bonds on that day. Countries that currently hold 100-year maturity bonds include Austria, Mexico, Argentina, the United Kingdom, and Ireland. The Peruvian government also issued $3 billion worth of 12-year maturity bonds and 40-year maturity bonds. Bloomberg stated, "The funds obtained through the bonds will be used by the Peruvian government to respond to COVID-19."
The reason Peru’s issuance of 100-year maturity bonds is drawing attention is that it came just two weeks after the outbreak of political turmoil. Peru has been in political chaos since the impeachment of President Mart?n Vizcarra, who was highly popular among the public, on the 9th. The day after the impeachment, on the 10th, Manuel Merino, then Speaker of the National Congress, took office as interim president but resigned amid massive public protests. On the 16th, Congressman Francisco Sagasti was elected as Speaker and is currently serving as interim president. In just one week, Peru has had three presidents.
Although Peru is in a political crisis, the market has remained surprisingly calm. It is expected that Peru’s national credit rating will not significantly deteriorate due to the decline in political stability. Peru has shown the fastest economic growth in South America by exporting its main product, copper, to China. According to the World Bank (WB), Peru’s gross domestic product (GDP) increased more than fourfold from $51.74 billion in 2000 to $222 billion in 2018. In fact, the value of Peru’s currency, the sol, fell to an all-time low last week. Nevertheless, JP Morgan analyzed that Peru remains one of the safest countries in South America.
Shamaila Khan, head of emerging market debt at Allianz Bernstein, said, "Peru has a strong external position and low debt levels," adding, "Despite political volatility, it is expected to maintain a solid investment-grade credit rating." Considering the strong fundamentals and high market demand, Peru appears to be issuing ultra-low interest rate government bonds at a time when funds are needed, aiming to reduce long-term interest burden.
However, if the presidential impeachment crisis prolongs, political volatility is expected to eventually become a burden for investors. Alberto Ramos, chief Latin America economist at Goldman Sachs, analyzed, "This will cause volatility in asset prices and increase uncertainty about future prospects," adding, "Ultimately, it could jeopardize the relatively solid fundamentals at this point in time."
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