Socialist fears have rich pulling money out of Peru
Peruvian authorities may still not be ready to declare the leftist outsider Pedro Castillo the winner of last month's presidential election but the rich aren't waiting for the official announcement.
They're yanking their money out of local accounts and shipping it overseas at a pace rarely seen in an economy that has for decades been among the most stable in
Latin America.
One small mutual-fund firm in Lima, Faro Capital, says its clients pulled half of all their money in the run-up to the vote and the one month since. The “big fear,” as Faro's chief investment officer, Fernando Garcia, puts it, is that Castillo will slap restrictions on Peruvians' purchases of dollars and euros, just like Argentina and Venezuela did in recent years.
Whether this concern is justified or not — Castillo's top economic adviser insists the angst is overblown — it's driving the wealthy to get their money out while they can.
The exodus has helped push the sol down 8.4 per cent since the first of two rounds of voting was held in April, making it the worst-performing currency in emerging markets, even though the central bank has repeatedly stepped into the foreign-exchange market to prop it up.
Those interventions, along with a decline in dollar deposits held at local banks, have driven down
Peru's foreign reserves — the hard currency that forms a country's financial safety net — in each of the past three months.
At a press conference last month, Julio Velarde, the country's longtime central bank chief, sought to clarify that not all of the money lost in foreign reserves — some US$9 billion, or about 11 per cent of the total — had necessarily gone overseas. Some of it, he said, is also being squirrelled away under people's mattresses at home.
Castillo, a rural union activist from a Marxist party, successfully tapped voter rage against the nation's political elite. If declared the winner, he'll take office on July 28.