With many US investors looking to India and China to diversify into, many are overlooking at the opportunities that abound in Latin America. Peru in particular offers a number of attractive economic conditions that put it above many of its Latin American Peers. They have had very stable inflation, a stable CPI, excellent trade terms with the US, appreciating currency and a stable government relative to others in the region. This combination of factors makes Peru a prime target for foreign investors.
Last year inflation had crept up in Peru, but many officials believe that this is short lived and that it will return within its 1-3% band. Peru’s inflation is pale in relation to its neighbors who see at times double-digit inflation. The opening of free trade also inhibits producers from raising prices too high especially in agricultural goods as these make up almost 48% of Peru’s CPI. With its CPI inflation at 3.5%, it is surprisingly low especially considering rising global food prices and food compromising almost half of the CPI.
With its inflation targets set at 2% and 3.5%, Peru’s government will have to intervene with higher interest rates or allow its currency to appreciate. It is probable that the government will allow the Pen to appreciate, which is favorable for foreign investors as they receive a more valuable currency when they realize the company’s profits.
Also helping the currency is the Free Trade agreement recently finalized between Peru and the US. The FTA opens up trade between the two nations and offers many opportunities, especially in agriculture (Sugarcane Ethanol), and the country is seeing increased development in this sector in response. Peru’s government and leader Garcia II is a strong capitalist and his market responses have further backed this up as during recent high inflationary periods he reduced tariffs, lowering trade barriers. He has maintained a conservative approach to the government. This has allowed for a relatively stable government and economy as he continues to show a strong desire to maintain a positive global image for Peru.
The combination of these factors makes Peru an extremely attractive place for direct foreign investment. With its recent opening of Free Trade and capitalist government the future for Peru looks very bright. It has everything needed to be the next great emerging economy and offers foreign investors the chance to buy firms at bargain prices.
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