Peru to Prepay $1.1 Billion Debt to World Bank, IADB (Update2)
March 19, 2008 -

By Alex Emery

March 19 (Bloomberg) -- Peru will seek to prepay about $1.1 billion of its debt to the World Bank and Inter-American Development Bank by mid-year, a Finance Ministry official said.

The government plans to use Treasury funds to finance "most'' of the buyback and may sell sol-denominated bonds for part of the financing, debt director Jose Miguel Ugarte said today in a telephone interview.

"We're in a position to use our own funds due to Peru's fiscal surplus in recent years,'' Ugarte said. "The idea is to continue reducing Peru's debt.''

Peru, which bought back $838 million in outstanding Brady bonds on March 7, has pared its debt to 28 percent of gross domestic product from 38 percent in 2006, Ugarte said. Peru owed $7.85 billion to multilateral lenders out of its total $27.7 billion debt through the end of 2007.

The multilateral buyback will be Peru's biggest since a $1.8 billion purchase of Paris Club debt in July 2007.

Further debt reduction could earn Peru, currently in the midst of its longest-ever economic expansion, an investment- grade rating as early as this year, Theresa Paiz-Fredel, a sovereign debt analyst at Fitch Ratings, said in a Jan. 11 interview.

Fitch rates Peru BB+, one level below investment grade and in line with Brazil, Colombia and Macedonia. Fitch last boosted Peru's rating in August 2006. Standard & Poor's also rates Peru one notch below investment grade, and Moody's Investors Service rates the country Ba2, two levels below investment grade.

The yield on the government's local-currency bond due August 2017 fell 10 basis points to 6.45 percent today, according to Interbank. The bond's price, which moves inversely to its yield, rose 0.3 centimo to 115.013 centimos.

Peru's sol gained 0.3 percent to 2.7940 per dollar at 1:55 p.m., a 10-year high, even as the central bank bought $126 million on the foreign exchange market yesterday in a bid to slow the sol's gains. The currency has gained 7.2 percent this year.

To contact the reporter for this story: Alex Emery in Lima at