Wall St cheers new Peru finance minister Valdivieso
July 14, 2008 - Reuters

By Walker Simon

NEW YORK, July 14 (Reuters) - Wall Street on Monday welcomed Peru's new finance minister as a "market friendly" choice, viewing him as likely to prolong policies which have fueled some of the strongest economic growth in Latin America.

On international markets, Peruvian bonds rose Monday after news Luis Valdivieso, a veteran of the International Monetary Fund, would succeed Luis Carranza, the departing finance minister who is credited for much of Peru's economic boom.

President Alan Garcia was due to swear in Valdivieso at noon (1700 GMT) Monday, presidential aides said.

Little change was expected in Peru's economic policy under Valdivieso, an economist who has worked for nearly three decades at the IMF.

"Valdivieso is widely expected to maintain a market-friendly set of economic policies; his official appointment should be market-neutral in our view," wrote Credit Suisse analyst Carola Sandy.

Cabinet aides said earlier this month Carranza was talking of leaving, apparently to return to the private sector where he had worked for banks.

Under Carranza, Peru posted economic growth of 9 percent in 2007, its highest in more than a decade. Recent data shows the economy growing by as much as 13 percent, while the annual inflation rate is below that of other big South American nations.

The outgoing minister's vision was to spur enough growth to quadruple the size of Peru's economy within two decades.

"Peru is a success story that goes beyond high commodity prices," said Alberto Bernal, head of emerging markets fixed income research at Bulltick Capital Markets in Miami.

"According to the World Bank, Peru is, with Panama, the country that has increased total factor productivity the most since 2001." he said. "Good policies are behind this. Carranza will be missed, yet Valdivieso is a good option for replacement."

In international markets, Peru's dollar-denominated global bonds advanced on Monday.

Its global bond due in 2037 <PERUGLB27=RR>, regarded as the country's most traded dollar-denominated bond, rose 0.500 point to bid 100.500, offering a yield of 6.51 percent.

Peruvian bond yield spreads over U.S. Treasuries narrowed by 7 basis points to 199 bps, according to JP Morgan's Emerging Market Bond Index 11EMJ. Narrower yield spreads are seen as reflecting less investor risk.

While Wall Street executives expressed positive views on Valdivieso, some Peruvian labor leaders said they did not like him as a choice since he would likely continue the policies of Carranza, who they say did not do enough to reduce Peru's poverty.

While Valdivieso's appointment pleases Wall Street, "his naming will give unions, some of which went on strike last week, more rhetorical fire power to target the administration's economic policies," said Enrique Alvarez, IDEAglobal's head of research for Latin America.

"His prior IMF background, while seen as a plus for Wall Street, can be pointed to by the unions as a deaf response from the government to workers' clamor for policies to narrow the gap in wealth distribution," he continued.

Valdivieso helped design Peru's economic stabilization program of the early 1990s when then-President Alberto Fujimori tackled hyperinflation. For more on Valdivieso, click on FACTBOX [ID:nN13373578]. (Editing by Kenneth Barry)