Looking to the East -- Peru and South Korea to discuss a FTA in March

Peru and South Korea have agreed to hold the first round of negotiations for a Free Trade Agreement this March, according to Peru's Minister of Foreign Affairs and Trade.

Korean President, Lee Myung-Bak (left)

Peruvian President, Alan Garcia (right)
Photo: ANDINA /Jack Ramon

Preliminary work for the FTA was compiled in Lima January 20-21, days after the Asian Pacific Economic Cooperation (APEC) had concluded.

“At the preliminary talks, the two sides agreed upon the scale, formation, process and schedule of the Korea-Peru FTA, and together laid the groundwork for effective negotiations in the future," the ministry said.

The two sides will now examine each others drafts of the Agreement before meeting in March, at which point they will debate and hopefully find a middle ground on how to go about opening each market up to one another.

This is great evidence of something that has been written about on this site since its creation, that is—the Pacific countries of Asia and South America are finding cooperating in both economic and political contexts is beneficial for all parties and increasingly necessary in this global and interconnected world.

Analysis: Peruvian economy grows 10.3% during the 1st half of 2008

The Peruvian Central Bank raised its benchmark interest rate on Thursday (September 11th) by 25 basis points to 6.5%.

On the surface international investors are increasingly starting to view Peru as a safe region for commodity plays and “alternative investment strategies.”

- Standard & Poor's and Fitch Ratings upgraded Peru's foreign debt to one level below investment grade. (click here for article)

- In May Peru entered talks with the Paris Club to re-nogciate its foreign debt and for the first time, Peru's international reserves are expected to exede foreign debt. (click here for article)

- Peru has achieved relative political and economically stability, successfully passing power from one democratically elected president (Toledo) to another (Garcia) and producing healthy economic growth the past few years.

- Generous macro-economic incentives have helped to attract FDI from abroad, particularly in Peru's mining and energy sectors.

- According to this article from MercoPress, which quotes the INEI: Peru's National Institute of Statistics (click here to visit) the Peruvian economy grew at a rate of 10.3% in the first half of 2008, making it the fastest growing economy in the region.

Lets think about this for a second...

Until the recent retreat/collapse/correction in commodity markets, for the majority of 2008, commodity prices have been sky-rocketing, setting records as arguably one of the strongest bull markets the commodity sector has ever experiences.

Peru, a major producer and exporter of copper, zinc, and other metals has naturally benefited a great deal from soaring commodity prices. However, now that commodity prices have come back down to reality it will become increasingly more difficult for Peru to produce such great numbers. The bright side is commodity prices may rise once again once global growth and confidence pick up, but with the recent developments in the US financial markets it is looking as if the global economy has a long way to go until recovering from the recent credit and banking crisis.

Investors should always research the bad and the good. Some factors which come to mind are as follows:

- The recent replacing of Finance Minister Luis Carranza with Luis Valdivierso, who aside from a more impressive resume having worked for the IMF... is really not much different that Mr. Carranza. It's a pity the main reason Carranza even stepped down was for “family reasons.” Stating, as the Minister of Finance he was over-worked, had little family time and could not adequately support his family.

- Protests and strikes from local communities and unions will remain a obstacle for many companies operating in the remote regions of Peru.

- The population and satisfaction of the Peruvian people with their current president Alan Garcia, and other Peruvian politicians whom are not of the radical left such former presidential candidate Ollanta Humala, have whitnessed their approval ratings shrink a great deal in the past 1-2 years... Meanwhile Humala has managed to remain in the spot light, maintain his friendship with Hugo Chavez and will probably will run for President once again in Peru's next election. Expect great changes if he wins.

Viva El Peru! -- Various developments and stories from the Andean Republic

Since beginning this site, I aside from mentioning Peru within posts, most of my longer and more in depth analytical pieces have been on Argentina, Ecuador, China, commodities and rising food costs.

I would like to dedicate this update and perhaps the one to come later this afternoon (July 18- 2008) to recent developments in Peru, one of Latin America's best preforming economies in recent years and quickly gaining international recognition for both its economy and equally important-- Peru's unique culture.

I begin today's focus on Peru, with a chart I assembled for my dissertation on Sino-South American relations and economic cooperation, providing a general picture of how Peru's economic growth compares with its neighbors. My dissertation focused on the below countries and their growing relations and trade with China.

I must mention Ecuador and Uruguay each experienced their own respective healthy growth rates in 2006 and 2007. Information has been assembled from the International Monetary Fund (IMF), and account for inflation which is on the rise throughout the continent, but is particularly high in Venezuela and Argentina.

As you can observe above, comparing Peru with other countries in the region, it is preforming quite well and the IMF forecasts healthy growth for the country foward to 2009, at which point it has also been estimated Peru's economy will achieve fast. At the time of writing of my dissertation (Jan-April, 2008), estimates and future forecasts by the IMF were as follows. Please, by all means, let me know if the figures have been significantly altered since earlier this year.


Latin America - Country Growth Rates 2006-2009 (r = Real GDP percent change, e = expected and f = forecast)

Source: IMF GDP calculations adjusted for inflation

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Peru has many good things going for it right now. First, copper unarguably one of Peru's most important natural resources has risen sharply in value over the past few years, in addition to other raw material exports Peru has in abundance-- fishmeal, gold, silver and zinc. Copper is a key input in economic development-- and even if as of recent days the price has dropped, it will remain a commodity in strong demand for quite some time-- thanks in large to China which now relies on Chile and Peru for 50% of its total imports of copper from abroad.

Below is a graph which predicts copper demand and China's economic growth based off the proportional level of copper demanded from other countries at similar levels of development, using South Korea as the primary benchmark due to many similarities its own plan for initiating their economic development and similar needs of having to import many of the inputs necessary to industrialize.



Below is a graph generated from the London Metals Exchange home page, using their price graph generator.

LME copper spot 2002-2008

Thankfully, as Mr. Michael Reid states in his new book, the Forgotten Continent: The Battle for Latin America's Soul it seems Latin American countries are in a different position than they where during past commodity booms. Today, thanks in large to the BRIC countries and to emerging market demand, the current commodity boom will remain in swing for longer than ones of the past. Second, from historically failing to re-distribute profits from commodity booms to constructive areas of the economy to ensure sustainable growth after commodity prices fall many leaders now know better.



Peruvian present Alan Garcia, who had previously been considered a charismatic, populist, has shown he's learned from many of his past mistakes and currently retains pretty decent support and popularity rating in Peru.

In his first term as president in the late 1980's, his economic and internal policies lead to escalating violence from the war then in full swing, with the Peruvian state on one side, fighting the Maoist Shining Path Guerrillas on the other. Escalating violence and failed economic plans also lead the nation to experience the worst hyper-inflation of Peru's history.

Today he is viewed as a healthy moderate, leading the way with other popular Peruvian politicians such as Lima's mayor who also enjoys high popularity ratings as of recent polls, in investing profits from commodities in constructive projects. New water facilities are being built for Lima, which sits in the driest desert on the planet, highways are being built / repaired, ports are being upgraded and new airports are being built in Northern Peru (a region historically ignored in large by the central government).

I end this post (with more to come later), with a article I saved from March's APEC summit which took place in Lima.

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China sees Peru as the gate to South America - Andina News

Lima, Mar. 10 (ANDINA).- Macroeconomic and political stability and impressive growth makes Peru the ideal entrance gate for Chinese investments and trade to Latin America, said Chinese ambassador to Lima Gao Zhengyue.

One of the advantages that Peru offers to China as economic partners is its strategic economic convergence, derived from its geographical position in the continent, as a bridge between Asia and South America and the Atlantic Ocean through the bioceanic corridor.

Peru is also important due to its projection towards a sub regional extended market through the Andean Community (CAN) and Mercosur.

Chinese Ambassador to Peru
Gao Zhengyue

So far this year, around 30 delegations have visited Peru, and probably this number would increase when the Free Trade Agreement (FTA) between Peru and China is signed, he told Andina news agency.

Chinese business leaders are very interested in diversifying investments to Peru, currently concentrated in mining, in sectors such as ports, airports and road construction.

The Chinese government is interested in taking part in the social programs promoted by Peruvian government, as "Agua para Todos" (Water for Everybody) and "Techo Propio" (My Own Roof), he said.

"Whenever the Peruvian government can show projects to the Chinese business leaders, they will start to study them and decide to make investments", he said.

Gao Zhengyue told Andina that he is very satisfied with the firts two Rounds of Negotiations to sign a Free Trade Agreement (FTA) between Peru and China and hopes the FTA could be signed at the end of this year, so it would come into effect immediately.

The Chinese diplomat said his country is ready to welcome Peru's President Alan Garcia when he visits China next week.

(Accessed via Andina news agency -- China-Peru Free Trade Agreement Joint Feasibility Study; 2005-06).”