Now why on earth would Prez Santos of Colombia want to be friends with Chávez all of a sudden?

I mean it's the darndest thing.......... Whatever could it be about?

Oh! Wait a minute!!


And then there's this (translated):

Colombia and Venezuela to Negotiate a Free Trade Agreement

August 14th

Colombian President Juan Manuel Santos revealed that during his meeting with his Venezuelan counterpart Hugo Chávez, they agreed to advance the creation of a law that allows free trade between the two countries

Later in the note Santos is quoted::

"Personally, as I said so to President Hugo Chávez, recovering this market has a special value... (it is) a market that will always be very important to us."

No shit Sherlock...

Peru's ImpEx update

Let's catch up with a bit of macro and see how those Peruvian imports and exports have been doing this year. The last time we did this post was January or February so there's been a lot of copper sent to China and gold to Switzerland since then.

This first chart shows monthly bars for both imports and exports.

In 2009 exports have recovered somewhat (thanks mainly to the rebounds in copper and gold) but are still well off 2008 highs. Imports have been in the gutter all year, the same levels as 30 months previously. Where's this "vibrant internal economy" that S&P talked about when affirming its ridiculous investment grade on Peru? IKN calls bullshit on another band of self-righteous, arrogant fools in suits.

The trade balance (below) has therefore gone to the surplus after the iffy moments at the turn of the year, again largely due to the metals rebounds (for the record metals accounted for 59.8% of Peu's exports in the first six months of 2009, pretty much the average that fluctuates around the 60 mark). This has helped stabilize the currency (PEN) which is good. Export dependent countries with non-reserve currencies can't spend more than a few months out of surplus before currency weakness starts notching inflation up. In 2009 Peru has inflation nicely under control, happy to say.

So if we add up the imports and exports to show (below) total trade activity with the rest of the world, 2009 has recovered a bit but there's a country mile between current trade and the numbers being posted this time last year.

The bottom line is that we have a country with a stagnant internal economy that got lucky and has been saved by the metals rebound. No more, no less. Find the Peru Central Bank source report on this link. If this is an economic miracle then Britney Spears' children were virgin births.

Peru: Can I Haz Scotiabank Job?

It must be a truly great thing to land a job as an economist in a Peru bank. Two main reasons:

1) If you have a brain there's no competition

2) Say what you have to say in the right way and you get quoted everywhere by the lapdog press. World of Ego, here we come.

Case in point, Pablo Nano of Scotiabank. Señor Nano yesterday predicted that Peru's trade balance would come out positive in June, which is largely along the lines of predicting that the sun will rise tomorrow morning or that the current Pope is of the same religious creed as the previous incumbent Holy Father. What you have is a rapidly shrinking economy and deflation on one side (imports down? Duh!) and a rebound in metals prices as China buys up all that lovely copper and Switzerland squirrels away as much gold as it can get from Yanacocha and Pierina. Or in the words of Pablo, "The May numbers show on the one side a sustained recovery in exports and on the other a larger than expected drop in imports". No shit Sherlock.

And sure enough, today's imports numbers confirm that Peru's real economy is diving into an ever deeper recession. YoY imports are down 39.6% (really..not joking), with the worst affected sector that of capital goods and construction materials, down 44.9%. That makes the first six months of 2009 down 30.1% from the same period in 2008, so if you care to think about it, 30% in six months and 39.6% last month.....means......that....yep...it's getting worse, not better.

But Peru isn't in recession....oh no, whatever makes you think that?

UPDATE: A very sad but very true observation comes from regular reader Ward in the comments section below. Here's the excerpt:

"...the fact that you typically need to be (very) young, female and goodlooking to be hired by a Peruvian bank may not bode well for having the most qualified people for the job."

Peru macro news

This time of the month there's always a swathe of macro econ news from LatAm countries. When it comes to Peru, there are plenty of ingredients to throw in the cake mix.

1. Trade Balance: The March trade balance came in positive, with $1.56Bn in imports and $1.9Bn in exports. The export figure has benefitted directly from the rebound in metals prices. Here's the chart.
Looks like things have picked up a touch month-over-month, which is good. However there's still that very large year-over-year gap in activity, which isn't so good.

2. Tax Revenues: Unsurprisingly, taxes levied on external trade traffic are down. However as this WSJ report notes, income tax revenues are also sharply down (21%) for April YoY. This points to a significant slowdown in internal demand. Overall, tax collection was down 17.8% YoY....not funny.

3. The Nuevo Sol (PEN) is now trading at S/2.96 to the dollar, having moved from the 3.10 mark very quickly. This stronger PEN is now affecting export trade competitivity and the Central Bank is moving to stop the melt-up. It bought into the market to the tune of U$7m yesterday , which isn't so very much but should send a signal. With currency reserves back at U$31Bn, Velarde has plenty of ammunition to stop the PEN from strengthening too far.

4. Interest rates: The reason for the stronger currency is likely the interest rates on offer in (what they insist is) an investment grade country attracting overseas money (it can hardly be called 'hot money' these days...maybe lukewarm?). It is a bit pachakuti to think that Peru is considered a safe haven these days, isn't it? So yesterday we saw the CenBank drop rates to 4% and you can bet decent cash that the trend will continue in the months to come.

As for the conclusion to all this, I'll be writing up my views in The IKN Weekly. It's called "another pitch", but it's also about preferring the paying subcribers. Life's like that.

Peru macro update

First the good news; Peru managed to run a small trade surplus in February. This will take some pressure off the currency (as usual, click on any chart to enlarge);


Now the bad news. Exports might have been up slightly on January numbers, but February is like that. But exports also showed their second worst month since January 2007. Imports didn't fare much better, registering their lowest month since June 2007.


But the really bad news is when you add up total import/export activity. Total trade movement is down 26% in the first two months of 2009 compared to the same period of 2008.


Why is this important? Because total impex movements comprise around 50% (yeah, fifty percent) of Peruvian GDP. So much for Twobreakfasts and his shock-proof economy, as Matuk so rightly points out today.

Peru: Does this look like a solid economy to you?

Words kept to a minimum this time as the charts can largely speak for themselves. This chart shows how Peru is now running a commercial trade deficit with the rest of the world. Not good.

This next chart shows that even though there's a fast-growing deficit, imports are actually dropping! It's the enormous cut in exports that's doing the real damage.

Here's a closer look at how much imports have dropped. Peru imported $400m less worth of goods in January 2009 compared to the same month of 2008.

But the equivalent chart for exports below is simply frightening. That's a drop of nearly one billion dollars in exports compared to the same month of 2008. This is a 100% non-sustainable situation for an emerging market country that depends on selling to the world. This cannot be stressed too strongly.

If we aggregate monthly imports and exports it gives a good idea of the enormous drop Peru has seen in trade with the rest of the world since the middle of 2008.

The Garcia administration is almost certainly most irresponsible government in Latin America. It refuses to admit there is a problem when it's staring anyone with a modicum of numbercrunching ability in the face. Peru's impex trade with the rest of the world has dropped by over $2.5Bn PER MONTH since last August and the country is now running a significant fiscal and trade deficit. This kind of obvious structural weakness will not be patched up by Carranza's much-trumpeted U$3bn stimulus...and half of that has been spent already!

Your choice: Stop believing the BS soft soap that Garcia, Carranza, S&P and Fitch tell you about Peru right now, or stop believing them when it's too late. But don't tell me I didn't warn you.

Related Post
Stop Peruvian Stupidity

Alan Garcia is a liar: Some empiricals

At the same time President Twobreakfasts was waxing lyrical about Peru's stability and how it was shielded from the world recession and how Peru's GDP would grow 6.5% in 2009 (date, November 2008), the following was happening to Peru's trade balance:

And as bad as that chart looks, if you look further it actually gets worse. This second chart shows the import/export breakdown that results in the above trade balance. As you can see, the slowdown in both sides of the equation adds further recessionary pressure:

Developing nations such as Peru rely on export capacity to drive economic growth. No exports = no growth. That's a bit of cruel reality Economics 101 for you, dudes. S&P, Fitch and all the others can try to hoodwink you into believing that the internal economy is Peru's new driver but that is just so much crap, sad to say. Peru is not a strong currency nation that can run an indefinite trade deficit with the rest of the world; its ability to grow is totally dependent on its ability to sell to other places. And that chart up there is not good news.

It's not about unduly knocking a country or a region (as accused yesterday by some dumbass), it's about looking at the facts, telling the truth and not listening to obvious bullshit from obvious bullshitters. The main reason why Peru is in more trouble than (for example) Chile is that Chile is being mature about its future problems. The government of Peru is still jawboning its people into believing that everything is fine. That Peru GDP forecast is now down to 5%, by the way. It's going lower. Take that to the bank.

Peru set to lose U$4Bn in exports in 2009...just in copper

Peru not dependent on mining any longer? Don't be stupid

Some basic numbers: This year Peru expects to finish with exports of U$32Bn, 19.2Bn of which being metals exports. The big two metals are copper and gold which together account for over 70% of all metals exports by dollar value (precisely 70.7% in the first ten months of 2008, copper U$6.85Bn and gold U$4.67Bn from a total of 16.27Bn).

However, in that 2008 period copper averaged U$3.14/lb. Hey, guess what? Copper's going to be cheaper next year. This table shows how 100,000 metric tonnes copper exports per month will turn into dollars at various spot prices. In fact, although it fluctuates by a couple of thousand tonnes per month Peru averages 99KMT right now so we're pretty close to the real numbers.

Peru Copper Export Revenues
Cu $/lb	Est. Annual Value (U$M)
1.20	3168
1.40	3696
1.60	4224
1.80	4752
2.00	5280
2.20	5808
2.40	6336
2.60	6864
2.80	7392
3.00	7920
3.20	8448
3.40	8976
est. Month exports 100,000MT Cu

As we can see, if 2008 finishes by averaging $3.00/lb and 2009 finishes by averaging $1.40 or $1.60/lb (quite likely considering today's spot price and '09 predictions from this-and-that industry body or spokesperson), the difference for Peru will be somewhere around four billion US dollars in lost exports revenues. And when you consider that this is just copper, and other heavily hit metals exported by Peru include siver, zinc, lead, iron, molybdenum, tin etc the picture isn't very pretty. Even the more promising gold will have to average around U$870/oz in 2009 to beat out 2008's country revenue total (assuming export volumes remain the same).

So, that's U$4Bn disappeared from the trade balance for 2009. Here's the monthly trade breakdown for Peru in 2008.........

..........and in the first 10 months of this year Peru has managed to put in a surplus of U$2.8Bn. Yeah, you got it; just the copper loss is going to screw the trade balance in 2009. Just copper.

So forget about the fishmeal dispatches that will drop, the asparagus exports that Costco and WalMart will trim, the grapes that Japan won't order this year, the job losses, the greatly reduced royalty payments and all that jazz. Just remember that over 50% of Peru's corporate tax is paid by miners. So the next time some idiot tells you that Peru is not going to be affected by the world economic downturn, send them the link to this post. And then tell 'em to STFU.

Due to the drop in metals prices, Peru is now probably a net importer

This little post gives a general ballpark idea of some cold, unpleasant realities in the pipeline for Peru (and for LatAm in general):

1) Despite propaganda to the contrary, Peru is still heavily dependent on metals exports to maintain its growing economy.

2) The recent drop in world metals prices will hurt Peru badly.

3) Peru is now probably running a trade deficit with the rest of the world, as its demand for imports to fuel its growth now outweighs its exports.

Here we go with a couple of charts. This first one shows Peru's exports Jan 2006 to August 2008.

(click to enlarge)

As we can see, although non-mining exports have increased in the period the dominant sector is still mining. In August 2008, for example, metals exports accounted for U$1592.27m of the U$2943.2m in total exports (54%). You'll also notice that at the end of the chart I've made some estimations for October 2008, and it looks likely that it will be the first time in a long time that mining exports are lower than their non-mining counterparts.

This is because the prices for metals have slumped since August 2008 (as anyone holding mining stocks will quickly tell you). To give you some idea, here is a little table that shows how much each of the "big five" metals made in export revenues for Peru in August 2008, and then on the right hand side we apply October 2008 prices to the August 2008 production levels (by which I assume copper at U$1.80/lb, gold at U$730/oz, silver at U$9/oz, lead at U$0.50/lb and zinc at U$0.50/lb).

	Aug Exports (U$m)	Aug Prod at Oct prices
cu	721.17	452.65
au	432.35	376.48
ag	48.31	29.43
pb	76.05	40.64
zn	113.49	149.80
TOTAL	1391.37	1049.00
Difference = U$342.37m

The result is that for the same amount of production, Peru loses over U$342m in revenues simply due to the spot price changes. That's a theoretical 12% of the country's export revenue gone up in smoke, people. That's a lot.

It also means that Peru's trade balance is likely negative. Here's the monthly trade balance 2006 to Aug 2008, and you'll note that the average monthly trade surplue for 2008 is all but gobbled up by the projected deficit from just four major metals exports mentioned above.

(click to enlarge)

Forget iron ore, molybdenum, asparagus, fishmeal, mangoes, and all the other things Peru sells to the world; just the price slumps in copper, gold silver and lead are nearly enough to put Peru's accounts into the red.

The bottom line is that financial crisis is going to hit everyone. Peru is the example in this post, but consider that 60% of Chile's export FOB is just in copper and it doesn't need a brain surgeon's intellect to work out the rest. This is true for Argentina's soya. It's true for Venezuela's oil. It's true for Brazil's multiple soft and hard commodities. This slowdown will make no exception for left-wing or right-wing politics. The simple fact is that if these prices stay where they are, ALL of South America is in the toilet.

Last week President Twobreakfasts announced to his people that Peru would grow 7% in 2009. I have a sneaky suspicion that he's being a touch optimistic about things. What do you say?