Peru FinMin byebye: The only thing Reuters got wrong was the timing

Last night's cabinet reshuffle in Peru saw the now ex-FinMin Mercedes Araoz replaced by traditional Peru upper class family member (and banker) Ismael Benavides (a decent potted history of the dude here at Reuters this morning).

Speaking of Reuters, do you remember back to August 17th when Reuters Peru broke the story about Mercedes Araoz getting the boot? We at IKN do and recognize that the newswire got a decent scoop, even though its timing was off by something less than a month (they said it was going to happen that week). The very next day, President Twobreakfasts himself stepped up to deny it all, saying, "She's my star minister, how can I possibly get rid of her?". Four weeks later, this supposed "star minister exits stage left saying how this move was "a good option" for her because she could "concentrate on her professional life". What bollocks! I think we can safely say that Reuters is a very well connected newswire down Lima way. We can also say that Garcia is a two-faced crudball, but that's not going to come as much surprise.

Meanwhile, the change at the FinMin won't mean any sort of change in the running of Peru's economy, as all the people who have sat as FinMin recently have done the right thing: don't touch the controls and let the country run on the autopilot put that was set seven years ago by PPK......and then pretend the current government is the one that's done all the hard work.

Twobreakfasts sez Mecha isn't going

So after Reuters told the world that Mercedes Araoz was leaving as FinMin Thursday (with Reuters being tipped by at least three high-ranking gov't souces, appraently), President Twobreakfasts comes out and says that's not true...but then again if you look at exactly what he said, there was room left for manoeuver.

All very strange, so the best solution until the true truth emerges is.......MORE MUSIC!

Reuters Peru says Peru's FinMin Mercedes Araoz is to be replaced this week

Here's the link. Here's how the note starts:

By Patricia Velez and Terry Wade

LIMA (Reuters) - Peru's Finance Minister Mercedes Araoz will be replaced in a cabinet shuffle this week, three sources in the ruling party and close to the government said on Tuesday.

One of the sources said Ismael Benavides, who once led one of Peru's largest banks, will be the new finance minister and that a swearing in ceremony was slated for Thursday.

"It's going to be Thursday at 3 p.m. (2000 GMT)," the source said.

"We know that Mercedes Araoz will leave no matter what," said another source.

Benavides, who also previously served as agriculture minister under President Alan Garcia, declined to comment.

Click through for the rest. Nice scoop, guys.

Peru sees macroeconomic in-fighting

Back last week (while commenting on the normal level of dumbassery displayed by economists regarding Peru) we noted that the Central Bank, headed up by Julio Velarde, was worried about the overheating of the economy. This is why they raised rates from 2% to 2.5% of course, but the thing that caught mine eye at the time was the phrase used in the communique that mentioned public spending was causing inflation. Here's the snippet of snark from that IKN post:

Particularly interesting is the bit about accelerated public spending causing inflationary pressures....hey, you'd never know Peru is in an election year, would you?

With that background, let's check this Reuters note (that displays great insight, must be said) about how Peru's FinMin Araoz is opposed to the Peru CenBank position and is pushing to keep public spending at high levels.

LIMA, Aug 10 (Reuters) - Peru's finance minister on Tuesday bristled at a suggestion by the central bank that she slow spending to curb inflation and vowed to meet her fiscal target for this year in one the world's fastest-growing economies.

'If there were no public investment then we would unnecessarily be putting the brakes on the economy,' Mercedes Araoz told reporters. 'Our fiscal deficit this year will be 1.6 percent of gross domestic product. Next year it will be 1 percent.'

The central bank, citing a surge in public spending and sizzling domestic demand, raised its benchmark interest rate by more than expected last Thursday to 2.5 percent from 2 percent. It was the biggest increase of the current tightening cycle in an economy investors see growing about 7 percent this year.

The next day, its monetary policy director, Jorge Estrella, said: 'The finance ministry will need to start stepping on the brakes to gradually reduce spending and in this way help domestic demand grow in a more sustainable way.'

Araoz, who on Tuesday responded publicly to the central bank's comments for the first time, said there were no signs the economy was overheating.

Public investments rose 65 percent in the first half of this year from the same period a year ago, though that pace should slow to 20 percent in the second half of this year as the government is winding down its economic stimulus program launched last year, said Araoz.

She ruled out criticism from the opposition that President Alan Garcia wants to ramp up spending before regional elections later this year.

SPECULATIVE CAPITAL

At the same time, Araoz issued a warning that too much monetary tightening could attract more short-term capital to Peru, which has been flooded with dollars this year, pushing the sol to a two-year high of 2.80.

'You have to make sure that the interest rate is not raised too much, so as not to make it so attractive to speculative capital, this is a measure that the central bank will have to study at the appropriate time,' she said.

The central bank has repeatedly intervened on the local foreign exchange market this year to soak up excess liquidity, buying nearly $6 billion since January to prevent currency volatility, which could contribute to inflation if the sol were to sharply reverse direction after excessive strengthening.

In recent weeks, the finance ministry has said it would complement the interventions with purchases of its own.

Araoz said there were no signs Peru's economy is overheating. Inflation in the first seven months of this year was 1.79 percent. The central bank's annual target range is between 1 percent and 3 percent.

Along with Brazil, Peru is expected to grow the fastest in Latin America this year.

Peru's economy grew more than 9 percent in the second quarter as its construction and finance sectors expand at double-digit clips, swifter than the traditional engine of mining exports.

Araoz said her office plans to upwardly revise its 2010 growth forecast, which at 5.5 percent is well below more optimistic projections by lenders and the International Monetary Fund.

'It would be around 6 percent, something like that,' she said.

Once again, politicians care more about the short-term feelgood reflection of a higher GDP rate (which in itself is a dubious metric for measuring a country's progress) than being economically responsible and checking back growth to a sustainable level. Viva freakin' investment grade, peeps.

Peru: Bye Bye Spongebob, Hello (Mecha) Meche

Note: in my haste earlier I wrote "Mecha" Araoz instead of her real handle, 'Meche'. Errare humanum est.

According to breaking reports, Mercedes Araoz (one of the few good politicos hanging round Twobreakfasts these days) has just been named as Peru's new FinMin, replacing Luis Spongebob Carranza.

Spongebob will be remembered as Mr 6%....no, 5%...no, make that 4%....errr 3%, hold on 2%....aha 1% GDP growthman and architect of the worst hard landing economic slowdown in Peru's modern history. He'll now go back to his cushy and well paid bank job (though they never really stopped his bank salary I hear......but we can't mention that) after taking time off and hanging at the exclusive 'Asia' beach resort South of Lima for a month.

Meanwhile, Mercedes 'Meche' Araoz gets to play at numbers after working up through the ministerial system. A workaholic, a nice person and as it's not a sin let's point out that she's pretty, too.

The Amerikan Dream comes to Peru

CONSUME MORE! is the answer to all our prayers these days, and the fact that a reader yesterday sent me this link to the great Janis Joplin singing 'Oh Lord won't you buy me a Mercedes Benz?'......

..... fits nicely with the story below.

Peru's Minister of Production, Mercedes* Araoz, spent yesterday exhorting her minions to "drink more Peruvian coffee" as per capita coffee consumption in Peru is around 0.25kg a year, which compares to 5kg in Brazil and about 14 metric tonnes in Colombia**. In her words:

"If we in Peru consumed 5kg per person we would consume all our exportable supply. So we could double national production for the grain."

Mercedes Aráoz said that if a person gets up early the best thing to do is to have "a little coffee. It's a healthy drink, a good antioxidant and energizing. I drink it pure. Also, it's not true that it stops you from sleeping", she said.

So next we'll have Peru Chamber of Aviculture wheeling out Aráoz for its "Eat More Chicken" drive, the sugar cane people with their "Sweeter The Better" and "Diabetes Is Not A Problem, Oh No" campaigns, then the national council for chocolate cake and its "Stuff Your Face and Get Fat Your Country Will Thank You For It" promotional tour. And so the emerging market countries raise their GDP and are applauded as they aspire to the model offered by all those developed world wondercountries.

The more you consume the better your life is.

Then comes the fitness club sector and diet foods....more GDP! And healthcare! And insurance! Ahh, ain't life wonderful?

*shome coinshidensh, shurely, ossifer
**well....8kg in fact, but I like a laugh