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7/13/08

Peru's new finance minister

Luis vs Alan: Pie eating contest: Game on!

Welcome, Luis Valdivieso! At midday local time tomorrow (Monday 14th July) Señor Valdivieso takes the oath and takes the job from Luis Carranza (as mentioned in this July 1st post....yep, you saw it here first again, folkzz). So what is there to know about the new dude? Here are a few bullet points:
  • He's a 58 year old, toe-the-line economist who lives and breathes the orthodox IMF doctrine.
  • He's worked at the IMF nearly all his professional life.
  • In the silhouette stakes, he can give Alan a run for his money.
  • He worked on IMF projects that brought misery and stunted growth to Mexico (1982-1987), Russia (1992-1996), Tajikistan (1996-1997) and Armenia (1997-1999). This chain of jobs stopped when the world finally worked out that the IMF did squat to help the lil guys.
  • Just after the Tsunami disaster of December 2004, Valdivieso got a nice plum residential IMF job in Sri Lanka, where for two years he oversaw the irresponsible loose monetary policies that shot that country's inflation to over 16% in very quick order.
So what kind of mess can he make of this appointment? Well, as long as he does the same as Carranza (i.e. leaves the machine on autopilot and doesn't mess with the controls), the reflective glory of being lucky with metals prices and coming along after the reforms of PPK (Pedro Pablo Kuczynsky) will mean he gets to look good. Peru's much-headlined GDP growth is driven by exports that are motoring along, but watch out fatty! cos those imports are closing the trade gap rather quickly as this chart shows.

This is resulting in quickening inflation driven by the imported CPI number, as this chart points out.
Inflation is now a serious problem in Peru. At 5.71% it's a mile outside of the 1% to 3% target range, and as the country uses an inflation targeting policy that means all the economic forecasts get moved out of synch; it doesn't just affect the price of cornflakes, ya knowz. What's more, the "hey, it's just a passing phase" line used by Alan&Co back in February has been proven the crock anyone with half a brain knew it to be, so trust on the issue has been lost by Alan and the 30% approval rating he scores is very much tied to that habit of bare-faced lying that he has developed. At this moment, it's worth noting how Peru's gov't quickly bleats "it's not our fault, you know" when asked about inflation, and adds, "the nasty imported goods and commodities are going up in price and it's just not jolly well fair, you know" (add various et ceteras) but they never, ever mention that the boom in exports is also wholly due to the rise in world commodity prices. Having one's cake and eating it? Error by omission? Nope, these wise saws are far too forgiving for the manipulative, arrogant bastards that run Peru today.

So all our new Luis has to do is nod his head when asked, not change anything, and pray his very hardest that the prices for spot copper, gold, zinc, lead, silver, tin, and all the others stay nice and high. And then blame everyone else for anything that goes wrong. In other words this transition will be seamless, cos that's all Carranza did while in office.