"Neoliberalism' dealt big blow in Peru

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

I am sure you are one of the millions who have been wondering what has
been happening to the "arc of instability," the administration's name
for the swath of evil or potentially evil countries that are targets
of the "war on terrorism."  Instead of shrinking, as it was supposed
to after the US rulers showed their military muscle in Afghanistan and
Iraq, it has grown -- particularly in South America.

The "arc of instability" once began in the Caribbean where Cuba
appeared to hold up the banner of Evil all alone.  Then it was defined
as beginning in the Caribbean rim (Venezuela had gone Bad, if not
Evil, and the war against Evil in Colombia had turned out more
difficult than expected).  Now the arc of instability begins way over
other side of South America, in the ANDES!

The following article will help explain why the "arc of instability"
is headed West.
Fred Feldman


Fitch: Popular Turmoil in Peru Could Have Adverse Policy Implications
NEW YORK--(BUSINESS WIRE)--June 11, 2003--Fitch Ratings, the
international rating agency, stated that Peru's current political
turmoil will likely be peacefully resolved, but that further fiscal
challenges are likely. Furthermore, the damage to President Alejandro
Toledo's credibility could have adverse implications for future
cabinet appointments, tax reform, and decentralization. Fitch
maintains a Negative Rating Outlook on Peru's long-term foreign and
local currency ratings of 'BB-' and 'BB+', respectively.

Fitch said that it expects the current political turmoil probably does
not presage a political or economic crisis in the near-term. The
agency believes that an overt challenge to President Toledo's
incumbency is unlikely.

However, income concessions to striking teachers could result in a
spiral of demands from other public sector workers. Yet the public
sector deficit could be contained at 2.0%-2.5% of GDP barring a major
escalation in political turmoil or sizable further welfare
concessions. Given Peru's light gross public financing requirement,
Fitch anticipates the government could readily meet any increase in
public financing needs.

Challenges to President Toledo's credibility may be reflected in
greater pressure by opposition parties and interest groups to
influence the choice of cabinet appointees in the annual July review.
Any weakening in the governing party's standing within the cabinet
could also adversely affect the administration's ability to coordinate
policy formulation in the legislature.

The political fall-out of the current turmoil could also be reflected
in greater concessions on the part of the government to provide for
higher regional spending and for a more rapid devolution of fiscal
authority, in the decentralization process currently being undertaken.
This could challenge the government's ability to ensure
fiscally-neutral decentralization.

Fitch will monitor political developments, with a favorable view of
rapid resolution to the current political turmoil, and definition of a
long-term strategy to contain future fiscal challenges and overall
expenditures. Although it currently appears unlikely, the loss of
Finance Minister Javier Silva Ruete from the cabinet could be viewed
negatively unless his successor pursues similar economic policy
objectives. The realization of substantial further concessions,
non-neutral fiscal decentralization, or less market-friendly
regulatory or constitutional initiatives could also pressure the
rating.

Fitch today will publish a special report on Peru, titled 'Peru:
Trouble Meeting Popular Demands' which will be available on Fitch's
web site at 'www.fitchratings.com' in the Sovereigns & Subnational
sector.

CONTACT:

Fitch Ratings

Therese Feng, +1-212-908-0230

Theresa Paiz-Fredel, +1-212-908-0534

Matt Burkhard, +1-212-908-0540 (Media Relations)

SOURCE: Fitch Ratings

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06/11/2003 15:18 EASTERN




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