Titration, Peru, and SWFs. Seriously.

Ashby Monk

I honestly can’t believe how many times in the past few months I have sat down to write a “guess-which-country-is-setting-up-a-new-SWF” post. It’s been crazy, right? Anyone else get the feeling we’ve gone vertical on a titration curve? We seem to be moving very rapidly to a world where sponsoring a SWF is the new ‘normal’. I’m thinking the financial crisis was the ‘final drop’ that set all of this off. Anyway, enough of that! Suffice it to say that SWFs are popping up all over the world.

And the latest country to set their sites on a new SWF is Peru. Fabiola Moura and John Quigley of Bloomberg have the story, which has Finance Minister Ismael Benavides saying that he will tap the country’s forex reserves for a new fund:

“We have not only reserves but extraordinary revenues from mineral exports…We might come up with something in the first quarter next year.”

The plan is apparently to have the new SWF up and running by July, which means it will arrive just before the end of President Alan Garcia’s second term. I have to say, this is a tad ironic. Recall that in his first term, which was from 1985 to 1990, Garcia was largely remembered for Peru’s economic woes. For example, he couldn’t seem to put a stop to some rather pesky inflation, which reached a cumulative total of something in the range of two million two hundred thousand percent for the five years. In other words, it was ridiculously bad. Mugabe bad.

But, that’s all changed now, as Peru has one of the best performing economies in the world. In 2009, it grew faster than China! And to top it off, the country has managed to accumulate $44 billion in forex reserves, which will now help to finance the new SWF.

Given that three of Peru’s neighbors have SWFs (or are in the process of setting them up), it’s easy to see how these policymakers got the idea. (Pop geography quiz: Who are they? First one to get the answer receives free access to this blog for life!) Let’s kick it back to Moura and Quigley:

“The fund would be modeled after a $12.8 billion fund Chile created in 2006 to hoard windfall profits from surging copper prices, Benavides said. Peru is the world’s largest producer of silver and second-largest producer of copper after Chile. Metals accounted for 62 percent of exports in the first half of 2010.”

Anyway, we can now add Peru to our list of SWF sponsors. Remarkable!

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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