We start the year with massive doses of optimism. But there are some risks, which we are going to portrait in the lines below.
FIRST RISK: DEVALUATION
Net exports can start decreasing. Two factors can be distinguished. First, lower commodity prices (-60% vs January 2008) can drop exports. Second, imports will surely increase, due to higher aggregate demand.
The GDP will continue its growing, fueled by expansive monetary and fiscal policy. The problem is, dollar will increase its price. And the BCR (Banco Central de Reserva) is going to spend its net reserves to slow down the higher exchange rate.
When reserves reach critical levels, the devaluation can start.
SECOND RISK: INFLATION
The second risk is nearly associated with devaluation. When devaluation occurs, inflation shows its ugly face. Because our productive structure (manufactures) relays on imported insumes.
In addition, the dollar price is a key economic indicator in the country. With devaluation, all services and manufacturers prices raise. A simple manner to protect earnings.
THIRD RISK: DROP IN NET INTERNATIONAL RESERVES
If the BCR tries to slow down the devaluation pace, net reserves will drop. With net exports declining, the situation can complicate the situation for our country. Specially if we need dollars to pay our external debt.
But theres Hope, foreign investment.
HOPE: FOREIGN INVESTMENT
All this risks can be avoided with investment. Foreing investment will boost growth, and provide massive amounts of dollars. No devaluation. No inflation. No problems.
Its our responsibility to provide economic and social stability to create Trust. That’s one of the first 2009 agenda issues for Peru.