Category Archives: Business

Myth and Reality Slug It Out in the Glorious Vilcabamba

By Nicholas Asheshov

As seems to happen every 500 years, the Vilcabamba is on the move. Once the redoubt of the last Incas, this stand-alone world, the size of a small European country, of deep jungle valleys and aloof cordilleras in Peru’s south-eastern Andes, has become a home to drug runners, and their clandestine airstrips, terrorists, Texas oilmen, Chinese and Italian electricity engineers and, clinging to its eastern gorges, a flood of a million international tourists.


The oilmen are new, on the edge of the Vilcabamba in the Amazon lowlands at Camisea, on the Urubamba. Their pipelines, essential to 21st-century Peru, run west to Lima across the northern Vilcabamba, the Ayacucho highlands. What is new today is there are more, a lot more, of each group, and they are crowding closer together.

The Sendero terrorists work with the drug people, and they also demand and get protection money from the oilmen, kidnaping pipeline workers, killing soldiers and policemen, and dynamiting helicopters. Tourists can no longer feel safe off the beaten track. But even the most dramatic of these, say the shooting down last year of a police helicopter, piloted by a brave woman captain, is a blip compared to the epic violence and calculated cruelty of the events in Vilcabamba half a millennium ago, when young Manco Inca and Kura Ocllo, his beautiful and brilliant sister-wife, were separately tortured and assassinated. Likewise, Spanish friars just as blameless were unbearably tortured by the Vilcabamba Incas for days before dying dreadful, martyrs’ deaths.

The Pizarros and finally Viceroy Toledo in 1572 sent in savage Castilian bounty hunters, who ran Inca Tupac Amaru to earth after a chase through the jungle. Once captured, he was dragged up to Cuzco and summarily beheaded in the Plaza de Armas. By then, the plundering of Cuzco, Vilcabamba and the rest of of Peru had reached, as it had in Mexico, a level of cruelty and greed with, in David Graeber’s phrase, “mythical proportions” seen never before or since. The campaigns in Mexico and Peru were “some of the most ingenious, ruthless, brilliant and utterly dishonourable ever recorded,” he says.


“If the Incas had managed to hold out in Vilcabamba until today,” muses the English Inca authority, John Hemming, “they might be an independent kingdom still, a member of the United Nations.”

The story of the ferocity of the conquest of this culturally distinguished Shangri-La is told in two recent books, translated into Spanish. This is Kim MacQuarrie’s The Last Days of the Incas. Movingly for many Peruvians, FX announced its plan to turn ‘Last Days’ into a 12-part series, describing it with modest Hollywood hyperbole as “one of the world’s great rebellions, led by a couple of teenagers.” That was in 2013, with nothing, since reported in the Hollywood trades publications. The other title is Forgotten Vilcabamba: Final Stronghold of the Incas by Vincent R. Lee, and there’s no hyperbole here. It is one of the great books of exploration in South America, which appeared first in 2000. Separately and together, these two books contain gripping accounts of the events of the last four decades (1532-1572) of the Inca Empire as well as super stories of the machete-swinging exploration that has added a new dimension of blood-stained reality to the dusty, tantalisingly brief and inevitably contradictory archives of the conquest.


In the 1980s, Vincent Lee, an energetic Wyoming architect, opened an entirely new window on the Vilcabamba, and on the wider story of the Inca Empire, with a trio of expeditions aimed at sorting out the ruins and remains of the last, desperate days of the Incas. The Shining Path revolt had begun and few tourists ventured beyond Machu Picchu. Likewise, cocaine was not yet an important part of the picture. The Sendero Luminoso terrorists, known then and now as terrucos, were still a low-grade bunch in the Vilcabamba compared with the tough activists in Ayacucho, Puno and elsewhere. But they and small nervous bands of soldiers nevertheless provide a rumbling background to Lee’s story of tough but good-humoured travel in difficult, spell-bindingly beautiful and ancient country. Lee was trying to solve sets of multi-dimensional archaeological puzzles while fighting rain, cold, heat, bugs and the nagging lack of coffee and pisco.


Lee’s descriptions of each step along crumbling paths merge well with the chronicle accounts written four centuries ago into an always-gripping saga. We slog with him through jungle rivers and over slippery log bridges as he tries to piece together an historical jigsaw of hidden ruins and both old and new accounts of who did what to whom and where. Vilcabamba today is the single most active Sendero zone west of the Apurimac and the world’s single biggest cocaine producer.


The DEA and the Pentagon are setting up a drone ops centre there, according to the Cuzco rumour mill, a reliable source of misinformation for close on five centuries. Cheek by jowl, only a few dozens of miles away, across Vilcabamba’s jungle canyons and frozen cordilleras, on its the eastern, Urubamba side, three thousand international tourists a day brave 18 hours of ancient, narrow-gauge train shuttles to reach Machu Picchu, tourism’s holy grail. These do not always include U.S. nationals. A decade ago, the State Department issued an unusually silly edict prohibiting their diplomats from visiting and warning all their citizens they might be kidnapped and held to ransom in exchange for release of Abimael Guzman, the Sendero version of Mao Tse Tung, sitting in a Callao jail for decades until he died there in 2021.


A modern kidnapping, uncomfortable as it might be, would compare well with what would have happened to hostages 450 years ago. As Lee and MacQuarrie relate, as happened to the ill-fated Padre Diego Ortiz in 1570, you could have been dragged naked for days and freezing nights by a rope plunged through a hole in your jaw, up cliffs and through icy rivers only to have a sharp stake thrust up through your rectum and out your mouth and left for the crows and buzzards to pick out your eyes and liver. Now as then, coca-laden hillsides were spread across the valleys neighbouring the magnificent palazzos of the Inca grandees: Machu Picchu, Choquequirao Rosaspata and Espíritu Pampa. Gary Ziegler and Kim Mallville’s account of Choquequirao, on the Apurimac side of Vilcabamba, 25 condor miles from Machu Picchu, described this world-class site properly for the first time, including its vast coca-producing terraces.


It is here at Choquequirao, or perhaps at Incahuasi, a perfectly preserved Inca solar observatory perched in a craggy gap at 4,000m described by Lee, that we can best appreciate the noble cultural achievements of three millennia of pre-Columbian Andean civilisation. This was on a par, and in some ways exceeded, the highest achievements of contemporary Eurasia. Whatever, it was not a world of savage underdogs.


In the Vilcabamba can be seen, as nowhere else in South America today, the profound links of these cultures to their natural surroundings, the frozen snows of the godly cordilleras, the fertile and well-watered alpine valleys and the hothouse maelstrom of the Amazonian jungles below. John Leivers, an Australian surf master who spent decades exploring Vilcabamba, often alone, tells me that Manco’s capital at Espíritu Pampa is today off limits because the Sendero have set up one or more bases nearby. Army and police posts a bit further downstream are being strengthened.


He was planning a trek to Espíritu Pampa not long ago and decided instead to visit the remote and spectacular Incahuasi, on its stunning ridge high in the Puncuyoc Mountains. Gene Savoy, the American explorer who was the first, in 1964, to identify Espíritu Pampa as Manco’s lost capital, had been told of the Incahuasi, but never been there. Vince Lee’s party in 1984 was the fourth group of explorers known to have reached the site. In “Forgotten Vilcabamba,” he describes it properly with maps, drawings and photos of its fine stonework and superlative setting. Leivers has GPSed the site and says it is aligned on a solstice line with the great sites of the Sacred Valley. “The Vilcabamba has always been underestimated by history,” Leivers says. A good part of the province is technically an archaeological park under the care of the Ministry of Culture, aka the INC. But the INC has hardly shown its face there and the local alcaldes continually bulldoze the once well-preserved Inca roads to replace them with mud tracks for trucks to spin their wheels in.


Today’s international lawlessness and five-star tinsel is an embarrassing, down-at-heel version of the Vilcabamba of the 15th century when the Incas adapted these great valleys into their vision of the Garden of Eden. It is difficult to think of a handful of more elegantly civilized places in 15th century Europe, Tuscany, perhaps, with Leonardo, Lorenzo Medici, than Machu Picchu and Choquequirao, and a bit further upstream, Ollantaytambo and Pisac, with their thousands of wonderfully sculpted terraces. This was a productive, large-scale society, more ordered and orderly than the raucous mess of medieval and post-medieval Europe. This is what the Spaniards found in 1532, and the gold and silver they looted and carried back to Spain provided the liquidity that financed Europe’s take-off from medieval barbarism into whatever you like to call it today.


The Vilcabamba, with Machu Picchu, Choquequirao, Rosaspata and Espíritu Pampa and a network of towns, villages, warehouses, Class A, B and C stone roads and thousands of flights of agricultural terraces was dramatic then as now but really just a typically well-organized section of the Inca heartland. Machu Picchu was not, as many think of it today, an outlier at the end of the line but at the heart of a major zone extending much further on into the Vilcabamba. But with the arrival of the Spaniards, the Vilcabamba acquired a reputation it retains today, rebellious and lawless. This twist, which sees rapacious conquistadores as respectable pioneers while the Incas are turncoat rebels, is still taught in Peru’s schools. as its local version is in the U.S. and Canada, where the indigenous have been depicted as untrustworthy, unreasonable and, above all, outside the law. Vilcabamba’s two main rivers are the all-powerful Apurimac, the longest of the Amazon’s tributaries, and the Vilcanota-Urubamba, the one that plunges below Machu Picchu.


The Vilcabamba contains two great snow and glacier-covered cordilleras as well as three lesser ranges, great deep jungle valleys, high-plumed waterfalls and 3,000-foot cliffs. In my day, half a century ago, there were no roads to the Vilcabamba either on the Apurimac or the Urubamba side. Hiram Bingham had been there, but no one had followed. A steam train powered by an ancient Baldwin locomotive passed by Machu Picchu once a day on its way to the edge of the tropical jungle. In 1963 the National Geographic Society even sent in a couple of special planes, and a team of parachutists to penetrate what it called this “Lost World.” I was a member of the expedition, and eventually, I had to force my way for weeks between thousand-metre cliffs up from the Apurimac to reach the northern ramparts of a still-un-named range of gloomy 15,000 ft. cloud-shrouded mountains.

The first recorded invader of the Vilcabamba was Pachacuti in the mid-1400s, three or four generations before the Pizarros’ 1532 execution of Atahualpa in Cajamarca. Hemming’s account of the Spanish attacks on the Vilcabamba emphasises that there was really only one entrance, which is at what is today Chaullay, at the junction of the Vilcanota, Lucumayo and Vilcabamba rivers. A massive, building-sized boulder was the anchor in the middle of the Vilcanota for a succession of rope bridges. The boulder was swept away by the great 1997 avalanche, which also took away the modern bridge, replaced a few years ago.

Pachacuti’s invasion, recorded by some of the chroniclers, is well recounted by Vincent Lee in “Forgotten Vilcabamba” The book is a classic partly because Lee is familiar with the chronicles and is a respected academic Incanologist, as well as a former U.S. Marine Corps officer, an unusual combination. Unlike, too, most academics, his accounts read easily and unaffectedly. He seems someone you would like to have another beer with. The reader enjoys his casual good humour and uncomplaining confrontation with everything from stone-age jungle indians to drunken, trigger-happy soldiers. But what lifts “Forgotten Vilcabamba” from many exploration accounts is Lee’s accounts from deep in hot valleys or freezing, foggy crags and passes of just how difficult it is to know where you are.

This path up here, or that one down there? Is this wall possibly part of the complex referred to by such-and-such a chronicler? Or maybe it’s an entirely new one. Is this the one mentioned by Bingham? Or Savoy? Which river is this? Is it as described in chronicle X, or is it the one the Spaniards came down in 1572? Is this mountain so-and-so, or are we in another valley? Piecing together different sets of multi-dimensional puzzles, trying to keep your cameras dry, finding somewhere to pitch a wet tent in the rain and find something to eat, or, at least, a swig of pisco, coping with ankle twists, cuts, bruises and worse is similar, I imagine, to being behind enemy lines.


As Hugh Thomson, an English Vilcabamba honcho, has commented, “Vince Lee takes the Incas, but not himself, seriously”. This is a good combination for putting together the written historical record and the stone remains left by the Incas and, as has lately come to light, their Huari predecessors. The result is a fascinating picture of the Inca world as currently understood by archaeologists who have dug into Machu Picchu, Choquequirao, Vitcos and Espíritu Pampa. The last of these is the conurbation, the ‘metropolis’ as Lee refers to it, of the Incas long lost final capital. Lee notes that it was, for the better part of four centuries, much like the mythical Camelot and Atlantis. Hiram Bingham found Espíritu Pampa shortly after finding Machu Picchu but decided that the little he could see of the buildings there were unimpressive, so he stuck to his story that the spectacular Machu Picchu was the Inca capital. It’s difficult to blame him: Machu Picchu is the masterpiece. Also, Bingham saw but a few of the hundreds of buildings shown on Lee’s maps that depict Espíritu Pampa as a true jungle ‘metropolis.


Almost as a side thought Lee and a construction-oriented friend have solved the problem that has foxed archaeologists and everyone else: how did the Incas move and manoeuvre and fit the enormous blocks of pre-shaped limestone at Sacsawaman so precisely? He’s shown how it could have been done with simple wood tools and stone hammers. Several TV documentaries, including a NOVA special, have featured his ideas. The full story is available at his website: Today, Machu Picchu has been savagely reconstructed by incompetent and sometimes dishonest government bureaucrats.


If you compare, for instance, photos taken by Bingham, Chambi and others six or more decades ago with the walls and buildings seen today, two-thirds are not even Inca. But, of course, this matters little to the seething mass of tourists. Still, all is not lost in the noble Vilcabamba. Like Vitcos, Choquequirao and The White Rock, movingly described by Hugh Thomson in his book of the same name, The Inca remains there offer great adventures. Pisac, at the head of the Urubamba Valley, only half an hour from Cuzco, is a fine experience, and there are dozens of small, out-of-the-way ruins which provide a sense of connection and discovery. This feeling of what you might think of as participation with the Incas will be immeasurably heightened by reading the accounts provided by Vince Lee, Kim MacQuarrie, Hugh Thomson, and the acknowledged chieftain of this tough tribe, John Hemming.

This article was first published in Spanish in Caretas in 2013. Not a lot has changed since.

Chinchero — Lost in the Clouds of Poor Engineering, Bad Finance

By Nicholas Asheshov ✐

It seems President Kuczynski is to lay the First Stone of the new Chinchero Airport in Cusco this coming week. If so, it will be the third first stone for this sad project. Presidents Toledo and Garcia have preceded him. Some locals say Presidents Belaunde and Fujimori were others. We have to hope President PPK’s stone suffers the same fate. Chinchero is a disaster waiting to happen.

This week top regulatory officials in Lima resigned in protest at the illegal contracts for the financing for Chinchero. But crooked finance contracts are the least of of what has always been a rotten project.

The Cusco city fathers say they need a new airport. This is incorrect. Their object is to grab the valuable building land of the present airport. But even if Cusco needs  a new airport, Chinchero is easily the worst of the alternatives. The Pampa de Anta, nearby, is incomparably better. Anta is dramatically lower in height and is already runway flat.

Chinchero is outside Cusco  at an oxygen-less 500ms higher, on the road to Machu Picchu.

It started off, as these projects do, with funny money. Four years ago the Cusco Regional Government, run then by ‘Humala associate Jorge Coco’ Acurio, paid $70 million for a 330-hectare string of potato fields on the rolling, cold, cloudy massif of Chinchero.

The lucky owners of the fields were the 426 members of a couple of Chinchero’s comunidades. They received $230,000 for each hectare, making them by far the most expensive potato fields in the world. You can buy a hectare of potato field in Idaho, the world’s biggest potato region, for $5,000 per hectare. In expensive southern England, in Devon and Somerset for instance, the same potato field might cost GBP 10,000, one-twentieth of the Acurio Chinchero price.

The Chinchero potato fields are good for potatoes, beans, a couple of sheep and a burro.  They make a lousy airport. Difficult in fact to find a worse location. The average height of this ancient farmland is 3,700 m.a.s.l. The only commercial airport in the world that is higher is El Alto, at 4,000 m.a.s.l., the airport for La Paz. El Alto can be used only for local one-hour , max 90-minute hops down to Cochabamba and Tarija and Santa Cruz. Arica is a ski-jump away, Lima a hop up the coast. But that’s it. El Alto never will be commercial because planes cannot take off at these altitudes with a full load of fuel and passengers.  You can have either a full tank and just a few tourists or lots of tourists and a few gallons of fuel, enough to get down the hill. In the case of Chinchero, that means Lima. As Newton said, apples fall down for free. Bolivia’s international airport is at Santa Cruz at 400 m.a.s.l. Passengers to and from La Paz to Rio, Buenos Aires, Miami and even Lima go via Santa Cruz. Check the timetables.

It will be the same for Chinchero. The bureaucrats and politicians in Cusco and in Lima, at ProInversion and the Ministry of Transport, have taken to calling it the ‘International’ Cusco airport. This is a lie propagated by the under-funded concessionaire, Kunturwasi.  Flights between Chinchero, if this idiot, foggy project goes ahead, will continue to go via Lima, as they do today and till the next century. With one difference. The tickets will cost $300 more than they do today.

Fog, hailstorms, normal in high mountains, add to the Chinchero danger. The glaciers and snowfields of the Cordillera Urubamba, at 6,000 m.a.s.l., loom over Chinchero. They are just a few miles to the north of the Chinchero potato fields. Picturesque, dramatic. Dangerous.

Technological advances in aviation are focused on electronics and nano materials. But Newtonian physics will not change, whatever the Cusqueño powerbrokers seem to think.

It could not get worse? Yes, it does.

The Chinchero massif is a limestone base. For engineers, this means sinkholes. For instance, the Inca terraces at Moray close to Chinchero at the same height, are sinkholes.  The Chinchero lakes of Piuray and Huaypo reflect the same geology. Engineering studies reflect no deep drilling to assess this risk. A 200-ton airliner will one day  land at Chinchero and open a massive instant hole. Not good.

Cusco road, sewage and electricity services are already pathetic. There’s talk, but no plans exist for new transport between Chinchero and Cuzco, nor Urubamba. Power cuts are almost daily in Urubamba, the province in which poor Chinchero is located, thanks to state-owned Electro Sur Este.

What to do with the 7 million tourists a year promised by President Kuczynski?  Machu Picchu is already at a standing-room-only 5,000, sometimes 7,000 visitors a day. A study commissioned by the government says the max daily entry cannot pass 5,400/day. Call it 2 million per year.

Cuzco thinks, says, it needs a new airport. The present one, Velasco Astete is at 3,250 m.a.s.l., 500ms lower than Chinchero, which is a big difference at these delicate heights.  Velasco Astete, run and owned by Corpac, the government airport authority, consists of 240 hectares of good flat land which could easily and cheaply have its runways extended and expanded, with new terminals and, above all, new electronics. The A219 and A320 used by Latam and Avianca can fly in on self-drive computers as they do routinely, of course, in Europe and North America where the weather, though for sure not the height, is much worse than Cusco ever is.

But the Cusco shakers, the chambers of commerce and the local politicos have other plans for Velasco Astete’s 240 hectares of land, which is only a few minutes from downtown. As building land it is worth already today $1,000/m2, $2,000/m2 before the end of the decade. Use your own fingers to work out how much this free gift of land will be worth to the imperial city’s top dogs.

In theory, the central government (all Peruvians) is owner of the land,  and indeed this is how it should be. But, no, the Cusqueños have already bought it. Under a quiet agreement with former President Humala, the $70mn it paid the Chinchero comuneros is being handed over to the central government in exchange for the 240 Corpac hectares of Velasco Astete.  Acurio was later thrown out of the regional president job by the Cusco Supreme Court for one of several instances of corruption. Acurio is one of the Humala-Heredia team being investigated by state prosecutors for corruption linked to the jailed Mr. Belaunde Lossio for thousands of millions of dollars in state construction contracts.

So Chinchero is shrouded in big money corruption, and should be stopped, investigated on these grounds alone. This apart from its technical stupidity, a characteristic of corrupt projects.

There is a good way for the Cuqueños to have their cake and eat it too. They can do the sensible thing and build a new airport on the Pampa de Anta, closer than Chinchero to their downtown and flat as a tortilla. It needs a few million bucks worth of drainage but none of the expensive earthmoving of Chinchero. Its approaches are no more dangerous than Cusco itself, better actually.

What height is Anta? Same as Velasco Astete, 3,225.

What is the Region Cusco to do with its world-record expensive potato fields, burro grazing at Chinchero? Forget it. The money has long gone on pick-up trucks and on a forest of dreadful cinderblock highrises.

Chinchero is a traditional Andean village with a fine cultural tradition in textiles, with superb views of the cordilleras reaching over to Machu Picchu. Leave it as it is. No airport means tourists will retain as fine a view as any in the Andes. The bells of the charming colonial church will continue to float out over the Inca ruins, the primary schools and the workshops of the internationally recognized weavers.

Nick Asheshov was editor of the Andean Air Mail & Peruvian Times during the 1970s and 1980s, and of The South Pacific Mail, Santiago during the 1990s.  He was Latin America Editor of Institutional Investor, New York over the same period.  He lives in Urubamba, where he writes a blog and where he has been prominent in the hotel and railway business.

This article appeared in the Peruvian Times on  January 26, 2017

Finance Tightens — Peru joins the Troubled Ten

By Nicholas Asheshov

Morgan Stanley has told its clients that its MSCI division, which monitors international markets, is preparing to downgrade Peru from EM, Emerging Market, to Frontier status.

MSCI has also expanded its Fragile Five 2013 list —Brazil, Turkey, India, Indonesia and South Africa— to its Troubled Ten for 2016, to include also Peru, Colombia, Chile, Malaysia and Singapore. MSCI says these countries have new and above-average currency risks. These countries will have increasing difficulty in covering their current account deficits, meaning that debt payments plus imports will be higher than today’s low, slow income from exports.

The party is over.

For Peru it was a good one, by far and away the best in memory. During the first dozen years of this century it catapulted Peru into a respectable new level of economic growth and management. An urban middle class expanded by millions. Poverty in the Andes dropped by millions. Pay levels and property values doubled.

But today in 2015, the rapid growth of China that helped Peru, Brazil and a score of others to flourish is finished. This was signaled last week by an initial 4.4% devaluation of the Yuan, the Beijing currency. It was this that woke up the Wall St. analysts even though the slowdown had started a year ago.

The practical effect is twofold.

One is that China is saying it will need less and pay less for oil, gas, copper, iron ore, lead, zinc, gold and silver. Second, it means that for the coming few years at least, China will be growing not at seven percent, much less the ten percent of earlier years, but more like one or two percent. This is the new normal, like the United States struggling to get higher than two percent a year, Europe which cannot get yet to one percent. China is joining them, just another shambling mammoth.

Peru, though no monster, marches to the same drumbeat. A remarkable part of the past couple of decades, here and elsewhere, is how much has changed for the good despite the weak quality and performance of the government, and the public administration. The ministries and the Central Bank have been slow and often indecisive. There is no sign that they are improving. Out in the provinces it has become seriously dysfunctional.

But this has always been a rough neighborhood. Few other countries in Latin America are any better and some are much, much worse. Brazil’s economy is falling this year as it will in 2016, in the midst of world-class corruption and mountainous mismanagement. Sao Paulo, for instance, has run out of water. Venezuela and Argentina, two of the best-endowed countries in the world, continue to sink into incoherence, apparently endemic. This is a level of political stress from which Peru has notably escaped with no sign of a turn, much less return, to the serious confusion of the 70s, the 80s and the 90s.

The most consistent measure of the perversity of today’s financial markets is in the commodities. These will continue to stay low and to sink. This is not, exactly, because the world is in recession. It is not even that demand for copper, oil, lead, zinc, tin has fallen but that it is not rising to absorb what is coming every day onto the market.

New iron ore mines and oil and gas fields and techniques have opened, paid for with cheap money. The problem is that even cheap money has a price, has to be paid for. The iron ore companies, including Vale do Rio Doce, Anglo American and BHP, have between them issued $200,000mn worth of bonds to finance mines without a market. China was supposed to buy it but is disappearing back into its Oriental mist. A part of this is the heat-hazy nature of Chinese accounting where statistics, profits, loans and taxes are spelled differently in Chinese. The same happened in Japan as of a quarter of a century ago.

Copper is in the same slow boat. In Peru, Toromocho (Chinese), Cerro Verde (Freeport M), and Las Bambas (Chinese), fine mines all, will be getting $2/lb instead of the $4-5/lb they expected just three years ago. Chile, led by Codelco, the state-owned, high-cost mammoth, has it even worse which is why it, too, is being downgraded.

Morgan Stanley says that its downgrade warning on Peru will be confirmed on September. 30 but this is a formality. It means that foreign funds will be selling their investments in companies like the Banco de Credito, Graña y Montero and Buenaventura quoted in Lima, and Peru-based companies quoted in New York and London. Many funds will be selling, too, some of their holdings of bonds issued by companies in Peru. The sums may be impressive. Between 2010 and 2013 alone, US$15,000mn worth of bonds were sold to international investors, according to Bloomberg. Peru is just a part of a bond bubble including China itself, as well as other members of the Troubled Ten.

Similar downgrades are being issued for other countries in Latin America and elsewhere. The government-backed debt of Brazil, not long ago a Wall St. high flyer, has been knocked down to a notch over junk.

This is not the case for Peru, which has just raised $2,000mn on Wall St at only 2.5% more than the rate paid by the United States Treasury. It is remarkable, looking back a couple or three decades, that loans of this size and price should have become routine, merely a note in the middle of the financial pages. The money is needed, this time, to shore up the government deficit that has appeared because of the slowdown of the economy, and they will certainly need more to fill an even bigger tax shortfall in 2016.

Another sign of homebrewed discomfort is that inflation is running strongly higher than the Central Bank’s target of 2%: it is probably higher than six percent. This week Mr. Velarde, executive president of the Central Bank, cited inflation, which he has a constitutional mandate to control, and the exchange rate as among his “growing fears.”

Peru’s Central Bank, the BCRP, and even the lame-duck Humala government, may want to take comfort from being in the same lifeboat as bigger, noisier countries. Peru is only three percent of the dollar investment to Latin America. Another way of looking at it is that Peru is being dragged down by the neighbors.

This is not going to persuade many Peruvians. They will remember that the economists at the Central Bank, BCRP, and the Ministry of Finance, the MEF, were predicting as recently as this past Christmas that Peru would be growing this year at a tear-away 5.6%.

This made no sense (PT, Jan 22 and 29, 2015) but set the scene for inappropriate policies. They should long ago have launched an emergency plan, with low Soles interest rates and a fast-track devaluation of the Sol, from S/.3=$1, as it was at the beginning of the year down to S/.4=$1, before the end of the year. This was the path taken by well-managed central banks like those of Japan and the EU, Canada, Sweden and Mexico. Instead, the Central Bank in Lima has moved the exchange rate only just a tad more than inflation, to just over S/.3.25, burning $1,000mn a month of dollars that are going to be needed 2016-2018. This is allowing bankers here and abroad to buy billions of dollars at a giveaway price. This questionable policy is why Peru has been dumped, as Bloomberg has it, into the bucket of the Troubled Ten.

Forget a recovery, even of the United States

There is no prospect that basic commodities prices will increase for years. Huge iron ore mines in Brazil and Australia will be producing at a loss. Oil will be priced at thirty-something dollars a barrel. Natural gas will be down to prices that only the huge fields in North America, Australia and the Middle East can do.

For Peru as for other third-level hydrocarbon areas, this means that the jungle oilfields and the Camisea gas fields are today, and maybe forever, worthless. They are, in today’s terminology, “stranded assets”, on the books as potential profit centers but in practice valueless.

Peru has great resources and fine prospects, in agriculture, for instance, as well as mining.

But in today’s world, Peru is nowhere for oil and gas. As part of a Peru emergency plan to ride out the recession, the government should close down Petroperu and write off the jungle gas and oilfields. Peru will be able to buy cheaper for years from Mexico, Canada and the United States.

Work on the Southern Peru Gas Pipeline should be halted immediately. This $8,000mn piece of corruption-ridden nonsense, being constructed by Odebrecht, Sao Paulo, whose chief executives are in jail for similar boondoggles at home, should be transferred to the Brazilian taxpayer.

Any expectation that the Peru economy might stay afloat is made unlikely by predictions in Lima, the United States and elsewhere that a big El Niño is beginning. Based on the experience of 1972, 1983 and 1997-8, this will subtract between two and four percent from the country’s output.

The good news is that a capable new government may take control in less than a year’s time, ready and able to turn the progress of the past several years to good account.

Published in English by the Peruvian Times on August 21, 2015.

A Spanish version of this article appears in Caretas No. 2399 under La Fiesta se Acabó. 

Peru Eurobond Issue— A Lemon, Shows Government Financial Confusion

By Nicholas Asheshov

The minister of Finance, Alonso Segura, is patting himself on the back for selling €1bn worth of bonds on the European market at 2.75% above the ECB base rate, which is as everyone knows an eyelash above zero.

This brings the amount borrowed by Peru on the international market this year to the equivalent of $4.5bn, according to official statements. There are two problems, more like half a dozen, with this.

The first is that this latest, huge issue, is going to be thrown straight into the black hole of the government current account deficit. It will not create a single new job. It will not build a meter of road, a school or a first aid post in the Sierra.

Instead, the Central Bank, the BCRP, will be slurping it up in just one month to pay foreign and local bankers to keep the Sol at or near its present damaging, unrealistic, and unsupportable rate — this week a centimo or two below S/.3.30=$1. This brings the devaluation of the Sol against the dollar in these first 10 months of the year to 10%, between a third and a half of the rate of respectable neighbors like Chile and Colombia. This means that dollars are cheap in Peru, and local and foreign bankers are buying them while stocks last.

One of many bad results from this short-sighted expensive policy is that the Peruvian economy has slowed much more than need be. Non-traditional exporters are closing, hundreds of thousands of jobs have disappeared and will continue to disappear long after some sensible action is taken, presumably with a new government at the end of next July. Government economists like to say that government money is different from the Central Bank’s. This is incorrect. It is in one pocket. Economists, like accountants, count the dead and like to put them in neat cemeteries.

The Central Bank has been spending dollar reserves at the rate of $1bn/month for the past two and more years, call it $25 bn though the real figures are fudged by issuing swaps in soles with a guaranteed dollar repurchase.

A second problem with the new Peru Eurobonds is that they are way overpriced, at 2.75%, and much too short, only 10 years. Minister Segura himself said he had received offers for three times the amount, over €4.2bn, a sure sign that they were too expensive, from Peru’s point of view, and too short. If the issue had been properly prepared, he could have sold them at 30 years, maybe more, and with a much lower interest coupon. Crummy risks like Portugal, France, Spain and Italy just pay the eyelash, without the 2.75% These days Peru is a much better risk than these and dozens of others. If the bonds had been 30- or 40-years, some of the cost would disappear into the distant mist of the inflation that will be needed to wipe away today’s round-the-world trillions in unbacked debt, the Greek holes snow-banking through the markets today.

Debt payments impact the budget but are not yet an issue for Peru reserves, thanks to the good fortune and decent management of previous governments. But Peru, like the rest of the world, is facing a future with the certainty that things will be slow for many years. The world economy is not growing even though virtually unlimited quantities of dollars, euros and yen continue to be issued. Today few businesses and governments are using capital or credit to invest in infrastructure like roads, schools and ports. Or in mines and agriculture facilities.

In the United States and Europe governments continue to insist on austerity, meaning roads are not repaired, much less built. In Peru austerity is not a policy but the public works agencies, mostly in the provinces, are not functioning properly. The result is the same. Instead, the economies of the world, capitalism itself, has become distorted, destabilized The only assets that have increased in face value with all the trillions of quantitative easing are shares and bonds on Wall St and the European, Japanese and Chinese bourses.

This is the dangerous financial world through which the government is wandering, babes in a darkening wood. They have been predicting, this past week, for instance, that next year will see Peru growing at 4.2%, according to the Central Bank, 5.6% according to the Ffinance ministry. Either figure is the other side of silly, a warning sign only that they intend to borrow more abroad. The government people did the same for 2015 as a way, as old as the Andes, of papering over the sure-thing hole in their accounts. Peru’s budget deficit is ballooning under the sparse cover of these ‘predictions.’
Today the problem for banks, starting with central banks, is to lend. Borrowing is easy, as the youthful Mr Segura has discovered, at the expense of Peru’s taxpayers over the coming decade. Italy, a financial sinkhole if ever there was one, is paying its bondholders negative rates. These accept this payment because they believe that Germany will pick up the tab. More worrying, the financial markets sense the possibility of deflation where their bonds will increase in value. Italy, by the bye, is the third-largest, after the U.S. and Japan, issuer of sovereign debt in the world and, if it were not for Brussels and the Bundesbank in Frankfurt, would be below Russia and way below Peru on a risk/reward balance, another of the new perversities of 21st century finance.

The new Peru bond issue is not just a mistake in financial strategy but a complete misconception of the world, and the Peruvian economy today. The BCRP in Lima today should be pushing, forcing local banks to lend, soles and dollars, euros, whatever.

Peru is not the same as the dead-in-the-water economies of Western Europe —Eastern Europe is a different animal— Japan and the United States. It could and should have an agricultural export business 10 times, for starters, of today’s: this is a better California. Its metal-working shops have been honed on supplying a big, by any standards, mining province. There is more, like textiles. These can compete easily in today’s ho-hum world economy even with the Peru cost of, for instance, out-of-date labor legislation. But they cannot compete where the Central Bank is gerrymandering the exchange rate —it should today be S/.4.30, not 3.30— and increasing, not decreasing, the cost of bank credit. Both these, devaluation and cheap money, are the only Central Bank options today. With the exception of disasters like Venezuela, Argentina and, increasingly Brazil, everywhere else, bar none, is using them. Right or wrong, this is the world 2015-2020 and Peru’s agro- and metal-based companies are being short-changed by the Lima government, the Central Bank and the four big Lima banks themselves, willing fools in Lenin’s phrase. These have turned themselves for the nonce into expensive exchange houses with the equally willing Central Bank’s approval: anything for P & Q until the new government comes in.

It is a new financial world out there, where it is not exactly that money no longer counts, but it is equally sure that no one any longer can count the money.

First published in the Peruvian Times, November 2, 2015

 

World Bank, IMF Meeting Opens Window for Peru’s Next Step Up

By Nicholas Asheshov

The World Bank/IMF meeting in Lima this coming week is the biggest, most prestigious get-together of the year for bankers and finance people. Anyone who is anyone from anywhere will be here, has to be here, and it is a great thing, for Peru. It puts the country firmly, perhaps a little unexpectedly, on the list of world centers, up there with Rio and Mexico City.

Peru’s finances and politics will take little of the attention of the ten or twelve thousand financiers and camp followers. But the reputation of Peru’s cuisine will fill the restaurants in Miraflores and San Isidro from midday to after midnight. Many of the visitors will want to take in Cusco and Machu Picchu. Good news as it reflects, as with the restaurants, the arrival of first-rate hotel and airline service, a true hospitality industry that did not exist even a decade ago.

The priority of the ministers, the central bankers and their aides will be to get a fix on what is happening to the world economy. They will be looking with increasing concern for guidance, ideas about what to do, once they get home. Not since the Lehman explosion in 2008 have government finance people in the emerging countries had to face the certainty of falling prices, falling production, falling employment and falling income.

Worldwide, only a small handful of countries — starting with India and the United States— is growing. Not much but at least moving forward. Europe and Japan are stagnant, with no immediate prospects of growth as are usually reliable heavyweights like Canada, Australia, and the Scandinavians. This group includes as respectable tail-enders Peru and Chile, Mexico and Colombia, Singapore and Indonesia with, as it may be, Iran about to join in.

The rest, led by Brazil, China, Russia, Turkey, and South Africa, not to mention the Middle East and Africa, are in recession or in open disaster.

Looking for ideas

The delegations from 150-odd countries members of the IMF and/or the World Bank will be hoping to bump into someone, perhaps from the international investment and commercial banks, who can give them ideas about how best to keep afloat for, it has become clear, at least the rest of the decade.

This used to be the job of the IMF and of the World Bank. Not so long ago the World Bank was the main inspiration for public works and infrastructure for Latin America and elsewhere. It was a full-service institution, much more than a bank, providing moral backing as well as technical expertise, funds and guarantees.

The IMF, a similar building of conference halls and honeycombs of offices across M St in downtown DC, provided emergency funds and financial backbone for governments in problems. This included big names like the United Kingdom, not just third world backsliders. It may be that many of the World Bank projects did not work as advertised. Certainly the IMF’s austerity demands often produced pain with little immediate gain. Europe, including Greece today, are inheritors of this tradition. But the notion that orderly public finances and statistics are a good idea and not just an imperialist plot has become standard issue to the enormous benefit of countries round the world, starting with Peru and in this often-bolshie neighborhood, Chile, Colombia, Bolivia, Panama, Costa Rica, and Mexico. It also included during the 1990s and the early years of this century, Brazil as star pupil.

Brazil — the 800-pound gorilla

But this year Brazil has become an 800-pound gorilla. At this Lima meeting it is not China that has already joined the other elephants like Japan and Europe, but Brazil that will be a feature of concerned conversation.

A couple of years ago Brazil had become the world’s seventh biggest economy, a few pounds ahead even of the United Kingdom, a century ago the world’s greatest. Until earlier this year it seemed to the financial markets as though Brazil could treat the commodities slump like a road-repair diversion. It could have been thus. Instead, “We got hit by a turtle,” a disgusted Sao Paulo executive told the Wall St Journal this week. Brazil is turning into an international mega-problem. It is not just that Brazil’s public finances are in tatters. . . Infrastructure like roads and water supply is in deep disarray, with crime rising. National and regional politics, traditionally complex, are disintegrating with the opposition as weak as the government itself.

These days this is not just another colorful third world sad story but one that could detonate a run on the international credit markets This week here in Lima the single biggest topic of discussion will be how to prevent or at least postpone a Brazil debt default.

Not so long ago it was the IMF that could put out the fire. But today the credit markets are huge and unstable. The money that has gone, virtually uncontrolled to companies in Brazil, China, Turkey, and South Africa went often into ventures that do not work, often mines and hydrocarbons facilities which themselves have created today’s low prices. It is no accident that the copper price has moved below its 200-month moving average, setting the tone, too, for the other industrial commodities.

At the beginning of the week, the bonds and other debt issued by Glencore Mining dropped along with its share price by 30%. Glencore, with a long association with Peru through Xstrata and Marc Rich, developer of the massive Antamina and Las Bambas copper mines here, saw its market value at $16bn, down from $80bn earllier in the year, and its debt at just under $50bn — huge numbers and huge dislocation.

Other mining and hydrocarbons companies, including BHP Billiton and Anglo American, are developing the same kind of dislocation between the productive value of their assets and their ability to service the debt paper bought with enthusiasm not long ago by investment and retirement funds in Europe and the United States. Top of the list are Petrobras and Vale do Rio Doce. Petrobras debt today is, at $470bn, 10 times greater than Glencore, one of the world’s biggest.

Wall St analysts say they have always assumed that the Petrobras debt is backed by the government, but famously Brazil’s sovereign debt has itself been marked down by the rating agencies to junk. By coincidence, the foreign debt of Greece is within a dollar or two of Petrobras’ obligations. In the case of Greece, of course, every widow’s mite is going to be picked up by the German taxpayer.

$60 trillion in debt issued worldwide since 2009

These are just straws in the IMF and World Bank’s headwinds this week though, there’s plenty more of the same. For instance the IMF itself has published a report saying that $18 trillion — i.e. $18,000,000 billion, give or take— in bonds and similar have been issued by companies in China, Brazil, Turkey, up from $4 trillion in 2004, and warns that a lot of this is held by US mutual funds. This in turn is part of the $60 trillion in debt that has been issued worldwide as of 2009, over and above whatever it had been before that.

This is the context of the IMF/World Bank meeting here this week. If economies around the world were growing as they did from 2009, then lenders and investors could as usual suspend their disbelief. But the IMF itself has said that it will be lowering, again, its growth forecasts for the coming few years so the lack of connection between reality and the credit markets has become even clearer, China or no China.

For sure the tip-top bankers and economists, investors and traders here are aware, convinced in fact, that it is them and not the elected politicians who are in charge What sets the annual IMF/WB meeting apart is that there is more to it than just international bureaucrats, paper-pushing government officials and the blank-eyed economists and lawyers who run central banks. The juice, and the big money, for this meeting comes from the investment and commercial bankers from Wall St., London, Frankfurt, Toronto, Tokyo, Sao Paulo who come to meet each other as well as government officials. The meetings take place at dozens of cocktail parties, buffet breakfasts and lunches and, naturally, cups of coffee and drinks at the bar. Lima’s main banks, the Credito, Interbank, the BBVA Continental, and Scotiabank are putting on big shows.

Two out of every three years the WB/IMF meeting is held in Washington itself where there is a well-oiled hospitality industry. Traffic is a known quantity. The hotels are geared to big-name conferences. It is easy to get things done. Phones and taxicabs work. Then one in every three years the meeting is held away from home. It might be somewhere well-organized like Berlin. Or Bankok or Lima with dreadful traffic and security worries. Lima is more of an adventure but that adds spice.

There will be real interest for the participants in the Prospects for Peru as an up-and-coming junior BRIC. The collapse of Brazil, joining Argentina and Venezuela, means that Peru, Chile and Colombia will have a chance to shine, to provide, along with Mexico, the main positive focus in Latin America, a valuable door-opener for the coming decade.

First published in the Peruvian Times on October 2, 2015

S&P Shot across the bows for Peru banks and government

By Nicholas Asheshov

The downgrade in New York by Standard & Poors, S&P, of Peru’s banking system last week came a day before S&P whammed the Brazil government debt to junk.

The Brazil move is a much bigger hit to a much bigger player but the Peru bank rating is a new sign that Peru is being priced firmly down even though its numbers are better than those of most of the neighbors.

The bank downslide came days before the Minister of Finance, Alonso Segura, was in New York to try to talk Morgan Stanley’s MSCI unit into postponing its decision, announced last month, (PT, Aug.21, 2015) to push the category of the Lima Bolsa de Valores, the stock exchange, from Emerging Market out to Frontier. Other countries to which this has happened this year include Morocco and Argentina.

Peru’s handful of international-style companies, like the Banco de Credito (BAP), Cia de Minas Buenaventura (BVN), Southern Peru Copper (SPCC), Graña y Montero (GRAM) and Hochschild (HOC) among them, are quoted in New York or London. But the downgrade of the Lima exchange will have a negative effect on the finances of the AFPs, the pension funds which by law are forced to invest in local paper.

A warning and further downgrades

The latest bank ratings are shots across the bows of the government and of its creditors — there is no question about the stability of any of the four main Lima banks, the Credito, the Continental, Interbank and Scotiabank. But it means further downgrades by the New York rating outfits like Moody’s and Fitch are possible as Peru’s economy continues to slow down. The rest of the Emerging and Frontier world is slow and getting slower, too, but the main reasons for the latest S&P bank ratings is the poor performance of the government and of the Central Bank in Lima.

The immediate practical effects are a bruise rather than broken bones. It will add, perhaps, 50 or 100 basis points, getting on for one percentage point, to the still-cheap cost to banks here of borrowing in New York. This is currently around 4% to 5% p.a., a gift by the standards of other times.

The change in status comes, too, as financial markets everywhere see-saw with a general trend down. Commodities, products and companies are being reassessed. De Beers has reduced the price of its latest gem quality diamonds by nine percent. Silver continues below $15/oz, less than half the price of 2013, gold at under $1,100 instead of $1,900, and copper at $2.30, half its price three years ago.

S&P says the quality of the Lima banks’ business will get worse as the economy deteriorates.

This is another way of saying that the quality of the balance sheets of Peruvian companies is seen by S&P as deteriorating too, in line with the mishandling of public finances by the Ministry of Economy and Finance, MEF, and the Central Bank, the BCRP.

Dangerous increase of reference lending rate

Part of the problem is that the Central Bank continues to prop up the price of the Nuevo Sol, spending $1 billion of its reserves every month. Last week it revalued, not devalued, the Sol, from S/.3.31=US$1 to S/.3.21 defying, perhaps with a certain sense of humor, international financial gravity.

In the same vein but even more questionably, the BCRP increased its reference lending rate from 3.25% to 3.50%, signaling too that this will go to over 4.25% next year.

The reason for this startling move is to rein in inflation. It will have, in fact, no effect on inflation though it will slow the economy, increase unemployment even further, raising the possibility of a return of the stagflation of the 1970s and 1980s, a specter that is becoming a reality in Brazil.

Elsewhere, starting with China, those central banks where the reference rate is not already close to zero are lowering rates to as near-zero as they can in a well-established effort to blow life into sagging economies.

The increase by the Central Bank in Lima of the reference rate is dangerous to the point of incomprehensible. The experience of the past five years has been conclusive that the old monetary buttons to control inflation, which rarely worked anyway, today turn out to be a well-aimed shot in the dark straight into the foot. Instead, increasing rates produces in today’s leveraged markets a sharp halt, a sudden stop. With it comes deflation.

This happened famously in 2011 when the European Central Bank raised rates and produced an instant Europe-wide recession. Other countries making the same mistake in the past few years have included Norway, Sweden, Israel and Australia, all of which quickly had to do a U-turn and reduce rates to stave off a collapse in their economies.

Now Peru, with a government and Congress focused on other issues, is allowing a crew of olde economists to make the same mistake.

The Central Bank in Lima also continues to squander its reserves on propping up the price of the Sol. Everywhere else they are cheapening their currencies against the dollar, starting with the Chinese, the ones who are supposed to be buying Peru’s copper, Venezuela’s oil and Germany’s BMWs.

But there are no signs of a recovery in the world economy. The price of copper edged further down towards $2/lb.

At that price Peru’s budget deficit in 2016 will be 5%, as a proportion of GDP, not just the two or three percent that the government says it is projecting. Peru’s government has been in surplus for the past dozen years.

Peru and Brazil

Peru’s situation has some similarities with Brazil. Government finances in both are getting worse due to mismanagement and to the fall in commodities prices.

But Peru’s financial and political problems, however grimy as seen from Lima, are nothing compared to those of Brazil which is already into a solid recession with a surge in inflation.

Another difference is that Peru will have a new government in less than a year. In Brazil it is a lame duck government mired in confusion with the best part of four years to go, and with no Plan B. Peru’s total foreign debt, public and private, knocking on $40 bn, is a tiny figure compared with Brazil. For instance, Petrobras alone owes $135 bn — it is one of the world’s biggest issuers of bonds. The cost of insuring Brazil bonds against default is today as bad as Turkey and Russia. The Peru cost is, rightly, insignificant, a big change from 20 years ago and a huge difference from Brazil, Venezuela, Argentina and Ecuador.

There are two big problems for the Peru outlook. The first is that the world economy shows no sign of improving. The only country in the top ten doing well is India, at 7%, with the United States, Germany and the United Kingdom as also-rans at between two and three percent who dare not increase the cost of government credit from zero for fear of tipping back into recession. Brazil and Russia are in recession and financial distress. China has lost the plot and will be in no shape to rescue the third world or anyone else —Russia for instance— for a decade. The rising China tide that raised commodity boats so far this century is flowing back down and out, taking —for the moment, at least— Peru with it.

Citibank said this week that there is a better than evens chance of a world recession.

There’s not much Peru can do but prepare for this El Niño-sized rainy day.

Instead the government, at the end of its tether, is acting as if it believed its own starry-eyed projections. This includes putting soles interest rates up to slow the economy. The Banco Central economists apparently believe their projection of four percent growth for 2016 even though a recession is a certainty. They are putting on the brakes, the only country in the world to be doing so.

The banks 

Last week S&P said it had revised its Banking Industry Risk Assessment on Peru to group ‘5’ from group ‘4’. S&P also revised its rating for banks operating only in Peru to ‘bbb-‘ from ‘bbb’ due to a higher economic risk.

  • “We revised our economic risk score to ‘6’ from ‘5’. We consider that economic resilience has weakened amid lower growth prospects.
  • “The trend.” on economic risk remains negative because we’re still concerned that rapid credit growth could increase economic imbalances risk.
  • “As a result, we’re lowering our ratings on five Peruvian banks.”

Standard & Poor’s Ratings Services lowered its ratings on the following Peruvian banks: Banco de Credito del Peru; Banco Interamericano de Finanzas S.A.; BBVA Banco Continental; MiBanco, Banco de La Microempresa S.A.; and Banco Internacional del Peru —Interbank.

S&P said it was not, however, marking down Scotiabank —three years ago the Bank of Nova Scotia, the controlling partner, increased Scotiabank’s capital.

The S&P report continues: “The downgrade (of the banking system) reflects our view of rising economic risk for banks operating in Peru. The greater economic risk reflects our reassessment of Peru’s growth prospects. We believe that Peru’s growth trajectory will no longer be consistently well above that of its peers with a similar stage of economic development.

“Also, our trend on economic risk remains negative, reflecting the persistent rapid growth in credit and private-sector leverage in the past few years, which has been weakening the Peruvian banks’ credit quality in the past three years.

“In our view, domestic banks now face tougher operating conditions, which we believe weakened their financial profiles, notably in terms of asset quality and capital and earnings.

“We expect growth to average 3.7% annually between 2015 and 2018 and to average 2.8% in per capita terms, which will protract Peru’s catch-up with more developed peers.

“We now expect Peru’s economic growth to be slower absent more successful concerted efforts to advance structural reforms to keep up productivity improvements and continue to increase social inclusion, such as improving labor market flexibility, infrastructure, reducing bureaucracy and informality, and improving education quality.”

Wall St does not seem to be taking its own warnings about Peru too seriously.

Analysts at Morgan Stanley, the New York bank that is downgrading Peru from Emerging Market to Frontier Post, is recommending clients to buy shares of the Banco de Credito, Credicorp (BAP.N): and predicts an impressive 40% profit by the end of next year.

MS says the Credito offers an “attractive Risk Reward”, predicting that the shares will go from today’s $107 to $150 by the end of 2016.

The MS Buy recommendation came only days after S&P’s rating downgrade of Credicorp from BBB to BBB- because of “rising economic risk for banks operating in Peru,”

“reassessment of Peru’s (lower) growth prospects,” “weakening credit quality in the past three years,” and “persistent rapid growth in credit and private sector leverage.”

MS Peru bank analysts see Peru’s economy accelerating to the 3-4% GDP growth range, fastest among the large economies in Latin America.

Nick Asheshov was editor of the Andean Air Mail & Peruvian Times during the 1970s and 1980s, and of The South Pacific Mail, Santiago during the 1990s. He was Latin America Editor of Institutional Investor, New York over the same period. He lives in Urubamba, where he writes a blog and where he has been prominent in the hotel and railway business. 

This article appeared in the Peruvian Times Sept 17 2015

Sell, Collect your Money, or Go to Jail

Lofty principles, sacred promises, the public interest, the Constitution, and democracy itself are at stake in a heavyweight bout between El Comercio and La Republica. The dispute is about which of them should control Correo and Ojo, two of Peru’s biggest and best newspapers.

By Nicholas Asheshov

(From Caretas)

(From Caretas)

The fight is, of course, about money and power. Today in Peru, unusually, circulation is much bigger and more valuable than ever before. Peru is in the run up to a wide-open presidential election in 2016 and this is one of the first big skirmishes of the campaign.

HumalaMaquillaAmazingly, in the electronic age, Peru is a fast-growing, feisty newspaper market. Millions of unlettered 20th century families have morphed into 21st century householders and straphangers. The straw shacks of two and three decades ago are today brick and cement and not just in Lima but in Arequipa, Ica, Chimbote, Trujillo, Chiclayo, and Piura.

While The Washington Post has had to be rescued by an electronic biz kid who probably doesn’t touch a newspaper from one week to the next, El Trome – El Comercio‘s zappy down-market tabloid – has tripled its circulation in just five years to 650,000. It is read by the new commuters, including the chauffeurs and maids of the people who read and advertise in the Establishment’s El Comercio. El Trome is read by one in three newspaper buyers in Peru. This is over three times more than the numbers who read the company’s flagship El Comercio (94,000) together with its less turgid stable mate Peru21 (87,000).

In Peru, each copy has a readership of perhaps four or five. The Internet has a still-low penetration of around 25%. pe_republica.750

There are, or rather were, three Big Newspaper groups in Lima. These are, or again were: El Comercio, the tough, rich Establishment leader; La Republica, the left wing group; and the Agois-Banchero group’s middle-of-the-road Epensa, featuring Correo and Ojo. Today, Epensa is just a nameplate.

In July, La Republica’s financial backer, Salomon Lehrner, had quietly arranged to buy out the Agois’ 93-year-old major Epensa shareholder, with 54%, for $17.2M, a bargain. In August El Comercio muscled in at the last minute with $18M, including an $800,000 pourboire for Apoyo, its bankers. Still, a giveaway. They got the deal.

Overnight, El Comercio’s share of Peru’s newspaper market went from around 50% to 80%, more than that of Beijing’s The People’s Daily.

Here, in this case, notwithstanding the adage to the contrary, otorongo no come otorongo, as things stand, El Comercio – more, an anaconda than a quick-footed mountain lion – has swallowed, in a single cheap gulp its only competitors, market leaders Correo and Ojo, both of them livelier and more market-friendly than its own products.

This is not good for the newspaper business in Lima. It is, in fact, a disaster. It gives the Comercio group four out of every five newspapers, and the deal would have been unhesitatingly thrown out of Anti-Trust court anywhere in Europe or North America. Anywhere, indeed, this side of Iran. Even Pravda Granma never had 80% of the market.

Correo’s market is A and B, Ojo’s is C and D. Correo and Ojo have been growing, fast. Ojo, a feisty tabloid has doubled its circulation lately to 300,000 Correo is, at 155,00 and growing, easily the market leader in the A and B level, triple that of La Republica, (45,000), the left wing tabloid.

Leaving aside for a moment the unfortunate readers, advertisers today have a choice of ONE. As Henry Ford liked to say: you can have any colour you like so long as it’s black.

Journalists who don’t see eye to eye with the numerous Miro Quesada family, El Comercio‘s patriarchal owners, will be out of luck and a job. Politicians who don’t get the nod from the Miro Quesadas will be in the same boat, offshore and heading west.

The Miro Quesadas say they will not interfere in the journalistic side of Correo and Ojo. As we used to say in Fleet Street, “pull the other one, it’s got bells on.” Rupert ‘The Dirty Digger’ Murdoch, my old employer, said the same when, in London, he bought The Times, The Sunday Times, The Sun, The News of the World and, in New York, The Wall Street Journal, among a hundred others elsewhere. Today his people, courted and employed by every prime minister since Margaret Thatcher, are being sent to jail in London for behaviour disgraceful even by Fleet Street’s flexible standards.

The Miro Quesadas are the cholo version of the Murdoch tradition, memorably cartooned as Lord Copper of The Daily Beast in Evelyn Waugh’s classic Scoop.

For decades the Miro Quesadas carried on a deadly vendetta against the big up-the-workers AAPRA party and have enthusiastically backed every golpe militar within living memory. They helped oust President Belaunde’s democratic government in 1968. Velasco’s military whipped round and nationalised El Comercio as well as the other dailies.

Belaunde, a gentleman, returned El Comercio to the Miro Quesadas the day that he returned- to the Government Palace in 1980.

Today’s El Comercio, with its bland, deviously cryptic front pages, is a well-established formula in Latin America, like the Edwards family’s El Mercurio in Santiago and their equivalents in Buenos Aires and Ciudad de Mexico. A rich, sad bunch of Little Murdochs. The Miro Quesada newspapers do a poor job of reflecting the realities of Peru, one of the world’s most varied, fast-moving, and fascinating countries.

La Republica’s journalistic tradition is a little better, but not much. It was, for instance, anti-Fujimori i.e. anti-political gangsterism. But it has been quiet about the vote-rigging, phony finances, and corruption associated with Presidents Toledo and Humala, its political friends. Salomon Lehrner, a La Republica financial angel, has been a backer of Toledo and Humala and has built up a colourfully disreputable financial reputation, outlined more than once in Correo, over the past few decades.

However, La Republica, an attractively laid out full-service tabloid, is at least livelier than El Comercio. Circulation figures show, however, that it is a poor representative of the 50% of voters who regularly place their confidence in populism, which is what’s left, as it were, of the Socialism of the long-gone 20th century. It is, in the A & B range, outsold three-to-one by middle-of-the-road Correo. It was Correo, for instance, that broke the US$50M Toledo scandal: this features a bankrupt Israeli-Peru financier Josef Maiman, with whom Lehrner has worked closely in the past. Lehrner helped finance Humala’s campaigns in 2006 and 2011 and was Humala’s prime minister for the government’s first months.

Curiously, El Comercio and La Republica are partners in the market-leading TV Channel 4, El Comercio with 70%. This has been returning annual profits of between $15 and $20M, important to La Republica’s cash flow.

Gustavo Mohme, La Republica’s publisher, is a well-established construction figure. El Comercio is associated with Grana y Montero, Peru’s top construction company, quoted since 2013 on the NYSE.

La Republica is understandably upset about losing the Epensa deal. which Lehrner had engineered through a backstreet notary in the no-go Lima district of Puente Piedra. But La Republica’s directors would never have kept their left-wing fingers off middle-of-the-road Correo and Ojo. People with a political agenda, left, right and centre are boring and newspaper readers everywhere, of course, know it.

El Comercio will surely be told by even the most susceptible magistrates. that their protestations of good faith are meaningless, even if they claim that they are nice-guy reformed characters.

The magistrates will, we can hope, crossing our fingers, tell them that they have to sell their new prize, but will tell La Republica that they cannot be the buyers.

President Humala has weighed in on the TV, saying that the purchase of Epensa by El Comercio, “an octopus,” is in every way wrong and that he is drafting a press law. Lehrner and others have chimed in but this would, as we all know, make things worse. The answer is to tidy up Peru’s well-intentioned but confused anti-trust legislation. All that’s needed is to copy the European Union legislation, already in Spanish, under which corporate fusions must be routinely cleared by the regulators, in this case Indecopi, which often works quite well.

FIN

Nicholas Asheshov, Editor for many years of the Peruvian Times and The Andean Report, worked on Fleet Street for Lord Rothermere’s Daily Mail, Rupert Murdoch’s Sunday Times and for the Financial Times, and Institutional Investor. He lives in Urubamba and in 2010 broke Orient Express’s Peru Rail Machu Picchu monopoly.

Published in Spanish by Caretas on Jan. 9, 2014

We all like Chocolate, and it’s good for you

By Nicholas Asheshov

Peru could and should be one of the great chocolate-producing countries, and a new Chocomuseo in Calle Berlin, Miraflores is aiming to push this idea a step further.

The Miraflores Chocomuseo follows the Numero Uno Chocomuseo in Cuzco, a roaring success. I have been to the Cuzco one a couple of times, the latest earlier this week, and it’s full all the time. Here, in an old building in the centre of town just off the Plaza Recojijo, you can watch them roast and grind the cacao beans, known as nibs and add organic sugar produced in Piura, and a score of fillings, from corn and aji to sauco, lucuma, maracuya ,ahuaymanto, raisins, nuts, coconut . There are a few tables where visitors can eat thick, sweet, rich chocolate paste with a touch of aji –a Maya idea– and hot tea made from the husks of the cacao beans.

One of the liveliest features of the Chocomuseo here in Cuzco is the two-hour course in how to make chocolates. You start learning about how and where cacao orchards do best, which is down in the hot-house end of the jungle anywhere it is well over 21º C. and where there’s plenty of water and humidity A couple of hours later you walk away with a simpatico bag of little chocolates that you yourself made by pouring warm paste into moulds where you have put your favorite fillings. Good deal for S/.70 and the tourists love it.

The Cuzco ChocoMuseo was set up by Alain Schneider, a 27-year-old Frenchman, and his partner Clara Isabel Dias, also French. After studying engineering at universities in France and working for Air France, Alain and Clara went to Nicaragua where, after doing NGO work, they set up the first ChocoMuseo in Granada, a colonial town. Then came Cuzco two years ago and, later, Antigua Guatemala, and now Miraflores with more to come in the Dominican Republic, Costa Rica and El Salvador, and doubtless, elsewhere.

Over a cup of, naturally, chocolate, here at the Cuzco Chocomuseo, Alain, told me something of what he has learned about the cacao and chocolate business in Peru, in which he is today an important player.

Alain is one of those charmingly lively French boys, who is also well-organized enough to be running an international network.

“Every three days we have a Skype conference with the managers of each of the Chocomuseos where we go over the figures and discuss what’s working and what’s maybe not,” he says

So here we have the Internet, French chutzpah and talent, and Wall Street producing a charming, lively useful money-spinner which is sure to provide the basis for new businesses, perhaps chocolaty and perhaps not. There’s home-made beer, for instance.

Alain mentions, too, a friend who is setting up a Pisco Museum –we used to call it a bar, but these days it has to be called, something toney.

One of the things that Alain and Clara Isabel have found is that in Peru getting their hands on a steady supply of good cacao beans is not that easy. “An early lot we had from Quillabamba was fine. But the next lot we had to throw away, no good,” he says.

Here in Urubamba, I have had the same experience. The other day I bought a bar of chocolate-cacao paste under the brand name of COCLA, but it was so bad that it went into the rubbish. Cocla is the big coffee and cacao purchasing group based in Quillabamba. This has produced an unusual and certainly unwanted situation. The Cuzco Chocomuseo buys no cacao from down-the-road La Convencion, where a lot of cacao is produced. Instead, Alain Schneider is buying it mostly from a supplier in Tocache, a pueblo on the banks of the great Rio Huallaga, well to the north and downstream, of Tingo Maria. It is here that cacao and chocolate takes on one of two important political roles. As everyone knows tocache is a centre for coca plantations and the cocaine industry and at least until last year, an operations focus for Sendero Luminoso, both feeding off each other. Now USAID and others have been pushing cacao as an alternative to coca, and have introduced a hybrid variety, CCN51 which is a good producer but the flavor, Alain Schneider tells me, is nowhere near as good as the traditional ‘chuncho’ native Amazon varieties.

I first visited Tocache in 1982, riding upstream from Juanjui in a powered canoe that was doing a bus service up and down this great river. Then Tocache was still a sleepy village. Three years later it had a Banco de Credito branch where locals would take in bagfuls of $100 notes and receive, in exchange, Credito bearer certificates of deposit. Twin-engined planes bound for Colombia buzzed across the dawn skies, ushering in an uncomfortable three decades of wealth and violent death.

But today Alain Schneider buys his six tons of cacao beans from Tocache, indicating a much more positive future for one of Peru’s pleasantest and most bountiful regions.

He also buys some in Piura which, although it is on the Coast, is just a couple of degrees south of the equator.

Cacao has another positive political characteristic. It is naturally an Amazon tree and, like coffee, needs shade from higher canopy-style trees, like mango, avocado, and orange. This means it is ecologically better than most other jungle farming, like cattle, soya, sugar and oil palms. All these, like coca for that matter, see the forest razed and replaced with boring mile upon mile of mono-culture, only marginally less damaging to the world than a layer of cement. Under a canopy is how the good cacao, rather like coffee, is cultivated anyway: Other places that produce good cacao include Ecuador and the Caribbean coasts of Colombia, Panama and Costa Rica where the plantations are often right on the beach. Brazil’s Atlantic coast around Salvador de Bahia is also a famous producing area. The big West African and Southeast Asian plantations are pretty awful, however.

Amazon and Central American cacao from the native chuncho criollo and trinitario varieties has a noticeably better flavor and is used for the best Swiss, Belgian and French chocolates. This is partly, it seems, because if it is done properly, the fermentation of the cacao seeds, gives them a flavor that cannot be equalled by the hybrids either here or in Africa.

The fermentation is carried out in boxes with the fruity pulp and then the seeds are dried out in the sun on concrete or hard earth. The seeds are then transported to the United States, Europe, or to chocolate-makers like, now, the Chocomuseo. .

Peru chocolate has been getting a publicity lift from Astrid Acurio, glamorous wife of Gaston, Peru’s maestro chef, under the brand name Melate.

“Our new Chocomuseo in Calle Berlin will, we hope, make Peruvians more conscious of just how good their chocolate can be,” Alain Schneider says.

Also, chocolate is good for you. Studies carried out in universities and health research places in England and elsewhere have proved, it seems, that chocolate is awes choice for couples seeking to increase the quality of their relationship. More research, clearly, needed.

FIN

First published in Caretas in Spanish, the week of September 20, 2012

Planes, Trains and Boutique Hotels

By Nicholas Asheshov

July and August are always the top weeks of what has become a year-round rain-or-shine season for the Cuzco tourism industry though things have been slow following powerful flash floods in January. Global-warming rains suddenly quintupled the volume and speed of the monsoon water in the Rio Vilcanota, the one that wraps around Machu Picchu, slashed out big slabs of the narrow-gauge railway line that chugs tourists from Cuzco over the mountains and down a dramatic canyon to the ruins.

Machu Picchu Cut Off! Tourists are increasingly coming to see other things like the Manu and Iquitos jungles, the Nazca Lines, Lake Titicaca. Whatever: no Machu Picchu, no tourists.

The railway, a concession run by Orient-Express Hotels, OEH, is, six months later, not fully operational but the last 25 miles is open again with crawl-along speeds on the recently-repaired bits. But, hey, who cares if it takes a half-hour extra to get to such a stunning destination. Presumably by next year it’ll be back to rock-a-bye normal where on the only straight stretch top speed at the best of times is 25 mph.

This year, on this evocative little line another change is taking place. The Orient-Express monopoly is ending, a subject on which I am a world authority as a founding Director of Andean Railways Corp, the feisty challenger. We led a ferocious three-year regulatory battle against the PeruRail –Orient Express– monopoly. Today it’s all smiles, a bit guarded for sure, but those of us, starting with Bob Booth himself, who remember the glory days of airline regulation and outrageous protectionism, need no elbow-jogging to know the lengths to which monopolies will rise to keep the bacon to themselves.

The tourist industry in Cuzco has improved enormously in just a few years. Orient Express, a decade ago, brought five-star hotelier skill and style to their Monasterio, Cuzco and Mach Picchu Lodge and, using their panache and marketing zap, completely up-heaveled Cuzco. They quickly trained their amiable but one-star personnel to international levels and raised the comfort bar, with breath-taking prices to match. Good for them and today there’s a lively range from $10 to $1,000. No one in Cuzco, pre-OEH, knew even how to spell croissant. Today the Brescia-Libertador group, together with Starwood, are opening, next door to my own adobe riverside, woodland home, a spiffy $52mn Luxury Collection spa, lovely views of river and snow-peaks up-valley from MaPi itself. Marriott is putting up a new Olde Inca tambo in cobbled Cuzco, and there’s half-a-dozen charming luxury-boutique hotels already open. They meld in well with a daily roster of religious processions and up-the-workers down-the-politicians rallies.

There’s suddenly a flurry of snazzy restaurants with names like “Jack’s” and “Chicha” offering Novo Andino guinea-pig aux fines herbes and carpacho de alpaca. And, Dios mio! Starbucks is opening next to the Catedral. Cuzco’s been a 24/7 party since the beat-bearded ’70s so it’s just getting better. Even Barry Walker’s Cross Keys pub, which recalled the gun-slinger saloon in Star Wars, is in new, non-creaky quarters just off the Plaza de Armas with Manchester xxxx-ale and loos that work.

Today LAN is running 14+ flights a day to Cuzco, using A319s, TACA two (A319,A320), Star Peru two, and Cielos de Peru, a start-up, two more. No night flights, thank goodness. I can remember when CUZ, 11,300ft asl, would get one or two DC-3s and DC-4s wing-tipping it between the glaciers below the summits.

One example of the new upper-crust tourism involved the other day none less than Pedro Heilbron, COPA’s CEO, and Matias Campiani, CEO, Pluna, Montevideo, leading a lively bunch of top Young Presidents from all over: I had pleasant chats with South Africans, Greeks, Mumbai Indians, Francaises and most other breeds. Pedro, together with Alberto Beeck, the Peruvian financier, had asked me to tell them in a fireside chat How to Find a Lost City, an interest of mine since my National Geographic days. I told them that the way not to do it, about which I know a lot, is to look for a blank spot on the map and say, Aha! that must be where El Dorado is. I told them about people, including friends, who had come to a sticky end doing this, and that Brad Pitt and Angelina Jolie are about to shoot a movie in Bolivia about Col. Percy Fawcett, the Lost World Brit who disappeared into the Mato Grosso in 1925.

My new computer-controlled hydraulic Parker-Cummins-powered DMU-autowagons, vaguely reminiscent of a San Francisco tram painted with parrots, is called, of course: The Machu Picchu Train –The Lost City Traveller. They have cost me and my partners slightly less than late-model Dreamliners with the advantage, I suppose, that if they run out of gas at least we can push them home.

Letter from Urubamba, July 23, 2010

Get Ready, Everything’s going to change

By Nicholas Asheshov

How greenhouse warming is going to hit Peru’s deserts, the mountains, the jungle and even Lima is becoming a hot topic.

Here’s the first thing you need to know: No one has a clue what’s going to happen here nor when.

But, Tom Schelling tells me, the second is that make no mistake, “It’s serious” and that everyone has to get together to prepare for it. For a start, “the environmentalists might want to stop talking about future generations and start talking about the poor today.”

Tom is the one-man think tank who won the Nobel Prize for Economics in 2005 and he and Alice, his wife, were staying with us on their way to and from Machu Picchu.

He has also been taking part this week in a conference on climate change run by Richard Webb’s cutting-edge Instituto del Peru at the Universidad San Martin de Porres.

Preparing for the conference, Richard tried to make a list of the different predictions from computers and scientists about what’s going to happen in Peru. But he drew a blank. There have been two or three recent studies, one on the Mantaro valley and another on the Coast and Sierra from Ecuador down to Bolivia, measuring temperature change.

“But it amounts to very little, and little seems to have been discovered about how Peru´s geography will produce either more or less warming than the world average in each region, or how warming will translate into rainfall.”

Pablo Lagos, Peru’s Numero Uno El Niño scientist, at the Instituto Geofisico del Peru, tells me that they have put electronic buoys out into the sea off the North Coast “but the fishermen steal them”.

Here’s a scare story from the past. The most productive epoch of the Moche culture was brought to a vicious end between 536 and 594 by a devastating sequence of 30 years of rain followed by 30 years of drought.

If it happened once it can happen again.

The precision of the dates comes from core samples taken from Andean glaciers.

These same core samples say, too, that today’s mess is speeding up.

Prof. Lonnie Thompson, a leading glaciologist, of Ohio State University, has told the American Association for the Advancement of Science that the Qori Kalis glacier, the main compenent of the Quelccaya icecap in the Cordillera Oriental beyond Lake Titicaca, will have disappeared by 2012. Quelccaya is really high, at an average 5,470 ms a.s.l., and is the biggest glacier in the tropics.

Thompson has been drilling into Quelccaya since the 1960s and the cores date back to the time of Christ. But the disappearance of the ice has speeded up exponentially in the past few years.

“Tropical glaciers are the canaries in the coalmine for our global climate system [they combine] temperature, precipitation, cloudiness, humidity and radiation,” Thompson says.

Tom Schelling is quiet and good-humoured but from Harvard, Yale, the White House and elsewhere his steely mind has been slicing left, right and centre through the verbiage of the public issues great and small of the past half-century, wars, nuclear arms, abortion, drugs, China, Game Theory, race and a score more.

He is professor of foreign affairs, national security, nuclear strategy and arms control at the University of Maryland. His The Strategy of Conflict pioneered the study of bargaining and strategic behaviour and has been one of the most influential books of the past half-century.

He warns today of insect-born disease, food shortages and among others, a rise in the sea level of maybe six metres. Don’t think just beach house.

Tom doesn’t like Bush any more than the rest of us but he too is, famously, against the Kyoto Agreement (1990) because, he says, it’s unenforceable, therefore meaningless. “I told Al Gore he was lucky to lose the election (in 2000) because he would never have got it past the Congress.”

He says that until the United States gets together on a serious plan nothing much is going to happen. “We can’t help or push the Chinese, the Russians, the Indians and the Brazilians if we’re not leading things ourselves.”

He talks of rocketing sulphur into the stratosphere to help block the sun from over-heating the planet. “They don’t want us to know about this because they don’t want us to stop cutting emissions.”

When Tom, who was born in 1921, and Alice returned from Machu Picchu, I asked him how he’d enjoyed himself:

“It was one of the most wonderful days of my life.”

FIN

New train companies to compete on the Machu Picchu line

One new company, possibly two, will be competing with Peru Rail later this year, providing more railroad services on the highly-prized line to the pre-hispanic citadel of Machu Picchu, Peru’s key tourist attraction.

The first company to be granted the license is Inca Rail, formed by the Peruvian company Grupo Crosland and Turistren of Colombia as the operator. According to Juan Alberto Forsyth of Crosland, the company expects to begin the service in October with one triple-car train for 150 passengers and will add two more triple trains by the end of the year.

The second company expecting to be given the green light is Andean Railways Corp, which met the Ministry of Transportation requirements last week and is now waiting for the approval of Ferrocarril Transandino, which operates and maintains the railway line.

ARC’s main operating shareholder is Iowa Pacific Holdings, Chicago, a conglomerate of railway companies operating in Texas, New Mexico, Arizona, Colorado and Illinois.

Nicholas Asheshov, one of the British investors, with Christopher Roper, both with long-standing connections in Peru, told Peruvian Times that Iowa Pacific’s focus is on freight but they have a long-established tourist/passenger company in Colorado and another that specializes in old trains which run all over the US and Canada. Andean Railways aims to corner 20% of the 500,000 tourists that visit Machu Picchu every year.

Both companies plan to offer first-class railcars as well as economy class.

A third company, Wyoming Railway, has been granted a preliminary license but has yet to present its proposals to the Ministry of Transport.

For the past nine years, since the national railway system was privatized, the sole service to Machu Picchu has been provided by Peru Rail, operated by Orient Express Hotels Ltd and owned equally by the famous travel company and Peruval Corp, with interests in tourism, real estate and infrastructure.

However, an antitrust ruling last year by Indecopi, the national copyright and fair competition institute, opened the door to competitors.

Ferrocarril Transandino, as operator of the railway line, has been critical of the Ministry of Transport’s decision to “lower the barriers” to companies it does not consider on a par with Peru Rail.

Raúl Galdo, director of Legal and Regulatory Services at Orient Express, which shares equal ownership of Ferrocarril Transandino with Peruval, told El Comercio, “We’re surprised at the Ministry of Transportation’s flexibility to modify the technical and financial requirements in order to grant operating licenses to companies that otherwise would not have been accepted.”

“Inca Rail, for example,” Galdo said, “has Turistren of Colombia as its operator, a company that operates a 30-mile line on the weekends between Bogota and Zipaquirá. In the case of Wyoming Railway, its operator is Maryland and Delaware Railroad, a company that operates a 120-mile route twice a year for a chicken fair. And in the case of Andean, its operator is Iowa Pacific Holdings, which runs a tourist route between May and October since 2005. We want these companies to enter the route?”

Ferrocarril Transandino has been operating the railway line since 1999, when it won the bid for a 30-year concession to operate, expand and maintain not only the 124 km narrow gauge line to Machu Picchu, but also the standard gauge 800 km line from Matarani and Mollendo on the coast to Arequipa, Puno and Cusco.

Within the next week, it will be posting a bid for timetables. Inca Rail has shown an interest in three daily schedules, while Andean Railways is aiming to request four.

Inca Rail will be running its service between Urubamba, Ollantaytambo and Machu Picchu and has acquired land in Ollantaytambo for its yard. It is investing $4 million, which has included the purchase of the narrow gauge cars in Portugal, for outfitting in Peru. Crosland’s earlier experience in the railway business has been to supply locomotives to Enafer, the Peruvian railway system prior to privatization, and to the former state mining company Centromin as well as to its main client, Southern Copper Corporation. Forsyth stressed, however, that this only involved supply and after-market support, which is why the company brought in Turistren as a partner.

Published April 29, 2008 by

CADE Innovations: Stay tuned for ‘El Nuevo Peru de Antes!’

By Nicholas Asheshov

As business leaders meet in Cusco this weekend to focus on “Innovation” at the Annual Executive Conference, CADE, from the countryside of the Urubamba valley the author proposes looking back for truly radical and practical, high-tech innovation.

Ancient Peru was one of the half-dozen centers of the technological and political innovation that ushered in today’s complex world of great, interdependent cultures.

Unlike the other centers — China, the Fertile Crescent and Egypt, India, and finally the Mediterranean and Western Europe — most of Peru’s innovations, above all in social organization, were lost in the disaster of the Conquest.

Proud, sad bits and pieces of the ancient Andean and coastal cultures remain.  The potato and a half-dozen varieties of maize have been essential parts of the food chain that is feeding 7,000 million people.  China is today the world’s biggest producer of the potato, first domesticated around Lake Titicaca, and of the sweet potato, camote.

Peruvians can reflect, perhaps with mixed feelings, that it was the US$200,000,000,000, at today’s values —the figure comes from Prof. Niall Ferguson’s Civilization: The West and The Rest, published in London earlier this year— that the conquistadors sent back to Europe between 1532 and 1780, which provided the liquidity for the creation of the global economy of the 21st century.

But the precious metals, like the guano, tomato, quinoa, cherimoya and cocaine, are secondary and are in any case not really what we mean by innovation.  The khipu, the cutting-edge strings-and-knots combination of iPad and Registros Publicos — production cost 35 cents— was lost, destroyed maliciously by the priests, the Taliban of the day.  Only 620 remain. According to Prof. Gary Urton, of Harvard, it was much more sophisticated than anything in Europe at the time but they still haven’t cracked its complex code.

Like Machu Picchu, the thousands of miles of all-weather roads, irrigation systems on the coast, tens of thousands of stone terraces and water systems in the valleys and highlands, and the networks of warehouses, these were by-products of the real value of life in Ancient Peru.  This was the lively, aggressive social and political stability that allowed the Incas and a dozen great cultures that preceded them — Chavin, Moche, Tiahuanacu, Huari — to produce societies that were in the front rank of their contemporaries worldwide.

On Lake Titicaca, in the Sacred Valley, and in 50 other valleys like the Colca and the Rimac, the stability and genius for working together of the ancient Peruvians literally remodeled one of the world’s toughest environments.  They consistently created an idealized, civilized world of good order and stability.

No one can look at the massive millimeter-fine, delicately imaginative granite blocks at Sacsayhuaman, Pisac, Rac’chi, Huanuco Viejo, Rosaspata, Sillustani and, naturally, Machu Picchu itself without understanding instantly that for two or three thousand years ancient Peruvians created a purposeful permanence.

The same applies, with obvious local variations, to the great adobe pyramids on the coast.  Perhaps in the same way that today’s costeños are more outgoing than the peoples of the highlands, the costeños produced the flamboyant artistry of the gold- and silver-working of Sipan.

These were productive, often competitive societies whose vision was not just day-to-day or year-to-year, but in some clear way, eternal.  You and your children do not spend a lifetime producing a granite masterpiece just to fill in the time between meals.

Peruvian schoolchildren are not taught about the power and range of their ancestors.

The Incas — schoolchildren in Urubamba, Huancane, Bambamarca and Ayabaca are taught today — were ‘indigenas’.   There is a puzzling political agenda here.  The teachers do not know, do not seem to want to know, about Peru’s long distinguished past.

So my proposal for a first innovation that Peru today might want to consider is to produce DVD and computer programs that will be in every school in the land, every classroom in the country, which will tell the real story of the pre-Conquista past.  They will learn, for instance, of the complex, innovative technology that went into the layered construction of the terraces and hydrological systems they see around them.  They will learn about the networks of warehouses and storage facilities.  When the Spaniards arrived, they found that there was two or three years of food and clothing stored everywhere.

The project includes the creation of computer games called “Build An Andean Empire” and “Run Your Own Coastal Civilization” and, of course, war games like “Incas vs Spaniards.”

Secondary-level kids will move on to “How to Run a Municipality/Region/Country.”

And so on.

The interactive computer programs and movies, modeled perhaps on the science and history programs produced for the NGS, the Discovery Channel, the History Channel and the BBC, will be financed and distributed by the banks and commercial and industrial companies, all of them members of CADE, which will also be in charge of distributing them.  Teachers, including members of SUTEP, will be instructed on teaching the children how to switch them on and off.

Within a few years young Peruvian voters will have a new vision of their country and its possibilities.  Unlike most other countries, including some of the neighbors, they have a history, not to mention a geography, which they can see and touch, second to none. Population: from 1mn to 3mn to 30mn — and now on to 40mn

It is hard to blame today’s governments for not telling the young about the first-class public administrations of Peru half a millennium ago.

The most crushing blow of the Conquest was in the loss of people.  Between smallpox and piratical savagery, nine out of every 10 Peruvians died between 1530 and 1601 when a census registered only one million people, most of them in the highlands.  The coastal peoples had been exterminated.

These population losses were calculated by Noble David Cook in Demographic Collapse: Indian Peru 1520-1620 and Born to Die; Disease and New World Conquest published by the Cambridge University Press.

Peru’s population was to rise painfully slowly to three million by 1911.  All the Peruvians of a century ago would all fit easily into Lima’s Cono Norte today.   As everyone knows, today Peru’s population is 30mn, 10 times greater, in less than four generations.

Inca Peru had 10 million inhabitants, according to Prof. Cook’s best guess.   All of them lived out in what is today the countryside.  Cuzco had perhaps 40,000 inhabitants, less than Huacho today.

The next innovation will be to prepare for a Peru that within another generation will have 40 million people.  Peruvians will be much younger in a decade or two than the Chinese and other Asian tigers and, of course, the already-geriatric Europeans.

The local politicians in Cajamarca, Puno and elsewhere today who are protesting against gold and copper mines are being unusually far-sighted.   They are trying to keep the gold, silver and copper out of the hands both of international bankers and of Lima bureaucrats.  “Water for us, not gold for them,” they shout, and of course we all agree.   The government should instead borrow from the bankers and, noblesse oblige, repay them in worthless paper in 2041 et seq.

A decade or two from now the minerals will be worth ten times their present value and a generation of history-savvy, computer-literate Peruvians will be able to take full advantage of their elders’ foresight.

______________________

This article was published in Caretas magazine the week of November 28, 2011 in Spanish.