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.


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

Nelson Mandela and my Austin Healey

Low riding Healey

Low riding Healey

Urubamba Dec 2013

Caretas – Country Notes

By Nicholas Asheshov

I arrived in Johannesburg a few weeks after Nelson Mandela had been sent off for life to Robbin Island.FOr most of the two million Whites in South Africa, and for many even of the 11mn Blacks, this was a relief, a solution. Mandela was an Extremist, a Communist, a troublemaker…

I had a one-room flat in Hillbrow, a lively bohemian quarter a dozen blocks from the -centre where the offices of the Jo’burg Sunday Times had its offices and where I had found a job as a reporter. Later I transferred to the Jo’burg office of the Associated Press, nearby.

On Saturdays and Sundays I lived it up in the cafes and pubs of Hillbrow and played tennis and swam in the rich swimming pools of the White northern suburbs.

My contact with Blacks was almost nil. When I had arrived, on a flight from Lagos, I was house-sitting for a friend, a lawyer who had the painters in. The painters were, of course, Black. They called me “B’ass” boss. They were nice chaps. Me, just arrived from England and indeed three years in Peru and Brazil, told them, “I’m Nick.”

“Yes, B’ass.”

Later, in my flat in jolly Hillbrow, today black and white and thoroughly dangerous they tell me, I had a plump Black lady, Sophie, who cleaned for me and other people in the building. By then I had acquired a noisy sports car, an Austin Healey two-seater, which had lost its cockpit hood. If it rained, I got wet. I had offered to take Sophie back home to Soweto, the massive Black township. This was not just Brit kindness: I needed an excuse to go there. It was just as prohibited for Whites to go to a Black area as it was for Blacks to be in a White area, like Hillbrow, without a pass. The Pass Law was a cornerstone of apartheid and once I got arrested, by a black plainclothesman, for taking photographs of a roundup of illegals. The black cop did not call me B’ass.

Finally I got Sophie to agree, to the Soweto trip; though she had never seen my car. In the street the dented but gleaming Healey was parked and ready. I opened the little passenger door for her.

She was appalled. “Where am I to sit, Boss?”

The Healey had a tiny thin back sort-of seat for a cat and a thin briefcase. Sophie, was matronly. It had not occured to me, and why would it, that she would never want to sit next to me. The passenger seat, like the driver’s, placed the passenger’s bum nine inches off the road. Sophie could not conceive of sitting anywhere but in the back. She got in but hated every minute of it, especially when we got to the dreary, dry Soweto (South West Township). She refused absolutely to allow me to drive her to her home, children, husband, and neighbours.

In the parks, of Jo’burg, Pretoria, Cape Town, everywhere, the benches, side by side were stencilled ‘Nur Blanke’ or ‘Nur Schwarz’: Afrikaans was the language of apartheid. Buses, trains, restaurants, everything was segregated. Taxi drivers where white for whites, black for blacks.

The Sunday Times, like its sister the Rand Daily Mail, was anti-apartheid. But this did not mean that they were in favour of, of Blacks running the country. Whatever it was that they wanted, it, as we know, never happened.

My lawyer friend was once defending a Portugese carpenter who had been caught having sex with a black girl, a criminal offence. Barry, my friend, asked me to appear as an expert witness to tell the judge that the carpenter in his native Portugal could never imagine that inter-racial sex was illegal. I think he got off, though no thanks to me.

Visiting Japanese were honorary whites. Chinese were also-rans as Coloureds, as were Malays and Indians.

Once I wrote a story, ‘The Case of the Sun-Tanned Settler,’ published worldwide, about a Greek immigrant who was denied entry by the authorities at the port of Durban because he had been suntanning himself on the three-week boat voyage. through the Red Sea and was now too dark.

The potential for violence was not just from the Blacks. Not long after Mandela was sent to Robbin Island, a white teacher called Harris was hanged for a protest bomb, which killed several people in Johannessburg main railway station. The Sunday Times was firmly in favour of the sentence.

At around the same time, a rich English South African farmer shot President Hendrik Verwoerd at point-blank range at an agricultural show, but the shot did not kill him. My friend Don Royle of the AP got the only photograph of the apparently dead Verwoerd, lying on the ground. Verwoerd, a bleak, pompous figure, was widely despised outside the Afrikaner community. His wife was rather dark, and a daughter was clearly mixed race and newspapers were not permitted to run photographs of her.

Nelson Mandela was promoting armed revolution and so was a commie agitator. He was Black, for sure, but it was worse; he was trying to upset the established order where we were on a knife-edge with the Russians and the Chinese Commies.

Not to mention Fidel Castro. The Bomb and missiles were the currency of international conversation. Vietnam was just around the corner. These were the years, 1964-5, when Birmingham Alabama and Martin Luther King Jnr were a centre of the great revolution of the ‘Sixties when not only Blacks but Women and Gays were beginning to emerge as normal people. Indeed, the Young were suddenly, for the first time, flowering all over Europe and the States.

Later I drove my Healey across the wonderful rolling farming country of the Transvaal and Swaziland, British and Black, to Lourenzo Marques, the lively port capital of Mozambique, then still, like Angola, part of the Portugese Empire, under the dictator Salazar — like Franco, a good, upstanding non-Commie.

In Lorenzo Marques I talked to middle-class White anti-imperialists. These all, in South Africa too, called themselves Progressives. In the evenings I joined white South African Boers in the exciting port bars where black girls –and boys for that matter– were, unlike in South Africa, very much part of the scene. What a party! A bit like Brazil. For the first time in a year I got a whiff of wonderful Africa.

Speeding back at night across the lonely, wide-open Transvaal, I flipped the Healey and, unconscious, was rescued by the police who took me to a local hospital. I woke up after a day or two. There were a couple of uniformed cops on my door. They had found pro-Independence — i.e. communist — literature in my car.

Back in Jo’burg, I was ordered to report to the SB, the feared Special Branch, HQ. I was luckier than most. I was released. Evidently I did not belong to what Graham Greene* called famously “the torturable class.” But a week later, I forget how, I was warned and I ran bumpety-bump at 3:00 a.m. in the poor Healey for the airport and caught a cheapo charter seat in an old Constellation four-prop, via Luanda and Majorca, for London.

The Associated Press was not amused. It had not been my job to create problems with the authorities in Pretoria. Luckily,, I got a job on the Daily Sketch, on Fleet St,, a Conservative tabloid owned by Viscount Rothermere and his wife “Bubbles. They evidently considered my flirt with revolution in Africa as just a youthful fling.

It was to be three shameful decades before the collapse of the Berlin Wall allowed Nelson Mandela, who President Obama rightly calls the Liberator, to be released to allow him to give South Africa the beginnings of a chance.


**Greene’s ‘torture’ remark came in Our Man in Havanna. In The Human Factor, a spy thriller, Greene features apartheid Johannesburg including a black girl who escapes with and marries an MI5 Brit who is also a KGB agent.

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.


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

Javier Silva Ruete — Finance, Politics and Charm 1935-2012

By Nicholas Asheshov

(First appeared in the Peruvian Times, Sept. 22, 2012)

Javier Silva Ruete, who died Sept 21 aged 77, was one of the most colorful of the stars that crisscrossed the Lima financial and political stage over the last three decades of the 20th century.

His most brilliant moment came in 1978 when for two years he was Finance Minister for the outgoing military government.  At the time the country’s public finances were in what was, in those days, the usual shambles, but more so.  The military government, under General Velasco, had been in power for a decade and what with the disastrous agrarian reform, gringo-bashing and expropriations, a billion dollars worth of Russian fighter planes and tanks, exchange controls and so on, by 1978 the whole public administration was on its last legs.  General Morales Bermudez, a sensible, distinguished officer —still alive, I believe— had taken over in 1976 and was moving decidedly but cautiously back to democracy.  This was when he called in Javier Silva Ruete.

Javier, then in his early 40s, moved in a middle-of-the-road leftwing ambient, respectable then and now everywhere, and was one of those people whose energy and personal charm meant that he knew everyone.  I remember Claudio Herska, a top Central Bank economist, saying, “Javier is the only person who can pull this together.”  Claudio was right: Javier did.

His first talent, certainly on this occasion, was to bring together a tight team of public-spirited financial and administrative hot-shots.  These ensured, for a start, that before he accepted Morales Bermudez’s request to become Finance minister, he laid down a set of pre-requisites, conditions.  I can’t remember what they were, though he gave me later his version of them, and it had cost Morales Bermudez dozens of cups of coffee during a final overnight negotiating session.   Morales Bermudez himself had been Finance minister for three years around 1970-73 and knew what Silva Ruete was talking about.

Top members of the Silva Ruete team were Manuel Moreyra, who had earlier been the head of the Central Bank’s legal department and who now became executive chairman of the Bank.  General manager of the Bank was Alonso Polar, a quiet, brilliant bridge player.  The head of the Banco de la Nacion, in effect the Treasury in those days, was Alvaro Meneses, another colourful figure who introduced to Peru the Banco Ambrosiano, the Pope’s bank which went spectacularly bust a year or so later when Alvaro’s friend Roberto Calvi was found dead, hanging over the Thames with a rope round his neck and the other end attached to Blackfriars Bridge.

Silva Ruete’s practical, flexible ordering of public finances, carried out by this team while he dealt with the military and civilian politicos, was greatly aided by a rise in copper prices, and of other minerals and metals, during one of the upsurges following the quintupling of oil prices in the years immediately following 1973.  Peru had been, like most countries, in permanent trouble with the IMF but Washington in general was overjoyed to have some non-military, knowledgeable people to talk to and Peru’s fractured relations with the international community, i.e. the banks and aid officials, was quickly patched up by Silva Ruete.

A new constitution was being put together and everyone was agreed that this was to all intents and purposes a civilian government.  Indeed it was, especially compared to the dreadful Chileans, Argentines, Bolivians and only relatively better Brazilians, Uruguayans, Paraguayans, Panamanians and so on.

In this world, Silva Ruete, with an ivory cigarette holder and a friendly, quick touch for everyone, was a real star.  This was only partly because of his ability to look as though he was drinking in every word and was totally agreed with whoever it was.  He and his team, for instance, wedged out exchange controls, still politically sacrosanct, by introducing no-questions-asked Certificates of Deposit in dollars at the  local banks.  Suddenly it was no longer illegal to have dollars.  Some of the sillier import controls were relaxed and, in general, a breath of financial common sense joined, through Javier, with political moves towards elections, which indeed took place successfully in 1980 when Fernando Belaunde lanslided into power.

The loans and commodities boom featured, in 1979, the extraordinary boom in silver and gold prices, a massive scam engineered by a group of international banks and traders led by the Hunt Brothers, from Dallas.  Peru, and Javier Silva Ruete’s financial administration, unwittingly played a key role in this fraud that saw silver —of which, then as now, Peru is a top producer— gazump from $3 the ounce to $50.  Neither Silva Ruete himself nor Manuel Moreyra at the Central Bank realized that there was anything fishy about the sudden rises —but then, nor did anyone else, much less the New York and Chicago regulators.  The Banco de la Nacion was caught, literally, short and had to be bailed out for over $100mn, real money in those days.  (The Belaunde government later, in an operation led by Pedro Pablo Kuczynski [PPK], the Mining minister, successfully went on to sue the perpetrators of the scam under the anti-Mafia RICO legislation of the time).

Silva Ruete, as is often the case with independent, clever minds, was no success as a businessman.  An early venture, for instance, was into the local manufacture of slide rulers just as handheld calculators were coming in and which, for the price of a box of corn flakes, could do the job much better.  He also went into the printing business but that was not a success either.  He always seemed, however, to be able to land a job in the public sector and was Peru’s representative for some years in Washington, or representative of the Andean Finance Corp, well-paid, tax-free jobs of that ilk.  He even had a new fling at the Finance Ministry for a time under President Paniagua and President Toledo a few years ago.

His personal life was, naturally, colorful, starting with a close friendship from student days with Mario Vargas Llosa, and Javier made a cameo appearance as ‘Javier’ in Mario’s super early comedy ‘Aunt Julia and the Scriptwriter’.