Peru economic minister says crisis won't derail reform

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LIMA, Peru (Reuters) -- Peruvian Economy Minister Carlos Bolona sought to reassure nervous investors and international institutions on Monday that key privatization programmes and economic reforms were not at risk due to the ongoing political crisis.

"We're going ahead with Camisea, there's no change on Jorge Chavez (airport), because there's always interest and we're in talks," Bolona told reporters after talks with Fujimori, alluding to two key sales attracting international interest.

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Peru announced last week it would hold the twice-delayed auction for a transport and distribution contract for the huge Camisea natural gas field on October 3rd and had several major international groups interested. Peru also hopes to select a winner in an auction for the tender of Lima's Jorge Chavez airport by November 15th.

Other big projects, such as the sale of La Granja, one of the world's biggest copper deposits, are also pending in coming months.

Bolona, an Oxford-educated fiscal hawk whose return to a government he first served in 1991-92 relieved investors, said other scheduled sales -- including residual state stakes in electricity concerns -- would proceed as planned.

The government has an International Monetary Fund-agreed goal of raising $650 million this year in privatization receipts. So far this year around $300 million has been raised, similar to last year's low figure, and analysts say it would be a "disaster" if the government only matched that performance.

Fujimori -- whose drastic 1992 "Fuji-shock" measures to right a collapsing economy cracked down on 7,500 percent hyperinflation -- stunned the nation on Saturday night when he announced a fresh general election as soon as possible, and said he would not run.

Coming just 50 days into a controversial third term in which the president had announced an austerity programme to cut overspending by $125 million and agriculture sector reforms, the uncertainty for a country already struggling to attract private investment could hardly be overstated.

The president's announcement of elections followed a massive corruption scandal in which his shadowy spymaster and right-hand man, Vladimiro Montesinos, was alleged to have bribed an opposition congressman to switch sides.

Markets predictably felt the pain on Monday of yet more political uncertainty in this Andean nation, where around half the 26 million population lives in poverty.

But Bolona said the reaction -- a fall of over four points in Peru's Brady bonds in New York, the bourse's 5.72 percent dive to its lowest level this year and a slide in the sol currency -- was to be expected while uncertainty reigned.

Bolona said his greatest concern was to ensure the crisis was managed in such a way as to minimize pain for investors and to show them "we're on the horse and acting."

Fujimori has yet to give details -- eagerly awaited by the markets -- as to when new elections might be held and one leading supporter said a new president may not take office for up to a year.

"We are taking a great deal of care and playing this down so that (investors) see it's a pretty calm transition, that the economic side is standing firm and that above all we're managing the reforms that are in progress," Bolona said.

"We're not going to let the fiscal side, or the monetary side or reserves, which are in a good state ... get out of hand," he said.

Economists said reforms could not be postponed, and urged political forces across the spectrum to unite behind an economic programme to prevent a damaging disruption to a country that has made great strides in repairing its economy in recent years.

"The Fujimori economic model had earned a reputation for solvency among analysts and investors, but with all this, everything stops and there's only uncertainty ahead," said Robert Keil, an analyst at Duff & Phelps.

"From now on, Peru urgently needs a preliminary political deal between the government and the opposition that will lead to an emergency economic plan. Peru cannot wait -- it's not viable otherwise," he told Reuters.

Despite robust-sounding economic indicators -- Peru's gross domestic product grew 5.8 percent year-on-year in July -- demand remains weak and companies are crippled by debt.

Juan Jose Marthans, a professor at the University of Lima, said that unless there was consensus on an economic programme "growth won't even reach three percent this year."

Fujimori has spoken of growth of up to six percent this year, but Bolona told reporters last week that even growth of 5.0 to 5.5 percent would be positive. Peru has agreed to a 2000 budget deficit goal of 2.0 percent, but Bolona has already said that a 2.1 percent deficit would be acceptable to the International Monetary Fund.

But some economists said all need not be gloom and doom.

"A window of opportunity has opened to correct what we could not resolve at the political level and that was having an economic effect on the country since the government's moral crisis had started driving away investment," said Samuel Gleiser, chairman of Lima's Chamber of Commerce.

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