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Julio Velarde: Peru's Central Bank president, won't be rushed.


"You need to know when to act, and when to stay put," says Julio Velarde, Peru's central bank president. "As soon as a problem arises, many people think you need to respond immediately, when many times the panorama is not even very dear." It's just one of the many lessons Velarde--considered one of Peru's best economic helmsmen--has learned during more than twenty years in and out of government posts, many spent managing his country's monetary policies.

Indeed, Velarde's ability to know when, and more importantly, how to act during some of Peru's most economically and politically challenging rimes are among the qualities that have earned him the admiration of local and foreign business leaders, not to mention rating agencies and investors.

Although Velar&, 60, has held posts in the private and public sector--he has served on the Central Bank's board of directors twice and was once chairman of the Latin American Reserve Fund--business leaders say there's one trait that has remained constant: his unfaltering commitment to maintaining macroeconomic stability and moderate economic policies.

Velarde's reputation in the business community is such that the day he was reappointed Central Bank president by the recently-elected President Ollanta Humala last year, Lima's stock market rose nearly 5 percent (as the world's main stock markets dropped) and Peru's country risk indicator dropped from 185 to 176 basis points.

Business leaders concur that Velarde's reappointment to head the Central Bank by Humala (Velar& was first named to the post in September 2006 by President Alan Garcia) helped ease tensions among investors who were worried about the likelihood of a radical change in the country's economic policies, which were helping to fuel spectacular growth.

As Velarde himself notes: "The growth (rate) we have reached over the past decade is an achievement that I believe no president wanted to put at risk."

Peru's presidential elections last year took place six months after the country had posted GDP growth of almost 9 percent for 2010. In 2011, the country's GDP rose almost 7 percent, and this year it is expected to grow 5.5 percent, which would mark a slight slowdown but is still high when compared to other economies around the world.

Velarde's management of Perus economy during the global financial crisis of 2008 and during the turbulent term of President Alberto Fujimori in the early 1990s, helped catapult him into the international spotlight. During the global economic downturn, Peru's economy actually grew, albeit slightly.

"There was a feeling that the world was collapsing. Peru went from growing 9.8 percent in 2008 to growing 0.9 percent in 2009, which is a dramatic drop, although we were one of the few countries that actually grew in 2009," he says.

Velarde is credited with a number of crisis-averting measures taken during this time of economic chaos, namely measures to avoid deflation and inject liquidity by cutting interest rates from 6.5 percent to an all-time low of 1.25 percent. Other measures included lowering bank reserve requirements.

"There were many moments when there was a lot of pressure to relax the monetary policy. But when you see the growth we've maintained, it was the right decision not to relax it," he says.

Velarde, who has a doctorate in economics from Brown University and has served as dean of the School of Economics at Limas Universidad del Pacifico, has made several "right decisions" during his political career, and many are still bearing fruit today.

In today's environment of slumping world economies, Peru's stable economic and monetary policies, which have led to impressive GDP growth, low inflation, investment-grade ratings, and a strengthening local currenc5 continue to attract emerging market investors.

Velarde's two-year stint as Central Bank director during President Alberto Fujimori's government in the early 1990s also saw him distinguish himself, although the period represents the most difficult time of his political career.

"It was an extremely intense and dramatic rime. Peru was actually a failed state. We had fallen into extreme macroeconomic populism. There were multiple exchange rates and subsidies everywhere," Velarde recalls. "The Central Bank was simply dedicated to financing the government."

Velarde's main goal was to end hyperinflation, which during this period reached 7,000 percent, be notes.

Some of the measures implemented included eliminating subsidies and lifting price controls. "Each new Peruvian Sol, the currency we use today, equates to one billion old Soles. This gives you an idea of the magnitude of the hyperinflation and what needed to be done to control it," says Velarde. "It was crucial that the government get used to not living off the Central Bank's financing."

Another key--and drastic--move promoted by Velarde was to implement a floating exchange rate, making Peru one the first countries in the region to do so. This has allowed the government to set its own internal objectives without external constraints, and has brought more flexibly in dealing with external shocks.

"During the early 1990's, the recommendation of the International Monetary Fund, the World Bank and analysts was to lower inflation by pegging the exchange rate, like Argentina had done. Fortunately, we didn't listen to (these institutions) and we let the exchange rate float."

Experts point to this move as a good example of Velarde's modus operandi. If he doesn't cave in to pressure from big players, like the IMF and the World Bank, investors can rest assured that he will stick to his guns--and his gut--if challenged on the local political scene.., regardless of who is in power.

"There is no right-leaning or left-leaning monetary policy," Velarde says.

--Lisa K Wing reported from Lima
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Title Annotation:BRAVO BUSINESS AWARDS 2012
Author:Wing, Lisa K.
Publication:Latin Trade
Date:Sep 1, 2012
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