Country Report Peru May 2000 Updater

Economic forecast: Exchange rates

The currency has started to recover some of the value lost in 1999 -- when it depreciated by 9% in real terms -- with confidence boosted by progress on the sale of concessions on the Camisea natural gas project. The currency should strengthen in 2000 and 2001, leaving it slightly higher than its end-1999 value in real terms.

Constraints on foreign-exchange supply will ease as export growth accelerates and foreign investment increases. This trend will continue in 2001, resulting in a year-end exchange rate of Ns3.48:US$1, assuming there are no significant external shocks. If the US economy falters significantly, the economy's dependence on private financial flows would leave the currency exposed. We expect currency stability over the forecast period, as investor confidence is likely to return under a new government and an improving external position will enable confidence in the currency to remain relatively high.

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