Peru Debt Status Raised By Moody's

Peru's foreign-currency debt rating was raised to within one level of investment grade by Moody's Investors Service yestreday as the Peruvian government steadily pays down foreign debt. Moody's increased Peru's credit rating to Ba1 from Ba2, bringing it into line with Brazil, Colombia, Panama and Costa Rica. The outlook for the rating is stable, the New York-based company said in a statement. Earlier this year, Fitch Ratings and Standard & Poor's raised Peru to BBB-, the lowest level of investment grade.

Moody's also cited the reduction in the share of dollar- denominated loans and deposits in Peru's banking system. For the first time in more than two decades, dollar deposits account for less than half of all the deposits in the country, Moody's said.

President Alan Garcia has taken advantage of a jump in revenue from metals exports, surging economic growth and the strongest exchange rate in a decade to buy back dollar- denominated bonds. The government aims to reduce its foreign debt to the equivalent of 13 percent of gross domestic product this year from 18.4 percent at the end of 2007. Peru plans to pay down about $1.1 billion of debt ahead of schedule to the World Bank and Inter-American Development Bank this year after paying off close to $1.3 billion of debt in the first quarter.

Peru's economy expanded 10.4 percent in the first half of 2008 after growing 9 percent last year, its fastest pace since 1994.

The average yield gap between Peru's dollar-denominated bonds and U.S. Treasuries narrowed 3 basis points, or 0.03 percentage point, to 2.01 percentage points, according to JPMorgan Chase & Co.'s benchmark emerging-market debt index. Peru's sol rose 0.2 percent to 2.9195 per dollar, from 2.9245 yesterday. Moody's announced the rating increase after the close of Peru's foreign-exchange market.