Peru Joins OECD in Hopes of Boosting Credit Rating

When you want to improve your credit rating, you make sure to pay your bills on time, check for incorrect information on your credit statement, and avoid making too many new credit inquiries. When you are a South American country, you join the Organization for Economic Cooperation and Development. At least, that is what Peru’s Finance Minister, Alonso Segura, said was Peru’s motivation for joining the OECD. 

When you want to improve your credit rating, you make sure to pay your bills on time, check for incorrect information on your credit statement, and avoid making too many new credit inquiries. When you are a South American country, you join the Organization for Economic Cooperation and Development. At least, that is what Peru’s Finance Minister, Alonso Segura, said was Peru’s motivation for joining the OECD. 

Segura argues that joining the OECD and adhering to its recommendations will help improve Peru’s credit standing by promoting programs and values that strengthen the nation’s financial institutions. Although credit rating agencies recognize Peru’s macro-economic strength, Segura said, they also want to see the nation consolidate its financial policies and institutions. 

“A number of standards shall be met in order to be admitted to such bloc comprising countries with the best credit ratings in the world,” he said in an interview reported by Andina. “Enhancing institutions in Peru is necessary to keep improving its credit rating.”

Standard & Poor’s (S&P) rates Peru at BBB+. Moody’s, on the other hand, rates Peru as A3 for sovereign debt. Like S&P, Fitch’s credit rating for Peru is BBB+. These ratings help sovereign wealth funds, pension plans, and other investors (particularly those buying bonds issued by foreign countries) to gauge the credit worthiness of a sovereign nation like Peru. This, in turn, affects the nation’s ability to raise capital and borrow from other countries or international organizations, like the World Bank. It can also have a big impact on a nation’s borrowing costs

According to Segura, the OECD will suggest strengthening Peru’s financial institutions in ways that will allow both companies and individuals to access more capital at a lower cost. This will leave these individuals and institutions with more money in their pockets as well as providing the means to create more jobs. He believes that being part of the OECD will help Peru to incorporate better public policy and institution-building practices. These should increase the nation’s credit rating by growing its economy and making it more readily capable of paying back its creditors.

Peru’s credit rating is currently considered stable, but not great. The nation experienced some economic turmoil over the last year, as unemployment shot up before beginning a steady decline in the second half of 2015. Likewise, while generally flat, the nation’s GDP growth actually dropped a little in 2015.

Thus, Peru may be in need of capital assistance as 2016 wears on, and would desperately like to attract more business and foreign investment to bolster its economy. An improved credit rating will not guarantee these outcomes, but it can definitely help the nation with its economic development plans.