Editor’s Note: Peru’s economic stability and its growth potential are generating solid investment opportunities and new investment instruments. Growing expectations for pension funds are good news for Peru’s capital markets.

Buenos Aires, Argentina June 23, 2008

What is the relationship between Scotiabank (SCOTIAC1) and the British fund Aureos Capital to the increase in local currency loans in Peru? You will find the answer in the following lines…

The first thing I want to point out is that Scotiabank has reached an agreement to manage pension funds in Peru after acquiring a 50% share of Profuturo AFP (PROFUTC1), according to the Peruvian newspaper El Comercio. The deal will cost Scotiabank $35 million.

AFP Profuturo was founded in 1993, when pension funds were starting in Peru, and manages the country’s fourth private pension fund (there are four pension funds in Peru). It serves 21% of the total pension fund clients and accounts for 17% of the total market share.

The Peruvian pension fund is a multi-fund system which means affiliates can choose, according to their risk aversion, between three different types of funds. This shows the development of the Peruvian’s pension fund system. Argentina has been debating the possibility of multi-fund systems, but until now it has been impossible to achieve this goal (and it is still a long way from becoming a reality).

El Comercio also noted that during the month of May the dollarization of loans granted by the financial system had decreased in all its segments, totaling 75.24% on mortgage loans, 72.1% on commercial loans, 20.03% on micro-company loans and 19.75% on consumer credit. There are also more people repaying their loans. Levels on delinquent accounts are 0.83% on commercial loans, 3.16% on micro-company loans, 2.55% on consumer loans and 0.81% on mortgage loans.

This dollar loan reduction and the current low delinquency levels are clear signs of a good stable macroeconomic and growth context which makes additional local currency financing possible.

And regarding the private capital fund Aureos Capital (a fund that invests in medium sized companies), the Peruvian press agency Andina interviewed Erik Peterson, the regional manager of the company, last week. He noted the following regarding investment prospects in Peru: “We see a lot of potential in the Peruvian market which is rapidly growing; its economy has one of the highest growth rates in the region; and we feel that this growth is sustainable.”

For Peterson, Peru is transforming itself into a country that interests foreign investors: “We feel that over the long term there is going to be more interest in the capital market sector and among strategists that want to invest in Peru”.

I cannot affirm that those issues mark a definite trend, but they are clear signs of the progress the Peruvian economy has been experiencing.

Moreover those signs also indicate a very good outlook for the development of Peru’s financial system. According to Andina, the pension funds in Peru are growing at a 20% year-on-year rate, a higher level than its regional peers (averaging about 15%) and one obtained by more people entering the labor system… This increased flow of resources to pension funds has to look profitable to investors and we will surely find them in the Peruvian economy and its capital markets (will they invest in Petroperu when this company goes public?)

On the other hand, the increased financing using local currency will encourage a higher loan demand for consumers, investments and mortgages (the latter at a slower pace).

Finally, the economic stability of Peru and its growth potential will probably encourage the development of venture capital and private equity, which in turn will grant access to financing and external support to many companies that rely on investment to grow.

It will be necessary to closely watch the evolution of the financial system in Peru so that good opportunities do not pass us by.

We will meet again tomorrow,

Horacio Pozzo