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Peru's Political Crisis Said to Hurt Flows

PERU-- Fund managers in Peru have suffered a major setback as a result of the political turbulence the country has been going through since the beginning of last year. Local mutual funds, for example, are estimated to have accumulated asset losses amounting to $70 million (US) through December.

Juan Carlos de la Fuente, general manager of Aval SAFM, a fund manager in Peru, noted that in late 1999, "the mutual fund industry in Peru was managing assets totaling $500 million (US). However, the electoral panorama at the start of the year, and the political scandal that erupted last September provoked a gradual withdrawal of investors, which at the end of October amounted to nearly $460 million (US)."

Furthermore, de la Fuente predicted withdrawals are likely to have increased still further in November, with the fall of the scandal-ridden government of Alberto Fujimori. Fujimori fled the country in late November following the uncovering of a bribery scandal employed to help him win reelection in 2000.

Mainly institutional investors, both national and foreign, have carried out the withdrawals, he said. In the midst of this situation, however, it is notable that there have been no major withdrawals by small investors, he said.

"A remarkable fact during the year is that individual investors have kept their assets in funds. This segment knows the Peruvian market and are in the same boat together, so they know how to react in political situations like the one the country has been living through," he explained.

Short-run prospects for the fund market are upbeat. De la Fuente forecast that the turbulence would last until shortly after April, the date set for the new presidential elections in Peru.

"I don't see better prospects for funds until April 2001," he said. In this situation, fund manager strategies would likely be aimed mainly at bolstering efforts to attract smaller clients, he explained.

Investments in equity instruments have been hit by the fall in the prices of shares that make up fund portfolios, he said. The fixed-income segment, on the other hand, has not suffered major effects because the interest rate has not led to adjustments in assets despite rising slightly in November.