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Moody's: Peru's A3 rating balances economic strengths with political woes

Moody's A3rating for Peru balances a longstanding track record of economic stability,market-friendly policies and prudent fiscal management with constraints facedby the country from having weak political institutions, the rating agency said ina report.

Thesepolitical constraints include corruption, a weak judicial system, low levels ofeducation and an inefficient bureaucracy, especially at the local and regionalgovernment level, Moody's said. "These issues undermine governability andpolicy execution, detract from the efficient allocation of resources andcontribute to a large informal sector," the rating agency stated.

Noting thatthe country has "a noisy political environment," Moody's said thatsocial conflicts continue to hinder investment and incur economic costs.

However,Moody's expects Peru's credit metrics to remain near their current levels forthe next three to five years, supported by a shift of the country's fiscaloutlook toward low, but sustained, deficits on the back of lower trend growth.

"Althoughthe sovereign's debt ratios will no longer decline on a sustained basis, theywill remain stronger than the median for the 'A' rating category. Debtaffordability, as measured by the general government interest-to-revenue ratio,will remain in line with Peru's peers," Moody's said.