Peru's economy should continue to expand strongly, boosted by inventory rebuilding, ongoing private and public-sector investments and easy monetary policy, Finance Minister Luis Carranza said Tuesday.

The country's gross domestic product expanded by almost 10% last year but that rate of expansion has weakened sharply this year, reflecting the global downturn. Forecasters expect Peru's GDP to expand by 1.0% to 2.0% this year, and by 4.0% to 4.5% next year.

In a speech at a conference organized by the Council of the Americas and the Americas Society, Carranza said that there is a process of strong inventory rebuilding underway in Peru.

He forecast a rapid recovery in private-sector spending, boosted by loan growth.

"What we have is that with the solidness of the banking sector and of companies, is that loans haven't been falling, instead they have been growing," he said, adding that the construction sector has posted a notably rapid recovery.

The government has implemented a stimulus-spending program, which has helped boost public-sector expenditures by some 30% this year.

"What we have now is a strong increase in public-sector spending and we will see more of this," he added, pointing specifically to the need to boost spending on infrastructure projects.

Carranza also pointed to the Central Reserve Bank of Peru's easing of monetary policy. It has cut the reference interest rate by 525 basis points so far this year to 1.25%.

"It is a good indicator that there will be a strong recovery in private-sector spending in the future," he added.

Also speaking at the conference, International Monetary Fund Deputy Managing Director Murilo Portugal said that Peru had implemented effective counter-cyclical policies that have allowed the nation to stave off many of the negative effects of the global downturn.

He said the downturn affected Peru less, and that the recovery will be "quicker and stronger" than in many other nations.

"Peru has had a very good track record in macroeconomic policy and there has been a very able and timely response of the government when faced with the crisis," IMF's Portugal added.

JP Morgan economist Luis Oganes, at the same event, said Peru's GDP is expected to grow only 1.0% this year and a much higher rate of expansion next year, with growth in various sectors.

Standard & Poor's sovereign ratings director Richard Francis pointed to the country's good fiscal position but also noted that there are a number of drawbacks it faces, including weakness in its political institutions, high poverty levels, low tax revenues, and a high level of dollarization in the economy.

-By Robert Kozak, Dow Jones Newswires; 511-99927 7269; peru@dowjones.com

(END) Dow Jones Newswires

11-03-09 1510ET

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