July 13, 2008 / 5:01 PM / in 10 years

UPDATE 2-Peru's new finance minister an IMF veteran

(Adds background, link to factbox)

By Jean Luis Arce

LIMA, July 13 (Reuters) - Peruvian Finance Minister Luis Carranza will formally resign on Monday and President Alan Garcia will name a market-friendly economist as his successor, two aides to the president said on Sunday.

Garcia will swear in Luis Valdivieso, who has worked for years at the International Monetary Fund, as the new chief of the Andean country’s economy, the president’s aides said.

Carranza has been finance minister for nearly two years and is liked by investors who laud him as the architect of Peru’s economic boom. Cabinet aides said earlier this month Carranza was talking of leaving, apparently to return to the private sector where he had worked for banks.

The aides, who did not want to be named, spoke to Reuters as Carranza met with Garcia at the presidential palace on Sunday. Carranza waved and smiled at reporters as he left the meeting, but made no comment.

Valdivieso’s expected appointment has generated positive reactions from investment bankers, who said he would likely keep tight fiscal policies in place.

But some labor leaders said they did not like him as a choice since he would likely continue the policies of Carranza, which they say have not done enough to reduce Peru’s poverty.

Peruvian ministers typically submit their resignations twice a year to give the president a chance to reshuffle his Cabinet, but Garcia has said publicly that he was not asking Carranza to leave. Garcia is not expected to make any other major changes in his cabinet.

Carranza has overseen surging annual growth of 9 percent, liberalized trade rules, and helped keep inflation at around 4 percent a year while consumer prices have risen much faster in other Latin American countries.

The outgoing minister won support from Garcia at a time when mainstream economics are under attack in much of Latin America, with critics saying they hurt the poor.

Peru’s poverty rate hovers near 40 percent and critics of the government say it has not done enough to bring the benefits of the boom to workers and the poor.

Valdivieso, who has spent nearly three decades at the IMF, helped design Peru’s economic stabilization program of the early 1990s, when then-President Alberto Fujimori tackled hyperinflation left by his predecessor, Alan Garcia.

Garcia’s first term, from 1985 to 1990, ended in economic chaos and though he was once a harsh critic of the IMF, he has firmly embraced free markets, fiscal prudence and foreign investment in his second term.

Since taking office again in 2006, Garcia has helped Peru to become one of the world’s fastest-growing economies, increase foreign reserves to record levels, and earn an investment-grade credit rating from Fitch. For more on Valdivieso, click on FACTBOX [ID:nN13373578]. (Additional reporting by Enrique Mandujano and Marco Aquino, writing by Terry Wade, editing by Maureen Bavdek, Toni Reinhold)

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