Private and Confidential: For discussion purposes only The Rise of Latin America and Peru’s stellar performance October 2011

1 Adjustments in the 1980s & 90s paved the way for a golden decade in the 2000s LATAM GDP per-head: recovering lost ground… but still has a long way to goLATAM central banks have done their homework on the inflation front Dependence on external financing has fallen dramatically Development of domestic savings pools have been a supportive development across LATAM

2 LATAM’s fundamentals are strong – FX reserves, fiscal stance & debt composition Boosted by the ToT shock, the region's CBs have accumulated significant FX reserves The region’s fiscal stance has strengthened, and looks great compared to DM Rise in fixed rate debt has helped reduce the region’s vulnerability The regions FX reserves should serve as a current account buffer

3 LATAM benefited from strong terms of trade gains, supporting strong growth However, growth in LATAM has been very strong, but not as impressive if you consider the positive ToT shock … now it is a large share of the population with increasing purchasing power, which should be supportive for commodities in the long run LATAM experienced a very-favorable terms of trade shock over the past 10-yearsChina and India have been a large share of the global population for a long time…

4 Long term portfolio flows should remain supportive for LATAM Portfolio inflows into LATAM should remain strong, as investors increase allocations seeking to diversify risks, while targeting higher returns, driven by a relatively solid fiscal position as well as a favorable growth outlook. Survey responses by US institutional investors suggest planned EM allocations should ris5 ~70% over the next 5 years, providing further support for EM assets.

5 PERU

6 Improvement in fundamentals has made Peru one of the ‘sexy’ EM stories The country has built up a solid FX reserve war-chest Improvement in fundamentals is driving a sustained improvement in credit ratings Peru enjoys a very solid fiscal position Peru registered the 10 th fastest growth rate in the world in ’00-’10 (economies >US$100bn)

7 Peru likely to receive more FDI likely driven by growth + institutional improvements Peru should remain a major FDI destination Peru has a friendly business environment (rank out of 183 countries) Infrastructure spending, both domestic and foreign driven, should be an important growth driver Mining investment is expected to amount to US$40bn in the current decade (Ministry of Mines and Energy) Improving institutions have served to reassure foreign and domestic investors to commit capital to long term projects

8 Risks President Humala has done a good job so far reassuring “portfolio” investors (the ~45% foreign ownership of “soberanos” is proof of that). He must also continue to reassure longer term “real economy” investors to continue to drive infrastructure investments. The smooth negotiation of the mining royalties was a good signal… A hard landing by the Chinese economy would be an important blow to Peru, and most economies with a heavy commodity dependence. The government must keep on building domestic growth generators - among which, continuing to develop the country’s middle class is key. Commodity price volatility is a major risk, as well as a potential reversal of portfolio inflows as DMs tighten currently loose policy (still a long term risk). The country should keep strengthening its balance sheet, as it has been doing.

9 Introduction to Scotia Capital CONTACTS - GLOBAL FX STRATEGY THE MAJORS & PRIMARY CURRENCIES Camilla Sutton Chief Currency Strategist Eric Theoret Currency Strategist LATAM Eduardo Suarez Senior Currency Strategist ASIA Sacha Tihanyi Senior Currency Strategist Should you wish to be added to anyone of our three distribution lists, please reach out to one of the above authors. This report is prepared by The Bank of Nova Scotia (Scotiabank) as a resource for the clients of Scotiabank and Scotia Capital. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which The Bank or its affiliates or any of their employees incur any responsibility. Neither Scotiabank or its affiliates accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report. Scotiabank, its affiliates and/or their respective officers, directors or employees may from time to time take positions in the currencies mentioned herein as principal or agent. Directors, officers or employees of Scotiabank and its affiliates may serve as directors of corporations referred to herein. Scotiabank and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. This report may include forward-looking statements about the objectives and strategies of members of the Scotiabank Group. Such forward-looking statements are inherently subject to uncertainties beyond the control of the members of the Scotiabank Group including but not limited to economic and financial conditions globally, regulatory development in Canada and elsewhere, technological developments and competition. The reader is cautioned that the member's actual performance could differ materially from such forward-looking statements. You should note that the manner in which you implement any of strategies set out in this report may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your legal, accounting and other advisors. Information in this report regarding services and products of Scotiabank is applicable only in jurisdictions where such services and products may lawfully be offered for sale and is void where prohibited by law. If you access this report from outside of Canada, you are responsible for compliance with local, national and international laws. Not all products and services are available across Canada or in all countries. All Scotiabank products and services are subject to the terms of applicable agreements. This research and all information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without in each case the prior express consent of Scotiabank. Scotiabank is a Canadian chartered bank. The Scotia Capital trademark represents the corporate and investment banking businesses of The Bank of Nova Scotia, Scotia Capital Inc. and Scotia Capital (USA) Inc. - all members of the Scotiabank Group. TM Trademark of The Bank of Nova Scotia.

10 The BCRP’s role in the FX market has been more focused on reducing volatility The BCRP is a “heavy intervener,” but intervention is more focused on prudence… reducing the sol’s volatility given still high dollarization in the financial system Dollarization has declined dramatically, but remains high The BCRP has tolerated a gradual appreciation of the sol The sol is one of the least volatile currencies in all emerging markets