Peru wins third investment grade rating

* Peru's fiscal position and debt management praised

* Moody's says social, political risks still high (Recasts throughout, adds quotes from finance minister, dateline previously NEW YORK)

Peru clinched its third investment grade rating from a major credit evaluation agency on Wednesday, with Moody's praising the country's ability to withstand the global downturn better than some of its peers.

Finance Minister Luis Carranza, who pioneered the ambitious plan that paid down foreign debt early and prompted upgrades by Fitch and Standard & Poor's last year, said the Moody's rating would help long-term growth.

Moody's analyst Mauro Leos said that Peru, which is one of the few Latin American economies expected to grow this year, emerged as a "winner" from the international financial crisis.

He raised Peru to Baa3 from Ba1 at a time when rating agencies have slashed Mexico, which was once considered one of the most stable economies in the region but has recently been supplanted by Brazil.

"As with other sovereigns that have been recently upgraded, the decision to raise Peru's foreign currency ratings was driven by indications of increased shock-absorption capacity relative to similar or higher-rated sovereigns," Leos said.

Carranza, at a hastily arranged news conference, said, "This is crucial because it will allow for lower borrowing costs and increase investment flows, and all of this will contribute to higher growth."

A stimulus package that Carranza has tried to roll out has been hindered by delays, but Peru's economy is nonetheless seen expanding around 1 percent this year.

That is far less than the 10 percent surge of 2008. The government forecasts growth will rebound in 2010 to around 5 percent as prices rise for metals exports, the economy's traditional engine.

SOCIAL, POLITICAL RISKS REMAIN

Despite the good news, economists said the poverty that afflicts a third of all Peruvians, social tensions over natural resources, and elections in 2011 that could alter the political landscape still pose considerable risks.

President Alan Garcia has feverishly pushed foreign investment and free-trade pacts, but critics say his emphasis on mining and oil development have not lifted incomes fast enough.

In his first term in the 1980s, Garcia was ridiculed by investors for letting inflation run wild and defaulting on foreign debt. Now in his second term, he has adhered to policies aimed at keeping inflation low and the country's fiscal house in order.

"This is deserved by Peru, which has come a long way improving its fundamentals, reducing its deficits and building forex reserves." said Nick Chamie of RBC Capital Markets in Toronto.

"To be honest they need to improve the institutional aspects of Peru's environment, both the political institutions and the some of the social institutions. Social tension has to be eased," he added.

Peruvian economists said the upgrade by Moody's, while expected, also showed that rating agencies are increasingly attuned to the diversity within emerging markets.

"What this reaffirms is that as emerging economies were submitted to the stress of the international crisis, some have been able to withstand the impacts and come through in good shape," said Hugo Perea of BBVA Banco Continental in Lima.