LIMA, Aug 19 (Reuters) - Any downgrade of Peru's stock exchange to "frontier market" status by index provider MSCI Inc would likely trigger a capital outflow of $1.5 billion to $5 billion within three months, the head of Peru's bourse said on Wednesday.
MSCI said last week that it was considering dropping Peru's current "emerging market" classification because of low liquidity. It said in a statement last week that it is seeking input from investors on the potential change to the higher-risk category and will make a decision by September 30.
"If they tell us we're a frontier market it will take us between 7 and 10 years to become an emerging market again," the president of Peru's stock exchange Christian Laub said at a press conference.
"That's why the situation is serious; that's why we're calling for action," Laub said.
A frontier market is a developing country that is generally too small to be seen as an emerging market.
Laub said he hopes to meet with U.S.-based MSCI in New York next week to propose specific steps Peru can take to boost liquidity within two years in exchange for remaining an emerging market.
The bourse has been discussing new policies with the finance ministry, central bank, market regulator and business chamber, said Laub.
Potential changes include facilitating short selling, allowing automated trading and streamlining taxes with other countries in the Pacific Alliance regional economic bloc, the bourse said.
Lima's select stock index has dropped 12.4 percent since MSCI's announcement last Thursday. The less liquid general index has slipped 8.28 percent.
Several mining companies are listed on Peru's bourse, including Buenaventura , Southern Copper Corp and Volcan.
Credicorp , Peru's biggest holding company, also trades on the index.
MSCI has said countries like Morocco that have been moved to the frontier index find it more advantageous to have a bigger weighting in a smaller index.
Around $1.7 trillion of investor funds were benchmarked against MSCI's emerging markets indexes as of June 2014 compared with $14 billion against its frontier indexes. (Reporting By Ursula Scollo; Writing by Mitra Taj)