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Page history last edited by Brian D Butler 11 years, 7 months ago

Table of Contents:





Impact of credit crisis:




Peru’s economy, after five unbroken years of 7 percent annual growth, is slowing as banks cut back lending and currency traders pull out billions of dollars. The country also posted its biggest monthly trade deficit in a decade in October as the deepening slowdown in the biggest economies cooled demand for its copper, zinc, and tin.


Growth forecast cut:

Growth this year, while slowing to 6 percent from an estimated 9.2 percent last year


Stimulus Plan

The government has put in place a $3 billion economic stimulus package for 2009 that aims to tap three years of fiscal surplus and create jobs in the mining, textile and agriculture industries. Peru is the world’s third-biggest producer of copper, zinc and tin, No. 5 in gold and No. 1 in silver and fishmeal.


Investments FDI

Foreign companies are working on $17 billion in investment projects and plan another $18 billion through 2011, while the government plans to award $6 billion in mining, energy, irrigation, ports and airport concessions this year, he said.


Switch to deficits:

Peru, which posted an average fiscal surplus of 2.5 percent over each of the past three years, may report a 0.7 percent deficit this year, its first since 2005, he said.


Exports slump:

Exports dropped for a second month in November on declining sales of copper, gold and natural gas.


Tax revenues fall:

Prices of copper, zinc, lead, silver and natural gas, which account for 60 percent of Peru’s export revenue, have all dropped at least 25 percent since early July.


Changing Euros for Dollars:

Peru aims to sell about $600 million in 30- year bonds and exchange euro-denominated debt that matures in the coming years for longer-term dollar notes...building up Dollar stockpile to weather coming storm.


Raising money in Dollars:

Peru is expected to follow recent dollar debt offerings by Mexico, Brazil and Colombia.


Still, low debt levels:

Peru, which has cut its debt to 23.7 percent of gross domestic product last year from 47 percent in 2003






Position before the crisis (early 2008):

Peru achieved “investment grade” rating by Fitch in 2008, which is an assurance that “you can invest here” for foreign investor. This brings confidence that Peru s on the right track. They have past the Fujimori years, and have put their economy on the “market-reform” track, privatizing industry, and opening up the economy. They have an independent central bank that targets inflation, and is not at the whim of politicians that might want to implement loose monetary policy for populist gains. Alan Garcia is back as president, and this time around, he is showing a deep desire to work with the business community and to continue opening up the Peruvian economy to foreign investors. 

free trade:

Peru recently signed a free trade agreement with the US, and is looking for FTA’s with China and the EU in the future. 

Packenham model for predicting political change:

  1.  Political credibility: Pres. Alan Garcia: high. As a previous president, Alan Garcia gained a reputation as “leftist at heart”, even though he may be a pragmatist today. Based on his affiliation with the APRA party (leftist), he has the ability to do “Nixon-goes-to-china”, by claiming that even he sees that he old ways do not work, and that the nation needs to go along with the market reforms. He has excellent credentials as did Lula in Brazil.
  2. Political system: fragmented. As we saw in Brazil, Peru also has a very fragmented political party system that makes the passing of laws more difficult, and more difficult to push through market oriented reforms.
  3. Leadership skills: good* While in the past, it can clearly be shown that Alan Garcia was a terrible president, this time around he ahs shown very good leadership skills. He is an excellent public speaker, and very charismatic. 
  4. Consensus: low/ med..   This is the really big difference between Peru and Colombia. Where the Colombians are ready, hungry for market reforms…in Peru there is not that appetite for change. The general population and the congress have not the backing of the market oriented reforms like we see in Colombia. I think this is in part due to the hgher poverty levels in Peru and in part due to the lesser integration with outside markets (Colombia is more tied to the US, and dislikes their neighbors). 
In general, I believe that the prospects for Peru to implement further market reforms is quite good, in spite of the low consensus for change, and the fragmented political system. This is due to the very good credentials of the president. If he thinks it is necessary, coming from a leftist (socialist) background, then I believe that he will be successful in getting the polices. 
The defining power of this president, however, is his charisma as compared to his predecessor (Toledo). Toledo also had the credentials, but lacked the leadership skills to implement change. People just didn’t follow him as they will do with Garcia.




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What to look for (international investors):



inflation targeting:  Look for countries with independent central banks, especially if you are going to operate in the country (see our discussion of FDI).   For example,  in Peru, the central bank is independent and is active in inflation targeting (which is not popular, but is good for fighting inflation).  So, in Peru, its unlikely that inflation will come back under 2nd Garcia’s presidency.



Investment grade:  Peru achieved "investment grade" status in 2008, but what does that mean?  Is FITCH saying its "safe to invest in Peru"?.   Will Peru be able to remain investment grade?..... "Peru ’s foreign-currency debt rating was raised to investment grade by Fitch Ratings this week, roughly two decades after Peru defaulted on its debt.  Surging economic growth fueled by record commodity exports and sound fiscal policies boosted the South American country's capacity to repay its debts.  The fact that Peru became investment grade during the ongoing turmoil gives even more hope to Brazil , the other Latin American country on the verge of investment grade.  Check out: “Peru is Investment Grade: Will Brazil Be Next?



free trade:  In recent years, it appears as if Peru has jumped on the bandwagon, and is actively seeking bilateral trade agreements with many countries.  They have one with the USA already  In the works are a Peru – mexico free trade agreement?  On the table.  China, EU….?? Coming.




What to watch out for:


Risk of fall out from (a) the US-based credit crisis of 2007, and (b) potential of a fall in commodity prices


considering potential fall in commodities prices….what is the % risk?  % of stock market?  Has stock market fallen? How dependent is budget on commodities prices?...is there a contagion effect of the credit crunch?


on the other hand....many economists have discussed the decoupling theory that Peru (and other emerging markets) may not be as connected to the US as in the past, and so, a recession there might not harm Peru as it would have in the past....



International disputes 

Venezuela and Peru have strained relations which emerged during the latest Peruvian election. The two countries have broken off relations. Under pressure from Washington, the Peruvian government vowed to eradicate the country’s coca crop. However, in 2005-2007, the area under cultivation increased and now may approach 60,000 hectares. According to the federation of farmers, only half of the coca grown is used to make cocaine, although the government claims that the true figure is 90%. Peru and neighbouring Ecuador have fought over a disputed 50-mile stretch of highland jungle in the Cordillera del Condor region along Peru's north-eastern border, three times in the last 47 years, most recently in 1995. The two nations almost went to war a fourth time in 1998, but pulled back and negotiated a border settlement and peace treaty – brokered by the US, Brazil, Argentina and Chile. In 2007, the government asked the International Court to settle a dispute with Chile over its maritime border.



Border conflict between Peru and Chile 

Border conflict between Peru and Chile




Political risk

Economic disparity and social inequality are related to ethnicity, as well as to geographic location (rural or urban). Among the rural population, 58% are poor, and 34% are extremely poor. A sizable portion of Peru’s youth under 15 years now live in the streets of the country’s cities. Youth unemployment rates are thought to be more than double the national average.  To help in this regard, however, the current government is using the gains from higher mineral exports to boost spending on social programs.  political risk assessment





Background Info for investors:




Peru’s economy grew at an average rate of 4.6% per year during 2000-2006 and the pace has accelerated since then. Presently the economy is in the midst of its longest expansion on record. Most of these gains come from high world prices for minerals. The value of exports has risen threefold in just a few years. Official reserves reached US$16.7 billion in 2006, almost four times the amount of the government’s short-term debt. Poverty remains a serious problem. Only one in three Peruvians has a legally registered job. The proportion of those living on less than US$1 per day has dropped from 17.1% in 2004 to 16.1% in 2006. In rural areas, however, the percentage of those living in extreme poverty has actually risen. But alongside these poverty stricken people is a thriving and growing middle class fuelled by the sizeable informal economy, which is very difficult to measure. Remittances from Peruvians who live abroad also provide a significant income for many families. Remittances are US$1-2 billion per year.


Main industries


Peru's agricultural sector accounts for 6.9% of GDP. The sector employs 40% of the workforce who survive on subsistence farming but farming is also an important earner of foreign exchange. Coca farming, once endemic throughout the region, has been reduced but even now is thought to account for 30% of total exports. Fishmeal and fish oil exports are also significant. Over the past 15 years, Peru has added nearly 400 different export crops in addition to its traditional exports of cotton, sugar cane, coffee and soya. Spurred by rising world demand for ethanol, the sugar industry has also made a dramatic rebound. The growth should continue if access to export markets (especially the US and the EU) can be preserved and if water supplies can be secured. Manufacturing makes up more than 16% of GDP. The sector is widely diversified, including rubber, vehicle assembly, engineering, food processing and chemicals. The government has signalled that it intends to promote textiles and woollen products, given Peru’s strong potential in the industry, particularly for fine wool from alpacas, llamas and vicuña. Peru has been a mining country since pre-Inca times but the sector has become much more important in recent years. In the decade to 2003, foreign mining companies invested some US$6.7 billion in the country. Projects involving potential investment of more than US$10 billion are being explored. Mining already provides more than half of all exports and accounts for around 30% of total tax revenues. The country has vast mineral potential, including copper, silver, zinc, gold, iron ore, phosphorus and manganese but mounting opposition from local groups and environmentalists could delay or even cancel some of these projects.




Peru has proven oil reserves of 930 million barrels and produces 115,000 barrels per day (bbl/d). The country consumes 160,000 bbl/d. Most imports come from other South American countries. Current oil activities are mainly in the northern jungle along the Ecuador border, north-eastern and central Peru and offshore areas. The government has recently established a new royalties schedule and introduced tax incentives in an attempt to increase oil production and attract foreign investment. This new schedule spurred a revival of interest in exploration activities. Peru also has proven natural gas reserves of about 8.7 trillion cubic feet. However, reserves are expected to increase to 15-16 Tcf in the near future. Production is likely to increase sharply in coming years with development of the Camisea natural gas field, the largest in South America.







Important History to know and understand:


Development history:


An important figure in Peru's recent past is Alberto Fujimori, the elected dictator that led Peru to the prospect of a more stable, predictable and perhaps prosperous future. 


Development issue:  would Peru have been able to develop as quickly (or as well) as a democracy?   Did it take a dictator to push through market reforms?  Could the same results have been achieved democratically?   If not, what does that tell us about the value of democracy in the Economic Development of a nation? 









External Links


other wikis:







Link Camara de Comercio Peruano - Americana
Link Prompex
Catálogo de Oferta Exportable 2002-2003.
Link PromPeru
Turismo y Promoción del Peru.
Link Banco Central de Reserva del Peru
Link Instituto Nacional de Estadistica e Informatica
Link Radio Programas del Peru
Radio news service in Peru, now in a WWW edition. Spanish only. Updated daily.






Academic Research Resources


Arts & Culture 


Business & Economy 


Civil Society 






Environment & Sustainable Development 






Human Rights 



  • Ajos y Zafiros Literatura
  • AlFinalDelTúnel Revista de Reflexión y Debate sobre Política y Sociedad Peruana
  • Andean Past University of Maine - Anthropology
  • Buho Rojo Filosofía Aplicada
  • Business Peru Negocios
  • Caretas Actualidad
  • Ciberayllu Revista electrónica de arte y cultura, hospedada en la Universidad de Missouri
  • Coiné Boletín sobre Humanidades de la Universidad del Pacífico
  • Conciencia Revista cientíntifica de la Pontificia Universidad Católica del Perú
  • Cosas Vida Social
  • GenerAccion Portal informativo de la publicaci´on mensual GenerAcción
  • Psirrosis Revista clandestina editada por alumnos de la Universidad Católica del Perú
  • Revista Agraria Publicación del Centro Peruano de Estudios Sociales - CEPES
  • Revista Andina Publicación semestral del Centro de Estudios Regionales Andinos "Bartolomé de Las Casas"
  • Umbral "Revista del conocimiento y la ignorancia"


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Portals, Directories & Search Sites 


Radio & Television 




Travel & Tourism 























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