Economy of Peru

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Economy of Peru
Currency	Peruvian nuevo sol (PEN)
Fiscal year	calendar year
Statistics
GDP	$253.847 billion[1]
GDP growth	9.2% (2008 est.) 11th in the world
GDP per capita	$8,723 PPP[1] (2010 est.)
GDP by sector	agriculture: 8.5%, industry: 21.2%, services: 70.3% (2008 est.)
Inflation (CPI)	1.8% (2007)[2]
Population below poverty line	▼ 35.2% (2008)[3]
Gini index	▼ 47.9 (2008) 26th in the world
Labour force	10.2 million (2008 est.)
Labour force by occupation	agriculture: 0.7%, industry: 23.8%, services: 75.5% (2005)
Unemployment	8.4% in metropolitan Lima; widespread underemployment (2008 est.)[4] 112th in the world
Main industries	mining and refining of minerals/jewels; construction, cement, machinery, automobile industry, trucks, buses, motorcycles, steel, metal fabrication; Oil well and petrochemicals refining, livestock, apparel, aluminium materials, natural gas, fishing and fish processing, textiles, sugar, milling, software, clothing, food processing, brewing, real estate, aircraft, salt extraction, shipbuilding, tourism
External
Exports	$32 billion (2008 est.)[5]
Export goods	copper, gold, zinc, crude petroleum and petroleum products, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, machinery, cement, textiles, coffee, potatoes, asparagus, guinea pigs
Main export partners	United States 31.1%, China 10.8%, Chile 6.6%, Canada 5.9%, Switzerland 4.6% (2005)
Imports	$15.38 billion f.o.b. (2006 est.)
Import goods	petroleum and petroleum products, plastics, machinery, vehicles, iron and steel, wheat, paper
Main import partners	United States 18.2%, China 8.5%, Brazil 8%, Ecuador 7.4%, Colombia 6.1%, Argentina 5.1%, Chile 5.1%, Venezuela 4.1% (2005)
Public finances
Public debt	$57.6 billion (2008 est.)
Revenues	$38.83 billion (2008 est.)
Expenses	$35.5 billion (2008 est.)
Economic aid	$491 million (2002)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

The economy of Peru is the 47th largest in the world,^[6] Peru is an emerging,^[7] market-oriented economy characterized by a high level of foreign trade and a high level of inequality, as its economy depends on commodity exports, it's centralized in Lima and benefits a small percentage of the population. In 2010 Peru's per capita income (PPP) is bordering $10,000.^[1] Peru has a Human Development Index score of 0.806;^[8] 36.2% of its total population is poor, including 12.6% that is extremely poor.^[9] Poverty has steadily decreased since 2004, when nearly half the country's population was under the poverty line.^[10]

Historically, the country's economic performance has been tied to exports, which provide hard currency to finance imports and external debt payments.^[11] Peru's main exports are copper, gold, zinc, textiles, and fish meal; its major trade partners are the United States, China, Brazil, and Chile.^[12] Although exports have provided substantial revenue, self-sustained growth and a more egalitarian distribution of income have proven elusive.^[13]

Services account for 53% of Peruvian gross domestic product, followed by manufacturing (22.3%), extractive industries (15%), and taxes (9.7%).^[14] Recent economic growth has been fueled by macroeconomic stability, improved terms of trade, and rising investment and consumption.^[15] Trade is expected to increase further after the implementation of a free trade agreement with the United States signed on April 12, 2006.^[16] Inflation in 2006 was the lowest in Latin America at only 1.8%, but increased in 2007 as oil and commodity prices rose; in the first half of 2008, it had reached about 5.5%.^[17] The unemployment rate had increased to 8.8% by January 2009; the current average wage in the country is 1,047 nuevos soles.^[4]

Peruvian economic policy has varied widely over the past decades. The 1968–1975 government of Juan Velasco Alvarado introduced radical reforms, which included agrarian reform, the expropriation of foreign companies, the introduction of an economic planning system, and the creation of a large state-owned sector. In 1990 the neoliberal government of Alberto Fujimori ended price controls, protectionism, restrictions on foreign direct investment, and most state ownership of companies.^[18] Reforms have permitted an economic growth since 1993, except for a slump after the 1997 Asian financial crisis.^[19] In 2007, the Peruvian economy experienced a growth rate of 9%, the largest in Latin America, and this repeated in 2008 with a 9.8% rate; in 2006 and 2007, the Lima Stock Exchange grew by 185.24% ^[20] and 168.3%,^[21] respectively. However, with the current global crisis, growth for 2009 is estimated to close at 1.5% for the year.^{[citation needed]}

The neoliberal policies imposed by the dictatorship of Fujimori, were continued by presidents Alejandro Toledo and Alan Garcia. This has increased the inequality in the country. While the poverty of Lima is 18.5% in most Andean regions it goes up from 65% to 86%, while the unemployment rate is 6.5% but only 42% are employed formally.

Contents 1 History 2 Sectors 2.1 Agriculture 2.2 Industry and services 2.3 Natural resources 3 External trade and investment 3.1 Global trade investment 3.2 Foreign investment and balance of payments 3.2.1 Foreign trade and balance of payments 3.2.2 Foreign investment 4 Currency 5 Income and Consumption 6 Employment 7 Economic trends 7.1 Greater depth 7.2 Outlook 7.3 Narcotics 7.4 Corruption 8 Statistics 9 See also 10 Notes 11 References

[edit] History

[edit] Sectors

[edit] Agriculture

Peru is a country with many climates and geographical zones that make it a very important agricultural nation. Peru exports potatoes (3000 varieties), sugarcane, coffee and cotton.

[edit] Industry and services

Fishing: Peru is an international leader in fishing, producing nearly 10 percent of the world's fish catch. Mining: Peru ranks fifth worldwide in gold production (first in Latin America), second in copper, and is among the top 5 producers of lead and zinc. Manufacturing: Because of its long dependence on raw material exports, Peru has never developed a strong manufacturing sector. The sector represents 15 percent of GDP and is tied heavily to mining, fishing, agriculture, and textiles. Manufacturing is mainly devoted to processing a percentage of the raw materials to gain a value-added advantage. The most promising sector is textiles. Tourism has represented a new growth industry in Peru since the early 1990s, with the government and private sector dedicating considerable energies to boosting the country's tourist destinations both to Peruvians and foreigners.

Services: Financial services, with the exception of Banco de Credito—Peru's largest financial institution (US$8.5 billion in assets)—nearly all the financial sector has fallen into foreign hands

[edit] Natural resources

Peru's natural resources are copper, silver, gold, petroleum, timber, fish, iron ore, coal, phosphate, potash, and natural gas.

[edit] External trade and investment

[edit] Global trade investment

[edit] Foreign investment and balance of payments

[edit] Foreign trade and balance of payments

In 2001 the current account deficit dropped to about 2.2% of GDP (US$1.17 billion)--from 3.1% in 2000—while the trade balance registered a small deficit. Exports dropped slightly to $7.11 billion, while imports fell 2.1% to $7.20 billion. After being hit hard by El Niño in 1998, fisheries exports have recovered, and minerals and metals exports recorded large gains in 2001 and 2002, mostly as a result of the opening of the Antamina copper-zinc mine. By mid-2002, most sectors of the economy were showing gains. After several years of substantial growth, foreign direct investment not related to privatization fell dramatically in 2000 and 2001, as well as in the first half of 2002. Net international reserves at the end of May 2002 stood at $9.16 billion, up from $8.6 billion (2001), $17 billion at the end of 2006, over $20 billion in 2007, and over $35 billion in May 2008. Peru has signed a number of free trade agreements, including the 2007 United States-Peru Trade Promotion Agreement, and 2008 agreements with Canada, Singapore, and China.

[edit] Foreign investment

The Peruvian government actively seeks to attract both foreign and domestic investment in all sectors of the economy. International investment was spurred by the significant progress Peru made during the 1990s toward economic, social, and political stability, but it slowed again after the government delayed privatizations and as political uncertainty increased in 2000. President Alejandro Toledo has made investment promotion a priority of his government. While Peru was previously marked by terrorism, hyperinflation, and government intervention in the economy, the Government of Peru under former President Alberto Fujimori took the steps necessary to bring those problems under control. Democratic institutions, however, and especially the judiciary, remain weak.

The Government of Peru's economic stabilization and liberalization program lowered trade barriers, eliminated restrictions on capital flows, and opened the economy to foreign investment, with the result that Peru now has one of the most open investment regimes in the world. Between 1992 and 2001, Peru attracted almost $17 billion in foreign direct investment in Peru, after negligible investment until 1991, mainly from Spain (32.35%)^[22], theUnited States (17.51%), Switzerland (6.99%), Chile (6.63%), and Mexico (5.53%). The basic legal structure for foreign investment in Peru is formed by the 1993 constitution, the Private Investment Growth Law, and the November 1996Investment Promotion Law. Although Peru does not have a bilateral investment treaty with the United States, it has signed an agreement (1993) with the Overseas Private Investment Corporation (OPIC) concerning OPIC-financed loans, guarantees, and investments. Peru also has committed itself to arbitration of investment disputes under the auspices of ICSID (the World Bank'sInternational Center for the Settlement of Investment Disputes) or other international or national arbitration tribunals.

[edit] Currency

The nuevo sol is the currency of Peru. The exchange rate as of January 26, 2010 is 2.85 soles to the US dollar, and 3.80 to the euro. It was instated in 1991, when the Peruvian government abandoned the inti due to hyperinflation of the currency;^[23] the nuevo sol replaced the inti at a rate of 1 nuevo sol = 1,000,000 intis.^[24] The inti itself replaced another inflated currency, the sol, which was used between 1863 and 1985. The name sol comes from the Latin solidus, and is also the Spanish word for "sun", which the ancient Inca civilization worshiped as the god Inti.

The nuevo sol currently enjoys a low inflation rate of 1.5%.^[25] Since it was put into use, the nuevo sol's exchange rate with the United States dollar has stayed mostly between 2.80 and 3.30 to 1. Out of all the currencies of the Latin American region, the nuevo sol is the most stable and reliable, being the least affected by the downturn in the value of the US dollar; during late 2007 and early 2008, the exchange rate fell to 2.69 to 1, which had not been seen since 1997. The exchange rate is set on a daily basis by the Banco Central de Reserva del Perú (Central Reserve Bank of Peru).

The nuevo sol is divided into 100 céntimos. The highest-denomination banknote is the 200 sol note; the lowest-denomination coin is the rarely-used 1 céntimo coin.

[edit] Income and Consumption

[edit] Employment

Unemployment in Greater Lima is 9.6%, while for the rest of Peru is 10%. FY 2009-2010^[26]

[edit] Economic trends

[edit] Greater depth

From 1994 through 1998, under the government of Alberto Fujimori, the economy recorded robust growth driven by foreign direct investment, almost 46% of which was related to the privatization program.^{[citation needed]} The economy stagnated from 1998 through 2001, the result of the century's strongest El Niño weather phenomenon, global financial turmoil, political instability, a stalled privatization program, increased government intervention in markets^{[citation needed]}, and worsening terms of trade. President Alejandro Toledo implemented a recovery program after taking office, maintained largely orthodox economic policies, and took measures to attract investment, including restarting the privatization program. Nonetheless, political uncertainty led to GDP growth of 0.2% in 2001.^{[citation needed]} The Lima Stock Exchange general index fell 34.5% in 2000 and 0.2% in 2001.^{[citation needed]} Inflation remained at record lows, registering 3.7% in 2000.^{[citation needed]}

The year 2001 saw deflation of 0.1%. The government's overall budget deficit rose sharply in 1999 and 2000 to 3.2% of GDP, the result of hikes in government salaries, expenditures related to the 2000 election campaign, higher foreign debt service payments, and lower tax revenues.^{[citation needed]} The government brought the deficit down to 2.5% of GDP in 2001, and set a target of 1.9% of GDP for 2002. Peru's stability brought about a substantial reduction in underemployment, from an average of 74% from the late 1980s through 1994 to 43% in the 1995-96 period, but the rates began climbing again in 1997-2002 to over half the working population. The poverty rate remained at 54% in 2001, with 24% of Peruvians living in extreme poverty. In 2005, 18% of Peruvians were living in extreme poverty and a poverty rate at 39%.^[10] As of 2009, 36.2% of its total population is poor, including 12.6% that is extremely poor.^[9]

[edit] Outlook

Forecasts for the medium- and long-term remain highly positive. Peru's real GDP growth in 2007 (8.3%) was the largest in Latin America and in 2008 was an outstanding 9.8% the highest in the whole Latin American and the world.^[4] Inflation remained low, at about 3%, while the budget surplus is expected to remain at about 1% of GDP.^{[citation needed]} Private investment should keep growing at a rate of 15% a year.^{[citation needed]} Exports and imports are expected to keep rising.^{[citation needed]} The unemployment and underemployment indexes (7.2% and 54%, respectively, in Lima) should keep coming down as the economy grows^{[citation needed]}, other cities in Peru like Cajamarca, Ica, Cuzco and Trujillo are starting to show less unemployment nowadays.^{[citation needed]} The country is likely to attract future domestic and foreign investment in tourism, agriculture, mining, petroleum and natural gas, power industries and financial institut The government has signed an agreement with the IMF in which the perspectives of the economic growth are excellent. The GDP will grow at 7% for the next 6 years;^{[citation needed]} private investment will reach 25% of the GDP in 2007,^{[citation needed]} with perspectives of reaching up to 30% of the GDP by 2009; and inflation is under control at 2% per year for the next 5 years.^{[citation needed]} International Debt will reach 20% of the GDP by 2010, down from 35% in 2006, and will be only 12% of the GDP by 2015.^{[citation needed]} The International Monetary Reserves of the National Reserve Bank (Dollars, Euros, Yens, Gold, and other currencies) reached US$ 27 billion by the end of 2007, and US$ 31 billion at the end of 2008. Currently reserves are at a 32 billion level while forecast to be reaching US$ 45 billion by 2010, which will be twice the amount of international debt by then.

Exports are growing at a pace of 25% and will reach US$ 28 billion by the end of 2007 and US$ 50 billion by the end of 2010.^{[citation needed]} High technological investment is growing fast in Peru, and will be 10% of the GDP by 2010.^{[citation needed]}

[edit] Narcotics

Government prohibition of narcotics trafficking in Peru has resulted in a 70% reduction of coca leaf cultivation since 1995. The size of the narcotics industry as a part of the national economy is difficult to measure, but estimates range from $300–$600 million. An estimated 200,000 Peruvians are engaged in the production, refining, or distribution of the narcotic. Many economists believe that large flows of dollars into the banking system contribute to the traditional depression of the dollar exchange rate vis-a-vis the sol. The Central Bank engages in open market activities to prevent the price of the sol from rising to levels that would cause Peruvian exports to become prohibitively expensive.

Hurt economically by Peruvian Air Force interdiction efforts in the mid-1990s,^{[citation needed]} drug traffickers are now using land and river routes as well as aircraft to transport cocaine paste and, increasingly, refined cocaine to consumers around and out of the country. The airbridge denial interdiction program was suspended in April 2001 after the Peruvian Air Force misidentified a civilian aircraft as a drug trafficker and shot it down, killing two American citizens on board. Peru continues to arrest drug traffickers and seize drugs and precursor chemicals, destroy coca labs, disable clandestine airstrips, and prosecute officials involved in narcotics corruption.

Working with limited aid of the U.S. Agency for International Development (USAID), the Peruvian Government carries out alternative development programs in the leading coca-growing areas in an effort to convince coca farmers not to grow that crop. Although the government previously eradicated only coca seed beds, in 1998 and 1999 it began to eradicate mature coca being grown in national parks and elsewhere in the main coca growing valleys. In 1999 the government eradicated more than 150 km² of coca; this figure declined to 65 km² in 2000, due largely to political instability. The government agency "Contradrogas," founded in 1996, facilitates coordination among Peruvian Government agencies working on counter-narcotics issues.

[edit] Corruption

Peru is the 72nd most corrupt country in the world according to Transparency International's Corruption Perceptions Index.

The Peruvian organization "Ciudadanos al Dia" has started to measure and compare transparency, costs, and efficiency in different government departments in Peru. It annually awards the best practices which has received widespread media attention. This has created competition among government agencies in order to improve.^[27]

A recent case of corruption was the 2008 Peru oil scandal.

[edit] Statistics

Household income or consumption by percentage share:
lowest 10%: 0.8%
highest 10%: 37.5% (2000)

Inflation rate (consumer prices): 1.04% (2008 est.)

Budget:
revenues: $26 billion (2007 est.)
expenditures: $25 billion, including long-term capital expenditures of $3.2 billion (2007 est.)

Industrial production growth rate: 12% (2007 est.)

Electricity - production: 36,500 GWh (2007 est.)

Electricity - production by source:
fossil fuel: 24.53%
hydro: 74.79%
nuclear: 0%
other: 0.68% (1998)

Electricity - consumption: 33,000 GWh (2002)

Electricity - exports: 0 kWh (2004)

Electricity - imports: 0 kWh (2004)

Agriculture - products: coffee, cotton, sugarcane, rice, wheat, potatoes, plantains, coca; poultry, beef, dairy products, wool; fish

Exports: 27.5 billion f.o.b. (2007) of goods and products. 3.5 billion f.o.b. (2007) of services.

Exports: fish and fish products, copper, zinc, gold, molybdenum, iron, crude petroleum and byproducts, lead; coffee, asparagus, artichokes, paprika, sugar, cotton, textiles, chemicals, pharmaceuticals, manufactures, machinery, services.

Exports - partners: United States 30%, Mainland China 11%, Japan 6%, Chile 5% Switzerland, Germany, United Kingdom, Brazil (2006)

Imports: $20 billion f.o.b. (2007)

Imports - commodities: machinery, transport equipment, foodstuffs, petroleum, iron and steel, chemicals, pharmaceuticals, electronics.

Imports - partners: US 19%, Colombia 6%, Venezuela 5%, Chile 4%, Brazil 4% (1997)

[edit] See also

• List of Peruvian companies

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[edit] Notes

[edit] References

• Mark Weisbrot, Background on Peruvian Economy, Center for Economic and Policy Research, April 2006
• CIA factbook

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