Economy of Peru
||The neutrality of this article is disputed. (June 2012)|
|Economy of Peru|
Financial centre of Lima
|Rank||39th (PPP, 2014)|
|Currency||Peruvian nuevo sol (PEN)|
|Fiscal year||calendar year|
|GDP||$370 billion (PPP, 2014, est.)|
|GDP growth||5.9% (2013)|
|GDP per capita||$ 11,797 (PPP, 2014 est.)|
|GDP by sector||agriculture: 6.2%; industry: 37.5%; services: 56.3% (2013 est.)|
|Inflation (CPI)||▼2.5% (2014 est.)|
below poverty line
|Gini coefficient||▼ 48.1 (2010) 26th in the world|
|Labour force||20.16 million|
|industry: 17.4%, agriculture: 25.8%, services: 56.8% (2011)|
|Main industries||mining and refining of minerals/jewels; steel, metal fabrication; petroleum extraction and refining, natural gas and natural gas liquefaction, fishing and fish processing, cement, glass, textiles, clothing, food processing, beer, soft drinks, rubber, machinery, electrical machinery. chemicals, furniture|
|Ease of doing business rank||39th (2013) |
|Exports||$73.50 billion (2013 est.)|
|Export goods||copper, gold, lead, zinc, tin, iron ore, molybdenum, silver, crude petroleum and petroleum products, natural gas, coffee, asparagus, and other vegetables, fruit, apparel and textiles, fishmeal, fish, chemicals, fabricated metal products and machinery, alloys|
|Main export partners|| China 20%%
United States 15%
European Union 15%
United Kingdom 5%
Template:Rest of Latin America 5%
Template:Rest of world 5%
|Imports||$68 billion (2013 est.)|
|Import goods||petroleum and petroleum products, chemicals, plastics, machinery, vehicles, color TV sets, power shovels, front-end loaders, telephones and telecommunications equipment, iron and steel, wheat, corn, soybean products, paper, cotton, vaccines and medicines|
|Main import partners|| China 25%
United States 15%
European Union 15%
Template:Rest of World 5%
|FDI stock||$76.57 billion (31 December 2013 est.)|
|Gross external debt||$30.15 billion (31 December 2013 est.)|
|Public debt||9.4% of GDP (2013 est.)|
|Revenues||$70.95 billion (2013 est.)|
|Expenses||$66.42 billion (2012 est.)|
|Economic aid||$5.250 billion (2012 est.)|
|Foreign reserves||US$70.15 billion (31 December 2013)|
Peru was once a stereotypical victim of multiple Latin American diseases. Poorly performing state industries ran up huge losses, driving the state to over-borrow and further weaken an already shaky currency. What economic vigor there was spread wealth among a small share of the population, leaving more than half the country mired in poverty. The more rural your community, and the darker your skin, the more likely you were to be poor. The country suffered from constant low-grade civil unrest and birthed occasionally-murderous revolutionary movements.
In just 20 years the country has turned its back on the past, and its tendency to lurch from left-wing to right-wing macroeconomic policies based on the party in power. The guerilla movements have been suppressed. The poverty rate is falling. The currency is stable, inflation low, and investment is pouring in from the United States, United Kingdom, the European Union, Japan and new industrial giants like China, India and Brazil as well as peru´s neighbours such as Chile and Ecuador.
Remarkably, since FY 1991, the economy of Peru has experienced more than twenty straight years of growth, the exceptions being FY 1997 and FY 1999, and continuing its strong performance even during the global meltdown of 2007-2009. Massive cranes at the port of Callao unload thousands of containers of imports, and send out cargo ships groaning under the weight of healthy exports: fishmeal, agricultural products, clothes, textiles, machinery i.e. auto parts, electronics i.e. computer parts and softwares, gold, silver, copper, molybdenum, uranium and natural gas. Because of this exponential financial growth the international media catalogues current peruvian economic model and both its macro and micro economics as The Peruvian Miracle . Peru is classified as upper middle income by the World Bank and is the 40th largest in the world by total GDP. Peru is one of the world's fastest-growing economies with a 2012 GDP growth rate of 6.3%.  It currently has a high human development index of 0.741 and per capita GDP above $10,000 by PPP.
The core of the current sound economic performance of the country is a combination of:
- Macroeconomic stability
- Prudent fiscal spending
- High international reserve accumulation
- External debt reduction
- Achievement of investment grade status
- Fiscal surpluses
All of these factors have enabled Peru to make great strides in development, with improvement in government finances, poverty reduction and progress in social sectors. Poverty has decreased dramatically in the past decade, from nearly 60% in 2004 to 25.8% in 2012.
Peru is an emerging, market-oriented economy characterized by a high level of foreign trade. The inequality of opportunities has declined: between 1995 and 2006 Peru's rating on The World Bank's Human Opportunity Index improved substantially as increased public investment in water, sanitation and electric power has sustained the downward trend in inequality of opportunities. Its economy is diversified, although commodity exports still make up a significant proportion of economic activity and thus subject the economy to the risks of price volatility in the international markets. Trade and industry are centralized in Lima but agricultural exports have led to development in all the regions.
Historically, for years, countries have zealously guarded their monopoly over transactions inside the country, requiring that business be done in one currency only: their own.
Peru’s free-market minded don’t prevent prices denominated in dollars, and don’t chase money-changing into the black market. Instead, men carrying enormous wads of cash and wearing vests with big gold dollar-signs on the back ply their trade openly on the streets, negotiating rates and changing money with any and all comers. The state sees no need to force people to do business only in the Peruvian sol. But these days the sol is so stable strict currency controls are no longer necessary.
Like many other countries in Latin America, Peru looked to the United States for inward investment and a security umbrella. Uncle Sam praised governments that followed capitalist orthodoxy and frowned on any moves toward socialism during the long decades of the Cold War. Peru’s giant neighbor to the east, Brazil, was a boom-bust underperformer cut off from western South America and the Pacific Ocean by the dense Amazon rain forest and the north-south spine of the continent, the Andes Mountains.
Since 2010, the Trans-Oceanic Highway links all of Brazil one of the BRICS countries to Peru. Brazil´s economic capital Sao Paulo, Brazil´s main tourist attraction Rio de Janeiro as well as western Brazil are connected by land to Peruvian Madre de Dios, Cusco, Arequipa, Ica, and Lima regions. Now Brazil via Peru is better connected to Pacific commerce with Asia. Peruvian agricultural products and manufactured goods also now heads east to new Brazilian 200 + millon consumers market, while Brazil’s massive soybean crop no longers faces a trip through the Panama Canal or around Cape Horn thousands of miles to the south to head to APEC and Pacific Rim markets.
Peruvian economic performance has been tied to exports, which provide hard currency to finance imports and external debt payments. Peru's main exports are copper, gold, zinc, textiles, chemicals, pharmaceuticals, manufactures, machinery, services and fish meal; its major trade partners are the United States, China, Brazil, European Union and Chile. Although exports have provided substantial revenue, self-sustained growth and a more egalitarian distribution of income have proven elusive.
Services account for 53% of Peruvian gross domestic product, followed by manufacturing (22.3%), extractive industries (15%), and taxes (9.7%). Recent economic growth has been fueled by macroeconomic stability, improved terms of trade, and rising investment and consumption. The USA has become Peru's largest trading partner following a free trade agreement with the United States signed on April 12, 2006 and a free trade agreement with China (2009). Currently a Free Trade agreement has been sent to the EU, and is in the process of being approved. It will most likely take effect in 2012. Inflation in 2006 was the lowest in Latin America at only 1.8%, but increased in 2007 as oil and commodity prices rose; as of 2014 it stands at 2.5%. The unemployment rate has fallen steadily in recent years, and as of 2012 stands at 3.4%.
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. Reforms have permitted an economic growth since 1993, except for a slump after the 1997 Asian financial crisis. 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%  and 168.3%, respectively. However, in the wake of the 2008 global crisis, growth for 2009 was only 0.9 percent, but rebounded to 8.8 percent the following year. The pro-market policies enacted by Fujimori, were continued by presidents Alejandro Toledo and Alan Garcia,While poverty of Lima is 18.5%, the national average is 25.8%, while the unemployment rate is 6.5% and 54% are employed formally.
- 1 History
- 2 Sectors
- 3 External trade and investment
- 4 Currency
- 5 Income and Consumption
- 6 Employment
- 7 Economic trends
- 8 Statistics
- 9 Trade Agreements
- 10 See also
- 11 Notes
- 12 References
See also: Agricultural history of Peru
The Tahuantinsuyo was organized in dominions with a stratified society, in which the ruler was the Inca. It was also supported by an economy based on the collective property of the land. In fact, the Inca Empire was conceived like an ambitious and audacious civilizing project, based on a mythical thought, in which the harmony of the relationships between the human being, nature, and gods was truly essential. The economy was mainly agricultural, though it reached some animal husbandry and mining development. The primary goal of the Incan economy was substinence, with a system based on reciprocity and exchange of products
The spanish colonial economy was dominated by mineral wealth, and labor was initially provided through enslavement of the indigenous peoples. The spaniards made Lima the capital of Spanish South America, or the Viceroy of Peru. Peru’s precious mineral resources and large indigenous population placed it at the core of the South American colonies; according to Palmer, Peru could be ranked second on a scale of colonial penetration (Mahoney, 66). Textiles, minerals, and sugars from the colonies were exported back to Europe.
After the war of succession of 1700, Spain began to lose its monopoly over colonial trade. In the mid-18th century, liberal factions began to appear within the colonial elite; these questioned the legitimacy of the crown’s rule in the Americas. These “Creole patriots”, which had originally been marginalized to the periphery of the empire (Venezuela, Argentina, etc.), provided the necessary conditions for successful economic development during the late colonial period (Mahoney, 52, 80). The introduction of free trade led to explosive growth throughout the empire, with Spain receiving ten times more imports by the end of the 18th century. Despite this overall growth of the colonies, the trend observed in Peru over the course of the century and a half following the war of secession was one of stagnation. The regional socioeconomic hierarchy inverted itself, as core territories where liberals were absent experienced much lower levels of economic development. Their marginalization actually allowed them to benefit from expanded trade opportunities. According to Mahoney, “regional specialists have argued that underdevelopment throughout [areas such as Peru] can be traced to colonial patterns of economic dependence, Hispanic culture, and inefficient markets and economic arrangements".
Attempting to protect its colonial possessions and reverse its faltering role in colonial trade, the crown implemented liberalizing reforms, hastening the removal of trade restrictions and weakening colonial monopolies. This continued the decay of the core regions, leaving them more exposed to the uncertainties of the free market. By the mid-19th century, the reversal of the socioeconomic hierarchy was complete; Peru would not recover its Viceroyalty-era supremacy (Mahoney, 86).
Independence and the Industrial Revolution Era.
After winning independence from Spain on July 28th 1821, Peru was financially strapped. However the Guano trade era 1849-1879 with Europe flushed Peru with european investments and money. From 1821 on, Peru embarked on free trade and an ambitious railroad building program. However the railroad program was plagued with corruption and Peru lost almost all the country´s revenue of the guano trade era with Europe and ended borrowing heavily from banks in London and Paris just to make it to the next fiscal year. American Railways baron Henry Meiggs courted peruvian government officials and offered peruvians to built the unthinkable for that time: A standard gauge line from peru´s main port of Callao in the Pacific, eastwards to the commodities rich high Andes mountains and the main andean city of Huancayo 350 kilometers or 220 miles east of Callao; A later expansion in the eastern line aimed at Cusco. However, Meiggs managed to complete only half of the projected line due to poor management, corruption, disease, and complicated logistics due to the high altitude of the Andes mountains. Over the years financial woes worsened and Peru needed money. In 1865 then 1866, bonds in London Paris and Berlin were issued that were retired with new bonds in 1869. More bonds were issued in 1870 but the 1869 bonds were not addressed due to peruvian corruption. Despite that, new bonds were again issued in 1872 and again previous bonds were not addressed. A major problem, that would take many years to resolve, was that the rich guano deposits were used as security on all the bonds. Peru struggled to make bond interest payments but on December 18, 1875, Peru defaulted. By 1878 Peru was bankrupted and the european banks no longer lended money to the Peruvian Government. On April 5th 1879, despite being bankrupted Chile declared war on Peru. The War of the Pacific had begun. This war lasted until 1884. Chile also declared war on Bolivia and Bolivia thus invoked its alliance with Peru against Chile. The Peruvian Government tried to mediate the dispute by sending a diplomatic team to negotiate with the Chilean government, but the committee concluded that war was inevitable. After five years of war Peru ended with the loss of the peruvian department of Tarapaca rich in nitrates and guano and the provinces of Tacna and Arica, in the Atacama region. Bolivia lost its Atacama Province and its 400 kilometers of pacific coastline. Thus, from 1884 Bolivia remains land locked. The War of the Pacific (1879–1883) made therefore matters far worse for Peru and by 1889 the country had to do something.
After the War of the Pacific, an extraordinary effort of rebuilding began. The peruvian government though still bankrupted started to initiate a number of social and economic reforms in order to recover from the damage of the war. The national debts with european banks was solved though controversially via an agreement with Great Britain in 1889 and the outcome of this agreement was that the British imposed The Peruvian Corporation to Peru.
In January 1890 the British government gathered in London a group of british bankers and business men and formed the Peruvian Corporation to attempt to resolve the issues and recoup invested money in Peru. The objectives of the company were extensive. They included the acquisition of real or personal property in Peru or elsewhere, dealing in land, produce, and property of all kinds, constructing and managing railways, roads, and telegraphs, and carrying on the business usually carried on by railway companies, canal companies, and telegraph companies. It also was involved in constructing and managing docks and harbours, ships, the gold, silver, copper and Molybdenum and Tungsten mines, beds of nitrates, managing the State domains, and acting as agents of the Peruvian Government.
The Peruvian Corporation Ltd / Corporación Peruana de Londres was thus founded in London on March 20th 1890. Its Board of Directors included ten members led by Sir Alfred Dent G A Ollard, of Smiles and Co Solicitors, was Manager in London, T E Webb was Secretary, with Clinton Dawkins and William Davies (Grace Brothers - Callao) as the first representatives in Peru. The company was formed with the purpose of canceling Peru's external debt and to release its government from loans it had taken out through bondholders at three times (in 1869, 1870, 1872), in order to finance the construction of railways. The main purpose of the incorporation included acquiring the rights and undertaking the liabilities of bondholders. Political stability was achieved only in the early 20th century.
Russell and Michael Grace had formed the Grace Brothers & Co. (that became the W.R. Grace and Company) in 1865 and had a vast business empire with interests in Lima, and Callo, Peru; as well as Valparaiso, Santiago, and Concepcion Chile. By 1889 these interests included a large guano trade as well as Grace Line shipping. Moves to address the Peruvian financial crisis included the Elias-Castellon and Irigoyen-Delgado-Donoughmore protocols that were formalized by 1890 and Michael Grace and Lord Donoughmore was able to get the Grace Contract (originating in 1886) ratified.
Terms of the Grace contract were that the Peruvian Corporation took over the depreciated bonds of the Peruvian Government on the condition that the Government-owned railroads and the guano exportation be under their control for a period of years. The bonds were exchanged for stock in the Peruvian Corporation. The corporation later surrendered the bonds to the Peruvian Government in exchange for the following concessions: the use for 66 years of all the railroad properties of the Peruvian Government, most important of which were the Southern Railway of Peru and the Central Railway of Peru; assignment of the guano existing in Peruvian territory, especially on certain adjacent islands, up to the amount of 2,000,000 tons; certain other claims on guano deposits, especially in the Lobos and other islands; 33 annual payments by the Peruvian Government, each of $400,000.
In 1907, this arrangement was modified by an extension of the leases of the railways from 1956 to 1973, by a reduction in the number of annual payments from 33 to 30, and by a further agreement on the part of the Peruvian Corporation to construct certain railroad extensions to Cuzco and to Huancayo. The bonds of this corporation were largely held by English, French, and Dutch subjects. Consequently, the diplomatic representatives of these countries in Peru sought proper interest in the welfare of their nationals, the bondholders.
A new arrangement was created in 1955, whereby a Canadian company, the Peruvian Transport Corporation Ltd., acquired and held the outstanding share capital of the Peruvian Corporation. Empresa Nacional de Ferrocarriles del Peru (ENAFER) was formed in 1972, and was taken over by the Government at the end of that year. The company's archives for the period of 1849-1967 are held at University College London.
20th century On October 29, 1948, General Manuel A. Odría led a successful military coup and became the new President. Thanks to a thriving economy, Odría was able to implement expensive, populist social reconstruction, including housing projects, hospitals, and schools. His government was dictatorial, however, and civil rights were severely restricted, and corruption was rampant throughout his régime.
Military juntas continued to majoritarily rule Peru over the next three decades. The economic policies of the 1950s, 1960s, and 1970s in particular, were based on the substitution of imports, and had little effect on the size of the economy. General Francisco Morales Bermúdez replaced leftist General Juan Velasco Alvarado in 1975, citing Velasco's economic mismanagement, among other factors. Morales Bermúdez brought about a more conservative period, beginning the task of restoring the country's economy.
In 1980, after 12 years of military rule, Fernando Belaúnde Terry was elected President. After a promising beginning, his popularity eroded under the stress of inflation, economic hardship, and terrorism; his government's lukewarm liberalization attempt failed in the context of the Latin American debt crisis, as per capita income declined, Peru's foreign debt burgeoned, and violence by leftist insurgents (notably Shining Path) rose steadily during the internal conflict in Peru, which was launched the day before Belaúnde's election. He continued many of the projects that were planned during his 1963-1968 term, including the completion of the Carretera Marginal de la Selva, a roadway linking Chiclayo on the Pacific coast with then-isolated northern regions Amazonas and San Martín.
During the next years, the economic problems left behind by the junta government persisted, worsened by an occurrence of the El Niño weather phenomenon in 1982–83, which caused widespread flooding in some parts of the country, severe droughts in others, and decimated the schools of ocean fish that are one of the country's major resources.
Belaúnde's successor, Alan García, was elected to office in 1985. His administration applied heterodox policies through the expansion of public expenditure and limitations on external debt payments. With a parliamentary majority for the first time in APRA's history, García's administration showed economic promise much as Belaúnde's had. Despite his initial popularity, García's term in office was marked by bouts of hyperinflation, which reached 7,649% in 1990 and had a cumulative total of 2,200,200% over his five-year term, profoundly destabilizing the Peruvian economy. As a result of this chronic inflation, the Peruvian currency, the sol, was replaced by the inti in mid-1985, which itself was replaced by the nuevo sol in July 1991; the new currency had an equivalent value of one billion old soles. During García's administration, the per capita annual income of Peruvians fell to $720 (below 1960 levels) and Peru's GDP dropped by 20%. By the end of his term, national reserves were a negative $900 million.
García's term was also characterized by heavy increases in poverty. According to studies by the National Institute of Statistics and Informatics and the United Nations Development Programme, at the start of his presidency, 41.6% of Peruvians lived in poverty. By 1991, this figure had increased to 55%. García also attempted to nationalize the banking and insurance industries. He incurred the wrath of the International Monetary Fund and the financial community by unilaterally declaring a limit on debt repayment equal to 10% of the gross national product, thereby isolating Peru from the international financial markets. One of his administration's most glaring failures was a multi-million dollar electric tram project for Lima that was never completed; the supports for the elevated track still stand in many places around the city.
Critics of García's presidency claim that his many poor decisions while in office created an environment that led to the rise of an authoritarian leader like Alberto Fujimori, who came to power in 1990. Fujimori implemented drastic measures that caused inflation to drop from 7,650% in 1990 to 139% in 1991. Faced with opposition to his reform efforts, Fujimori dissolved Congress in the auto-golpe of April 5, 1992. He then revised the constitution; called for new congressional elections, and undertook a process of economic liberalization which put an end to price controls, discarded protectionism, eliminated restrictions on foreign direct investment and privatized most state companies. The reforms allowed sustained economic growth, except for a slump after the 1997 Asian financial crisis.
Positive results have begun to appear after 15 years, reflecting an expanding global economy; according to figures provided by the INEI, in 2007 the gross national product grew by 8.99%, exports grew by over 35% (reaching US$ 27.8 billion), private and public investments accounted for 21% of the GDP (24.4% in 2008), net international reserves (including gold) reached US$ 35.1 billion, state income from taxation increased by 33%, national debt with respect to GNP was reduced from 50% in 2000 to 34% in 2006; finally, the national budget has grown by 50% in the five years before 2007.
Since 1990, the Peruvian economy has undergone considerable free market reforms, from legalizing parts of the informal sector to significant privatization in the mining, electricity and telecommunications industries. Thanks to strong foreign investment and the cooperation between the Fujimori government and the International Monetary Fund and World Bank, growth was strong in 1994-97 and inflation was brought under control. In 1998, El Niño's impact on agriculture, the financial crisis in Asia, and instability in Brazilian markets undercut growth. 1999 was another lean year for Peru, with the aftermath of El Niño and the Asian financial crisis working its way through the economy. Lima did manage to complete negotiations for an Extended Fund Facility with the IMF in June 1999, although it subsequently had to renegotiate the targets.
Peru's exponential per-capita growth rates has been standard the last quarter century. Peru’s GDP per capita is now FY 2013 at $ 12.000 USD PPP. By the end of 2006 the government had enacted measures that allowed the economy to improve by increasing investments, expanding production and exports. Raw materials and agroindustrial products represent half of exports with the other half being non-traditional exports such as clothing, electronics, machinery and services. By the end of the decade of 2014, investment is expected to total US$65 billion for mining activities, US$20 billion in energy and petroleum, US$12 billion for commerce, US$18 billion for agricultural industries, and US$15 billion for tourism. Thanks to the discovery and exploitation of large petroleum and natural gas reserves in southern peru in the Cusco and Madre de Dios regions by Consorcio Camisea, Peru is expected[who?] to become an important exporter of hydrocarbons by 2015, after being a net importer for decades.
Peru is a country with many climates and geographical zones that make it a very important agricultural nation. Peru agricultural exports are highly appreciated and include artichokes, grapes, avocados, mangoes, peppers, sugarcane, organic coffee and premium-quality cotton.
Industry and services
Fishing: Peru is an international leader in fishing, producing nearly 10 percent of the world's fish catch.
Mining in Peru: 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.
Peru has developed a medium manufacturing sector. The sector now represents 23 percent of GDP and is tied heavily to mining, fishing, agriculture, construction and textiles. Manufacturing is mainly devoted to processing to gain a value-added advantage. The most promising sector is textiles, metal mechanics, food industry, agricultural industry, manufactures, chemicals, pharmaceuticals, machinery and services.
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.
Peru's natural resources are copper, silver, gold, timber, fish, iron ore, coal, phosphate, potash, and natural gas.
External trade and investment
Foreign investment and balance of payments
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 agreements with Chile, Canada, Singapore, Thailand and China.Under President Alan Garcia administration Peru achieved a bilateral Trade agreement with U.S. since 2010 to improve exports for its country and reach in August 2011 its pick in exports of more than 4,700 MM.
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%), the United 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 1996 Investment 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.
The nuevo sol (commonly referred to simply as "sol") is the currency of Peru. The exchange rate as of March 13, 2014 is 2.81 soles to the US dollar and 3.81 soles to the Euro. It was instated in 1991, when the Peruvian government abandoned the inti due to hyperinflation of the currency; the nuevo sol has since maintained the lowest inflation rate in Latin America.  the nuevo sol replaced the inti at a rate of 1 nuevo sol = 1,000,000 intis. 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 2.5%. 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 nuevos soles note; the lowest-denomination coin is the rarely-used 5 céntimos coin.
Income and Consumption
Peru divides its population into five socio-economic classes, A-E, with A representing the rich; B, the upper middle class; C, the middle class; D, the working class and low income families; and E, the marginalized poor.
Unemployment in Greater Lima is 5.6%, while for the rest of Peru is 7%. FY 2012-2013
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.The government invested heavily on the country's infrastructure, which became a solid foundation for the future of the Peruvian economy. 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, 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. The Lima Stock Exchange general index fell 34.5% in 2000 and 0.2% in 2001. Inflation remained at record lows, registering 3.7% in 2000.
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. 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%. As of 2010, around 30% of its total population is poor 
|This section is outdated. (October 2011)|
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 world. Inflation remained low, at about 3%, while the budget surplus is expected to remain at about 1% of GDP. Private investment should keep growing at a rate of 15% a year. Exports and imports are expected to keep rising. The unemployment and underemployment indexes (5.2% and 34%, respectively, in Lima) should keep coming down as the economy grows, other cities in Peru like Cajamarca, Ica, Cuzco and Trujillo are starting to show less unemployment nowadays. The country is likely to attract future domestic and foreign investment in tourism, agriculture, mining, petroleum and natural gas, power industries and financial institutions. According to the IMF and the World Bank, Peruvian GDP economic growth between 2007-2013 was:
In 2007 at 8.9%, in 2008 at 9.7%, in 2009 at 0.9%, in 2010 at 8.6%, in 2011 at 6.0%, in 2012 at 6,3% and in 2013 at 5.3%.
Therefore Peruvian GDP grew in the 2007-2013 6 years period an outstanding net growth of 45.7% or a 7.61% yearly average. The IMF forecast for Peru`s economic growth for the next 6 years 2013-2019 is a 7% yearly growth.
In FY 2011 for the first time since 1991 the size of the Peruvian economy surpassed the Chilean economy. Peru now is the fifth major economy in South America and is expected to become the fourth South American economy in 2018 by surpassing Venezuela.
Private investment reached 25% of the GDP in 2007, and has remained stable through 2010; and inflation is under control at an average 2% per year for the next 5 years. International Debt will reach 25% of the GDP by 2010, down from 35% in 2006, and will be only 12% of the GDP by 2015. The International Monetary Reserves of the National Reserve Bank (Dollar, Euro, Yen, 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 US $73 billion level for end of FY 2013, which more than doubles the total foreign debt of Peru which is US$ 30 billion at the end of FY 2013.
Exports are growing at a pace of 25% and reached US$ 28 billion at the end of 2007 and US$ 30 billion at the end of 2010. In FY 2012 Peruvian exports reached a total of US$46 billion.
High technological investment is growing fast in Peru, and will be 10% of the GDP by 2010.
Main export article since 1987.
Coca has a long history of cultivation in the Andes, and has always been a traditional part of Peruvian life. However, the narcotic properties of coca were known only locally until 1786, when Lamarck listed the leaf in his botanical encyclopedia. After the arrival of the Spanish, coca cultivation increased and its use became more common and widespread. Since 1543, coca has been internationally recognized for its trading value, and regulations imposed upon it have attached increasing economic importance to the plant. Exchange of the coca leaf between consumers in the highlands and growers in the low lying hills has gone on for at least the last millennium, strengthening local economic ties. Between 1884 and 1900, coca and cocaine grew in popularity for medical purposes and mass consumption in the United States. From 1905 to 1922, anti-cocaine sentiments in the US resulted in criminalization of both coca and cocaine. It was not until the 1920s that US diplomats began to extend drug prohibitions internationally.
The Peruvian coca and cocaine industry is as huge as it is today because of advanced industrial nations’ demand for drugs. This high demand has created a framework of dependence on "coca-dollars" and on US drug policy. Money from cocaine trafficking feeds local economies, supports inflation, and even causes social changes such as cocaine smoking among indigenous Peruvians. Coca farming today is still a significant source of income for peasants, as it accounts for 48% of total net family income in the high coca-growing Apurimac River region. In an effort to reduce drug use in America, for the past 50 years the US government together with the United Nations have been waging a war on drugs. The US Drug Control Program maintains that "eliminating the cultivation of illicit coca and opium is the best approach to combating cocaine and heroin availability in the US."
With US government cooperation, the Peruvian Government installed the National Plan for the Prevention and Control of Drugs in 1995. This government prohibition of narcotics trafficking in Peru has resulted in a 70% reduction of coca leaf cultivation since 1995. However the reduction in cultivation may not have actual effects on cocaine production, as recent advances in coca growing and more efficient processing methods allow for greater cocaine yield. 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 Peruvian households have economies based on the production, refining, or distribution of coca. 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, 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 Air Bridge Denial program was suspended in April 2001 after the Peruvian Air Force and strength of the U.S. DEA 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. Alternative crops, however, are not economically comparable to coca. 2004 prices indicate an annual income per hectare of $600 for coffee and $1000 for cocoa, versus up to $7500 for a hectare of coca.
Effect on Family Economies
The anti-coca policies imposed in 1995 have had adverse effects on Peruvian’s household economies. Many families dependent on coca farming have been forced to send their children to work as eradication of crops has decreased their household income. In states where coca is grown, child labour increased by 18% in 1997 and 40% in 2000. Work hours and domestic work increased as well, with girls taking on 28% more domestic work with boys doing 13% more. Wage work for adults also increased since 1995. As such, it can be inferred that the increase in child labour since eradication policies have come into effect is caused by children filling in for working parents.
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.
A last case of corruption was the 2008 Peru oil scandal.
Household income or consumption by percentage share:
lowest 10%: 0.8%
highest 10%: 37.5% (2000)
Inflation rate (consumer prices): 2.08% (2010)
revenues: $57 billion (2014 est.)
expenditures: $50 billion, including long-term capital expenditures of $3.8 billion (2010 est.)
Industrial production growth rate: 12% (2013 est.)
Electricity - production: 175,500 GWh (2013 est.)
Electricity - production by source:
natural gas: 44.53%
other: 0.68% (2013)
Electricity - consumption: 133,000 GWh (2013)
Electricity - exports: 32,000 kWh (2013) mainly to Ecuador
Electricity - imports: 0 kWh (2013)
Exports: 63.5 billion f.o.b. (2013 est.) of goods and products. 10.5 billion f.o.b. (2013 est.) of services. Total Exports $73.5 billion f.o.b. (2013) 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: Mainland China 20%, United States 15%, European Union 15%, Brazil 10%, Chile 10% , Japan 5%, Mexico 5%, United Kingdom 5%, Bolivia 5% Rest of Latin America 5%, Rest of world 5%, (2013)
Imports: Total Imports $68 billion f.o.b. (2013)
According to the Ministry of Foreign Trade and Tourism, Peru decided to negotiate trade agreements in order to consolidate the access of Peruvian exports to its most important markets by giving them permanent benefits unlimited in time and coverage as opposed to temporary commercial preferences given unilaterally by certain countries; a system that did not allow Peruvian exporters embark in long-term export-related investments.
Economic Complementation Agreement
|FTA (Free Trade Agreement) currently in force
|FTA (Free Trade Agreement) concluded
|FTA (Free Trade Agreement) in negotiation|
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