7/31/2019 Gperu_e Macroeconomic Indicators

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Economics

Nominal GDP (2009)

120.1 bil USD

Population (2009)29.8 million

Total Trade/GDP (2009)

40.1 %

Currency

Nuevo Sol (PEN)

Exchange regime

Managed float

Merchandise imports

from Canada (2009)

357 million

Main sources of foreign

exchange (excl. FDI)

Mineral exports

Largest merchandise

export destination (2009)

US (18.5 %)

Main imports

Intermediate goods

Capital goods

Bond Spreads

PERU

Main Commodity Exports

Economy

Inflation

Currency

0

100

200

300

400

500

600

700

800

900

1,000

80

180

280

380

480

580

680

780

Mar-07 Sep-07 Apr-08 Oct-08 May-09 Nov-09

EMBIG Peru Spread (L)

EMBIG Latin America spread (R)

2.0

2.5

0

1

2

3

4

5

6

7

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

fvr.-09 juin-09 oct.-09

m/m % change

y/y % change

7,000

8,000

9,000

10,000

3.6

3.8

PEN/ USD (L) LME Copper Prices (R)

Real economy: Weak external demand, lower metal prices and tighter international credit conditionsdrove GDP growth down dramatically last year. GDP expanded 0.9% y/y in 2009. Nevertheless, Peru isexpected to grow at a rate that will be well above the Latin American average over the MLT. EDCEconomics forecasts GDP will grow 4.4% in 2010 and 5% in 2011.

External sector: Driven by import demand and a strong currency, the CA deficit is expected to widenmoderately this year. FDI and portfolio inflows are expected to increase significantly contributing to thestrengthening of the sol. Liquidity remains high and the countrys international reserves stand at USD

34bn (equivalent to around 10 months of imports).Fiscal: Public spending will accelerate in response to an increasing number of social demonstrations.In fact, the government has come up with a list of 21 priority infrastructure projects that will start thisyear and has eliminated taxes for some of the poorest families in the country.

Monetary: Faced with decreasing inflation and a strong currency,the CB has cut rates to a record lowlast year and has intervened in the foreign exchange market to control the currencys appreciation. Wedo not rule out further interventions if the sol continues strengthening this year.

Sovereign Ratings

MLT external debt

Fitch BBB-

S&P BBB-

Moody's Baa3

Risks to the outlook

05-09 avg. 2009 2010 2011

7.6 0.9 4.4 5.0

3.0 2.8 1.5 2.0

1.2 -3.5 -1.6 -1.0

28.2 -18.1 17.0 15.8

28.1 -28.3 21.3 14.1

0.5 0.9 -0.8 -0.6

8.4 12.4 10.4 9.9

33.8 25.6 24.7 23.6

16.4 14.7 12.3 11.7

3.2 3.0 2.8 2.8

Sources: EIU, EDC Economics Sources: Haver Analytics, Statistics Canada, EIU, Bloomberg

Debt Service Ratio (due)

Exchange Rate (to USD; eoy)

External Debt (% of GDP)

Reserves (months of curr. debits)

Public Debt/ GDP, NSA (%)

Economic Indicators

Imports (%, comp. annual growth)

Exports (%, comp. annual growth)

Inflation (% chg, pa avg.)

Fiscal Balance (% of GDP)

vlares@edc.ca

Exports vs. Imports

Canadian exports and CDIA ($-M)

Current Account (% of GDP)

GDP (% growth, real)

March/10Veronica Lares

0

50

100

150

200

250

300

350

400

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CDIA (L) Exports (R)

0.30

0.35

0.40

0.45

0.50

0.55

Mar-05 Dec-05 Sep-06 Jun-07 Mar-08 Dec-08 Sep-09

0

100

200

300

400

500

600

700

800

900

1,000

80

180

280

380

480

580

680

780

Mar-07 Sep-07 Apr-08 Oct-08 May-09 Nov-09

EMBIG Peru Spread (L)

EMBIG Latin America spread (R)

0.0

0.5

1.0

1.5

2.0

2.5

Q4-06 Q2-07 Q4-07 Q2-08 Q4-08 Q2-09 Q4-09

Gold prices (Bn. USD)

Copper prices (Bn. USD)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09

Exports, SA (Mn. USD) Imports (Mn. USD)

0

1

2

3

4

5

6

7

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

fvr.-09 juin-09 oct.-09

m/m % change

y/y % change

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2.6

2.8

3.0

3.2

3.4

3.6

3.8

Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

PEN/ USD (L) LME Copper Prices (R)

Sustained FDIinflows

Sustained fall inmetal prices

Real economy: Weak external demand, lower metal prices and tighter international credit conditionsdrove GDP growth down dramatically last year. GDP expanded 0.9% y/y in 2009. Nevertheless, Peru isexpected to grow at a rate that will be well above the Latin American average over the MLT. EDCEconomics forecasts GDP will grow 4.4% in 2010 and 5% in 2011.

External sector: Driven by import demand and a strong currency, the CA deficit is expected to widenmoderately this year. FDI and portfolio inflows are expected to increase significantly contributing to thestrengthening of the sol. Liquidity remains high and the countrys international reserves stand at USD

34bn (equivalent to around 10 months of imports).Fiscal: Public spending will accelerate in response to an increasing number of social demonstrations.In fact, the government has come up with a list of 21 priority infrastructure projects that will start thisyear and has eliminated taxes for some of the poorest families in the country.

Monetary: Faced with decreasing inflation and a strong currency,the CB has cut rates to a record lowlast year and has intervened in the foreign exchange market to control the currencys appreciation. Wedo not rule out further interventions if the sol continues strengthening this year.

7/31/2019 Gperu_e Macroeconomic Indicators

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Political Structure

Presidential Republic

PresidentAlan Garca (APRA)

Prime MinisterJavier Velsquez-Quesqu(APRA)

Legislative Bodies National: Congress (120

seats) Local: 24 departments

divided into provinces andmunicipalities

Major Parties (seats in

Congress) Union for Peru (UP): 45

Aprista Party for Peru(APRA): 36

National Union (UN): 17

Alliance for the Future (AF)13

Other parties: 9

Last Elections

Presidential (second round4 June 2006

Legislative: 9 April 2006

Next Elections

Regional elections: Octobe

2010 General elections: April

2011

Press Freedom Survey: 2008 Score: 44 Partly Free(0: Free; 100: Not Free)freedomhouse.org

Control of Corruption Index 2008 Score: -0.26(-2.5: Worst; +2.5: Best)worldbank.org

March 2010Jorge Rave

jrave@edc.ca

Political OutlookFollowing the June 2009 Amazon crisis, President Garcia undertook a third Cabinet reshuffle since he came to power in 2006.The crisis proved that the Garcia administrations ability to deal with indigenous demands is questionable, and this is thereforeexpected to have important implications for the countrys political and investment environment in the short to medium term, asprivate investors interested in the extractive sector in Peru are likely to face significant legal, reputational and operational risks.Garcias declining popularity, added to the slow progress shown by the dialogue process with the countrys Amazonian nativeswill continue to dominate domestic politics for most 2010.

General Political Environment: In June 2006, former president Alan Garca was re-elected aftergarnering approximately 53% of votes in a presidential run-off against radical leftist candidate OllantaHumala. Garca was first president from 1985-1990, at a time of social and economic turmoil withinPeru. Nearly four years into his current term, the landscape is markedly different with the governmentpursuing prudent macroeconomic policy and investor-friendly market policies.

Garcas Aprista Party for Peru (APRA) holds only a minority position in the 120-seat Congress. Thisrequires that the president build political alliances within the legislature to ensure policy progress. In anattempt to do so, President Garca has sought to have diversified cabinets comprised of moderate andpro-market individuals.

Despite Perus 10-year economic boom, Peru still lacks basic infrastructure in most parts of its territoryand it continues to experience high poverty rates. As a result, there is growing public discontent over thegovernments perceived inability to ensure a wider distribution of wealth at a time of rapid economicgrowth, and Peru is witnessing an increase in protest and strike activity. This, added to the negativeeffects that the global economic downturn is having on the countrys economic stability, may be pavingthe way for the resurgence of radical populist and former presidential candidate Ollanta Humala for the2010 regional and 2011 presidential elections. The government has attempted to address the issuethrough an increase in public investment in infrastructure across the country.

In July 2009, President Garcia undertook the third reshuffle of his cabinet since he came to power,following the recent political crisis in the Peruvian Amazon where 23 policemen and 9 civilians werekilled. Speaker of Congress Javier Velsquez Quesqun was named Chief Minister following YehudeSimons resignation. Simon announced that he intends to contest the 2011 presidential election.

Investment Environment: The government remains committed to pursuing an investor-friendlybusiness climate. Perus Foreign Investment Law offers automatic investment authorization and nationaltreatment to foreign investors.

Foreign currency may be used to acquire goods abroad or cover financial obligations so long as theoperator is in compliance with the relevant Peruvian tax legislation. There are no barriers to profitremittances and capital repatriation. Although the government has recognized the problem of allegationsof judicial corruption and is taking steps to reform the judiciary, progress on this front is expected to takesome time.

Under Garcia, Peru has maintained an aggressive trade policy that has allowed it to sign Free Trade

Agreements (FTA) with the US, Chile, Singapore, Thailand, China and Canada, which has already beenratified by Canadian Parliament and came into effect on 1 August 2009. Peru is currently negotiatingsimilar agreements with the EU and South Korea.

Building on the procedural protections included in the Canada-Peru Foreign Investment Promotion andProtection Agreement (FIPA), the Canada-Peru FTA is expected to influence the development ofnational laws through the promotion of good governance (e.g. respect for rule of law, transparency),which generally leads to a better investment climate.

Political Violence: Groups involved in violence for political ends, including the Shining Path (SenderoLuminoso, SL), were weakened by the counter-insurgency campaigns of the 1990s. Although there isevidence of their involvement in drug trafficking and kidnapping, insurgent activity poses little risk toforeign firms operating in the country, unless they are operating in remote rural areas where somegroups remain active, specifically in the VRAE region.

In June 2009, a clash between Peruvian police and indigenous protesters in Perus northeastern

Amazon region over a series of decrees issued by President Garcia seeking to boost the governmentsability to grant concessions for private projects in the extractive, forestry and hydroelectric sectors in theAmazon region, resulted in fatalities on both sides, as 25 policemen and 9 indigenous were killed.