Peru: Economy

Peru's economic growth was strong over the 7 years up to 2008, averaging 6.8% a year, resulting from market-oriented economic reforms (which included measures to promote trade and attract investment) and privatizations in the 1990s. GDP grew 9.8% in 2008, 8.9% in 2007, 7.7% in 2006, and 6.8% in 2005. Economic expansion in recent years has been driven by construction, mining, private investment, exports, and domestic consumption. President Alan Garcia and his economic team have continued these policies. Peru's economy is well managed, and better tax collection and growth have been increasing revenues, with expenditures keeping pace. Private investment is rising and becoming more broad-based. Peru obtained investment grade status in 2008. The Garcia administration is pursuing decentralization initiatives, and is focused on bringing more small businesses into the formal economy.

Peru weathered the 2008 global financial crisis well and was one of the few Latin American countries that had a positive growth rate, although GDP grew just 0.9% in 2009 in the face of the world recession and lower commodity export prices. Inflation (annual average) receded to 2.9% in 2009 after jumping to 5.8% in 2008 due mostly to substantial global food and oil price increases; 3 consecutive years of fiscal surplus turned into a deficit of 11.9% of GDP. Thanks to pre-payments, public external debt in 2009 dropped to $20.6 billion or 16.2% of GDP (compared to 70.9% at the end of 1988), and foreign reserves were a record $33.2 billion.

Foreign Trade
Peru and the U.S. signed the U.S.-Peru Trade Promotion Agreement (PTPA) in April 2006 in Washington, DC. The PTPA was ratified by the Peruvian Congress in June 2006 and by the U.S. Congress in December 2007. The Peruvian Government passed several changes to its environmental and intellectual property laws in order to allow the PTPA to enter into force. The PTPA entered into force on February 1, 2009.

Peru’s exports reached $26.6 billion in 2009, partly as a result of lower mineral prices. Peru's major trading partners are the U.S., China, EU, Switzerland, Canada, and Japan. According to U.S. Government statistics, after 9 years of surpluses Peru registered a deficit in its trade with the United States of $371 million in 2008 and $696 million in 2009, exporting $4.2 billion and importing $4.9 billion in 2009. Peru’s exports include petroleum, gold, copper, apparel, tin, coffee, non-ferrous ores, asparagus, fishmeal, zinc, and textiles. Imports include machinery, petroleum products, electrical machinery, plastics, vehicles, steel, and cereals. Peru belongs to the Andean Community, the Asia-Pacific Economic Cooperation (APEC) forum, and the World Trade Organization (WTO). Peru has limited trade agreements with Chile and Mexico; it signed more robust agreements with Canada and Singapore in 2008, and concluded trade agreements with China and the European Union in 2009 and 2010, respectively.

Foreign Investment
The Peruvian Government actively seeks to attract both foreign and domestic investment in all sectors of the economy. Peru’s Central Bank estimates that the stock of foreign direct investment (FDI) was $37 billion at the end of 2009, while the U.S. Department of Commerce reported that U.S. investment in Peru on a historical-cost basis was over $6.2 billion in 2009, making the United States Peru’s largest foreign investor. Spain and the United Kingdom are also leading investors. FDI is concentrated in oil and gas, telecommunications, mining, manufacturing, finance, and electricity.

Mining and Energy
Peru is a source of both natural gas and petroleum. In August 2004, Peru inaugurated operations of the Camisea natural gas project. Camisea gas has transformed Peru’s energy matrix, reducing the country’s dependence on imported diesel and power rationing in drought times. The $3.8 billion Peru LNG project was commissioned in June 2010, the largest investment in a single project ever made in Peru. The plant liquefies natural gas for export to Mexico and possibly the west coast of the United States and other countries, converting Peru into a net energy exporter in 2010.

Peru is the world's top producer of silver, second in zinc, third in copper and tin, fourth in lead, and sixth in gold. Mineral exports have consistently accounted for the most significant portion of Peru's export revenue, comprising 61% in 2009.

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