Peru - Economic analysis of government policies, investment climate and political risk.

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ECONOMIC POLICY

ANALYSIS

PERU: Economic Policy Analysis

This site presents an analysis of Peru government's economic policies compared to a revised list of 34 economic policies as prepared by Ms. Hellen Li with the McKeever Institute of Economic Policy Analysis (MIEPA) in December of 2005. To read the analysis scroll through this site. To learn more about the background policies, click here  Introduction and Policy Recommendations

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Hellen Li, a Peru native who currently [December 2005] lives in San Francisco, has completed a study of her home country government's economic policies as compared to the MIEPA list of policies as outlined above. The study on Peru is shown below. The ratings herein are based on the following rating scale:

RATING SCALE

5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2005. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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PERU

Comparison of Peru's economic policies to MIEPA criteria as prepared by native student of Peru, Ms. Hellen Li, studying in the US in December of 2005.

RATING SUMMARY

POLICY NUMBER      RAW SCORE   ADJUSTED SCORE    POSSIBLE   PERCENTAGE

        1               4.0          12.0             15.0        80 %

        2               2.5           7.5             15.0        50

        3               1.5           4.5             15.0        30

        4               1.5           4.5             15.0        30

        5               3.0           9.0             15.0        60

        6               3.0           9.0             15.0        60

        7               4.0          12.0             15.0        80

        8               2.5           7.5             15.0        50

        9               2.0           6.0             15.0        40

        10              4.0          12.0             15.0        80

        11              4.0          12.0             15.0        80

        12              4.0           8.0             10.0        80

        13              4.0           8.0             10.0        80

        14              4.0           8.0             10.0        80

        15              3.0           6.0              6.0        60

        16              3.0           6.0             10.0        60

        17              2.5           5.0             10.0        50

        18              1.0           2.0             10.0        20

        19              2.0           4.0             10.0        40

        20              3.0           6.0             10.0        60

        21              3.0           6.0             10.0        60

        22              3.0           6.0             10.0        60

        23              3.0           6.0             10.0        60

        24              2.0           4.0             10.0        40

        25              1.0           2.0             10.0        20        

        26              2.0           4.0             10.0        40

        27              2.0           4.0             10.0        40

        28              3.0           6.0             10.0        60

        29              4.0           4.0              5.0        80 

        30              4.0           4.0              5.0        80

        31              4.0           4.0              5.0        80

        32              3.0           3.0              5.0        60

        33              3.0           3.0              5.0        60

        34              3.0           3.0              5.0        60

   TOTAL               98.5         208.0            375.0        55.5%
                      =====        ======            =====        =====

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INDIVIDUAL POLICIES

1. - Freedom of Internal Control: 4

The Government generally respected the human rights of its citizens; Peruvians are free to go anywhere. There are no restrictions on where one wants to go. When the citizens travel inside the country does no need to have an passport or stamp, they will only need their IDN (National Document of Identity, ID).

Personal Information

2. - Freedom of Speech: 2.5

In Peru, the exercise of the freedom of expression is not protected, in practice, by effective judicial guarantees for the investigation and punishment of the abuses and crimes committed against journalists and to make reparation to the victims. This situation of impunity in the face of a specific case at the same time has a chilling effect on society as a whole. At the same time, on several occasions the judicial branch has been used by public officials to harass investigative journalists and opposition politicians.

http://www.cidh.org/countryrep/Peru2000en/chapter5.htm 12/03/05

3. - Effectiveness of Police Force: 1.5

Because of the corruption and poverty in Peru, the police forces are on the side of the rich or who gives them money. Therefore, the population does not trust police forces and sometimes communities do their own rules. For instances, Unions throughout the country have been striking and protesting for better living conditions and against some of President Alejandro Toledo?s economic policies during the past year. For example, in April 2002, the government had to halt plans to privatize part of their electrical plants in the town of Arequipa following mass demonstrations. Two demonstrators died in circumstances suggesting that the security forces used excessive force to disperse protesters. Social and economic rights are far from being fulfilled in a country were according to the Peruvian Institute of Statistics, over 50 percent of the population live in poverty.

http://web.amnesty.org/library/Index/ENGAMR460102003?open&of=ENG-2M3 12/03

4. - Private Property: 1.5

Peru, covering a land area of 149 million square kilometers, is the third largest country in South America behind Brazil and Argentina. The country is home to 25 million people.

In Peru, 54 percent of the population is in poverty, and that means that the people do not have enough income for their every day meal. Therefore, they do not have the ability to own a home. So, they build unsanitary houses around the hills of the large cities. There is no law that reinforces private poverty or preventing low income people building houses.

http://www.realtor.org/intlprof.nsf/All/Peru?OpenDocument 12/03

5. - Commercial Banks: 3

Peru's banking system is composed of 14 commercial banks and 26 municipal and rural savings banks, together with four government-owned entities: the Central Bank (Banco Central de Reserva del Peru, or BCRP), the government's financial agent (Banco de la Nacion), and two development banks (COFIDE and the Agrarian Bank). The commercial banks--along with five finance and six leasing companies--are regulated by the Superintendency of Banks and Insurance (known by its Spanish initials, SBS).

http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr121168e.html

6. - Communication System: 3

General assessment: adequate for most requirements. Domestic: nationwide microwave radio relay system and a domestic satellite system with 12 earth stations, and international: country code - 51; satellite earth stations - 2 Intelsat (Atlantic Ocean); Pan American submarine cable. There are 1,839,200 using main phone lines, and 2,908,800 people using mobile in 2003

http://www.countryfacts.com/peru/communication/

7. - Transportation: 4

Driving in Peru, whether in the city or on the highway, can be an adventure. Transit in this country is chaotic. If you are traveling in the city, taxis are highly recommended, especially in Lima given the size of the city and the mess of traffic. The buses are found only in the main cities, and they can hold twenty to forty passengers. In Peru, there are two ways to travel by bus between towns. The first option involves buses, called ?caleteros? that stop in every town along the route. Direct buses are more expensive but a lot better. In Peru, the company in charge of the railway system is the ?Empresa Nacional de Ferrocarriles? (ENAFER) or the National Railway Company. There are two routes in the country; the touristiest and widely used is the Southern one, linking Arequipa with Juliaca, Puno and Cusco, or Juliaca and Puno. The last route departs from Cusco to Machu Picchu and Quillabamba, though the stretch to this last destination is interrupted. The other railroad links Lima with Huancayo and Huancavelica, however, the first stretch is not in service. The best ones are Pullman or buffet; then, first class, business/tourism and the always-overcrowded second class. For the route from Cusco ? Machu Picchu there is an auto coach, a kind of faster but costlier electric train.

http://peru.gotolatin.com/eng/Info/Hbook/Xport.asp

8. - Education: 2.5

The quality in turn of education in school, especially governmental education, is pretty low. There is not enough budget and current technology, like computers and access to the internet in schools. Comparing with other nations, in special with the USA, that in every library can have access to any internet program; there almost none in Peru. The rate of education has increase, almost double since 1980s.

http://www.normangall.com/brazil_art11_4.htm

9. - Social Mobility: 2

In Peru, because of the level of corruption and poverty, high class people do not hire or contract lower income people. There is lot of family recommendations among other. People need to have influence if they want to find a good job. It does why most people immigrate overseas to get out of the corruption.

Personal information

10. - Freedom from Outside Control: 4

In June 26 of 2001, Venezuelan authorities said Montesinos was arrested in Caracas, Venezuela, over the weekend and deported Monday to Lima. Montesinos was head of Peru's intelligence agency for nearly a decade under Peruvian President Alberto Fujimori, who resigned after allegations against Montesinos began to surface; he is now in self-exile in Japan. The Venezuelan authories and the FBI helped accelerated the capture of Montesinos.

http://www.aprodeh.org.pe/noti-apr/2001/25jun2001.htm

11. - Foreign Currency Transactions: 4

Peru currency is very stable, there is only one currency around the nation, and it's called Sol (Sun). However, in the Lima (Capital of Peru) because of the tourist and foreigners tend to received Dollars and then exchange them with the current rate.

http://search.yahoo.com/bin/search?p=common%20laws%20and%20peru

12. - Government Control of the Borders: 4

The Constitution provides for the right of free movement; however, passengers on public transportation and drivers in private vehicles may be checked at control points throughout the country. Until February the Government suspended the right of free movement in emergency zones, which had covered approximately 5 percent of the country in 1999, and travelers, including human rights monitors, could be prohibited from traveling to those areas. The Government eliminated all emergency zones in February.

http://www.state.gov/g/drl/rls/hrrpt/2000/wha/index.cfm?docid=827 11/30/05

12. - Government Control of the Borders: 4

The Constitution provides for the right of free movement; however, passengers on public transportation and drivers in private vehicles may be checked at control points throughout the country. Until February the Government suspended the right of free movement in emergency zones, which had covered approximately 5 percent of the country in 1999, and travelers, including human rights monitors, could be prohibited from traveling to those areas. The Government eliminated all emergency zones in February.

http://www.state.gov/g/drl/rls/hrrpt/2000/wha/index.cfm?docid=827 11/30/05

13. - Currency Issue: 4

The Central Bank is the only one that issues the Peruvian currency called Soles, and is the one who preserves the value of it.

http://www.state.gov/g/drl/rls/hrrpt/2002/18342.htm

14. - Cultural & Language: 4

The official language in Peru is Spanish, more than 95% of the population speak Spanish and understand it. Only in an isolated area, such in the amazonic part or high mountains that people do not have communication; speak Aymara, Quechua or other native amazonic dialects.

Personal Information

15. - Political Effectiveness: 3

Peru is a multiparty republic with a dominant executive branch that for most of the year used its control of the legislature and the judiciary to the detriment of the democratic. There is not much help from national agencies but more from foreign agencies that provided food, clothing and others necessities to the needed families. For instances, a relief effort was launched in 1998 to help families devastated by the effects of El Nino. Emergency supplies were distributed to 220 families from Chosica, Morón, Santa Teresa in Cuzco and Chiclayo in urgent need. The shipment included blankets, water purification tablets, first aid kits, and clothing. In June 2000, an earthquake measuring 7.9 on the Richter scale struck coastal Peru, causing 78 deaths, 2,723 injured and leaving more than 222,423 in need of assistance. In 2000, World Vision provided aid to more than 5,000 families in need after an earthquake measuring 7.9 on the Richter scale struck Arequipa, Camana, Moquegua, Tacna and Pausa.

http://www.state.gov/g/drl/rls/hrrpt/2000/wha/index.cfm?docid=827 11/30/05

16. - Institution Stability: 3

Some of the most important libraries in Peru are located in the larger cities and are affiliated with the major universities. Within the various libraries of the National University of San Marcos in Lima are more than 450,000 volumes. The National Library (1821), in Lima, houses more than 3.2 million books and other items. In 1866, President Prado established free Dominican schools. And in 1907 President Prado and Berreda established secondary education to be for five years. Then, in 1992, the National Institution of Infrastructure of Education (INIED) transferred to Ministry of the Presidency.

http://www.orquidea.net/peru_general_info.htm 10/29/05

17. - Honest Government: 2.5

The Transparency International ranked Peru number 74 in its 2004 Corruption Perception Index (out of 145). While others countries such as Chile ranked 20, Brazil 59, Colombia 60 and Argentina 108.

http://www.state.gov/e/eb/ifd/2005/43037.htm

18. - Common Laws: 1

There is a wide gap of inequality between the rich and the poor excess. More than 54% of the population is below poverty line. The poor and the rich are divided in social and economic status.

http://www.workers.org/ww/peru.html11/11/05

19. - Central Bank: 2

The Central Reserve Bank was created in March 9th, 1922. Its main mission is to keep the value of the currency stable. In the past years, the sol (Peruvian currency) was the same with a slight increase and decrease of few cents. Its objective is to inform the finances through different newsletters that the Bank public every month.

In the presidency of Fujimori the Reserve Bank was corrupted by the government, naming the president of the Reserve Bank Vice-president of Hacienda. (5/12/01)

http://www.bcrp.gob.pe/ 10/28/05

19. - Central Bank: 2

The Central Reserve Bank was created in March 9th, 1922. Its main mission is to keep the value of the currency stable. In the past years, the sol (Peruvian currency) was the same with a slight increase and decrease of few cents. Its objective is to inform the finances through different newsletters that the Bank public every month.

In the presidency of Fujimori the Reserve Bank was corrupted by the government, naming the president of the Reserve Bank Vice-president of Hacienda. (5/12/01)

http://www.bcrp.gob.pe/ 10/28/05

20. Domestic Budget: 3

Tax Revenue ? Expenditures = 0 The total revenue (Tax revenue+ None Tax-revenue) in 1999 was 14.5%, while in 2000 was 14.7%. The total expenditure (Current expenditure + Capital expenditure) in 1999 was 15.9%, while in 2000 was 15.5%. Therefore, there is a deficit in government spending of 1.4% in 1999, and there a slight decrease of 1.2 in 2000.

http://www.bcrp.gob.pe/English/WPublicaciones/memory2k/ING%2004%20public.pdf 11/15/05

21. Government Debts: 3

Annual payments for 2004 were 24,466 in millions of dollars while the GDP of 2004 was 155.3 billion of dollars. Annual payments / GDP=15.7%

http://www.peru.com/finanzas/idocs2/2005/5/2/DetalleDocumento_209985.asp 10/31/05

22. Economic Statistics: 3

Peru's October (2002) tax revenues rose to 1.93 billion soles (US$ 581 million). The October tax take represented a 7.3% increase in real terms over the same month last year but remained below the 2.05 billion soles in revenues generated in September. A 5.4% rise in sales tax collection and a 15.4% jump in income tax revenues were keyed to the boost in the tax collection observed in October. The household income or consumption by percentage share was lowest 0.08%, and the highest 37.2% in 2002.

http://www.latin-focus.com/latinfocus/briefings/2004/0411_briefings/Peru2.htm 11/30/05

23. Protection in Public Health Safety: 3

Peru is one of the countries with high rates infant mortality. Comparing with the World Health Mortality raters in selected countries, Peru stands in the middle with 43. However, Peru was one of the successful countries combating the TB, by following the Organization of Health requirements.

http://www.prb.org/Content/NavigationMenu/PRB/Educators/Human_Population/Health2/World_Health1.htm; http://www.minsa.gob.pe/portal/03Estrategias-Nacionales/04ESN-Tuberculosis/tbc.asp

24. High Wage Policy: 2

Peru is one of the countries that have statutory minimum wage below the high poverty line measure ($60 per month). Forty-one percent of the population is below natural poverty line. Peru?s labor force is growing by 2.6 percent per year (it?s a little bit higher comparing with Latin American and Caribbean countries that average is 2.5) And the population is growing faster as well, 1.7 percent per year.

http://www.ethicaltrade.org/Z/lib/2000/06/livwage/index.shtml 10/23/05

25. Environmental protection: 1

There is a poor environmental regulation in Peru. Because of the traffic of vehicles, because of the unclean smoke, because of the lack of transportation improvements, there is no regulation about having a clean or a healthy environment.

http://www.jmarcano.com/matices/notas/nota01.html 9/25/05

26. Strong Army: 2

Despite of the high training in the military, there is not enough armaments and competitive technology to prevent invasion from neighbor countries; because there is not enough protection against invasion. There is a decreased in National security within the last 13 years. The statistic shows that?in 1989 there was 14.26%, 1992-12.90%, 1994-10.56%, till the present day 8.76%. There was an increased from 1999 to 2001 of 0.1% relative with the GDP. Compare with other countries Peru has 1.9 while Chile has 3.1 and Colombia 3.7% out of their GDP.

http://www.monografias.com/trabajos16/fuerzas-armadas-peru/fuerzas-armadas-peru.shtml 9/17/05

27. Foreign trade impact: 2

The impact of exports and imports is not very affective. The economy doesn?t depend highly on imports and exports. The productivity is focus on natural resources such as fishing, mining, and agriculture.

Peru GDP is $155.3 billion

Export: $12.3 billion fob

Import: $9.6 billion fob.

Export+Import/GDP=14%

http://www.exxun.com/Peru/e_ec.html 9/27/05

28. Protection of foreign currency earning enterprises: 3

INDECOPI (National Institute of Defense of the Competence and Protection of the Intellectual Property), it was created in 1992 to promote the Peruvian Economy. It objective is to promote and guarantee the loyal competence, to preserve the rights of the consumer and the intellectual property. It helps control that all business needs to follow the right step to open a small business, to have the right license, documents, etc. Peru has approved on May 2004 a specific law "LEY N° 28493" dealing with spam e-mails. The law will be applicable as soon its regulation will be approved by the Ministry of Transport and Communication. This law will help INDECOPI regulate and enforce competition.

http://www.indecopi.gob.pe/quienessomos/presentacion.asp 10/16/05

29. Management of foreign currency budget: 4

Peru has a slight surplus in trade. The Total percentage of exports in 2000 was 0.78% while in 2001 was 0.77%. And the Total percentage of imports was 0.75% in 2000 keeping the same percentage in the following year. Peru does well exporting clothing 8.8% in 2000, and 8.9% in 2001, also exports cooper, blister and refined 13.8% in 2000 and 13.1 in 2001, and also, None-ferrous ore and concentrates 11.7% in 2000, and 12.8% in 2001. Peru is importing crude oil 8.3% in 2000, and 8.1 in 2001.

http://www.unido.org/data/Country/Stats/StaTableF.cfm?ShowAll=Yes&c=PER 10/9/05

30. Layers of Collective Action: 4

Peru is divided into 24 departments and the constitutional province of Callao, the country's chief port, adjacent to Lima. The departments are subdivided into provinces, which are composed of districts. Authorities below the departmental level are elected. The citizens choose their Major by a popular election. Every citizen has the right to vote, it?s secret, free and obligatory. There is an election every 5 years, on the 2nd Sunday of April. The person who is elected must received half of the vote of the population, the void and blanks votes do not count.

Personal Information

31. Pro Business Climate: 4

The Business Climate is very appealing and incentive. There is a strong initiative by the government to attract foreign and national investors. Encourage investments and technological development, by creating a propitious environment to establish new industries and export services; Free initiative and private investment, equal applicable rights and obligations Automatic authorization

http://www.washingtonpost.com/wp-adv/specialsales/spotlight/peru/investors.html 9/17/05

32. Government Enterprises: 3

In 1965, there were 20 government enterprises. In 1990, there were 226. But because of the inflation of the coming year, 1991, 20 enterprises lost more than $400 million. It meant the decrease of the overall GDP by 4%. Companies like ENAFER, ENAPU, Corpac, Aeroperu and others were subject of privatization to generate revenue and combat the inflation.

http://www.cideiber.com/infopaises/Peru/Peru-09-03.html 9/10/05

33. International Security Agreements: 3

Peace agreement between Chile and Peru, subscribed in June 3rd, 1929. Peace agreement between Ecuador and Peru, subscribed in January 29th, 1942.

http://www.difrol.cl/html/110E.htm 9/12/05

34. Protection of Domestic Enterprises by the Government: 3

To open an enterprise in Peru it needs 102 days, while Colombia only needs 43 days, Argentina 32 and Chile 27; this information is given by the Global Bank. Other ways Peru is better off in turn of exportation on the Latin America because it will only need 24 days, while in Colombia 34 and Brazil 39 days. Also, Colombia, Guatemala, and Peru reduced their tariff. Colombia reduced its tariff from 5 to 2, Guatemala from 4 to 2, and Peru from 6 to 2. And Panama authorizes the payment of foreign trade.

http://www.24horas.com.pe/economia/2005/09/14/020.php 9/10/05

DISCLAIMER

All the information and conclusions in each country analysis are solely the responsibility of the individual student and have not been verified, corrected, checked for copyright infringement or evaluated in any way by MIEPA or Mike P. McKeever. You are solely responsible for the results of any use you make of the information and conclusions in these studies. Use them at your own risk as interesting supplemental information only instead of seasoned judgements about the policy factors contained herein. Each student has granted permission for his or her work to be displayed here under his or her own name or wishes to remain anonymous and have either created a pen name or used no name at all; if you wish to contact them for any reason, forward your request to MIEPA and the student will be notified of your interest.

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CONTENTS OF SITE

Return to MIEPA's Home Page list of country studies

Introduction and Policy Recommendations

Winning Essays: There Are Alternatives Project (TAA)

Essay: Balanced Trade: Toward the Future of Economics

Moral Economics

McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS

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