Transcript No Slide Title

Embassy of Peru
British-Peruvian Trade and Investment
Group Meeting
15 April 2004
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
2
Executive Summary

Peru’s 2003 growth of 4% was among the highest in the region. For 2004 we
project again GDP growth of 4%

Strong economic fundamentals have allowed Peru to weather the regional
and international turmoil

Peru is undertaking measures to ensure sustainable economic growth by
promoting private investment and fostering regional and output diversification

The strengthening of the tax collection system has accounted for additional
revenues of 1% of GDP in 2003. Recent tax measures should further
increase tax collection by 0.8% of GDP

2004 growth will be driven by: Camisea Gas Project, growth of textile industry
fostered by ATPDEA and recovery of the international economy
3
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
4
Peru’s economy has grown consistently over the
past two years
Transition Gov
Toledo Administration
11
9,0
8
5
1,7
2
1,3 1,3
2,6
3,6 3,5
8,4
5,6 5,2
5,2 4,8
2,3
6,6 6,4
4,8
4,0
4,4
5,2
6,0 6,1
5,7
3,4 3,1 3,6
3,1
4,1
1,5
1,1
3,1 3,0
0,9
-1
-4
-1,0
-1,1-1,6
-3,5
-4,9
-7
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
2004E
8
6
4.0
4.5
5.0
Jul-02
2005F
4.5
3.5
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
7.5
4.5
3.5
4
Oct-02
4.5
3.7
3.4
2.9
4.0
4.4
3.5
3.2
2
0
Peru
Chile
Colombia
Mexico
Ecuador
Argentina
Brazil
Latin America
Source: INEI (above) and JPMorgan (below)
5
The recovery has been broad-based across
different sectors
Q3_03
Q4_03
2003
2004(F)
Agriculture
2.5
-0.3
2.3
2.1
Fishing
-9.2
-11.5
-13.4
10.7
Mining and fuel
7.5
4.2
6.7
7.1
Manufactring
1.8
-0.2
2.1
4.7
Based on raw materials
-0.9
-5.2
-2.8
6.3
Non primary
2.5
1.2
3.4
4.3
Construction
2.6
3.2
4.0
5.2
Commerce
3.2
0.7
3.6
3.1
Other services
3.2
4.7
4.4
3.6
GROSS AGGREGATED VALUE
3.1
2.7
3.7
3.9
Taxes on products and import duties
5.8
4.2
6.3
4.6
GDP
3.4
2.8
4.0
4.0
Primary sectors gross aggregated value
3.5
0.2
2.5
4.7
Non-Primary sectors gross aggregated value
3.0
3.3
4.0
3.7
Source: INEI, MEF
6
…while expanded ATPDEA benefits are expected to
boost non-traditional exports even further

ATPDEA benefits granted by the US to
Andean countries are expected to
increase Peru’s exports to the US by an
average of 13% per year between 2004
and 2006

Recent participation in Mercosur
provides easier access to exports to the
Brazilian market

Camisea´s cheaper energy will increase
competitiveness and turn oil-related
trade accounts into surplus
Destination of Peru’s Exports
(% of total exports)
Latin
America
15%
USA
27%
Europe
33%
Other
7%
Asia
18%
Source: MEF

Peru is expected to start FTA
negotiations with the US in 2Q_04
7
…and private investment has started to recover
Global demand
Internal demand
Private consumption
Public consumption
Gross domestic investment
Gross fixed investment
Private
Public
Exports
Global supply
GDP
Imports
Q3_03
Q4_03
2003
2004 (F)
3.4
2.7
3.9
4.3
3.7
2.9
2.7
8.0
4.7
6.5
-4.5
1.8
2.5
2.6
7.3
-0.6
4.5
2.8
11.8
3.9
3.7
3.2
4.5
5.2
4.9
5.2
3.4
5.0
3.1
3.2
3.1
2.5
5.6
5.7
5.1
10.8
3.4
3.4
3.5
2.7
2.8
2.0
3.9
4.0
3.5
4.3
4.0
6.2
10
5,2
5,7
2003
2004(F)
0,2
-0,6
0
-4,5
-10
-20
-19,7
-30
1999
2000
2001
2002
Source: Central Bank, MEF
8
Higher non-traditional and mining exports are
pushing the trade balance into surplus
Evolution of Imports and Exports
(US$ BN)
12,0
Exports
Imports
10,9
11,0
10,0
8,9
9,0
8,6
8,3
8,2
8,0
7,6
7,4
7,0
8,9
6,8
6,8
7,0
7,3
7,4
7,0
6,1
6,0
5,8
5,0
1997
1998
1999
2000
2001
2002
2003
2004(F)
Source: Central Bank, MEF
9
The current account deficit is mostly financed by
long-term capital inflows
Current Account Deficit and Long-Term Flows
(US$ MM)
CA Deficit
FDI* + Long-Term Loans
5250
4640
4750
4250
3648
3750
3428
3390
3250
2785
2750
2427
2343
2457
2394
2154
2250
2032
1738
15571543
1519
1750
1231
1250
1206
1184
1000
904
1309
1116
750
1300
525
250
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004(F)
Source: Central Bank
* FDI figures exclude privatization proceeds
10
Inflation remains within the 1.5% to 3.5% target
range
Inflation Evolution
(% LTM)
4
3,4
3
2
1
0
-1
-2
J-01
A-01
J-01
O-01
J-02
A-02
J-02
O-02
J-03
A-03
J-03
O-03
J-04
Inflation - Comparative Analysis
(% Dec/Dec, 2003E)
40.0
20
15
12,0
10
5
1,3
2,3
4,0
14,1
6,1
1,0
0
Panama
(Ba1/BB)
Peru (Ba3/BB-) Chile (Baa1/A-)
Mexico
(Baa2/BBB-)
Colombia
(Ba2/BB)
Russia
(Baa3/BB+)
Jamaica (B1/B)
Dom Rep
(B3/CC)
Source: Central Bank (above) and Moody’s and S&P (below)
11
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
12
Prudent monetary policy has reduced interest
rates while maintaining price & FX stability
Nuevos Soles Interbank Lending Rate
(%)
16
12
8
4
2,5
0
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
Source: Central Bank
13
The Nuevo Sol has been resilient to the pressures
experienced by other Latin American currencies
Latin American Currencies
(Jan 1 2002 =100)
(%)
Brazil
Chile
Colombia
Mexico
Peru
220
200
180
160
140
120
100
80
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Source: JPMorgan
14
Peru’s external liquidity position continues to
strengthen, while FX reserves are growing
Net International Reserves
(US$ BN)
10,5
10,4
9,6
8,8
8
Ene-01
Jun-01
Nov-01
Abr-02
Sep-02
Feb-03
Jul-03
Dic-03
Months of Import Coverage - Comparative Analysis
(In months, 2003E)
16
14,8
11,3
12
10,0
8,7
8
3,5
4
0
Peru (Ba3/BB-)
Chile (Baa1/A)
Colombia (Ba2/BB)
Russia (Baa3/BB+)
Mexico (Baa2/BBB-)
Source: Central Bank (above) and S&P & Moody’s (below)
15
Financial sector indicators continue to
strengthen...
11
10
9
8
7
5,8
6
5
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
(%)
Net Interest Income / Interest Income
1.40
1.3
Return on Assets
73.9
71.2
1.2
66.1
1.05
1.1
0.8
0.70
53.4
0.8
50
44.3
42.8
70
60
51.9
46.9
80
0.4
0.35
40
0.3
0.3
0.00
30
1997
1998
1999
Source: Superintendencia de Banca y Seguros
2000
2001
2002
2003
Feb 2004
16
…as bank lending in soles increases...
(US$ MM)
(PEN MM)
US Dollars
11,500
10,000
Soles
11,000
9,500
10,500
9,000
10,000
8,500
9,500
9,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
8,000
Jan-04
Source: Central Bank
17
…and domestic issues become largely
oversubscribed
Amt Auctioned
357
400
256
100
100
268
252
247
198
168
164
151
146 160
125
124
100
101
100
100
96
92
80
70
58 50
50
50
50
50
50
30
192
185
200
100
316
277
300
Amt Demanded
100
100
100
50
50
123
100
100
50
0
Issue Date:
Maturity:
Mar Abr
May May Jun Jun
Jul Aug Sept Oct Nov
Jul
Ene Ene Feb Feb Mar Mar
Oct
Nov
Dic
Dic
(6/04) (10/04) (10/04) (1/05) (6/05) (6/10) (6/08) (6/05) (8/06) (6/08) (8/06) (08/06) (10/07) (10/07) (7/08) (12/13) (708) (1/14) (8/06) (2/09) (2/09) (3/10)
Interest Rates (multiple maturities)
(%)
10
9
8
7
6
5
4
Issue Date
9.5
5.9
Apr
Maturity
Source: MEF
5.7
May
2004
5.9
Jun
4.7
5.0
4.7
4.9
5.0
Jul
Aug
Oct
Nov
Feb
2005
2006
5.9
6.2
Oct
Nov
2007
Jul
6.9
6.6
6.5
Sept
Dec
Jan
2008
7.3
7.5
Feb
Mar
2009
18
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
19
On the fiscal front, the ongoing efforts to boost
tax collection are yielding impressive results

Tax measures implemented in 2002-2003 were aimed at widening the tax base,
and curb evasion by strengthening the tax collection agency

As a result of past tax measures, revenues are expected to increase by 1% of
GDP on an annual basis

Recent tax measures are expected to increase revenues an additional 0.6% of
GDP for 2004
Internal Tax Collection
(% change yoy)
45.0
30.0
11,1
15.0
0.0
-15.0
-30.0
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
Source: SUNAT
20
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
21
The macroeconomic framework 2002-2006 points to a
consolidation of the economic recovery
Macroeconomic Framework
GDP growth rate (%, yoy)
2002
2003
2004F 2005F 2006F
4.9
4.0
4.0
4.5
5.0
-2.1
-1.8
-0.8
-0.8
-0.8
Inflation (% change, Dec-Dec)
1.5
2.5
2.5
2.5
2.5
Exports of Goods and Services (%-change, yoy)
8.6
17.1
22.5
5.6
7.3
Current account (% of GDP)
Non-Financial Public Deficit (% of GDP)
-2.3
-1.9
-1.5
-1.0
-0.5
Primary Balance (% of GDP)
-0.3
0.1
0.6
1.2
1.8
Total Public Sector Debt (% of GDP)
47
47.5
45.0
43.1
40.7
Source: MEF & Central Bank
22
Peru has a flexible and manageable financing
plan for 2004
Millions of US Dollars
Uses
2004F
2574
Amortizations
1628
Fiscal Deficit
946
Sources
2574
External
2075
Multilateral
Bonds
Project Related
Other
Internal
600
1000
450
25
499
Local Market Bonds
550
Other
-51
Source: MEF
23
Agenda
 Executive Summary
 Economic Update
 Financial Developments
 Fiscal Policy
 Government Debt
 Trade & Investment
24
TRADE PERU-UK
The UK is Peru's first trading partner in the EU and second market for Peruvian exports after
the US, with 12.32% in 2003. Exported value is US$ FOB 1 092.48 m in 2003.
Main Peruvian exports during 2003 have been gold (89.52%), refined copper (2.16%),
fishmeal (1.99%), tin (0.84%), grapes (0.71%), asparagus (0.65%), coffee (0.56%),
mandarines (0.27%), avocado (0.21%) and zinc oxid (0.21%).
BILATERAL TRADE PERU-UK 2003 (in m US$)
1998 1999 2000 2001 2002 2003
EXPORTS (FOB) 267
562
581 935 873 1 092
IMPORTS (CIF)
93
82
93
175
480
488 844
TOTAL TRADE 360
644
675 1,025 947 1172
BALANCE
90
74
80
799 1013
25
BRITISH INVESTMENT IN PERU
The UK is the second source of long term investment for Peru, after Spain. The
framework for British investment is the Bilateral Investment Treaty of 1993.
In2003, British investment was US$ 2,734 m, 22% of the accumulated stock.
In 1990, UK investment was the third and rose from 7.54% of total stock
beginning the 90s, to 22%.
UK investment is mainly in mining, communications, finance, trade, industry,
service, energy, tourism, transport, agriculture, construction, housing and oil.
The UK supported recently the IADB financing for the Camisea natural gas
project.
26
BRITISH INVESTMENT IN PERU
Total UK %Gth %FDI Rank
1990 1,304
98
-
7.53
3º
1991 1,337 107
9
8.01
3º
1992 1,504 127
18
8.45
3º
1993 1,642 142
11
8.64
3º
1994 4,451 380
168
8.53
3º
1995 5,060 520
37
10.27 3º
1996 6,237 774
49
12.41 3º
1997 7,280 1,000
29
13.74 3º
1998 8,076 1,274
27
15.78 3º
1999 9,475 2,021
59
21.34 2º
2000 10,907 2,184
8
20.02 2º
2001 11,604 2,362
8
20.36
2º
2002 12,273 2,696
14
21.96
2º
2003 12,396 2,735
1.5 22.06
2º
27
YUNCAN HYDROELECTRIC CENTRAL
Enersur was awarded, by offering US$ 205 m, the contract of use for Yuncan, signed on Feb 16
2004. The payments are US$ 57.6 m as contract right, US$ 124.5 m in 17 years as use right
to pay the Japanese Bank for International Cooperation and US$ 23 m in 17 years as a social
contribution for the development of the Pasco Department. The use contract was signed on
February 16, 2004.
Located 340 Km north-east Lima, consists of the construction of a Hydroelectric Center with 130
Mw installed power, including 3 generators of 44,5 Mw each, to produce 901 Gwh per year, as
well as building 50 Km of 220 Kw Transmission Lines for interconnection with the National
Electric System.
During the final stage of construction the awarded bidder will make a number of advance payments
to finance the contribution of the Peruvian State. Such payments shall be made monthly, from
February 16, 2004 up to July 30, 2005 (date of deliver).
The State guarantees the user a refund of the advanced payments if the contract is rescinded for
failure to deliver the central within the maximum term established, that is, within twelve months
after the planned delivery date.
28
BAYOVAR PHOSPHATES
Phosphate concessions located on the Northern Coast, 1,000 Km from Lima. Reserves estimated
at 816 million tons, equivalent to 262 million tons of phosphoric rock concentrates with 30%
content of P2O5. Potential reserves are estimated at 10 billion tons.
Mining concessions cover 74,059 hectares in the phosphate zone, which include 6,300 Ha in the
underground water extraction area.
There is access to the mine through a road from Piura and Lima, direct access to the National
Power Grid, water available in the zone, facilities for the construction of new port, labor force
available in the area. A pilot treatment plant is available, with an annual production capacity of
80,000 metric tons of phosphoric rock (30.5 % P2O5), which includes a 72-hectare treatment
area.
Information Memorandum is available to the interested parties.
The invitation for bids is expected for the second quarter of 2004.
29
LAS BAMBAS COPPER PROJECT
Located in Apurímac, 260 Km from Cuzco by road, altitude between 4,400 and 4,650 m above sea
level.
Comprises the Chalcobamba, Ferrobamba, Sulfobamba and Charcas deposits, with an area of
31,798 Has. Copper deposits are skarn type, with sulfides, oxides and iron. Gold
mineralisation exploring potential.
Proven reserves of 40.5 million tons, grades over 2% copper and 500 million tons exploration
potential.
Las Bambas is connected by road with Cuzco, has access to ports San Nicolás in Marcona and
Matarani in Arequipa, is powered by National Interconnected Grid. The Camisea project is in
the area of influence and skilled labour is available in the area.
14 bidders have already qualified and the awarding criterion will be the offered royalty.
A diamond drilling program (2,500 m) is under execution to provide better geological knowledge to
the bidders.
Social agreements with local and regional authorities have been already signed in order to support
the private investment promotion process of this project.
The public bidding is due on 2 July 2004.
30
ROAD SECTIONS OF MULTIMODAL AMAZON
AXIS OF IIRSA
Peru takes part in the twelve-country “Initiative for Integration of South America Regional
Infrastructure” (IIRSA for its Spanish acronym) agreed upon at the 2000 South American
Chiefs of State Summit.
Three axis of four in this plan connect our country with Brazil, the largest internal market of South
America, providing increasing opportunities for investment, trade, tourism and strategic
alliances. On the other hand Brazil would be able to trade with Asia via the Pacific Ocean.
The southern axis will allow integration between Bolivia, the Brazilian states of Acre, Rondonia,
Matto Grosso, Matto Grosso do Sul and the Peruvian Southern Macroregion. The northern
axis would allow integration of our North Amazon and Central regions with Brazil’s Amazon
State and the industrial city of Manaos.
31
NORTH: PAITA- PIURA- CORRAL QUEMADORIOJA- TARAPOTO- YURIMAGUAS
The North Amazon Multimodal Axis includes the road sections between Paita in the coast and
Yurimaguas in the Northern Amazon –960 Km–, as well as investment on the river ports of
Yurimaguas and Iquitos. This will allow navigability in the Huallaga and Marañón rivers
connecting Yurimaguas and Iquitos with Brazil.
The private investment promotion process for this project started on March 8, 2003 and the call for
bids in the International Public Tender to give the project in concession was published on
August 25, 2003.
The concession will be awarded to the bidder submitting the lowest economic proposal. The
payment schedule includes an annual payment to the State –minimum 10 years– and
payment for operation and maintenance during a 20-year period.
The estimated investment amount is US$ 134 million, maintenance and operation expenses are
close to US$8 million a year.
The call for bids was issued on August 25, 2003, the project may be awarded in the third quarter of
2004.
32
CENTER: LIMA- RICARDO PALMA- LA OROYACERRO DE PASCO- HUANUCO- TINGO MARIAPUCALLPA
The Central Amazon Multimodal Axis includes the road sections between Lima and Pucallpa (867.2
Km), as well as investment for the Pucallpa River port providing navigability in the Ucayali
River between Pucallpa and Iquitos.
The project includes rehabilitation of the San Alejandro–Neshuya road section, care of critical
points in the section Pumahuasi Bridge – Chino Bridge and maintenance for all road sections.
In addition, the concessionaire may be given the option to develop a second stage of
connection between the Ricardo Palma Bridge to the Ramiro Prialé Road, if approved by the
Ministry of Transport. There is also an option to develop infrastructure for the Pucallpa River
port.
The concession will be awarded to the bidder submitting an economic proposal considering the
lowest present net value of revenues from toll collection. The estimated amount of investment
is approximately US$ 59 million, the maintenance and operation expense will average
approximately US$ 8 million per year.
The call for bids was issued on October 16, 2003 so that the project may be awarded in the fourth
quarter of 2004.
33
EL CHACO - LA PUNTILLA TOURISM PROJECT
Design, construction and operation of a Tourist Complex adjacent to the Paracas National Reserve,
located on government land, approximately 27.8 Ha, facing Paracas Bay, approximately 250
Km from Lima, 10 minutes from Pisco International Airport and 15 minutes from San Martin
port.
This scheme divides the land in five independent areas, each one having a front to the Pacific
Ocean and the opposite side facing the Pisco-Paracas road.
Plot A, with an area of 11,592.86 m 2 for a lodge, Plot B, with an area of 17,517.52 m 2 for a
hostel, Plot C, with an area of 62,188.15 m 2 for a resort, Plot D, with an area of 176,830.79 m
2 for a vacation housing development, Plot E, with an area of 6,540.21 m 2 to be transferred to
the Paracas town for construction of a wharf.
Economic proposals must consider a social contribution to be offered for Plot A, Plot B or Plot C.
The estimated investment for Plots A, B, C and D is US$ 6 million approximately.
The invitation to bid has been published during first quarter 2004.
34
REGIONAL AIRPORTS
Peru is a country with important tourism potential. One million tourists visited Peru in 2001 and our
goal for 2006 is three million. The country’s geographical location is ideal for a Latin American
trade hub link with Asia Pacific.
This project involves modernisation of a set of 19 airports and airfields throughout the country,
managed by the Peruvian Corporation of Civil and Commercial Aviation (CORPAC). Likewise,
Law Nº 27528 issued in October 2001 assigned to Proinversion the task of updating Final
Feasibility Studies for a new airport for the town of Chinchero - Cuzco, which was carried out
by the British Consortium Currie & Brown/ Masons, selected by international tender, during the
first half of 2002.
The government will set service, quality and safety standards to be met by each airport and will
transfer them under the DBFOT (design, build, fund, operate and transfer) system.
For contract awarding, the main factor will be the lowest contribution by the State. The duration of
concession contracts is 25 years.
Total investment required for the 19 airports that were suggested by Currie & Brown/ Masons was
estimated at US$ 153 million.
Awarding of bids for the first airport package should take place during the second quarter of 2004.
35
LIMA ELECTRIC TRAIN
The municipality of Lima is promoting the building concession for the first phase of the Lima
Urban Train, from Villa El Salvador to the 2 De Mayo Hospital Station (21.5 Km),
including a 33 year concession contract, 3 years for project completion, commitment by
the private operator, transfer to the private operator, for use and usufruct of existing
operating assets, partially constructed civil works and detailed engineering for the
stretch to be constructed.
A significant part of the infrastructure has already been built and will be provided as part of
the concession: 9.85 Km of double line, of which 1.96 K, is elevated, 7 stations, 120 m
length platforms can accommodate 6-car trains. Also five 6-car trainsets plus 2 spare
cars, supplied by Fiat-Ansaldo-Breda, 22 motor cars and ten trailers, all in new
condition, maintenance yard with control center, car cleaning facilities, emergency
power plant with 3 Mw capacity and a 60/20 Kv substation.
The bidding process will be conducted by Cepri Lima, a special unit created by the
Municipality to promote private investment in infrastructure projects. It will be a single
round - sealed envelope process and will include technical and financial pre-qualification
of operators, a draft of concession contract, and bid and performance bonds.
The prequalification process will last until May 2004, the tender offer will take place during
the second half May 2004 and the process will close on June 2004.
36