Transcript Peru Economy

NS4540
Winter Term 2016
Peru Economy
Peru WEF I
2
Peru WEF II
3
Peru WEF III
4
Peru Governance
Peru Governance (Percentile)
80
70
60
50
40
30
20
10
1996
2000
2003
2005
2007
2009
2011
2013
Legend
Voice
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
5
Peru: Economic Freedom I
6
Peru: Economic Freedom II
7
Peru/Colombia Economic Freedom
8
Peru/Chile Economic Freedom
9
Overview I
• Peru has a turbulent macroeconomic and political history
• In the late 1980s, Peru suffered a deep economic crisis
and experienced hyperinflation
• Also there was a guerrilla war between the government
and the Maoist Shining Path in the 1980s and 1990s
• However in the past decade Peru has become one of the
fastest growing economies in Latin America
• Both investment and consumption have grown rapidly
• Driven by strong commodity exports and
• Appropriate economic policies.
• Despite a recent slump in GDP growth, investment in new
mining projects is likely to continue supporting growth
in the coming years
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Overview II
• However some mining projects remain highly
controversial and face public opposition
• Partly related to Peru’s high level of (income) inequality which
has both geographic and ethnic aspects
• The number of people that have an income below the
national poverty line remains substantial in spite of rapid
improvement realized in recent years.
• Macroeconomic economic position relatively strong
• Public debt is very low and
• Fiscal deficit is manageable
• Balance of payments risk is limited despite large current account
deficit
• Deficit filled almost fully by FDI inflows
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Outlook III
• Country has a large stock of foreign exchange reserves
• Peru primarily exports commodities wich makes country
vulnerable to exteral price shocks
• More diversification of the economy is needed to allow
economic and social developemt of the country to
continue in long term
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Recent Developments I
15
Annual GDP Growth
10
5
0
-5
-10
-15
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Legend
GDP growth (annual %)
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Recent Developments II
14
Recent Developments III
• Economic growth continues to slow down
• Economy of Peru seems struggling to get back on track
with sustaining GDP growth levels
• Country had been growing in excess of 5% until 2014
• Drop in growth rate has been caused by
• Declining commodity prices
• Disappointing production levels of the main export commodities
(copper and gold) due to production disruptions
• Manufacturing and construction sectors continued to be
depressed
• Fishing industry expected to be adversely impacted by El Nino
effects and
• Weaker private investment
15
Recent Developments IV
• Government has responded to lower growth in an
unfavorable external environment by
• Introducing (April 2015) a new stimulus package equal to
0.8% of GDP
• Hopes to boost consumer expenditure and stimulate the
economy from within.
• National government continues increasing public
spending to finance major infrastructure projects
• Central Bank of Peru has keep interest rates low and
lowered reserve requirements to make more money
available for investment
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Possible Problems I
• Lower revenues from commodity exports and USD
strength are weighing heavily on the Peruvian currency
• Depreciating last several years
• Problem because of the still high dollarization of the
economy
• At the end of July 2015 39% of credit was USD denominated
• An improvement from 70% in 2005
• As dollarization is also present on the deposit side at 43% at end
of 2014 does not pose a direct risk to banks
• However currency mismatches with debtors could lead to
higher delinquency rates
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Possible Problems II
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Possible Problems III
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Challenges Ahead
• Current center-left party whose term ends in mid-2016
has been very unpopular
• Reforms have not met the population's expectations
• The future president Keiko Fujimori, daughter of former
president Alberto Fujimori could face same problems
• Guerrillas still active in mountains with their coca
production
• Business climate improving due to reduction in
bureaucratic procedures and the upswing in privatization
that the government is pursuing
• Peru will continue to strengthen its links with members of
the Pacific Alliance while trying to extend its
relationships in Asia beyond China
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