Iifperufeb112003

IIF SUMMARY APPRAISAL PERU CONFIDENTIAL February 11, 2003 Real GDP The economy recovered at a rapid 4.9 percent in (percentage change previous year) 2002 following four years of stagnation. Export-led 5 recovery in the first semester was complemented by expansionary fiscal and monetary policies resulting in 4 more broad-based economic growth in the second half of the year. Growth this year is expected to slow, reflecting 3 growing populist pressure in congress and its adverse 2 impact on the investment climate, as well as the need for fiscal adjustment. 1 The authorities have broadly complied with its 0 1999 2000 2001 2002e 2003f 2004f economic program supported by the IMF, and economic performance has been encouraging. Inflation is negligible and the fiscal deficit, at 2.3 percent of GDP, has been Domestic Economy and External Trade declining steadily. The exchange rate has been stable and 2001 2002e 2003f 2004f even less volatile than that of investment-grade countries (percent change) such as Mexico and Chile. We expect Peru’s currency to Real GDP 0.2 4.9 3.8 4.0 remain roughly constant in nominal terms to the end of Real domestic demand -0.7 4.3 4.1 3.8 the year. Change in net foreign 0.9 0.6 -0.2 0.3 balance 1 While the government has maintained pro-market economic policies, it faces increasing pressure from Alan Consumer prices, end -period -0.1 1.5 2.3 2.9 García’s APRA party that is pushing for more Public sector balance1 2.6 2.3 1.9 1.5 (millions of dollars) interventionist policies, including elimination of the Trade balance -90 348 337 302 severely weakened privatization program. If Merchandise exports 7108 7576 8386 9029 implemented, these policies will negatively impact the Merchandise imports -7198 -7228 -8049 -8727 investment climate and jeopardize the recovery that is taking place. The impact of the recently created regional Current account balance -1169 -1071 -1302 -1441 governments is not likely to translate into fiscal (% GDP) (-2.2) (-1.9) (-2.2) (-2.3) weakening in the short run, but it has added to political (percent change) noise and contributed to negative business expectations. Export volume 6.3 2.0 5.6 4.9 Import volume 1.0 -0.7 9.1 6.3 In light of the recent economic performance, we Terms of trade -2.0 2.7 3.3 0.7 believe GDP growth of 4 to 5 percent can be sustained over the medium term if the government is able to resist Real effective exchange rate 2 3.8 0.3 1.7 -1.5 pressure on public finances from the new regional Exchange rate, average (New 3.507 3.516 3.525 3.603 governments and those in congress in favor of new Soles/$)3 legislation of a populist nature. If President Toledo is not e = estimate, f = IIF forecast successful in this endeavor, the country’s 1 Percent of GDP. 2 Relative consumer prices, - = depreciation. creditworthiness, as reflected in the EMBI+ subindex for Peru, is likely to widen. Given the strength of these concerns at present, we project private investment to • Domestic demand rose by an estimated 4.3 percent in recover only moderately this year and GDP growth to 2002, as a result of recovery of both consumption and slow to 3.8 percent before rising to 4 percent in 2004. investment. Recent Political and Economic Developments • Inflation remained low in 2002, only 1.5 percent for the full year. This was at the lower range of the 1.5 Paralleling the economic recovery, President to 3.5 percent inflation target set by the central bank. Toledo’s popularity has increased. His approval rating has risen from 15 percent in early October to 30 percent at • The trade and current account balances improved in present. The president’s rising popularity has dispelled 2002. The current account deficit fell to an estimated immediate concern that a political crisis would paralyze $1.07 billion (1.9 percent of GDP) as exports rose government and disrupt the recovery, although the cloud faster than imports, and the trade balance shifted hanging over the political horizon is a reminder that from deficit to surplus. undue optimism is not at all warranted. Copyright © 2003. The Institute of International Finance, Inc. All rights reserved. The contents of this report may be neither reproduced nor distributed outside the membership in whole or in part without the prior written approval of The Institute of International Finance, Inc.

Summary Appraisal: Peru/Page 2 The Institute of International Finance, Inc Economic Policies Trade and Current Account Balances (millions of dollars) In a difficult political environment characterized by 1000 growing populist opposition in congress, the government has remained pro-market, continuing to pursue a macropolicy consistent with economic stability. Peru i s 0 beginning the second year of a stand-by arrangement with the IMF, and, with the exception of the privatization program, has largely complied with the agreed-upon -1000 targets. • -2000 Fiscal policy, which was expansionary in the run-up 1999 2000 2001 2002e 2003f 2004f to the regional elections in November, was tightened sharply at the end of the year in order to comply with Trade Balance Current Account Balance the IMF fiscal deficit target of 2.3 percent of GDP. External Debt and Debt Service • Successful tax collection reforms helped the 2001 2002e 2003f 2004f government achieve its fiscal target. (millions of dollars) External debt 28633 30249 30437 31328 • The central bank adopted an expansionary monetary % GDP 53.0 53.4 50.8 50.1 policy throughout most of 2002 supportive of the % exports2 310.2 311.6 288.9 278.0 economic recovery. The expansionary monetary Medium-/long-term debt 25588 27352 27743 28539 stance was only briefly interrupted in September and Short-term debt 3046 2897 2694 2789 October, as the central bank tightened in response to the adverse market reaction to increased political International financial 6527 7281 7886 8342 uncertainty in Brazil (the “Lula effect”). institutions Official bilateral creditors 9311 9443 8924 8796 • Peru has a flexible foreign exchange regime. With Commercial banks 3875 3738 3429 3409 only minimal intervention, the country’s currency has Other private creditors 8921 9787 10199 10782 been among the most stable in Latin America in recent years. The real effective exchange rate Reserves excluding gold 8672 9548 10048 10648 appreciated by 0.3 percent in 2002. Months of imports 2 9.1 9.8 9.4 9.4 (percent exports) Outlook and Key Issues Debt service 40.6 40.3 36.2 32.3 Interest payments due 17.2 17.1 15.9 15.3 Amortization due 23.4 23.1 20.3 17.0 We expect the economy to grow 3.8 percent in 2003, e = estimate, f = IIF forecast down somewhat from last year. Our projection of 1 Goods, services, and income. somewhat lower growth this year compared to 2002 is based on investor concerns regarding fiscal balance associated with possible increased spending pressure from production will benefit from the U.S. Andean Trade regional governments and the negative effects of populist Promotion and Drug Eradication Act (ATPDEA) that pressure on privatization and investment. We believe that came into effect last October. The act grants Peru the government will undertake the needed fiscal preferential access to U.S. markets. adjustment this year despite a difficult political environment, and this will constrain growth mildly in the • We project exports to grow by over 10 percent as a near term. We expect the deficit of the nonfinancial result of accelerated increases in mineral exports and public sector to come down to 1.9 percent of GDP this expansion of nontraditional exports to the U.S. We year, in line with the agreed-upon IMF target. expect the current account deficit to increase slightly to $1.3 billion (2.2 percent of GDP) this year. Growth in 2003 features continuing recovery of exports and private investment, but at a more moderate Questions and comments may be directed to Mr. pace. Development of the massive Camisea gas project Julio E. Revilla (tel: 1+202-857-3655, e-mail: will continue to contribute to economic activity. We jrevilla@iif.com) or Mr. Frederick Z. Jaspersen (tel: expect the construction sector to continue to expand, 1+202-857-3608, e-mail: fjaspersen@iif.com). Both may bolstered by the government’s support of low-cost be reached via fax (1+202-775-1430). housing and lower interest rates. Agricultural and textile

IIF COUNTRY REPORT PERU CONFIDENTIAL February 11, 2003 This report is based on a mid-January visit to Lima characterized García’s presidency cast a shadow over the by Julio E. Revilla of the Institute staff. Mr. Revilla met investment climate. with senior officials of the Ministry of Finance, the Central Bank of Peru, and the Superintendency of Banks As the populist congress has continued to voice its and Insurance. He also met with representatives of the opposition to structural reforms and is working to private banking and nonbanking sectors, and with undermine the stability of the regulatory regime, concerns economic and political analysts. about investment deepen. While President Toledo has vetoed a number of radical bills that would have made Peru’s regulatory environment less pro-business, congress Recent Political and Economic Developments and even members of Toledo’s own party are threatening to override a presidential veto. Some of the bills currently 1. President Toledo’s popularity increases, but a under discussion include measures aimed at 1) increasing populist congress threatens to erode investment and the government’s role in the economy; 2) increasing economic recovery. workers’ benefits that could have the result of making the labor market more rigid; and 3) changing privatization President Toledo’s improved ratings have paralleled procedures to give congress greater authority to determine the country’s economic recovery. These were given an the content of private contracts. Given this political additional boost in late October, when opinion polls climate, the private sector is alarmed by what it perceives registered a 6 percent increase in his approval rating to be a likely return to populist policies. following his public recognition of an illegitimate daughter. In the beginning of 2003, an increased number 2. The economy recovered at a faster pace than of well-staged political appearances increased Toledo’s expected as growth spread from agriculture and approval rating even further, bringing it close to mining to the rest of the economy. 30 percent. Following four years of stagnation, Peru’s economy The president’s moderate but increasing popularity, a recovered at a rapid pace in 2002. The first half of the change from his exceedingly low approval levels during year was characterized by rapid growth of agriculture and most of 2002, has dispelled concerns of a political crisis exports, especially mining. In the second half, that could paralyze the government. While these have expansionary fiscal and monetary policies and the growth eased, others have surfaced that are leaving an adverse of private investment after four years of contraction impact on the investment climate. The congress, in which resulted in more broad-based economic growth extending APRA (Alan García’s party) is strongly represented, has to sectors closely linked to domestic demand including become increasingly populist in its opposition to private construction, manufacturing and nonexport agriculture investment. Fiscal uncertainty has also increased (Table 1). following the creation last year of new regional governments. Other concerns have focused on President Toledo’s small power base and his ability to unify a Table 1 Real GDP by Sector politically fragmented country. (percentage change from previous year) 2001 2002 The results of the November 17 regional elections Year Q1 Q2 Q3 Q4 Year and the victory of the center-left and numerous independent regional political parties heightened Total GDP 0.2 2.8 6.1 5.2 5.4 4.9 economic concerns. Former President García’s APRA party won 12 of the 25 regional presidencies. Agriculture -0.7 7.5 6.4 1.6 4.7 5.5 Independent regional parties won seven regions, while Fishing -14.6 -20.8 8.5 7.4 8.0 0.4 President Toledo’s P arty, Perú Posible, won only one Mining 11.2 25.6 18.6 3.6 6.5 12.6 regional presidency. The remaining five regions were Manufacturing -1.1 -0.8 4.3 5.6 5.2 3.6 split among the Unión por el Perú, Nueva Izquierda, Construction -6.0 10.3 7.9 11.4 4.5 8.4 Somos Perú, and the Frente Independiente Moralizador. Commerce 0.0 0.1 5.1 3.1 4.5 3.3 The elections confirmed that APRA is the strongest Others 0.4 0.7 5.3 5.4 6.5 4.5 opposition party. Even though García pledged that the Source: Central bank, National Statistics Institute and IIF estimates. 12 regions his party won will be governed responsibly, concerns about APRA’s populism and the memory of hyperinflation and the economic meltdown that Copyright © 2003. The Institute of International Finance, Inc. All rights reserved. The contents of this report may be neither reproduced nor distributed in whole or in part outside the membership without the prior written approval of The Institute of International Finance, Inc.

Country Report: Peru/Page 2 The Institute of International Finance, Inc. Despite its mild slowdown in the second half of the policy contributed to a slight increase in the rate of year, mining (6 percent of GDP) remained the fastest consumer price inflation. For the full year, consumer growing sector with an estimated 12.6 percent growth for price inflation was 1.5 percent. During the same period, the full year. The estimated 8.4 percent growth of the wholesale prices rose by 1.7 percent following a construction sector (5 percent of GDP), fueled by the 2.3 percent contraction in the twelve months ending in massive Camisea natural gas project, was also propelled June of 2002 (Figure 1). by the low-cost government-sponsored MIVIVIENDA Figure 1 and MITECHO housing programs. As private Consumer Price Index and Wholesale Price Index consumption recovered, the manufacturing sector (percent change from previous year) (15 percent of GDP) rose by an estimated 3.6 percent. The agricultural sector (9 percent of GDP) rose by about 6 5.2 percent, driven by both a recovery of domestic CPI Wholesale consumption and higher export demand. 4 Domestic demand rose steadily during the year, 2 reaching an estimated 6percent year-on-year growth in the last quarter. Growth for the full year is estimated at 0 4.3 percent. This strengthening of domestic demand was supported by an increase in consumption and investment -2 growth, especially in the second half of the year. Private and public consumption rose by an estimated 4.2 and -4 3.3 percent, respectively, in 2002. Private investment, Jan-00 Jan-01 Jan-02 Jan-03 which had contracted during the first half of the year, accelerated in the second half, growing an estimated 0.7 percent for the year as a whole. To comply with the Fueled by the increased level of economic activity, fiscal deficit target, public investment (about 20 percent total employment rose by 4.4 percent. The of the size of private investment) contracted, falling by unemployment rate fell to 8.7 percent by the end of 2002 approximately 5 percent (Table 2). from 8.9 percent a year earlier. The rate of underemployment (the percentage of people working less Table 2 than 35 hours per week) remained at about 20 percent. Real GDP by Expenditure All of these figures are for the city of Lima (about (percent change from previous year) 35 percent of the population), as national data is 2001 2002e 2003f 2004f unreliable (Figure 2). GDP 0.2 4.9 3.8 4.0 Figure 2 Unemployment and Underemployment Domestic demand -0.7 4.3 4.1 3.8 City of Lima Private consumption 1.3 4.2 3.5 3.0 (3-month moving average) Public consumption -0.5 3.3 1.8 2.5 23 Unemployment Underemployment Fixed investment -8.3 -0.4 5.5 4.6 Private -5.6 0.7 6.0 5.0 20 Public -19.0 -5.3 3.0 2.5 Change in stockbuilding1 0.1 1.0 0.4 0.6 17 1 Change in net foreign balance 0.9 0.6 -0.2 0.3 14 Exports of goods and services 6.9 5.8 4.2 6.9 Import of goods and services 1.6 2.2 5.8 5.7 11 e = estimate, f = IIF forecast 1 As a percentage of GDP. 8 Source: Central bank and IIF estimates. Nov-01 Feb-02 May-02 Aug-02 Nov-02 3. Inflation remains low and unemployment declines. 4. The external trade and current accounts improved During the first half of the year, inflation fell in as exports rose at a rapid pace. response to weak domestic demand and appreciation of Peru’s currency the “New Sol.” In the second half, more The trade and current account balances improved in rapid economic growth and an expansionary monetary 2002. The current account deficit fell to an estimated

The Institute of International Finance, Inc. Country Report: Peru/Page 3 1.9 percent of GDP in 2002 from 2.2 percent of GDP in rose to an estimated $1.4 billion dollars in 2002 – an 2001. The trade balance shifted to a small surplus increase of 22 percent as average prices rose by about ($0.35 billion) from a slight deficit in 2001, the first 14 percent and volume rose by 8 percent. Despite a surplus since 1990. The seeming paradox of a shrinking decline of copper prices, copper exports rose by about current account, despite more rapid growth of the 19 percent as export volume increased more than economy, is attributable primarily, to the rapid expansion 20 percent with the added production at the large of merchandise exports (Table 3 and Figure 3). Antamina mining complex. Table 3 Despite the rise of real GDP in 2002, imports were External Trade and Current Account reined in by the decline of investment. For the full year, (billions of dollars) they remained relatively flat with an estimated growth of 2001 2002e 2003f 2004f 0.4 percent from a year earlier. Imports of consumer goods rose an estimated 10.4 percent in 2002. Imports of Trade balance -0.1 0.3 0.3 0.3 intermediate goods rose by a more moderate 4.1 percent. Exports 7.1 7.6 8.4 9.0 Imports of capital goods contracted by 5.4 percent. Imports -7.2 -7.2 -8.0 -8.7 The existence of a moderate current account deficit, Balance on services and income -1.1 -1.4 -1.6 -1.7 despite a trade surplus, is the result of a deficit in the Receipts 2.1 2.1 2.2 2.2 invisibles balance. An increase in import of services and Payments -4.2 -4.5 -4.7 -4.9 moderately larger interest payments on external debt have (Interest payments) (-1.6) (-1.7) (-1.7) (-1.7) more than offset the moderate increase in the export of Transfers net 1.0 0.9 0.9 1.0 services (including tourism) and the fall in interest Current account balance -1.2 -1.1 -1.3 -1.4 receipts. (% of GDP) (-2.2) (-1.9) (-2.2) (-2.3) 5. Foreign direct investment rises and the government Memoranda: (percent change) once again turns to bonds. Export volume 6.3 2.0 5.6 1.4 Import volume 1.0 -0.7 9.1 6.3 In 2002, foreign direct investment (FDI) rose to an Terms of trade -2.0 2.7 3.3 0.7 estimated $2 billion (190 percent of the current account e = estimate, f = IIF forecast deficit), largely concentrated in the massive Camisea Source: Central bank and IIF. natural gas project and several mining operations (Figure 4). This higher-than-expected figure is also directly related to the investment of a Colombian Figure 3 conglomerate in Backus – the Peruvian beer monopoly. Trade and Current Account Balances Privatization revenues fell to below $200 million. (millions of dollars) Despite domestic stock market increases, portfolio 1000 investment fell by an estimated $80 million (Table 4). Figure 4 0 Foreign Direct Investment (millions of dollars) -1000 2400 -2000 1600 1999 2000 2001 2002e 2003f 2004f Trade Balance Current Account Balance 800 e = estimate, f = IIF forecast Exports rose an estimated 6.6 percent in 2002 as a result of a significant increase in gold and copper exports. 0 Exports of gold, Peru’s largest single export in the last 1999 2000 2001 2002e 2003f 2004f several years (20 percent of total merchandise exports), e = estimate, f = IIF forecast

Country Report: Peru/Page 4 The Institute of International Finance, Inc. Table 4 reserves, which rose by an estimated $0.9 billion in 2002. External Financing The relative strength and stability of Peru’s currency (millions of dollars) eliminated the need for the central bank to sell foreign 2001 2002e 2003f 2004f exchange to reduce excessive volatility of the exchange rate. Current account balance -1169 -1071 -1302 -1441 Net lending by multilateral creditors continued to be Equity investment, net 841 1950 1300 1400 strong in 2002 despite net outflows to the IMF and IBRD, Direct 1063 2030 1400 1500 as the government obtained financing from the IADB and Portfolio -222 -80 -100 -100 the Corporación Andina de Fomento (CAF) – the multilateral financing agency of the Andean group. Net External borrowing, net 246 942 735 914 multilateral lending in 2002 reached an estimated IMF -153 -173 -106 -35 $532 million, compared to $638 million in 2001. Net Disbursements 0 0 0 0 lending by bilateral creditors, including officially Repayments -153 -173 -106 -35 guaranteed private debt and short-term credit, contracted by an estimated $291 million as payments to the Paris IBRD 35 -22 249 209 Club remained large. Disbursements 149 146 350 310 Repayments -114 -168 -101 -101 Net disbursements from other private creditors rose substantially in 2002 as a direct result of the Other multilateral creditors 756 727 558 285 government’s decision to issue two new bonds. In Disbursements 955 979 760 452 February, the government issued a 10-year, $500 million Repayments -199 -252 -202 -167 global bond. Following issuance, a swap component was added whereby $930 million in new global bonds were Official bilateral creditors -195 -291 -236 -114 issued in exchange for $1,210 million in Brady bonds. Disbursements 239 225 241 237 This was the first Peruvian sovereign bond since 1928 Repayments -456 -496 -482 -361 (see the July 31, 2002 Economic Report on Peru for more Short-term credits, net 22 -20 5 10 details). Eight months later, in November 2002, the Arrears 0 0 0 0 Discounted debt transactions 0 0 0 0 government reentered the market with a 5-year, $500 million global bond. The bond was issued at a Commercial banks -157 -148 -303 -20 612 basis -point-spread above U.S. Treasuries. The Disbursements 1245 1012 970 980 government had initially indicated that it would use an Repayments -1052 -980 -1073 -1100 already approved partial credit guarantee (PCG) from the Short-term credits, net -350 -180 -200 100 CAF to lower the spread; with its improved economic Arrears 0 0 0 0 performance and declining country risk, however, Peru Discounted debt transactions 0 0 0 0 was able to secure a competitive interest rate on its own, without using the PCG. At the end of January 2003, the Other private creditors -40 849 573 589 government issued a new 12-year, $500 million global Disbursements 104 1943 760 660 bond at 610 basis points above U.S. Treasuries. (Bonds and notes) (0) (1000) (0) (0) Repayments -184 -176 -172 -151 Short-term credits, net 40 -5 -15 80 Table 5 Arrears 0 0 0 0 External Debt Discounted debt transactions 0 -913 0 0 (millions of dollars, end-period) 1999 2000 2001 2002e Resident lending abroad, net -199 -653 -232 -273 Total external debt 29605 29204 28633 30249 Errors and omissions 579 -296 0 0 By creditor Reserves excluding gold Multilaterals 5922 5952 6527 7281 (- = increase) -298 -876 -500 -600 Official bilateral creditors 10319 10037 9311 9443 Monetary gold (- = increase) 0 5 0 0 Commercial banks 3984 4040 3875 3738 e = estimate, f = IIF forecast Other private creditors 9380 9175 8921 9787 Source: Central bank and IIF. e = estimate Source: Central bank, Ministry of Economy and Finance, and IIF Peru’s trade surplus, the strength of its financial estimates. system, and the government’s return to the international capital markets bolstered the country’s international

The Institute of International Finance, Inc. Country Report: Peru/Page 5 In 2001, total ext ernal debt fell slightly to Domestic stock market prices rose strongly in the $28.6 billion due in part to the exchange rate valuation fourth quarter following a disappointing first three adjustment as the dollar appreciated against the yen and quarters. The recovery in the last quarter followed the European currencies. In 2002, external debt increased to trends in world stock markets, but outpaced them by a an estimated $30.2 billion. This was, in part, the wide margin. By the end of the year, the General Lima consequence of a weakening dollar, but was also due to Index had risen 18.3 percent in local currency terms and the government’s heavier reliance on external borrowing 16 percent in dollar terms from a year earlier (Table 6). to cover its financial needs (Table 5). The rally in the fourth quarter was the result of The external debt service ratio fell from 44 percent in better-than expected commodity prices and the rapid 2000 to 40.3 percent at the end of 2002. Despite t e h growth of the mining sector. The stock market also almost 4 percent drop, external debt service remained benefited from the bidding war over Peru’s beer relatively high (compared to 2002 estimates of 26 percent monopoly and its final buyout by a Colombian in Chile, 14 percent in Mexico and Venezuela, and conglomerate. Nevertheless, market capitalization 27 percent in Ecuador). remains a modest $12.6 billion (22 percent of GDP). 6. The stock market rallies following a disappointing 7. The banking sector remains strong and highly first three quarters. liquid. Table 6 The banking sector’s performance has improved Financial Sector Indicators steadily following the asset deterioration that peaked in (millions of new soles and percentages of GDP) 1 2000. The financial sector as a whole has strengthened 2000 2001 2002e and it continues to consolidate. There are now 14 banks compared to 26 three years ago. Nonperforming loans Banking credit to the private sector 47361 45158 45866 fell to 7.8 percent of total assets by the end of 2002, (% GDP) (25.4) (23.8) (23.0) compared to 9.7 percent a year earlier. As banks finished In New Soles 8777 8841 9286 complying with banking regulations governing prudential (% GDP) (4.7) (4.7) (4.7) supervision, the ratio of provisions against nonperforming In dollars 38584 36318 36580 loans climbed to more than 120 percent. (% GDP) (20.7) (19.2) (18.4) Despite the increased strength of the Peruvian Banking sector deposits 40647 41367 43321 banking sector, concern remains that the uncertainty (% GDP) (21.8) (21.8) (21.7) In New Soles 7958 9303 10168 plaguing banks operating elsewhere in Latin America will (% GDP) (4.3) (4.9) (5.1) spill over into Peru. The Argentine crisis prompted the In dollars 32689 32064 33154 Spanish Banco Santander Central Hispano (BSCH) to sell (% GDP) (17.5) (16.9) (16.6) its Peruvian operations to Banco de Crédito (Peru’s largest bank), increasing the latter’s share to 37 percent of Bad loans/ bank credit (% )2 10.2 9.0 7.6 total deposits and 34 percent of total loans. In a Provisions/ bank credit (%)3 9.0 10.5 9.1 subsequent move, the Italian owners of Banco Wiese (Bad loans-provisions)/bank Sudameris announced their plans to retire from Latin credit (%) 1.2 -1.4 -1.5 America, including Peru. The announcement produced a minor run on the bank which was successfully contained. Lima Stock Exchange General Index 1208 1176 1392 New Sol (% change from previous period) -34.2 -2.6 18.3 Economic Policies Dollar (% change from previous period) -34.5 -0.3 16.0 In a difficult political environment characterized by Private pension funds (AFPs): growing opposition in congress, the government has Stock value 9599 12350 15906 remained pro-market and has continued to manage fiscal (% GDP) (5.1) (6.5) (8.0) policy in a prudent fashion except during the run-up to the 1 Dollar deposits valued at the end-period exchange rate. elections in November. Peru is beginning the second year Excludes central bank and Banco de la Nación. of a stand-by arrangement with the IMF and, with the 2 Past-due loans plus refinanced loans. exception of the privatization program, has largely 3 Provisions for bad-performing loans. complied with the agreed-upon targets. Source: Central bank and Superintendency of Banks and Insurance.

Country Report: Peru/Page 6 The Institute of International Finance, Inc. 1. The fiscal deficit narrows, but further fiscal likely issuing an additional $500 million bond during the adjustment is needed. year. In anticipation, the government has included in this year’s budget an authorization to issue global bonds up to In the run-up to the November regional elections, $1 billion. We believe the government will have no there were fiscal slippages, and midyear estimates placed difficulty accessing international capital markets for this the nonfinancial public sector (NFPS) deficit at amount. 2.8 percent of GDP, against the target of 1.9 percent Table 7 under the IMF program (the NFPS deficit is the Public Sector Finances equivalent of the public sector borrowing requirement, or (percent of GDP) PSBR, presented in the database tables attached to this 1999 2000 2001 2002e report). With a view to bring fiscal policy back on track, the government and the IMF began to negotiate a possible Central government balance -3.1 -2.7 -2.8 -2.5 revision to the fiscal deficit target, and the government Primary balance -1.0 -0.6 -0.6 -0.4 started to take measures to reverse the weakening fiscal performance. In early December an agreement was Total revenue 14.8 15.0 14.3 14.3 reached to revise the target to 2.3 percent of GDP (Taxes) (12.5) (12.1) (12.3) (11.9) (postponing the target of 1.9 percent until 2003). Total expenditure 18.0 17.7 17.0 16.7 Measures taken to cut spending took many forms, Current expenditure 14.6 14.9 14.7 14.9 including the shutdown of most government offices for a (Interest payments due) (2.1) (2.2) (2.1) (2.1) (Other current expenditure) (12.5) (12.7) (12.6) (12.8) good part of December. There were also major efforts to Capital expenditure 3.4 2.8 2.3 1.8 strengthen tax collection in the second half of the year. Accordingly, total taxes in the second half of the year rose Other nonfinancial public sector by 6.6 percent from the same period a year earlier balance 0.0 -0.5 0.2 0.2 (5.7 percent in real terms), while for the year as a whole Primary balance 0.1 -0.4 0.3 0.2 they rose 1.7 percent. Revenues from the value-added tax rose by 18 percent in the second half of 2002 compared to Nonfinancial public sector a year earlier, while for the year as a whole revenues for balance -3.1 -3.2 -2.6 -2.3 the value-added tax rose 9.3 percent (Table 7). Primary balance -1.0 -1.0 -0.3 -0.2 (Interest payments) (2.2) (2.3) (2.2) (2.1) The government was finally able to achieve a more moderate fiscal deficit, thanks largely to the recovery of Financing of public sector 3.1 3.2 2.6 2.3 balance domestic demand, successful tax collection reforms and the resulting increase in revenues. As a consequence, the External financing -0.1 1.2 0.9 1.2 NFPS deficit for 2002 fell to 2.3 percent of GDP. This Domestic financing 2.4 1.2 1.0 0.8 Privatization receipts 0.8 0.8 0.6 0.3 compares to 2.6 percent of GDP in 2001 and 3.2 percent e = estimate in 2000. Source: IIF based on data from the Ministry of Economy and Finance. Given the 2003 fiscal deficit target of 1.9 percent of GDP ($1.1 billion) and public sector debt amortization of 2. Expansionary monetary policy fuels the recovery $1.6 billion, the government’s gross financing while inflation ends the year in the lower range of the requirements for 2003 are estimated at $2.7 billion. The inflation target. government estimates that $1.1 billion of this will come from multilateral sources, $0.7 billion from international In January 2002, the central bank formally introduced bond issues, $0.5 billion from domestic bonds and an inflation-targeting framework. The inflation target for $0.4 billion from privatizations and concessions. 2003 was set similar to that of 2002, at 2.5 percent with an accepted deviation of 1 percent above and below the Multilateral financing through the IADB and the target. At 1.5 percent, the 2002 inflation rate was at the CAF is virtually assured, but not likely to rise further. lower limit of the target. The government is also not likely to easily increase its domestic bond issuance since the market for New The monetary policy of the central bank is now based Sol-denominated government bonds is very thin. on announcements of future interest rates. The central Importantly, while the government is still hoping to cover bank sets a range for interbank interest rate fluctuations a good part of its financing needs from privatization using the monetary regulation interest rate as an upper receipts, we estimate that it will only be able to raise limit and the overnight interest rate as a lower limit. The about $0.2 billion from this source. This will force it to authorities now announce their monetary policy on a increase its reliance on the international capital markets,

The Institute of International Finance, Inc. Country Report: Peru/Page 7 monthly basis in accordance with a fixed and pre- firms and consumers pay interest rates above 50 percent established schedule. In addition, the central bank (Table 9). publishes a detailed inflation report three times a year. Table 9 Interest Rates Throughout most of 2002, the central bank adopted (annual rates)1 an expansionary monetary policy. The policy set 90 day Lending progressively higher limits on bank rediscount facilities Inter- Lending Deposit2 Lending2 Lending Dollar and supported the steady fall of interbank interest rates. bank Prime (Tipmn) (TAMN) Real 3 (Tamex) The expansionary monetary policy was reversed only briefly in September-October, when the “Lula effect” 1999 14.9 n.a. 11.8 35.0 30.5 16.5 increased Peruvian country risk and that of most countries 2000 12.7 n.a. 9.8 30.0 25.3 13.7 in Latin America. Liquidity increased in 2002. Broad 2001 8.6 5.2 7.5 25.0 22.5 12.1 money (M2) rose by an estimated 8 percent from a year 2002 3.2 2.7 3.5 20.8 20.6 10.0 earlier. Net d omestic credit as a percentage of broad money also recovered to grow at 3.1 percent in 2002, 2002 Q1 2.6 2.9 4.1 22.1 23.4 10.0 compared to a rise of 0.9 percent a year earlier (Table 8). Q2 2.5 2.8 3.2 19.9 19.8 10.0 By early January, the central bank had once again eased Q3 3.7 2.7 3.2 19.9 19.6 10.1 monetary policy by reducing monetary regulation interest Q4 4.1 2.5 3.7 21.1 19.4 10.1 rates from 4.5 to 4.25 percent. Oct 4.6 2.7 3.7 20.7 19.1 10.0 Table 8 Nov 3.9 2.4 3.7 21.8 20.1 10.1 Factors Affecting Liquidity Dec 3.8 2.4 3.6 20.7 18.9 10.2 (change as a percent of broad money, end of previous period) 1999 2000 2001 2002e 2003 Jan 3.7 2.3 3.5 20.3 17.6 10.1 Net foreign assets 10.2 1.9 3.4 7.7 1 Average monthly rates. 2 Average rates for deposits and lending in local currency. Net domestic assets 4.2 -2.3 -1.3 0.3 3 Average rates for lending in local currency deflated by the CPI inflation. Domestic credit 14.9 -0.2 0.9 3.1 Source: IIF based on data from the central bank. Claims on public sector, net 8.5 2.5 4.3 -1.3 Claims on private sector 6.4 -2.7 -3.4 4.4 Other assets. net -10.7 -2.1 -2.2 -2.8 Table 10 Exchange Rate Developments Broad money (M2)1 14.5 -0.4 2.1 8.0 (period averages) Money (M1)1 5.9 -2.0 0.3 3.5 Real Exchange Rate 1 New Quasi-money 8.6 1.6 1.7 4.6 % Change2 Soles/$ Index 1995=100 Memoranda: 1999 3.38 90.7 -8.9 M2 (% of GDP) 34.4 32.1 32.3 33.2 2000 3.49 90.3 -0.5 M2 (% in dollars) 53.7 55.1 53.2 51.2 2001 3.51 93.7 3.8 M1 (% of GDP) 12.7 11.3 11.2 11.8 2002 3.52 94.0 0.3 e = estimate 1 Includes domestic and foreign currency holdings. 2002 Source: IIF based on data from the IMF and the central bank. Q1 3.46 94.4 -1.7 Q2 3.46 94.2 -0.2 Q3 3.57 92.6 -1.8 Market interest rates both in nominal and real terms Q4 3.57 94.8 2.5 declined steadily during 2002, following the same pattern of a year earlier. Although the average lending interest 2003 rate in domestic currency (TAMN) remained relatively Jan 3.49 96.14 1.4 high at about 20 percent, the prime rate for corporations 1 Based on trade with six main trading partners and consumer fell to approximately 2percent. The large variance in prices (- = depreciation). interest rates is explained by considerable dispersion of 2 Changes with respect to previous period. risk in the credit market and the lack of a well-established Source: Central bank and IIF. institutional framework for property rights, which contributes to large risk premiums. As a result, smaller

Country Report: Peru/Page 8 The Institute of International Finance, Inc. Outlook 3. The exchange rate appreciates slightly. The central bank adopted a flexible exchange rate We project the economy to grow by 3.8 percent in regime in the early 1990s. In the context of an inflation 2003, down from an estimated 4.9 percent last year. Our target, it does intervene, however, to moderate exchange estimate of somewhat lower growth this year compared to rate volatility. In 2002, thanks to the relative strength of 2002 is based on uncertainties associated with the impact the New Sol, the bank’s exchange rate interventions were on public finances of the newly created regional limited. Despite pressures of contagion from Brazil in the governments and the negative effects of rising populism third quarter of the year, the real effective exchange rate in congress. We expect growth to be negatively affected appreciated by 0.3 percent during 2002 compared to a by El Niño as a consequence of a change in the pattern of year earlier. In nominal terms, the New Sol depreciated rainfall. While it will not be affected as strongly as it was against the dollar by 0.3 percent during 2002 as an in 1998, when fishing contracted by 13 percent, heavy average and by 2.2 percent from December 2001 to rainfall has already had an adverse impact on agricultural December 2002 (Table 10 and Figure 5). production. Finally, we believe that the government will have to address its need for additional fiscal adjustment Figure 5 and expect this to mildly constrain higher growth in the Real Effective Exchange Rate near term. (1995 = 100) 100 In our projections, economic growth in 2003 will be led by a modest recovery of investment and continued strength of exports. The continuing development of the massive Camisea gas project also supports growth. The 95 construction sector is expected to grow rapidly, boosted by government support of low-cost housing programs and low interest rates. Agricultural and textile exports and 90 production will benefit from the U.S. Andean Trade Promotion and Drug Eradication Act (ATPDEA) that came into effect last October. The accord grants Peru 85 preferential access to the U.S. market for agricultural, Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 textile and some manufactured exports (Table 11). From 2001 to 2002, the New Sol was one of the most stable currencies in Latin America. This is not We expect inflation to reach 2.3 percent for 2003, in necessarily a reflection of changes in Peru’s country risk, the lower range of the inflation target, based on continued which has been closely correlated with that of other Latin strength of the domestic currency and moderate pressures American countries. The relative stability of the domestic from domestic demand. currency seems to be explained more by the central bank’s commitment to low inflation and the growth of We project the current account deficit to increase Peru’s international reserves. The latter has been driven slightly to $1.3 billion (2.2 percent of GDP) this year, by a strong trade balance and large capital inflows reflecting a weakening of the invisibles balance. The (Figure 6). trade balance is projected to remain at about the same level as last year. We estimate exports to grow by nearly Figure 6 11 percent in response to the continued increase in Average Exchange Rate mineral exports and the expansion of nontraditional (July 2001 = 100) exports to the U.S. market, thanks to the ATPDEA. Imports of capital goods are expected to increase also by 120 about 11 percent in response to investment recovery and Peru Chile Mexico the construction of the Camisea gas project. In 2004, we 115 project a trade surplus of about $300 million and a current account deficit of $1.4 billion (2.3 percent of GDP). 110 We expect the deficit of the nonfinancial public 105 sector to be brought down to 1.9 percent of GDP this year, in line with the target agreed with the IMF. The 100 authorities’ expressions of their commitment have been encouraging in this context. The recent administrative 95 reforms of the tax agency (SUNAT) have proven to be Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 effective in increasing fiscal revenue and we expect this

The Institute of International Finance, Inc. Country Report: Peru/Page 9 to continue and contribute to fiscal adjustment. We As indicated above, a serious risk we see in an believe the government will be successful in containing otherwise rather favorable economic situation and outlook political pressure for increased expenditures from the is the political climate. Although President Toledo has newly elected regional governments and will meet its remained pro-market, the populist congress is increasing fiscal and other targets agreed w the IMF. In these ith its opposition to structural reforms. This could adversely circumstances we expect the government to continue to affect the country’s investment climate and weaken the access international capital markets to meet its external current recovery. Congress, including Toledo’s party, is needs. likely to adopt a more populist position closer to that of Alan García’s APRA party. The same is true with the Table 11 regional governments. Hopefully, these initial positions Forecast Summary will become more moderate as APRA attempts to 2001 2002e 2003f 2004f demonstrate that it c govern effectively at the regional an level before the campaign for the 2006 presidential Real GDP (% change) 0.2 4.9 3.8 4.0 elections begins in earnest. Consumer prices We believe that the economy should be able to grow (% change, end -period) -0.1 1.5 2.3 2.9 at a 4 to 5 percent annual rate over the medium term if the government is able to successfully control fiscal pressures Nonfinancial public sector coming from the new regional governments, prevent balance -2.6 -2.3 -1.9 -1.5 congress’s populist tendencies from being reflected in NFPS primary balance -0.3 -0.6 -0.1 0.0 new anti-business legislation, and reestablish a strong Central government balance -2.8 -2.5 -2.0 -1.7 program to attract private sector investment. The Trade balance ($ billion) -0.1 0.3 0.3 0.3 unfolding political trend in the next 9 to 12 months needs Merchandise exports 7.1 7.6 8.4 9.0 to be closely watched before coming to a judgment on Merchandise imports -7.2 -7.2 -8.0 -8.7 whether indeed the Peruvian economy will be in a position to exploit its potential through good policies. Current account -2.2 -1.9 -2.2 -2.3 (% of GDP) Reserves excluding gold ($ billion) 8.7 9.5 10.0 10.6 Total external debt ($ billion) 28.6 30.2 30.4 31.3 Amortization due ($ billion) 2.2 2.2 2.1 1.9 e = estimate, f = IIF forecast Source: Central bank and IIF.

11-Feb-03 IIF DATABASE: PERU Page 1 Code 1997 1998 1999 2000 2001 2002e 2003f 2004f DOMESTIC ECONOMY & EXTERNAL TRADE DOMESTIC ECONOMY (1994 prices) E100 Real GDP (new soles million) 117110 116485 117590 121267 121513 127468 132311 137604 E101 Real GDP % change 6.7 -0.5 0.9 3.1 0.2 4.9 3.8 4.0 E201 Domestic demand % change 6.9 -0.8 -3.1 2.4 -0.7 4.3 4.1 3.8 E211 Private consumption % change 4.3 -0.8 -0.4 3.9 1.3 4.2 3.5 3.0 E221 Public consumption % change 7.6 2.5 3.5 5.1 -0.5 3.3 1.8 2.5 E231 Gross fixed capital % change 15.3 -1.4 -11.1 -5.0 -8.3 -0.4 5.5 4.6 E241 Private fixed capital % change 16.3 -2.4 -15.3 -2.0 -5.6 0.7 6.0 5.0 E251 Public fixed capital % change 10.9 3.0 7.2 -15.4 -19.0 -5.3 3.0 2.5 E262 Change in stockbuilding % GDP 0.0 -0.1 -0.6 0.3 0.1 1.0 0.4 0.6 E301 Exports of goods and services % change 13.1 5.6 7.6 7.9 6.9 5.8 4.2 6.9 E311 Imports of goods and services % change 12.2 2.3 -15.2 3.6 1.6 2.2 5.8 5.7 E322 Change in net foreign balance % GDP -0.5 0.3 4.2 0.7 0.9 0.6 -0.2 0.3 E400 Real GNP (new soles million) 114170 113337 114011 117817 118681 123924 129012 134267 E401 Real GNP % change 7.2 -0.7 0.6 3.3 0.7 4.4 4.1 4.1 E500 Nominal GDP (new soles million) 157274 166514 174719 186756 189533 199202 211181 225344 E501 Nominal GDP % change 14.9 5.9 4.9 6.9 1.5 5.1 6.0 6.7 E505 GDP deflator % change 7.6 6.4 3.9 3.6 1.3 0.2 2.1 2.6 E510 Nominal GDP ($ billion) 59.03 56.83 51.64 53.54 54.05 56.65 59.92 62.55 E600 Nominal GNP (new soles million) 153313 161964 169368 181404 185051 193585 205839 219801 E601 Nominal GNP % change 15.4 5.6 4.6 7.1 2.0 4.6 6.3 6.8 E605 GNP deflator % change 7.6 6.4 4.0 3.6 1.3 0.2 2.1 2.6 E610 Nominal GNP ($ billion) 57.5 55.3 50.1 52.0 52.8 55.1 58.4 61.0 E701 Average nominal earnings % change 7.5 5.0 1.4 4.3 0.8 1.6 E801 Industrial production % change 5.9 -3.5 -0.3 7.3 -1.7 3.8 EXTERNAL TRADE T103 Goods exports: volume % change 16.5 -5.3 15.2 11.4 6.3 2.0 5.6 4.9 T105 Goods exports: unit value % change -0.6 -11.0 -7.8 3.2 -4.9 3.8 5.5 2.7 T203 Goods imports: volume % change 11.9 0.9 -18.4 3.4 1.0 -0.7 9.1 6.3 T205 Goods imports: unit value % change -3.1 -4.7 0.6 5.4 -3.0 1.1 2.1 2.0 T305 Terms of trade % change 2.5 -6.6 -8.3 -2.1 -2.0 2.7 3.3 0.7 T400 Exchange rate, end-period (S/$) 2.730 3.160 3.510 3.527 3.444 3.514 3.556 3.642 T410 Exchange rate, average (S/$) 2.664 2.930 3.383 3.488 3.507 3.516 3.525 3.603 T420 Parallel rate, end-period (S/$) T430 Nominal effective rate (1995 = 100) 92.2 86.4 77.6 76.9 87.2 82.8 84.6 83.2 T440 Real effective rate (1995 = 100) 101.6 99.6 90.7 90.3 93.7 94.0 95.6 94.2 T441 Real effective rate % change -0.3 -1.9 -8.9 -0.5 3.8 0.3 1.7 -1.5 e = estimate, f = IIF forecast

11-Feb-03 IIF DATABASE: PERU Page 2 Code 1997 1998 1999 2000 2001 2002e 2003f 2004f EXTERNAL BALANCE ($ million) B100 Trade Balance -1721 -2466 -631 -317 -90 348 337 302 B110 Merchandise exports 6832 5757 6119 7034 7108 7576 8386 9029 B120 Merchandise imports -8553 -8222 -6749 -7351 -7198 -7228 -8049 -8727 B200 Balance on Services, Income & Transfers -1353 -1174 -1288 -1335 -1079 -1419 -1640 -1743 B210 Services & income receipts 2279 2562 2229 2318 2122 2133 2151 2239 B212 Exports of services 1538 1748 1578 1580 1489 1686 1587 1638 B214 Interest receipts 585 632 522 592 519 337 451 489 B216 Other services & income receipts 156 182 128 147 114 110 113 112 B220 Services & income payments -4533 -4648 -4510 -4646 -4200 -4472 -4721 -4932 B222 Imports of services -2305 -2281 -2278 -2373 -2289 -2428 -2641 -2792 B224 Interest payments -1621 -1784 -1744 -1809 -1586 -1664 -1680 -1720 B226 Other services & income payments -607 -582 -488 -464 -325 -380 -400 -420 B230 Transfers, net 901 912 994 993 999 920 930 950 B232 Private transfers, net 770 780 867 863 869 791 800 821 B234 Official transfers, net 131 132 127 130 130 129 130 129 B250 Current Account Balance -3074 -3640 -1919 -1651 -1169 -1071 -1302 -1441 B252 % GDP -5.2 -6.4 -3.7 -3.1 -2.2 -1.9 -2.2 -2.3 F280 Equity investment, net 1764 1365 1533 410 841 1950 1300 1400 F300 International financial institutions 1009 206 540 123 638 532 701 459 F310 IMF 147 -145 -146 -141 -153 -173 -106 -35 F320 IBRD 425 207 291 174 35 -22 249 209 F330 Other multilateral creditors 437 144 395 90 756 727 558 285 F340 Official bilateral creditors -1029 -117 -60 306 -195 -291 -236 -114 F350 Commercial banks -4357 277 -1042 63 -157 -148 -303 -20 F351 Credit flows 6434 286 -1042 63 -157 -148 -303 -20 F354 Interest arrears -6139 -9 0 0 0 0 0 0 F358 Discounted debt transactions -4652 0 0 0 0 0 0 0 F360 Other private creditors 5348 357 -11 6 -40 849 573 589 F361 Credit flows/interest arrears 5930 357 -11 6 -40 1762 573 589 F400 Resident lending abroad, net 698 350 -273 -336 -199 -653 -232 -273 F450 Errors and omissions, net 44 -210 397 723 579 -296 0 0 F480 Monetary gold (- = increase) 0 -4 0 0 0 5 0 0 F500 Reserves excluding gold (- = increase) -404 1417 835 356 -298 -876 -500 -600 e = estimate, f = IIF forecast

11-Feb-03 IIF DATABASE: PERU Page 3 Code 1997 1998 1999 2000 2001 2002e 2003f 2004f EXTERNAL DEBT AND ASSETS ($ million) D100 Total External Debt 29103 30330 29605 29204 28633 30249 30437 31328 D102 % GDP 49.3 53.4 57.3 54.5 53.0 53.4 50.8 50.1 D105 % Exports goods, services & income 319.4 364.6 354.7 312.3 310.2 311.6 288.9 278.0 D202 Medium/Long term debt 24492 25928 26216 25911 25588 27352 27743 28539 D203 Short term debt 4518 4361 3348 3293 3046 2897 2694 2789 D204 Interest arrears 93 40 40 0 0 0 0 0 By creditor: D300 International financial institutions 5177 5497 5922 5952 6527 7281 7886 8342 D304 (Interest arrears) 0 0 0 0 0 0 0 0 D310 IMF 1011 905 735 558 387 236 124 88 D320 IBRD 1920 2128 2417 2590 2625 2609 2824 3033 D330 Other multilateral creditors 2246 2464 2770 2804 3515 4436 4938 5222 D340 Official bilateral creditors 10344 10497 10319 10037 9311 9443 8924 8796 D344 (Interest arrears) 53 0 0 0 0 0 0 0 D350 Commercial banks 4722 5023 3984 4040 3875 3738 3429 3409 D352 Medium/long term 1561 2110 2223 2479 2664 2707 2599 2478 D353 Short term 3121 2873 1720 1560 1210 1030 830 930 D354 Interest arrears 40 40 40 0 0 0 0 0 D360 Other private creditors 8861 9313 9380 9175 8921 9787 10199 10782 D364 (Interest arrears) 0 0 0 0 0 0 0 0 By borrower: 29103 30330 29605 29204 28633 30249 D400 Public sector 19305 19900 19851 19624 19523 21037 D410 Private sector 6337 7149 7467 7549 7544 7722 D420 Deposit money banks 3461 3281 2286 2032 1566 1490 D508 Face amount discounted debt reduction -4760 0 0 0 0 -280 0 0 D558 Commercial banks -3878 0 0 0 0 0 0 0 D578 Other creditors -881 0 0 0 0 -280 0 0 D600 $ Exchange rate valuation effect -1360 504 -152 -898 -817 954 -547 -22 D610 % Total external debt in $ 63.1 61.4 60.9 61.6 62.7 70.2 70.7 71.0 EXTERNAL ASSETS ($ million) A500 Reserves excluding gold 10982 9565 8730 8374 8672 9548 10048 10648 A505 % Imports goods, services, & income 83.9 74.3 77.5 69.8 76.1 81.6 78.7 78.0 A506 Months imports goods, services & income 10.1 8.9 9.3 8.4 9.1 9.8 9.4 9.4 A510 Gold value 322 336 320 300 306 383 A512 Gold (million ounces) 1.115 1.100 1.100 1.100 1.100 1.115 A600 Deposit money banks' foreign assets 1216 1246 1389 1299 1366 A700 Deposits in BIS banks 7200 6652 7197 6975 7600 e = estimate, f = IIF forecast

11-Feb-03 IIF DATABASE: PERU Page 4 Code 1997 1998 1999 2000 2001 2002e 2003f 2004f DEBT SERVICE PAYMENTS ($ million) P100 Total debt service 3634 3722 3760 4117 3744 3909 3816 3635 P105 % Exports goods, services & income 39.9 44.7 45.0 44.0 40.6 40.3 36.2 32.3 P110 Interest payments due 1621 1784 1744 1809 1586 1664 1680 1720 P115 % Exports goods, services & income 17.8 21.4 20.9 19.3 17.2 17.1 15.9 15.3 P120 Amortization paid 2013 1938 2016 2308 2158 2245 2136 1915 P125 % Exports goods, services & income 22.1 23.3 24.2 24.7 23.4 23.1 20.3 17.0 P204 Average interest rate on external debt 5.1 6.0 5.8 6.2 5.5 5.7 5.5 5.6 P214 Average real rate on external debt 5.8 19.1 14.7 2.9 10.9 1.8 0.0 2.8 2003 2004 2005 2006 2007 AMORTIZATION R100 Total principal repayments due 2136 1915 1458 1384 1911 R110 IMF 106 35 36 37 18 R120 IBRD 101 101 83 85 92 R130 Other multilateral creditors 202 167 161 159 161 R140 Official bilateral creditors 482 361 353 349 357 R150 Commercial banks 1073 1100 674 600 625 R160 Other private creditors 172 151 151 154 658 1997 1998 1999 2000 2001 2002e 2003f 2004f WORLD ECONOMIC FRAMEWORK W101 Industrial country real GDP % change 3.19 2.31 2.85 3.53 0.72 1.47 2.14 2.87 W204 $ LIBOR (six-month, average) 5.85 5.54 5.54 6.65 3.73 1.91 2.81 3.72 W304 Brent spot oil price ($/bbl, average) 19.12 12.72 17.70 28.31 24.41 24.79 24.50 18.00 W410 SDR/$, end-period 0.74 0.71 0.73 0.77 0.80 0.74 0.76 0.76 W420 Euro(Ecu)/$, end-period 0.91 0.86 1.00 1.07 1.13 0.95 1.00 1.00 W430 Yen/$, end-period 129.95 115.60 102.20 114.90 131.80 118.70 129.50 130.00 W505 World price commodities % change -3.31 -14.75 -6.90 1.71 -5.25 2.84 7.68 2.55 W515 World price manufactured goods % change -4.68 -3.70 -2.47 -3.52 -2.09 1.80 2.02 -0.06 W603 Export market volume % change 11.5 5.7 5.6 11.2 -1.2 2.0 6.7 7.2 W615 Trading partners' $ prices % change 0.3 -0.4 -1.8 1.1 -2.2 -0.4 0.2 1.9 COUNTRY TRADE BY COMMODITY Exports: C100 Copper ($ million) 1096 779 776 933 987 1178 C102 Volume (thousand tons) 501 486 521 529 686 850 C103 Volume % change 5.4 -3.0 7.1 1.5 29.6 23.9 C104 Unit price ($/lb) 1.03 0.75 0.71 0.82 0.72 0.71 C105 Unit price % change -0.8 -27.3 -4.9 15.3 -12.9 -1.2 C200 Fishmeal 1031 392 533 874 835 772 C202 Volume (thousand metric tonnes) 1926.3 666.2 1482.0 2352.3 1942.0 1420.0 C203 Volume % change 19.7 -65.4 122.5 58.7 -17.4 -26.9 C204 Unit price ($/tm) 535.16 588.38 359.53 371.55 430.01 546.01 C205 Unit price % change 3.2 9.9 -38.9 3.3 15.7 27.0 e = estimate, f = IIF forecast

11-Feb-03 IIF DATABASE: PERU Page 5 Code 1997 1998 1999 2000 2001 2002e 2003f 2004f GOVERNMENT & MONETARY SECTORS GOVERNMENT SECTOR (new soles million) G100 Public sector borrowing requirement -253 1329 5482 6044 4833 4550 4030 3400 G102 Public sector borrowing % GDP -0.2 0.8 3.1 3.2 2.6 2.3 1.9 1.5 G106 Financed by domestic credits 337 687 5593 3758 3078 1514 G107 Financed by external credits -591 642 -111 2286 1755 3036 G300 Central government borrowing 1325 1791 5499 5119 5264 4946 G302 Central government borrowing % GDP 0.8 1.1 3.1 2.7 2.8 2.5 G306 Financed by domestic credits 1313 1230 5812 3022 3282 1818 G307 Financed by external credits 12 561 -313 2097 1982 3128 G310 Central government revenue 25193 26707 25872 27944 27039 28408 G311 Central government revenue % change 14.0 6.0 -3.1 8.0 -3.2 5.1 G312 Central government revenue % GDP 16.0 16.0 14.8 15.0 14.3 14.3 G320 Central government expenditure 26518 28498 31371 33063 32303 33354 G321 Central government expenditure % change 10.4 7.5 10.1 5.4 -2.3 3.3 G322 Central government expenditure % GDP 16.9 17.1 18.0 17.7 17.0 16.7 G500 General government debt 22666 23569 23505 24249 24687 26327 G502 General government debt % GDP 38.4 41.5 45.5 45.3 45.7 46.5 G510 General government domestically issued debt 4350 4550 4815 5044 5720 5840 G520 General government foreign issued debt 18316 19019 18690 19205 18967 20487 MONETARY SECTOR (new soles million) M100 Net foreign assets 24119 25111 30490 31652 33681 M200 Domestic credit 29784 39869 47717 47579 48109 M201 Domestic credit % change 73.4 33.9 19.7 -0.3 1.1 M210 Claims on the public sector -8028 -5966 -1504 10 2579 M250 Claims on the private sector 37812 45835 49221 47569 45530 M300 Other liabilities 9142 12462 18079 19344 20660 M400 Money + quasi-money (M2) 44762 52518 60127 59887 61131 M401 M2 % change 30.8 17.3 14.5 -0.4 2.1 M411 M2 velocity % change -12.2 -9.8 -8.4 7.3 -0.6 M500 Money (M1) 15175 19165 22273 21072 21278 M501 M1 % change 69.1 26.3 16.2 -5.4 1.0 M600 Reserve money 4761 5023 5876 5642 5883 M601 Reserve money % change 19.1 5.5 17.0 -4.0 4.3 M805 Consumer prices % change average 8.5 7.2 3.5 3.8 2.0 0.2 2.1 2.6 M815 Consumer prices % change end-period 6.5 6.0 3.7 3.7 -0.1 1.5 2.3 2.9 FINANCIAL MARKETS K101 General Lima Index, new sol terms % change 25.5 -25.5 37.4 -34.2 -2.6 18.3 K111 General Lima Index, $ terms % change 19.5 -35.6 23.7 -34.5 -0.3 16.0 K120 Equity market capitalization ($ billion) 17.4 11.0 13.4 10.5 10.9 12.6 K130 Equity market turnover ($ billion) 12.1 7.7 4.7 3.6 3.4 2.9 K200 Interbank rate 12.8 18.7 14.9 12.7 8.6 3.2 K210 Lending rate 30.9 32.6 35.0 30.0 25.0 20.8 K220 Deposit rate 10.3 10.9 11.8 9.8 7.5 3.5 K230 Real deposit rate 1.6 3.4 8.0 5.8 5.4 3.3 e = estimate, f = IIF forecast

11-Feb-03 IIF DATABASE: PERU Page 6 Code 1997 1998 1999 2000 2001 2002e STRUCTURAL FACTORS MERCHANDISE TRADE S100 Merchandise exports ($ million) 6832 5757 6119 7034 7108 7576 Export composition % total: S102 Petroleum 5.5 4.0 4.1 5.7 5.9 6.2 S103 Copper 16.0 13.5 12.7 13.3 13.9 15.5 Export destination % total: S112 U.S. 23.4 32.9 29.6 27.7 25.1 25.8 S113 Japan 7.1 3.8 4.3 5.5 6.5 6.6 S115 Exports % GDP 11.6 10.1 11.8 13.1 13.2 13.4 S120 Merchandise imports ($ million) 8553 8222 6749 7351 7198 7228 Import composition % total: S122 Intermediate goods 42.1 43.0 45.7 50.7 50.9 51.8 S123 Capital goods 34.5 33.1 32.5 29.3 27.0 24.5 Import origin % total: S132 U.S. 31.8 32.5 31.7 29.7 30.1 31.5 S133 Spain 8.6 7.4 7.5 9.2 8.8 8.6 S135 Imports % GDP 14.5 14.5 13.1 13.7 13.3 12.8 REAL GDP BY ORIGIN: 1990 = 100 S210 Agriculture (8.5% GDP in 1990) 138.3 139.2 156.8 166.8 164.3 S220 Mining (4.4% GDP in 1990) 154.0 159.8 180.5 184.8 205.4 S230 Manufacturing (15.6% GDP in 1990) 138.5 134.1 133.4 142.3 140.8 S240 Construction ( 4.1% GDP in 1990) 216.2 217.5 194.6 186.3 175.0 S250 Services (67.4% GDP in 1990) 139.3 138.6 138.6 142.1 142.6 INVESTMENT AND SAVING (% GNP) S305 Gross domestic investment 24.7 24.2 22.2 20.7 18.8 18.6 S315 Gross national saving 17.5 15.9 16.6 15.8 14.9 15.2 S325 Net foreign balance -7.1 -8.3 -5.6 -4.9 -3.9 -3.4 POPULATION AND EMPLOYMENT S400 Population (million) 24.68 25.10 25.52 25.94 26.35 26.75 S401 Population % change 1.7 1.7 1.7 1.6 1.6 1.5 S411 Per capita real GDP % change 4.9 -2.2 -0.7 1.5 -1.3 3.3 S420 Per capita $ GDP 2392 2264 2023 2064 2051 2118 S430 Employment (million) 7.74 7.88 7.58 7.54 7.62 S431 Employment % change 3.5 1.7 -3.7 -0.6 1.1 S440 Recorded unemployment rate (%) 8.3 7.9 8.0 7.8 7.9 e = estimate, f = IIF forecast

Iifperufeb112003

by G Garcia

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Iifperufeb112003 Document Transcript