In Peru: LondonRoadshowApril, 2012Luis Miguel CastillaMinister of Economy and Finance
Peru – Key Investment Highlights2Highestgrowth in theregion withlow inflationEconomicdynamismacross sectorsExports atrecord levelsand increasingitsdiversificationHealthyexternal debtlevelsSound fiscalposition allowscountercyclicalpolicyReducedunemploymentand povertyOutstandingeconomicperspectives
Peru ranks among the fastest growing economiesin the World and a low inflationSource: MEF, IMF, Consensus Forecasts.3Real GDP per capita(% cum ch 2008-2011)LATAM: Inflation 2008-2011(Average annual % change)29.08.85.6 4.5 4.2 3.8 3.405101520253035VenezuelaArgentinaBrazilMexicoColombiaChilePeru-14,6-11,0-7,0-5,8-5,2-4,3-3,9-2,9-1,9-1,40,22,74,911,912,213,217,420,427,441,7-25 -15 -5 5 15 25 35 45 55IrelandGreeceItalySpainUnited KingdomJapanPortugalUnited StatesFranceCanadaMexicoGermanyRussiaKoreaBrazilTaiwan ROCIndonesiaPeruIndiaChina
Low Debt and High Net International ReservesPeru: Net Internacional Reserves1(Millions of US$)LATAM: Net Internacional Reserves Feb-2012(% of GDP)4Gross and Net Public Debt(% of GDP)515253545551999 2001 2003 2005 2007 2009 2011Gross Debt NetDebt8,18017,275010,00020,00030,00040,00050,0002000 2006 201256,36910.4 11.113.9 14.829.705101520253035Colombia Mexico Brasil Chile Peru1/ Up to April 4th 2012.Source: BCRP, Moody’s, MEF.
Debt profile: exchange and interest rate exposure5Source: DGETP-MEFDecember 2006 December 2011December 2006 December 2011Public Debt Structure by Interest Rate(%)Public Debt Structure by Currencies(%)58.622.319.1DollarsNuevo SolOthers18.104.22.1686.913.1Debt denominated in local currency has more than doubled in the last 5 yearsSharply decrease in debt attached to variable rates58.622.3FixedVariable
Peru Today: you can go Global or Sovereign6S/.SovereignGlobal• On Wednesday January 25th, Peru sold bonds for US$ 1.1 billion, the first offshore bidsince 2010.• US$ 500 million where sold in U.S. dollars, and US$ 600 million in Nuevos Soles.• The issue in Nuevos Soles represented 55% of the total issuing (an unexpected result).• The bond demand was 7.2 times the supply in dollars and 4.7 in Nuevos Soles.
Solid banking system and low exposure toEuropean banks1/ Capital Adequacy Ratio: risk weighted assets and contingent loans to regulatory capital. 2/. As of January, 2012.Source: BCRP, Goldman Sachs - Latin America Economic Analyst Nov. 2011.7European Banks as a Share of Total Bank Credit(% of total loans)Dollarization Ratio2(%)Solvency indicator of banking1(%)Participation of European Banks in LATAMFinancial System (% of bank capital)4830220102030405060Mexico Chile Peru4929270102030405060Mexico Chile Peru663777453040506070802002 2004 2006 2008 2010 2012Liquidity Credit13.3789101112131415D-07 J-08 D-08 J-09 D-09 J-10 D-10 J-11 D-11Banking LawInternational StandardJ-12
International integration with the rest of theworld fosters trade and investment8FTAs Breakdown By StatusSource: PROINVERSION, MINCETUR , MEF
Export boom and current account financed bylong-term capitalsTotal Exports(Millions of US$)96 95517 36835 56546 26805 00010 00015 00020 00025 00030 00035 00040 00045 00050 0002000 2005 2010 2011Current Account vs. FDI(% of GDP, Millions of US$)01 0002 0003 0004 0005 0006 0007 0008 0009 000-5-4-3-2-1012342002 2003 2004 2005 2006 2007 2008 2009 2010 2011Foreign Direct Investment (FDI) (right axis)Current Account (left axis)
1/ This index takes into consideration: inflation, interest rate, exchange rate, current account balance, fiscal budget and public debt.Source:The Economist.EgyptIndiaPoloniaBrazilVietnamPakistanTurkeyArgentinaHungrySouth AfricaTaiwanVenezuelaCzech RepublicMexicoColombiaMalaysiaThailandPhilippinesHong KongPeruRussiaSingaporeSouth KoreaChileChinaIndonesiaSaudi Arabia0 10 20 30 40 50 60 70 80 90 100Peru among the economies with better capacity toface a global slowdown10The Economist: Margin for Fiscal and Monetary Policies Maneuvering Index1Limited space to adopt fiscal andmonetary policies when facing a crisis.Ample space to adopt fiscal and monetarypolicies when facing a crisis.
Tax reform to increase permanent tax revenuesCentral Government Tax Pressure(% of GDP)12Tax burden objective: 18% of the GDP for 201611.111.512.812.713.614.114.514.513.612.812.412.312.112.913.113.615.015.615.613.814.815.515.315.615.89.010.011.012.013.014.015.016.017.018.019.090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Average 1990/2009: 13.5%Average 2006/2011: 15%18%Our objective is to increase tax revenues without raising tax rates.
Public-Private Partnerships to close infrastructuregapsGap 2008 %Transportation 13,961 37.0Airports 571Ports 3,600Railways 2,415Roads 7,375Sanitation 6,306 16.7Potable water 2,667Sewage 2,101Treatment of poluted water 1,538Electricity 8,326 22.0Generation 5,183Transmision 1,072Coverage 2,071Natural Gas 3,721 9.9Telecommunications 5,446 14.4Landline telephone 1,344Movil telephone 4,102Total 37,760 100.0SectorInfrastructure Gap at 2008(Millions of US$)Source: The Global Competitiveness Report 2011-2012 (WEF), IPE.13
Competitiveness Agenda for 2012-201314Aim To step up the Peruvian competitiveness, through the increase of productivity andthe improvement of the state efficiencyStrategicLines :(60 Goals)i) Science, Technology and Innovationii) Enterprise development, quality andproductive educationiii) Internationalization iv) Infrastructurev)I nformation and CommunicationTechnologiesvi) Facilitation of businessesvii) EnvironmentReportingResultsJuly DecemberBudget by ResultsAlignment of resources of the Technical CooperationPrivate Resources
Wider Private Pension Funds, Capital Marketsand Financial SystemSource: SMV, SBS15Private Pension Funds• Deeper coverage, enhance efficiency and competitionFinancial Inclusion• Electronic money bill.• Transparency and consumer protection• Factoring financing for SME’s.
Wider Private Pension Funds, Capital Marketsand Financial SystemSource: SMV, SBS16• Alternative mechanisms to facilitate access to the Public and Private OfferingMarket: streamline the securities issuance process by implementing a PrivateOffering Regime and improving existent Public Offering regimes.• Capital Market Internationalization focus on promoting the MILA (Latin AmericanIntegrated Market) by facilitating connectivity with other international markets.• Broaden investment alternatives encouraging the securities issuance of medium sizefirms with mechanisms such as “My First Issuance” that will make the filing processmore agile.Capital Markets Reform
Wider Private Pension Funds, Capital Marketsand Financial SystemSource: SMV, SBS17• Simplify access for new Mutual and Investment Funds by reducing capitalrequirements, improving corporate governance practices and establishingsegregation of duties between commercial and investment portfolio management.• Listing of state-owned firms: Introduction of regulatory changes to allow publiccompanies with at least 10% of private capital to operate under the private regime.• Strengthen Corporate Governance by updating the Good Corporate GovernancePractices Guide in accordance with international standards.Capital Markets Reform
Wider Private Pension Funds, Capital Marketsand Financial SystemSource: SMV, SBS18Public Debt Market Development• Develop a complete Sovereign Yield Curve:Short Term: issuance of 3, 6 and 12 month Treasury Bills.Medium & Long Term: issuance of 2015, 2017, 2023 and 2042 Treasury Bonds.• Deeper Market Maker role to facilitate bond market internationalization.• Introduce repo transactions with Treasury Bonds and Bills to guarantee minimumliquidity in financial distress scenarios.• Create a Treasury Bond index to be used as a market risk free reference.• Establish a retail Treasury Bond Market to favor financial inclusion and promotesavings of small and medium size local investors.
Business confidence recovers and upward revisionof GDP forecast for 201220Hiring Expectations(Points)Cement: Domestic Consumption(Annual % change)Peru’s Central Bank Forecasts: Real GDP 2012(Annual % change)Private Investment Expectations(Points)5.55.75.05.22.214.171.124.126.96.36.199Forecast - Dec 2011 Forecast - Mar 2012Source: BCRP5410203040506070J-09 D-09 D-10 J-11 O-11 M-1236010203040506070J-09 D-09 D-10 J-11 O-11 M-12-10-5051015202530F-10 J-10 O-10 F-11 J-11 O-11 F-12
Private investment around 25% of GDP ensures aGDP growth of 6% per year21Source: MEF, BCRP.Growth after Investment to GDP reached 25%(Annual % change)Private and Public Investment(% of GDP)13.117.4 16.5 16.019.5 19.6 19.9 20.5 21.2 22.03.64.53.82.95.2 4.65.9 188.8.131.526.721.920.318.924.7 24.125.826.627.528.588-92 93-97 98-02 03-07 08-10 2011 2012 2013 2014 2015Year whenInvestment toGDP reached25%Avg. Growth ofthe next 5 yearsWorld Avg. Growthof the next 5 yearsChile 1989 7.3 2.6Taiwan 1980 6.4 2.9India 1990 5.1 2.6Peru 2012 6.0 3.7Country
Continue to promote private investment as theengine of growth22Announcement of Private Investments Projectsin the next 2 years (Billions of US$)Source: BCRP.Private Investment Projects 2012–2013(Millions of US$)3435Dec-11 Mar-1221 2324 8951 912 2 2605 157Mining &HydrocarbonsElectricity Industry Infrastructure OtherSectors
23LATAM: GDP 2012(Annual % change)Source: MEF, Consensus Forecasts.LATAM: Inflation 2012(Dec/Dec % change)In 2012 Peru will remain as the fastest growingeconomy with the lowest inflation in the region0123456Peru Colombia Chile Venezuela Argentina Brazil Mexico05101520253035Peru Chile Colombia Mexico Brazil Argentina Venezuela
Ample growth and investment opportunities24Vehicle sales per capita 2010(Vehicles per 1000 inhabitants)Copper Production 2011(Thousands of Fine Metric Tons)Source: Sunat, UNWTO, Geological Service of USA, AEADE, ARAPER, ASBANC, FELABAN, CAVEM, ASOPARTES, CCL, Ripley FELABAN, SBS, Superinterdency of Banks and FinancialInstitutions (Chile), Apoyo, MaximizeSupermarkets’ Market Share 2011(%)Tourist arrivals 2011(Millions of persons)Banking System credits 2010(% of GDP)Exports 2010(Billions of US$)Vehicle sales per capita 2011(Vehicles per 1,000 inhabitants)Banking System Credit 2011(% of GDP)3.28.7012345678910Peru Chile0.44.90123456Peru ChileAgro Wood & paper27456910305070Peru Brazil Chile1,2205,4200100020003000400050006000Peru Chile184.108.40.206.05.70123456Ecuador Peru Colombia Chile Argentina220.127.116.119.40510152025Perú Colombia Ecuador Chile1742 445161010203040506070Peru Brazil Argentina Colombia Chile
Main challenge: Poverty erradication26Total Poverty by Districts(% of population)Source: INEI0-30%30-60%More than 60%In 2010, poverty remains in54% of the districts.Total Poverty 2004 - 2010(% of population)48.220.083.461.058.730.801020304050607080902004 2010UrbanRuralTotal
Improvement in the quality of life27Source: World Health Organization,ENDES, PpR, INEI, OECD.1/ The OECD Programme for International Student Assessment (PISA).2/ Average of all students average score in maths, language and science.Gaps in access to services 2010(% of population without services)40.456.0 59.114.926.8 27.0010203040506070Electricity Sanitation Drinking waterRural NationalChronic Undernourishment and Anemia(% of children below 5 year old)0102030405060702000 2005 2007-2008 2009 2010 2011Chronic UndernourishmentAnemiaInternational Student Assessment PISA1Scores 2009 (Average Score2)439427420401 399 396369 368320340360380400420440460Chile Uruguay Mexico Brazil ColombiaArgentina Panama PeruExtreme Poverty 2004 - 2010(% of population)5.71.941.623.816.47.60510152025303540452004 2010UrbanRuralTotal
Notes: The above table shows ranking of countries for which the Human Opportunity Index has been constructed.Source: World Bank, UNDP, Bloomberg1/ http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/0,,contentMDK:21915362~pagePK:146736~piPK:146830~theSitePK:258554,00.html/ date 08/03/201228LATAM: WB Human Opportunity Index vs. Doing Business Index (2012) vs.Investment GradesThe challenge is to have a country with equalopportunities for everyoneHuman OpportunityIndexDoing Business Index 2012 Investment Grade S&P1 Chile Chile 1 Chile A+2 Argentina Peru 2 Peru BBB3 Costa Rica Colombia 3 Mexico BBB4 Venezuela, RB Mexico 4 Brazil BBB5 Uruguay Panama 5 Colombia BBB-6 Mexico Jamaica 6 Panama BBB-7 Colombia Uruguay 7 Uruguay BB+8 Ecuador Guatemala 8 Guatemala BB9 Jamaica Paraguay 9 Costa Rica BB10 Brazil Dominican Republic 10 Paraguay BB-11 Dominican Republic Argentina 11 Dominican Republic B+13 Paraguay Nicaragua 12 Venezuela B+14 Peru Costa Rica 13 Argentina B16 El Salvador Brazil 14 Honduras B17 Honduras Honduras 15 Jamaica B-18 Guatemala Ecuador 16 Nicaragua B-19 Nicaragua Venezuela, RB 17 Ecuador B-
In Peru: LondonRoadshowApril, 2012Luis Miguel CastillaMinister of Economy and Finance