RaboResearch - Economic Research

Country Report Peru

Country Report


Peru flag

Investment in large mining projects is likely to continue, although an escalation in the conflict with local communities could lead to a deterioration of the investment climate. A U-turn in his energy policies has dented the popularity of President Humala and his wife, who, according to rumors, might be planning to succeed Humala in 2016. 

Strengths and weaknesses


Good fiscal position and economic management

Public debt is low, the government has a fiscal surplus, both are partially thanks to the establishment of the Fiscal Responsibility and Transparency Law in 2001. Foreign reserves are high.

High structural growth rate in the near future

The economy has grown rapidly and is likely to continue to do so, as investment is expected to remain high.


Relatively high level of social tensions and poverty

Poverty and inequality remain substantial, despite a strong decline in the number of poor in recent years. In 2012 25.8% of the population lived below the national poverty line.

Partially dollarized economy

The financial sector is partially dollarized, which makes the economy vulnerable to exchange rate shocks. Furthermore, a substantial part of government in denominated in USD.

Key developments

1. Large scale investment in mining projects likely to continue, despite protests

Peru is expected to receive USD 53bn in investment in mining projects in the coming ten years. This investment is likely to result in a major boost to Peru’s economic development. According to a recent study by the Instituto Peruano de Economía , these investments would increase exports by USD 30.3bn (or roughly 15% of 2012 GDP) a year, GDP by USD 44.5bn per year and fiscal revenues by USD 9.9bn (or 22% of the 2013 budget) per year. Moreover, it would directly and indirectly also lead to 2.4m new jobs. Mining investment is primarily directed to the metals sector, with copper, gold, lead and silver being Peru’s prime metal export products. Production of copper is in particular likely to increase strongly in the coming years. However, the growth of the mining sector continues to be opposed by social protests. Several large mining projects remain controversial, as local communities fear the environmental impact of the projects and feel that they should benefit more from the projects. The latter is fuelled by a large urban-rural divide: while the poverty rate stood at 17% in urban areas in 2012, it was 53% in rural areas. In order to counter this development, President Humala has kept his campaign promises of raising the taxation on mining projects and increasing social spending. The government also implemented a consultation law, which gives indigenous groups more opportunity to have a say (though not a veto) about projects in their region. However, the government has excluded the Quechua-speaking communities, who live in the regions where most mining projects are planned. The government stated that those communities are not really indigenous, which prompted the resignation of the deputy minister of intercultural affairs, Ivan Lanegra. Meanwhile, a lot of opposition remains to some mining projects and is not likely to disappear soon. An escalation of the tensions with local communities could result in less investment. Due to protests, the USD 5bn Minas Conga gold project will be delayed until 2017. Nevertheless, so far, investor confidence has generally remained strong.

2. Economic growth slows down, primarily due to calendar day effects

In the first quarter of 2013, economic growth slowed down to 4.8% year-on-year, against 5.9% growth in the fourth quarter of 2012. It was the slowest rate of growth in more than three years. However, calendar days effects played a major role, as Easter took place in March this year and not in April, as it did last year. In fact, on a seasonally adjusted basis the economy grew by a strong 2.1% quarter-on-quarter. While the construction sector continued to grow rapidly, the tradable sectors contracted. The important mining sector contracted by 0.6% year-on-year. This was primarily due to a fall in gold exports of 25% year-on-year. Total export volumes fell by 16%, while import volumes increased by 6.7%. Furthermore, there was a small deterioration of the terms of trade. As a result, the trade balance posted a USD 223m deficit in the first quarter, against a USD 2.4bn surplus in the first quarter of 2012. However, the central bank expects exports to grow by 5.7% in 2013 as a whole, and by 12.8% in 2014. Some improvement has already been visible, as the trade account posted a surplus in March, after two months of deficits. 

Figure 1: Growth performance
Figure 1: Growth performanceSource: EIU
Figure 2: Current account
Figure 2: Current accountSource: EIU

3. Government makes U-turn in energy policy

In April 2013, there was a lot of speculation about the acquisition of assets of Spanish oil firm Repsol by Peruvian oil state company Petroperú. During his campaign President Humala had promised to give the State a greater role in the economy, but after his victory in 2011, Humala followed a centrist and business-friendly course. Earlier this year, the government proposed a legal framework that would allow Petroperú to be more autonomous and strengthen both its upstream and downstream capabilities. However, after a lot of opposition from Congress and business groups the government stated that it would not take over the Repsol assets. This decision seems to signal that Humala intends to continue his centrist policies.

4. Keeping it in the family?

While it will take about three years before new presidential elections are scheduled to take place, speculation has grown that Nadine Heredia, the wife of President Humala, intends to succeed her husband. According to a recent poll, 82% of the Peruvians thinks that she will run in 2016. Heredia is more popular than her husband. According to a so-called lower level law, family members of incumbents are not allowed to run for the presidential office. However, as the constitution does not prohibit such a succession, and the head of the national elections court and a constitutional court justice have both stated that the law should be removed. Recently, both the popularity of the President Humala and his wife has declined after a long period of  growing popularity. It seems that the U-turn Humala made in his energy policy has created doubts about his willingness to keep his promises.  

Factsheet of Peru
National facts of PeruSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank.

Background information

Peru has a turbulent macroeconomic and political history. In the late 1980s, Peru got into a deep economic crisis and suffered from hyperinflation. Furthermore, there was a guerrilla war between the government and the Maoist Shining Path in the 1980s and 1990s. In recent years, Peru has become one of the fastest growing economies of Latin America. Both investment and consumption have grown rapidly and  strong investment in new metals mining projects is likely to continue in the years ahead. However, some mining projects remain highly controversial and face public protests. This is partially related to the relatively high level of (income) inequality, which has both a geographical and an ethnic character. The number of people that have an income below the national poverty line remains substantial, in spite of a rapid improvement in recent years. The macroeconomic position of Peru is relatively strong. Public debt is very low and the government posts a fiscal surplus, partially thanks to the Fiscal Responsibility and Transparency Law (2001), setting a deficit target of 1% of GDP and putting constraints on increases of real expenditure and debt for the non-financial public sector. Balance of payments risk is limited in spite of a sizeable current account deficit, as it is more than covered by FDI. The country has a large stock of foreign reserves. However, the level of dollarization of the economy remains substantial (44% of bank deposits in 2012), even as it has declined in recent years. Also, Peru primarily exports primary products. This makes the economy vulnerable to commodity price shocks. More diversification of the economy is needed to allow the economic and social development of the country to continue.

Economic indicators of Peru
Economic indicators of PeruSource: EIU

naar boven