Country Report Peru April 2009

Summary

Social unrest is set to increase in the coming year as administrative inefficiencies and political fragmentation impair the effectiveness of policies aimed at mitigating the impact of the global economic downturn.
The government's attempts to deliver on pledges of improved social conditions will be hindered by weak implementation capacity, boosting the appeal of the opposition ahead of the 2011 elections.
Policymakers are relatively well-placed to mitigate the damage inflicted on the domestic economy by the global financial crisis, owing to Peru's sound public finances and a comfortable cushion of international reserves.
Economic growth will slow to 2.8% in 2009 as external demand weakens sharply. Growth in 2010 will rise to 3.9% as US demand begins to recover andtogether with new investmentboosts export volumes.
Despite sharply slowing demand, consumer price inflation will remain above the official target of 1-3% in 2009. We expect inflation to fall back within the target range by mid-2010.

Mr Garcia caused controversy in late March when, in an attempt to reassure business executives that a leftist leader would not be elected in 2011, he claimed that as president he could influence the outcome of the elections.
Support for Keiko Fujimori, the daughter of a former president, AlbertoFujimori (1990-2000), and leader of the Fujimorista bloc in Congress, remains high. She is widely expected to run for president in 2011.
The government held its first international bond issue in more than two years on March 25th, successfully selling US$1bn worth of 10-year bonds; demand for the bonds was five times the amount offered.
Falling corporate profits and slowing economic growth led to a sharp reduction in tax and customs collections in January and February. Overall collections by the central government fell by 10.7% year on year.
Continuing a slowdown that began in November, real GDP growth decelerated to its weakest pace in five years in January (3.1%). Domestic demand growth slowed to 2.3%, the slowest growth since early 2005.
A lack of financing has led to the suspension of mining activity at the country's fifth-largest exporter, Doe Run Peru. The government is working with the company to save thousands of jobs at the La Oroya smelter.
With domestic demand growth decelerating, the import bill fell to US$1.6bn in February, a year-on-year decrease of 19.5%.

Source: Country Report

This report covers the following industry codes:
SIC Code: 39;70
NAICS Code: 31;72