Country Report Peru July 2009

Summary

The government of Alan Garcia will struggle to recover authority, following clashes between indigenous demonstrators and security forces in June in which more than 60 people were killed.
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.
Countercyclical measures and Asian commodity demand will enable Peru to escape recession, but GDP growth will slow to 1.3% in 2009, rising to 2.6% in 2010 as strengthening external demand boosts exports and investment.
Sharply slowing demand and subdued import prices will enable consumer price inflation to fall back within the official target range of 1-3% in 2009. Inflationary pressures will rise in 2010 as demand recovers.

The government was forced to backtrack on two controversial decrees, which opened up jungle areas to oil exploration, mining, and large-scale farming, following violent protests in early June.
The government's handing of the crisis has had a strong negative impact on Mr Garcia's national approval rating, which now stands at only 21%, the lowest level since November 2008.
After concluding free-trade agreements (FTAs) with the US, China, Chile and Canada, Peru is now actively negotiating similar agreements with the EU and South Korea.
Economic activity contracted in April for the first time in almost eight years, falling by 2%, as a result weakening domestic demand, poor external demand and a high base of comparison.
The Central Bank lowered its official forecasts for real GDP growth and now projects growth of 3.3% in 2009 (down from 5% previously) and 5.5% in 2010 (reduced from 6%).
The release of updated statistics on Peru's natural-gas reserves prompted calls for the government to renegotiate its liquefied natural gas (LNG) export contracts to preserve supplies for domestic consumption.
The trade surplus narrowed by over 65% year on year in April owing to a 34% contraction in export receipts. The import bill also fell sharply.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60;49
NAICS Code: 336;52;22