Peru WT/TPR/S/69
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I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Peru has continued, with considerable success, its programme of macroeconomic stabilization
and structural reform initiated in the early 1990s.  Since Peru's previous Trade Policy Review in 1994,
trade and foreign investment have increased significantly, real GDP has grown at an annual average
rate of 5.6%, inflation has been brought down, and strengthened external balances have allowedinternational reserves to rise to comfortable levels .  Underlying these results were external trade and
exchange rate liberalization, sound fiscal policies, and a comprehensive set of structural reforms
aimed in particular at fostering private activities.  Major reforms in recent years include the
privatization of most state-owned enterprises, complemented by the establishment of a sound
regulatory framework, and the strengthening of th e financial system.  Recovered economic growth has
contributed to significant social welfare improvements, but major policy challenges remain, such as
further increasing average income and reducing disparities, if continued support for the reform
programme is to be secured.
(2) E
CONOMIC POLICY AND DEVELOPMENTS
(i) Economic performance and structure
2. Between 1993 and 1999, Peru's GDP grew at an  average annual rate of 5.6%.  Growth,
however, tended to oscillate substantially over the period:  after two consecutive years of sustained
growth in 1994 and 1995, the pace slowed down in 1 996, before rebounding in 1997 (Table I.1).  The
slowdown registered in 1998 reflects particularly difficult conditions for the Peruvian economy due to
a number of exogenous shocks:  the effects of El Niño, lower export prices, and a liquidity squeeze
linked to the Russian financial crisis.  Preliminary figures for 1999 indicate that the economy
recovered slightly:  the strong recovery of export-oriented primary activities (mining and fish-related
activities) was partially offset by the contraction in commerce and construction.
3. Aggregate demand grew at an average annual rate of 7.1% over 1993-98 led by investment
and exports;  the resulting gap between GDP and aggregate demand brought about a strong rise in
imports (section (3)).  Driven by private investme nt, the share of gross domestic investment in GDP
rose from 18.6% to 24.3%, reflecting in particular the privatization of public enterprises and the large
inflows of direct investment it attracted (section (4)).  In 1999, the strong contraction of domestic
demand was mainly explained by a sharp decrease of private investment (-24.4%), which resulted in a
strong drop in imports of goods and services (-20.6%) (Table I.2).
4. Economic liberalization and faster growth in the 1990s was accompanied by substantial job
creation, although a simultaneous increase of labour supply resulted in a slight increase in the
unemployment rate (Table I.3).  Many of the jobs created were in the informal sector, which is
believed to account for close to half of total employment in urban areas.  Since 1991, real wages have
recovered from the severe contraction during the hyperinflation period in the late 1980s, however for
blue collar workers they have remained below pre-hyperinflation rates.
5. Economic recovery has also coincided with improved social welfare, as measured by a broad
range of indicators including poverty rates, literacy, access to safe water, electricity and sanitation
services, life expectancy, and infant mortality (Table I.3).  These positive developments were,
however, associated with growing regional disparities and a slight increase in income inequality
(reflected in the evolution of Gini coefficients).  Bo th could be linked to growing disparity of salaries
across educational levels.WT/TPR/S/69 Trade Policy Review
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6. The improvement in social indicators has been underpinned by a sustained increase in real
GDP per capita, which between 1993 and 1999 grew at an average annual rate of 3.8%, and by
associated job creation inclusive in the informal sector.  Nevertheless, because of a sharp drop in the
late 1980s, real GDP per capita in 1998 was equivalent to its mid-1960s level (GDP estimates should
be considered with caution in view of the high level of informality in the economy).
Table I.1
Gross domestic product by sector, 1994-99
(S/. million and per cent)
1994 1995 1996 1997 1998 1999a
 GDP at current prices (S/. million ) 110,412 133,256 149,504 173,669 183,842 193,336
 GDP at constant 1979 prices (S/. million) 4,108.4 4,410.1 4,513.8 4,827.4 4,841.7 5,027.0
 Sectoral shares  (as % of GDP)
   Agriculture and livestock 12.0 12.1 12.4 12.2 12.6 13.6
      - Agriculture 8.3 8.2 8.7 8.4 8.5 9.4
      - Livestock 3.7 3.8 3.8 3.8 4.1 4.2
   Fishing 1.5 1.1 1.1 0.9 0.6 0.9
   Mining and fuel 11.0 10.6 10.7 10.6 11.0 11.7
      - Metals 6.6 6.7 6.9 7.1 7.5 8.6
      - Petroleum and gas 4.4 3.9 3.8 3.5 3.5 3.1
   Manufacturing 22.6 22.0 21.9 21.8 21.1 21.9
      - Based on raw materials 7.2 6.3 6.6 6.3 5.6 6.6
      - Non-primary industries 15.3 15.7 15.3 15.5 15.5 15.3
   Construction 8.4 9.2 8.5 9.6 9.7 8.2
   Commerce 13.6 14.1 14.1 14.1 13.8 13.2
   Other services 30.9 30.9 31.3 30.8 31.1 30.4
 Growth rates  (%)
 GDP 13.1 7.3 2.4 6.9 0.3 3.8
   Agriculture and livestock 13.8 7.4 5.6 4.9 3.6 12.1
      - Agriculture 16.6 6.0 8.0 3.5 2.0 14.0
      - Livestock 8.0 10.6 0.6 8.0 7.0 7.9
   Fishing 29.0 -18.9 -0.7 -12.1 -35.6 66.3
   Mining and fuel 3.9 3.1 2.9 5.8 4.7 10.0
      - Metals 8.0 8.0 5.5 10.0 6.8 18.3
      - Petroleum and gas -1.6 -4.2 -1.4 -1.7 0.3 -7.8
   Manufacturing 16.7 4.7 1.8 6.6 -2.8 7.6
      - Based on raw materials 17.1 -6.1 6.2 3.0 -10.6 22.2
      - Non-primary industries 16.5 9.8 0.0 8.1 0.4 2.3
   Construction 34.5 17.6 -5.0 20.4 1.3 -12.3
   Commerce 16.7 11.2 2.7 7.2 -2.2 -0.5
   Other services 7.1 7.6 3.4 5.3 1.6 1.5
aP r e l i m i n a r y .
Source: Banco Central de Reserva del Perú.Peru WT/TPR/S/69
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Table I.2
Economic performance, 1994-99
(S/. million and per cent)
1994 1995 1996 1997 1998 1999a
 GDP at current prices (nuevos soles, million ) 110,412 133,256 149,504 173,669 183,842 193,336
 GDP at constant 1979 prices (nuevos soles, million) 4,108.4 4,410.1 4,513.8 4,827.4 4,841.7 5,027.0
 Global supply and demand (as % of GDP)
  Supply 114.3 116.3 116.4 116.7 116.7 115.5
    - GDP 100.0 100.0 100.0 100.0 100.0 100.0
    - Imports of goods and servicesb14.3 16.3 16.4 16.7 16.7 15.2
  Demand 114.2 116.3 116.4 116.6 116.7 115.5
    - Domestic demand 103.0 105.0 104.4 103.8 104.7 101.9
        Private consumption 73.7 72.3 72.9 70.9 71.6 71.2
        Public consumption 7.4 8.3 8.2 8.5 8.9 9.0
        Gross domestic investment 21.8 24.4 23.2 24.4 24.3 21.7
            Privatec17.6 20.2 19.4 20.5 20.3 17.9
            Public 4.2 4.2 3.8 3.9 4.0 4.3
    - Exports of goods and servicesb11.2 11.3 12.0 12.8 12.0 13.6
 Growth rates  (%)
  Supply 15.2 10.9 2.0 7.9 0.3 -2.8
    - GDP 13.1 7.3 2.4 6.9 0.3 2.1
    - Imports of goods and servicesb25.6 26.8 0.6 11.4 0.1 -20.6
  Demand 15.2 10.9 2.0 7.9 0.3 -2.8
    - Domestic demand 14.6 11.9 0.0 6.6 -0.6 -6.5
        Private consumption 9.7 8.1 1.5 4.0 -0.4 -1.0
        Public consumption 9.9 12.4 1.6 5.1 1.8 7.5
        Gross domestic investment 28.9 20.3 -3.3 12.4 -1.5 -19.7
            Privatec32.7 23.4 -2.5 13.0 -2.3 -24.4
            Public 13.4 5.4 -8.1 9.0 3.4 11.5
    - Exports of goods and servicesb17.7 6.9 10.2 12.7 3.3 10.8
 Prices (% change)
   Consumer price index 23.7 11.1 11.5 8.5 7.3 3.5
   Wholesale price index 17.9 10.5 9.4 7.4 7.3 4.9
 Lending rate (%) 53.6 27.2 26.1 30.0 30.8 30.8
 Exchange rate (S/US$)d2.20 2.26 2.45 2.66 2.93 3.38
 Real exchange rate index (Aug 1990 = 100)d
    - U.S. 82.5 78.3 78.6 80.5 83.8 95.7
    - 7 major trade partnerse82.6 80.3 79.1 78.2 80.7 91.7
 Monetary survey
  Growth rates (%)
      M4 (M2 plus quasi money in foreign currency)f48.5 27.8 48.9 21.2 12.0 16.3
      M2 72.2 33.0 45.8 32.2 6.4 20.8
      Money as means of payment (M1) 57.8 23.6 15.9 19.5 0.3 10.1
  Dollarization ratio  ( % ) 6 46 36 36 06 26 1
aP r e l i m i n a r y .
b Includes goods and non-financial services.c Includes changes in stocks.
d Refers to the average selling rate.
e Based on the indexes of Peru's seven major trading partners as well as the quotation of their currencies with respect to the
U.S. dollar.
f Money in foreign currency is valued at the average of the buying and selling rate at the end of the period.
Source: Banco Central de Reserva del Perú;  and IMF (2000), International Financial Statistics, February.WT/TPR/S/69 Trade Policy Review
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Table I.3
Basic social indicators
1990 Most recent estimatea
 Population ('000) 21,569 25,232 (1999)
     Growth rate (%) 1.9 1.7 (1999)
 Urban population (% of total) 69 72
 Labour force ('000) 7,786 10,387 (2000)
     Metropolitan Lima 2,349 3,339 (1998)
 Unemployment rateb (%) 8.3 9.0 (1999)
 Under-employment ratec (%) .. 37.4 (1999)
 Blue collar real wagesd
104 108
 White collar real wagesd
100 164
 Per capita GDP (US$) 1,000 2,533 (1998)
 Per capita GDP (1990 = 100) 100.0 124.7
 Crude birth rate ( ‰)28.8 26.6
 Crude death rate ( ‰)7.3 6.4
 Infant mortality rate (per 1000 live births) 54 42 (1996)
 Total fertility rate (births per woman) 3.4 3.0
 Life expectancy (years) 66 69
 Literacy rate (%) 86 90.2
 Gross primary enrolment ratio (%) 119 123 (1995)
 Gross secondary enrolment ratio (%) 67 70 (1995)
 Poverty rate (%) 53.5 (1994) 49.0
   Urban 46.1 (1994) 40.4
   Rural 67.0 (1994) 64.7
 Severe poverty rate (%) 18.8 (1994) 14.8
   Urban 12.9 (1994) 9.3
   Rural 29.5 (1994) 24.5
 Income inequality, Gini 0.469 (1994) 0.484
 Wealth inequality, Gini 0.695 (1994) 0.726
 Access to safe water (% of population) 79.8 (1994) 82.6
 Access to sanitation (% of population) 48.2 (1994) 58.6
 Electricity connections (% of population) 70.0 (1994) 73.7
.. Not available.
a Refers to 1997 unless otherwise indicated.
b For Metropolitan Lima only.
c Total under-employment by hours and by income.d December value of monthly indices.
Source: Banco Central de Reserva del Perú (1998) Annual Report ;  World Bank (1999a), World Development Indicators;
World Bank (1999b), Poverty and Social Developments in Peru, 1994-1997;  and Ministry of Labour and SocialPromotion (1999), Compendio estadístico de empleo e ingresos .Peru WT/TPR/S/69
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(ii) Fiscal policy
7. Between 1994 and 1998, fiscal discipline combined with increasing current revenues reduced
the overall deficit in the non-financial public sector from 2.4% to 0.7% (Table AI.1).  Although public
sector operations posted a fiscal surplus in 1997, this could not be sustained in 1998 mainly because
of a revenue shortfall arising from the Central Government's reduced primary surplus;  the latter was
the result of external shocks and losses from state-owned enterprises.  Peru's fiscal deficits havetraditionally been financed from external resources, and since 1993 by privatization revenues.
8. The Central Government's generally sound fiscal stance resulted in primary surpluses between
1994 and 1998, except in 1995 when fiscal discipline was relaxed in the run-up to general elections.
Greater tax compliance has resulted in rising central government revenues since 1993, with tax
collection as a share of GDP increasing from 9.8% in 1993 to 12% in 1998.  The value-added tax is
by far the single most important source of public revenue, having accounted for some 43% of total tax
revenues in 1998, while import taxes represented 11%.  Between 1994 and 1998, the current
expenditures of the Central Government remained relatively constant relative to GDP, a reduction ininterest payments having been offset by a slightly larger payroll, payments for good and services, and
transfer expenditures.  The reduction in interest payments achieved between 1994 and 1998 was made
possible by reduced interest payments on the external debt and on other capital expenditures, due in
particular to smaller loans by the Government's housing fund (FONAVI), which was eliminated in
October 1998.
(iii) Monetary policy
9. The institutional framework for monetary polic y is laid down in the 1993 Constitution.  As
established by Article 84 of the Constitution, the Central Reserve Bank of Peru (BCRP) is a juridical
person of public law with autonomy within the scope of its organic law (Law Decree No. 26123 of
1 January 1993).  BCRP's sole objective is to preserve  monetary stability defined as price stability;  its
main functions are to regulate currency and credit in the financial system, and to administer
international reserves.  The BCRP is prohibited from conceding financing to the State Treasury,
except for the purchase, in the secondary market, of securities emitted by the Public Treasury, withinthe limits specified in the Bank's organic law.
10. In order to safeguard the autonomy of the BCRP, and to complement the provisions
established in the Constitution, the Bank's Organic Law has established additional constraints in its
activities.  Article 80 prohibits the BCRP from providing endorsement, letters, or other types of
guarantees, or from providing any indirect financing.  Article 83 bars the Bank from granting sectoralcredits or establishing multiple exchange rates.
11. In pursuit of its ultimate monetary objective, the BCRP controls the rate of increase of the
monetary base as an intermediate policy instrument.  To this end, the Bank regulates the domestic
currency liquidity level that banking institutions maintain at the Central Bank through the use of
monetary instruments, including exchange market  interventions, certificate auctions, short-term
credits guaranteed by securities, swap operations, and reserves requirements. Given the high degree of
dollarization of the Peruvian economy (Table I.2), purchases of foreign currency in the interbank
market through the Central Bank money desk constitute the principal mechanism for increasing
money supply in domestic currency.  Through these interventions, the BCRP also seeks to reverse
gradually the dollarization ratio by providing liquidity in domestic currency in exchange for dollars.
12. The BCRP's monetary stability objective is pursued by targetting inflation rates.  To enhance
its credibility, since 1994 the Bank has announced these target ranges;  with the exception of 1996,WT/TPR/S/69 Trade Policy Review
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actual inflation rates have been within the announced range.  This strategy has achieved a substantial
reduction in the inflation rate, which fell from 23.7% in 1994 to 3.5% in 1999 (Table I.2).
13. As mentioned in Peru's previous Trade Policy Review, the foreign exchange market was
completely liberalized in the early 1990s.  In th e context of a flexible exchange rate regime,
intervention in the foreign exchange market has sought, in addition to monetary objectives, only to
smooth short-term exchange rate fluctuations and not to distort the exchange rate level in the longerterm.  The BCRP increased significantly its foreign exchange position as well as international net
reserves, which by December 1999 amounted to US$8,404 million (some 15 months of imports).
14. The Peruvian authorities adopted a number of measures in late 1998 and early 1999 in
response to the liquidity crisis and the weakening of the banking system resulting from the persistence
of the Asian financial crisis and the subsequent Russian crisis of August 1998.  To offset theimmediate scarcity of foreign capital, the BCRP opened a window for short-term credits in foreign
currency, and reduced the reserve requirements in foreign currency.  The average reserve ratio was
reduced by 4.5% in three successive steps between October and December 1998, while the marginal
reserve ratio was lowered in two steps from 45% to 20%.  Additional measures included the
introduction of a mechanism to allow commercial banks to swap loans for Treasury bonds;  aprogramme to assist in the restructuring of private- sector debt to commercial banks;  and a broadening
of the coverage of the deposit insurance scheme (Chapter IV(6)(ii)).
(iv) Balance of payments
15. Peru's merchandise trade deficit increased between 1994 and 1998, as imports grew faster
than exports (Table I.4 and section (3)).  The deficit was particularly large in 1998 due to a drop in
exports mainly explained by adverse exogenous factors:  a deterioration of terms of trade (by some
13%) resulting from lower prices for Peru's principal exports;  and the effects of El Niño, whichlowered export volumes of fishmeal (by 62%) and fish oil (by 81%).  Preliminary figures for 1999
show a marked reduction of the trade deficit reflecting the recovery of traditional exports and the
decline of imports owing to weak domestic demand.  Peru has traditionally run a deficit in services
trade.
16. The investment income deficit was reduced from 3.6% to 2.9% of GDP over the period
1994-99, as the growing deficit generated by the private sector was more than offset by a reduction in
the public investment income deficit.  In 1998, the private sector accounted for some 64% of total
investment income deficit.  Total remittances abroad amounted to US$28.8 million, of which
US$14.7 million corresponded to royalties for technology transfer or licences and US$14.1 million to
dividend remittances.  Two countries accounted for 94% of total remitted royalties:  the United States(69%) and the Netherlands (25%).  These royalties were generated principally in the manufacturing
sector.  Dividend remittances were generated in the manufacturing (69%) and energy (21%) sectors;
the United States was their main destination (83%).
17. Peru's current account deficit remained relatively high between 1994 and 1998, oscillating
between 5% and 7.3% of GDP.  Although, as noted above, trade balance improvement in 1999resulted in a narrowed deficit.  During that period, current deficits were financed in a high proportion
by long-term private capital inflows:  the port ion financed by direct investment (excluding
privatization revenues) and long-term loans increased from some 40% in 1994 to 66% in 1998.
Preliminary figures for 1999 indicate that direct investment and long-term private capital inflows
exceeded the current account deficit.  With the exception of 1998 and 1999, net capital inflows
allowed a build-up of international reserves (Table I.4 and section (2)(iii)).Peru WT/TPR/S/69
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Table I.4
Balance of payments, 1994-99
(US$ million)
1994 1995 1996 1997 1998 1999a
 Overall balance 2,977 933 1,932 1,733 -1,007 -774
 Current account balance -2,649 -4,306 -3,623 -3,279 -3,791 -2,030
     - Merchandise trade balance -998 -2,165 -1,988 -1,721 -2,465 -600
        Merchandise exports, f.o.b. 4,598 5,589 5,898 6,832 5,735 6,114
        Merchandise imports, f.o.b. 5,596 7,754 7,886 8,553 8,200 6,714
     - Services -502 -763 -685 -767 -540 -464
        Revenues 1,063 1,131 1,414 1,538 1,752 1,679
        Expenditures 1,565 1,894 2,099 2,305 2,292 2,143
     - Investment Income -1,799 -1,999 -1,639 -1,472 -1,484 -1,635
         Private -352 -597 -743 -970 -1,035 -1,039
         Public -1,447 -1,402 -896 -502 -449 -596
     - Current transfers 650 621 689 681 698 669
 Financial accounts 3,938 3,047 3,492 5,838 2,153 692
     - Private sector 3,838 2,551 4,080 2,446 2,235 2,123
      Direct investment (without privatization) 867 1,501 1,554 1,557 1,870 1,849
      Long-term loans 183 341 657 449 652 407
      Portfolio investment 548 163 180 296 -347 -352
      Privatization 2,241 547 1,688 145 60 219
     - Public sector -337 -141 -414 794 -58 422
     - Short-term capital 437 637 -174 2598 -24 -1,853
 Exceptional financing 1,611 1,504 922 -829 365 18
 Errors and omissions 77 688 1,142 2 266 546
 Changes in reserves -2,978 -929 -1,932 -1,733 1,007 774
 Memo items:
   Net international reserves/imports (months) 12.3 10.3 13.0 14.3 13.4 15.1
   Terms of trade index (1990=100) 94.7 100.9 95.7 100.7 87.3 82.8
   External debt  (% of GDP) 60.1 56.5 55.5 43.9 47.8 50.1
aP r e l i m i n a r y .
Source: Banco Central de Reserva del Perú.
18. Regaining investor confidence, through the norma lization of relations with external creditors
and debt restructuring, has been an important ingredient of Peru's economic recovery since 1993.  The
normalizing and restructuring process included the clearance of arrears to international financial
institutions in 1993;  a substantial rescheduling of debt within the Paris Club in 1996;  and a Debt andDebt Services Reduction loan provided by the World Bank in 1997 to restructure some US$8 billion
of private creditors' commercial debt.  Peru's total external debt amounted to US$30 billion at
end-1998, of which US$23.5 were me dium and long-term debt and the remainder (US$6.5 billion)
short-term debt.  The stock of debt was equivalent  to 47.8% of GDP or 400% of total exports of goods
and services.  Public sector debt amounted to US$19.6 billion, of which a marginal proportion wasshort-term debt, while private sector debt (some US$9.7 billion) was mainly short term (67%).
External public debt service was equivalent to some 25% of total exports of goods and services
in 1998.
(3) D
EVELOPMENTS IN TRADE
(i) Merchandise trade
19. Peru's generally open trade regime has contributed to a significant increase in trade flows
since 1994.  Between 1994 and 1998, total recorded merchandise trade grew at an average annual rateWT/TPR/S/69 Trade Policy Review
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of 8.5%;  imports grew at an average 9.9%, outpacing average export expansion of 6.6%.  As a
percentage of GDP, merchandise trade increased from 19.9% in 1994 to 23.5% in 1997, before
dropping to 22.1% as a result of adverse exogenous factors  in 1998.
20. The structure of merchandise imports has remained remarkably stable since 1994, both in
terms of country of origin and product composition (Charts I.1 and I.2).  Some 62% of registered
imports originated in the American continent;  the Un ited States is Peru's principal partner with some
27% of the total, while countries from the Latin American Integration Association (including Andean
Community members) accounted for some 31%.  Important suppliers in other regions included the
European Union, which accounted for some 16% of total merchandise imports, while, as single trade
partner, Japan ranked second behind the United States with 6.5% of the total (Table AI.2).  In 1998,
raw materials and intermediate goods accounted for over 40% of total import, capital goodsrepresented some 32%, while the remaining share corresponded to consumer goods.  In terms of
sectoral composition, manufactured products accounted for over 70% of total imports (Table AI.3).
21. Peru's export supply is concentrated in primary and semi-processed products, mainly from
mining and fishing activities.  As a consequence, Peruvian exports are exposed to important
variability both in terms of volume (output variations) and earnings (international price variations).This exposure to exogenous shocks was illustrated in 1998 when total export earnings dropped by
16% from the previous year as the effects of El Niño resulted in lower agricultural and fishing export
volumes.
22. Between 1994 and 1998, the share of mining-related exports (including gold) accounted for
more than half of total reported merchandise exports (Table AI.4).  This reflected the resurgence of
mining activities in recent years as a result of the institutional reforms introduced in the early 1990s to
promote private investment in the sector (Chapter IV(4)).  Fishing-related exports accounted for some20% of total exports between 1994 and 1997 but, as mentioned earlier, fell to some 11% in 1998(Chapter IV(3)).
23. Although changes in export destinations between 1994 and 1998 might partly reflect the
incidence of conjunctural factors in 1998, export patterns over the period seem to reveal significant
structural changes (Table AI.5).  The United States has reinforced considerably its position as major
export market, increasing its participation in total Peruvian registered exports from 16.6% in 1994 to32.4% in 1998.  During that period, in contrast, the share of the European Union fell from 32% to
22%, mainly explained by reduced participation of the United Kingdom and the Netherlands.
Switzerland's importance grew significantly between 1994 and 1998, its share rising from 1.2% to
8.5%.
(ii) Trade in non-factor services
24. Between 1994 and 1999, trade in non-factor services grew at an average annual rate of 7.8%.
This increase was closely linked to the economic liberalization process and the parallel developmentof merchandise trade.  The overall balance in non-factor services has been in deficit;  however, over
the last two years the deficit fell largely as a result of the higher credits for insurance and reinsurance
services associated with damages caused by El Niño in 1998, and by a higher surplus in the travel
account and a reduction of the freight deficit in 1999 (Table I.5).  Over 1994-99, transportation
services, insurance and reinsurance services (except in 1998), together with the aggregate "others"(which includes government, financial and informatics services as well as royalties, rent of equipment
and other services to firms) were in deficit.  Although the share of transportation services in total
imports decreased slightly, from 46% in 1994 to 37% in 1999, the deficit in transportation services
remained the principal contributor to the overall deficit.Peru WT/TPR/S/69
Page 9
Chart I.1 
Merchandise trade by partner, 1994 and 1998
1994 1998
(a)    Ex ports (f.o.b. )
Total:   US$ 4,388.9 million Total:   US$ 5,671.8 million
Total:   US$ 5,626.3 million Total:   US$ 8,220.3 million
     Source :  UNSD, Comtrade database (SITC Rev.3).Per cent
AmericasAsia &
 Middle East
Europe
Others
1.6%(b)    Im ports (c.i.f.)
Asia  &
Middle EastLAIA
8.7%USA
32.4%
Germany
4.1%
LAIA
19.4%Germany
4.7%
Andean 
Community
14.4%Others
1.3%
Americas
EuropeUSA
16.6%
 EuropeOthers
1.9%
 AmericasAsia  &
Middle East
Europe USA
28.1%
Andean 
Community
11.4%Germany
3.9%USA
27.2%
LAIA
17.0%LAIA
10.5%
Andean 
Community
7.3%Others
1.9%
Japan
8.8%
Andean 
Community
8.3%
Japan
8.7%United 
Kingdom
9.2%Germany
6.4%United 
Kingdom
4.8%Japan
3.8%
AmericasOther Asia & 
Middle East
16.1%
Other 
Americas
3.8%Other Europe
19.4%
Other 
Americas
3.5%Other 
Europe
23.2%Other Asia & 
Middle East
10.1%
Other 
Americas
3.3%Other 
Europe
14.0%Other Asia & 
Middle East
8.7%
Other Americas
3.8%Japan
6.5%
Other Europe
15.2%Other Asia & 
Middle East
10.1%WT/TPR/S/69 Trade Policy Review
Page 10
Agriculture
19.5%
Mining
7.3%
Chemicals
13.5%Others a
85 %
Automotive 
products14.6%
Textiles, clothing & 
other consumer 
products
9.0%Office machiness
7.4%Other non-
electrical 
machinery
12.0%
Semi-manufactures
8.2%
Total: US$ 8,220.3 millionChart I.2 
Merchandise trade by product, 1994 and 1998
1994 1998
(a)    Ex ports (f.o.b. )
Copper
13.8%Zinc
8.4%Other 
mining 
products
17.3%Clothing & 
textiles
8.8%
Gold
16.8%
Total: US$ 4,388.9 million
(b)    Im ports (c.i.f.)
Total: US$ 5,626.3 million
a               Includes other not elsewhere specified category.
Source :   UNSD, Comtrade database (SITC Rev.3).Per cent
Total: US$ 5,671.8 millionFish products
18.8%
Gold
7.8%Other 
manufactures
4.0%
Other 
agriculture
11.3%
Copper
18.7%Zinc
7.8%Other mining  
products
17.2%Clothing and 
textiles
7.7%
Coffee
4.5%Fish products
9.2%
Coffee
5.0%
Other 
agriculture
9.5%Other 
manufactures
8.1%
Agriculture
18.3%
Mining
8.8%
Chemicals
13.1%Others  a
87 %Other non-
electrical 
machinery
13.3%
Automotive 
products10.8%
Semi-manufactures
8.4%Office machines
8.7%Textiles, clothing
 & other consumer 
products
9.8%Chemicals
2.2%Chemicals
3.1%Peru WT/TPR/S/69
Page 11
Table I.5
Trade in non-factor services, 1994-99
(US$ million)
1994 1995 1996 1997 1998 1999a
Total -502 -762 -685 -767 -540 -464
  Credit 1,063 1,132 1,414 1,538 1,752 1,679
  Debit 1,565 1,894 2,098 2,305 2,292 2,143
Transportation -425 -567 -520 -608 -634 -543
  Credit 307 338 324 294 309 257
  Debit 732 905 844 902 942 800
- Freight -444 -571 -528 -616 -635 -511
- C r e d i t 5 55 44 92 41 91 5
- Debit 499 625 577 640 654 526
- Passengers -34 -38 -38 -79 -92 -135
- Credit 79 93 103 95 101 26
- Debit 113 131 142 174 193 162
-O t h e r sb53 42 46 87 93 103
- Credit 173 191 171 175 189 216
- Debit 120 149 125 88 96 112
Travel 65 131 320 383 428 514
  Credit 331 428 670 816 857 1,003
  Debit 266 297 350 434 428 489
Communications 98 105 104 101 74 78
  Credit 164 174 174 168 132 138
  D e b i t 6 76 97 06 75 86 0
Insurance and reinsurance -29 -54 -43 -46 153 -23
  Credit 117 75 114 114 304 124
  Debit 147 129 158 160 151 147
Othersc-211 -377 -546 -597 -562 -489
  Credit 143 117 132 145 151 157
  Debit 354 494 677 743 713 647
aP r e l i m i n a r y .
b Includes harbour tolls and transport commissions.
c Includes government, financial and informatic services as well as royalties, rent of equipment and other services to firms.
Source: Banco Central de Reserva del Perú.
25. Travel services are Peru's main services exports:  between 1994 and 1999 this subsector grew
at an average annual rate of some 25%.  Such substantial growth, which resulted in an increasingsurplus, is explained by the recovery of tourist activities favoured by economic stabilization and the
pacification process.  Communication services experienced a decreasing surplus over the period,
explained by the higher (but declining) cost of interconnection for foreign companies to the Peruvian
network than for Peruvian companies in foreign markets.WT/TPR/S/69 Trade Policy Review
Page 12
(4) DEVELOPMENTS IN INVESTMENT
26. The process of structural reform and stabilization of the Peruvian economy, and the
establishment of a legal framework for the promoti on and protection of investment (Chapter II(3)),
have resulted in substantial foreign investment inflows in recent years.  The stock of
registered foreign direct investment (FDI) increased from US$1,642 million in December 1993 to
US$8,573 million in December 1999;  at this date, accrued FDI pending registration amounted toUS$4,378 million.  Also in December 1999,  holdings of foreign investors registered at the Stock
Exchange (CAVALI) reached US$2,735 million, repres enting 32% of the total Stock Exchange value.
27. At end 1999, Spain, the United States, and the United Kingdom, accounted for two thirds of
total FDI stock (Chart I.3).  Investment fr om Spain was concentrated in three sectors:
communications (83.6%);  energy (8.4%); and finance (6.7%).  Investment of U.S. origin was more
diversified across sectors, including energy (30%),  mining (28%), industry (13%), finance (11%),
trade (6%), and hydrocarbons (3.5%);  FDI from the United Kingdom went into mining (41%),
finance (23%), industry (14%), trade (8%), and communications (8%).
28. Reflecting the lumpy nature of FDI, annual net foreign investment flows have varied
considerably since 1993 (Table I.6).  As a result of the differential impact of the liberalization processon activities, the sectoral distribution of FDI flows has also experienced important changes in recent
years.  While manufacturing was the main FDI destination in the mid 1980s and mining in the
early 1990s, communications has taken the lead in the last few years.  Between 1992-99, FDI flows
were principally directed to communications, mining , energy, industry, and finance (Chart I.3).  The
weight of the communications sector is explained by the liberalization of the telecommunication
market, in particular the privatization of state-owned enterprises in 1994 (Chapter IV(6)(iii)).
Similarly the privatization and concession processes in the energy sector have generated importantFDI inflows (Chapter IV(4)(ii)).  The mining s ector remained an important destination for FDI,
accounting for one third of total registered investment flows accumulated between 1998 and 1999.
(5) O
UTLOOK
29. Since 1994, the Peruvian economy has made major gains, including variable but significant
GDP growth, low inflation and balanced public finances.  In 2000, fiscal policy is expected to betightened and the public deficit to be kept at less than 2% of GDP for the year;  a primary surplus is
expected from higher tax revenue and lower government expenditure.  Economic activity in 2000 is
likely to recover from earlier external shocks and, despite continued weak domestic demand, GDP
growth is projected to reach some 4%.  Growth is al so expected to be buttressed by rising exports, and
lead to a rebound in imports;  the trade and current account deficits should thus remain wide.Inflation pressures are likely to remain subdued, at some 4%.  Reactivation of the privatization
programme should help attract the foreign investme nt necessary to support growth.  The Government
is also committed to giving continued priority to improving social indicators.WT/TPR/S/69 Trade Policy Review
Page 14
Table I.6
Net foreign investment flows by sector, 1993-99
(US$ million)
Sector 1993 1994 1995 1996 1997 1998 1999
Agriculture 0.0 0.0 2.8 -0.5 0.5 17.0 15.4
Commerce 14.4 29.3 7.8 114.1 51.7 48.0 5.6
Communications 0.1 2,003.0 1.9 1.6 18.1 73.9 54.3
Construction 1.3 0.2 9.6 16.2 1.9 0.6 0.0
Energy 0.2 361.4 488.6 -104.8 532.4 93.7 64.6
Finance 56.7 43.7 258.8 184.4 98.6 124.8 120.2
Industry 50.9 52.5 137.9 330.0 211.8 113.2 18.2
Mining 8.8 310.3 169.8 95.2 84.1 139.6 284.7
Fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Petroleum 0.1 0.1 1.8 33.6 9.1 31.3 4.7
Services 0.4 1.6 3.0 10.3 16.7 16.2 4.7
Forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Transport 3.4 0.4 1.4 0.3 6.3 64.8 0.0
Tourism 0.0 6.2 7.0 10.0 0.6 5.6 0.5
Housing 2.3 0.1 0.3 0.1 3.2 2.5 1.5
Total 138.8 2,808.8 1,090.9 690.6 1,034.9 731.3 574.5
Source: CONITE, Boletín Estadístico , December 1999.