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TITLE:  PERU ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                               PERU

                     Key Economic Indicators
        (Millions of U.S. dollars, unless otherwise noted)


                                  1991      1992      1993(e)
Income, Production,
 and Employment

Real GDP (1979 prices)              14,909    14,491    15,215
Real GDP Growth (pct.)                 2.6      -2.8       5.0
GDP in current dollars              25,030    25,200    27,670
Real GDP (million 1979 new soles)  3,410.3   3,315.8   3,481.6
 By Sector
  Agriculture                        430.2     405.9     428.2
  Fisheries                           33.5      31.8      39.4
  Mining                             371.7     354.6     379.4
  Manufacturing                      760.6     713.4     770.5
  Construction                       210.2     218.4     242.9
  Government                         262.0     271.9     272.7
  Others                           1,342.1   1,319.8   1,348.5
  Per capita GDP (current U.S.$)     1,138     1,122     1,207
Labor Force (000's)                  7,938     8,184     8,400
Unemployment Rate (pct.)               5.9       9.4       n/a


Money and Prices
(end-of-year)

Money Supply (M1)
 (millions of new soles) /2         945.4   1,618.6    1,874.9
Bank Lending Rate (pct.)
 (annual US$) /2                    21.98     17.39      16.58
Bank Saving Rate (pct.)
 (annual U.S.$) /2                   8.54      6.28       5.63
Consumer Prices (pct. change)       139.2      56.7       40.0
Wholesale Prices (pct. change)       96.0      50.5       40.0
Exchange Rate (official NS/$)        0.98      1.63       2.20
Exchange Rate (parallel NS/$)        0.98      1.63       2.20


Balance of Payments and Trade

Total Exports (FOB)                3,329     3,484     3,500
  Total Exports to U.S. (C.V.)       779       739       750
Total Imports (FOB)                3,494     4,051     3,900
  Total Imports from U.S. (FAS)      840     1,002     1,042
Aid from U.S.                      187.9     122.6     145.5
External Public Debt /1 /3        20,735    21,333    21,552
Debt Service Paid /3 /4              909       725     1,324
FOREX Reserves /2                  1,304     2,001     2,521
Balance of Payments                1,251       518       700


Notes:

(e) Estimated.
1/  Excludes interest due on arrears.
2/  As of September 30 for 1991 and 1992.
3/  As of June 30, for 1993
4/  Includes U.S $867 million payment in World Bank arrears
    clearance, financed by U.S./Japan bridge loan.

Source:  Central Reserve Bank, National Institute of
Statistics, Ministry of Labor, U.S. Department of Commerce and
U.S. Embassy estimates.



1.  General Policy Framework

    Opening the Peruvian economy to international trade remains
a key part of President Alberto Fujimori's comprehensive
economic stabilization and restructuring program begun
following his inauguration on July 28, 1990.  President
Fujimori inherited a country in arrears to foreign lenders with
no international reserves, and a heavily regulated, statist
economy with distorted relative prices.  The economy was in
deep recession, with GDP down 23 percent over the 1988-90
period, while inflation was accelerating alarmingly.

    In addition to trade liberalization, the Fujimori
government has taken action to bring relative prices in line,
liberalize investment and foreign exchange regimes, and reduce
the size of the public sector.  The goal of the structural
adjustment program is to reduce inflation to manageable levels
and create conditions for sustained economic growth.  In March
1993, Peru cleared its arrears with the World Band (IBRD) and
the International Monetary Fund (IMF) for about $1.8 billion.

    The stress of structural adjustment, including austere
monetary and fiscal policies contributed to a severe recession
in 1992, exacerbated by drought and difficult fishing
conditions created by the "El Nino" weather phenomenon.  The
diminution of El Nino brought about a recovery of the fishing
industry and improvement in agricultural output in 1993. 
Combined with increased mining productivity and new foreign
investment due to an improved investment climate and
privatization, growth is resuscitating.  This year, GDP is
forecast to grow by five percent.  Inflation was reduced to the
lowest monthly level in 17 years in September, and should total
about 40 percent for the year, down from 55 percent in 1990,
139 percent in 1991, and 7,650 percent in 1990.

    Revenues and current expenditures have been in balance
since late 1990.  The combined fiscal deficit resulting from
debt payment has been financed by external sources, including
multilateral and bilateral donors.  The Central Bank does not
finance the fiscal deficit.  The increase in tax revenues in
1993 fell short of expectations, although through reform and
more rigorous collection efforts, the government has raised tax
revenues from four percent of GDP in mid-1990 to a little over
nine percent of GDP at present.

    The government's ability to manage monetary aggregates has
been limited by the increasing "dollarization" of the Peruvian
economy.  Without capital and exchange controls, dollars now
account for over 70 percent of liquidity in the economy.  The
Central Bank manages the money supply and affects interest and
exchange rates through emission, open market operations,
rediscounts, and reserve requirements on dollar and sol
deposits.  The Central Bank has limited net new emissions to
well below the inflation rate this year to attempt to reduce it.

    The new constitutional congress (CCD) was installed on
December 30, 1992.  Following an April 5, 1992 coup, President
Fujimori dissolved the legislature, removed many judges and
prosecutors appointed by the previous government, suspended
portions of the 1979 Constitution, and began to rule by
decree.  As a result, economic assistance was suspended by the
U.S. and some other donors.  The elections for the new
Constituent Congress held November 22, 1992 were judged fair by
international observers.  The new Constituent Congress, in
which President Fujimori's supporters hold a strong majority,
drafted a new constitution that was narrowly approved by
popular referendum on October 31, 1993.  Human rights concerns
are a major factor in Peru's relations with the United States
and other donor countries, and may limit assistance.


2.  Exchange Rate Policy

    The Fujimori government liberalized the exchange rate
regime, eliminating multiple rates and other distortionary
policies.  The exchange rate is determined by market forces,
with some intervention by the Central Bank to stabilize
movements.  The new constitution guarantees free access to and
disposition of foreign currency.  No restrictions exist on
purchase, use, or remittance of foreign exchange.  Exporters
are not required to channel their foreign exchange transactions
through the Central Bank; they may conduct their transactions
freely on the open market.


3.  Structural Policies

    Dramatic market-oriented structural reforms are underway in
Peru.  The pace of these reforms slowed in 1993 as attention
was temporarily diverted to constitutional reform, but
continued in the same direction.  Price controls and subsidies
were eliminated, and regulatory regimes were streamlined in
most sectors.  For example, registration of a new company now
takes about a month, as opposed to two years under the previous
regime.  Important measures have been taken to liberalize the
trade, investment, and labor regimes.

    The number of taxes has been reduced, and a major revision
of the tax code was introduced in December, 1992.  While
collections from income taxes have increased significantly, the
government still relies primarily on value added and special
consumption taxes.  One reason it has done is their relative
ease of collection.  The government assesses a corporate income
tax of a minimum of two percent of assets (one percent for
financial institutions), which is highly controversial as
companies must pay whether showing profits or losses.  In the
last few years, the 
government completely overhauled the inefficient and corrupt
tax authority (SUNAT), and hired qualified, university-trained
auditors, while raising salaries by a factor of ten to blunt
corruption.

    Privatization and liquidation of parastatals is underway. 
The process has been slow and uneven, due to the depressed
state of the economy and the poor financial condition of many
of the state-owned enterprises, requiring streamlining of
productive processes and personnel in preparation for sale. 
The government has already sold the state airline, Aeroperu, as
well as a major iron ore company, Hierro Peru.  The government
plans to sell two huge parastatal mining companies and the two
state-owned telephone companies by the end of the first quarter
of 1994.  The government estimates that receipts from
privatization will total $900 million in 1994.

    The government actively seeks to attract both foreign and
domestic investment in all sectors of the economy, to promote
modernization and competition.  American, Japanese, Chilean,
Chinese, Korean, and Canadian investors have all made direct
foreign investments in Peru.  U.S. producers of a wide range of
products, particularly capital goods, will benefit from this
expansion of investment.


4.  Debt Management Policies

    The Fujimori administration initiated Peru's reinsertion
into the international financial community in September 1991 by
clearing arrears to the IDB, the negotiation of arrears
clearance programs with the IMF and World Bank, and a Paris
Club rescheduling agreement.  The latter affected almost $6
billion of bilateral debt.  Peru successfully completed its
programs with the IMF and World Bank and cleared its total
arrears of about $1.8 billion with those institutions in March
1993.  Peru is now under an Extended Fund Facility with the IMF
signed last March.  The government also rescheduled the Paris
Club debt again in May 1993, and obtained further relief in its
debt payments, reducing them from $1.1 billion per year in 1993
to about $400 million in March, 1996.

    The IMF forecast a need for support group assistance of
$410 million to close Peru's external financing gap in 1993. 
Pledges, however, totalled only $265 million.  The slowness of
the privatization program and lower-than-expected disbursement
of IDB and World Bank sectoral loans have aggravated the
shortfall from the Support Group.  On September 8, 1993, the
government began discussions on rescheduling its debt with the
commercial banks, estimated at more than $6 billion (including
arrears).  Peru's  total foreign debt is about $22 billion. 
Debt service paid in 1992 was 21 percent of exports, and in
1993 will probably be somewhat higher (25-30 percent), not
including payments made in the arrears clearing with the World
Bank (which were made with bridge financing from the U.S. and
Japan).


5.  Significant Barriers to U.S. Exports

    Through its structural reform program, the government has
jettisoned almost all barriers to U.S. exports and direct
investment.  Import licenses are no longer required.  No
quantitative nor qualitative ceilings on imports exist. 
Eighty-seven percent of Peru's tariff positions now have a rate
of 15 percent, with the remainder at 25 percent.  The average
tariff rate is 17 percent, down from 80 percent when President
Fujimori took office.  The government announced its intention
to reduce tariffs further, eventually moving to a flat 15
percent rate for all products.

    Surcharges imposed in May 1991 remain on 18 tariff
categories of agricultural imports, covering five basic
commodities: wheat, rice, corn, sugar, and milk products.  The
surcharges on wheat, rice, and sugar are variable imports
levies, based on price bands determined weekly by the Ministry
of Agriculture.  Dairy products are subject to per ton
surcharges which have not varied recently.  The variable
surcharges on corn and sorghum were converted to a 10 percent
ad valorem surcharge in October, 1992.  The government defends
the surcharges as protecting Peruvian farmers from subsidized
international competition, and cushioning the effect of an
overvalued sol and structural adjustment.  As a condition of
disbursement of the Inter-American Development Bank Trade
Sector Loan, the government agreed in July to phase out the
surcharges over a three-year period.  At present, it is
difficult for U.S. grain exporters effectively to compete in
the Peruvian market.

    Peru has a less rigid and comprehensive regime of
standards, testing, labeling, and certification than the United
States.  CERPER, the government agency responsible for product
testing, is slated for privatization.  Many exporters oppose
this privatization, however, citing requirements by the
European Community for government certification of health
standards for agricultural and fisheries products.  A
protracted testing procedure overseen by the Ministry of Health
was greatly streamlined.  The government removed all
restrictions on foreign provision of audiovisual services,
advertising, tourism and insurance services.  The government
monopoly in the reinsurance industry was abolished.

    Foreign investment is subject to national treatment, with
minor exceptions.  Foreign investment is permitted in
industries essential to national security or within 50
kilometers of Peru's borders with prior approval.  Otherwise,
no authorization or prior registry is required for foreign
investment.  All restrictions on remittances of profits,
royalties, and capital have been eliminated.  Foreigners have
the same access to local financing as Peruvian nationals.  The
government requires that less than 30 percent of total payroll
goes to foreign employees, however, exceptions for technical
and/or managerial personnel can be made.  Any shareholder of
the company, regardless of nationality, is not subject to this
restriction.

    To stimulate private investment, Peru offers foreign and
national investors juridical stability agreements guaranteeing
the application of current statutes on taxes, labor matters, 
environmental regulations, and other regulations for that
investment for ten years.  An investment must exceed $2 million
to qualify or meet certain employment or export conditions. 
There are no performance requirements for foreign investment,
however, unless an investor wants a juridical stability
agreement and invests less than $2 million.  Investors are also
offered protection from liability for acquiring state-owned
enterprises (SOE's) -- the government has taken responsibility
for prior debts of SOE's.  The U.S. and Peru signed an OPIC
agreement in December 1992.  A bilateral investment treaty was
under negotiation in February 1992, before Peru's "auto golpe".

    The eight-year-old dispute between the government of Peru
and the American Insurance Group (AIG) over the expropriation
of Belco petroleum was finally settled on August 28, 1993.  On
September 28, the Peruvian government made the first payment of
$30 million towards settlement of AIG's $184.7 million claim
against the Peruvian government.

    Government procurement is normally handled by public
international tender.  For procurements of less than $10,000 or
by state companies declared in a state of emergency, bid is by
invitation and exempt from many of the published procurement
regulations.  There is no statutory obligations to buy Peruvian
goods or services.  Foreign bidders must have a registered
local representative.  In the case of construction bids, the
local agent must have been duly registered at least one year
before solicitation.  Greater transparency in government
procurement has helped U.S. exporters.  For example, in 1992,
Westinghouse won a $25 million contract to build a power
generation plant.

    The government has recently reformed Peru's Customs
Service.  The reform seems to be working -- collection is up
and produces over 30 percent of the total government revenues. 
Corrupt officials have been fired, and computerization is
underway.  The tariff system was simplified, also facilitating
collection.  Using funds from the IDB and the UNDP, the
Fujimori administration has radically changed the atmosphere in
their customs service.  In the past, salaries were kept to a
pittance because corruption was expected.  As a consequence of
more efficient collection, higher imports, and establishment of
free trade zones with lower tariff levels in areas where
contraband was prevalent, customs receipts increased from $625
million in 1990 to $1,282 million in 1992, despite lower tariff
rates.  Improved efficiency by customs increased collections by
7 percent of total imports despite a reduction in Peru's
average tariffs.


6.  Export Subsidies Policies

    The Government of Peru provides no export subsidies.  The
Andean Development Corporation, of which Peru is a member,
provides limited financing to exporters at rates lower than
available from Peruvian banks, although higher than rates
available to U.S. companies.  Exporters of non-traditional and
mining products can apply certain sales and consumption taxes
paid on inputs as a credit against income and asset taxes.


7.  Protection of U.S. Intellectual Property

    Intellectual property is still not adequately protected in
Peru despite some progress.  Legislation and enforcement of
intellectual property rights (IPR) are weak, and Peru remains
on the Special 301 "priority watch list."  Peru is a signatory
to various conventions for the protection of copyrights and
trademarks and is a member of the World Intellectual Property
Organization.  Peru recently acceded to the Paris Convention
for the Protection of Industrial Property.

    Peru's protection of industrial property is governed by
Decree Law No. 26017 (December 1992), which will be superseded
by Andean Pact Decisions 344 and 345 on January 1, 1994. 
Peru's law lacks transitional (pipeline) protection and
contains stringent compulsory licensing provisions and working
requirements.  Local pharmaceutical producers oppose any
strengthening of Peru's law on Industrial Property.

    Counterfeiting of trademarked property in Peru is
prevalent.  Registering a trademark is fairly straightforward. 
However, as a practical matter, local legal counsel must be
obtained to register a trademark.  A new independent government
agency, the Institute for the Defense of Competition and the
Protection of Intellectual Property Rights (INDECOPI) is
working to enhance prospects of patent, trademark, and
copyright rights.  Jurisdictional problems between INDECOPI and
the slow, disorganized Peruvian justice system have hampered
efforts to enforce trademarks.  Trademark owners have little
security and unauthorized copies have little to fear from
infringement.

    Copyrights, too, are widely disregarded.  Textbooks and
books on technical subjects are rampantly copied and illegal
copies of audio cassettes are widely available.  Pirated videos
of motion pictures comprise the inventories of nearly all video
rental outlets.  Peruvian experts estimate that over 5,000
shops in Lima rent or sell exclusively pirated videos. 
INDECOPI is making an effort to ensure that all video outlets
maintain at least 20 percent of their total stock in legitimate
videos -- since only 150 copyrighted titles are available
legitimately, the government feels it cannot feasibly require
that all videos that stores sell or rent be legitimate.

    Although computer software is protected by Peruvian
copyright law, pirated computer software also is widely
available.  Peruvian computer hardware merchants often load
pirated software programs to secure sales.  With the exception
of video games, it appears most copyright piracy is locally
generated and consumed.  Even most government ministries and
major Peruvian firms use pirated software.  INDECOPI has begun
a "legalization" program to bring owners of pirated computer
software into legitimate ownership of these programs through
discount pricing offered by software producers such as Word
Perfect and Microsoft.

    Peruvian law does not protect semiconductor chip layout
designs.  We are not aware of any infringement of integrated
circuits or semiconductor chips, however.  Freebooting of
broadcast satellite signals may exist privately, but we have no
evidence of illegal signal capture being commercialized any
longer.

    The government is seeking to improve enforcement of
copyright and industrial property (trademarks and patent) laws
through INDECOPI.  Creative judicial decisions, however, have
found pirates innocent of trademark and copyright violations,
in the rare instances where enforcement advanced beyond
confiscation of the pirated merchandise.

    The losses to U.S. business due to inadequate IPR
protection are difficult to quantify.  Excluding computer
programs, the International Intellectual Property Alliance
estimates U.S trade losses due to copyright piracy in Peru, at
$30 million dollars.  American companies have clearly suffered
from the lack of pharmaceutical patents in Peru's estimated
$250 million pharmaceutical market.  This situation may improve
with the beginning of the new patent regime in January 1994,
under Decision 344.


8.  Worker Rights

    a.   Right of Association

    In the new constitution, the Fujimori government aims to
promote job creation by eliminating many socialist/populist
elements found in Peru's 1979 constitution.  The 1993
constitution removes the concept of "labor stability" to give
business owners more flexibility in hiring practices.  The new
constitution recognizes the right to organize a trade union,
engage in collective negotiations, and strike.  The state is to
promote peaceful resolution of labor disputes.  Membership or
non-membership in a union cannot be required as a condition of
employment, according to the new constitution.  A small
percentage (five percent) of the work force belongs to
organized unions, and unions represent diverse political
opinions.  Although some unions have traditionally been
associated with political groups, unions are now prohibited
from engaging in explicitly political, religious, or
profit-making activities.  There are no restrictions on
memberships in international bodies.

    The relative infrequency of strikes in 1993, down perhaps
50 percent from 1992, has less to do with a pro- or anti-union
attitude on government's part than the country's economic
depression and workers' recognition that there are dozens of
unemployed workers available for each job in the formal sector
of the economy.  Reprisals against striking workers are
reportedly infrequent.  Public employees exercising management
or decision-making authority are excluded from the right to
organize or strike, as are police and military.

    b.   Right to Organize and Bargain Collectively

    Workers do not need prior authorization to form a trade
union.  Labor regulations promulgated prior to the new
constitution provide that workers can form unions based upon
profession, employment, or geographic location.  Probationary,
apprentice, or management employees are excluded from union
membership, a fact some unions believe is abused to reduce
union membership.  Employers assert that labor stability
provisions of the old 1979 law made long-term commitments to
workers too expensive.

    A minimum of 20 members is required to constitute a union
in a company.  The number of union officials and the amount of
time they may devote to union business on company time is
limited.  The number of union representatives that can
participate directly in collective bargaining negotiations is
fixed (three to 12), as is the negotiating timetable.  The
management negotiating team cannot be larger than the workers'
team.  Both sides are permitted to have attorneys and experts
as advisors.  A strike must be approved by a majority of
workers in a company, whether union members or not, in a secret
ballot.  A re-vote must be taken upon petition of 20 percent or
more of the workers.

    The government set up a system of conciliation and
arbitration to resolve impasses in collective bargaining. 
Union officials have complained that their share of the cost of
arbitration exceeds their resources.

    Companies are permitted to propose changes of work
schedules, conditions, wages, and suspend for 90 days
collective bargaining agreements if required by force majeure
or economic conditions, upon fifteen days' notice to
employees.  If workers dispute the changes, the labor ministry
is to resolve the dispute based upon a criteria of
"reasonableness" and "economic necessity."  In such cases
employers are to authorize vacation time and in general adopt
measures that avoid aggravating the employment situation.

    c.   Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is prohibited, as is
imprisonment for debt.  Nonetheless, there are periodic reports
of the practice of forced labor in remote mountainous Andean
and Amazonian jungle regions of the country.  In response to
one complaint filed with the International Labor Organization
(ILO), the Peruvian government this year acknowledged the
existence of such practices but blamed the condition on a lack
of collaboration by local authorities, employers, and a
shortage of resources to enforce existing regulations.

    d.   Minimum Age for Employment of Children

    Workers between ages 16-21 are subject to special
provisions in Peruvian labor law.  Their apprenticeship cannot
exceed 18 months, they must be paid at least the minimum wage,
should be accorded specialized training, and can comprise no
more than 15 percent of a company's work force.  Given the
reality of Peru's economic situation, children work in the
informal economy without government supervision of wages or
conditions from a very early age to help support their families.

    e.   Acceptable Conditions of Work

    Workers are promised a "just and sufficient" wage to be
determined by the government in consultation with labor and
business representatives and "adequate protection against
arbitrary dismissal."  The constitution also provides for a
48-hour work week, a weekly day of rest, and yearly vacation. 
Discrimination in the work place is prohibited.  The country's
minimum wage is fixed by the government in consultation with
labor and business representatives.  The current minimum wage
is 72 soles per month (approximately $34 at a 2.12 soles per
dollar exchange rate).  It is generally considered to be
inadequate to provide for minimal living conditions.  While
occupational health and safety standards exist, the government
lacks the resources to monitor compliance.  Compensation for
industrial accidents generally is worked out individually
between the worker and owners.  Reforms eliminating the need to
prove culpability to obtain workman's compensation for injuries
have been introduced.

    f.   Rights in Sectors with U.S. Investment

    Labor laws and regulations are formulated by the Peruvian
national government and apply uniformly throughout Peru.  Legal
rights accorded workers in industries with U.S. investment are
the same as worker rights in other industries.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                      18
    Food & Kindred Products                     3
    Chemicals and Allied Products               1
    Metals, Primary & Fabricated                D
    Machinery, except Electrical                0
    Electric & Electronic Equipment             D
    Transportation Equipment                    0
    Other Manufacturing                         7
Wholesale Trade                                          59
Banking                                                   D
Finance and Insurance                                     0
Services                                                  9
Other Industries                                        306

TOTAL ALL INDUSTRIES                                    466


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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