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Peru: Economic and Social Outlook January, 2012 Luis Miguel Castilla Minister of Economy and Finance

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Page 1: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru: Economic and

Social Outlook

January, 2012

Luis Miguel Castilla

Minister of Economy and Finance

Page 2: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru – Key Investment Highlights

2

Highest growth in the region with moderated inflation

Economic dynamism

across sectors

Exports at record levels

and increasing its

diversification

Healthy external debt

levels

Sound fiscal position allows countercyclical

policy

Reduced unemployment

and poverty

Outstanding economic

perspectives

Baa3 / Baa3 (1)

Positive outlook

BBB / BBB+

Stable outlook

BBB / BBB+

Stable outlook

(1) Foreign Currency rating / Local Currency rating

Page 3: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Sound Macroeconomic

Performance

Page 4: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru 73,2

Argentina59,9

Colombia 46,8

Ecuador45,9 Brazil

40,3

Chile 39,5

Mexico 18,9

0

15

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60

75

90

105

120

135

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In recent years, Peru has been among the fastest growing economies in the world

World’s GDP 2002-2010

(Accum. % Change)

Source: IMF .

4

Page 5: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru achieved the lowest inflation rate of the region between 2002-2011

5

1/ Average inflation of Argentina and Mexico up to November, 2011. Source: IMF, Bloomberg.

Average Inflation in Latin America 2002-20111

( % )

Tomar periodo 24.0

11.0

6.75.1

4.43.2

2.5

0

5

10

15

20

25

Venezuela Argentina Brazil Colombia Mexico Chile Peru

Page 6: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru – Key Investment Highlights

Source: IMF .

6

6.8

5.4

5.6

6.2

6.4

7.5

8.4

8.4

0 2 4 6 8 10

Perú

Agriculture and Livestock

Electricity and Water

Commerce

Other Services

Manufacturing

Construction

Mining

8.8

-0.1

4.3

7.4

7.7

9.7

13.6

17.4

-2 3 8 13 18 23

Perú

Mining

Agriculture and Livestock

Other Services

Electricity and Water

Commerce

Manufacturing

Construction

GDP Breakdown by sector 2005

GDP Breakdown per Sector 2005 (Annual % change)

GDP Breakdown per Sector 2010 (Annual % change)

GDP Breakdown by sector 2010

8%

1%

7%

15%

2%

5%

14%

38%

Agriculture and Livestock

Fishing

Mining

Manufacturing

Electricity and Water

Construction

Commerce

Other Services

7%

0%

5%

15%

2%

7%

15%

39%

Agriculture and Livestock

Fishing

Mining

Manufacturing

Electricity and Water

Construction

Commerce

Other Services

Page 7: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

In 2011 Peru grew close to 7% and continues to be one the most dynamic economies of the region

7

LATAM: GDP 2011 (Annual % change)

Source: MEF, IMF, Consensus Forecasts.

Peru: GDP 2011 (Annual % change)

6.8

6.2

5.2

3.93.7

2.9

0

1

2

3

4

5

6

7

Peru Chile Colombia Mexico Venezuela Brazil

Nominal GDP accounted for USD 153,919 millions in 2010.

Cumulative GDP to 3Q11 is around US$ 130,248 million.

8.9

6.8 6.6

7.46.8

0

1

2

3

4

5

6

7

8

9

10

1Q11 2Q11 3Q11 Jan-Sep 2011 2011*

Page 8: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Economic dynamism prevails

8

Construction (annualized % change rolling quarter, seasonally adjusted)

Credit to Private Sector

(Annual % change) Electricity Production

(Annual % change)

Source: BCRP, SUNAT.

8.4

0

2

4

6

8

10

12

14

J-10 M-10 S-10 J-11 M-11 S-11 D-11

23,5

-15

-10

-5

0

5

10

15

20

25

S-10 N-10 E-11 M-11 M-11 J-11 S-11O-11

Private Vehicles Imports (Millions of US$)

5

10

15

20

25

D-09 M-10 J-10 S-10 D-10 M-11 J-11 S-11 D-11

Nuevos Soles

Total

20.1

21.3

126

0

20

40

60

80

100

120

140

160

F-10 M-10 A-10 N-10 F-11 M-11 A-11 N-11D-11

Page 9: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

And the exchange rate of the Peruvian Nuevo Sol is one of the less volatile currencies in the region

9

Relative volatility of some Latin American currencies (Base: January 03, 2000 = 3,509 Nuevos soles/USD)

Source: Bloomberg, MEF

2,50

3,00

3,50

4,00

4,50

5,00

5,50

6,00

6,50

7,00

7,50

8,00

2,50

3,00

3,50

4,00

4,50

5,00

5,50

6,00

6,50

7,00

7,50

8,00

2 0122 0112 0102 0092 0082 0072 0062 0052 0042 0032 0022 0012 000

Perú Brazil Colombia Chile Mexico

Page 10: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

In 2011 exports achieved record levels

10

Total Exports (Millions of US$)

Trade Balance (Millions of US$)

• In 2011 exports surpassed US$ 45 billion, a historical record. • The trade balance reached a surplus of around US$ 8 billion.

• Preliminary estimates. Source: BCRP.

6,955

17,368

34,444

45,019

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2005 Jan-Sep 2011 2011*

-403

5,286

6,951

7,922

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2000 2005 Jan-Sep 2011 2011*

Page 11: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Current account deficit is sustainable

• Preliminary estimates. Source: BCRP.

11

Current Account & Financial Account (% of GDP)

-6

-4

-2

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Current account

Financial account

Net foreign direct investment (Millions of US$)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Page 12: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Solid banking system and low exposure to European banks

1/ Capital Adequacy Ratio: risk weighted assets and contingent loans to regulatory capital. 2/. As of November, 2011. Source: BCRP, Goldman Sachs.

12

European Banks as a Share of Total Bank Credit (% of total loans)

Dollarization Ratio2

(%)

Solvency indicator of banking1

(%)

68

39

79

44

30

40

50

60

70

80

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Liquidity Credit

Participation of European Banks in LATAM Financial System (% of bank capital)

7

8

9

10

11

12

13

14

15

S-07 F-08 J-08 D-08 M-09 O-09 M-10 A-10 E-11 J-11 N-11

Prudencial Requirements

Banking Law

International Standard

Prudencial Requirements

Banking Law

International Standard

48

30

22

0

10

20

30

40

50

60

Mexico Chile Peru

49

2927

0

10

20

30

40

50

60

Mexico Chile Peru

Page 13: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

More decentralized employment

13

Employment in companies with 10 or more employees – Main Cities

(Accumulated % change Jan-Nov 2011/Jan–Nov 2005)

Source: INEI, MINTRA.

Urban Employment (Annual % change)

1.92.4

3.8

7.1

8.6 8.6

1.6

4.0

5.5

1.3

3.6

6.4

8.3

7.27.6

0.7

4.4

5.4

0

1

2

3

4

5

6

7

8

9

10

2003 2004 2005 2006 2007 2008 2009 2010

Metropolitan Lima

Other Urban

Jan-Nov11

0 10 20 30 40 50 60 70 80 90

Iquitos

Cajamarca

Pucallpa

Sullana

Pisco

Ica

Chincha

Chiclayo

Cusco

Huaraz

Talara

Tacna

Tarapoto

Paita

Huancayo

Trujillo

Arequipa

Puno

Piura

Average Grotwh

40%

Page 14: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Employment in Metropolitan Lima by type (% of total EAP1)

Average Quarterly Income Index (Jan. 2007=100)

Increase in adequate employment and income

1/ EAP: Economically Active Population. Source: INEI.

134

138

90

100

110

120

130

140

150

1T07 3T07 1T08 3T08 1T09 3T09 1T10 3T10 1T11 3T11

Urban Peru Metropolitan Lima

14

59

41

35

40

45

50

55

60

65

nov-jan07 jun-aug08 jan-mar10 aug-oct11

Adequate Employment Underemployment

Page 15: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru is an investment-grade Latam country

15

Peru’s Foreign Sovereign Rating

Source: Standard & Poor’s, Fitch, Moody’s.

Foreign Country Sovereign Ratings

Local Country Sovereign Ratings

Peru’s Local Sovereign Rating

Page 16: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Solid external accounts and lower external vulnerability versus Baa2 and Baa3 countries

Source: Moodys, Central Banks.

16

113

94

56

32

30

18

8

0 50 100 150

Chile (Aa3)

Kazakhstan (Baa2)

Colombia (Baa3)

Brazil (Baa2)

Panama (Baa3)

Peru (Baa3)

Mauritius (Baa2) Average Baa3

Average Baa2

2.9 1.9

-1.5 -2.3 -3.2

-8.1 -8.4-10

-8

-6

-4

-2

0

2

4

Kaza

khsta

n (

Baa2)

Chile

(A

a3)

Peru

(B

aa3)

Bra

zil (B

aa2)

Co

lom

bia

(B

aa3)

Panam

a (

Baa3)

Mauritius (

Baa2)

Average Baa3

Average Baa2

1/ (Short-Term External Debt + Currently Maturing Long-Term External Debt + Total Nonresident Deposits Over One Year)/Official Foreign Exchange Reserves.

External vulnerability indicator1 Current account balance 2010 (% of GDP)

2927

25

14 13 13

9

0

5

10

15

20

25

30

35

Peru

(B

aa3)

Mauritius

(Baa2)

Kaza

khsta

n

(Baa2)

Bra

zil

(Baa2)

Chile

(A

a3)

Co

lom

bia

(B

aa3)

Panam

a

(Baa3)

Average Baa3

Average Baa2

8.6

3.4 3.1 3.1

1.8 1.50.1

0

2

4

6

8

10

Panam

a (

Baa3)

Peru

(B

aa3)

Mauritius (

Baa2)

Chile

(A

a3)

Bra

zil (B

aa2)

Kaza

khsta

n

(Baa2)

Co

lom

bia

(B

aa3)

Average Baa2

Average Baa3

Official Forex Reserves 2010 (% of GDP)

Net Foreign Direct Investment 2010 (% of GDP)

Page 17: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Solid Fiscal Accounts

Page 18: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

18

* Preliminary estimates. Source: BCRP, MEF, MMF 2012-2014 Revised.

Total Gross Public Sector Debt

(% of GDP)

Fiscal Stabilization Fund 2011

(Billions of US$)

Solid Public Finances and Fiscal Commitment

Non-Financial Public Sector Result

(% of GDP)

Total External Debt Service (% of exports of goods and services)

2,2

3,1

2,3

-1,6

-0,5

4,2

1,6

-2

-1

0

1

2

3

4

5

2006 2007 2008 2009 2010 Jan-Sep 2011

2011*

0,3

5,6

0

1

2

3

4

5

6

Dec 2005 Set 2011

33,0

29,7

24,1

27,1 26,9

20,9 21,8

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 Jan-Sep 2011

2011*

20,9

10,29,1

14,8

3,4

0

5

10

15

20

25

2007 2008 2009 2010 Jan-Sep 2011

Page 19: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Strong fiscal position and better performance than the average Baa2 and Baa3 countries in a decade

19

-8

-6

-4

-2

0

2

4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Peru

Average Baa2

Average Baa3

Source: Moody´s, Central Banks.

1.4

-0.3 -0.5

-1.9-2.7 -2.9 -3.2

-6

-4

-2

0

2

Kaza

khsta

n (

Baa2)

Chile

(A

a3)

Peru

(B

aa3)

Panam

a (

Baa3)

Bra

zil (B

aa2)

Co

lom

bia

(B

aa3)

Mauritius (

Baa2)

Average Baa2

Average Baa3

Financial Balance 2001 - 2010 (% of GDP)

Financial Balance 2010 (% of GDP)

20

25

30

35

40

45

50

55

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Peru

Average Baa2

Average Baa3

9 10

24

37

4450

57

0

10

20

30

40

50

60

Chile

(A

a3)

Kaza

khsta

n

(Baa2)

Peru

(B

aa3)

Co

lom

bia

(B

aa3)

Panam

a (

Baa3)

Mauritius (

Baa2)

Bra

zil (B

aa2)

Average Baa2

Average Baa3

Public Debt 2001 - 2010 (% of GDP)

Public Debt 2010 (% of GDP)

Page 20: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Impact on fiscal revenues of a 35% decline in commodity prices

Source: IMF Staff estimates

20

Fiscal Revenues (% of 2010 GDP)

Impact of a 35% fall in commodity prices

1,2

0 1 2 3 4 5 6 7

Trinidad & Tobago

Bolivia

Venezuela

Ecuador

Chile

Peru

Argentina

Colombia

Page 21: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

44,0

56,0 Variable

Fixed

Debt profile: exchange and interest rate exposure

21

Source: MEF

September 2006 September 2011

Debt denominated in local currency has more than doubled in the last 5 years

Sharply decrease in debt attached to variable rates

September 2006 September 2011

Public Debt Structure by Interest Rate (%)

Public Debt Structure by Currencies (%)

59,021,7

19,3

USDollar

Other

Nuevo Sol

46,8

6,6

46,6

22,6

77,4

Page 22: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Debt profile: amortization payments exposure

22

Source: MEF

September 2006 September 2011

Pressure in amortization payments has been reduced by 24.6% over the past five years.

Public Debt profile by type

Page 23: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Fiscal policy main guidelines of the new administration

23

1. To reach a fiscal balance in the structural accounts.

2. To hold a countercyclical fiscal position.

3. To increase permanent fiscal revenues.

4. To assure a decreasing tendency of the national debt as a percentage of GDP ratio (from 23.4% in 2010 to a 17.7% in 2014).

5. A conservative Budget for 2012 (surplus of almost 2% of GDP in 2011), but covers main priorities of the government: (i) social inclusion, (ii) human capital, (iii) citizen security, among others.

6. Designing and implementing a Contingency Plan.

Page 24: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Strategy to increase permanent fiscal revenues

• Fight against tax evasion.

• Fight against smuggling and undervaluation.

• Tax debt recovery.

• Tax crime and customs fraud detection and effective sanctions.

• Case for tax payment and custom facilitation.

• Tax expenditure rationalization.

24

Tax Evasion (%VAT)

1/ Central Government Revenues / GDP. Source: SUNAT.

Tax Burden1

(% of GDP)

40,6

34,7

20,0

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 … 2016

13,7

14,8

15,815,5

18,0

10

12

14

16

18

20

2003 2004 2005 2006 2007 2008 2009 2010 Jan-Sep 2011

2011* … 2016*

Page 25: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Sound fiscal position allows to countercyclical policy stance

25

Fiscal Stabilization Fund (% of GDP)

Non-Financial Public Sector Overall Balance (% of GDP)

Non-Financial Expenditures and Current Revenues

(Annual % Change)

* Preliminary estimates. 1/ Multiannual Macroeconomic Framework Revised 2012-2014 Source: MEF.

Public Savings up to September 2011 (% of GDP)

Public Savings accounts 13,1% of GDP

2,0

6,1

17,818,5

-10

-5

0

5

10

15

20

25

2006 2007 2008 2009 2010 Jan-Sep 2011

2011*

General Government Non-Financial Expenditures

General Government Current Revenues

2,5

3,2

2,1

2,7

2,5

0

2

4

6

8

10

12

14

Public Savings

Other Deposits

Deposits in Private Financial Institutions

Subnational GovernmentsResources (Canon, etc.)

Fiscal Stabilization Fund

Demand Deposits and TimeDeposits in Central Bank

2,3

3,1

2,3

-1,6

-0,5

4,2

0,8

1,6

-2

-1

0

1

2

3

4

5

2006 2007 2008 2009 2010 Jan-Sep 2011

MMF 2011 1/

2011*

0,40,5

1,4 1,4 1,4

3,2

0

0,5

1

1,5

2

2,5

3

3,5

2006 2007 2008 2009 2010 Sep 2011*

Page 26: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Contingency Fiscal Plan

Timely, temporary and aggressive.

Combines short-run actions (transitory fiscal impulse) and long-run actions (reducing infrastructure gap, improving productivity and potential GDP).

Emphasis on poor areas:

• Infrastructure projects.

• Infrastructure maintenance.

• Small and medium enterprise procurement (SMEs).

• Guarantee Fund for SMEs and non-traditional exporters.

• Enabling feasibility studies.

• Temporary Employment Program.

Since september 2011, precautionary measures have been taken to boost fiscal impulse (1.5%-2% of GDP).

26

Page 27: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Fiscal Impulse in 2012

27

Source: MEF

Total Current Non-Financial Expenditures : 2006-2011 (% of GDP)

• Public Investment will grow above 30% in 2012 (after falling 6% in 2011). • Fiscal Surplus will reach around 0.8% of GDP in 2012.

12,3

12,6

12,4

12,7

11,9

11,6

11

11,2

11,4

11,6

11,8

12

12,2

12,4

12,6

12,8

2006 2007 2008 2009 2010 Jan-Sep 2011

Page 28: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Social Outlook

Page 29: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru has grown steadily over the recent years and poverty has been reduced

29

Per Capita GDP (10-yr.-average, % change)

2.52.9

0.7

-3.2

2.1

4.4

-4

-3

-2

-1

0

1

2

3

4

5

51-60 61-70 71-80 81-90 91-00 01-10

Source: BCRP.

GDP tripled in 2010 compared to 2000.

Fastest per capita GDP growth since the 1950’s.

Per Capita GDP levels catching up after 3 lost decades.

Poverty has reduced from 50% to 30%.

Population has grown in the last 10 years at an average rate of 1.26%, and in 2010, it reached a

total of 29.5 million persons.

Page 30: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

However, the challenge remains to achieve a broad based development and further social inclusion

Rural poverty doubles the national average.

30

Total Poverty and Extreme Poverty 2010: National vs. Rural (% of population)

31.3

9.8

54.2

23.3

0

10

20

30

40

50

60

Total Poverty Extreme Poverty

National Rural

Source: INEI.

Page 31: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

In the coming years, Peru’s main goals are further poverty reduction and social inclusion

31

Source: MEF; ENAHO and ENDES 2010 - INEI.

Variable Base Line 2010 Target 2016

1. Poverty 31.3% Poverty less than 20%

2. Extreme poverty 9.8% Extreme poverty less than 5%

3. Child chronic malnutrition 17.9% Child chronic malnutrition less than 10%

Page 32: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

The government strategy is based on social programs that follow a “Life Cycle Approach”

32

Beca 18: S/. 136

SAMU: S/. 40

PAN: S/. 1 607

SMN: S/. 1 400

Cuna Más: S/. 190

PELA Elementary

school: S/. 2 195

PELA Primary school: S/. 4 251

PELA Secondary

school: S/. 2 833

Jóvenes a la obra:

S/. 34

Pensión 65:

S/. 241

Maternal mortality

Neonatal mortality

Chronic malnutrition Infant mortality Cognitive and Emotional development

Learning achievements

Elementary

school Coverage

Learning achieve-

ments

Secondary Coverage

Learning achieve-

ments

No dropout

Access to quality higher

education

Relevant education for

the labor market

Ensure the basic

conditions for

subsistence

Pregnancy 0 – 2 years

3 – 5 years

6 – 12 years

17 – 24 years

13 – 17 years

+ 65 years

JUNTOS: S/. 822 Millions

Public Programs (Millions of Nuevos Soles)

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The 2012 Public Budget reflects the priorities of the Government related to social issues

33

The 2012 Public Budget by type of intervention (Millions of Nuevos Soles)

Distribution of the 2012 Public Budget 1

(%)

2012 social sector budget allocation has increased by approximately 20% with respect to the 2011.

1/ Out of debts service, pension duties and contingency reserves. Source: MEF

Sociales43%

Productivos24%

Administrativos16%

Gobernabilidad y orden público

17%Social

43%

Governance

Administrative

Productive 24%

Expenses Amount

Social 32,666

Productive 18,113

Administrative 12,310

Governance and Public Order 12,422

Subtotal 75,511

Debt Service 9,492

Pension Duties 9,375

Contingency Reserve 1,157

Total 95,535

Page 34: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Perspectives

Page 35: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Per Capita GDP: Upward trend

Per Capita GDP (US$ of 2011)

Average 3 years

Current

5,904

5,290

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

1950 1958 1966 1974 1982 1990 1998 20062011

35

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PPP Per Capita GDP Gap 1 (Peru=100)

Source: IMF-WEO Setember 2011

36

1/ Each country’s GDP per capita PPP divided by Peru’s GDP per capita PPP.

2001 2011 Var. %

Peru 5,116 10,001 95.5

Colombia 6,010 10,155 69.0

Chile 9,939 16,172 62.7

Brazil 7,358 11,846 61.0

Mexico 10,821 15,121 39.7

GDP per capita PPP

($ PPP)

212

194

144

117

151

162

118

102

95

115

135

155

175

195

215

Mexico Chile Brazil Colombia

2001

2011

Sharp reduction in Per Capita GDP gaps: Peru vs. Other Latam countries

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2.5 3.0 3.5 3.75.3

10.3

29.3

0

5

10

15

20

25

30

35

Peru Chile Colombia Mexico Brazil Argentina Venezuela

37

LATAM: GDP 2012 (Annual expected % change)

Source: MEF, Consensus Forecasts.

LATAM: Inflation 2012 (Anual expected % change)

5.4

4.5

4.0 3.9

3.5

3.1 3.2

0

1

2

3

4

5

6

Peru Colombia Chile Venezuela Argentina Mexico Brazil

In 2012 Peru is expected to be the economy with the fastest growth and lowest inflation in the region

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Continue to promote private investment as the engine of growth

38

Announcement of Private Investments Projects in the next 3 years (Billions of US$)

Source: BCRP.

Private Investment Projects 2011–2013 (Millions of US$)

27,793

6,960

2,847 3,191

7,513

Mining andHydrocarbons

Electricity Industry Infraestructure Other Sectors

40

47

48

Dec-10 Jun-11 Dec-11

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Ample growth and investment opportunities

39

Vehicle sales per capita 2010

(Vehicles per 1000 inhabitants)

Copper Production 2010 (Thousands of Fine Metric Tons)

1,247

5,520

0

1,000

2,000

3,000

4,000

5,000

6,000

Peru Chile

Source: Sunat, UNWTO, Geological Service of USA, AEADE, ARAPER, ASBANC, FELABAN, CAVEM, ASOPARTES, CCL, Ripley FELABAN, SBS, Superinterdency of Banks and Financial Institutions (Chile).

Sale surface in department stores (Thousand of m2) (m2 per inhabitant)

197

847

0

100

200

300

400

500

600

700

800

900

Peru Chile

7

50

0

10

20

30

40

50

60

Peru Chile

1.0

2.1 2.1

2.8

4.3

0

1

2

3

4

5

Ecuador Peru Colombia Chile Argentina

Tourist arrivals 2010

(Millions of persons)

25

48

72

0

10

20

30

40

50

60

70

80

Peru Brazil Chile

Banking System credits 2010

(% of GDP)

Exports 2010 (Billions US$)

Vehicle sales per capita 2010

(Vehicles per 1,000 inhabitants)

Sale surface in department stores (Thousand of sq.mts.) (Sq. mts per inhabitant)

Banking System Credit 2010

(% of GDP)

4.15.1

6.6

16.3

0

2

4

6

8

10

12

14

16

18

Peru Colombia Ecuador Chile

3.2

8.7

0

1

2

3

4

5

6

7

8

9

10

Peru Chile

0.4

4.9

0

1

2

3

4

5

6

Peru Chile

Agro Wood & paper

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In conclusion, Peru should continue in the path of growth and social inclusion

40

Per Capita GDP (US$)

Total Poverty Rate (% total population)

Source: MEF.

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2005 2010 2015e 2020e

10

15

20

25

30

35

40

45

50

55

2000 2005 2010 2015e 2020e

Page 41: Peru: Economic and Social Outlook - MEF...Stable outlook BBB / BBB+ Stable outlook (1) Foreign Currency rating / Local Currency rating Sound Macroeconomic Performance Peru 73,2 Argentina

Peru: Economic and

Social Outlook

January, 2012

Luis Miguel Castilla

Minister of Economy and Finance