Economic Analysis
Peru

Peru

Population 33.5 million
GDP per capita 6,134 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 2.2 -11.1 12.5 3.0
Inflation (yearly average, %) 2.1 1.8 4.2 4.0
Budget balance (% GDP) -1.6 -8.9 -4.7 -3.9
Current account balance (% GDP) -0.9 0.8 -1.6 0.5
Public debt (% GDP) 26.8 34.7 35.3 36.6

(e): Estimate (f): Forecast

STRENGTHS

  • Membership of the Pacific Alliance, Andean Community, and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP)
  • Mineral, energy, agricultural, and fishery resources (including copper, gold, zinc, mineral fuels, fish, coffee, tea & spices)
  • Low level of public debt
  • Independence of the central bank

WEAKNESSES

  • Dependent on commodities and demand from China
  • Underdevelopment of credit (48% of GDP)
  • Inadequate infrastructure, healthcare, and educational systems
  • Huge informal sector (70% of jobs), tax evasion keeping fiscal revenues low (15% of GDP)
  • Regional disparities (poverty in the Andean and Amazonian regions)

RISK ASSESSMENT

Growth will decelerate after the strong rebound in 2021

In 2022, activity growth should lose steam, mainly because of a strong base of comparison. Household consumption (66% of GDP) will expand, driven by the gradual recovery on the job market, which is expected to prevail over inflationary pressures (fuelled by food and energy prices) and the retightening of monetary policy by the central bank. In addition, public investment should grow and be mostly directed towards social infrastructure, majorly education and healthcare. Conversely, the outlook for private investment is bleaker, as the uncertainty regarding the economic policies to be implemented by the new government has eroded business confidence. While the country holds strong potential for mining investments, the lack of clear guidance on royalty policies could limit its investment potential in the short-term. Credit will remain limited, even with successful curbing of dollarization (from the peak of 51% of total credit in 2008 to 23.8% of GDP in Q2 2021). Finally, exports (19% of GDP) are likely to continue benefiting from high copper prices and the rising global green agenda that requires higher volumes of the red metal (including for renewables and electric vehicles).

 

Nonetheless, blockages of roads used for the transport of minerals are somewhat common, affecting the sector´s activity. These are carried out by local communities concerned by the environmental and social impacts of mining. Additionally, prices for agro and sea products, as well as oil and gas, will remain favourable. Downside risks to the economic scenario are mostly related to the uncertainty regarding possible new COVID-19 strains and a fragile political environment.

 

Balanced current account and narrower fiscal deficit 

Despite rebounding goods exports and the better terms of trade, the current account shifted back to slight deficit in 2021, majorly driven by a strong widening of the income deficit (thanks to the increase in repatriated foreign companies’ profits), as the services deficit remained wide (travel revenues have not returned to their pre-pandemic levels yet, while transport costs have soared). On the financing side, FDI recovered from their poor 2020 levels and more than covered the deficit of the current account. As of end-October 2021, international reserves stood at USD 75.7 billion (covering 19 months of imports). Total external debt as of Q3 2021 stood at 43.6% of GDP (with only 24.5% of GDP as medium and long-term public debt). A balanced current account is expected in 2022, notably driven by the recovery in travel revenue that will reduce the services deficit and a still large surplus in goods. Lastly, FDI may see its growth potential somewhat limited by the local political environment.

 

The 2022 budget is in line with a gradual narrowing of the public deficit. In 2022, public accounts will improve as activity continues to recover and the fiscal stimulus (3% of GDP in 2021) is gradually dismantled. Downside risks are related to higher social expenditures (particularly in education and healthcare), as promised during the presidential election campaign.

 

Leftist president Pedro Castillo increases uncertainty for business (in the short-term, at least)

The leftist Pedro Castillo took office on 28 July 2021, after winning the runoff of the presidential elections in June 2021, defeating by a small margin candidate Keiko Fujimori from the Fuerza Popular party. Schoolteacher, union leader, and son of peasant farmers, Pedro Castillo has never held an elected position before. His victory has worried financial markets, since his Perú Libre party defines itself as Marxist-Leninist, and that he has defended the redrafting of the constitution to increase the state’s role in the economy. Nonetheless, he has eased his positions. Overall, he is expected to increase public spending in health, education and rural communities, to be financed mostly by higher royalties and taxes on mining. In addition, Julio Velarde, the Central Bank’s chief since 2006, agreed on staying as acting head of the institution, ensuring its credibility. In October 2021, prime minister Guido Bellido resigned amid a conflictive relation with the private sector, including threats to nationalize companies that exploit gas fields. Castillo replaced Bellido by the more moderate leftist Mirtha Vasquez in October 2021. Nonetheless, in January 2022 she resigned causing the president to renew his ministry once again. Castillo does not have a majority in the centre-right dominated Congress (his party got 37 out of 130 seats, and is split since Bellido’s dismissal between those supporting the government and the hardliners.) Moreover, opposition parties are likely to block a possible constitution reform process. This reduces the risk of passing disruptive changes to the current economic model that would drive away investors.

 

Last updated: February 2022

Payment

Electronic payment is prefered for both high-value and low-value transactions. Post-dated cheques are commonly issued in Peru. Credit transfers are used for both high-value and low value payment transactions. The majority of low-value electronic credit transfers in Peru continue to be made between accounts in the same bank, known as intrabank or “on-us” transactions. Bills of exchange are a commonly used payment instrument for debt collections.

 

Debt collection

The Peruvian judicial system is structured hierarchically. The Corte Suprema (Supreme Court) is the highest court, followed by courts that specialise in civil law, criminal law, constitutional law and labour law. These sit above the Corte Suprema in each judicial district, which deal with civil and commercial law cases. The Juzgados Especiales (specialised judges) are located in major cities in the country and deal with matters concerning, among others, civil and commercial law. Following this is the professional Juzgados de Paz (peace judges), located in major cities, and in charge of low economic value cases and other minor issues. Finally, Cortes de Paz (peace courts) are located in cities with lower populations, comprised of one judge who may or may not have the status of lawyer.

 

Amicable phase

The amicable phase in Peru is characterised by phone calls, written reminders, visits, and meetings, with the goal of settling the debt between two parties without triggering legal proceedings.

 

Legal proceedings
Conciliation Proceedings

Prior to judicial proceedings, Peruvian law requires of a conciliation process in order to reach a debt settlement agreement. The process constitutes two hearings, if an agreement cannot be reached, the proceeding ends, and both parties have to sign a conciliation act, which is then presented at the beginning of the judicial process.

 

Fast-track proceedings

The below text makes reference to the Unidad de Referencia Procesal (Unit of Procedural Reference), which is a reference value according to Peruvian law: each URP is 10% of the Unidad Impositiva Tributaria (UIT), which can be used in tax regulations to determine tax bases, deductions, limits of affectation and other aspects of taxes that the legislator deems appropriate. It may also be used to apply sanctions and to determine accounting obligations, The UIT is set at the beginning of the year by the Economic Ministry.

Two fast-track proceedings are available in Peruvian law:

  • simplified proceedings (proceso sumarisimo) concern cases which the value is below URP 100. Juzgados de Paz have jurisdiction for amounts between URP 50 and 100. Defendants have five days to file a dispute after they received the notification from the judge. Within 10 days, the judge organises hearing for discovery, conciliation, evidence and judgment;
  • shortened proceedings (proceso Abreviado) concern cases in which the value is between URP 100 and 1,000. Juzgados de Paz have jurisdiction for amounts between URP 100 and 500 and Juzgados Civiles have jurisdiction in cases for amount above URP 500. The defendant has 10 days to file a dispute from the admission of the petition by the judge. Discovery and conciliation will be examined during one hearing. If the conciliation was not successful, the judge mentions the disputed points and evidence to be provided or updated. Within 50 days of the conciliation hearing, the judge sets up an evidence hearing.
Executive proceedings

When creditors are owed an undisputed and certain debt, they can start executive proceedings. The debtor has five days from the notification to submit his defence. The judge will render a judgment, after which each party has up to three days to file an appeal.

 

Ordinary proceedings

Ordinary proceedings apply to cases with a value of over URP 1,000. The plaintiff sends a written petition to the court. The defendant can file a defence expressing the facts on which he intends to argue, within 30 days from the service of the writ. If the claim is complete (i.e. includes all the relevant information), the judge sets up a hearing for conciliation. If the parties reach an agreement, it has the same effect as a judgment. If an agreement is not reached, the judge organises a hearing within 50 days of the conciliation hearing. The proceedings end when the judge delivers his or her decision. The length of proceedings depends mainly on the nature of the conflict, the number of parties involved, the complaints that occur, and the caseload of the judge in charge of the process. Based on these criteria, a first-instance judgment in a typical commercial litigation case may take approximately twelve to 18 months.

 

Enforcement of a Legal Decision

A domestic judgment becomes final and enforceable once all venues for appeal have been exhausted. The first instance judge is in charge of enforcing judgments, and will issue a writ of execution ordering the relevant party to comply with the judgment within five working days. If the order is not complied with during the five-day period, the judge must order the seizure of the debtor’s assets in order to sell them at auction. For foreign awards, creditors located in Peru must file a claim before the Superior Court located in the debtor’s place of domicile. The Court will consider whether the foreign judgment is compatible with Peruvian law and any international treaties between the two countries. If it is found to conform, the judge shall authorize the enforcement of the judgment in the Peruvian Jurisdiction.

 

Insolvency proceedings

The Instituto Nacional de Defensa de la Competencia y de la Proteccion de la Propriedad Intelectual (INDECOPI) is the specialized administrative agency that deals with insolvency proceedings.

 

Out-of-court proceedings: preventive proceeding

Preventive proceedings aim to provide a forum for debtors to reach a consensual restructuring agreement with their creditors. It is intended to be a fast track process that only debtors can initiate.

The PARC was created by Indecopi to prevent the insolvency and bankruptcy of those companies that, because of the health emergency caused by the coronavirus pandemic, lack liquidity to meet their obligations.

This procedure is regulated in Legislative Decree No. 1511 and its Regulations.

With this bankruptcy procedure, Indecopi offers an alternative that seeks to reschedule the unpaid obligations of the rated entity, avoid its insolvency, the loss of business and sources of employment and, with this, contribute to the recovery of credit and continuity in the chain of payments in the national economy.

Joining the PARC is very simple, fast and safe, since the entire procedure is carried out virtually.

 

Reorganisation

If creditors decide to allow their debtors to restructure, they will be asked to approve a reorganisation plan within 60 days from the decision to proceed with reorganization. Both the decision to reorganise and the organisation plan must be approved by more than 66.6% of the allowed creditor claims. During the process, creditors decide whether to allow the debtor’s management, to continue operating the business, or to replace the debtor’s management. Once the reorganisation plan is approved and all the pre-publication claims are paid according to their terms, then INDECOPI grants a decision declaring the formal conclusion of the reorganization proceeding.

 

Liquidation

If the creditors decide to liquidate, then a liquidator will be appointed at the Creditors’ Meeting from the list registered with INDECOPI or under La Ley General de Sociedades 26887. The will be asked to approve a liquidation plan for the debtor and decide whether the debtor should be authorized to continue its business during the liquidation. Whether voluntary or involuntary, the liquidator must follow a mandatory order in the payment claims. To conclude the liquidation process, the liquidator files a petition before the Public Registry in order to register the extinction of the company. However, if creditors remain unpaid, then the liquidator must file a petition before a civil judge to obtain a judicial bankruptcy declaration.

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