Peru: Avoiding the Middle Income Trap
Analysis for Critical Route Development
Claudia Cooper Universidad del Pacifico
The Peruvian Economy in the
Global Context
C h in a P a n a m a In d ia A rg e n ti n a P e ru S in g a p o re S ri L a n k a V e n e zu e la U ru g u a y In d o n e si a H o n g K o n g E cu a d o r M a la y si a C o lo m b ia C h il e P a ra g u a y B o li vi a B ra zi l K o re a T h a il a n d M e xi co -5% 0% 5% 10% 15% Q a ta r E . G u in e a A fg h a n is ta n T im o r-Le st e C a m b o d ia A rg e n ti n a T a ji k is ta n P e ru V e n e zu e la C a p e V e rd e S o lo m o n I . S ie rr a L e o n e B u rk . F a so O m a n T u rk e y H o n g K o n g M a la y si a C o lo m b ia P a ra g u a y M o ro cc o T a iw a n D ji b o u ti M a u ri ti u s N e p a l Le so th o S e n e g a l M a ce d o n ia N ic a ra g u a B o sn ia A lg e ri a U k ra in e A u st ra li a C y p ru s Y e m e n Ic e la n d M a lt a C a n a d a C ro a ti a N o rw a y U S A A n ti g u a & B F ra n ce H a it i B a h a m a s K ir ib a ti Li b y a
Peru’s growth outperforms in the world
Source: IMF
*like Qatar, Aserbaijan. Turmenistan, Kazakhstan, Belaurus, Nigeria, Mianmar, Angloa, Ethipia, Angola, Vietnam, Ghana, Mozambique, etc
Real GDP Growth
Average anual rate 2003-2011
Peru’s average growth rate fort the period was 6.8%, ranking 29 in the world, and ranking 4 when the sample rules out very small countries*
2 ,4 1 ,7 4 ,9 2 ,4 5 ,4 3 ,8 4 ,9 4 ,1 4 ,3 5 4,6 ,3 5,4 7 ,9 6 ,0 8 ,8 7 ,3 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0 2010-11 2012-13 -0,8 -2,6 -1,6 -0,8 0,4 0,1 -1,9 -1,5 -3,0 -2,5 -2,0 -1,5 -1,0 -0,5 0,0 0,5 Observed data (yoy) Projections (yoy)
And should continue doing so
Source: IMF
Projected Grwoth Desaceleration (yoy)
• The Latam region will slow down in the near future, falling from being only behind Asia, to rank aonly above the advanced economies and Europe
• According to the IMF, Peru ranks only below the Asian economies regarding growth performance. • Despite the probability of a speed reduction, Peru will still follow Asia growth performance closely
A d v a n ce d E co n o m ie s C e n tr a l + E a st e rn E u ro p e La ti n A m e ri ca Fo rm e r S o v ie t U n io n M id d le E a st + N . A fr ic a S u b -S a h a ra n A fr ic a P e ru D e v e lo p in g A si a A d v a n ce d E co n o m ie s C e n tr a l + E a st e rn E u ro p e La ti n A m e ri ca Fo rm e r S o v ie t U n io n M id d le E a st + N . A fr ic a S u b -S a h a ra n A fr ic a P e ru D e v e lo p in g A si a
Recent growth in the principal Latin American economies
Source: Each country’s Central bank; Indec (Argentina)
-7,0% -3,5% 0,0% 3,5% 7,0% 10,5% 14,0% 1 T 0 5 3 T 0 5 1 T 0 6 3 T 0 6 1 T 0 7 3 T 0 7 1 T 0 8 3 T 0 8 1 T 0 9 3 T 0 9 1 T 1 0 3 T 1 0 1 T 1 1 3 T 1 1 1 T 1 2 1 T 0 5 3 T 0 5 1 T 0 6 3 T 0 6 1 T 0 7 3 T 0 7 1 T 0 8 3 T 0 8 1 T 0 9 3 T 0 9 1 T 1 0 3 T 1 0 1 T 1 1 3 T 1 1 1 T 1 2 1 T 0 5 3 T 0 5 1 T 0 6 3 T 0 6 1 T 0 7 3 T 0 7 1 T 0 8 3 T 0 8 1 T 0 9 3 T 0 9 1 T 1 0 3 T 1 0 1 T 1 1 3 T 1 1 1 T 1 2 Argentina Peru Venezuela Colombia Chile Brazil México
Real GDP Growth:
quarter over previous year quarter, annual Average
Countries with des-acceleration of growth Countries maintaining growth rates Countries with acceleration of growth
• Peru lies among the fastest growing countries in the region. Among them shows the lowest slowdown • Chile and Mexico may have reached a new (higher) equilibrium after the sub-prime financial crisis in 2008 • Only Colombia and Venezuela seem to be facing acceleration of growth in the recent quarters
90 100 110 120 130 140 150 160 170 180 190 4 T 0 3 1 T 0 4 2 T 0 4 3 T 0 4 4 T 0 4 1 T 0 5 2 T 0 5 3 T 0 5 4 T 0 5 1 T 0 6 2 T 0 6 3 T 0 6 4 T 0 6 1 T 0 7 2 T 0 7 3 T 0 7 4 T 0 7 1 T 0 8 2 T 0 8 3 T 0 8 4 T 0 8 1 T 0 9 2 T 0 9 3 T 0 9 4 T 0 9 1 T 1 0 2 T 1 0 3 T 1 0 4 T 1 0 1 T 1 1 2 T 1 1 3 T 1 1 4 T 1 1 1 T 1 2 Argentina Peru Venezuela Colombia Chile Brazil México
Recent growth in the principal Latin American economies
Source: Each country’s Central bank; Indec (Argentina)
GDP Index
at constant prices in local currency , 4T03 = 100
Growth and stability: Peru among the elite
Source: IMF 0% 3% 6% 9% 12% 15% 18% 21% 24% 0% 2% 4% 6% 8% 10% 12% Venezuela Argentina Panamá China India SingaporePeru
Growth vs. Inflation
Average annual rate 2003-2011
A n u a l a ve ra g e i n fl a ti o n
Anual average GDP growth Hong Kong Malaysia Taiwan Chile Colombia Philipines Paraguay Mexico Ecuador Bolivia Brazil High inflation Low growth High inflation High growth Low inflation High growth
-2,0% -1,0% 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 -2,0% -1,0% 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 4 T 0 3 2 T 0 4 4 T 0 4 2 T 0 5 4 T 0 5 2 T 0 6 4 T 0 6 2 T 0 7 4 T 0 7 2 T 0 8 4 T 0 8 2 T 0 9 4 T 0 9 2 T 1 0 4 T 1 0 2 T 1 1 4 T 1 1 Financial Account FDI Portfolio Investment Loans Current Account
Growth is attracting foreign investment to the region
Financial Account
*Brazil, Mexico, Argentina, Colombia, Chile and Peru
Source: Each country’s Central bank; Indec (Argentina)
• Huge liquidity (and low returns in traditional markets) and high growth in emerging markets is attracting investment to Latin America through: (i) Foreign direct investment (FDI), (ii) portfolio investment and (iii) loans.
• FDI is the principal source of inflows and the less volatile, while investment in securities shows an increasing trend • High investment in the region is leading to current account deficits due to: (i) high imports of capital goods, (ii)
foreign investment profit remittances
Balance of Payments in Latin America*
(annual flows as percentage of GDP)
Financial Account Balance
(annual flows as percentage of GDP)
FDI
Securities
-10,0% -7,5% -5,0% -2,5% 0,0% 2,5% 5,0% 7,5% 10,0% 12,5% 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 Argentina 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2
Brazil Mexico Colombia
-10,0% -7,5% -5,0% -2,5% 0,0% 2,5% 5,0% 7,5% 10,0% 12,5% 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 Chile 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 Perú
• Peru is attracting the highest (and most volatile) flow of (net) foreign flows
*Brazil, Mexico, Argentina, Colombia, Chile and Peru
Source: Each country’s Central bank; Indec (Argentina)
-5.000 0 5.000 10.000 15.000 1 T 0 4 3 T 0 4 1 T 0 5 3 T 0 5 1 T 0 6 3 T 0 6 1 T 0 7 3 T 0 7 1 T 0 8 3 T 0 8 1 T 0 9 3 T 0 9 1 T 1 0 3 T 1 0 1 T 1 1 3 T 1 1 1 T 1 2 - 15 000 - 10 000 - 5 000 0 5 000 10 000 15 000 1 T 0 4 3 T 0 4 1 T 0 5 3 T 0 5 1 T 0 6 3 T 0 6 1 T 0 7 3 T 0 7 1 T 0 8 3 T 0 8 1 T 0 9 3 T 0 9 1 T 1 0 3 T 1 0 1 T 1 1 3 T 1 1 1 T 1 2
FDI is the main source of capital inflows (and outflows)
Financial Account FDI Loans Portfolio Investment Transfers Trade balance Investment income Current Account Fuente : BCRP
Current Account Balance
Annual flows, in US$ millions
Financial Account
Annual flows, in US$ millions
• FDI is the main source of reserve inflow and shows an increasing trend
• It is also responsible for the reserve outflows at the current account balance, since investment income corresponds basically to mining foreign companies profit transfers
40 50 60 70 80 90 100 110 120 130 140 ja n /0 3 a b r/ 0 3 ju l/ 0 3 o u t/ 0 3 ja n /0 4 a b r/ 0 4 ju l/ 0 4 o u t/ 0 4 ja n /0 5 a b r/ 0 5 ju l/ 0 5 o u t/ 0 5 ja n /0 6 a b r/ 0 6 ju l/ 0 6 o u t/ 0 6 ja n /0 7 a b r/ 0 7 ju l/ 0 7 o u t/ 0 7 ja n /0 8 a b r/ 0 8 ju l/ 0 8 o u t/ 0 8 ja n /0 9 a b r/ 0 9 ju l/ 0 9 o u t/ 0 9 ja n /1 0 a b r/ 1 0 ju l/ 1 0 o u t/ 1 0 ja n /1 1 a b r/ 1 1 ju l/ 1 1 o u t/ 1 1 ja n /1 2 a b r/ 1 2
Sub-prime European Sovereign
Exchange Rate Index
at constant prices in local currency , 4T03 = 100
While preserving the stability of the currency
Source: Each country’s Central bank
Central bank intervention has been successful in stabilizing the currency due to:
• Low interest rates allow for sustainable sterilization of the domestic currency issued to purchase the inflow dollars and
• Underdevelopment of capital markets allow for effective monetary tightening by using reserve requirements (which induces to higher credit interest rates without generating greater returns for investors)
Argentina Peru Colombia Chile Brazil México
Source of Peruvian Outperforming
Growth
1 T 0 0 4 T 0 0 3 T 0 1 2 T 0 2 1 T 0 3 4 T 0 3 3 T 0 4 2 T 0 5 1 T 0 6 4 T 0 6 3 T 0 7 2 T 0 8 1 T 0 9 4 T 0 9 3 T 1 0 2 T 1 1 1 T 1 2 GDP Exports Imports -30% -20% -10% 0% 10% 20% 30% 40% 1 T 0 0 1 T 0 1 1 T 0 2 1 T 0 3 1 T 0 4 1 T 0 5 1 T 0 6 1 T 0 7 1 T 0 8 1 T 0 9 1 T 1 0 1 T 1 1 1 T 1 2 1 T 0 0 1 T 0 1 1 T 0 2 1 T 0 3 1 T 0 4 1 T 0 5 1 T 0 6 1 T 0 7 1 T 0 8 1 T 0 9 1 T 1 0 1 T 1 1 1 T 1 2 GDP Public consumption Private consumption GDP Public investment Private investment Consumption and GDP
(Annual percentage growth)
Investment and GDP
(Annual percentage growth)
Trade
(Annual percentage growth)
Investment makes growth sustainable
Source: BCRP
Counter-cyclical fiscal policy
New target for public investment
Export driven growth
Investment driven growth
• Public and private investment show spectacular growth rates since the beginning of the expansionary cycle. • To help for infrastructure gap, specially for the poor the country has increased significantly the public investment
benchmark, raisin it form 2% of GDP to 6%.
• Larger investment projects are being developed through concessions and private-public partnersips • Prudent fiscal policy allows the government to apply contractionary fiscal policy
• Lack of institutional continuity at sub-national level, disrupts policies, affecting spending after elections
Source: BCRP
Prudent fiscal policy allows for contractionary policy
-10,0 -8,0 -6,0 -4,0 -2,0 0,0 2,0 4,0 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4
Public Sector Economic Balance
(% of GDP)Mining procedes are being saved • Peru recent history, is one in which the Government incurred in fiscal deficits.
• The recent commodity boom, implied historically high taxes for the Government
• Since they are perceived as temporary, the Treasury has been running surpluses, and saving them, to provide itself with reserves to be used as contra-cyclical weapons in difficult times.
1T10 2T10 3T10 4T10 1T11 2T11 3T11 4T11 1T12 Current Expenditures 21.5 9.2 3 3.3 3.4 7.8 8.1 8.6 -3.2 National Government 26 9.6 1.6 2.1 6.8 9.6 11.3 3.6 -11.8 Regional Governments 6 3.7 2.7 0.8 -0.2 2.2 1.3 21.4 10.8 Local Governments 24.2 16.1 11.5 14.6 -11.8 6.9 2.4 17.8 34.5 Capital Expenditures 25.6 49 21.3 5 -22.3 -15.9 -21.5 5.5 34.2 National Government 31.2 85.8 25.8 19.1 7.3 3.6 -6.5 -11.7 -31.6 Regional Governments 50.9 45.1 26.9 -5.4 -10.4 -26.4 -28.2 15.1 44 Local Governments 11.7 17 15.6 -2.1 -59.7 -38.7 -30.5 19.5 212.8 Total Expenditures 22.3 19.3 8.2 3.9 -2.1 0.3 -1.2 7.4 3.1 National Government 26.7 22.1 5.5 6.1 6.9 8.1 7.8 -0.5 -14.6 Regional Governments 12.9 13.7 9.6 -1.7 -2.3 -6.7 -8.5 19 17 Local Governments 17.9 16.6 13.9 3.3 -34.7 -17.7 -17.3 18.9 87.1 Source: BCRP
Lack of institutional continuity at sub-national level affects
spending
• The descentralization process in Peru is quite recent and the political institutions are weak.
• Therefore, the Government management at a sub-national level, lacks continuity, and elections bring new administrations with completely new objectives and no administrative experience.
• This weakness is specially dramatic in investment project management (public investment) and in local governments
Peru Mexico Chile Argentina Brazil Colombia Venezuela Trade -4.2% -1.4% 3.3% -2.7% -2.9% -9.2% -27.5% Consumption 75.5% 80.0% 72.0% 78.9% 83.6% 82.1% 87.9% Private 66.2% 68.9% 60.2% 66.1% 64.4% 66.1% 69.6% Public 9.3% 11.1% 11.8% 12.8% 19.1% 16.1% 18.3% Investment 27.2% 22.5% 23.2% 24.5% 20.7% 26.6% 29.5% Inventory 1.5% -1.2% 1.5% -0.6% -1.3% 0.5% 10.0%
Investment growth in Peru leads the region
Perú México Chile Argentina Brasil Colombia Venezuela
Trade -6.8% -0.1% -6.0% -6.1% -7.1% -8.4% -27.8% Consumption -4.1% 1.5% 1.6% 0.4% 4.1% 0.0% 13.7% Private -4.4% 1.8% 0.8% 0.2% 5.2% -0.1% 11.2% Public 0.3% -0.3% 0.8% 0.2% -1.1% 0.1% 2.5% Investment 9.4% 3.3% 3.4% 6.8% 5.1% 8.4% 9.2% Inventory 1.4% -4.6% 1.0% -1.1% -2.0% -0.1% 5.0%
• Investment share of GDP: Peru does not only show the largest share in the region in 2001 (after Venezuela), but also the largest expansion in the 2004-2011 period
• Peru shows the smallest government share
The Constitution
• Liberty of contracting: Contractual terms cannot be modified by any Law or regulation of any kind.
Same conditions for domestic and foreign investment: Every contract with foreigners implies their submission to Peruvian laws
(financial contracts may be excepted).
Foreign Investment Legislation (Legislative Decree No. 662)
• State promotes and guarantees foreign investments in every economic sector and entrepreneurial and contractual figures
• Equal treatment between domestic and foreign investment
• Free capital flows: Foreign investors are granted their right to remit abroad, without previous authorization, the after tax amount of
the capital invested in the country
• Full currency convertibility is granted with accessibility to the most favorable exchange rate in the market
Agreement for Legal Stability (Law Nº 27342 and Supreme decree N° 162-92-EF, rule the Private investment Guarantee Regimes
• Investor is subject to the valid Legislation at the time of the subscription; modifications or repeal do no affect the investment during
the agreement term
• Agreements cannot be unilaterally modified by the State. They can be rescinded (if investor fails to fulfill its duties) and resigned.
• Foreign Investor duties: Investment commitment of at least US$ 5 million
• Recipient firm duties: receive investments of at least 50% of its capital, to expand its productive capacity or improve technology and hire workers in any employment regime
• Proinversion revises applications of agreements, signs them in representation of the State and approves requests of transfers
Limitations to foreign investment (sector legislation)
• Civil Aviation Law (Law 27261):
At least 51% of Social Capital must be of Peruvian property (under effective control of Peruvian stockholders or partners)
Requirement holds for six months starting with the company operation permission, then the foreign capital share limit rises to 70%.
• Broadcasting Services: only individuals or domestic companies are allowed to acquire broadcasting licenses and authorizations
• Water Transportation Services: Foreign capital is allowed only through companies with permanent address in Peru.
Special authorization is required for transportation and port services.
• Tourism: Foreign capital is generally permitted (only restriction being water transportation for national security reasons).
• Border territories: Any form of foreign acquisition and ownership, within 50 kms of the national border, is prohibited.
Express authorization through supreme decree, in the case of public need is feasible
0% 2% 4% 6% 8% 10% 12% 0% 5% 10% 15% 20%
What is driving growth in Peru?
Outperforming: financial, communications, construction and industry
Growth and vs. Contribution to growth: 2003-2011
Mining Agriculture Construction Financial Utilities Industry Commerce
Source: BCRP Contribution to growth 2003-11
Communications
Firm Services
Government Education & health
Housing Tourism Fishing Transportation A v e ra g e a n n u a l g ro w th r a te 2 0 0 3 -1 1
• Primary sectors underperform, despite the mining boom (due to political unrest)
• Infrastructure sectors such as utilities and transportation rank in the middle (political conflicts limit their growth) • Financial services, construction and telecom outperform, by capturing former unattended segments (micro-firms
and informal workforce)
• Social services (education and health) and Government administration (distribution of income and security) remain small, becoming a challenge for sustainable growth
0% 5% 10% 15% 20% 25% E le ct ri ci ty , g a s a n d w a te r M in in g a n d h id ro ca rb o n s C o n st ru ct io n A g ri cu lt u re a n d f is h in g T ra n sp o rt a ti o n a n d co m m u n ic a ti o n F in a n ci a l, h o u si n g a n d f ir m se rv ic e s In d u st ry O th e r S e rv ic e s C o m m e rc e *
Sector relative size
Large Average Small
S e ct o r re la ti v e g ro w
th Fast ConstructionIndustry
Telecom
Financial, housing and firm services
Average Commerce2 Utilities,
Transportation Mining and hydrocarbons Slow Agriculture & Fishing Other services**
Financial and mining: relative small sectors with great potential
Sector Share in GDP
Peru
Average Latin America1
Sector Contribution to Growth
(In relation to the average of Latin American economies)
1/ Brazil, Mexico, Argentina, Colombia, Venezuela, Chile and Peru 2/ Includes hotels & restaurants
3/ Government, education and health, personal services, culture, sports, social and communitarian services
Source: Each country’s Central Bank. Indec (Argentina)
Outperforming sectors: Industry, construction, telecom Relative small sector with high potential: financial, mining Sector with average performance: infrastructure
Underperforming sector: agriculture and other services
• Despite outstanding performance, financial services in Peru is smaller that in many neighboring countries, giving space for the sector’s further development.
• Mining also appears to be small, despite the mining resources of the country. Political turmoil around mining projects, may be the cause of delays in growth. Once political consensus is reached, the sector may reach its potential.
Mining sector: main driver of investment
0 10.000 20.000 30.000 40.000 50.000 60.000 RI 1209 RI 1210 RI 1211 RI 0612Mining and hydrocarbons Electricity Infrastructure Industry Other Sectors 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 New projects Extensions Actual projects A n a ta m in a C u a jo n e ( S o u th e rn ) A n ta p a cc a y ( X st ra ta ) T o ro m o ch o ( C h in a lc o ) T o q u e p a la ( S o u th e rn ) La s B a m b a s (X st ra ta ) C u a jo n e ( S o u th e rn ) La G ra n ja ( R io T in to ) C e rr o V e rd e Q u e lla v e co M ic h iq ill a y Copper Production
(thousands of metric tons)
Announcements of private Investment projectas by Sector
(US$ millions)
Source: BCRP
• Large investment projects in Peru correspond to mining with around half of the portfolio.
Mining: political turmoil affects the sector
0 50 100 150 200 250 300 350 ja n /0 6 ju n /0 6 n o v/ 0 6 a b r/ 0 7 se t/ 0 7 fe v /0 8 ju l/ 0 8 d e z/ 0 8 m a i/ 0 9 o u t/ 0 9 m a r/ 1 0 a g o /1 0 ja n /1 1 ju n /1 1 n o v/ 1 1 a b r/ 1 2 149 50 22 15 9 Environment (related to mining activity) Sub-national Government Territorial disputes Labor legislation Other N° of Conflicts by type Evolution of Social Conflicts(N° of active + latent conflicts)
Source: Defensoría del Pueblo
• Social conflicts show a rising trend in Peru.
• The vast majority arise around mining projects, where social organizations, allied with environmental institutions stand for better distributions of the mining proceeds or simply are against the project for political reasons
• Poor execution of of the mining proceeds in public spending in infrastructure and social services, make it easier for political leaders to get some political representation
Perú Colombia Chile Brasil Argentina Mexico
Traditional 78% 70% 59% 49% 41% 17%
Oil, and derivatives 10% 49% 10% 16%
Copper 23% 53% 2%
Iron 17%
Gold and Silver 22%
Coal 16% 6% Rest of mining 14% Soybeans 5% 9% 8% Cereals 6% Other Agriculture 4% 10% 15% Fishing 5% Rest primary 13% 1% Non Traditional 22% 30% 41% 51% 68% 83% Agriculture 6% 4% 7% 7% 33% 3% Industry 10% 20% 34% 39% 35% 80% Minerals * 4% 6% 5% Fishing 2%
Industry: needs to improve in productivity
Export Structure
(percentage of total)
Source: Each country’s Central Bank. Indec (Argentina)
• The dependence on minerals in Peru is large, but diversification is important among mining where correlations are no necessarily positive between precious metals and basin metals.
• Although industry’s share in GDP is large, its participation in total exports is small relative to other counties in the region 5% 25% 45% 65% 85% 10% 12% 14% 16% 18% 20% 22% Share in exports S h a re in G D P Perú Argentina México Brasil Colombia Chile
Industry presence in Exports and GDP
(percentage of total)
Average as % GDP Small as % exports
Distribution of industrial firms skewed towards micro-firms
48% 59% 73% 81% 94% 23% 29% 41% 51% 76% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0 4 5 0 5 0 0 Exporters Importers N° of firms % o f T o ta l t ra d e 0 11.000 22.000 33.000 44.000 55.000 1 5 6 1 0 1 1 1 5 1 6 2 0 2 1 2 5 2 6 3 0 3 1 3 5 3 6 4 0 4 1 4 5 4 6 5 0 5 1 5 5 5 6 6 0 6 1 6 5 6 6 7 0N° of Industrial Firms by Size:
Individuals realizing commercial activities and companies
Concentration in the Trade Sector:
Individuals realizing commercial activities and companies
Firm Size(Category) N ° o f F ir m s
• Massive participation of small businesses, make it hard to increase value added exports
• Since exporting requires a minimum production amount, large scale capacity of production is needed. • Thus in the export sector, only 50 firms account for three quarters of the exported amount
Distribution of industrial firms skewed towards micro-firms ,
hurts productivity
0 11.000 22.000 33.000 44.000 55.000 1 5 6 1 0 1 1 1 5 1 6 2 0 2 1 2 5 2 6 3 0 3 1 3 5 3 6 4 0 4 1 4 5 4 6 5 0 5 1 5 5 5 6 6 0 6 1 6 5 6 6 7 0N° of Industrial Firms by Size:
Individuals realizing commercial activities and companies
Labor Productivity by Firm Size
Firm Size(Category)
Firm Size(Category) • Competing in the world implies minimum productivity requirements, and therefore minimum size requirements • Labor productivity rises with the firm size
Source: INEI (Economic Census, 2008)
N ° o f F ir m s Ln (pro d u ct iv it y )
Banking sector: growing at two digit rates
-10% 0% 10% 20% 30% 40% 50% 2004 2005 2006 2007 2008 2009 2010 2011Evolution of Credit to the private Sector
(Annual percentage change)
• Credit growth averaged 21% in the 2004-2011 driven by small size operations from micro-firms financing and credit to individuals for consumption and mortgages
• Thus, the financial sector is attending segments where they previously were not interested.
Source: Superintendency of banks, Insurance and Pension Funds
Amount Number of
Credit Sales Debtors Firrms Workers Micro Firms 9.0% 7.0% 77.0% 98.0% 79.0% Small Firms 18.0% 14.0% 21.0% 2.0% 9.0% Medium and Large Firms 73.0% 79.0% 2.0% 0.0% 12.0% Annual average Micro-finance 32% Consumption 27% Mortgage 23% Commercial 18% Total 21%
Financial Sector: starting from low
0 10 20 30 40 50 60 70 80 90 100 H ig h I n co m e B ra zi l C h il e LA C A rg e n ti n a M e xi co C o lo m b ia P e rúWith bank account Holding Credit Cards
Holding Debit Cards Using electronic channels
0 10 20 30 40 50 60 70 80 90 C h il e B ra zi l C o lo m b ia La ta m P e ru M e xi co V e n e zu e la A rg e n ti n a
Percentage of Population using Banking Products
December 2011 December 2011Credit / GDP
U n d e rs ta te s re a l si ze o f fi n a n ci g si ze d u t o a h ig h d e v e lo p m e n t o f co rp o ra te b o n d s Fuente: BIS
0% 2% 4% 6% 8% 10% 12% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2003 2004 2005 2006 2007 2008 2009 2010
United States Perú + Chile
Consumer Credit / PBI Annual Growth Years Consumer Credit / PBI Annual Growth Years 3-7.5 24% 7 y 3-7.5 25% 8 - 9 y 7.5-10 13% 5 y 7.5-10 15% 7 y 10-15 9% 40 y 10-15 10% (p) ? +15 6% ? +15 ?
Financial Sector: still huge potential
Source: US Treasury, Superintendency of banks (Chile and Peru)
Peru
Chile
Competitiveness: still a challenge
Source: WEF
• Peru’s competitive environment ranks in the middle worldwide and within the region, lagging far behind the Asian rapid growing economies
S in g a p o re H o n g K o n g T a iw a n M a la y si a K o re a C h in a C h il e T h a il a n d In d o n e si a P a n a m a B ra zi l In d ia M e x ic o U ru g u a y P e ru C o lo m b ia A rg e n ti n a E cu a d o r P a ra g u a y V e n e zu e la 0 1 2 3 4 5 6 7 S w it ze rl a n d F in la n d N e th e rl a n d s U K T a iw a n S a u d i A ra b ia A u st ra li a Is ra e l N e w Z e a la n d B ru n e i C h il e K u w a it C ze ch R P o la n d Li th u a n ia C y p ru s S o u th A fr ic a B ra zi l In d ia T u rk e y Ir a n V ie tn a m C o lo m b ia S lo v a k R M o ro cc o R o m a n ia M a ce d o n ia T & T H o n d u ra s Le b a n o n E l S a lv a d o r S e rb ia T h e G a m b ia K e n ya T a ji k is ta n B a n g la d e sh S e n e g a l G h a n a C a p e V e rd e T a n za n ia B e li ze K y rg y z R C ô te d 'I vo ir e Z im b a b w e Le so th o Y e m e n H a it i
Competitive advantages and weaknesses
0 20 40 60 80 100 120 140 F D I le g is la ti o n In v e st o r p ro te ct io n C a p it a l f lo w s F is ca l d e fi ci t W a g e f le xi b ili ty T ra d e b a rr ie rs T a ri ff b a rr ie rs P u b lic s p e n d in g P u b lic d e b t "V e n tu re c a p it a l" D o m e st ic m a rk e t T a x e ff e ct iv e n e ss C u st o m s p ro ce d u re s C re d it r a ti n g In te rn e t B a n d w id th C o rp o ra te b o a rd s E xt e rn a l m a rk e t M a n a g e m e n t sk ill s E q u it y m a rk e t S e co n d a ry e d . co v e ra g e D o m e st ic s u p p ly q u a li ty B u y e r so p h is ti ca ti o n Ir re g u la r p a y m e n ts , b ri b e s F ro n ti e r te ch n o lo g y In te rn a ti o n a l d is tr ib u ti o n Li fe e xp e n ta n cy T a x ra te s M a rk e ti n g s co p e R e se a rc h a n d t ra in in g C h a in v a lu e A n ti tr u st p o lic y C lu st e r d e v e lo p m e n t T ra in in g le v e l In te rn e t u se rs T u b e rc u lo si s M a la ri a P a te n ts F ir m s´ e th ic s S ta rt in g a b u si n e ss ( N °) R a il ro a d s In fr a e st ru ct u re C h a lle n g in g r e g s P h o n e li n e s In n o v a ti o n c a p a ci ty La b o r ri g id it y H ir in g a n d f ir in g S e tt in g d is p u te s C o m p a ra ti v e a d v a n ta g e P o rt q u a li ty S ta rt in g a b u sn e ss ( ti m e ) T e rr o ri sm Ju d ic ia l i n d e p e n d e n ce V io le n ce a n d c ri m e In te le ct u a l p ro p e rt y F in a n ci a l sp re a d S ci e n ce e d u ca ti o n S o u n d n e ss o f b a n ks F in a n ci a l se rv ic e s a v a il a b il ity F in a n ci a l se rv ic e s a ff o rd a b il ity T ra d e B a rr ie rs T a ri ff B a rr ie rs T a x e ff e cti v e n e ss C u sto m s p ro ce d u re s F ir m s’ e th ic s R e g u la ti o n f ra m e w o rk G o v e rn m e n t te ch n o lo g y P o rt q u a li ty Clear AdvantagesCompetitive provision of banking services State strategy: trade openness
Development needed
Efficiency in government procedures
Weaknesses
Private sector ethics (formalization)
Government soft (regulation) and hard infrastructure
C re d it a cc e ss Irre g u la r p a y m e n ts a n d b ri b e s R e g u la to ry b u rd e n T ru st in p u b li c se rv ic e s Source: WEF
Peru: efficiency driven growth
2008-09 (A) 2011-12 (B) (A)-(B) Basic requirements 94 78 -16 Institutions 101 95 -6 Infrastructure 110 88 -22 Macroeconomic environment 67 52 -15Health and primary education 95 97 2
Efficiency enhancers 69 50 -19
Higher education and training 89 77 -12
Goods market efficiency 61 50 -11
Labor market efficiency 75 43 -32
Financial market development 45 38 -7
Technological readiness 87 69 -18
Market size 50 48 -2
Innovation 83 89 -6
Business Sophistication 67 65 -2
Innovation 110 113 3
Critical pillars for a
factor driven economy
Critical pillars for an
efficiency driven economy
Critical pillars for an
innovation driven economy
Overall Basic Efficiency Innovation
Singapore 3 Hong Kong 1 Singapore 1 Taiwan 7
Hong Kong 11 Singapore 3 Hong Kong 2 Singapore 10
Taiwan 13 Taiwan 19 Taiwan 16 Korea 18
Korea 22 Korea 23 Korea 22 Hong Kong 24
Malaysia 26 China 30 Malaysia 24 Malaysia 25
China 27 Malaysia 33 China 29 Puerto Rico 29
Chile 30 Chile 37 Chile 35 China 31
Puerto Rico 41 Puerto Rico 43 India 38 Costa Rica 33
Indonesia 44 Panama 49 Puerto Rico 40 Indonesia 37
Thailand 48 Thailand 48 Thailand 39 Thailand 49
India 51 Uruguay 51 South Africa 42 Brazil 38
Panama 53 Indonesia 60 Brazil 44 Sri Lanka 40
South Africa 54 Costa Rica 62 Indonesia 51 India 42
Costa Rica 56 Mexico 66 Peru 56 South Africa 43
Brazil 58 El Salvador 71 Vietnam 57 Chile 44
Vietnam 59 Sri Lanka 73 Costa Rica 58 Vietnam 53
Sri Lanka 62 Vietnam 74 Colombia 60 Panama 54
Uruguay 64 Colombia 78 Mexico 61 Colombia 61
Mexico 66 South Africa 79 Panama 62 Guatemala 62
Colombia 68 India 81 Sri Lanka 69 Mexico 69
Peru 73 Argentina 82 Uruguay 74 Uruguay 70
Guatemala 78 Guatemala 85 Philipines 78 Argentina 71 El Salvador 82 Brazil 86 Guatemala 81 Philippines 75
Philippines 85 Peru 87 Argentina 86 Peru 89
Argentina 87 Honduras 91 El Salvador 87 El Salvador 96
Honduras 91 Ecuador 92 Dominican R. 92 Honduras 98
Dominican R. 101 Philipines 99 Honduras 104 Dominican R. 99
Ecuador 105 Bolivia 101 Venezuela 113 Ecuador 124
Bolivia 108 Dominican R. 107 Ecuador 115 Bolivia 125 Nicaragua 112 Nicaragua 109 Paraguay 119 Nicaragua 126 Paraguay 120 Paraguay 115 Nicaragua 122 Venezuela 129 Venezuela 122 Venezuela 117 Bolivia 125 Paraguay 132
Peru: efficiency driven economy that falls behind in the basic
• Peru outperforms its regional peers (Colombia, Mexico, Panama) in efficiency factors, while basic factors lag behind. • Since most emerging countries underperform in innovation factors, our lag is more evident in basic requirements
The Global Competitiveness Index 2010–2011
Institutions: pending long term reform
2011-12
Investor Protection 20
Wastefulness in Government Spending 37
Auditing and Reporting Standards 45
Efficacy of Corporate Boards 51
Transparency of policy making 55
Minority Shareholders Protection 63
Irregular Payments and Bribes 59
Mercantilism 74
Public Funds Mismanagement 84
Ethical Behavior in Firms 81
Property Rights 89
Legal Framework in Challenging Regulations 90
Legal Framework in Setting Disputes 107
reliability on police services 114
Organized Crime 115
Cost of Terrorism 113
Trust in Public Services 118
Independence of the Judiciary 119
Regulatory Burden 119
Costs of Crime and Violence 121
Trust in Politicians 126
Protection of Intellectual Property 122
Source: WEF 2011-12 Basic requirements 78 Institutions 95 Infrastructure 88 Macroeconomic environment 52 Health and primary education 97
Efficiency enhancers 50
Higher education and training 77 Goods market efficiency 50 Labor market efficiency 43 Financial market development 38 Technological readiness 69
Market size 48
Innovation 89
Business Sophistication 65
Innovation 113
• Investment friendly regulation backs the country´s successful economic performance, while transparency in policy making ranks reasonably well.
• The relationship between the investment projects and the population ranks at the bottom • Regulation is perceived as very costly while the trust in public services is non existing
Peru: efficiency driven economy that falls behind in the basic
• Institutions are usually weak in emerging economies: therefore, despite the bad performance shown in Peru, our country outperforms Colombia and Mexico, while in the other factors our place.
• Infrastructure and basic education and health: Peru is in the last position compared with other market driven economies in the region
The Global Competitiveness Index: Basic requirements
Fuente WEF
Basic Institutions Macroeconomics Infrastructure Health & Primary Education
Hong Kong 1 Singapore 1 China 4 Hong Kong 1 Singapore 3
Singapore 3 Hong Kong 8 Korea 6 Singapore 5 Taiwan 11
Taiwan 19 Chile 28 Hong Kong 10 Taiwan 16 Korea 21
Korea 23 Taiwan 35 Taiwan 21 Korea 18 Costa Rica 22
China 30 Uruguay 39 Chile 27 Malaysia 30 Hong Kong 28
Malaysia 33 Malaysia 42 Mexico 28 Thailand 35 Malaysia 34 Chile 37 Puerto Rico 44 Panama 30 Chile 40 Sri Lanka 35 Puerto Rico 43 South Africa 47 Singapore 33 Panama 44 China 37 Thailand 48 China 49 Indonesia 35 Puerto Rico 49 Uruguay 47 Panama 49 Costa Rica 51 Puerto Rico 39 China 50 Puerto Rico 51 Uruguay 51 Sri Lanka 55 Malaysia 41 Uruguay 53 Argentina 60 Indonesia 60 India 58 South Africa 43 El Salvador 59 Indonesia 62 Costa Rica 62 Indonesia 61 Thailand 46 Brazil 62 Vietnam 65 Mexico 66 Korea 62 Colombia 50 South Africa 63 Mexico 70 El Salvador 71 Thailand 64 Argentina 54 Guatemala 66 Chile 71 Sri Lanka 73 Panama 73 Ecuador 55 Sri Lanka 70 Ecuador 75
Vietnam 74 Vietnam 74 Bolivia 59 Mexico 75 Panama 76
Colombia 78 Brazil 93 Guatemala 63 Argentina 77 Colombia 79 South Africa 79 Peru 96 El Salvador 64 Costa Rica 78 Thailand 80 India 81 El Salvador 101 Philipines 68 Colombia 79 El Salvador 81 Argentina 82 Colombia 103 India 73 Indonesia 82 Honduras 82 Guatemala 85 Mexico 106 Peru 75 Vietnam 83 Venezuela 86 Brazil 86 Honduras 108 Vietnam 85 Honduras 85 Brazil 87
Peru 87 R. Dominicana 117 R. Dominicana 88 India 86 Philipines 90
Honduras 91 Guatemala 124 Paraguay 93 Peru 88 Peru 92
Ecuador 92 Philipines 125 Honduras 100 Ecuador 96 Nicaragua 95 Philipines 99 Nicaragua 127 Uruguay 107 Bolivia 100 Guatemala 96 Bolivia 101 Ecuador 128 Costa Rica 108 Philipines 104 Bolivia 100 R. Dominicana 107 Argentina 132 Nicaragua 110 R. Dominicana 107 India 104 Nicaragua 109 Bolivia 136 Brazil 111 Venezuela 108 Paraguay 105 Paraguay 115 Paraguay 137 Venezuela 113 Nicaragua 111 R. Dominicana 107 Venezuela 117 Venezuela 139 Sri Lanka 124 Paraguay 125 South Africa 129
• Peru, due to its large informality sector outperforms in labor flexibility and redundancy costs
• Labor rigidity makes formal labor too costly and therefore induces to informality, while the introduction of special
tax and labor regimes limits firms’ incentive to grow.
• Salary determination should follow productivity of labor: bad performance in pay vs. productivity indicators
indicates that this relation is not present in the Peruvian labor market.
Labor market indicators
Basic Requirements
Institutions 95
Infrastructure 88
Macroeconomic Stability 52 Health and Primary Education 97
Efficiency Enhancers
Superior Education 77
Goods Market Efficiency 50
Labor Market Efficiency 43
Financial Market Sophistication 38 Availability of Technology 69
Market Size 48
Innovation and Sophistication Factors
Business Sophistication 65
Innovation 113
Fuente WEF
Redundancy costs 29
Flexibility in wage determination 32
Brain drain 39
Cooperation in labor-employer relations 45
Reliance in professional management 48
Female participation in the labor force 62
Pay and productivity 82
Hiring and firing practices 94
Larger firms are more productive and pay higher salaries
Figura 1:
Salarios según tamaño de la Empresa
Figura 2:
Productividad laboral según tamaño de la Empresa
Comercio Manufactura
Salaries by Firm Size Category Labor Productivity by Firm Size Category
Firm Size (Category)
Ln (salary) Ln (Labor productivity)
Source: CENEC 2008. Commerce Construction Industry Transportation Services
Firm Size (Category) Commerce Construction
Industry Transportation Services
• Since vast majority of businesses firms are micro firms, productivity and salaries remain low in Peru • Labor and tax policies should remove barriers to grow
• Despite the successful growth performance Peru´s competitive advantage is still deteriorating. That means that our country seems incapable of developing internationally competitive industries with the exception of the mining sector. • Technology seems to be at competitive levels only in the large firm segment where the foreign investment is
directed, while technology absorption and internet coverage (key for smaller firms productivity lags far behind)
Business sophistication indicators
Basic Requirements
Institutions 95
Infrastructure 88
Macroeconomic Stability 52 Health and Primary Education 97
Efficiency Enhancers
Superior Education 77
Goods Market Efficiency 50 Labor Market Efficiency 43 Financial Market Sophistication 38
Availability of Technology 69
Market Size 48
Innovation and Sophistication Factors
Business Sophistication 65
Innovation 113
Local supply quantity 42
Willingness to delegate authority 57
Control of International distribution 59
Local supply quality 61
Extent of marketing 63
Cluster development 63
Production process sophistication 71
Value of chain breath 91
Nature of competitive advantage 108
FDI technology transfer 35
Firm-level technology absorption 62
Availability of latest technology 64
Internet Bandwidth 75
Internet users 75
Broadband internet absorption 81
• Openness indicators: clear Government objectives (trade barriers and tariff removal) lead to an interesting performance, but procedures need improvement (high burden in customs procedures)
• Business indicators performance: doing business goals have been successful, but again procedures lag (they are fewer but still take to much time)
• Tax policy and administration: middle ranking
Efficiency indicators
Basic Requirements
Institutions 95
Infrastructure 88
Macroeconomic Stability 52 Health and Primary Education 97
Efficiency Enhancers
Superior Education 77
Goods Market Efficiency 50
Labor Market Efficiency 43 Financial Market Sophistication 38 Availability of Technology 69
Market Size 48
Innovation and Sophistication Factors
Business Sophistication 65
Innovation 113
Fuente WEF
Business impact of rules on FDI 16
Prevalence of foreign ownership 21
Prevalence of trade barriers 28
N° of procedures to start a business 34
Degree of customers orientation 37
Trade tariffs 40
Agricultural policy costs 44
Burden of customs procedures 53
Intensity of local competition 55
Extent and effect of taxation 68
Buyer sophistication 61
Effectiveness of anti-monopoly policy 63
Customer sophistication 65
Total tax rates 70
Extent of market dominance 89
Ingresos Fiscales y Términos de Intercambio
(Variación Porcentual Anual)
-30% -20% -10% 0% 10% 20% 30% 40% d e z/ 0 4 m a i/ 0 5 o u t/ 0 5 m a r/ 0 6 a g o /0 6 ja n /0 7 ju n /0 7 n o v /0 7 a b r/ 0 8 se t/ 0 8 fe v /0 9 ju l/ 0 9 d e z/ 0 9 m a i/ 1 0 o u t/ 1 0 m a r/ 1 1 a g o /1 1 ja n /1 2 Terms of trade Tax Income
Dependence on commodities: tax reform pending
Fuente : BCRP, Sunat 0 900 1.800 2.700 3.600 4.500 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
N° of Tax Payers by Regime
(in thousands)
One worker businesses
Tspecial tax regimes General regime
% de Firms that identify as Restriction: Tax rates Tax Administration
Indonesia 4.4 South Africa 2.0 South Africa 4.6 Indonesia 4.8
Korea 15.1 Chile 8.4
Chile 15.8 Korea 9.1
Paraguay 16.5 Sri Lanka 12.5
Ireland 17.4 Spain 12.8
Spain 18.8 Bolivia 13.3
Sri Lanka 19.1 Philippines 15.2 Philippines 19.5 Ireland 15.6 Portugal 20.5 Paraguay 16.3 Malaysia 21.4 Malaysia 16.9 Ecuador 21.8 Nicaragua 17.3 Honduras 22.4 Portugal 17.8 Nicaragua 23.5 Costa Rica 19.0
Bolivia 24.9 Russia 20.0 Panama 25.2 India 21.3 Greece 27.5 Panama 21.4 India 28.8 Turkey 21.7 Germany 29.5 Venezuela 22.4 Perú 30.0 Greece 22.8 El Salvador 30.4 Germany 23.2 Venezuela 30.8 El Salvador 23.7 Mexico 31.9 Mexico 24.3 Thailand 36.0 Guatemala 24.9 China 36.8 Ecuador 26.0
Costa Rica 38.2 Honduras 26.3 Guatemala 39.9 Poland 26.5 Colombia 43.4 China 26.7 Egypt 46.3 Egypt 28.8 Russia 48.8 Uruguay 31.1 Dominican R. 51.1 Dominican R. 32.4 Turkey 52.5 Colombia 32.9 Poland 58.5 Perú 33.0 Hungary 58.8 Thailand 34.9 Argentina 62.3 Hungary 41.7 Rumania 64.2 Argentina 43.8 Uruguay 66.3 Rumania 48.8 Brazil 83.5 Brazil 75.1
Tax efficiency: simplification and predictability is needed
Source: World Bank Business Survey
-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 U ru g u a y P o lo n ia T u rk e y R u ss ia C o st a R ic a D o m in ic a n R . A rg e n ti n a E g yp t H u n g a ry R u m a n ia G u a te m a la B o li v ia C o lo m b ia C h in a B ra zi l V e n e zu e la M e xi co In d ia C h il e E l S a lv a d o r S ri L a n k a G e rm a n y N ic a ra g u a K o re a S p a in G re e ce M a la y si a P h il ip p in e s P a n a m a P o rt u g a l S o u th A fr ic a Ir e la n d T h a il a n d P a ra g u a y In d o n e si a P e rú H o n d u ra s E cu a d o r Administration vs. Taxes1 Peruvian tax administration is much more obstructive that tax levels
Macroeconomic stability
Basic Requirements
Institutions 95
Infrastructure 88
Macroeconomic Stability 52
Health and Primary Education 97
Efficiency Enhancers
Superior Education 77
Goods Market Efficiency 50 Labor Market Efficiency 43
Financial Market Sophistication 38
Availability of Technology 69
Market Size 48
Innovation and Sophistication Factors
Business Sophistication 65 Innovation 113 Inflation 1 Fiscal deficit 29 Public debt 32 Credit rating 50
Interest rate spread 131
Soundness of banks 15
Restrictions on capital flows 22
Access to loans 25
Availability of financial services 36
Affordability of financial services 38
Venture capital Availability 38
Financing through equity market 52
Regulation on securities exchanges 118
Why is the financial spread so large in Peru?
Loan Rates in Soles
(November 2011) Source: BCRP -10% 0% 10% 20% 30% 40% 50% 60% 70% B a n co s F in a n ci e ra s C R A C C M A C B a n co s C R A C C M A C F in a n ci e ra s B a n co s C R A C C M A C B a n co s C R A C C M A C F in a n ci e ra s Mortgage Commercial Micro-firms Consumption
• Large participation of small denomination loans in the country’s credit portfolio • Large participation of transaction deposits in the country’s savings portfolio • Retail banking: the largest volatility and level of interest rates
• Banks offer the lowest interest rates
Fuente: BCRP, SBS, Conasev Type of Credit S/. MM Interest rate Type of saving S/. MM Interest rate Commercial Firms 65,000 7.0% Demand Deposit 40,000 0.5% Micro Firms 15,000 35% Savings Deposit 25,000 0.4% Consumer 25,000 40% Time Deposit 65,000 3.0% Mortgage 15,000 10% Total 120,000 17% Total 130,000 1.7% Bonds 15,000 7.0% Mutual Funds 15,000 8.0% Average 16% Average 2.3%
Interest Rate Spread
Spread: 15.3%
Pension Funds and Terms of Trade (Annual % change) -40% -20% 0% 20% 40% 60% 80% a b r/ 0 8 ju l/ 0 8 o u t/ 0 8 ja n /0 9 a b r/ 0 9 ju l/ 0 9 o u t/ 0 9 ja n /1 0 a b r/ 1 0 ju l/ 1 0 o u t/ 1 0 ja n /1 1 a b r/ 1 1 ju l/ 1 1 o u t/ 1 1 ja n /1 2 a b r/ 1 2 Terms of Trade Pension Funds
Institutional markets development lacks domestic investment
alternatives
Fixed income market reform will:
• (i) reduce commodity risk of peruvian savings, • (ii) reduce risk of financial bubbles,
• (iii) increase funding supply for domestic growth (and therfore reducing the interest rate),
Fuente : BCRP 0 10.000 20.000 30.000 40.000 50.000 60.000 70.000 80.000 90.000 100.000 ja n /0 4 ju l/ 0 4 ja n /0 5 ju l/ 0 5 ja n /0 6 ju l/ 0 6 ja n /0 7 ju l/ 0 7 ja n /0 8 ju l/ 0 8 ja n /0 9 ju l/ 0 9 ja n /1 0 ju l/ 1 0 ja n /1 1 ju l/ 1 1 ja n /1 2 Institutional Savings Public bonds Private bonds F o re ig n in ve st m e n ts B o n d s
Instututional Market Excess Funds
0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 40.000 1 9 8 1 1 9 8 3 1 9 8 5 1 9 8 7 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 Chile Korea Peru
Avoiding the middle income trap
Source: FMI
Per Capita GDP
(Based on purchasing-power-parity -PPP)
Malaysia
Factor driven economy Efficiency driven economy Innovation driven economy
• Price liberalization, trade and financial openness, competition barriers removal and sustained growth and employment creation, constitute the main reform areas behind the country’s economic achievements
Peru: Avoiding the Middle Income Trap
Analysis for Critical Route Development
Claudia Cooper Universidad del Pacifico