Peru Is the Fifth Most

Peru is the fifth most populous nation in South America. The country lived under military rule form 1968-1980. While under military rule Perus fishmeal industry and some of its mining companies, banks and petroleum companies were nationalized. Even after Peru returned to civilian rule, the country experienced a great deal of economic turmoil.

"Nagging economic problems left over from the military government persisted, worsened by an occurrence of the "El Nino" weather phenomenon in 1982-83, which caused widespread flooding in some parts of the country, severe droughts in others, and decimated the fishing industry. The fall in international commodity prices to their lowest levels since the Great Depression combined with the natural disasters to decrease production, depress wages, exacerbate unemployment, and spur inflation. The economic collapse was reflected in worsening living conditions for Peru's poor and provided a breeding ground for social and political discontent."

Although this was the reality for Peru in the 1980's, the Peruvian economy has experienced a great deal of growth in recent years. This growth has been quite remarkable and gives a great deal of insight into some of the steps that can be taken in other countries if they wish to improve economic conditions. However if this growth is to continue, there must be a concerted effort to ensure proper investment in the country. In addition this growth must be properly managed. These issues are worthy of exploration.

To this end, the research will explore the economy of Peru. More specifically the research will concentrate on the current economic conditions in the country. The manner in which the country is dealing with the current global financial crisis will be a focal point of the research. In addition there will be a detailed exploration of the investment opportunities that are available in Peru. The research in this sphere will include both local and foreign direct investment.

Background Information

Although Peru is rich in natural resources and the economy has grown rapidly, there is also a great deal of poverty. The research seeks to explore why this scenario exist. That is, why does a country that has so many resources suffer from such abject poverty. The research will investigate whether or not investment opportunities are designed to remedy this problem and if investors are taking advantage of these opportunities.

Also Peru's economy is relatively stable; the country has come upon some difficult economic times. These difficulties have occurred because of the global economic crisis that is having a negative impact on economies throughout the world. As a result of the current economic conditions Peru must be cognizant of the changing economic environment and how these changes effect economic indicators such as commodities prices and exports.

Additionally if investment opportunities are being pursued, how are they benefiting Peru? In addition, how might these investment opportunities affect Peru in the future as it relates to assisting those who live in poverty? These are questions that demand answers.

Statement of the problem

Although Peru has an abundance of natural resources, there is still a great deal of poverty that exists in the nation. The nation has not been able to fully exploit the resources available in the country. In addition the Peruvian economy could also benefit from a greater amount of foreign direct investment.

Purpose of the Research

The purpose of the research is to determine the current status of the economy. There has been a great deal of growth for the country's economy in recent years. The research endeavors to determine how the Peruvian economy is fairing during a very difficult time in the global economy. The research will also endeavor to determine the future of Peru's economy.

The purpose of this research is also to provide information as to what has worked in Peru as it pertains to the economy and the things that have not been beneficial. The research is also aimed at uncovering the manner in which resources are being utilized to improve economic conditions and what else can be done to allow Peru to fully exploit its resources.

The research will also assist other countries in repairing or improving their economies. This could be particularly helpful to countries that have access to similar resources and similar governmental structures. Overall the purpose of the research is to provide insight into the current economic condition of Peru and to assist in improving the economic condition of Peru and similar countries.

4- What is the research question or questions?

1. What types of investment opportunities are present in Peru?

2. Has there been an increase in foreign direct investment in Peru?

3. How has the current economic crisis effected Peru?

Preliminary Literature Review

According to the Department of State Peru's GDP in 2008 was $127.8 billion. The country also had an annual growth rate of 9.8% and a per capita GDP of $4,477 in 2008. GDP for manufacturing in 2008 was 15.5% ("Peru"). Types of manufacturing are inclusive of textiles and apparel, food and beverages, nonmetallic minerals, nonferrous and precious metals, petroleum refining, fishmeal, paper, iron and steel and chemicals. Agriculture constitures 7.6% of GDP. Agriculture products include paprika, coffee, cotton, asparagus, artichokes, potatoes, rice, banana, maize, poultry, milk, and sugarcane. The service sector constitutes 55% of GDP, cusontruction is resopnsible for 5.9% of GDP, mining makes up 5.7% of GDP and fisheries make up .5%. As it pertains to trade the statistics are as follows,

" Exports (2008) -- $31.2 billion: gold, copper, fishmeal, petroleum, zinc, textiles, apparel, asparagus, coffee, others. Major markets (2008) -- U.S. (18.6%), China (12.0%), Switzerland (10.9%), Canada (6.3%), Japan (5.9%), Chile (5.9%), Venezuela (3.5%), Germany (3.3%). Imports (2008) -- $27.7-19.6 billion: petroleum and products, vehicles, plastics, steel, telephones, wheat, soy oil and products, corn, machinery, processed food, and other. Major suppliers (2008) -- U.S. (18.9%), China (13.4%), Brazil (8.2%), Ecuador (6.2%), Argentina (5.0%), Colombia (4.4%), Japan (4.1%) ("Peru").

In addition to the aforementioned economic conditions in Peru it is also a nation that has many natural resources including minerals and an abundance of fish. Natural resources include Copper, gold, silver, zinc, lead, iron ore, fish, petroleum, natural gas, and forestry ("Peru"). According to the CIA World Factbook Peru's economy "grew by more than 4% per year during the period 2002-06, with a stable exchange rate and low inflation. The Growth rate increase from 9% per year in 2007 and 2008, was driven by higher world prices for minerals and metals and the government's aggressive trade liberalization strategies. Peru's rapid expansion has helped to reduce the national poverty rate by about 15% since 2002, though underemployment and inflation remain high ("South America: Peru")."

The U.S. Department of State also reports that the United States and Peru originally signed the U.S.-Peru Trade Promotion Agreement (PTPA) in April 2006 ("Peru"). The Peruvian Government altered its environmental and intellectual property laws to permit the PTPA to become legislation ("Peru"). The PTPA was finally implemented in February of 2009 ("Peru").

In 2008, Peru's exports totalled $31.2 billion in part because of high mineral prices. Peru's major partners include China, Switzerland, Canada, Japan and the United States ("Peru"). The U.S. government reports that "after nine years of surpluses Peru registered a deficit in its trade with the United States of $0.33 billion in 2008, exporting $5.86 billion and importing $6.18 billion. Peru's exports include petroleum, gold, copper, apparel, tin, coffee, non-ferrous ores, asparagus, fishmeal, zinc, and textiles. Imports include machinery, petroleum products, electrical machinery, plastics, vehicles, steel, and cereals ("Peru")."

The state depeartment also reports that Peru is part of several organizations including the Asia-Pacific Economic Cooperation (APEC) forum, the Andean Community, and the World Trade Organization (WTO) ("Peru"). The country also posesses some limited trade agreements with nations of Chile and Mexico ("Peru"). In addtiion Peru halso has more broad trade agreement with; Canada and Singapore ("Peru"). The country also has similar agreements with China, and is in talks to have a trade agreement with the European Union ("Peru").

As it pertains to foreign investment Peru is excited about potentential investments. In fact the government encourages foreign and domestic investment in every sector of the Peruvian economy ("Peru"). At the end of 2008 registered stock of foreign direct invesment was $18 billion. In addition, Foreign direct investments conducted through banks was aproximately $30 billion ("Peru"). Most investments are from the United Kingdom, the U.S., and Spain. Most foreign direct investments occuer in the sectors of electricity, mining, telecommunications, manufacturing, and finance ("Peru").

Two of the most important sectors in Peru are Mining and energy. According to the State Department natural gas and petroleum are prevalent resource in Peru. In fact

In August 2004, Peru inaugurated operations of the Camisea natural gas project.

Camisea gas has transformed Peru's energy matrix, reducing the country's dependence on imported diesel. The $3.8 billion Peru LNG project, currently under construction, will liquefy natural gas for export to Mexico and possibly the west coast of the United States, converting Peru into a net energy exporter in 2010 ("Peru").

Peru is also the largest producer of silver in the world. In addition Peru is second largest producer of zinc, third in copper and tin, fourth in lead, and sixth in gold ("Peru"). Additionally Peru's export revenue is dominated by mineral exports at nearly 63% in 2008("Peru").

According to an article found in the Wall Street Journal, Low metal prices will have a negative impact on Peru's economy well into 2009. The article explains that the Lima Stock Exchange which is dominated by mining shed 60% in 2008. This is the most significant percentage loss in the region. The decrease in stock price coincided with the problems occurring in the global economy.

The article also explains that recovery will be slow because of the condition of economic growth world-wide. According to Gustavo Urrutia, chief of research at Peruvian brokerage Centura SAB, "In terms of metals prices, I don't think the outlook will change much (Josephs, 2009)." However, the exchange's president asserts that recovery is most likely at the end of 2009. He asserts that "Stronger activity on the exchange will start when the international economy shows some sign of recovering (Josephs, 2009)." The article also reports that

"The exchange's performance over the last two years was a marked contrast to the advances posted the previous year. The Lima Stock Exchange experienced a record high in 2007 and gained 36%, after a 168% surge in 2006. But a plunge in commodities prices midway through 2008 sent the index into a downward spiral. Last January, macroeconomic indicators showed that Peru's breakneck growth would continue in 2008. But lower metal prices and global financial instability, particularly in the fourth quarter, dispelled ideas that Peru was immune to the international crisis. The index lost more than 37% since Sept. 30. The exchange's General Index closed 2008 at 7048.67 (Josephs, 2009)."

Other literature discusses the prevalence of poverty in Peru and the reasons why the recent economic growth in the country has not led to reduced amounts of poverty. For instance, Altamirano et al. (2004) explains that Peru is stuggling to reconcile the rapid economic growth thtat the company has experienced with the poverty that still exist in the country (Altamirano et al., 2004). The article explains that one of the reasons for the disparities between the rich in the poor is that many people in Peru only have skill sets that are consisten with traditional Peruvian jobs (Altamirano et al., 2004). Many of the jobs are either obsolete or they do not offer the type of income that newer jobs offer (Altamirano et al., 2004). Carnoya and. Luschei (2008) explains this clearly. The authors insists that if sustained economic development is to be realized countries and regions must have the capacity to implement new technologies and educate their labor force to use these technologies (Carnoya and. Luschei, 2008). The authors also explain that within the context of the current global economy, which is characterized by factors such as mobility of capital, economic competition, and expanded information and communications portals, there is a unique opportunity for many countries in Latin America including Peru (Carnoya and. Luschei, 2008).

In addition, Zwane (2007) aserts that poverty may have a profound effect on deforestation. The author asserts that

The contention that poverty causes households to degrade the environment has been made in several contexts (e.g., United Nations [63], World Commission on Environment and Development. In the case of deforestation, the story goes, households would like to invest in maintaining the quality of soil on existing cleared land, or increasing yields on this land, but are unable to do so because they cannot finance the necessary investments (Zwane, 2007)."

The deforestation can lead to a host of other problems in Peru. For this reason many studies have sought to understand how deforestation can be stopped in a way that still provides the people of the country with some type of economic benefits.