Peru Republic Of 18-K Annual report (foreign governments)

EXHIBIT D

REPUBLIC OF PERU

Table of Contents

	Page
Summary		D-3
Risk Factors		D-17
The Republic of Peru		D-21
The Economy		D-43
Balance of Payments and Foreign Trade		D-80
The Monetary System		D-92
Public Sector Finances		D-114
Public Sector Debt		D-127

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DEFINED TERMS AND CONVENTIONS

Defined Terms

References herein to “we,” “us,” “our” and “Peru” are to the Republic of Peru. All references herein to the “Government” are to the central government of Peru and its authorized representatives. The terms described below have the following meanings for the purposes of this annual report:

• Gross domestic product, or GDP, is a measure of the total value of final products and services produced in a country in a specific year. Nominal GDP measures the total value of final production in current prices. Real GDP measures the total value of final production in constant prices of a particular year, allowing historical GDP comparisons that exclude the effects of inflation. Real GDP figures herein are based on constant 2007 prices, the year used by the Banco Central de Reserva del Perú, or the Central Bank, for purposes of maintaining real GDP statistics. GDP growth rates and growth rates for the various sectors of Peru’s economy are based on constant 2007 prices.

• For balance of payments purposes, imports and exports are calculated based upon statistics reported to Peru’s customs authority upon the entry of goods into and the departure of goods from Peru on a free-on-board, or FOB, basis at a given point of departure. Import data include data on imports through the Tacna Special Processing Area, the only one of Peru’s five free trade zones that is currently active, purchases of goods abroad by resident transport companies and ship repairs by non-residents. Export data include the gross value of marine resource catches by non-resident vessels operating with fishing licenses and the value of goods sold to non-resident transport companies.

• The inflation rate provides an aggregate measure of the rate of change in the prices of goods and services in the economy. Peru measures the inflation rate by the percentage change in the Peruvian consumer price index, or CPI, between two periods. The CPI is based on a basket of goods and services identified by the Instituto Nacional de Estadística e Informática (National Institute of Statistics and Information Technology), or INEI. The price for each good and service that constitutes the basket is weighted according to its relative importance in order to calculate the CPI. The annual percentage change in the CPI is calculated by comparing the index as of a specific December against the index for the immediately preceding December. The average annual percentage change in the CPI is calculated by comparing the average index for a 12-month period against the average index for the immediately preceding 12-month period. INEI also compiles statistics to calculate the wholesale price index, which is used to measure the evolution in prices of a representative group of goods sold in the wholesale market in 25 cities.

Currency of Presentation and Exchange Rate

Unless otherwise specified, references to “U.S. dollars” and “U.S.$” are to United States dollars, references herein to “sol” or “soles” and “S/” are to the Peruvian sol and references to “SDR” are to International Monetary Fund special drawing rights. Unless otherwise indicated, we have converted sol amounts into U.S. dollars and U.S. dollars, or any other currency, into soles for each year at the year’s average exchange rate, calculated by taking an average of the exchange rates for each calendar day of the year. Currency conversions are included for convenient reference only. You should not construe these conversions as a representation that the amounts in question have been, could have been or could be converted into any particular denomination at any particular rate or at all.

For the year ended December 31, 2020, the average sol/U.S. dollar exchange rate, as reported by the Central Bank, was S/3.621 per U.S.$1.00. The average sol/U.S. dollar exchange rate as of June 30, 2021, as reported by the Central Bank, was S/3.850 per U.S.$1.00.. For more information, see “The Monetary System––Foreign Exchange and International Reserves––Foreign Exchange” below.

Presentation of Economic Information

All annual information herein is based upon January 1 to December 31 periods, unless otherwise indicated. Totals in some tables herein may differ from the sum of the individual items in those tables due to rounding.

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Some statistical information included herein is preliminary in nature and reflects the most recent reliable data readily available to Peru. The Central Bank regularly reviews Peru’s current and historical official financial and economic statistics. Accordingly, some financial and economic information presented herein may be adjusted or revised subsequent to the date hereof to reflect new or more accurate data or in accordance with Peru’s ongoing maintenance of its economic data. In particular, some information and data contained herein for 2016, 2017, 2018, 2019 and 2020 are preliminary and subject to routine revisions by the Central Bank and other institutions to ensure their accuracy. Peru will make available any revised data in accordance with its normal practices for releasing data. The Government believes that this review process is substantially similar to the practices of many industrialized nations. The Government does not expect any revisions of the data contained herein to be material, although it cannot assure you that material revisions will not be made.

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SUMMARY

This summary highlights certain information contained elsewhere herein. This summary does not contain all the information you should consider before investing in the securities. Before making a decision to invest in any securities issued by Peru, you should carefully read this entire report and any related prospectus supplement.

Republic of Peru

Overview

Peru is a representative democracy located in western South America, with an estimated population, as of June 30, 2020, of approximately 32.6 million. Peru’s population is multi-racial and multi-cultural, and the official languages are Spanish, Quechua and Aymara. The World Bank classifies Peru as an upper-middle-income developing country.

In November 2000, Peru emerged from more than a decade of rule by President Fujimori, whose years in office were characterized by a reduction in domestic terrorism by armed guerrilla forces, economic reforms that led Peru to develop a free market economy characterized by low inflation and high growth rates, and by nearly dictatorial powers concentrated in the executive branch. Political instability, coupled with a series of external economic shocks, resulted in reduced economic activity that led to higher rates of unemployment, underemployment and poverty. In the aftermath of President Fujimori’s resignation in November 2000, Valentín Paniagua assumed the role of President, and his interim administration was in office until July 2001.

In June 2001, Alejandro Toledo Manrique was elected president to a five-year term, having campaigned on a platform of reform that recognized the value of an open economic system and reform. During the administration of President Toledo, Peru had one of the best-performing economies in Latin America, with GDP growth of 6.8% in 2005, driven by growth in the mining and export sectors that was fueled by higher international prices for these commodities. In June 2006, Alan García was elected president to a five-year term. President García had served as president in the period 1985-1990, and his first administration faced many challenges and confronted many crises that ended in political instability. The first García administration was followed by the administration of President Fujimori. The second García administration sought to implement social and political reforms and continuity to achieve macroeconomic stability, as well as solidifying Peru’s relationships with its international partners. During his time in office, Peru was again among the best performing economies in Latin America, with an average annual GDP growth rate of 6.9% during that period.

In June, 2011, Ollanta Humala, was elected president to a five year term. While the election of President Humala initially generated political and economic uncertainty, the Humala administration adopted policies that emphasized continuity with the prior administrations’ economic goals, designed to promote macroeconomic stability, fiscal discipline and domestic and foreign investment. The Humala administration did not make any significant shift in trade policy and maintained stable economic ties with Peru’s major trading partners.

In June 2016, President Kuczynski, leader of Peruanos por el Kambio (Peruvians for Change), was elected president for a five-year term after winning a run-off election against Keiko Fujimori. Upon his election, President Kuczynski announced policies designed to promote macroeconomic stability, foster fiscal discipline, and encourage private domestic and foreign investment.

On December 21, 2017, by majority vote of Peru’s Congress (with 78 votes in favor, 19 against and 21 abstentions) rejected then-President Kuczynski’s motion against a resolution providing for him to vacate the office of the President following public reports linking him to the Odebrecht corruption scandal. On March 21, 2018, President Kuczynski resigned. On March 23, 2018, Peru’s Congress accepted President Kuczynski’s resignation with 105 votes in favor, 12 against and four abstentions. On the same day, Vice President Vizcarra assumed the presidency of Peru, to serve the remaining presidential term until 2021.

With the aim of boosting the economy in the short term and defining the basis for greater growth in the medium term, the Vizcarra administration worked on an Economic Impulse Plan to achieve a GDP growth of 5.0% towards the end of 2021, in compliance with fiscal rules. This plan was associated with the strengthening of fiscal accounts to generate pro-growth fiscal space and the boost of the economy in the short and medium term.

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On November 9, 2020, President Vizcarra was removed from the presidency by the Congress based on corruption allegations with 105 votes in favor, 19 against, four abstentions and two absentees. The president of Congress, Manuel Merino, was then appointed interim president of Peru, but his presidency was short-lived because of massive protests. On November 15, 2020, he resigned on his fifth day following a general strike. It was after a vote from Congress that President Sagasti was elected to be interim president and remained in that position until July 28, 2021, when President Castillo took office.

External Shocks and their Effects on the Peruvian Economy

The Peruvian economy has been affected by three temporary external shocks: the stagnation of construction activity associated with corruption scandals involving Brazilian construction companies, the El Niño Costero phenomenon and the COVID-19 pandemic. The first one has affected investments, with impact on the generation of formal employment and family spending; the second one affected agricultural production, caused widespread infrastructure damage, and affected the supply of services, such as transportation, tourism, financial activities and commerce, particularly in the northern region of Peru; and the last one had a devastating impact on the country, after a strict and prolonged quarantine led to a decline in GDP of 11.1% in 2020. Employment fell an average of 20% between April and December 2020, so in response the Government launched a national economic compensation and aid program to protect the vulnerable population and support businesses.

The three negative shocks are being partially offset by an improving international environment, evidenced by the higher economic growth of our trading partners, increasing commodity prices, in particular copper and gold, more vaccination campaigns and capital inflows, including with respect to the capital markets.

In August of 2017, through Law N° 30,637, the fiscal deficit was temporarily increased for the period from 2017 to 2020 by 3.2% of GDP compared to the prior budget. For 2021, the fiscal deficit is limited by law to 1.0% of GDP. The temporary expansion of the fiscal deficit is due exclusively to the prioritized need for the reconstruction of the country as a result of the damage caused by the El Niño Costero phenomenon. On May 26, 2019, an earthquake of 8.0 magnitude struck a remote part of the Amazon in Peru, resulting in collapsed buildings, certain power failures and two reported deaths. This is the strongest earthquake in Peru since an earthquake of similar magnitude struck near Lima in 2007. This earthquake led to a U.S.$60.0 million partial payout of 30% of the principal on the IBRD CAR 120 Peru earthquake catastrophe bond on July 15, 2019.

For the year 2020 and 2021, the regular fiscal rules were suspended as an extraordinary measure in concordance with article 2 of Legislative Decree N° 1457, published on April 12, 2020. For the [six month] period ended June 30, 2021, the fiscal deficit was, in annual terms, 6.4% of GDP, lower than the fiscal deficit for the year ended 2020 (8.9% of GDP) and lower than the first quarter of 2021 (8.4% of GDP). The increase of the fiscal deficit is due to the high uncertainty and emergency caused by the COVID-19 pandemic. Minister Pedro Francke, on August 4, 2021, announced that the fiscal deficit for the year 2022 is expected to be lower and that fiscal rules will be reestablished.

Peru’s credit ratings

Peru’s current long-term debt credit ratings are investment grade. They indicate that the Republic’s long-term debt securities are rated with moderate credit risk.

On November 24, 2020, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru; the outlook remained stable.

On December 15, 2020, Fitch reaffirmed Peru’s long term foreign currency issuer default rating at BBB+ but changed the outlook from stable to negative.

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On May 21, 2021, Moody’s Investors Service reaffirmed its A3 foreign currency long-term issuer ratings on Peru but changed the outlook from stable to negative.

On September 1, 2021, Moody’s Investors Service downgraded Peru’s rating to “Baa1”, from A3, upgrading the outlook from negative to stable.

On October 14, 2021, Fitch downgraded Peru’s long term foreign currency issuer default rating to BBB from BBB+, upgrading the outlook from negative to stable.

On October 15, 2021, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru; but changed the outlook from stable to negative.

Investment Considerations

In the past, Peru has experienced economic and political instability and terrorist insurgency. At present, Peru is a stable democracy, having completed a peaceful transition from the administration of President Humala to President Kuczynski in July 2016, in addition to the prior transition to President Humala by President García. President Kuczynski was in office through March 23, 2018 when Congress accepted his resignation following allegations of corruption related to the Odebrecht corruption scandal. On that same date, Vice President Vizcarra was sworn in as president to complete the term through 2021. After President Vizcarra stepped down in November 2020, there was a short period of turmoil that was resolved after interim President Merino resigned and President Sagasti took office. President Sagasti remained president until July 2021, when President Castillo took office.

President Castillo is a left wing politician who campaigned on improving education and empowering peruvian citizens, with a focus on rural and provincial communities. He faces political opposition in Congress. The legislative opposition planned to impeach Chancellor Bejar on his previous comments on the army and terrorist groups, and was forced to resign on August 6, 2021, followed by Oscar Maurtua. The Minister of Labor, Iber Maravi, and the prime minister, Guido Bellido, were also to be impeached (Maravi based on alleged ties with terrorist group Shining Path and Bellido on comments regarding the nationalization of Camisea, a gas consortium composed of Argentine, Spanish and United States companies). Following this events, President Castillo asked the prime minister for his resignation on October 6, 2021, along with other members of the cabinet. The new and current composition of ministers is headed by Mirtha Vasquez, who served as the former president of Congress during President Sagasti’s tenure.

Peru’s GDP growth rates, low rates of inflation, and both fiscal and external (e.g., trade) surpluses reflect, in part, the strength of Peru’s economic fundamentals. More recently, the Peruvian economy has encountered significant economic shocks: the suspension of important infrastructure works as a result of the acknowledgement by certain Brazilian construction companies of illicit and corrupt activities involving Peruvian public and private sector individuals and institutions, the damage and other adverse effects caused by the El Niño Costero phenomenon and the COVID 19 pandemic which initially resulted in the shut down of most economic activities in the country.

During 2020, the social distancing and restriction measures due to COVID-19 strongly impacted the economy, particularly in the first half of the year. As a COVID-19 Economic Plan (the “COVID-19 Economic Plan”) has been implemented, the economy has shown signs of recovery.

The Government cannot assure you that Peru will not face political, economic or social problems in the future or that these problems will not interfere with Peru’s ability to service its indebtedness, including the securities offered by Peru. Global economic crises and developments in other emerging countries in Latin America, such as Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador and Venezuela, in addition to crises affecting Peru’s principal trading partners, may have an adverse effect on other countries in the region, including Peru. Moreover, fluctuations in the international prices of commodities like copper and other minerals of which Peru is a major exporter could have an adverse effect on the economy of Peru and the overall level of economic activity. See “Risk Factors” herein for a more detailed discussion of the factors that may affect economic performance of the Republic.

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Recent Developments Relating to COVID-19 Response

Economic and Financial Response to the COVID-19 pandemic

The Peruvian government was one of the first countries in the region to implement strict sanitary measures (quarantine and mobility restrictions) to contain COVID-19, which allowed timely actions to be taken to strengthen the health system and protect the lives of Peruvians. This policy was accompanied by the COVID-19 Economic Plan for approximately 20% of GDP, the most important in the country’s history, with the aim of containing the spread of the pandemic and supporting the economy for a rapid reactivation.

Similarly, given the strengths of Peru’s macroeconomic fundamentals, the implementation of large-scale policy responses were possible without compromising the stability of the country to mitigate the adverse effects of the pandemic on the dynamics of the economy and the well-being of citizens. Accordingly, in April 2020, the fiscal rules for the years 2020 and 2021 were exceptionally and temporarily suspended, seeking the necessary flexibility of the fiscal policy to face this adverse context. This measure was one of the central instruments of the fiscal policy response to the health emergency because, together with the support of the country’s macro-fiscal strengths, provided the flexibility to implement the COVID-19 Economic Plan. On the other hand, the measure allowed the collection of taxes to absorb the deterioration of economic activity without preventing the adoption of response and stimulus actions for the economy.

The exceptional and temporary suspension of the fiscal rules had the support of the Fiscal Council, a technical and autonomous entity in charge of ensuring the sustainability of public finances, This large-scale fiscal effort was considered timely and necessary, contributing to the emergency efforts and supporting the reactivation of the economy.

The suspension of fiscal rules was accompanied by a continuous and transparent monitoring of the effects of the health emergency on the economic activity and public accounts. Legislative Decree N° 1457 provided for the Declaration on Compliance with Fiscal Responsibility reports for 2020 and 2021 to include an assessment of the impact of COVID-19 on the Public finances.

PERU’S ECONOMIC PLAN TO ADDRESS THE COVID-19 PANDEMIC

The Peruvian government implemented the COVID-19 Economic Plan for approximately 20.0% of GDP, which aims to minimize the social and economic effects of the pandemic on the Peruvian economy.

The COVID-19 Economic Plan consists of a set of economic policies (tax, public spending and liquidity) focused in two stages under four driving axes. The tax policies include measures such as tax deferrals both for individuals and businesses. The public spending policies include the funding of the health system, household aid funds, and public investment to promote economic recovery. Furthermore, the COVID-19 Economic Plan includes measures to provide liquidity to households and businesses, through public credit guarantees and access to individual savings (CTS and AFP programs). These are all temporary short-term measures and will not have a significant impact on the following years public budget. As mentioned, the COVID-19 Economic Plan has four driving axes: (i) immediate emergency assistance; (ii) households financial support; (iii) business financial support, especially to small and medium businesses; and (iv) economic recovery support.

COVID-19 Economic Plan measures approved as of December 31, 2020

As of December 31, 2020, a total of S/142.2 billion or 20% of GDP has been budgeted under the COVID-19 Economic Plan: i) tax measures for S/16.2 billion (2.3% of GDP), ii) public expenditure measures for S/35.7 billion (5.1% of GDP); and iii) liquidity measures for S/90.3 billion (12.8% of GDP). These measures are detailed in the following axes:

First axis: Immediate emergency assistance

Actions for immediate emergency assistance amount to S/6.2 billion (0.9% of GDP). These measures include:

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a) Strengthening of health systems. These measures include the implementation and conditioning of care centers, such as temporary isolation hospitals, Hospital de Ate Vitarte, and conditioning of the Villa Panamericana. As well as, the acquisition of personal protective equipment, the strengthening of emergency service lines, and the hiring of public or private laboratories for taking samples at home. Likewise, more than S/230 million have been allocated for the acquisition of COVID-19 detection tests and the implementation of a diagnostic system. In addition, an extraordinary bonus has been provided to health and assistance personnel who provide care for COVID-19, along the hiring of the local mobility service for the transport of assistance and administrative personnel of the health facilities for the care of COVID-19, in addition to extraordinary measures for the continuity of personnel hiring and contracting of goods and services by Regional Governments. On another hand, a support network for the elderly and disabled was created, pharmaceutical products were acquired and the distribution service of the COVID-19 Kit was arranged. In addition, resources were assigned to guarantee the provision of medicinal oxygen, actions for the care of indigenous peoples were implemented, and masks were distributed to vulnerable populations. It is worth mentioning that customs duties (taxes), temporarily brought to zero, were also established for the import of medicines and supplies.

b) Cleanup actions to prevent the spread of COVID-19. This includes the acquisition of cleaning kits for schools and public universities; as well as, prevention, cleaning and disinfection actions in the units of the public transport service, stops and stations of the Electric Train, Metropolitan Transport and complementary corridors. Furthermore, resources have been allocated for the management and treatment of municipal and bio contaminated waste in Lima and Callao at the request of the Health Ministry (Minsa). In addition, resources were allocated for the municipalities to purchase cleaning, disinfection and security kits in the popular meal centers; and for the acquisition of goods and services necessary to regulate the functioning of markets, as well as to implement temporary spaces for shopping.

c) Measures to guarantee public order, transfer of humanitarian aid and repatriation of nationals. These measures consider the transfer of resources to the Ministry of Defense and the Ministry of the Interior to guarantee public order; also, the acquisition of personal protection equipment was authorized in favor of the Ministry of the Interior, Ministry of Defense, INPE (Instituto Nacional Penitenciario or the National Penitentiary Institute), Ministry of Justice, National Fire Department, and the Metropolitan System of Solidarity to attend the emergency produced by COVID-19. Likewise, an extraordinary bonus of S/720 will be given to prison, police and military personnel for a period of one month for carrying out high-risk actions in care within the framework of the National Health Emergency. Additionally, resources have been transferred for the exceptional discharge of police officers and the hiring of civilian personnel in order to strengthen the management of the Policia Nacional del Perú, as well as to strengthen police stations and investments in citizen security. With regard to humanitarian aid, measures have been established for Instituto Nacional de Defensa Civil (the National Civil Defense Institute or Indeci) to transfer humanitarian aid goods, for example food, at the request of Minsa. Likewise, the creation of a temporary shelter for the vulnerable population in a situation of abandonment on public roads has been established, under the Ministry of Women and Vulnerable Populations. In addition, resources have been allocated for the repatriation, temporary accommodation and food of Peruvians returning from abroad. Similarly, actions were carried out for the transfer and isolation in quarantine of citizens who had to move to the interior of the country.

Second axis: Household financial support

The measures approved to provide financial support to vulnerable families include resources for S/35.0 billion (5.0% of GDP). These measures include:

a) Delivery of monetary subsidies of S/760 to families in vulnerable situations (S/13.1 billion), which seeks to benefit 8.5 million households. These subsidies correspond to: i) The “I stay at home” bonus, which is an extraordinary subsidy to households that were in poverty and extreme poverty, in charge of the Ministerio de Desarrollo e Inclusion Social (the Ministry of Social Development and Inclusion or Midis). This bond would benefit 2.7 million households with a bond of S/760 (in two installments of S/380); ii) Subsidy to households with independent workers, in charge of the Ministry of Labor, through two bonds of S/380. This will benefit 780 thousand homes; iii) Rural bond, which seeks to benefit 1.1 million households with a direct bond of a single installment of S/760; and iv) The “Universal Family Bonus”, which grants a

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subsidy of S/760 to households that are in a vulnerable condition and have not received the aforementioned bonuses. It is worth mentioning that this bond excludes households with people registered in the public or private payroll, and households with high incomes. Additionally, the National Registry for COVID-19 measures was created, to register families that meet the requirements to receive the bonus, but are not on the list of beneficiaries. It is important to highlight that, through the Emergency Decree N° 098-2020, the delivery of a second bond of S/760 between August and October was approved to the beneficiaries of the previous bonds and to 2.5 million new families, for a total of S/6.6 billion.

b) Support measures for vulnerable families. Actions within this measure include the acquisition of food baskets by municipalities (local governments) throughout the country for the most vulnerable population, the exceptional provision of food to families with the greater economic and food vulnerability within Metropolitan Lima and Callao, and the implementation of itinerant markets that guarantee the supply of basic necessities products to the population. Likewise, the fractioning of the payment of electricity, natural gas, sanitation, and telecommunications services was established. Also, resources were set aside for the granting of an electricity voucher, in favor of targeted residential users of the public electricity service. This will allow covering the amounts of their corresponding bills for the public electricity service that include consumptions pending payment that are recorded in the period March to December 2020. Another relevant measure is the acquisition and distribution of more than 840 thousand electronic tablets for students of public colleges and universities, rural and urban families with lower incomes. In addition, the implementation of a special higher education continuity scholarship was approved for students directly or indirectly affected by COVID-19. Likewise, a monthly monetary transfer of S/100 of bimonthly payment will be granted to households with boys and girls less than 24 months old and who reside in prioritized districts according to the monetary poverty index, as well as resources for the implementation of the temporary intervention for early childhood.

c) Provide support to the worker. Implies the delivery of a temporary disability subsidy by EsSalud, to workers diagnosed with COVID-19 of micro-businesses whose remuneration is up to S/2,400. Additionally, the extension of life insurance for health workers was ordered. Likewise, for workers who are in perfect suspension from work, their attention in EsSalud services will be guaranteed and they will be granted a monetary subsidy. The subsidy consists of a bonus of S/760 for each month of suspension of work for up to a maximum of three months, and will be granted by EsSalud, which is expected to benefit 286 thousand workers with a total of S/653 millions. It is worth mentioning that the beneficiaries must work in companies with less than one hundred workers; and they must not have received any of the S/760 bonds previously granted.

d) Tax relief for individuals. This consists of an extension of the annual declaration of income tax, and the tax on financial transactions for individuals. In addition, the automatic refund of taxes paid or withheld in excess in 2019 was established, in favor of taxpayers with incomes of the 4th and 5th category.

e) Release of the Compensation for Time of Service (CTS) and the partial and extraordinary withdrawal of funds from the Administradoras de Fondo de Pensiones (the Pension Fund Administration). With this, workers are authorized to freely dispose of the funds in their CTS accounts up to the amount of S/2,400. In addition, the withdrawal of up to S/2,000 from the AFPs was allowed, according to the following: i) that the affiliate has not contributed to their account for six consecutive months, ii) for workers who are in perfect suspension, provided that there is no proof of the contribution for the months of February or March; iii) for affiliates whose last declared remuneration is less than S/2,400, provided they have the accreditation of the February or March contribution. It is worth mentioning that the payment was made in the same proportion to two consecutive months.

f) Continuity of public entities and public transport. This corresponds to the transfer to local governments due to the lower revenue collection as a result of social isolation, with the aim of financing essential operating expenses for the continuity of public services, and financing the Incentive Program for Improved Municipal Management. Likewise, resources have been transferred for the operation and functioning of public universities. To guarantee public transportation, an economic and in-kind subsidy will be granted to land transportation service providers in the provincial municipalities; as well as an indirect subsidy to the users of the Metropolitano through a transfer to Corredor Segregado de Alta Capacidad I (COSAC l).

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Third axis: Business financial support

The measures approved to support companies amount to S/13.4 billion (1.9% of GDP). These measures include:

a) Delivery of the payroll subsidy and deferral of deposit of the CTS. Exceptionally, the employer receives a subsidy not exceeding 35% of the sum of the gross monthly remuneration corresponding to workers who have a gross monthly remuneration of up to S/1,500 and generate 5th category income. In addition, facilities are granted for the fulfillment of the CTS deposit. With this, the employer can postpone the CTS deposit from May 2020 until November 2020. Furthermore, as of November 2020, a subsidy promoting formal employment and businesses’ workforce was approved. This measure includes financial incentives for businesses to hire new employees (35% to 55% of the workforce).

b) Tax relief for businesses. This considers the extension of the monthly declaration and payment of taxes corresponding to the months of February, March, April, May and June 2020; and the extension of the annual declaration and payment of the regularization of the income tax 2019 for up to three months.

c) Release of funds from deduction accounts and granting of facilities to tax debtors. With this, the early release and withdrawals’ easing was approved; the payment of installments and tax debts that expire during the state of emergency was extended; and the default and repayment interest rate was reduced in national and foreign currency.

Fourth axis: Support for recovery of the economy

The measures for the recovery of the economy amount to S/87.6 billion (12.4% of GDP). These measures include:

• The “Reactiva Peru” program equivalent to S/60.0 billion (8.7% of GDP) to ensure continuity in the chain of payments in the face of the impact of COVID-19. The purpose of this Program is to promote the financing of the replacement of the working capital funds of companies that face payments and short-term obligations with their workers and suppliers of goods and services.

• Business Support Fund (FAE), which guarantees loans for MYPE up to S/7.5 billion. The first FAE-MYPE allowed to guarantee the credits for working capital granted to the MYPE, as well as to restructure and refinance their debts up to S/4.0 billion. Likewise, FAE-MYPE have been established exclusively for the tourism sector with guarantees of up to S/1.5 billion and towards small agricultural producers for S/2.0 billion. It should be noted that the administration of this fund is in charge of Cofide.

• Guarantee program for the loan portfolio of companies in the financial sector for S/7.0 billion. With this, the response capacity of financial institutions, mainly the smaller ones, increased to face scenarios of greater demand for liquidity from companies and families. This contributes to maintaining the flow of credit of the economy, household consumption and the continuity of the chain of payments.

• Creation of the “Start Peru” (Arranca Peru) program, which provides spending measures aimed at public investment and infrastructure maintenance for S/7.7 billion. S/3.9 billion have been allocated for the maintenance of the national, departmental and neighborhood road network in 2020. Moreover, resources for S/1.5 billion have been transferred for the financing of bonds for the promotion of 20 thousand new homes (Family Housing Bonus) and Investments in urban roads, urban and rural planning, conservation and expansion of green areas and public decoration and urban and rural sanitation. In addition, S/722 million have been earmarked for the Trabaja Perú program. Finally, there are S/743 million for interventions in agriculture, education, culture, operation of activities in charge of the Ministry of Culture, interventions by executing cores, temporary hiring of technical staff and resources to the Comptroller Office for program supervision activities.

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• Implementation of tax measures to boost the economy. This includes the suspension or reduction of payments on account of the 3rd category of the Income Tax; the extension to 5 years of the term for companies with 3rd category income to compensate their losses in 2020; the establishment of the Regime of Deferral and / or Fractionation Splitting of Tax Debts. As well as, the extension of the Special Advance Recovery Regime (RERA) of the General Sales Tax and exceptional extension of the coverage to the MYPE; and the establishment of the Special Depreciation Regime and modification of the depreciation rates of specific assets.

• Measures to boost public and private investment. To this end, administrative processes and paralyzed works will be streamlined. In addition, it will seek to strengthen the quality of public investments, and the acceleration of projects such as those complementary to the Plan Nacional de Infraestructura para la Competitividad (the National Plan to Develop Infrastructure for Competitiveness or PNIC), PPP projects in contractual execution and to be awarded.

• Support measures and support to the economy. These measures include: i) the access of factoring companies to the Crecer Fund, ii) purchases from MYPE, iii) the “Turismo Emprende” program, iv) economic support for breeding centers nationwide, among other measures.

Public spending measures under the COVID-19 Economic Plan

As of December 31, 2020, the public spending measures accounted for S/35.7 billion or 5.1% of GDP. These measures are primarily implemented as immediate emergency support to the health system and financial relief to households and businesses; and secondarily directed toward economic recovery by supporting employment. The COVID-19 Economic Plan focuses on temporary current expenditures and transfers. Most of these current funds are used for direct household financial aid (40% of the expenditures) and transfers for capital acquisitions and employment support for small and mid-sized businesses. On the other hand, the health system related funds include extraordinary salaries for medical and health personnel, and services and goods including medical supplies, equipment and temporary personnel. These health funds also include pandemic-directed infrastructure projects. Finally, the funds are directed to the economic recovery and employment through the “Arranca Peru” program. The main component of capital expenditure is the Household Family Bonus.

On September 10, 2020, Emergency Decrees N° 104-2020 and N° 108-2020 were published in the Official Gazette. The former established extraordinary measures to mitigate the economic effects of the obligatory lockdown on editorial activity and reading access. The latter established that in order to contribute to the economic reactivation because of COVID-19, public investments of S/ 80 million would go to the defense sector.

On September 23, 2020, Emergency Decree N° 114-2020 was published in the Official Gazette, expanding “Start Peru” (Arranca Perú) into “Start Peru II” (Arranca Perú II). The goal is to transfer resources to entities in the central government and also the regional and local entities for investments in infrastructure projects (urban roads), rainwater drainage, and urban and rural sanitation.

On September 28, 2020, Supreme Decree N° 285-2020 was published in the Official Gazette. It granted the postponement or fractioning of tax debts that the user has with SUNAT.

On October 28, 2020, Emergency Decree N° 126-2020 was published in the Official Gazette. It established economic revitalization in order to close gaps in the populations in close proximity of petroleum projects in the region of Loreto, highways in Apurimac, Cusco and Arequipa, and the population that inhabits VRAEM zone, because of the public h ealth emergency due to COVID-19.

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On December 6, 2020, Supreme Decree N° 187-2020 was published in the Official Gazette. It established the extension of the Phase 4 of the economic reactivation as further described above under “COVID-19 Economic Plan’s Key Components”.

On March 31, 2021, Urgent Decree N° 034-2021 was published in the Official Gazette. It established the authorization for the payment to “Prestación Económica de Protección Social de Emergencia ante la Pandemia del Coronavirus COVID-19” (the COVID-19 Social Emergency Program) and the “Subsidio por Incapacidad Temporal para pacientes diagnosticados con COVID-19” (the COVID-19 Patient Aid Program) as well as using the remainders of financial transfers granted by the Minister of Labor and Promotion of Employment in favor of the Social Health Insurance.

On August 24, 2021 Urgent Decree N° 080-2021 was published in the Offical Gazette. It established, as an extraordinary measure, the subsidy of S/ 350 for each person of voting age in households in poverty or extreme poverty, or under certain poverty-related social programs.

Measures adopted by the Central Bank

Since the announcement of the State of Emergency at the national level to contain the expansion of COVID-19, Peru’s Central Bank (“BCRP”) has taken monetary and financial measures aimed at promoting the proper functioning of the markets. These measures include:

• Reduction of the reference interest rate between March and April, from 2.25 to 0.25 percent, its historical minimum.

• Reduction of the reserve rate in soles from 5% to 4% and of the reserve rate for obligations in dollars with terms of less than 2 years with foreign financial institutions from 50% to 9%.

• Reduction of the minimum current account requirement in soles of banks at the BCRP from 1.0% to 0.75%.

• Suspension of the additional reserve requirement associated with credit in dollars.

• Extension of the amounts and terms (up to 3 years) of securities and currency repo operations.

• Flexibility of credit portfolio reporting operations (includes factoring, entities rated up to B +, reduction to S/300,000 the minimum amount of guarantee).

• Flexibility of the window facility (elimination of the limit of operations that financial institutions had).

• New liquidity facilities: (i) credit reporting operations with a National Government Guarantee; (ii) reporting operations conditioned to the refinancing of the loan portfolio and (iii) the National Government Guarantee Program for the loan portfolio of companies in the financial system.

• Increase of the limits for additional reserve requirements in soles associated with the sale of exchange derivative instruments of banks.

• BCRP can make with AFPs repos of securities with sovereign bonds and direct purchase of foreign currency.

• Approval of a Flexible Credit Line offered by the International Monetary Fund (IMF) to the BCRP for an amount of up to U.S.$11,000 million and with a duration of two years, which is contingent.

• The auctions in the context of the second part of Reactiva Peru started on June 30, 2020.

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• An agreement of participation in the U.S. dollar liquidity provision program with the Federal Reserve of New York was entered into on July 17, 2020.

• On August 14, 2020, the Central Bank reached an agreement with Bank for International Settlements, for access to an uncommited collateralised credit facility.

Measures implemented by the Bank Superintendence

The Superintendence of Banking, Insurance and AFP has established a series of measures related to the financial, insurance, private pension and cooperative systems due to the health emergency that the country is experiencing due to the COVID-19 outbreak. These measures include:

• Authorization for financial institutions to adopt exceptional measures and to modify existing credit agreements or to reschedule maturities so that debtors can meet their payment obligations.

• Extension of the monetary limits allowed per operation (electronic transfers, conversion payments, among others) that will be carried out through electronic money accounts.

• Expansion of the limits of operations to be carried out through simplified electronic money accounts and basic accounts. A backup mechanism was also established for electronic money, temporary and substitute for the trust.

• Approval of procedures for optional extraordinary withdrawals of funds from the Private Pension System.

• Authorization so that the terms, as a result of rescheduling in the context of a state of emergency of revolving consumer loans and home mortgage loans, do not increase the weighting factor for the effective equity requirement for credit risk, with respect to the prevailing as of February 29, 2020. Likewise, financial institutions were empowered to use the additional effective equity accumulated by the economic cycle component.

• Exclusion from the calculation of provisions related to the risk of over-indebtedness of retail debtors and of additional provisions for credit exchange risk, to the part of the exposures that is covered by the guarantee of the Reactiva Peru program and the FAE-MYPE, when credit counterparty substitution is applied. Additionally, the limit that applies to the total coverage granted by the FAE-MYPE has been established, exceptionally, in fifty percent of the effective equity of the financial system companies, in favor of the same financial system company.

• Temporary suspension of the application of the limits of liquidity coverage ratios in national currency and in foreign currency.

• Extend the powers of credit unions not authorized to collect funds from the public (COOPAC) to establish exception measures so that debtors can comply with the payment of credits maintained with these entities.

• Extension of the period of the gradual schedule for the constitution of one hundred percent (100%) of the provisions required from 2022 to 2023. In addition, it modifies the gradual calendar for the adaptation of the global limit and the liquidity ratio, the gradual calendar of adaptation for the constitution of the cooperative reserve, among others.

• Regarding insurance policies, the term for the constitution of provisions in the event of non-payment of premiums is extended, being applicable the power to offset premiums pending payment by the contracting party and / or insured against the compensation due to the insured party or beneficiary of the Insurance.

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Measures adopted by Congress

Among the measures adopted by Congress stands out:

• On March 27, 2020, Law N° 31011 was published, which delegated to the Executive Power the power to legislate for the care of the health emergency produced by Covid-19, in matters such as health, fiscal and tax policy, investment promotion, citizen security and internal order, work and employment promotion, education, prevention and protection of people in vulnerable situations, goods and services for the population, protection of productive, extractive and service sectors, cultural promotion and tourism.

• On April 3, 2020, a plenary session of Congress approved new legislation that allows the suspension of the collection of tolls in all the Toll Collection Units of the national, regional and local road networks (Red Road) during the state of national emergency of the country. However, on August 25, 2020, the Constitutional Court (TC) decided to declare founded the unconstitutionality lawsuit against Law N° 31018, which suspends the collection of tolls during the state of health emergency.

• On April 3, 2020, Law N° 31016 was approved, which empowers the Comptroller’s Office to control the entities of the National Control System referred to in article 3 of Law N° 27785 that receive assigned public resources during the health emergency due to COVID-19; that is, in investment projects, acquisition of goods and services, works and in all activities and processes in which public resources are transferred without any limitation, applying simultaneous control under the following modalities: concurrent control, control visit and ex officio orientation.

• On May 1, 2020, Law N° 31017 was published in the Official Gazette, which established that members of the SPP can withdraw up to 25% of the total balance of their individual capitalization account (CIC), with a maximum amount equivalent to three Tax Units (UIT) (S/12,900) and a minimum amount equivalent to one UIT (S/4,300).

• On August 26, 2020, Law N° 31039 was published in the Official Gazette, establishing the automatic promotion for professional, technicians, administrative personnel among others in public healthcare for Ministry of Health, its public entities, regional governments and EsSalud. It was declared unconstutional by the Constitutional Court in December 2020.

• On August 29, 2020, Law N° 31040 was published in the Official Gazette, modifying the Penal Code and Protection and Defense of the Consumer Code, in order to regulate the prices of medicine and necessary products for health protection in the middle of the public health emergency.

• On October 8, 2020, Law N° 31050 was published in the Official Gazette which established extraordinary measures to reprogram or freeze debts in order to alleviate the situation of micro and small companies as a consequence of COVID-19.

• On November 27, 2020, the Superintendency of Banking, Insurance and AFP (SBS) issued Resolution N° 2979-2020, which set forth the regulatory framework for the operating procedure that allows pensioners of the private system to withdraw their funds in the amount of up to four Tax Units (“UIT”) (S/ 17,200) from their individual account, following the publication made in the Official Gazette “El Peruano” on November 18, 2020 of Law N° 31068 that authorizes extraordinary withdrawal of funds in the Private Pension System. The SBS resolution came into effect on December 9, 2020, allowing pensioners to submit their application until March 9, 2021.

• On November 30, 2020, Congress approved Law N° 31084, Public Sector Budget Law for fiscal year 2021. The executive branch’s proposal contemplates a budget of S/ 183,029 million for year 2021, including 142 projects prioritized by Congress in consensus with the Ministry of Economy and Finance.

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• On December 3, 2020, Congress approved by 111 in favor, seven against and one abstention the vote of confidence in favor of the Ministerial Cabinet chaired by Violeta Bermúdez.

• On December 3, 2020, Congress approved Law N° 31083 that authorized active and inactive contributors of the public system to withdraw of funds from the accounts of the Oficina de Normalizacion Previsional – ONP in the amount of up to one UIT equivalent to S/ 4,300 for one time and on an exceptional basis. The executive branch filed before the Constitutional Court an action to declare the law approved by Congress unconstitutional. Pursuant to the procedure, the Constitutional Court notified the filing of the suit to Congress, which submitted its response on January 25, 2021 and on February 4, 2021, the Constitutional Court unanimously declared the unconstitutionality of Law N° 31083.

• On December 11, 2020, Congress approved a bill that set forth provisions to eliminate discrimination in public sector employment, including the gradual elimination of the Administrative Contracting Services (contrato administrative de servicios, “CAS”) regime. CAS is a temporary modality of employment applicable only to the public sector, with reduced benefits in comparison to the general labor regime. The CAS regime does not involve the payment of CTS (Compensation for Length of Services), and involves reduced legal bonuses and severance payment. The initiative obtained 113 votes in favor, one against and seven abstentions. On January 14, 2021, the executive branch observed the bill, claiming that this initiative violated the constitutional mandate that establishes that the legislative branch does not have public spending powers and violated the objective of the Civil Service Regime. In March, 2021, however, Congress approved the bill that eliminated the CAS regime.

• On December 17, 2020, the Constitutional Court unanimously declared unconstitutional Law N° 31039 that allowed the automatic promotion of health sector personnel, a law that had been approved by Congress in August 2020. This law authorized the automatic promotion process exceptional for one year of service and included health care professionals, technicians and assistants who worked through CAS contracts with the Ministry of Health (Minsa).

• On December 19, 2020, by 94 votes in favor, six against and 15 abstentions, the Congress approved in a second vote amending Article 16 of the Political Constitution of Peru, so that the State annually invests in the education sector no less than 6% of the GDP. Law N° 31097 was published in the Official Gazette “El Peruano” on December 29, 2020. Although the executive branch has declared its intention to file an unconstitutionality action, the executive branch has not yet filed any action before the Constitutional Court in order to declare Law N° 31097 unconstitutional.

• On November 25, 2020, Congress approved a bill that repealed Emergency Decree N° 014-2020, which regulated general provisions necessary for collective bargaining in the public sector. The executive branch observed the abovementioned bill, indicating that although there was the right to collective bargaining, the Constitutional Court had already established that this kind of regulation needed to comply with the balanced budget rules. However, on January 21, 2021 the Congress approved Law N° 31114, which was published in the Official Gazette “El Peruano” on January 22, 2021. On February 2, 2021, the Ministry of Economy and Finance issued a statement in this regard indicating that the repeal of Emergency Decree N° 014-2020 implies that collective bargaining in the Public Sector is not possible since there is no applicable regulatory framework on which to negotiate.

• On December 30, 2020, Congress approved a bill that gave powers to the Central Bank to set caps on bank interest rates, which would imply a modification of Article 52 of the Organic Law of the Central Reserve Bank as it would grant this institution the power to set minimum and maximums rates every six months for the purpose of regulating the interest rate market. The bill adds that rates charged above the maximum will be considered usury, and classified as a crime, adding that the SBS will be in responsible for supervising the maximum rates, proceeding to sanction and report to the competent body the financial institutions that exceed this limit. The Executive observed the law on February 2, 2021 stating that “The application of interest rate caps is an extreme form of state intervention that, in addition to violating the antitrust principle, affects the information transmission mechanisms and tends to eliminate market incentives.” On February 20, 2021, the Congressional Commission for the Protection of Consumers has scheduled this bill for debate in Congress.

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• On January 3, 2021, in order to tackle and prevent tax evasion, the Executive published the Annex of the Supreme Decree N° 430-2020-EF, which contains the regulatory norms to Legislative Decree N° 1434, under which banks will have to deliver to SUNAT the financial information of customers and companies that have S/ 10,000 or more in their accounts. On January 26, 2021, by Supreme Decree N° 009-2021-MEF, the amount of bank accounts whose information banks must report was set at 7 Tax Units, equivalent to S/ 30,800. On January 28, 2021, the South Lima Bar Association filed before the Constitutional Court a lawsuit to declare Law N° 1434 unconstitutional. The Constitutional Court is currently reviewing the admissibility of such lawsuit.

• On January 7, 2021, Law N° 31112 was published in the Official Gazette “El Peruano” providing for control of mergers and business concentrations, which Congress had approved with 91 votes in favor, 11 against and 3 abstentions. However, this law is not yet in effect, and considering that its regulations and certain implementation rules have not been published yet, it will not become effective prior to March 1, 2021. As a result, on March 1, 2021, the earlier version of the Law (enacted by means of Emergency Decree N° 013-2019) will become effective until the regulations and implementation rules of Law N° 31112 are enacted. In contrast to a prior version of bill proposed by Congress, in the new law it is specified that in the case of business concentration operations that include companies in the financial sector that collect deposits from the public or insurance companies, which involved relevant and imminent risks, only SBS pre-merger control is required.

• On January 26, 2021, the Special Multiparty Commission in Charge of Evaluating, Designing and Proposing the Bill for the Comprehensive Reform of the Peruvian Pension System approved the draft bill titled “Framework Law of the Universal Integrated Pension System.” The main aspect of this proposed bill is that it would create a “Universal Integrated Pension System” comprising the Public Pension System, the Private Pension System and the assistance programs “Pension 65” and “Contigo”. This new “Universal Integrated Pension System” would be funded by two components: (i) a non-contributive universal component funded by public funds; and (ii) a contributive mandatory component funded by contributions from affiliates. The bill has not yet been considered by the Congress. On February 3, 2021, the debate on the second vote on the bill to reform Article 40 of the Constitution that would enable double formal employment of medical personnel hired by the Government due to the health emergency caused by COVID-19 was held and the bill was approved by Congress on February 4, 2021. Law 31122 was published on the Official Gazette “El Peruano” on February 10, 2021.

• On February 4, 2021, in a second vote the Congress passed a constitutional reform bill to amend the regulation of the parliamentary immunity established in Article 93 of the Constitution. The reform establishes that any indictment against a congressman for the commission of common crimes would be processed before the Supreme Court of Justice, instead of the Congress. The executive branch formalized the constitutional reform that eliminated parliamentary immunity on February 6, 2021, when Law 31118 was published.

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Selected Economic Information

(in millions of U.S. dollars, except as otherwise indicated)

	As of the Years ended December 31,
	20161)			2017(1)			2018(1)			2019(1)			20201)
Domestic economy
GDP (in millions of S/ at current prices)		655,759			698,244			740,817			770,520			715,497
Real GDP (in millions of S/ at constant 2007 prices)		501,581			514,215			534,665			546,161			485,474
Real GDP growth rate (in %)		4.0			2.5			4.0			2.2			(11.1	)
CPI (change for the period in %)		3.2			1.4			2.2			1.9			2.0
Unemployment rate (in %)(2)(11)		6.6			6.7			6.3			6.4			12.7
Unemployment rate (in %)(2)(12)		6.7			6.9			6.7			5.9			12.8
Underemployment rate (in %)(3)(12)		32.7			33.5			34.4			33.4			40.0
Balance of payments
Total current account		(5,064	)		(2,779	)		(3,915	)		(2,657	)		1,504
of which:
Trade balance		1,953			6,700			7,197			6,614			7,750
Total capital account		5,533			2,982			1,851			9,266			7,345
of which:
Foreign direct investment		5,583			6,360			6,831			7,115			478
Errors and omissions(4)		(300	)		1,426			(1,565	)		301			(3,288	)
Overall balance of payments(5)		168			1,629			(3,629	)		6,909			5,562
Change in Central Bank net international reserves (period end in %)		0.3	%		3.1	%		(5.5	)%		13.6	%		9.4	%
Central Bank net international reserves (period end)		61,686			63,621			60,121			68,316			74,707
Public sector balance
Central government revenue(6)		30,255			32,732			36,734			38,542			30,529
As a % of GDP		15.6	%		15.3	%		16.3	%		16.7	%		14.9	%
Central government expenditure(7)		32,527			37,055			38,469			40,556			46,682
As a % of GDP		16.7	%		17.3	%		17.1	%		17.6	%		22.8	%
Central government fiscal balance		(4,259	)		(6,681	)		(4,476	)		(4,928	)		(19,189	)
As a % of GDP		(2.2	)%		(3.1	)%		(2.0	)%		(2.1	)%		(9.4	)%
Overall non-financial public sector fiscal balance (deficit) (8)		(4,556	)		(6,423	)		(5,157	)		(3,715	)		(18,215	)
As a % of GDP		(2.3	)%		(3.0	)%		(2.3	)%		(1.6	)%		(8.9	)%
Public sector debt
Public sector external debt		23,762			22,710			22,977			22,554			32,455
As a % of GDP		12.2	%		10.6	%		10.2	%		9.8	%		15.9	%
Public sector domestic debt(9)		24,902			32,721			34,983			40,795			37,973
As a % of GDP		12.8	%		15.3	%		15.5	%		17.7	%		18.6	%
Total public sector debt		48,663			55,431			57,960			63,348			70,428
As a % of GDP		25.0	%		25.9	%		25.7	%		27.4	%		34.4	%
Public sector external debt service
Amortizations(9)		1,957			4,505			1,614			2,205			935
Interest payments(9)		1,033			1,121			1,152			1,170			1,150
Total external debt service		2,989			5,626			2,766			3,375			2,085
As a % of exports of goods and services(10)		6.7	%		10.4	%		4.8	%		5.9	%		4.4	%
Exchange rate (end of period, S/ per U.S.$)		S/3.36			S/3.25			S/3.38			S/3.32			3.62
Exchange rate (average, S/ per U.S.$)		S/3.38			S/3.26			S/3.29			S/3.34			3.50

(1) Preliminary data.

(2) In Metropolitan Lima. Percentage of the working-age population (14 years old or older) that, in the week the employment survey was conducted, was seeking remunerated employment.

(3) In Metropolitan Lima. Percentage of the working-age population (14 years old or older) working part time who would prefer to work more hours, plus the percentage of the working-age population that usually works full time but which, in the week the employment survey was conducted, worked fewer than 35 hours per week as a result of economic constraints.

(4) Represents errors and omissions in compiling balance of payments accounts based on double-entry accounting resulting from incomplete or overlapping coverage, different prices and incomplete times of recording and conversion practices.

(5) Includes current account balance, financial account and errors and omissions.

(6) Excludes privatization receipts.

(7) Includes interest payments.

(8) Includes the non-financial public sector and the Central Bank.

(9) Excludes Central Bank debt.

(10) Includes exports of goods and services and investment income.

(11) Source: Ministry of Labor

(12) Source: National Institute of Statistics.

N.A. = Not Available

Source: Central Bank, unless otherwise indicated.

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RISK FACTORS

This section describes certain risks associated with investing in Peru’s securities. You should consult your financial and legal advisors about the risk of investing in Peru’s securities. Peru disclaims any responsibility for advising you on these matters.

Peru may experience political, economic or social problems that may interfere with Peru’s ability to service its indebtedness.

In the past, Peru has experienced economic and political instability and terrorist insurgency. At present, Peru is a stable democracy having completed a peaceful transition from the administration of President Humala to President Kuczynski, who took office in July 2016, in addition to the prior transition to President Humala by President García. President Kuczynski was in office through March 23, 2018, when Congress accepted his resignation following allegations of corruption related to the Odebrecht corruption scandal. On that same date, Vice President Vizcarra was sworn in as president to complete the term through 2021. After President Vizcarra stepped down in November 2020, there was a short period of turmoil that it was resolved after interim President Merino resigned and President Sagasti took office. President Sagasti remained president until July 2021, when President Castillo took office.

President Castillo is a left wing politician who campaigned on improving education and empowering Peruvian citizens, with a focus on rural and provincial communities. He faces political opposition in Congress. The legislative opposition planned to impeach Chancellor Bejar on his previous comments on the army and terrorist groups, and was forced to resign on August 6, 2021, followed by Oscar Maurtua. The Minister of Labor, Iber Maravi, and the prime minister, Guido Bellido, were also to be impeached (Maravi based on alleged ties with terrorist group Shining Path and Bellido on comments for the nationalization of Camisea –a gas consortium integrated by Argentine, Spanish and US companies). Following this events, President Castillo asked the prime minister for his resignation on October 6, 2021, along with other members of the cabinet. The new and current composition of ministers is headed by Mirtha Vasquez, who served as the former president of Congress during President Sagasti’s tenure.’

During 2020, the social distancing and restriction measures due to COVID-19 strongly impacted the economy, particularly in the first half of the year. As the COVID-19 Economic Plan has been implemented, the economy has shown signs of recovery.

Peru’s GDP growth rates, low inflation, and both fiscal and external surpluses reflect, in part, the strength of Peru’s economic fundamentals. However, a deterioration of the global economy or a sharp decrease in commodity prices may adversely affect Peru’s economy. In addition, an economic contraction or weak economic growth in Peru’s trading partners may have an adverse effect on Peru. Despite Peru’s ongoing economic growth and stabilization, the social and political tensions and levels of poverty and unemployment continue, notwithstanding the 38.0% drop in poverty levels between 2004 and 2016. Future government policies to pre-empt or respond to social unrest could include, among other things, the suspension of the enforcement of creditors’ rights and new taxation policies. The government cannot assure you that Peru will not face political, economic or social problems in the future or that these problems will not interfere with Peru’s ability to service its debt.

Furthermore, some of the measures proposed by the administration may generate political and social opposition, which may in turn prevent the government from adopting such measures as proposed. This creates further uncertainty in the ability of the administration to pass measures that it expects to implement. See “Recent Developments—History”.

In addition, economic and political developments in other emerging countries in Latin America, such as Argentina, Bolivia, Brazil, Ecuador, Colombia and Venezuela may have an adverse effect on other countries in the region, including Peru.

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Public health crises and epidemics/pandemics, such as the novel COVID-19 virus may materially adversely affect Peru’s economy.

The Government is deploying various economic and public health measures to address the pandemic caused by the novel COVID-19 virus. These measures are part of an economic stimulus plan that includes tax incentives among other tools intended to address the immediate impacts of the national state of emergency invoked by the Government to attempt to contain spread of the virus and lessen the strain on the health care system and the impact on the overall economy. The Ministry of Economy and Finance (MEF), the Central Reserve Bank of Peru (BCRP), the Superintendency of Banking, Insurance and AFPs (SBS), as well as other government entities have adopted specific measures to provide economic support to segments of the population, such as vulnerable population and small enterprises, which are most at risk in this crisis. See “Government measures in the face of the COVID-19 pandemic”.

The COVID-19 pandemic has had a material adverse impact on the Peruvian economy resulting in lower prices for primary goods, volatility in the financial markets, reduced international trade and lower activity in certain of the key drivers of the local economy. In addition, social distancing and stay-at-home quarantine measures imposed to minimize pressure on the healthcare system and contain social costs, are adversely affecting dynamism of various productive sectors of the economy. Reduced activity in these economic sectors has resulted in reduced employment and less income for families and companies. COVID-19 has generated a simultaneous shock on supply and demand – a supply shock resulting from the abrupt paralysis of production in multiple sectors and on demand as a result of reduced consumption – which amplifies the negative effects on the economy.

Both the primary and secondary sectors of the Peruvian economy have been affected, among the most impacted being: (i) tourism, restaurants and travel agencies, (ii) transportation, warehousing and messengers and (iii) art and entertainment, in particular because of the suspension of group activities and self-isolation/social distancing mandates. As a result, the Government has implemented a plan to counteract the effects of COVID-19, targeted at minimizing the adverse impacts on the population and on economic activity. See “Recent Developments.”

The COVID-19 pandemic had political consequences, since former President Vizcarra’s administration failed to acquire vaccines before his removal from office. Former President Vizcarra accused Congress of causing the delay in the sanitary registration of the vaccines. It was later revealed that former President Vizcarra and some of his ministers were also vaccinated in private, even after they publicly denied it.

In the face of the crisis, Peru has committed to dedicate significant resources to strengthening the public health system. Social support to the neediest families was approved to provide a public safety net to soften the brunt of the consequences of the virus on Peru’s most vulnerable citizens. Over the long-term, the Republic cannot assure you that the measures adopted to counteract the effects of the virus will be sufficient to restore public confidence or to restore economic growth.

Peru is a foreign sovereign state and accordingly it may be difficult to obtain or enforce judgments against it.

Peru is a foreign sovereign state. Any securities issued by Peru are subject to its law and jurisdiction and, as such, investors may not be able to effect service of process within their own jurisdiction upon Peru or to enforce against Peru judgments related to securities obtained in their own jurisdictions.

Corruption may hinder the growth of the Peruvian economy, and ongoing high profile corruption investigations in Peru may affect the perception of Peru and its ability to access financing in the international markets.

Peruvian authorities are currently conducting several high-profile corruption investigations relating to the activities of certain Brazilian companies in the construction sector, which have resulted in suspension or delay of important infrastructure projects, which were otherwise operational and permitted. For example, of the following six key projects, the Gasoducto Sur Peruano, IIRSA Sur Tramo 2 y 3, Chavimochic III, IIRSA Norte, Vías Nuevas de Lima and Obras de Trasvase de Proyecto Olmos projects, which collectively represented 5.0% of GDP in 2016, Gasoducto has been suspended, Olmos has resumed operations, and the other projects remain operational, although the overall delay relating to such projects has nevertheless resulted in a drop in GDP growth and overall infrastructure investment.

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The Government has made efforts to expedite the licensing of these stalled projects. For example, it requested that Odebrecht S.A. (“Odebrecht”), a prominent Brazilian construction company that was awarded the Obras de Trasvase de Proyecto Olmos contract and later found guilty of bribing Government officials, to sell its shares in the project. In addition, the Government has authorized the auction of Gasoducto Sur Peruano, which could be finalized by year end. The Government is also adopting legislation that aims to protect new investors and revising the language of Government infrastructure contracts to include mandatory anticorruption clauses. In February 2017, the Government issued Emergency Decree (Decreto de Urgencia) N° 003-2017 in an effort to approve measures that ensure the continuity of infrastructure works and that Government officials exercise caution when making payments in respect of stalled projects. In addition, on March 25, 2019, Peru’s Special Prosecution Group for the Lava Jato related investigations delivered to the Judiciary the effective collaboration agreement entered into with Odebrecht. This agreement will allow the delivery of evidence and testimony for investigations in four cases in which Odebrecht admits bribery acts of Peruvian officials. Furthermore, the agreement also establishes the payment of the civil compensation in favor of Peru, which was estimated at approximately U.S.$225.1 million, including accrued interest.

Nevertheless, the potential outcome of such investigations, or any other potential high profile corruption proceeding, on the relevant companies, projects involved or Government officials is uncertain. The Republic cannot predict how long these or other corruption investigations may continue or whether new allegations against Government officials or other companies with operations in Peru will arise in the future.

Recently, former politicians involved in corruption-related matters have come under national attention. On October 31, 2018, the Judiciary ordered Keiko Fujimori to spend three years in jail, as a preventive measure, while prosecutors investigate claims regarding her party’s campaign donations. In addition, on April 17, 2019, during the course of the preliminary house detention, former President Garcia committed suicide. Furthermore, on April 23, 2019, the Judiciary ordered 36 months of preventive detention for former President Kuczynski during the preparatory investigation in connection with allegations of his involvement in money laundering in respect of the Odebrecht case. Former President Humala and his wife also had problems with justice; the prosecutor asked 26 years for Nadine Heredia and 20 for Ollanta Humala.

Another emblematic case is The White Collar of the Port case (“Caso Los Cuellos Blancos del Puerto”) with more 334 lawyers (seemingly 151 judges and 183 prosecutors) involved in corruption cases and ties with politicians.

Allegations of or concerns about corruption activity, or actual or alleged violations of applicable anti-corruption, anti-bribery or anti-money laundering laws by Governmental authorities, could materially and adversely impact the Republic’s reputation, ability to attract foreign investment and access to international financing, any or all of which could have a material adverse effect on the Republic’s economic growth and its ability to make payments on its debt obligations.

Extreme weather conditions and natural disasters could adversely affect Peru and its financial condition.

The Republic of Peru is located in western South America and has regions facing the Pacific Ocean and the equator, which may be affected by meteorological events and extreme weather conditions from time to time. In particular, Peru’s central coast is occasionally affected by an atmospheric phenomenon known as El Niño, which has in the past resulted in and may in the future result in severe flooding and mudslides. El Niño has the potential to cause extensive physical and economic damage. In early 2017, El Niño adversely affected agricultural production, transportation services, tourism and commercial activity, caused widespread damage to infrastructure and displaced people and is expected to result in a 1.2% drop in GDP in 2017 relative to 2016 figures. A meteorological catastrophe, other extreme weather event or other natural disaster could, among other things, limit access to, damage or destroy one or more of the Government’s properties or parts of its infrastructure, including roads and bridges. A catastrophe or other extreme weather event may also result in disruption to the local economy, and may cause labor, fuel and other resource shortages, any or all of which could have a material adverse effect on the Republic’s economic growth and its ability to make payments on its debt obligations.

On May 26, 2019, an earthquake of 8.0 magnitude struck a remote part of the Amazon in Peru, resulting in collapsed buildings, certain power failures and two reported deaths. This is the strongest earthquake in Peru since an earthquake of similar magnitude struck near Lima in 2007. The May 26, 2019 earthquake led to a U.S.$60.0 million partial payout of 30% of the principal on the IBRD CAR 120 Peru earthquake catastrophe bond on July 15, 2019.

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There can be no assurances that Peru’s credit rating will improve, remain stable, not be downgraded, suspended or cancelled by the rating agencies.

Peru’s current long-term debt credit ratings are investment grade. They indicate that the Republic’s long-term debt securities are considered to have moderate credit risk.

On November 24, 2020, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru; the outlook remained stable.

On December 15, 2020, Fitch reaffirmed Peru’s long term foreign currency issuer default rating at BBB+ but changed the outlook from stable to negative.

On May 21, 2021, Moody’s Investors Service reaffirmed its A3 foreign currency long-term issuer ratings on Peru but changed the outlook from stable to negative.

On September 1, 2021, Moody’s Investors Service downgraded Peru’s rating to “Baa1”, from A3, upgrading the outlook from negative to stable.

On October 14, 2021, Fitch downgraded Peru’s long term foreign currency issuer default rating to BBB from BBB+, upgrading the outlook from negative to stable.

On October 15, 2021, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru; but changed the outlook from stable to negative.

Ratings address our creditworthiness and the likelihood that we will pay our long-term bonds in a timely manner. Peru’s credit ratings may not continue to improve and adversely affect the trading price of Peru’s debt securities, which could potentially affect Peru’s cost of funds in the international capital markets and the liquidity of and demand for Peru’s debt securities. Ratings are not a recommendation to purchase, hold or sell securities and may be changed, suspended or withdrawn at any time.

Peru’s current ratings and the rating outlooks currently assigned to it are dependent upon economic conditions and other factors affecting credit risk that are outside the control of Peru. There can be no assurances that such credit ratings will be maintained for a certain period of time or that such credit rating will not be downgraded, suspended or cancelled upon the credit ratings agencies’ consideration or if circumstances will so require. Each rating should be evaluated independently of the others. Detailed explanations of the ratings may be obtained from the rating agencies. Any credit rating downgrade, suspension or cancellation may have an adverse effect on the market price and the negotiation of debt securities.

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THE REPUBLIC OF PERU

Territory and Population

The Republic of Peru is located in western South America. It borders Ecuador and Colombia to the north, Brazil and Bolivia to the east and Chile to the south. Its territory covers an area of approximately 496,222 square miles, including a 1,500 mile-long Pacific Ocean coastline and a 200 mile-wide maritime zone. Peru’s major cities are Lima, the nation’s capital, Arequipa, Trujillo, Chiclayo, Iquitos, Piura, Chimbote and Cuzco.

Peru is divided by the Andes Mountains into three geographic regions: a narrow strip of desert along the western coast; a central region of high mountains that form part of the Andes; and a large, heavily forested area leading to the Amazonian plains in the east. Peru’s climate varies significantly by region, from tropical rain forests in the east and a dry desert in the west, to temperate and frigid regions in the mountainous central part of the country. The Andes rise over 20,000 feet and contain large plateaus and extensive valleys. Lima and other major cities, such as Trujillo and Chiclayo, are located along the coast. The map below shows Peru, its territorial subdivisions and bordering countries.

Peru’s central coast is occasionally affected by an atmospheric phenomenon known as El Niño, which raises the temperature of the superficial coastal waters, causing an increase in air temperature, a decrease in atmospheric pressure along the coast and an increase in the sea level along the Peruvian coastline. These conditions produce increased rainfall along the northern coast, which may result in severe flooding and mudslides. In 1998, the warm waters caused by El Niño disrupted Peru’s fishing and agricultural industries as marine life migrated to deeper, colder waters, crops were destroyed by flooding and elevated temperatures along the coast gave rise to new crop pests and plagues. The flooding caused approximately U.S.$1.2 billion in damage to Peru’s infrastructure. El Niño happens on average every six years; however, the timing of each recurrence, its length and its severity cannot be predicted.

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During the period from 2015-2016, El Niño reached its maximum “anomaly” (a metric that contemplates the difference between recorded and historic temperatures), which, in December 2015, was categorized as strong. Thereafter, during the second half of January 2017, surface temperatures of the ocean off the coast of Paita (located in the Piura region of Peru) steadily increased, leading the Government to announce the increased possibility that El Niño would occur that year.

The El Niño Costero phenomenon originates in the ocean from Ecuador to the south of Peru when atypical atmospheric conditions cause a sudden increase in water temperature. In 2017, Peru experienced one of the worst El Niño Costero’s in over 50 years, which resulted in much higher rainfall than during the period from 2015-2016, affecting over 1,100,000 persons, including resulting in the displacement of over 230,000 persons, 143 deaths, the collapse of 25,700 homes and rendering 23,280 uninhabitable.

Peru’s southern region is located on seismic faults, which makes the area susceptible to earthquakes. In June and July 2001, two earthquakes of 8.4 and 7.6 magnitude on the Richter scale, respectively, struck along the coast of south-central Peru, causing an estimated U.S.$300 million in damage. The same area was hit with 8.0 magnitude earthquake in August 2007, which killed approximately 600 people, injured approximately 1,800 people, destroyed approximately 76,000 homes and caused damages estimated at over U.S.$230 million. On May 26, 2019, an earthquake of 8.0 magnitude struck a remote part of the Amazon in Peru, resulting in collapsed buildings, certain power failures and two reported deaths. This is the strongest earthquake in Peru since an earthquake of similar magnitude struck near Lima in 2007.

On May 26, 2019, an earthquake of 8.0 magnitude struck a remote part of the Amazon in Peru, resulting in collapsed buildings, certain power failures and two reported deaths. This is the strongest earthquake in Peru since an earthquake of similar magnitude struck near Lima in 2007. The May 26, 2019 earthquake led to a U.S.$60.0 million partial payout of 30% of the principal on the IBRD CAR 120 Peru earthquake catastrophe bond on July 15, 2019.

Peru’s population, estimated to be approximately 32.6 million as of June 30, 2020 is multi-racial and multi-cultural, registering a population increase of 1.4 million or 4.45% compared to 2017, the date of the prior census. The population consists of a mix of Mestizo, native, Caucasian, African and Asian descendants. Spanish, Quechua and Aymara are Peru’s official languages. According to the latest census, 9.5 million people reside in Lima, 1.9 million people reside in Piura, 1.8 million people reside in La Libertad, 1.4 million people reside in Arequipa, and 1.3 million people reside in Cajamarca, with the least densely populated area of Peru being Madre de Dios, with 0.14 million people.

According to the 2017 census, 65.2% of the population was 15 to 64 years of age, 50.8% was female and 49.2% male. During 2017, an average of 96.1% of children from six to 11 years of age attended school, while average attendance for children 12 to 16 years of age was 91.3%. The average years of education reached 10 years for the Spanish-speaking population.

As of December 31, 2020, there were 92 licensed universities in Peru, of which 46 are public universities and 46 are private universities. The Universidad Nacional Mayor de San Marcos was founded in 1551 and is the oldest university in South America. As of the date of this report, there are nine licensed public universities in the municipality of Lima.

The World Bank classifies Peru as an upper-middle-income developing country. The following table provides comparative per capita GDP figures and other selected comparative statistics as of the years indicated.

	Bolivia			Ecuador			Peru			Colombia			Brazil			Venezuela		Argentina			Chile			United States
Per capita GDP(1) (in U.S. dollars)		8,367			10,896			11,879			14,565			14,836			N.A.		20,768			25,068			63,544
United Nations index of human development (world ranking)(2)		107			86			79			83			84			N.A.		46			43			17
Life expectancy at birth female (in years)(2)		75			80			80			80			79			N.A.		80			82			81
Life expectancy at birth male (in years)(2)		69			74			74			75			74			N.A.		73			78			76
Infant mortality (per 1,000 live births; Under-five)(2)		27			14			11			14			14			N.A.		10			7			7
Adult illiteracy rate(3)		8	%		7	%		6	%		5	%		7	%		N.A.		1	%		4	%		N.A.
Population below the poverty line(4)		34.6	%		25	%		20.5	%		27.0	%		N.A.			N.A.		N.A.			N.A.			N.A.

(1) 2020 data.

(2) 2019 data.

(3) Data refers to most recent year between 2015 and 2018, when available. Adults are aged 15 years and older.

(4) 2019 data. The poverty line is defined as the population living on a daily per capita income of U.S.$1.00 or less.

N.A. = Not Available.

Sources: World Bank, United Nations Development Program, and 2018 Human Development Report.

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History, Government and Political Parties

History

Beginning in the ninth millennium B.C., several developed cultures began to settle in Peru, including the Chavín, Sechín, Chimú, Mochica, Paracas, Nazca, Tiahuanaco and Wari. In the 12^th century A.D., the Quechua-speaking Inca settled around the Cuzco Valley. By the time the Spanish arrived in 1531, the Inca had created an empire that encompassed areas of modern Peru, Ecuador, Bolivia and Colombia. In 1533, the Spanish captured the Inca capital at Cuzco and by 1542 had consolidated their control over the entire Inca territory. In 1542, the Spanish established the viceroyalty of Lima, which governed vast portions of Spanish territorial possessions in South America.

Peru remained under Spanish rule until 1821, when José de San Martín proclaimed Peru’s independence, although the Spanish were not defeated until 1824. In the first two decades of the post-independence era, political fragmentation and instability plagued Peru, and it was ruled by at least 24 regimes between 1821 and 1845. During this period, Peru’s constitution was rewritten six times. In the 1840s, Peru initiated a period of extraordinary economic growth driven by the exportation of guano, a form of fertilizer obtained from the droppings of birds in the Chincha Islands.

In 1879, Peru allied itself with Bolivia to fight an unsuccessful war against Chile over the disputed nitrate-rich Atacama Desert. This war, known as the War of the Pacific, ended in 1883 with the signing of the Treaty of Ancón, in which Peru ceded to Chile in perpetuity the nitrate-rich province of Tarapacá and relinquished, for a period of 10 years, the provinces of Tacna and Arica. Tensions over these two provinces continued until 1929, when the United States brokered a deal that returned the province of Tacna to Peru but allowed Chile to retain control over the province of Arica.

From 1895 to 1914, Peru experienced political stability and economic growth. In 1914, Colonel Oscar R. Benavides (1914-15, 1933-39) orchestrated a military coup that ended almost two decades of uninterrupted civilian rule. In the early stages of World War I, Peru experienced a recession as the war temporarily isolated Peru from its export markets. When overseas trade resumed, demand for Peru’s export products increased dramatically and Peru suffered through a period of sustained inflation. This inflation had a particularly negative impact on Lima’s working classes and led to a wave of labor strikes in 1918 and 1919.

In 1919, Augusto B. Leguía (1908-12, 1919-30) began an 11-year rule known as the oncenio and created a new, progressive constitution, adopted in 1920, that enhanced the power of the state to carry out a number of popular social and economic reforms. The regime weathered a brief postwar recession and then generated considerable economic growth by opening Peru to foreign loans and investment. Leguía’s popularity waned, however, as a result of a border dispute with Colombia involving territory in the rubber-tapping region between the Río Caquetá and the northern watershed of the Río Napo. Under the U.S.-brokered Salomón-Lozano Treaty of March 1922, the Río Putumayo was established as the boundary between Colombia and Peru.

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During the 1930s, a popular movement, with origins in Mexico, known as the Alianza Popular Revolucionaria Americana, or American Popular Revolutionary Alliance, or APRA, spread to Peru under the leadership of Víctor Raúl Haya de la Torre. This continent-wide popular alliance quickly became a prominent center-left political party in Peru and a strong antagonist to Peru’s armed forces. In the presidential election of 1931, Luis Sánchez-Cerro (1931-33) defeated APRA’s Haya de la Torre, who accused Sánchez-Cerro of fraud.

Despite the political turmoil, Peru’s economy was one of the least affected by the Great Depression because of its relatively diversified range of exports, led by cotton, lead and zinc. Unlike many other Latin American countries that adopted import-substitution industrialization measures to counteract the effects of the Great Depression, Peru made relatively few alterations to its long-term model of export-oriented growth.

In 1939, Manuel Prado y Ugarteche (1939-45), a Lima banker from a prominent family and son of a former president, was elected president. He was soon confronted with a border conflict with Ecuador that led to a brief war in 1941. The conflict dated back to the post-independence period. Following independence, Ecuador had been left without access to either the Amazon River or the Río Marañón, the region’s other major waterway, and thus without direct access to the Atlantic Ocean. In an effort to assert its territorial claims in a region near the Río Marañón in the Amazon Basin, Ecuador’s military occupied the town of Zarumilla along its southwestern border with Peru. The Peruvian army responded and defeated the Ecuadorian army. For a discussion of Peru’s relations with Ecuador, see “—Foreign Policy and Membership in International and Regional Organizations––Relations with Ecuador.”

During the 1950s and 1960s, Peru experienced export-led growth and increased national and foreign investment. During this time, many peasants migrated to the coast, the center of Peru’s economic growth. As a result of heavy migration, the population of metropolitan Lima increased from approximately 100,000 in 1940 to over 1.6 million in 1961.

In 1968, Peru returned to military rule when General Juan Velasco Alvarado (1968-1975) overthrew elected President Belaúnde Terry of Acción Popular, or AP. Velasco implemented an extensive program of agrarian reform and nationalized the fishmeal and oil industries, several banks and petroleum and mining companies. General Francisco Morales-Bermúdez Cerruti replaced Velasco in 1975. He presided over the transition to civilian rule and the adoption of a new constitution in 1979.

In 1980, voters reelected Belaúnde in the first popular elections since 1968. Belaúnde attempted to cut government spending and dismantle many of the military government’s populist reforms. Soaring inflation and unemployment, however, made it difficult to curb public spending. At the same time, Belaúnde’s government was destabilized by the rise of subversive movements.

The Sendero Luminoso, or Shining Path, was founded in 1970 as an offshoot of the Peruvian Communist Party. The group espoused a Maoist ideology and initiated terrorist activities in 1980 as a means of overthrowing the Government. The Movimiento Revolucionario Túpac Amaru, or Tupac Amaru, was founded in 1984 as a radical leftist organization that promoted communal ownership of property and advocated an armed struggle against capitalism. These two groups took advantage of mounting social unrest produced by 12 years of military rule and growing class consciousness among indigenous communities to recruit members. They raised funds by establishing a financial alliance with drug traffickers and protecting expanding coca fields. Drawing on these funds, the Shining Path and Tupac Amaru waged a guerrilla war against the Government and engaged in rural terrorism.

Alan García Pérez of the APRA party was elected president in 1985. The first García administration was plagued by terrorist activity from the Shining Path and Tupac Amaru and by allegations of corruption. President García pursued a populist agenda, financed by substantial increases in government spending that led to a record 7,650% inflation rate in 1990. President García attempted to nationalize the banking system and limited Peru’s debt service payments to no more than 10% of total exports. In response, international creditors refused to extend new credit to Peru. During the first García administration, GDP contracted by 20.0% from levels in the early 1980s.

In 1990, voters elected Alberto Fujimori of the Cambio 90 party as president. President Fujimori implemented a comprehensive neo-liberal economic program based on fiscal discipline, a stable monetary policy and aggressive privatization of state-owned industries. These initiatives succeeded in curbing inflation, reducing public external debt and fostering economic growth. For a discussion of Fujimori’s economic policies, see “The Economy—History and Background” below.

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President Fujimori also launched a successful campaign against the terrorist activities of the Shining Path and Tupac Amaru. In September 1992, the police captured the Shining Path’s founder, Abimael Guzmán, and its other principal leaders. In 1997, Peruvian armed forces killed several Tupac Amaru leaders, including its principal leader, Néstor Cerpa Cartolini, in a rescue operation to free hostages being held by Tupac Amaru at the Japanese Embassy in Lima.

In 1995, Peru and Ecuador fought a brief war over a disputed area on their shared border. This dispute dated to the Protocolo de Río de Janeiro of 1942, or Rio de Janeiro Protocol, a treaty between Peru and Ecuador signed after the brief war these countries fought in 1941. The dispute was finally settled in 1998. For a description of this dispute and Peru’s relations with Ecuador, see “Foreign Policy and Membership in International and Regional Organizations—Relations with Ecuador” below.

President Fujimori’s harsh governing style created significant congressional opposition. On April 5, 1992, President Fujimori dissolved Congress and, in November 1992, called for the election of a constitutional congress, which adopted a new constitution in 1993. The 1993 Constitution gave the President authority to issue emergency decrees relating to economic and financial matters, if those decrees are in the national interest and do not relate to tax matters. Emergency decrees have the force of law and do not require previous legislative approval, although Congress may subsequently modify or derogate those decrees. Under the 1993 Constitution, Congress may censure or obtain a no-confidence resolution against the President’s Consejo de Ministros, or Council of Ministers, forcing their removal. The 1993 Constitution bars the President from dissolving Congress during the last year of the President’s term in office. In addition, the 1993 Constitution allowed sitting presidents to stand for re-election to two consecutive terms, which was prohibited under the 1979 Constitution. President Fujimori was reelected for a second term in 1995 by a significant percentage of voters.

Following the dissolution of Congress in 1992 and the adoption of the 1993 Constitution, President Fujimori centralized power in the executive branch, thus undermining legal mechanisms of accountability, strengthened the powers of the military and intelligence service thereby compromising the autonomy of the legislative and judicial branches, and curtailed freedom of the press. These measures debilitated Peru’s political system, fostered widespread political corruption and, in the later years of President Fujimori’s administration, undermined the success of his economic program.

Although the 1993 Constitution allowed presidents to serve for only two consecutive terms, in August 1996 Congress passed an interpretative law clarifying that this limit applied only to presidential terms beginning after 1993. In December 1996, the Constitutional Tribunal, with the vote of three members, with four justices abstaining, ruled that the 1996 interpretative law did not apply to President Fujimori. In May 1997, Congress removed the three justices who voted in favor of this ruling on the basis that they had exceeded their authority by attempting to issue a binding opinion with the vote of only a minority of the Constitutional Tribunal’s members. The president of the Constitutional Tribunal later resigned in protest over Congress’ action. On July 28, 2000, Fujimori began a controversial third term as president amid allegations of electoral fraud.

In September 2000, a bribery scandal involving Vladimiro Montesinos, a former army captain and lawyer who became an advisor to Peru’s intelligence agency and a close ally of President Fujimori, prompted charges of political corruption within the Fujimori administration. President Fujimori responded to the increased criticism and mounting protests by calling for new presidential elections to be held in April 2001. He also announced that he would not seek reelection. Weeks later, however, the growing investigation into corruption charges and condemnation of Montesinos and his ties to the President led President Fujimori to resign while on an international presidential trip but the Peruvian Congress refused to accept Fujimori’s resignation. Instead, Congress removed President Fujimori from office, declared the post of Chief of State vacant due to moral incapacity and barred him from holding any Peruvian public office for ten years.

Fearing prosecution and claiming that he could not be tried in Peru because of his Japanese citizenship, President Fujimori refused to return to Peru. Under the 1993 Constitution, the First Vice President was next in line for the presidency, but Peru’s First Vice President had resigned in October 2000 in protest of Montesinos’ influence within the Fujimori administration. The Second Vice President also resigned following President Fujimori’s removal as a result of his connection to Fujimori and pressure by opposition congressmen. Under the 1993 Constitution, executive authority shifted to Valentín Paniagua Corazao, the president of Congress, who became president on November 22, 2000.

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Presidential and congressional elections were held on April 8, 2001. In the presidential contest, Alejandro Toledo Manrique of the Perú Posible party obtained 36.5% of the vote, former President Alan García Pérez of the APRA obtained 25.8% of the vote and Lourdes Flores Nano of the Unidad Nacional party, or UN, obtained 24.3% of the vote. In June 2001, Toledo won the presidency in a runoff election against Alan García, receiving 53.1% of the vote to García’s 46.9%.

On August 27, 2001, Congress voted to remove President Fujimori’s presidential immunity. On September 5, 2001, Peru’s Attorney General formally charged Fujimori with the murder of 15 people in 1991 and the forced disappearance and murder of nine students and a professor in 1992. Since 2000, Congress had, on seven separate occasions, approved charges against President Fujimori, including for embezzlement and murder. In July 2003, the Government presented a formal extradition request to the Japanese government for President Fujimori, based on these criminal charges. The Japanese government rejected the request because Peru and Japan do not have an extradition treaty and President Fujimori, the son of Japanese immigrants, was protected from extradition by virtue of his Japanese citizenship. On October 15, 2004, Peru made a second request for extradition based on forgery and embezzlement charges. Japan tabled its consideration of this request. By March 2005, the extradition requests to the Japanese government had stalled.

On November 6, 2005, President Fujimori arrived in Chile, where he was arrested and subjected to an extradition process at the request of the Government. After 34 months in Chile, President Fujimori was extradited to Peru in September 2007 to face criminal charges in seven separate criminal proceedings. In December 2008, he was sentenced to a six-year term in prison for the illegal search and seizure of his former intelligence advisor’s home. In December 2009, the sentence was confirmed by an appellate court. In April 2009, President Fujimori was sentenced to a 25-year term in prison for the massacres at La Cantuta and Barrios Altos, both in 1991, and the abductions of a journalist and businessman. In January 2010, the sentence was affirmed. In July 2009, President Fujimori was sentenced to a term in prison of seven-and- a-half years for embezzlement charges, in connection with a U.S.$15.0 million “severance” payment to then-intelligence chief Vladimiro Montesinos. In September 2009, President Fujimori was sentenced to an additional six-year term in prison for illegal wiretaps and bribing congressmen and journalists.

In June 2001, Alejandro Toledo Manrique was elected president based on a platform that recognized the value of an open economic system and rejected Fujimori’s legacy of political coercion and financial misdealing. Despite the economic achievements between 1990 and 2000, poverty remained a persistent problem in Peru. More than half of the population lived below the poverty line, as defined by the World Bank, adjusted to reflect differences in purchasing power. A significant number of Peruvians continued to live on a monthly income of less than U.S.$30.00.

President Toledo implemented a number of measures designed to stimulate Peru’s economy, including privatization and fiscal austerity programs. President Toledo’s policies spurred sustained economic growth since the fourth quarter of 2001. Despite this economic growth, the Toledo administration saw a drop in approval ratings and faced ongoing social protests and unrest spurred by disappointment that President Toledo’s policies had not immediately led to a significant reduction in the high rates of unemployment, underemployment and poverty, and spurred by political scandals.

Under President Toledo, Peru had one of the best-performing economies in Latin America attributable to the growth in the mining and export sectors; however, major challenges remained as the Government faced strong social pressures to reduce poverty and unemployment levels.

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Presidential elections were held on April 9, 2006. In the first round of elections, Ollanta Humala obtained 3.78 million votes (30.6%), Alan García of the APRA party obtained 3.0 million votes (24.3%), Lourdes Flores of the UN coalition obtained 2.9 million votes (23.8%), Martha Chávez of the pro-Fujimori alliance or Alianza Por El Futuro party obtained 912,000 votes (7.4%) and Valentín Paniagua obtained 706,000 votes (5.8%). Keiko Fujimori, President Fujimori’s daughter, obtained the highest number of votes for congress. Since no single presidential candidate obtained a majority of the votes, a run-off election was held on June 4, 2006 between Ollanta Humala and Alan García, in which García was elected for a five-year term, sixteen years after his first administration (1985-90). On July 28, 2006, Alan García was sworn in as the new president of Peru after winning approximately 53% of the nationwide vote in the run-off election held on June 4, 2006. During García’s administration, Peru’s economy experienced consistent and sustained growth, increased employment levels and reduced poverty levels, principally due to an increase in public and private investments.

On June 5, 2011, Ollanta Humala, the leader of the political party Gana Perú, was elected president for a five-year term after winning a run-off election against Keiko Fujimori. While the election of President Humala initially generated political and economic uncertainty, President Humala took decisive steps to demonstrate continuity with the prior administrations’ economic policies. Shortly after his inauguration, President Humala ratified Julio Velarde as president of the Central Bank of Peru and appointed Luis Miguel Castilla as minister of economy and finance, both of whom served as senior members in the prior administration and were strong proponents of open market policies.

President Humala’s administration continued to implement policies that promote macroeconomic stability, fiscal discipline and domestic and foreign investment. In addition, President Humala’s administration did not make any significant shift in trade policy and did not experience any adverse changes with its major trading partners, relative to the prior administration.

In addition to strong economic growth, President Humala’s administration was focused on promoting a broader agenda of social inclusion by developing social programs that benefit the poorest sectors of the population.

In June 2016, Pedro Pablo Kuczynski won the presidential elections in a second round run-off election, with 50.12% of valid votes cast, defeating Keiko Fujimori of the Fuerza Popular party. On July 28, 2016, President Kuczynski appointed a new cabinet of ministers.

On December 5, 2016, Minister of Defense Mr. Cosme Mariano González Fernández, who was criticized by the Government using his office to favor his personal relationships, was replaced by Mr. Jorge Nieto Montesinos, who previously served as Minister of Culture and his position was assumed by Salvador Alejandro Jorge del Solar Laborthe. On December 18, 2016, the Minister of Education Jaime Saavedra resigned from his position and was replaced by Marilú Doris Martens Cortes.

On May 22, 2017, Martín Alberto Vizcarra Cornejo, the then Minister of Transportation and Communications, resigned from his position as Minister to avoid possible censorship by the Congress of the Republic in connection with his involvement in the Chinchero Airport project. Thereafter, on May 25, 2017, Bruno Giuffra Monteverde was sworn in as Minister of Transportation and Communications, and Pedro Olaechea was sworn in as the Minister of Production. Prior to his current post, Mr. Giuffra served as the Minister of Production.

On June 21, 2017, Peru’s Congress dismissed the then Minister of Economy and Finance, Alfredo Thorne, following a vote of no confidence by the Congress of the Republic. On June 23, Fernando Zavala was sworn in as the new Minister of Economy and Finance while continuing to act as Prime Minister. On July 3, 2017, Peru’s Congress unanimously voted to dismiss Edgar Alarcón as Comptroller General of the Republic. On September 17, 2017, Peru’s Vice President, Mercedes Aráoz, was sworn in as Prime Minister, replacing Fernando Zavala.

On December 21, 2017, a majority of Peru’s Congress (with 78 votes in favor, 19 against and 21 abstentions) rejected then-President Kuczynski’s motion to vacate the office of the President, following public reports linking him to Odebrecht.

On March 21, 2018, President Kuczynski resigned and on March 23, 2018, Peru’s Congress accepted his resignation with 105 votes in favor, 12 against and four abstentions. On the same day Vice President Vizcarra assumed the presidency of Peru.

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On April 14, 2019, Carlos Bruce, the Minister of Housing, Construction and Sanitation, and Edmer Trujillo, the Minister of Transportation and Communication, resigned. On April 27, 2019, Miguel Luís Estrada Mendoza and Maria Esperanza Jara Risco were appointed as Minister of Housing, Construction and Sanitation and Minister of Transportation and Communication, respectively.

On April 16, 2019, the Judiciary ordered the preliminary detention of Alan Garcia (former President of the Republic) for a 10-day period, in connection with the Odebrecht investigation. On April 17, 2019, during the course of the preliminary house detention, former President Garcia committed suicide.

On July 15, 2020, Mr. Vicente Antonio Zeballos Salinas ceased to be the president of the Council of Ministers and, in his place, Martín Vizcarra’s Government appointed Pedro Cateriano Other changes were made in different ministries. On August 3, 2020, Pedro Cateriano visited the Congress to request a vote of confidence, which was denied with 37 votes in favor, 54 votes against and 34 abstentions. Then, President Vizcarra appointed Walter Martos as president of the Council of Ministers who, until that moment, had been serving as Minister of Defense. On August 11, 2020 the Congress of the Republic granted confidence to Walter Martos’ cabinet with 115 votes in favor, 5 against, and 4 abstentions.

After President Vizcarra’s and President Sagasti’s terms, President Castillo appointed Guido Bellido (who is also a congressman of Peru Libre) as his prime minister. The ministers under President Castillo’s leadership faced strong opposition from some political parties. The legislative opposition planned to impeach Chancellor Bejar on his previous comments on the army and terrorist groups, and he was forced to resign on August 6, 2021, followed by Oscar Maurtua. The Minister of Labor, Iber Maravi, and the prime minister, Guido Bellido, were also to be impeached (Maravi based on alleged ties with terrorist group Shining Path and Bellido on comments regarding the nationalization of Camisea, a gas consortium composed of Argentine, Spanish and United States companies). Following this events, President Castillo asked the prime minister for his resignation on October 6, 2021, along with other members of the cabinet.

The new and current composition of ministers is headed by Mirtha Vasquez, who served as the former president of Congress during President Sagasti’s tenure. ’There are seven new ministers from the previous conformation of ministers; the ministers of Ministry of Interior, Ministry of Education, Ministry of Labor and Promotion of Employment, Ministry of Production, Ministry of Energy and Mining and Ministry of Culture.

As of October 2021, the following ministers had been appointed:

• MMIRTA ESTHER VÁSQUEZ CHUQUILÍN – Prime Minister.

• ANÍBAL TORRES VÁSQUEZ – Ministry of Justice and Human Rights.

• LUIS ROBERTO BARRANZUELA VITE – Ministry of Interior.

• PEDRO ANDRÉS TORIBIO TOPILTZIN FRANCKE BALLVÉ – Ministry of Economy and Finance.

• WALTER EDISON AYALA GONZALES – Ministry of Defense.

• OSCAR MAÚRTUA DE ROMAÑA – Ministry of Foreign Affairs.

• EDUARDO EUGENIO GONZÁLEZ TORO – Ministry of Energy and Mines.

• ROBERTO HELBERT SÁNCHEZ PALOMINO – Ministry of Foreign Trade and Tourism.

• JOSÉ ROGGER INCIO SÁNCHEZ – Ministry of Production.

• BETSSY BETZABET CHÁVEZ CHINO – Ministry of Labor and Promotion of Employment.

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• VÍCTOR RAÚL MAITA FRISANCHO – Ministry of Agriculture and Irrigation.

• HERNANDO ISMAEL CEVALLOS FLORES – Ministry of Health.

• CARLOS ALFONSO GALLARDO GÓMEZ – Ministry of Education.

• JUAN FRANCISCO SILVA VILLEGAS – Ministry of Transport and Communications.

• GEINER ALVARADO LÓPEZ – Ministry of Housing, Construction and Sanitation.

• ANAHÍ DURAND GUEVARA – Ministry of Women and Vulnerable Populations.

• RUBÉN JOSÉ RAMÍREZ MATEO – Ministry of Environment.

• ANDREA GISELA ORTIZ PEREA – Ministry of Culture.

• DINA ERCILIA BOLUARTE ZEGARRA – Ministry of Development and Social Inclusion

Government

Regional Governments. Peru is a representative democracy that is geographically and administratively divided into 25 regional governments. Prior to January 1, 2003, Peru was divided into 24 Temporary Regional Administration Councils, or “regional councils.” The regional councils were divided into 193 provinces and the constitutional province of Callao, Peru’s principal port, adjacent to Lima, and 1,828 districts. Each regional council was governed by an administrative official appointed by the President and formed part of the Government. Provinces and districts have their own civil governments, which are independent of the national Government.

As of January 1, 2003, Peru’s regional councils were replaced by 25 new regional governments, each governed by elected officials and independent of the national government. Elections were last held in November 2006 for the presidents, vice presidents and members of local councils for each of the regional governments. The elected officials serve five-year terms. The APRA won three of the 25 regional presidencies and Unión Por el Perú, or UPP, won one. The 21 other regional presidencies were won by independents and smaller parties.

On November 8, 2002, Congress passed a law establishing the framework under which the regional governments operate. The law grants to the regional governments the authority to borrow money and issue debt domestically or internationally, so long as, in the latter case, the debt is guaranteed by the national government. In addition, the law grants to the regional governments the power to propose the creation or elimination of regional taxes. Under the 1993 Constitution, only Congress and the Executive Branch, pursuant to legislative authority delegated by Congress, may create, amend or eliminate taxes.

On January 1, 2003, Congress granted to the national government the exclusive power to determine, conduct and manage national and regional policies in accordance with national and regional needs. Since 2003, the national budget has been distributed among the national government, the regional governments and the municipal governments in accordance with the new governmental structure. A portion of the national budgets that are earmarked for the regional governments are funded from privatization proceeds.

National Government. The 1993 Constitution provides for a presidential system of government in which national powers are divided among independent executive, legislative and judicial branches.

Executive power is exercised by the President, who appoints ministers, enacts the laws passed by the legislative branch and is the commander-in-chief of the armed forces. The President may enter into treaties without prior congressional approval, except for treaties relating to human rights, Peru’s sovereignty, national defense, financial obligations to be assumed by the Government, and treaties that create, modify, or repeal taxes or overrule existing laws. The President is directly elected for a single five-year term. The 1993 Constitution abrogated the ban on presidential reelection and provided that a President may be reelected only for one consecutive term. The 1993 Constitution was amended in November 2000, reinstating the ban on consecutive presidential terms. Former presidents may seek the presidency again after a presidential term has elapsed.

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The 1993 Constitution provides for two electoral rounds. If the first round does not yield a majority of all votes cast for any one presidential candidate, a majority in the first round being 50% plus one of the total votes cast, a second round is held between the two candidates with the highest vote total in the first round. The 1993 Constitution introduced the positions of First and Second Vice President. These officials are popularly elected but have no constitutional functions unless the President is unable to discharge his or her duties. If the President is unable to discharge his or her duties, the First Vice President assumes the presidency. The Second Vice President assumes the presidency if the First Vice President is unable to discharge his duties.

After the President, executive authority is vested in the Council of Ministers, which is headed by the President of the Council of Ministers, who is appointed by the President. The Council of Ministers oversees and coordinates the activities of Peru’s various ministries and approves all legislative proposals sent by the President to Congress. However, the Council of Ministers may not approve laws without the President’s approval. Each member of the Council of Ministers may approve ministerial resolutions without the President’s consent, but these are regulations that do not have the force of laws approved by Congress and are superseded by laws proposed by the Council of Ministers and approved by the President.

The legislative branch consists of a unicameral congress composed of 130 members who are elected for a five-year term, with all seats subject to reelection in each election cycle at the end of each five-year period. There are 26 electoral districts and the number of members elected by each district is proportional to the district’s population. Lima, the most populous district, elects 36 members. The most recent congressional elections for the period 2021-2026 were held in April 11, 2021.

In addition to passing laws, Congress is empowered to approve the Government’s budget and to approve treaties. Congress may delegate to the executive branch, for defined periods of time, legislative authority over specific matters.

The highest courts in Peru are the 18-member Supreme Court of Justice and the seven-member Constitutional Tribunal. The Peruvian judicial system is also composed of:

• justices of the peace, who preside over district court proceedings related to alimony, landlord-tenant, personal debt and real and personal property disputes and who function as arbiters but cannot issue legally-binding decisions;

• courts of first instance, which include civil, criminal and special-chamber courts having jurisdiction over all cases not under the express jurisdiction of other courts, and a series of specialized courts dealing with matters such as drug-related cases, and which were established to reduce the backlog of cases pending final action in the other courts of first instance;

• military courts, which adjudicate charges of criminal conduct brought against members of the armed forces and the police while discharging their duties and charges of national treason and terrorism brought against civilians; and

• superior courts, which review judgments rendered by all lower courts, except military courts.

All judges in the Peruvian judicial system, with the exception of justices of the peace, who are elected by popular vote, and members of the Constitutional Tribunal, who are elected by Congress, are appointed and may be removed only by the Consejo Nacional de la Magistratura, or National Judiciary Council. This independent body is composed of seven members who are elected for five-year terms by several national entities, through secret votes, as follows:

• one member is elected by the Supreme Court of Justice;

• one member is elected by the Junta de Fiscales Supremos, or Board of Supreme Prosecutors;

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• one member is elected by the members of the bar associations;

• one member is elected by the presidents of the national universities;

• one member is elected by the presidents of the private universities; and

• two members are elected by Peru’s other collegiate associations of professionals.

In addition, the National Judiciary Council may elect two additional members. The National Judiciary Council reviews and ratifies all judges every seven years, including the members of the Supreme Court of Justice and justices of the peace.

Following Congress’ unanimous approval of the dismissal of all members of the National Judiciary Council (following the public leak of certain phone calls by several officials from the National Judiciary Council overseeing corruption cases), on July 23, 2018, the Government announced a state of emergency with respect to the National Judiciary Council in order to restructure the council. The state of emergency was declared for a nine-month period, during which time the most senior ranking individual will be in charge of responsibilities of such council.

The Supreme Court of Justice has ultimate jurisdiction over all matters adjudicated by the superior courts and over all military court rulings in which the death penalty is imposed. Its members must be at least 45 years of age and must retire by age 70. The National Judiciary Council may refuse to ratify or may remove a member of the Supreme Court of Justice only because of physical or mental incapacity, or for engaging in conduct incompatible with his or her duties.

The Constitutional Tribunal is the final arbiter of the Constitution. Its members are appointed by Congress for five-year terms, are not subject to reelection and cannot be removed before their term expires, unless Congress determines that a magistrate has:

• become physically incapacitated or morally unfit to serve;

• engaged in conduct incompatible with his or her duties; or

• been convicted of a crime.

On October 9, 2018, President Vizcarra submitted for public comment four proposals for constitutional reforms pursuant to a referendum. As part of such process, on December 9, 2018, the referendum was carried out and the public were asked the following questions:

• whether they approved the constitutional reform with respect to the National Judiciary council;

• whether they approved the constitutional reform with respect to financing of political organizations;

• whether they approved the constitutional reform with respect to a prohibition on the immediate re-election of members of Congress; and

• whether they approved the constitutional reform with respect to the establishment of a bicameral system in the Congress.

On December 12, 2018, President Vizcarra announced the results of the referendum. The first three questions received support of more than a majority of those who responded (78.49%, 78.14% and 77.77%, respectively), whereas the last one did not (79.73% disapproval).

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On February 18, 2019, President Vizcarra approved Law N° 30916 (Organic Law of the National Judiciary Council), restructuring the National Judiciary Council.

The National Judiciary Council will now be composed of seven members chosen in a competitive process based on merit for five-year terms, without reelection. Members of the National Judiciary Counsel, must, among other things, be a lawyer, be older than 45 and have at least 25 years of experience. The National Judiciary Council will have authority to appoint, ratify, and perform evaluations of judges and prosecutors.

Political Parties

With the exception of the APRA, AP and PPC, Peru’s political parties do not have deep historical roots and often change, merge or dissolve. In the last presidential elections in 2016, ten organizations participated, of which seven were political parties and three were electoral alliances. As of the 2016 election, the principal political parties and alliances in Peru are:

Acción Popular (Popular Action). The AP party supports a moderate reform program that emphasizes modernization and development through an activist public sector. Fernando Belaúnde, who served as President from 1963 to 1968 and from 1980 to 1985, founded the AP in 1956. The AP’s membership included Valentín Paniagua, who became President during the transition government that followed Fujimori’s removal in 2000. In the 2006 elections AP run as part of the now dissolved Frente de Centro political alliance. It is a centrist party and it is based in the populist action ideology. Among the current political parties, this party has held the presidency most frequently. AP participated in the presidential elections held in April 2016, but did not advance to the second round.

Fuerza Popular (Popular Strength) (formerly Alianza Fuerza 2011 (Alliance Strength 2011)). This alliance was formed in 2010 by the Partido Nueva Mayoría (New Majority Party) and Partido Renovación Nacional (National Renovation Party) principally to participate in the presidential elections held in 2011. This party is headed by Keiko Fujimori who was the presidential candidate, with Rafael Rey y Jaime Yoshiyama as vice presidential candidates. Fuerza Popular obtained the second highest number of votes cast in the most recent presidential elections. In July 2012, the party changed its name from “Alianza Fuerza 2011” to “Fuerza Popular.” In April 2016, Fujimori again stood as candidate for the Presidency of the Republic in general elections, advancing to the second round, losing with 49.88% of valid votes in a technical tie with Pedro Pablo Kuczynski of the Peruanos por el Kambio party.

Alianza Gana Perú (Peru Succeeds Alliance). Founded at the end of 2010 by Ollanta Humala in preparation for the presidential elections held in 2011, conformed mainly by the Partido Nacionalista Peruano (Peruvian Nationalist Party), this alliance consists of various left-leaning parties such as the Partido Comunista del Perú (Communist Party of Peru), the Partido Socialista (Socialist Party), el Partido Socialista Revolucionario (Socialist Revolutionary Party), the Movimiento Político Voz Socialista (Socialist Voice Political Movement), and a significant constituency of the Movimiento Político Lima para Todos (Political Movement Lima for All). Alianza Gana Perú won the presidential elections, in a second round run-off, with 51.45% of valid votes cast. Alianza Gana Perú did not take part in the Presidential elections in April 2016.

APRA (Alianza Popular Revolucionaria Americana—Partido Aprista Peruano or American Popular Revolutionary Alliance—Peruvian Aprista Party). Initially left wing in its outlook, the APRA became a conservative force during the 1950s and is now a center-left party. President García, a member of the APRA, first became president in 1985. In the 2001 presidential election, García obtained significant support, forcing a runoff election in which Alejandro Toledo prevailed. On June 4, 2006, García won a run-off vote.

Partido Popular Cristiano (Christian People’s Party). The party was founded at the end of 1966 by a dissenting group of members of the Partido Democracia Cristiana (Christian Democratic Party). It is a right wing party and it is based in the Christian social doctrine.

In April 2016, APRA and Partido Popular Cristiano participated in alliance as a single party for Presidential elections but failed to advance to the second round.

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Perú Posible (Possible Peru). The party was founded in 1999 replacing the formerly known Partido País Posible (Possible Country Party) that was founded by Peru’s former president, Alejandro Toledo, in 1994. The party seeks to promote economic growth through a liberal economic program designed to foster domestic and foreign investment and fiscal and macroeconomic stability, while investing in social programs designed to alleviate poverty and create employment. In April 2016, Perú Posible participated in Presidential elections, but did not achieve requisite participation thresholds for electoral participation, so the party must re-register to participate in the next elections.

Alianza por el Gran Cambio (Alliance for Major Change). It is a political alliance formed in December 2010 by the Partido Popular Cristiano (Christian Popular Party), the Partido Humanista Peruano (Peruvian Humanist Party), the Partido Restauración Nacional (National Restoration Party) and the Partido Alianza por el Progreso (Alliance for Progress Party).

Alianza para el Progreso (Alliance for Progress) presented Cesar Acuña as their Presidential candidate. However in a decision issued on March 9, 2016, the national elections commission barred him from participating in the general election for violating the political parties’ law.

Peruanos Por el Kambio (Peruvians for Change). This party is a political successor to Alianza por el Gran Cambio (Alliance for Major Change) which was founded in October 2014 by its current leader, economist Pedro Pablo Kuczynski who was nominated as its presidential candidate for the presidential elections held in 2016. In June 2016, Pedro Pablo Kuczynski won the presidential elections in a second round run-off election, with 50.12% of valid votes cast, defeating Keiko Fujimori of the Fuerza Popular party.

Solidaridad Nacional (National Solidarity). Founded and headed by the former mayor of Lima, Luis Castañeda Lossio in 1998, this party is a center-right party that espouses principles of liberalism and social-Christian agenda. This party was recognized as a formal party on May 4, 2006 by the National Elections Forum. Solidaridad Nacional did not participate in the presidential elections in April 2016.

Frente Amplio (Broad Front). Founded in 2005, Frente Amplio was a coalition of parties, political organizations, social movements and activist citizens in Peru whose main objective was to consolidate the various progressive parties and coordinate progressive policies. Initially known as the National Coordinator of Progressive Parties, in 2006 it assumed the name Frente Amplio and in the elections held in April 2016, nominated party leader Verónica Mendoza for president, but did not advance to the second round.

Perú Libre (Free Peru). Founded in 2013, Perú Libre is a leftist party whose objective is to seek social justice, with the well-being of man as the ultimate goal, making the Peruvian society equitable, inclusive and that every Peruvian gets the same access to opportunities that were denied them since long time ago. The party leader is Vladimir Cerron, a medical doctor specializing in neuroscience.

At the beginning of President Kuczynski’s term in 2016, Fuerza Popular held 55% of the seats in Peru’s Congress, compared to the 15% then held by Frente Amplio, and 13% then held by Peruanos por el Kambio.

In mid-2017, congressional representation changed significantly following the resignation of several congressmen from certain political groups.

Congressional elections to complete the 2016-2021 parliamentary period were held on January 26, 2020. On April 2021, new congressional elections took place for the period 2021-2026.

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As of October 2021, the new composition of the Congress is as follows:

	Congressional Seats		%
Acción Popular		16		12
Avanza País – Partido de Integración Social		10		8
Alianza para el Progreso		15		12
Juntos por el Perú		5		4
Podemos Peru		5		4
Perú Libre		37		28
Somos Perú – Partido Morado		9		7
Fuerza Popular		24		18
Renovación Popular		9		7
Total		130		100

Source: Congress of Peru

Foreign Policy and Membership in International and Regional Organizations

Peru has not been involved in any significant international conflicts since the end of its border dispute with Ecuador in 1998. A brief diplomatic dispute erupted in 2001 between Peru and Venezuela in connection with the capture of the former advisor to Peru’s intelligence agency, Vladimiro Montesinos, in Venezuela. Peru alleged that Venezuela had temporarily hidden and protected Montesinos after formal charges had been brought against him in Peru, a claim that Venezuela denied. Venezuela temporarily severed relations with Peru between June 28 and July 28, 2001, but relations between the two countries were normalized.

In July 2003, Peru presented a formal extradition request to the Japanese government for President Fujimori based on criminal charges. The request was rejected by the Japanese government due to President Fujimori’s Japanese citizenship. On October 15, 2004, Peru made a second request for extradition based on forgery and embezzlement charges, but the extradition process stalled. Peru’s commercial and other ties with Japan were not adversely affected by the dispute. On November 6, 2005, police in Chile arrested former President Fujimori after he began a surprise visit to Chile. Peruvian authorities presented numerous formal requests for former President Fujimori’s extradition. On September 21, 2007, Fujimori’s extradition was granted by the Chilean Supreme Court and he was extradited to Peru that same day.

Despite Peru’s and Chile’s dispute concerning the maritime boundary allegedly delineated in the 19^th century War of the Pacific, the two countries enjoy good relations. On November 4, 2004, the foreign ministers of Peru and Chile signed a joint statement expressing an intent to forge closer ties and further develop bilateral relations and in August 2006 an economic cooperation agreement was signed among both countries. However, the enactment of a declaration of maritime borders by Peru’s Congress on November 15, 2005 created a dispute between Peru and Chile over the maritime delimitation of their border. In order to settle the maritime delimitation dispute through established international legal channels, on January 16, 2008, Peru filed proceedings against Chile before the International Court of Justice, or ICJ. These proceedings have not damaged relations between Peru and Chile and economic relations between the two countries have been stable.

On January 27, 2014, the ICJ issued a final resolution regarding this case and relations between the two countries have continued on good terms. The ICJ granted Peru a maritime area of 50,000 km² which is now part of the Peruvian maritime zone.

Peru maintains diplomatic relations with 120 countries and is a member of 38 regional and international organizations and forums, including:

• the United Nations;

• the Organization of American States;

• the Community of Andean Nations, formerly known as the Andean Pact;

• the World Trade Organization, or WTO;

• the Latin American Integration Association, or ALADI;

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• the IADB;

• the IMF;

• the World Bank;

• International Finance Corporation;

• the CAF;

• the Asia-Pacific Economic Cooperation;

• the Trans-Pacific Partnership, or TPP; and

• Mercosur (as an associate member).

Peru joined the General Agreement on Tariffs and Trade in 1951 and is a founding member of the WTO, which was established in January 1995. In addition, Peru participates in several regional initiatives designed to promote trade and foreign investment. The most significant of these initiatives are the following:

• Since 1980, Peru has been a member of the Latin America Integration Association, which promotes and coordinates bilateral trade agreements between its member countries. Under the auspices of this association, Peru has signed preferential tariff agreements with Argentina, Brazil, Cuba, Mexico, Paraguay and Uruguay.

• Since 1990, Peru has been a member of the Community of Andean Nations, which also includes Bolivia, Colombia and Ecuador. This organization seeks to promote economic integration and cooperation. As of December 31, 2005, a free trade zone between the members of the Community of Andean Nations was effectively created. The common market provides for the free trade of goods, services, capital and people between its member countries. In April 1998, the Community of Andean Nations signed a framework agreement with the Common Market of the South, or Mercosur, whose members are Argentina, Brazil, Paraguay and Uruguay, to create a free trade zone between the two economic blocs. The Community of Andean Nations has also reached bilateral agreements with Brazil and Argentina as a first step towards the creation of free trade arrangements with these countries. On December 16, 2003, the Community of Andean Nations reached a trade pact with Mercosur.

• Since 1990, Peru has been a beneficiary of the General System of Preferences for the Andean Countries, a program of unilateral trade preferences granted by the European Union that is intended to promote economic development in the Andean region. Under the program, the European Union sets zero tariffs for fishing, agriculture and textile products from Peru. This program was scheduled to expire on December 31, 2001, but was automatically extended for three years on December 10, 2001. In June 2005, a new General System of Preferences was adopted in accordance with the new rules set forth by the WTO, and the program was extended until December 2008. On October 31, 2012 a new General Regulation of tariff preferences (978/2012) was approved, which replaced Regulation 732/2008. The provisions of the new regulation were implemented on January 1, 2014. Currently, these provisions are a part of the commercial agreement between Peru and the European Union executed on June 26, 2012, in Brussels, Belgium.

• Since 1991, Peru has been, together with Bolivia, Ecuador and Colombia, a beneficiary of the U.S. ATPDEA, a program of unilateral trade preferences granted by the United States to promote export diversification and broad-based economic development as an alternative to drug-crop production in the Andean region. The United States has repeatedly renewed ATPDEA with the last renewal expiring on December 31, 2009. The ATPDEA was extended on December 31, 2010 for a period of six weeks that expired on February 12, 2011. Although a majority of Peruvian exporters no longer required the benefits of the ATPDEA given the approval of free trade agreement with the United States, or US FTA, which became effective in February 2009, an important group of textile manufacturers and assembly plants benefited from the ATPDEA’s preferential tariff provisions that required lower composition of imported content in exported products. However, the US FTA will allow imports of assembled products and textiles into the North American market, as provided in the agreement.

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• Since November 1998, Peru has been a member of the Asia-Pacific Economic Cooperation, which seeks to achieve free trade in the Asia-Pacific region through a progressive reduction in the tariffs of its member countries.

• In August 2003, Peru signed an agreement with Brazil to become an associate member of Mercosur. On December 16, 2003, Peru was accepted as an associate member of Mercosur.

• On December 8, 2004, Peru, together with Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Suriname, Uruguay and Venezuela, signed an agreement to create the South American Community of Nations, envisioned as an economic and political block similar to the European Union that ultimately will have a single currency.

• On December 9, 2004, Peru and Brazil signed an agreement to build a 1,200 km transoceanic roadway from the Brazilian city of Assis, in the state of Acre, to three Peruvian ports, Matarani, Ilo, and Marcona, on Peru’s Pacific coast. Peru has granted a concession to private interests to build the portion of this road that is in its territory.

• On November 19, 2005, Peru and Thailand signed a Protocol to Accelerate the Liberalization of Trade in Goods and Trade Facilitation in order to strengthen and enhance economic partnership between the two countries.

• On November 30, 2005, Peru signed an Economic Complementation Agreement with members of Mercosur.

• In April 2006, Peru signed the TPA with the United States, which became effective in February 2009.

• In August 2006, Peru signed a free trade agreement with Chile to expand the Economic Complementation Agreement of June 1998. This new free trade agreement gradually eliminates all customs duties between the two countries, provides for a substantial reduction in tariffs over a ten-year period and establishes a framework for cooperation in foreign investment, customs procedures, tourism, services trade, dispute resolution and sanitary requirements. This agreement entered into force in March 2009.

• In May 2008, Peru signed a free trade agreement with Canada. This agreement entered into force in August 2009.

• In May 2008, Peru signed a free trade agreement with Singapore. This agreement entered into force in August 2009.

• In April 2009, Peru signed a free trade agreement with the Republic of China. This agreement entered into force in March 2010.

• In July 2010, Peru and the European Free Trade Association, or EFTA, entered into a free trade agreement. During 2011, this agreement entered into force with Switzerland, Liechtenstein and Iceland. The agreement with Norway became effective in 2012.

• In March 2011, Peru signed a free trade agreement with South Korea. This agreement entered into force in August 2011.

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• In April 2011, Peru signed a free trade agreement with Mexico. This agreement entered into force in February 2012.

• In May 2011, Peru signed a free trade agreement with Panama. This agreement entered into force in May 2012.

• In May 2011, Peru signed a free trade agreement with Costa Rica. This agreement entered into force during the second quarter of 2012.

• In May 2011, Peru signed a free trade agreement with Japan. This agreement entered into force during March 2012.

• In December 2011, Peru signed a free trade agreement with Guatemala.

• On January 7, 2012, Peru and Venezuela entered into a Partial Scope Trade Agreement, however this agreement has not yet entered into force.

• In March 2012, Peru and Thailand completed the eighth rounds of negotiations for the Peru-Thailand partnership.

• On June 6, 2012, Chile, Colombia, Mexico, and Peru signed a master agreement confirming their intention to establish the Pacific Alliance, which aims to create a legal framework providing for economic, political and commercial integration of the countries in order to foster trade in goods and services amongst member states, as well as with other regions, particularly the Asia-Pacific region.

• On June 27, 2012, Peru signed a Trade Agreement with the European Union, represented by the European Commission. The agreement entered into effect on March 1, 2013. Once fully implemented, the Trade Agreement will eliminate tariffs in all industrial and fisheries products, increase market access for agricultural products, improve access to public procurement, services and investment markets, further reduce technical barriers to trade, and establish common disciplines including on intellectual property rights, transparency and competition.

• In March 2013, Russia and Peru established communication towards the negotiation of a free trade agreement. In April 2014, Russian and Peruvian officials renewed their commitment to the development of this agreement.

• In March 2013, Peru reestablished negotiations with El Salvador regarding the establishment of a free trade agreement.

• In March 2013, a delegation of Peruvian officials were invited to India in order to establish negotiations for a free trade agreement.

• In October 2013, Peru and Turkey announced their intention to establish a free trade agreement.

• On November 28, 2014, Peru and Turkey completed the second round of negotiations for the Peru-Turkey free trade agreement.

• On May 29, 2015, the Peru-Honduras free trade agreement was signed.

• On February 4, 2016, the signing ceremony for the Trans Pacific Partnership was held in the City of Auckland, New Zealand, with the participation of 12 Ministers of signatory countries. On January 23, 2017, the U.S. announced its permanent withdrawal from the treaty, which makes impossible its entry into force.

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• On April 29, 2016, the Deepening Economic Trade Agreement was signed between Peru and the Federative Republic of Brazil.

• On February 22, 2017, the Trade Facilitation Agreement (TFA) of the WTO, of which Peru is a member, became effective. The TFA establishes measures to, among other things, increase transparency in respect of the rules related to foreign trade, and streamline and simplify the procedures related to the clearance of goods.

• On January 18, 2017, the Ministerial Cabinet of India approved starting trade agreement negotiations with Peru. In March 2017, a meeting was held in New Delhi to discuss the terms of a potential trade agreement between Peru and India.

• On February 12, 2018, the Minister of Foreign Commerce and Tourism, Eduardo Ferreyros and the Minister of Commerce, Investment and Tourism of Australia, Steven Ciobo, executed a free-trade agreement between Peru and Australia.

• On March 8, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was executed in Santiago, Chile.

• On May 15, 2019, Peru, Colombia and Ecuador executed the Trade Agreement with the United Kingdom and Northern Ireland. This agreement is designed to ensure continuity of trade among the signatories by preserving preferred terms of trade and lower tariffs on goods entering the United Kingdom from those jurisdictions as it prepares to exit the European Union. This trade agreement is pending approval and implementation of the parties’ respective representative bodies.

• On July 14, 2021, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was ratified by the Congress of Peru. This agreement came into full force on September 19, 2021. Due to the TPP, Peruvian products gained entry free of tariffs to four additional countries without previous bilateral trade agreements: New Zealand and Vietnam (Peruvian exports may enter immediately) and Brunei and Malaysia (products may enter once they ratify the TPP). In addition, the TPP expanded the type and quantity of products that can enter free of tariffs to some countries with whom Peru already had bilateral free trade agreements (e.g., Japan: 88.0% of products before the TPP to 98.0% after the TPP). TPP members are located in three continents and together account for 13% of the world’s GDP and 15% of global trade.

Relations with Ecuador

Peru has had several territorial disputes with Ecuador dating back to colonial times. A significant military clash occurred in 1941, which came to an end in 1942 with the signing of the Rio de Janeiro Protocol. This settlement, sponsored by Argentina, Brazil, Chile and the United States, established territorial limits between Peru and Ecuador but failed to delineate clearly their border in a 78-kilometer section of the Andean foothills. Further disputes over the border in this region led to additional clashes in 1981 and 1995. In the latest clash, thousands of soldiers from each country fought an intense but localized war in the disputed territory of the upper Cenepa valley.

A peace agreement brokered in February 1995 by the four sponsors of the Rio de Janeiro Protocol led to the cessation of hostilities and established the Military Observers Mission to Ecuador-Peru to monitor activities in the disputed area. In 1996, Peru and Ecuador began a series of meetings that led to the 1998 Brasilia Agreement, which defined the border in the disputed area. The border agreed upon tracks the peaks of the Cordillera del Cóndor mountain range. The 1998 Brasilia Agreement granted Ecuador private ownership of a hill known as Tiwinza, but it was agreed that the hill would remain under Peruvian sovereignty. In May 1999, a complete demarcation of the border was completed. The 1998 Brasilia Agreement also established terms of bilateral trade and navigational understandings between the two nations and created the Bi-National Commission for Border Integration. This commission led to the launch of a U.S.$3.0 billion regional development program to improve social and economic conditions along the border.

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On May 2, 2011, Peru and the Republic of Ecuador exchanged communiqués with identical content regarding the maritime boundaries that will exist between the two countries. These communiqués establish a geographic parallel as the maritime boundary that will apply between Peru and the Republic of Ecuador to address the existence of islands in the adjacent land frontier, which constitutes a special circumstance under applicable international law. At the same time, the communiqués establish the bases for the development of a joint action plan in advance of a recognition between the parties of the Gulf of Guayaquil as a historic bay and will segregate interior waters in both jurisdictions as sovereign waters of both states. The foregoing agreements are all set forth in a series of annexes that are attached to the communiqués. As a result, by virtue of the exchange of communiqués, Peru presented a communiqué addressed to the Secretary General of the United Nations expressing its agreement that, given the existence of the islands, the parallel at Boca de Capones that is set forth in the Nautical Map of Ecuador IOA 42, will be the maritime boundary between Peru and the Republic of Ecuador. On June 6, 2011, Peru and the Republic of Ecuador registered with the United Nations the agreement that established their maritime boundaries.

Peru currently maintains strong political and economic relations with Ecuador. The two governments have signed further agreements on border development, navigation, security and trade. In November 2012, the two governments signed agreements for bilateral development, including a commitment to cooperate in the extraction of natural resources, foster mutual trade and facilitate sea transport in surrounding maritime territories in the Gulf of Guayaquil. In July 2013, the two governments renewed their commitment to increase electrical interconnectivity, agreeing to develop a 500 kV line as part of the International Electrical Interconnection Peru-Ecuador project.

Peru delivered nearly 1,000 tons of humanitarian aid to Ecuador to assist victims of the April 2016 earthquake that affected parts of Ecuador, including 42 rescue workers and 55 support personnel, including pilots, crew, engineering equipment operators and assistants.

On October 20, 2017, the XI BiLateral Peru-Ecuador Summit meeting resulted in the Trujillo Presidential Declaration issued by Presidents Kuczynski and Lenín Moreno committing the two sovereigns for further integration and the development of the two counties and the border region in particular. In addition, the Declaration committed resources to establishing a working group to assess labor and migration policies. Furthermore, the working group developed an agenda to discuss integrated management of water resources and to further joint development of the Binacional Puyango Tumbes Project. The parties also agreed to deepen cooperation to combat organized transactional criminal activity.

On October 27, 2018, the Presidents of Peru and Ecuador agreed to work on a bilateral agenda with respect to strategic areas such as mining, energy and security.

Narco-terrorism and Delinquency

In the 1980s and early 1990s, the Shining Path and Tupac Amaru conducted indiscriminate bombings and selective assassinations throughout Peru. The Government estimates that from 1980 to 1995, the Shining Path’s terrorist activities led to the deaths of approximately 31,300 people. The capture in 1992 of the Shining Path’s founder, Abimael Guzmán, his subsequent life sentence and the jailing of most of the Shining Path’s central committee, considerably weakened the Shining Path. Although the Shining Path is no longer as powerful as it was during the 1980s and early 1990s, members still operate in remote regions in central and southern Peru, where military patrols have decreased due to cuts in military spending. During the last several years there have been sporadic subversive actions in rural areas, especially in the jungle, which have been attributed to the Shining Path. For example, in October 2012, the Shining Path attacked Kiteni, which is the site of transport for employees of the Consorcio Camisea companies. Three helicopters were destroyed in the attack.

Shining Path members have formed alliances with coca farmers and drug traffickers in drug-growing areas of the Upper Huallaga and Apurimac valleys to provide armed protection against the Government’s interdiction efforts. In response to this activity, security forces in Peru continue to monitor subversive activities and have maintained their efforts to prevent the resurgence of a significant terrorist threat, including by reactivating anti-terrorist bases in the valleys, training farmers in areas where the Shining Path operates to assist the military and heightening security in Lima.

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The limited state presence in large portions of the countryside challenges the Government’s ability to ensure broad-based development for all Peruvians. Peru’s tropical forests are increasingly threatened by shifting migration patterns, unsustainable exploitation of the forest, and the destructive impact of illicit coca production and processing. The lack of government presence in these areas allows drug trafficking, illegal logging, terrorism and other criminal practices to flourish, creating a corrupt, violent and conflictive environment that limits economic opportunities and prevents sustainable economic growth and development.

During the past decade, government initiatives have resulted in a decrease in coca production with 31,206 hectares in destroyed 2014, 35,868 hectares in 2015, 30,151 hectares in 2016, 22,910 hectares in 2017 and 25,111 hectares in 2018. In addition, during 2018, the Government destroyed, 25.9 tons of coca and shut down 315 clandestine laboratories and destroyed 1,776,751 cannabis plants and shut down 65 clandestine airstrips.

The Government also implemented measures to prevent money laundering of funds from drug trafficking and other illegal activities. Peru requires financial institutions to conduct employee training in preventive methods, obtain basic knowledge about their clients and adhere to a code of conduct. Moreover financial institutions are required to report to the Unidad de Inteligencia Financiera (Financial Intelligence Bureau) any suspicious activity which may be related to money laundering or financing of terrorism. On August 25, 2015, Law N° 30,339 was enacted. This law empowers the Government to intercept aircrafts suspected of being used in illicit drug trafficking.

On July 28, 2016, President Kuczynski announced that his government would combat organized crime to prevent extortion, drug trafficking, terrorism, illegal logging and illegal mining. In particular, President Kuczynski announced that his administration will be focused on implementing measures to combat drug trafficking in rural areas, with the support of the police, the Peruvian armed forces, intelligence services and the judiciary.

On February 19, 2019, the first phase of “The Comprehensive Plan against Illegal Mining” started in Madre de Dios and on March 5, 2019, the second phase of the plan started, in order to maintain security in the territory and to carry out reforestation to recover the areas which have not yet lost forest cover but that are at risk to be lost.

On October 16, 2019, the Executive Branch implemented Decree N° 23-2019, setting forth the 2019-2023 Multisectoral National Police Front to Combat Terrorism (Política Nacional Multisectorial de Lucha contra el Terrorismo 2019-2023), designed to neutralize the threat of any terrorist acts throughout the national territory. The specialized police force has three principle priorities: support a culture of peace, reestablish the rights of citizens affected by terrorism and neutralize the effect of the terrorist actions throughout the country.

Legal Proceedings

On July 22, 2011, DP World Callao, Concessionary of Southern Pier port in Callao, filed a request for arbitration before the ICSID against Peru. The claims arise out of alleged Government discriminatory treatment by not allowing the claimants to participate in the bid for the North Pier at Callao’s port, as well as the alleged lack of compensation to the investor for granting better conditions to the current operator of the North Pier which allegedly affected the economic balance of the concession agreement of the South Pier and the competitive conditions guaranteed by the State. Resolution of this claim is pending. DP World Callao S.R.L., P&O Dover (Holding) Limited, The Peninsular and Oriental Steam Navigation Company withdrew their arbitration claim against Peru. On April 22, 2020, the Secretary-General issued a procedural order taking note of the discontinuance of the proceeding pursuant to ICSID Arbitration Rule 44.

On June 2, 2016, Gramercy Funds Management LLC and Gramercy Peru Holdings LLC have commenced an international arbitration under the United States-Peru Trade Promotion Agreement in connection with Peru’s Agrarian Reform Bonds. The arbitration tribunal was constituted on February 13, 2018. The proceeding continues to advance and a hearing was scheduled for 2020. On August 31, 2020, each party filed a second post-hearing brief. On January 11, 2021, each party filed a statement of costs.

On February 1, 2017, Metro de Lima Línea 2 S.A. filed a request for arbitration with ICSID against Peru, based on allegations that the Government had failed to meet certain conditions in respect of the parties’ underlying transportation contract. As of April 2017, arbitrators have been appointed and the claim is currently pending. On September 20, 2019, each party filed a post-hearing brief. On August 11, 2021, the Tribunal issued Procedural Order N° 8 concerning procedural matters.

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On May 18, 2018, the Autopista del Norte, a subsidiary of the Spanish company OHL Concessions, filed a request for arbitration before ICSID in relation to its claim against the government for U.S.$100 million in connection with alleged delays relating to the expansion of the Pan-American Highway. Between September 14, 2020 and September 22, 2020, the Tribunal held a hearing on jurisdiction and the merits by video conference. On September 27, 2021, each party filed a further submission on quantum.

On July 24, 2018, the Spanish company ENAGAS filed a request for arbitration with ICSID in relation to its claim against the Government for U.S.$577 million, which is the alleged investment made on the Gaseoducto del Sur project. On July 19, 2020 the Respondent filed a memorial on jurisdiction and a counter-memorial on the merits. On May 31, 2021, the Claimant filed a counter-memorial on jurisdiction and a reply on the merits.

On July 27, 2018, Sociedad Aeroportuaria Kuntur Wasi S.A. filed a request for arbitration with ICSID in relation to the termination of the concession agreement of the International Airport of Chinchero, in Cusco. In case of an unfavorable resolution, the Government may pay U.S.$40 million to the concessionaire. On June 1, 2020, the Claimants filed a reply on the merits and a counter-memorial on jurisdiction. On September 13, 2021, the Tribunal held a hearing on jurisdiction and the merits by video conference.

On June 27, 2019, IC Power Limited & Kenon Holdings Limited filed a request for arbitration with ICSID against Peru, invoking the Peru-Singapore Free Trade Agreement. The arbitration tribunal was constituted on October 30, 2019. Resolution of this claim is pending. On June 5, 2020, the Claimant filed a memorial on the merits. On September 3, 2021, the Respondent filed a reply on jurisdiction and a rejoinder on the merits.

On September 19, 2019, Latam Hydro LLC and CH Mamacocha S.R.L. filed a request for arbitration to ICSID in relation to the execution of a hydroelectric power station project in Arequipa, invoking the Peru-US Free Trade Agreement. The arbitration tribunal was constituted on March 9, 2020. Resolution of this claim is pending. On September 14, 2020, the Claimants filed a memorial on the merits. On July 20, 2021, the Claimants filed a reply o the merits and a counter-memorial on jurisdiction.

On February 4, 2020, Odebrecht Latinvest S.à.r.l. filed a request for arbitration to ICSID, invoking the Peru-Union Economic Belgo-Luxembourg Bilateral Investment Treaty. The arbitration tribunal has not been constituted. Resolution of this claim is pending. On June 29, 2020, following appointment by the Respondent, August Reinisch (Austrian) accepted his appointment as arbitrator. On April 23, 2021, the Claimant filed a memorial on the merits.

On March 16, 2020, Freeport-McMoran Inc. filed a request for arbitration with ICSID regarding its investments in the Cerro Verde Mining Complex, invoking the Peru-US Free Trade Agreement. The arbitration tribunal has not been constituted. Resolution of this claim is pending. On June 9, 2020, following appointment by the Respondent, Bernardo Cremades (Spanish) accepted his appointment as arbitrator. On July 2, 2021, the Claimant filed a notice of additional claims.

On May 13, 2020, SMM Cerro Verde Netherlands B.V. filed a request for arbitration to ICSID regarding a mining concession, invoking the Netherlands - Peru Bilateral Investment Treaty. On September 14, 2020, following appointment by the Claimant, Oscar Garibaldi (Argentine/U.S.) accepted his appointment as arbitrator. On March 31, 2021, the Tribunal was constituted. On August 28, 2021, the Claimant filed a memorial.

On June 10, 2020, Desarrollo Vial de los Andes S.A.C (DEVIANDES), filed a request for arbitration to ICSID related to the toll system of the Peruvian Central Highway concession invoking the fulfillment of the contract itself. The rejection of the toll installation in Ticlio through protests and blockades caused for the installation of the toll booth to be cancelled. Due to the breach of the contract, the Supervisory Board for Investment in Public Transport Infrastructure (Ositran) appealed, in July 2019, to the Peruvian Ministry of Transport and Communications (MTC) and DEVIANDES to reach an agreement on compensation However, a joint position was not reached. On August 11, 2020 the Tribunal was constituted in accordance with Article 37(2)(a) of the ICSID Convention. Its members are: David J.A. Cairns (British/New Zealand), President, appointed by the Secretary-General in accordance with the agreement of the Parties; José María Alonso Puig (Spanish), appointed by the Claimant; and Yves Derains (French), appointed by the Respondent. On April 15, 2021, the Responent filed a counter-memorial on the merits, including counter-claims.

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On December 15, 2020, Worth Capital Holdings 27 LLC. (U.S.) filed with ICSID a request for arbitration related to the oil and gas business. On September 14, 2021, the tribunal held a first session by video conference.

On October 30, 2020, Lupaka Gold Corp. (Canadian) filed with ICSID a request for arbitration related to Mining Concession. On February 19, 2021, the tribunal was constituted. On July 20, 2021, the tribunal issued Procedural Order N° 1 concerning procedural matters.

During 2021, the following entities filed with ICSID the following requests for arbitration:

• January 4, 2021, Quanta Services Netherlands B.V. (Dutch) related to the telecommunication business.

• March 12, 2021, Telefonica, S.A. (Spanish) related to the telecommunications services.

• May 19, 2021, APM Terminals Callao S.A. (Peruvian) related to the Pier Concession Agreement.

• May 20, 2021, Kaloti Metals & Logistics, LLC. (U.S) related to the precious metals trading.

• August 20, 2021, Metro de Lima Linea 2, S.A. (Peruvian) related to a metro concession agreement.

• September 23, 2021, Concesionaria Peruana de Vías COVINCA, S.A. (Colombian, Peruvian), related to a highway construction project.

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THE ECONOMY

History and Background

Between 1930 and the mid-1960s, Peru had one of the most successful economies in Latin America. During this time, Peru generally deviated from the import-substitution model adopted by other countries in the region. Peru adhered, except for brief intervening periods, to laissez-faire, non-interventionist economic policies. The Government encouraged foreign investment through tax incentives and legislation guaranteeing equal treatment of foreign and domestic investors. Aided by its main exports, consisting of fish, fish products, copper, petroleum and agricultural products, Peru’s economy grew steadily during this period.

Beginning in the mid-1960s, the Peruvian economy experienced a series of setbacks. Public sentiment began to turn resolutely against foreign investment. Pressure for change in economic policies increased as a result of:

• class and social conflicts, characterized by populist resentment against the economic elite that ruled Peru and against the presence of foreign companies in industries related to Peru’s national resources, such as petroleum and mining, and in other prominent sectors of the economy;

• an economic slowdown brought about by a reduction in production and exports due principally to a sudden drop in fish catch and reduced mining and metal processing following the exhaustion of a number of the principal copper and other mines; and

• the increased cost of living that resulted from higher domestic food prices.

In 1968, the military government headed by General Juan Velasco Alvarado nationalized numerous private enterprises and conducted a campaign against foreign participation in the Peruvian economy. In 1969, the Velasco administration enacted the Ley de Reforma Agraria, or the Agrarian Reform Law, which confiscated large estates from wealthy owners in exchange for long-term bonds issued by Peru, turning the estates into cooperatives run by the former workers of the estates, and adopted high tariffs to shield local industry and manufacturing from foreign competition. During 2010, there was an increase in the volume of administrative and judicial claims filed against Peru in connection with the payment of amounts due in respect of the bonds issued by Peru pursuant to the Agrarian Reform Law. In accordance with a resolution issued by the Peruvian Constitutional Court in 2013, the executive branch enacted a bylaw regulating an administrative procedure through which the debt corresponding to the Agrarian bonds can be brought to present value. Peru has continued to undertake steps related to the administrative procedure, including payment of legitimate bondholders in accordance with applicable law. To date, hundreds of bondholders have presented thousands of bonds in the administrative procedure, and are advancing through the steps of authentication, registration, valuation and payment.

Peru’s currency became overvalued, making exports less competitive, and its debt grew sharply during the 1970s. Peru experienced large current account deficits and the Velasco administration borrowed abroad to finance these deficits rather than change its policies. Many cooperative farms, operated by people with little management experience, went bankrupt and agricultural production decreased.

In 1975, General Francisco Morales-Bermúdez Cerruti implemented an economic austerity program designed to correct the economic disequilibrium reflected in Peru’s fiscal and current account deficits and high external debt burden. The Government implemented fiscal and monetary restraints and devalued the currency. These measures coincided with increases in international prices of Peru’s main exports. The fiscal deficit narrowed and by 1979 Peru had achieved a significant current account surplus.

In 1980, the civilian government led by Fernando Belaúnde reinstituted high spending and borrowing but was forced to adopt more restrained spending policies in later years. The policies adopted by President Alan García Pérez, who assumed the presidency in 1985, brought Peru to a deepening economic crisis. The García administration increased spending, declared a debt moratorium and attempted to nationalize the banking system and other key industries. Private investment collapsed, the public sector deficit increased and exports dwindled. By 1990, the annual inflation rate had increased to 7,650%, net international reserves had been completely depleted and the economy had entered its third year of recession. The García administration also had to confront terrorist activities by the Shining Path and Tupac Amaru.

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In 1990, Alberto Fujimori, a university professor, won the presidential election on a platform that emphasized his “outsider” status and his opposition to “traditional” politicians. President Fujimori inherited an economy beset by recession, hyperinflation and high levels of external debt. President Fujimori immediately moved to cut public spending, increase taxes, tame inflation and open the economy to foreign investment.

Within the first few years of his presidency, President Fujimori dismantled protectionist and interventionist laws and policies to create a liberal economy dominated by private sector and market forces. In order to encourage foreign investment, the Fujimori administration undertook an ambitious privatization program, strengthened and simplified Peru’s tax system, opened the economy to foreign investment and lifted exchange controls and restrictions on remittances of profits, dividends and royalties. Although the Fujimori administration successfully privatized many state entities, the privatization program waned in the later years of the administration because of adverse market conditions and Fujimori’s adoption of a more populist stance prior to the 2000 elections.

As time went on, the Fujimori administration became increasingly authoritarian, as evidenced by the dissolution of Congress in 1992, his consolidation of power in the executive branch following adoption of the 1993 Constitution and his alliance with Vladimiro Montesinos, an intelligence advisor. President Fujimori’s authoritarianism exacted a price on Peru’s political system, although it had little effect on the successes of his economic program.

On November 20, 2000, Congress removed President Fujimori from office and Valentín Paniagua assumed the presidency on a transition basis. The Paniagua administration adopted fiscal policies to reduce spending, restore confidence, reform the tax system and stabilize the economy.

In June 2001, Alejandro Toledo Manrique was elected president based on a platform that recognized the value of an open economic system and rejected Fujimori’s legacy of political authoritarianism. President Toledo vowed to restore democracy, fiscal discipline and transparency to the Government. He pledged to increase the living standards of the poor and disadvantaged, who constitute a majority of Peru’s population, through improvements in education, health and employment opportunities. He also promised to continue the economic reforms and privatization program first advanced by the Fujimori administration.

President Toledo assumed the presidency in July 2001 against a backdrop of high unemployment and underemployment, economic recession and social need more severe than the Fujimori administration had acknowledged. Despite the economic achievements between 1990 and 2000, poverty remained a persistent problem in Peru. More than half of the population lived below the poverty line, as defined by the World Bank, adjusted to reflect differences in purchasing power. A significant number of Peruvians lived on a monthly per capita income of less than U.S.$30.00.

President Toledo implemented a number of proposals to stimulate Peru’s economy, including privatization and fiscal austerity programs. President Toledo’s policies spurred sustained GDP growth since the fourth quarter of 2001. Despite this growth, the Toledo administration fell in the polls and faced ongoing social protests and unrest spurred by disappointment that President Toledo’s policies did not immediately lead to a significant reduction in the high rates of unemployment, underemployment and poverty.

On June 4, 2006, President García was elected for a five-year term after winning approximately 53% of the nationwide vote in a run-off election against Ollanta Humala. The García administration was elected on a platform that sought to implement social and political reforms and to provide continuity to the macroeconomic stability of the preceding years, as well as solidifying Peru’s relationships with its international partners. President García adopted policies that brought Peru closer to the United States and other developed economies, seeking to consolidate the existing relationships and sign trade agreements with these countries. President García also sought to achieve economic development for all Peruvians while ensuring economic and political stability. During President García’s term in office, Peru signed free trade agreements with the United States, Canada, Singapore, China and Chile, and continued with market-oriented policies that spurred economic growth.

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On June 5, 2011, Ollanta Humala was elected president for a five-year term after winning a run-off election against Keiko Fujimori. While the election of President Humala initially generated political and economic uncertainty, President Humala took decisive steps to demonstrate continuity with the prior administration’s economic policies. Shortly after his inauguration, President Humala confirmed Julio Velarde as president of the Central Bank of Peru and appointed Luis Miguel Castilla as minister of economy and finance, both of whom served as senior members in the prior administration and were strong proponents of open market policies.

President Humala’s administration continued to implement policies that promote macroeconomic stability, fiscal discipline and domestic and foreign investment. In addition, President Humala’s administration did not make any significant shift in trade policy and did not experience any adverse changes with its major trading partners, relative to the prior administration.

In addition to strong economic growth, President Humala’s administration focused on promoting a broader agenda of social inclusion by developing social programs that benefit the poorest sectors of the population.

In July 2016, Pedro Pablo Kuczynski was inaugurated as president after defeating Keiko Fujimori of the Fuerza Popular in a run-off election held in June 2016. President Kuczynski was in office through March 23, 2018 when Congress accepted his resignation following allegations of corruption limited to the Odebrecht corruption scandal. On that same date, Vice President Vizcarra was sworn in as president to complete the term through 2021. After President Vizcarra stepped down in November 2020, there was a short period of turmoil that was resolved after interim President Merino resigned and President Sagasti took office. President Sagasti remained president until July 2021, when President Castillo took office.

Developments from 2016 to 2020

Introduction

From 2016 to 2019, Peru experienced continued economic expansion, except for 2020 due to the COVID-19 pandemic. GDP expanded by 4.0% in 2016, 2.5% in 2017, 4.0% in 2018, 2.2% in 2019 and decreased by 11.1% in 2020. Set forth below is a brief discussion of the key trends and events affecting economic results during this period.

2016

In 2016, GDP expanded by 4.0% compared to 2015. Domestic demand grew 1.1%, public spending grew by 0.3%, and private investment increased by 0.3% as a number of big mining investment projects moved from the investment to the operations phase. These results were partially offset by the positive impact of increased copper exports and moderate growth in private consumption. The current account posted a deficit equivalent to 2.6% of GDP. The following were the other key economic results during 2016:

• public sector domestic debt totaled U.S.$24.9 billion, or 12.8% of GDP;

• public sector external debt totaled U.S.$23.8 billion, or 12.2% of GDP;

• exports increased 7.8%, from U.S.$34.4 billion in 2015 to U.S.$37.1 billion;

• the overall balance of the non-financial public sector registered a deficit of U.S.$4.6 billion, or 2.3% of GDP, compared to a deficit of U.S.$3.7 billion, or 1.9% of GDP in 2015;

• the inflation rate was 3.2% for 2016, as compared to an inflation rate of 4.4% for 2015;

• the net international reserves of the Central Bank increased to U.S.$61.7 billion as of December 31, 2016 as compared to U.S.$61.5 billion as of December 31, 2015; and

• foreign direct investment was U.S.$5.6 billion, compared to U.S.$8.1 billion during 2015.

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2017

In 2017, GDP expanded by 2.5% compared to 2016 primarily due to the reversal of effects of shocks which had affected the economy the previous year (the El Niño Costero weather pattern and the corruption scandal related to Odebrecht), and the positive effects of trade balance, GDP grew by 2.5%, partially due to the increase in private sector consumption (2.6%), the increase in public consumption (0.5%), the increase in exports (7.6%) and the increase in imports (4.0%).

The trade balance recorded a surplus of U.S.$6.7 billion compared to U.S.$1.9 billion in 2016, while the current account posted a deficit of U.S.$2.8 billion, or 1.3% of GDP. The following were the other key economic results during 2017:

• public sector domestic debt totaled U.S.$32.7 billion, or 15.3% of GDP;

• public sector external debt totaled U.S.$22.7 billion, or 10.6% of GDP;

• exports increased by 22.5%, from U.S.$37.1 billion in 2016 to U.S.$45.4 billion in 2017;

• the overall balance of the non-financial public sector registered a deficit of U.S.$6.4 billion, or 3.0% of GDP, as compared to a deficit of U.S.$4.6 billion, or 2.3% of GDP for 2016;

• the inflation rate was 1.4%, as compared to an inflation rate of 3.2% for 2016;

• the net international reserves of the Central Bank increased to U.S.$63.6 billion as of December 31, 2017, as compared to U.S.$61.7 billion as of December 31, 2016; and

• foreign direct investment was U.S.$6.4 billion in 2017, as compared to U.S.$5.6 billion in 2016.

2018

In 2018, GDP expanded by 4.0% compared to 2017, primarily due to increases in private and public sector investment and public and private consumption. The trade balance recorded a surplus of U.S.$7.2 billion compared to a U.S.$6.7 billion surplus in 2017, while the current account posted a deficit of U.S.$3.9 billion or 1.7% of GDP. The following were the other key economic results during 2018:

• public sector domestic debt totaled U.S.$35.0 billion, or 15.5% of GDP;

• public sector external debt totaled U.S.$23.0 billion, or 10.2% of GDP;

• exports increased by 8.0%, from U.S.$45.4 billion in 2017 to U.S.$49.1 billion in 2018;

• the overall balance of the non-financial public sector registered a deficit of U.S.$5.2 billion, or 2.3% of GDP, as compared to a deficit of U.S.$6.4 billion, or 3.0% of GDP for 2017;

• the inflation rate was 2.2%, as compared to an inflation rate of 1.4% for 2017;

• the net international reserves of the Central Bank decreased to U.S.$60.1 billion as of December 31, 2018, as compared to U.S.$63.6 billion as of December 31, 2017; and

• foreign direct investment was U.S.$6.5 billion in 2018, as compared to U.S.$6.4 billion in 2017.

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2019

In 2019, GDP expanded by 2.2% compared to 2018. Economic activity during 2019 was characterized by contraction in the primary sector mainly in fishing and mining, the impact of the political cycle on public expenditures by regional and municipal governments, and by the effects of slower global growth that resulted in a decrease in terms of trade.

The trade balance recorded a surplus of U.S.$6.6 billion, while the current account reflected a deficit of U.S.$2.7 billion or 1.2% of GDP. The following were the other key economic results during 2019:

• public sector domestic debt totaled U.S.$40.8 billion, or 17.7% of GDP;

• public sector external debt totaled U.S.$22.6 billion, or 9.8% of GDP;

• exports decreased by 2.8%, from U.S.$49.1 billion in 2018 to U.S.$47.7 billion in 2019;

• the overall balance of the non-financial public sector registered a deficit of U.S.$3.7 billion, or 1.6% of GDP in 2019, as compared to a deficit of U.S.$5.2 billion, or 2.3% of GDP in 2018;

• the inflation rate was 1.9%, or compared to an inflation rate of 2.2% in 2018;

• the net international reserves of the Central Bank decreased to U.S.$68.3 billion at December 31, 2019, compared to U.S.$60.1 billion at December 31, 2018; and

• foreign direct investment was U.S.$8.0 billion in 2019, as compared to U.S.$6.5 billion in 2018.

2020

In 2020, GDP decreased by 11.1% compared to 2019, as a consequence of the implementation of one of the most strict quarantine measures in the world to contain the advance of infections due to COVID-19. These quarantine measures paralized the majority of our production sectors, with only essential services permitted to continue operating. This restriction caused employment and production to deteriorate significantly, and as a consequence, lowered future expectations regarding the development of Peru’s economy. The economic recovery in the second half of the year moved at a faster pace than expected, with those sectors that had been paralyzed gradually resuming operations and the easing of movement restrictions. The GDP decreased in general throughout all the productive sectors, except in the agriculture, livestock and fishing sectors. Primary production had an 8.6% decrease, while secondary production decreased 12.9%.

The trade balance recorded a surplus of U.S.$7.8 billion, while the current account reflected a surplus of U.S.$1.5 billion or 0.7% of GDP. The following were the other key economic results during 2020:

• public sector domestic debt totaled U.S.$38.0 billion, or 18.6% of GDP;

• public sector external debt totaled U.S.$32.5 billion, or 15.9% of GDP;

• exports decreased by 11.1%, from U.S.$47.7 billion in 2019 to U.S.$42.4 billion in 2020;

• the overall balance of the non-financial public sector registered a deficit of U.S.$18.2 billion, or 8.9% of GDP in 2020, as compared to a deficit of U.S.$3.7 billion, or 2.3% of GDP in 2019;

• the inflation rate was 2.0%, or compared to an inflation rate of 1.9% in 2019;

• the net international reserves of the Central Bank increased to U.S.$74.7 billion at December 31, 2020, compared to U.S.$68.3 billion at December 31, 2019; and

• foreign direct investment was U.S.$0.5 billion in 2020, as compared to U.S.$7.1 billion in 2019.

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Developments in Argentina, Bolivia, Brazil, Colombia, Ecuador and Venezuela

Developments in countries throughout Latin America have had and Peru expects they will continue to have a significant impact on economic growth and political developments in Peru. In particular, political and economic developments of Peru’s neighbors in South America have substantial effects on Peru, including developments in Argentina, Bolivia, Brazil, Colombia, Ecuador and Venezuela. In March 2017, the Government recalled its Ambassador to Venezuela, following the decision by the Venezuelan Supreme Court to take over functions of its Congress. Notwithstanding the recall of the Peruvian Ambassador the Peruvian Embassy in Caracas remains open and bilateral relations between Peru and Venezuela are not ruptured.

According to the Peruvian National Superintendence of Migration, for 2019 accumulated migration (the difference between the entrance and exit of foreign citizens) was 175,327 people. Preliminary estimates indicate that migration reduces, in certain work groups, the probability of maintaining employment and income generated by the main employment opportunities in Lima and Callao. This expansion of the labor supply could reduce wages and potentially prices of the activities in the services sector (which has the 60% of Venezuelan formal workers). With respect to the demand, the expenditures made by the percentage of immigrants that are in Lima and Callao, who are employed, have contributed, through private consumption, 0.33% to the GDP (from a total of 4.0% growth of GDP in 2018). Based on information published by the Superintendencia Nacional de Migraciones (the National Immigration Superintendence), approximately 862,000 Venezuelan nationals were resident in Peru as of December 31, 2019.

Negative investor reaction to developments in any of these countries could adversely affect the market for securities issued by Latin and South American countries, cause foreign investors to withhold capital from the region and cause uncertainty about plans for further integration of the region’s economies. Any of these events could adversely and materially affect Peru.

The COVID-19 Economic Plan of the Vizcarra Administration

Fiscal accounts have weakened in recent years as a result of falling fiscal revenue and the persistent increase in current spending. In 2017, the preliminary fiscal deficit of the non-financial public sector reached its highest level in 17 years (3.0% of GDP) while in 2018 it decreased to 2.3% of GDP for that year, with the stated plan to bring the fiscal deficit to 1% by 2021. Maintaining sound fiscal accounts will contribute to sustainability and support the Republic’s long-term credit ratings, which facilitates favorable financing conditions for investment projects, with multiplier effects that we expect will have on the potential of economic growth.

With the aim of boosting the economy in the short term and defining the basis for greater growth in the medium term, prior to the onset of the Covid-19 pandemic, the Vizcarra administration proposed an Economic Impulse Plan that targeted GDP growth of 5.0% by the end of 2021, adhering to fiscal priorities. This plan was based on five pillars designed to strengthen fiscal accounts in order to generate pro-growth fiscal initiatives and boost the economy in the short- and medium-term.

Since the onset of the Covid-19 pandemic, the Vizcarra administration shifted to implement economic policies linked to a strategy to achieve, in the short-term, a rapid reactivation of the economy without neglecting progress made in combating and controlling the pandemic, and to lay the foundations to consolidate sustained growth in the medium- and long-term. This economic reactivation plan was accompanied by the progressive closing of structural gaps, greater public investment, and a boost to competitiveness and productivity, intended to improve the quality of life and provide fairer opportunities for all Peruvians. In this sense, the economic policy guidelines were intended to promote macroeconomic and microeconomic policy objectives:

• Macroeconomic policy initiatives: prudent, consistent and responsible management of economic policy for more than 20 years has enabled Peru to establish solid macroeconomic fundamentals and position itself as one of the economies with the greatest fiscal stability in the region. Accordingly, the COVID-19 Economic Plan is being implemented for approximately 20% of GDP, the most ambitious investment

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plan in Peruvian history and one of the largest in Latin America. The COVID-19 Economic Plan has been carried out to support the population and foster economic reactivation throughout the pandemic and the resulting economic crisis and aimed at containing the health impact of the emergency, providing support to families and protecting the productive segments of the economy. Currently, the COVID-19 Economic Plan is in the economic reactivation phase, the objective of which is to ensure that the Peruvian economy is shored up and stable so that it can optimize potential growth in the short-term.

Over the longer-term, the COVID-19 Economic Plan seeks to resume the path of consolidation and sustained economic growth through measures that allow promoting greater capital accumulation and improving efficiency. Among these, the greatest boost to the execution of the project portfolio of the National Infrastructure Plan is key and targets the development of 52 projects for an investment amount of approximately S/99 billion (U.S.$29.9 billion). These projects are intended to narrow the long-term infrastructure gap by: (i) temporarily suspending the requirement for licenses for building; (ii) transferring extraordinary power to local governments to manage areas necessary to carry out local prioritized residential and infrastructure projects; and (iii) promoting mechanisms such as G2G and PPP, which will accelerate the execution of some infrastructure projects and the works of the Integral Plan for Reconstruction with Changes, among others. In addition, Peru has a potential portfolio of 41 mining projects currently in the construction phase that will provide for total investment of approximately U.S.$49 billion, whose execution will materialize in the medium and long term.

• Microeconomic policy initiatives: The Peruvian economy has stood out for its solid macroeconomic fundamentals and one of the highest growth rates in the region. However, the crisis generated by the COVID-19 pandemic has exposed the need to resolve a series of structural flaws in the social system. Thus, for example, the high rates of economic informality, the low level of financial inclusion, the deficit in the quality of public services, among other structural aspects, continue to limit the effectiveness of the policies intended to control the pandemic. Along these lines, the Government is committed to continue working on measures designed to solve the country’s structural problems and generate greater efficiency and competitiveness, given that this crisis represents an opportunity to make meaningful structural changes in Peru and make it more fair and equitable. In this regard, the Government is accelerating the implementation of the National Competitiveness and Productivity Plan, and implementation of policy measures necessary to addressing the economic and social challenges Peru faces and reorienting the country to a future of improved well-being for its citizenry. Since it was published on July 11, 2019 and through August 2020, 68 of the 434 milestones set forth in the Plan have been achieved. The gains in competitiveness will make it possible to raise the quality of public services, stimulate public and private investment and give greater dynamism to the workforce and the various business units that make up the country’s productive fabric. In addition, as part of improving competitiveness and productivity, the government continues to promote sectoral community boards that seek to generate new growth engines through productive diversification.

Gross Domestic Product and the Structure of the Economy

In 2016, private consumption was U.S.$128.6 billion, an increase of 3.7% in real terms compared to 2015, as a result of an increase in national disposable income and higher rates of employment. Total gross investment decreased 5.0%, private investment decreased 5.4% and public investment increased 0.3%, in each case, as compared to 2015. The deceleration in private investment was due to lower investment in the mining sector.

In 2017, private consumption was U.S.$140.4 billion, an increase of 2.6% in real terms compared to 2016, partially a result of the impact of the El Niño weather phenomenon that led to reduced productive activity and manual labor and lower rates of employment. Total gross investment decreased 1.4%, private investment increased 0.2% and public investment decreased 1.8%, in each case, as compared to 2016. The deceleration in growth of private investment was due to reduced private investing in the non-mining sectors in the face of corruption allegations.

In, 2018 private consumption was U.S.$146.4 billion, an increase of 3.8% in real terms compared to 2017, primarily due to higher employment rates and increase credit availability. Total gross investment, private investment, and public investment increased 7.6%, 4.5% and 5.6%, respectively, in each case, as compared to 2017. Private investment was driven by the development of projects in the mining sector, particularly of copper and iron. Public investment resumed growth with public works projects like road infrastructure and health and safety projects, as well as for the Pan American games and the reconstruction of the north of the country after the El Niño phenomenon of 2017.

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In 2019, private consumption was U.S.$151.8 billion, representing a growth of 3.0% in real terms as compared to 2018 as a result of a sustained increase in consumer credit and a favorable outlook by families regarding future economic growth. Public consumption was U.S.$26.2 billion, representing an increase of 2.1% in real terms primarily as a result of higher consumption of goods and services by the national government in the context of contraction in public consumption by regional and municipal governments. Gross public investment decreased 1.4% in 2019 as changes to local and regional government authorities resulted in reduced public investment offset in part by higher investment by the national government. Public investment by regional governments decreased 2.2% as investments in sanitation, transportation and health decreased. Municipal government consumption decreased 10.2% as these governments reduced investment in road improvements. These decreases in public consumption by regional and local governments was in steady from 2011 through 2015 when such investment decreased from 11.2% and 6.9% on average. Gross private investment increased 4.0% in 2019 driven primarily by a 23.6% increase in investments in the mining sector in copper mega-projects that included Quellaveco, Mina Justa y Ampliación de Toromocho and, to a lesser extent, a 1.2% increase in investments in other sectors such as hydrocarbons, energy and manufacturing as compared to 2018. Total gross investments increased 0.5% during 2019 as compared to 2018.

In 2020, private consumption was U.S.$134.4 billion representing a decrease of 8.7% in real terms compared to 2019, in which it grew 3.0%, This is the sharpest decrease since 1990. This decrease was caused by the extreme reduction of formal employment, mainly during the first half of the year, along with the restriction to goods and services and the reduction in household consumption. However, during the second half of the year, there was some recovery due to the relaxation of the pandemic restrictions and the reopening of businesses. Formal employment decreased 6.2% in 2020, for a total loss of 235,000 jobs. The total formal employment decreased 4.2% in 2020, after an increase of 5.8% in 2019. Private investments decreased 16.6% (sharpest decrease since 1990) mainly in the minging sector (a decrease of 28.2%) and other sectors (a decrease of 14.6%). On the other hand, public consumption of goods and services increased 7.4% during 2020, mainly due to pandemic related expenses and purchases, many of them at the local level under the “Arranca Peru” program. Most of the public infrastructure projects were suspended during the first half of the year, with certain recovery during the second half of the year.

Exports of goods and services decreased 20.1% in 2020, the biggest decrease in historical data from 1951. This decrease was a consequence of a 17.7% drop in export of traditional goods and a 56.3% drop of services export. This extreme decrease of exports was produced by the combination of the global demand contraction, the restriction of non-essential economic activity and the implementation of pandemic protocols. Services export were mainly impacted by the restriction to international flights and the arrival of international passangers.

On the other hand, imports of goods and services decreased 15,7%, a record since 1978. This was caused by a reduction in purchases of consumer and industrial goods and a decreased demand of imported services, specially transportation and travel. The reduction on travel and transportation was due to the flight restrictions and a diminished household spending.

In the five-year period ended December 31, 2020, Peru’s economy grew at an annual compound rate of 0.1% in real terms from 4.0% in 2016 to an 11.1% contraction in 2020. In 2020, both public and private investment decreased at a compound rate of 2.9%.

Domestic demand decreased 9.7% in 2020. The main contributors to this decrease were reduced consumer spending and limited investment, both also affected by the pandemic quarantine restrictions. On the same direction, the decrease of economic expectations and suspension of construction and investment projects were also main factors. All of these factors experienced some recovery during the second half of the year as consumer demand increased, the pandemic restrictions were relaxed, the economy was reopened and the economic expecatitons improved.

Peru’s economy grew in real terms by 4.0% in 2016, 2.5% in 2017, 4.0% in 2018 2.2% in 2019, and restracted by 11.1% in 2020.

The following tables set forth GDP by expenditure for the periods presented.

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Gross Domestic Product by Expenditure⁽¹⁾

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Government consumption		23,461			25,211			25,847			23,652			28,246
Private consumption		128,617			140,421			146,453			151,767			134,420
Gross investment:
Public sector		9,503			9,891			10,752			10,617			8,768
Private sector		35,418			37,079			39,691			41,725			34,411
Change in inventories		(2,336	)		(2,863	)		(1,706	)		(3,127	)		(5,045	)
Total gross investment		42,585			44,107			48,736			49,215			38,134
Domestic demand		194,663			209,739			221,036			227,708			200,800
Exports of goods and services		43,440			52,049			56,150			55,103			45,743
Imports of goods and services		43,562			47,457			51,755			51,805			42,105
Net (exports)		(122	)		(4,592	)		4,395			(3,298	)		3,638
GDP		194,540			214,330			225,430			231,006			204,437

Source: Central Bank of Peru

Gross Domestic Product by Expenditure

(in millions of soles, at constant 2007 prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Government consumption		58,793			59,183			59,409			60,695			65,187
Private consumption		321,383			329,870			342,541			352,747			321,946
Gross investment:
Public sector		23,514			23,088			24,347			23,978			20,268
Private sector		92,983			93,077			96,911			101,290			84,450
Change in inventories		(6,117	)		(7,137	)		(4,100	)		(7,565	)		(12,347	)
Total gross investment		110,380			109,028			117,158			117,702			92,370
Domestic demand		490,557			498,082			519,108			531,145			479,503
Exports of goods and services		134,957			144,887			148,402			149,402			119,324
Imports of goods and services		123,933			128,754			132,845			134,386			113,353
Net (exports)		11,024			16,133			15,557			15,016			5,971
GDP		501,581			514,215			534,665			546,061			485,474

Source: Central Bank of Peru

In 2016, 2017, 2018, 2019 and 2020, public savings reached 2.5%, 1.6%, 2.5%, 3.0% and -4.6% of GDP, respectively. In 2020, public savings reached -4.6% of the GDP, due primarily to the use of government resources to mitigate the negative effects of the COVID-19 pandemic. Private savings represented 16.7% of GDP in 2016, 17.7% in 2017, 17.4% in 2018, 17.2% in 2019 and 24.0% in 2020, which saw a large increase in private savings, reaching 24.0% of GDP, the greatest rate since 1970 when Peru began recording savings and investments annually. While household income decreased during 2020, the COVID quarantine restrictions over certain goods and services along with a different household spending behavior produced a further decrease in household consumption.

From 2016 to 2020, domestic savings as a percentage of GDP fluctuated from 19.3% to 19.4%, due primarily to a decrease in public savings. During 2016 and 2017 domestic savings represented 19.3% of GDP, 19.9% in 2018, 20.2% in 2019 and 19.4% in 2020.

External savings represented 2.6% in 2016, 1.3% in 2017, 1.7% in 2018, 1.2% in 2019 and -0.7% in 2020. The 1.9% decrease in external savings as a percentage of GDP in 2020 compared to 2019 is explained by a reduction in domestic investment of 2.6% from 21.3% in 2019 to 18.7% in 2020 due to the temporary cessation of investment projects during the first half of the year and a reduction of domestic savings of 0.8% explained by the use of government resources to mitigate the negative effects of the COVID-19 pandemic. Domestic investment as a percentage of GDP was 21.9% in 2016 and closed 2020 at 18.7%.

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Gross Domestic Product by Expenditure

(as a percentage of total GDP, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Government consumption		12.1			11.8			11.5			11.6			13.8
Private consumption		66.1			65.5			65.0			65.7			65.8
Gross investment:
Public sector		4.9			4.6			4.8			4.6			4.3
Private sector		18.2			17.3			17.6			18.1			16.8
Change in inventories		(1.2	)		(1.3	)		(0.8	)		(1.4	)		(2.5	)
Total gross investment		21.9			20.6			21.6			21.3			18.7
Domestic Demand		100.1			97.9			98.1			98.6			98.2
Exports of goods and services		22.3			24.3			24.9			23.9			22.4
Imports of goods and services		22.4			22.1			23.0			22.4			20.6
Net (exports)		(0.1	)		(2.1	)		1.9			1.4			1.8
GDP		100.0			100.0			100.0			100.0			100.0

Source: Central Bank of Peru

Gross Domestic Product by Expenditure

(percentage change from previous period, at constant 2007 prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Government consumption		(0.6	)		0.7			0.4			2.2			7.4
Private consumption		3.7			2.6			3.8			3.0			8.7
Gross investment:
Public sector		0.3			(1.8	)		5.4			(1.5	)		(15.5	)
Private sector		(5.2	)		0.1			4.1			4.5			(16.6	)
Change in inventories		(23.2	)		16.7			(42.6	)		84.5			(63.2	)
Total gross investment		(5.3	)		(1.2	)		7.5			0.5			(21.5	)
Domestic demand		1.0			1.5			4.2			2.3			(9.7	)
Exports of goods and services		9.1			7.4			2.4			0.7			(20.1	)
Imports of goods and services		(2.3	)		3.9			3.2			1.2			(15.7	)
Net (exports)		454.5			46.3			(3.6	)		(3.5	)		(60.2	)
Real GDP		4.0			2.5			4.0			2.2			(11.1	)

Investment and Savings

(as a percentage of current GDP)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Domestic savings:
Public savings		2.5		1.6		2.5		3.0		4.6
Private savings		16.7		17.7		17.4		17.2		24.0
Total domestic savings		19.3		19.3		19.9		20.2		19.4
External savings		2.6		1.3		1.7		1.2		(0.7	)
Total savings		22.0		20.6		21.7		21.4		21.4
Domestic investment		21.9		20.6		21.6		21.3		18.7

Source: Central Bank.

As indicated in the table below, the standard of living of the Peruvian population as measured by GDP per capita decreased at an average annual rate of 0.1% from 2016 to 2020. Per capita GDP decreased from U.S.$6,395.00 in 2016 to U.S.$6,266.00 in 2020. Per capita GDP decreased 12.8%, from U.S.$7,189 in 2019 to U.S.$6,266 in 2020 (the lowest since 2011). The currency depreciation accounts partly for this decrease. Per capita GDP in real terms increased by 0.2% in 2016, 8.2% in 2017, 3.2% in 2018 and 0.6% in 2019.

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Per Capita GDP⁽¹⁾⁽²⁾

(in U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Per capita GDP		6,395		6,920		7,142		7,189		6,266

(1) Without adjustment to reflect changes in purchasing power.

(2) Preliminary data.

Source: Central Bank.

Principal Sectors of the Economy

The principal economic activities in Peru are services (including wholesale and retail trade, transportation and tourism), manufacturing, agriculture and livestock, and mining and hydrocarbons.

Gross Domestic Product by Sector

(in millions of soles, at constant 2007 prices)

	For the year ended December 31,
	2016		2017		2018		2019			2020
Primary production:
Agriculture and livestock(2)		26,584		27,328		29,429		30,471			30,861
Fishing		1,836		1,921		2,838		2,351			2,400
Mining and hydrocarbons(3)		69,445		71,823		70,749		70,715			61,409
Total primary production		97,865		101,072		103,016		103,537			94,670
Secondary production:
Manufacturing		64,793		64,669		68,476		67,313			58,300
Electricity and water		9,306		9,412		9,826		10,212	��		9,585
Construction		29,135		29,748		31,335		31,788			27,356
Total secondary production		103,235		103,829		109,636		109,313			95,241
Services
Wholesale and retail trade		55,199		55,767		57,243		58,960			49,539
Other services(4):
Transportation		26,920		28,089		29,643		30,327			22,217
Lodging		15,677		15,930		16,561		17,314			8,624
Telecommunications		20,408		22,156		23,298		24,864			26,119
Financial services and insurance		22,149		22,555		23,862		25,104			28,439
Services rendered to private enterprise		24,009		24,866		25,767		26,804			21,600
Government services and defense		24,704		25,603		26,753		27,581			28,769
Other		66,447		68,648		71,396		73,836			67,663
Taxes		44,968		45,699		47,491		48,521			42,593
Total other services		245,283		253,546		264,770		274,351			246,025
Total services		300,482		309,313		322,013		333,311			295,563
Total GDP		501,581		514,215		534,665		546,161			485,474

(1) Preliminary data.

(2) Includes forestry.

(3) Includes non-metallic mining.

(4) Includes taxes on products and import duties.

Source: Central Bank.

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The following tables set forth the distribution of GDP in the Peruvian economy, indicating the percentage contribution to GDP and the growth rate for the periods shown for each sector, in each case compared to the prior year.

Gross Domestic Product by Sector

(as a percentage of GDP, at constant 2007 prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Primary production:
Agriculture and livestock(2)		5.3		5.3		5.5		5.6		5.7
Fishing		0.4		0.4		0.5		0.4		0.4
Mining and hydrocarbons(3)		13.8		14.0		13.2		12.9		11.2
Total primary production		19.5		19.7		19.3		19.0		17.3
Secondary production:
Manufacturing		12.9		12.6		12.8		12.3		10.7
Electricity and water		1.9		1.8		1.8		1.9		1.8
Construction		5.8		5.8		5.9		5.8		5.0
Total secondary production		20.6		20.2		20.5		20.0		17.4
Services:
Wholesale and retail trade		11.0		10.8		10.7		10.8		9.1
Other services(4):
Transportation, storage, mail and messenger services		5.4		5.5		5.5		5.6		4.6
Lodging and restaurants		3.1		3.1		3.1		3.2		1.8
Telecommunications and other information systems		4.1		4.3		4.4		4.6		5.4
Financial services and insurance		4.4		4.4		4.5		4.6		5.9
Services rendered to private enterprise		4.8		4.8		4.8		4.9		4.4
Government services and defense		4.9		5.0		5.0		5.0		5.9
Other		13.2		13.3		13.4		13.5		13.9
Taxes		9.0		8.9		8.9		8.9		8.8
Total other services		48.9		49.3		49.5		50.2		50.7
Total services		59.9		60.2		60.2		61.0		54.1
Total GDP		100.0		100.0		100.0		100.00		100.00

(1) Preliminary data.

(2) Includes forestry.

(3) Includes non-metallic mining.

(4) Includes taxes on products and import duties.

Source: Central Bank.

Gross Domestic Product by Sector

(percentage change from previous period, at constant 2007 prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Primary production:
Agriculture and livestock(2)		2.7			2.8			7.7			3.5			1.3
Fishing		(10.1	)		4.7			47.7			(17.2	)		2.1
Mining and hydrocarbons(3)		16.3			3.4			(1.5	)		0.0			(13.2	)
Total primary production		11.7			3.3			1.9			0.5			(8.6	)
Secondary production:
Manufacturing		(1.4	)		(0.2	)		5.9			(1.7	)		(13.4	)
Electricity and water		7.3			1.1			4.4			3.9			(6.1	)
Construction		(3.2	)		2.1			5.3			1.4			(13.9	)
Total secondary production		(1.2	)		0.6			5.6			(0.3	)		(12.9	)
Services:
Wholesale and retail trade		1.8			1.0			2.6			3.0			(16.0	)

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	For the year ended December 31,
	2016		2017		2018		2019		2020
Other services(4):
Transportation		3.7		4.3		5.5		2.3		(26.7	)
Lodging and restaurants		2.4		1.6		4.0		4.6		(50.2	)
Telecommunications and other information services		8.4		8.6		5.2		6.7		5.0
Financial services and insurance		5.0		1.8		5.8		5.2		13.3
Services rendered to private enterprise		2.2		3.6		3.6		4.0		(19.4	)
Government services and defense		3.9		3.6		4.5		3.1		4.3
Other		3.6		3.3		4.0		3.4		(8.4	)
Taxes		3.1		1.6		3.9		2.2		(12.2	)
Total other services		3.9		3.4		4.4		3.6		(10.3	)
Total services		3.5		2.9		4.1		3.5		(11.3	)
Total GDP		4.0		2.5		4.0		2.2		(11.1	)

(1) Preliminary data.

(2) Includes forestry.

(3) Includes non-metallic mining.

(4) Includes taxes on products and import duties.

Source: Central Bank.

During 2016, GDP grew 4.0%, compared to 2015, principally driven by increased activity in primary production, especially in the mining sector, which grew 21.2%, which includes higher production of copper from the Las Bambas and Cerro Verde mines. The non-primary sectors continued to be impacted by a weak internal demand that translated into negative rates in sectors like construction and manufacturing, as well as deceleration in the commerce and services sectors.

During 2017, GDP grew 2.5%, principally driven by growth in primary production, especially in the fishing and mining sectors, and growth in other services such as transportation and telecommunications. Growth of the non-primary sectors continued to be driven by internal demand that translated into higher growth rates in sectors like construction, as well as contraction in the commerce and services sectors, while telecommunications services showed robust growth.

During 2018, GDP grew 4.0%, principally driven by growth in secondary production, particularly in the manufacturing, construction, and electricity sectors, and growth in other services, such as telecommunications, financial services, and transportation. Growth of the primary sector was driven by growth in the fishing, agriculture and livestock sectors.

During 2019, GDP grew 2.2%, as compared to 2018. This result was primarily explained by the slower growth in primary production, driven by lower availability of anchovies and lower production of mining products, lower secondary production and a slowdown in growth of services.

During 2020, GDP decreased 11.1%, as compared to 2019. This was the first GDP decrease after 21 years of continued growth. The country has not had such a GDP decrease level since 1989, when it decreased 12.3%. Furthermore, the GDP decreased in general throughout all the productive sectors, except in the agriculture, livestock and fishing sectors. Primary production had an 8.6% decrease, while secondary production decreased 12.9%.

Primary Production

Primary production in Peru comprises agriculture and livestock, forestry, fishing, mining and hydrocarbon extraction. Of these, the most important activities in terms of their contribution to GDP were agriculture and livestock, which, together with forestry, accounted on average for 5.5% of GDP in the period 2016-2020 and mining and fuel production accounted on average for 13.0% of GDP during the same period.

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During 2016, primary production grew 11.7%, 3.9% higher than in 2015, due to increased production in mining, agriculture and livestock sectors. In terms of contribution to GDP, mining and fuel accounted for 16.3% in 2016, and agriculture and livestock for 2.7% in total, while the primary sector contributed 19.5% to GDP in 2016.

During 2017, primary production grew 3.3%, 8.4% slower than in 2016, due to decreased activity in the mining and livestock sectors. In terms of contribution to GDP, mining and fuel accounted for 14.0% in 2017, and agriculture and livestock for 5.3% in total, while the primary sector contributed 19.7% to GDP in 2017. In 2018, primary production grew 1.9%. Fishing, agriculture and livestock grew 47.7% and 7.7% respectively, partially offset by a decrease of 1.5% in mining and hydrocarbons sectors.

During 2019, primary production increased by 0.5% compared to 1.9% growth in 2018, due to decreased production in fishing and mining. In terms of contribution to GDP, primary production contributed 19.0% to GDP, compared to 19.3% in 2019.

During 2020, primary production decreased by 8.6% compared to 0.5% growth in 2019, due to decreased production in mining. In terms of contribution to GDP, primary production contributed 17.3% to GDP, compared to 19.0% in 2019.

The following table presents the production of selected primary goods for the periods presented.

Selected Primary Goods Production

(in millions of soles, at constant 2007 prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Agriculture:
Cotton		116		60		113		144		49
Rice		2586		2545		2,906		2,606		2,798
Coffee		1346		1616		1,771		1,740		1,780
Sugar cane		578		553		608		641		616
Corn		1367		1366		1,451		1,436		1,353
Potato		2039		2169		2,319		2,434		2,461
Wheat		156		157		160		154		154
Vegetables		2478		2518		2506		2,465		2,430
Fruits		4041		4155		4648		5,379		6,005
Tubers		645		647		677		694		682
Other agricultural		4223		4421		4881		5060		5137
Total crops		19,575		20,205		22,040		22,754		23,464
Livestock:
Poultry		6946		7200		7743		8088		7930
Eggs		1239		1283		1397		1,509		1,537
Milk		1624		1673		1718		1,763		1,777
Lamb		414		408		410		412		394
Pork		708		747		782		821		805
Beef		1627		1614		1623		1,650		1,574
Others		434		428		426		420		414
Total Livestock		12,991		13,353		14,098		14,663		14,431
Source: MINAG
Fishing		1,836		1,921		2,838		2,351		2,400

(1) Preliminary data.

(2) Includes secondary production.

Source: Production Ministry.

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Agriculture and Livestock

The Peruvian agriculture and livestock sector is dominated by small-scale producers. Approximately 16.8% of Peru’s land area is devoted to arable production and permanent crops. Subsistence farming predominates and productivity is low due to drainage and salinity problems, although productivity generally increased during the 1990s. The agriculture and livestock sector in recent years generally has grown at a rate higher than growth in GDP. Growth in the sector was, 2.7% in 2016, 2.8% in 2017, 7.7% in 2018, 3.5% in 2019 and 1.3% in 2020.

Peru’s main agricultural products are potatoes, corn, rice, coffee, fruits and vegetables, which together accounted for approximately 70.6% and 71.7% of agricultural production in 2019 and 2020, respectively. Peru’s traditional agricultural products include cotton, sugar, coffee and rice. Agricultural production has increasingly focused on non-traditional export products destined primarily for the winter markets of Europe and the United States. The northern coast of Peru is the main area for cultivation of non-traditional export crops such as asparagus, mangos, passion fruit and oranges. Animal husbandry – sheep, poultry and cattle – is predominant in the south.

Agricultural exports were a record U.S.$6.8 billion in 2020, representing an increase of 8.3% compared to 2019. This increase was primarily a result of exports of blueberries, grapes, mangoes, avocados and asparagus. Peru’s main agricultural export products are coffee, cotton and sugar, which together accounted for approximately 11.1% and 10.4% of agricultural production in 2019 and 2020, respectively. Other important export crops include cocoa, blueberries, coffee, quinoa and asparagus. In recent years, production of fruit, particularly mangos, grapes and avocados, for the export market has increased. Cotton, rice and sugar are produced for both the domestic and the export markets.

The following table provides the annual percentage change in production of selected primary goods for the periods presented.

Selected Primary Goods Production

(percentage change from previous period, at constant 2007 prices)

	For the year ended December 31,
	2016(1)			2017(1)			2018(1)			2019(1)			2020(1)
Agriculture:
Cotton		(35.3	)		(48.6	)		89.4			27.6			(65.9	)
Rice		0.5			(1.6	)		14.2			(10.3	)		7.3
Coffee		8.9			20.1			9.6			(1.7	)		2.3
Sugar cane		(3.7	)		(4.4	)		10.0			5.5			(4.0	)
Corn		(11.1	)		(0.1	)		6.3			(1.1	)		(5.8	)
Potatoes		(4.3	)		6.4			6.9			5.0			1.1
Wheat		(11.0	)		0.4			1.8			(3.5	)		(0.4	)
Vegetables		0.7			1.6			(0.5	)		(1.6	)		(1.4	)
Fruits		13.3			2.8			11.9			15.7			11.6
Tubers		(4.4	)		0.3			4.7			2.5			1.7
Other agricultural(2)		(1.1	)		4.7			10.4			3.7			1.5
Total agriculture		1.8			2.5			9.6			3.2			3.1
Livestock:
Poultry		6.3			3.7			7.5			4.5			(2.0	)
Eggs		3.8			3.6			8.9			8.0			1.9
Milk		2.7			3.0			2.7			2.6			0.8
Lamb		2.4			(1.5	)		0.6			0.3			(4.2	)
Pork		4.5			5.6			4.6			5.0			(2.0	)
Beef		(3.0	)		(0.8	)		0.5			1.7			(4.6	)
Other		2.8			(1.4	)		(0.4	)		(1.3	)		(1.4	)
Total livestock		4.0			2.8			5.6			4.0			(1.6	)
Fishing		(10.1	)		4.7			47.7			(17.2	)		2.1

(1) Preliminary data. Source: Ministry of Production and MINAG.

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In 2016, the agriculture and livestock sector grew by 2.7%, contributing 5.3% to GDP. The expansion in the agriculture and livestock sector during 2016 was driven primarily by increased production of coffee and livestock such as poultry and pork.

The agriculture and livestock sector grew 2.8% in 2017, notwithstanding the adverse effects of the El Niño Costero phenomenon that persisted during the first nine months of the year. This growth was primarily driven by agricultural exports and improved production by agroindustrial companies and higher domestic consumption. Higher rainfall resulting from the El Niño Costero patterns generated increased water volumes at the principal reservoirs in the North Coast of the country that were available for agricultural use. The agricultural sector also registered increased production of poultry, beef and pork, as well as higher volume of eggs and milk primarily for internal consumption.

In 2018, the agriculture and livestock sector grew 7.7%, the highest rate in the last ten years, reaching historical levels in oriented products, both within the domestic market (potato, rice, plantain, tangerine, lemon, pineapple, choclo corn, and garlic) and the foreign market (coffee, olives, cacao, avocado, and blueberries), and in the poultry and fishing subsectors (meat and eggs). With this development, the sector has experienced 14 years of continuous growth. The prolonged growth is based on the sustained dynamism of agricultural exports, diversified agricultural goods products offerings, and of the poultry industry, whose permanent improvement of production processes make Peru the nineteenth largest producer of poultry meat in the world in 2017.

In 2019, the agriculture and livestock sector grew by 3.5% driven by increased production of agricultural products for domestic consumption (potatoes, bananas, casaba, citrus and pineapple) and exports (blueberries, mangoes, cacao, avocadoes and olives) and livestock, mainly poultry and eggs. The results for this year marks 15 consecutive years of growth of this sector, contributing 5.6% to GDP in 2019.

In 2020, the agriculture and livestock sector grew by 1.3% even with the pandemic underway, as part of the food supply chain. The agricultural sector has grown continuously for 16 years. This phase of growth for the sector has been mainly export oriented (a 7.2% increase since 2019).

Fishing

Fishing is a small part of the Peruvian economy, contributing on average 0.4% to GDP between 2016 and 2020. Traditional fish products, however, are Peru’s third largest single export after mining and petroleum and natural gas, accounting for 7.4% and 6.8% of total exports in 2019 and 2020, respectively, considering both traditional (fish meal and fish oil) and non-traditional exports (frozen crustaceans and mollusks, frozen fish, and prepared and canned food).

In the late 1960s, Peru was the world’s leading fish producer. Its importance as a leading exporter of fishmeal declined during the 1970s and early 1980s due to ecological factors and the adverse impact of pervasive overfishing. Peru has since recovered its position as one of the world’s leading fishmeal producers and exporters.

Peru’s fish-processing industry consists primarily of the processing of anchovies into fishmeal. The industry has suffered frequently from the destruction of fish stocks caused by changes in oceanographic conditions. The Government, from time to time, imposes seasonal fishing bans based on factors such as marine wildlife conditions and fish processing capacity. Although these bans limit fishing extraction, their adverse impact on fishing production is outweighed by the increased stock of protected species.

In June 2008, the regulatory structure of the fishing sector was changed from a global quota system to an individual fishing quota system per fishing entity, in order to allow efficient investment in the sector by private sector investors.

Fishing for direct human consumption increased to 6.4% primarily due to increased catches for cured and canned fish, and for growth of the frozen fish market. Among catch for cured and canned fish, there was an increase in production of tuna, anchovies, mackerel, and swordfish; whereas the frozen fish market saw increases primarily in mackerel, anchovies, scallops, tuna, mullet, and sea urchin.

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In 2016, the fishing sector decreased 10.1%, mainly due to a decrease of 24.4% in fish catch for industrial consumption and 0.5% for human consumption that resulted from greater restrictions imposed on fishing activity to allow for the recovery of fisheries. The production of canned fish increased by 35.5% compared to 2015. Inland fishing increased by 10.0% mainly due to the increased fish catch for fresh consumption.

In 2017, the fishing sector grew 4.7% mainly as a result of higher catches of anchovy during the first half of the year. The distribution, volume and growth of anchovy stock were not adversely affected by the El Niño Costero phenomenon. Anchovy catches for industrial consumption grew from 2.7 million metric tons in 2016 to 3.2 million metric tons in 2017.

In 2018, the fishing sector grew by 47.7% compared to 2017, its fastest rate since 2011. This result was primarily due to the fruitful anchovy fishing seasons (April to June and November to January), with high instances of capture due to the lack of climate anomalies, which favored an adequate level of biomass for the species. In 2018, 6.1 million metric tons of anchovies were fished, the second highest catch after passage of fishing laws limiting the number of fish captured per trip (the LMCE law). Another factor influencing the larger catch was the transfer of the second fishing season of 2017 to January and February 2018, due to the observed dispersion of the biomass of the species in the second half of the year of 2017. Both the allotted quotas and the extraction percentages in 2018 were greater than for both seasons in 2017. In terms of percentage, the performance of 2018 was 91 percent greater than the year before.

In 2019, the fishing sector decreased by 17.2% as compared to 2018 primarily as a result of smaller catches of anchovy from 6.1 million tons in 2018 to 3.4 million tons in 2019.

In 2020 the fishing sector grew by 2,1% due to higher volumes of anchovy fishing in the north-center regions. The annual production increased from 3.4 million tonnes in 2019 to 4.3 million tonnes in 2020 (a 27.6% increase). During the second season of anchovy fishing a higher fishing quota was permitted, resulting in 2.5 million tonnes, doubling the 2019 season. Fishing for direct human consumption decreased due to the food consumption pandemic restrictions. The COVID restrictions had a highest impact during the second quarter of 2020, reducing the exports of tuna and shrimp.

Mining and Hydrocarbons

In 2016, the mining and hydrocarbons sector grew 16.3% mainly due to the expansion of metal mining activity through the increased production of copper, molybdenum, gold, silver and iron. In 2017, mining and hydrocarbon production grew by 3.4%, driven by the mining subsector which grew by 4.5% despite the 2.4% contraction of the hydrocarbon subsector.

In 2018, the mining and hydrocarbons sector decreased by 1.5%, primarily due to less activity in metal mining production. This decrease is attributable to the lower production of metals, such as gold, copper, silver, lead, and molybdenum, as well as to the reduced extraction primarily of natural gas, due to the temporary closure of the processing plant at Las Malvinas for maintenance. The hydrocarbon subsector remained flat in 2018. While petroleum production increased by 12.1% in 2018, the production of hydrocarbons, like gas, decreased in 2018 as compared to 2017.

In 2019, the mining and hydrocarbons sector did not experience growth, with contraction in primary production (mining contracted 0.8%) which was offset by a 4.6% increase in hydrocarbons, driven primarily by an 8.4% increase in production of petroleum with the entry into production of Lot 95. The mining sector was affected by reduced production of gold and zinc.

In 2020, the mining and hydrocarbons sector decreased 13,2% in 2020, the sharpest decrease since 1989, due to a 13.5% decrease of metalic mining and an 11% decrease in the hydrocarbons sector. The decrease in those sectors was caused mainly by the COVID restrictions imposed by the government during the second quarter. During the 10 years period from 2011 to 2021, the average 1.9% increase in the mining and hidrocarbon sectors was mainly due to the 6.7% increase in the productions of copper, 6.6% in molibden production and 5.2% in natural gas production.

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Mining

Peru is a leading producer of gold, silver, tin, copper, lead and zinc in Latin America. In 2020, mining constituted a small part of the country’s GDP, contributing 8.8% to GDP. Mineral products are Peru’s main export, and accounted for 58.9% of total exports by value in 2019 and 60.8% in 2020. Gold and copper accounted for 17.8% (U.S.$8.5 billion) and 29.1% (U.S.$13.9 billion) of total exports by value, respectively, during 2019 and for 18.5% (U.S.$7.8 billion) and 30.0% (U.S.$12.7 billion) of total exports by value, respectively, during 2020. In addition, copper accounted for 49.5% of total mining exports in 2019 and 49.4% in 2020.

Between 2016 and 2020, investment in the mining sub-sector totaled approximately U.S.$25.1 billion, with average annual investment of U.S.$4.5 billion. Investments during 2016, 2017 2018, 2019 and 2020 were, U.S.$3.3 billion, U.S.$3.9 billion, U.S.$5.0 billion, U.S.$5.9 billion and U.S.$4.3 billion, respectively. The most important projects during the period from 2016 through 2020 were:

• the Antamina copper and zinc project, with investments of U.S.$247.9 million in 2016, U.S.$214.0 million in 2017, U.S.$276.0 million in 2018, U.S.$326.0 million in 2019 and U.S.$318.5 million in 2020

• development of Anglo American Quellaveco, with investments of U.S.$140.5 million in 2016, U.S.$164.3 million in 2017, U.S.$510.1 million in 2018, U.S.$1,343.5 million in 2019 and U.S.$1,313.8 million in 2020;

• Shougang Hierro Peru with investments of U.S.$129.2 million in 2016, U.S.$285.3 million in 2017, U.S.$509.0 million in 2018, U.S.$81.3 million in 2019 and U.S.$57.9 million in 2020;

• the expansion of the Cuajone and Toquepala copper projects, with investments of U.S.$581.7 million in 2016, U.S.$672.8 million in 2017 U.S.$614.8 million in 2018, U.S.$303.2 million in 2019 and U.S.$240.0 million in 2020;

• the Yanacocha gold mine, with investments of U.S.$81.0 million in 2016, U.S.$49.1 million in 2017, U.S.$119.4 million in 2018, U.S.$180.6 million in 2019 and U.S.$108.0 million in 2020;

• the expansion of the Cerro Verde copper mine, with investments of U.S.$154.9 million in 2016, U.S.$302.6 million in 2017, U.S.$285.1 million in 2018, U.S.$266.9 million in 2019 and U.S.$152.3 million in 2020;

• the expansion of the Chinalco mine, with investments of, U.S.$146.1 million in 2016, U.S.$127.2 million in 2017, U.S.$227.2 million in 2018, U.S.$412.7 million in 2019 and U.S.$307.3 million in 2020;

• the expansion of the MMG Las Bambas mine, with investments of U.S.$299.4 million in 2016, U.S.$158.0 million in 2017 U.S.$213.3 million in 2018, U.S.$274.4 million in 2019 and U.S.$205.7 million in 2020;

• the expansion of the Milpo mine, with investments of U.S.$16.9 million in 2016 and U.S.$22.5 million in 2017;

• the development of the Glencore Tintaya Antapaccay mine, with investments of U.S.$146.7 million in 2016, U.S.$198.3 million in 2017, U.S.$189.2 million in 2018, U.S.$150.8 million in 2019 and U.S.$61.2 million in 2020;

• the expansion of the Hudbay Peru mine, with investments of, U.S.$117.4 million in 2016, U.S.$157.5 million in 2017, U.S.$38.5 million in 2018, U.S.$64.2 million in 2019 and U.S.$72.2 million in 2020; and

• the expansion of Marcobre S.A.C. mine, with investments of, U.S.$51.6 million in 2017, U.S.$252.5 million in 2018, U.S.$741.5 million in 2019 and U.S.$497.3 million in 2020.

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During 2016, mining activity increased 21.2% primarily as a result of higher copper production (40.1%) that was generated by the Las Bambas mine and the expansion of the Cerro Verde mine.

During 2017, mining activity increased 4.5%, as compared to an increase of 21.2% in 2016. The 4.5% growth of the mining subsector was primarily attributable to growth of copper production, particularly at the Toromocho and Las Bambas mines, and production of zinc at the Atamina mine. The reduced growth rates of the sector relative to 2016 was due to the end of the positive effect on growth rates generated by the start of operations at the Cerro Verde and Las Bambas mines during the third quarter of 2015 that carried into 2016, generating 16.6 percentage points of growth of the mining sector in 2016.

During 2018, mining activity decreased by 1.7% due to a decrease in the production of gold, cooper, silver, zinc and molybdenum.

Gold production in 2018 decreased by 300 thousand ounces as compared to 2017, which represents a decrease of 6.1% compared to 2017. The fall is principally attributable to a smaller extraction by Barrick Gold and Buenaventura, and to increased bans on artisanal producers in Madre Dios. In Barrick Gold’s case, the Pierina gold mine is in the closing stage; while Lagunas Norte faces the depletion of minerals (which is expected to occur in 2020). On the other hand, the fall in production for Buenaventura was due to an internal resource redistribution policy, designed to resolve bottleneck issues in internal processes at Yanacocha, Orcopampa, and La Zanja.

The production of copper increased in 2018 to 2,371 thousand metric tons of fine copper (TMF), which decreased by 0.5% as compared to 2017. This is attributable to the decreased production by Las Bambas, offset by the increase in production at Antamina (4.6%) and Southern (8.3%), the last increase partially due to the start of operations expanding Toquepala in the last quarter.

Zinc production increased by 0.1% during 2018. This was primarily due to the fact that the largest extraction at Antamina was offset by decreased production at various other companies, particularly Nexa. Antamina produced an additional 34 thousand metric tons as compared to 2017, which represented a 7.5% increase. Nexa decreased production by 7.1% due to its redistribution plan which it started in the second quarter.

Iron production increased by 8.3% because of greater production by Shougang. The company decelerated its extraction rate during the last quarter in 2018 after directing resources to the expansion of the Marcona mine. Notwithstanding, it maintained positive growth as compared to 2017, when it faced a workers’ strike that lasted from the start of October to the middle of November.

During 2019, mining activity contracted by 0.8%, primarily as a result of decreased production of match and minerals.

Gold production in 2019 decreased by 379 thousand ounces equivalent to an 8.4% decrease compared to 2018, primarily due to lower extraction by Barrick and Buenaventura at the La Zanja mine. The Barrick mine Pierina was closed for schedule maintenance while the Lagunas Norte mine is nearing the end of its productive life cycle. The reduced production at the Buenaventura was due to a reallocation of resources to resolve an internal process at the Yanacocha, Orcopampa and La Zanja mines.

Copper production increased by 0.8% in 2019 compared to 2018 to 2,389 thousand fine metric tons. This increase was attributable to higher production by Southern Peru Copper Corporation as a result of the expansion of the Toquepala mine that peaked at production of 25,000 fine metric tons in May 2019, offset in part by the decreased copper production at most other mines including the Cerro Verde, Toromocho and Constancia mines.

Zinc production decreased by 4.7% during 2019 primarily as a result of lower production by Antamina which produced 110 thousand metric tons of zinc less than in 2018.

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Iron production increased 6.1% in 2019 compared to 2018 as a result of the Marcona de Shougang extension unit even though production decreased in the first quarter of 2019 as a result of environmental factors.

Silver production during 2019 contracted by 7.2% compared to 2018.

Production of molybdenum grew by 8.6% in 2019 as a result of increased production at the Constancia, Cerro Verde and Southern mines. Production at Southern mine increased 45.5% due to the expansion of the Toquepala facility. Production at Antamina and Las Bambas was lower during 2019 as the Las Bambas facility was temporarily closed in the fourth quarter to undergo a revamping designed to increase its efficiency.

Accordingly to a report by the U.S. Geological Survey published in 2020, in 2019 Peru retained its global positions as key copper, gold and zinc producer, increasing its global market share by 1% compared to 2018. Peru placed in second place in terms of proven copper reserves.

During 2020, mining activity contracted by 13.5%, primarily due to the temporary restrictions from the pandemic imposed on March 2020. There was a recovery in the second half of 2020.

Gold production was reduced to 1,322 ounces during 2020, a 32.0% decrease. This was the result of a general restriction on the activity due to the pandemic. The production decrease at Yanacocha and Buenaventura mines was due to such restrictions, added to a decrease in the level of gold concentrations.

Copper production was 2,086 fine metric tonnes (FMT) during 2020, a 12.7% decrease. In general the decrease was due to the pandemic restrictions. However, Southern Peru Copper Corporation and Toromocho-Chinalco increased their production due to their expansion at the Toquepala and Toromocho projects.

Zinc production was reduced 5.3% during 2020, with a reduction of small and medium size mining projects. However, Antamina increased its production 125,000 FMT due to higher levels of mineral, an increase of 34.3%. Nexa Resources and Volcan Compania Minera decreased their production during the pandemic restrictions but reinitiated their operations during the second phase of the economic reopening starting May 2020.

Iron production decreased 12.1% due to the lower production of Shougang. Molibden production increased 5.7% due to the extraction at Toromocho, Southern and Las Bambas. The production of silver decreased by 22,5% and the production of lead decreased by 21.9%, while the tin production increased by 4.0%.

Hydrocarbons

The hydrocarbons sub-sector, which encompasses petroleum and natural gas production, currently constitutes a minor part of the Peruvian economy. Petroleum companies operating in Peru are oriented towards the exploration and development of oil fields located mainly in the Amazon jungle. A major part of Peruvian production consists of heavy crude oil that is primarily exported and light crude oil that is used in local refineries. Petroleum products for industrial and residential use are supplemented with imports. Between 2016 and 2020, petroleum production increased due to increased capital investments by new petroleum companies entering the Peruvian petroleum market, leading to the drilling, evaluation and exploration of 590 new wells in Peru during this period.

As of December 31, 2018, Peru had approximately 10.6 trillion cubic feet of proven reserves of natural gas of which approximately 4.3 trillion cubic feet was developed in 2018. Natural gas production decreased approximately 14.1%, from 494.4 billion cubic feet in 2016 to 424.8 billion cubic feet in 2020.

Peru’s natural gas reserves are concentrated in the Camisea gas field, which is located approximately 300 miles east of Lima. In February 2000, the Government granted a 40-year operating concession over the Camisea gas field to the private consortium Pluspetrol-Hunt Oil-SK Corporation. Under the concession, the Government receives royalties equal to 37.2% of the profits generated by the project. In October 2000, the Government granted concessions over the distribution and transportation of Camisea’s natural gas to a private consortium led by the Argentine company Techint. The Camisea natural gas project officially began operation in the first week of August 2004.

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The Camisea project, which includes drilling, transporting, processing and selling of natural gas, contributed 81.0% of the natural gas production and 85.7% of the liquid hydrocarbon output in 2020. The Camisea project decreased Peru’s production of natural gas by 10.7%, to 1,161 billion cubic feet per day in 2020, as compared to 1,299 billion cubic feet per day in 2019.

On September 7, 2004, Perú-Petro, Peru’s state-owned hydrocarbons investment company, signed an agreement with a consortium including the members of the Camisea consortium (Pluspetrol-Hunt Oil-SK Corporation), Tecpetrol and Sonatrach, providing for a U.S.$500.0 million investment in the development of Peru’s block 56 gas field, located northeast of the Camisea development in the Amazon region in central Peru. Block 56, called Pagoreni or Camisea-2, has 3.4 trillion cubic feet of proven gas reserves and 227.0 million barrels of natural gas liquids. Development of the Pagoreni gas field commenced in June. In October 2008, the Pagoreni gas field started production with a total investment of approximately U.S.$872 million.

In 2016, Perú-Petro contributed 33.4% of the natural gas production and 35.1% of the liquid hydrocarbon output in 2016, 33.2% of the natural gas production and 32.5% of liquid hydrocarbon output in 2017, 29.0% of the natural gas production and 28.8% of the liquid hydrocarbon output in 2018, 29.1% of the natural gas production and 29.2% of the liquid hydrocarbon output in 2019, and 31.3% of the natural gas production and 26.9% of the liquid hydrocarbon output in 2020.

In 2003, the project to build and operate a U.S.$3.8 billion liquid natural gas, or LNG, plant, marine loading terminal and gas supply pipeline was granted to Peru LNG, a special-purpose vehicle owned by Hunt Oil Company, which owns a majority stake in the entity and also is the operator, SK Energy, Repsol YPF and Marubeni. The project was completed in May 2011. The project produces LNG from natural gas sourced from Camisea blocks 56 and 88 and is exported to Mexico. It is projected that revenues from exports will be over U.S.$1.4 billion a year through 2027. The supply contract with Mexican offtakers is for a term of 15 years and provides that Peru LNG will supply an aggregate of 4.2 trillion cubic feet of liquefied natural gas during the term of the contract.

During 2016, the hydrocarbons sector contracted 5.1% compared to 2015 due to lower production of hydrocarbons that resulted from lower exports of crude in the context of a sustained industry-wide global crisis that began in 2015. It was offset in part by higher production of natural gas, which reached historic levels, and growth in liquefied natural gas production.

In 2017, the hydrocarbons subsector continued to contract by 2.4% compared to 2016, mainly as a result of lower production of natural gas and liquefied gas, which recorded reduced volumes of 7.7% and 7.4%, respectively. Natural gas production was affected by reduced volumes from Camisea blocks 56 and 88 which are operated by Pluspetrol. Production of petroleum recovered after two years of contraction, growing by 7.8% in 2017, principally as a result of increased production at Camisea block 8, which re-initiated operations in February 2017 following temporary suspension from September to November 2016 in the face of protests by local indigenous communities. Petroleum production remained below the levels of 69,000 barrels per day recorded in 2014.

In 2018, the hydrocarbon subsector remained flat. While petroleum production increased by 12.1% in 2018, the production of hydrocarbons, like gas, decreased in 2018 as compared to 2017. The growth of petroleum production is primarily due to increased production at Lots X (located in Piura) and 192 (located in Loreto). Production at Lots X increased from 11.2 thousand to 13.2 thousand barrels a day, due to a higher number of wells in operation. In the second lot, the recovery was due to the recent renewal of activity at Oleoducto Norperuano, in February 2017, after a year of standstill. As such, starting in September 2018, it operated at levels unseen since 2014 (approximately 12.5 thousand barrels per day), notwithstanding, the pipeline was damaged in December 2018.

The 1.7% decrease in gas production and the 5.8% decrease in hydrocarbon production are primarily attributable to the breakage of pipe at Transportadora de Gas de Peru (TGP) in February 2018, and to the temporary closure of the processing plant at Las Malvinas for maintenance in the Camisea plant in August 2018, which affected the production of Lots 56 and 57. The production of non-ferrous metal refining increased, in line with copper cathodes of Cerro Verde. On the other hand, petroleum refining decreased, particularly at the Pampilla Refinery, which decreased industrial oils and diesel petroleum output, and at Plusperol, which decreased production of diesel and natural gas.

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In 2019, the hydrocarbon sector grew 4.6% as compared to 2018, particularly petroleum production which grew by 8.4% compared to 2018. This growth in production was due to the entry into operation of Lots 95 which resulted in increased oil production by an average of 9,000 barrels per day in December. Natural gas production increased by 5.6%, liquefied natural gas increased by 1.5%, primarily as a result of increased production at Lot 88 for internal market and 56 Lot for export.

In 2020, the hydrocarbon sector decreased 11.0% due to a decrease of production of all its subproducts, along with a price decrease of 24.9%. Oil production decreased due to the suspension of Lots 192, 8 and 67, due to the restriction on activities to the Norperuano pipeline. Additionally the concession to Frontera Energy in site 192 was also terminated.

The 10.4% decrease of gas production was due mainly to a minor extraction from site 88, originated in the weak domestic demand during the second quarter as the pandemic restrictions were imposed. Furthermore, the production of gas liquids decreased 1.8% due to diminished production at site 56. However, the 2020 US Geological Survey mantained Peru’s ranking within the global production of copper, gold and zinc.

Secondary Production

Manufacturing

The principal components of the manufacturing sector are:

• primary manufacturing, consisting principally of:

• processing sugar;

• processing meat products;

• producing fishmeal, fish oil and other fish products;

• refining non-ferrous metals; and

• refining petroleum; and

• non-primary manufacturing, consisting principally of:

• producing food, drinks and tobacco;

• producing textiles, leather products and footwear;

• producing paper products;

• producing chemical, rubber and plastic products;

• refining non-metallic minerals;

• producing iron and steel; and

• manufacturing machinery, equipment and metal products.

In 2016, the manufacturing sector contracted by 1.4% compared to 2015 due to decreased activity in the primary and non-primary sectors, which contracted 0.6% and 1.6%, respectively.

In 2017, the manufacturing sector contracted by 0.2% compared to 2016, mainly as a result of a 0.9% reduction in non-primary production attributable to lower textile production that resulted from reduced textile exports and lower output of capital goods for domestic consumption. Primary manufacturing grew by 1.9% in 2017 compared to 2016.

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In 2018, the manufacturing sector grew by 5.9% as compared to 2017, primarily due to primary manufacturing activity, which grew by 13.2%, and primary non-manufacturing activity, which grew by 3.7%.

In 2019, the manufacturing sector decreased by 1.7% compared to 2018 primarily as a result of reduced primary activity and lower non-primary manufacturing activity.

In 2020, the manuracturing sector decreased by 13,4% due to lower activity in both primary and non-primary subsectors caused by the restrictions enacted to fight the COVID-19 pandemic.

Primary manufacturing

In 2016, primary manufacturing decreased 0.7% mainly due to lower fish production and increased preservation which resulted in stricter fish catch quotas being imposed in 2016. This decrease was partially offset by increased production of sugar, meat, precious metals and petroleum refining.

In 2017, the primary manufacturing sector grew 1.6% compared to 2016, mainly as a result of (i) increased production in the fishing sector, principally fishmeal and fish oil which was driven by increased availability of anchovies and (ii) higher production of petroleum particularly at the La Pampilla refinery that increased its installed processing capacity from 95,000 barrels per day to 117,000 barrels per day while reducing sulphur levels. These increases were offset by (i) reduced refining volumes of non-ferrous metals, particular copper cathodes from Cerro Verde that resulted from reduced availability of copper oxides, (ii) lower volumes of refined zinc from the Cajamarquilla refinery which suspended operations in March and April as a result of inclement weather generated by the El Niño phenomenon, and (iii) lower production of milled rice and sugar which were both affected by the adverse climate generated by El Niño.

In 2018, the primary manufacturing sector grew by 12.9%, due to increased activity in the fishing industry, mainly fishmeal and fish oil, as anchovy catches increased. Production of rice increased as a result of the improvement in agricultural processes and sugar production increased due to greater availability of sugar cane, as both were recovering from the adverse effects of the El Niño Costero that started in 2017. Similarly, the production of refined metals increased in line with the higher production of copper at Cerro Verde.

In 2019, primary production decreased by 8.5% compared to 2018, mainly as a result of (i) reduced production in the fishing sector, principally production of fishmeal and fish oil, resulting from lower catches of anchovies in both seasons in the North-Central basin, (ii) lower problem production in particular lower refining by Petroperú and Repsol and (iii) lower production of copper at the Southern mines that were temporarily shut down for biannual maintenance.

In 2020, primary production decreased by 2.6% due to decreased production of refined petroleum products caused by the closing of the Talara refinery for renovation. This decrease was offset by increased production of fishmeal from the larger anchovy catches. In the past decade, the primary manufacturing activities with the greatest increases were fishmeal and fish oil, which increased 8.3%, and canned and frozen fish products, which increased 7.4%.

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The following table provides information regarding primary manufacturing production for the periods presented.

Primary Manufacturing Production

(percentage change from previous period, at constant 1994 prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Milled rice		1.0			(4.0	)		15.4			(8.7	)		5.4
Sugar		5.1			(5.5	)		9.5			1.1			0.1
Meat products		4.4			2.9			6.4			3.1			(2.7	)
Fishmeal and fish oil		(21.3	)		13.6			95.5			(44.1	)		31.7
Canned and frozen fish products		(6.1	)		(0.1	)		10.4			44.3			(4.5	)
Refining of non-ferrous metals		1.2			(2.7	)		1.9			(2.4	)		(0.5	)
Petroleum refining		5.1			8.6			(6.6	)		(8.0	)		(33.1	)
Overall change		(0.7	)		1.6			12.9			(8.5	)		(2.6	)

(1) Preliminary data.

Source: INEI and Central Bank.

Non-primary manufacturing

In 2016, non-primary manufacturing contracted 1.6% due to the decrease in production of consumer goods and intermediate goods, which was offset in part by the increase in capital goods. In 2017, non-primary manufacturing contracted 0.9% mainly due to the impact of El Niño which interrupted transportation and interfered with the supply chain and productive activity as roads, bridges and infrastructure were damaged or destroyed. Domestic consumption grew 0.2% primarily due to the increased manufacturing of footwear, food and paper products, partially offset by reduced production of consumer products such as toiletries and cleaning supplies that were impacted by the relocation of one of the principal production facilities to Colombia. Exports in the sector contracted 1.9% mainly due to the lower production of textiles, leather and woven goods which recorded a slight recovery in the final months of 2017, while manufacturing inputs decreased 3.2% due to lower production of wood products. Capital goods decreased 0.4%, primarily due to lower production of machinery and equipment given reduced demand for electric panels and cable that was impacted by competition from imports.

In 2018, non-primary manufacturing reversed the production trend of the last four years increasing by 3.4% compared to 2017, a rate equal to that observed in 2013, and higher than the average of the last ten years (2.0%). The recovery of non-primary manufacturing, as compared to its performance in the period 2014-2017, is attributable to three factors. First, the recovery of private investment, principally in the mining sector, which is linked to areas such as metal production, electric machinery, industrial services and explosives. Second, there has been a recent an increase in non-traditional exports in areas, which had been impacted by greater foreign market competition, such as clothing, processed wood, and manufacturing. Third, there has been a recent an increase in domestic demand, which is reflected in the growth of areas such as furniture, medicine, and manufactured products.

In 2019, non-primary production increased by 1.0% compared to 2018. Investment in non-primary production increased 2.9%, particularly the production of steel products used in commercial and residential construction, in industrial services, capital goods and machinery, in transportation equipment including ships, and automobile maintenance equipment. Consumer consumption grew by 1.9% in 2019 driven by increased production of plastic products, animal feed, wheat grain, pesticides and processed wood products. Exports decreased by 3.0% due to of decreased export volumes of textiles, woven goods and the products, resulting from lower external demand, offset in part of higher exports of food and preserves, especially asparagus.

In 2020, non-primary production decreased by 17.3% compared to 2019, the largest decrease since 1989, due to the pandemic restrictions. Investment decreased 27.1%. The production of metals, industrial servicees, transportation and construction materials and electric machinery were suspended during the second quarter and recovered slowly. Mass consumption decreased 9% and was less severely impacted by the pandemic. Products of mass consumption were among the first to recover, including first need products like medecines and toiletries and cleaning products. Furniture and alcohol products recovered first and at a fast pace ending with growth during 2020. Products related to general supplies decreased 17.2% due to a decrease production of processed wood, leather, glass, paper, among others. Export related products decreased 25.1% due to a decrease in textile products and a weaker global demand.

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The following table provides information regarding primary manufacturing production for the periods presented.

Non-Primary Manufacturing Production

(percentage change from previous period, at constant 2007 prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Food, drinks		(0.2	)		1.6			2.0			7.1			(4.9	)
Textiles, leather products and footwear		(5.4	)		1.8			(2.5	)		(6.0	)		(33.6	)
Wood and furniture		1.2			(12.6	)		10.1			6.5			0.0
Paper products		2.4			(1.4	)		0.1			(7.2	)		(17.1	)
Chemical, rubber and plastic products		0.9			(3.2	)		3.2			(0.1	)		(6.3	)
Non-metallic minerals		(0.9	)		(1.4	)		1.8			2.7			(25.0	)
Iron and steel production		1.9			5.5			1.8			1.4			(21.5	)
Equipment and metal products		(7.2	)		(1.0	)		9.4			2.5			(27.4	)
Other		(12.8	)		12.2			22.2			(0.9	)		(48.3	)
Industrial services		2.4			(4.4	)		11.2			9.1			(46.7	)
Overall change		(1.6	)		(0.9	)		3.4			1.0			(17.3	)

(1) Preliminary data.

Source: INEI and Central Bank.

Construction

In 2016, construction activity decreased 3.2% compared to 2015 and contributed 5.8% to GDP. This contraction in 2016 was primarily due to a decrease in internal consumption of cement products, decreased investment in mining projects, decreased investment in commercial and prefabricated products, and a slowdown in progress of public projects, including in connection with corruption scandals and decreased investment in national and regional government projects.

In 2017, construction activity grew 2.1% as investment grew in the second half of the year following a slowdown caused by the El Niño impact that reduced the rate of public investment during the first half of the year. The recovery in construction investment resulted in increased consumption of cement, which increased by 0.3% for residential and commercial centers as well as public works, which increased by 7.5%.

In 2018, the construction sector grew 5.3% and contributed 5.9% to GDP. The growth was associated with the advance of public works projects, for the development of real estate and commercial and business areas, which increased 9.6%. Domestic cement consumption recorded an increase of 4.0% due to the increased demand by the mines Las Bambas, Automina and Shougang Peru.

In 2019, the construction sector expanded by 1.4% and contributed 5.8% to GDP. This growth was mainly due to higher domestic consumption for cement which increased by 4.6% compared to 2018 driven by the development of residential real estate projects and commercial and business centers, offset in part by a 7.0% decrease in public works projects during the year.

In 2020, the construction sector contracted by 13.9% due to the 13.0% decrease in cement domestic consumption and of 17.7% in construction projects. This decrease was a consequence of the general pandemic restrictions and the suspension of the economic non-essential activities, including construction. As the restrictions were progressively relaxed following certain phases, including phase 1 for production and supply of cement and construction projects with national interest, and later during phase 3 the general opening of construction projects both public and private. The public investment in construction projects decreased 33.2% for the national government, 15.0% for the regional governments and 15.0% for the local governments.

Electricity, Water and Gas

From 2016 to 2020, the electricity, water and gas sector contributed 1.8% on average to GDP.

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In 2019, the electricity, water and gas sector increased by 3.9%, mainly due to a 4.0% increase in the electricity subsector, a 15.2% increase in the gas subsector and a 1.9% increase in the water subsector.

In 2020, the electricity, gas and water sector decreased by 6.1%, which can be explained by a decrease in electricity (7%) and gas (15.6%) sub-sectors, while the water sub-sector increased 1.6%.

Electricity

The electricity sub-sector in Peru was traditionally under the control of the public sector until Peru deregulated and privatized the industry in the early 1990s. The deregulation and privatization of the electricity sub-sector included segregating it into production, distribution and transmission. The Government initially focused most of its deregulation and privatization efforts in energy production and distribution segments, but gave open access to Peru’s transmission grid. The Government also granted concessions of the Mantaro-Socabaya transmission line in 1998 and of its Southern Power Grid in 1999. In 2001, concessions for the construction, maintenance and operation of power lines were granted to La Oroya-Paragsha-Antamina and Aguaytía-Pucallpa. Growth in the electricity sub-sector has resulted primarily from the expansion of the power grid, lower fuel prices and the introduction of more efficient centers to the system.

In 2016, the electricity sub-sector grew 8.3% compared to 2015 in terms of total energy produced. Regarding total generation, electricity generated by thermoelectric plants grew by 13.0%.

In 2017, the electricity sub-sector grew 1.5% compared to 2016 in terms of total energy produced. Total generation by hydroelectric plants grew 20.0% driven primarily by higher levels of water available at four of the principal generating facilities, while thermoelectric power generation decreased by 16.4%.

In 2018, the electricity sub-sector grew 4.1%. Electricity production reported that public consumption of hydroelectric power reached 29,986 GWh, which compared to 2017, increased by 5.6%, due to greater production at the Chimay, Yanango, Cerro de Aguila, Callahuanca, Huampani, Huinco, Matucana, Moyopampa, Charcani I, II, III, IV, V and VI, Cheves, Cahua, Canon del Pato, Carhuaquero, Chaglla, Yuncan and Quitarasa hydroelectric plants.

Following the same pattern, non-conventional renewable energy (wind and solar) recorded in 2018 a 65.3% increase, principally due to the start of wind park Tres Hermanas with a potency of 97 MW (megawatts), located in Ica. At a disaggregated level, wind energy increased 40.14% (located in Ica, La Libertad, and Piura), and solar energy increased by 158.4% (located in Tacna, Moquegua an Arequipa).

The total national breakdown, per source type was: hydraulic 57.2%, thermal 38.4% and non-conventional renewable energy (wind and solar) 4.2%.

The following companies increased production in 2018: Termochilca, Termoselva, Kallpa Generación, Enel Piura, San Gaban and EGEMSA.

In 2019, the electricity sub-sector grew 2.6% compared by to 2018, with consumption of hydroelectric power reached 30,768 GWh as the principal hydroelectric plant increased production, while consumption of thermoelectric power increased by 5.6% to 21,258 GWh with increased production at the five principal thermoelectric plants.

In 2020, the electricity sub-sector decreased by 7.0%, due to the anual production decrease from hydroelectric (2.8%) and termal (14.7%) power plants. On the other hand, renewable energy production (wind and solar) increased 7.2%.

The total national breakdown, per source type was: public hydraulic 59.1%, public thermal 35,8% and renewables (wind and solar) 5.1%. The privately generated electricity accounted for 63.2%, the public companies 19,8% and other type of source 17.0%. The main private contributors to the system were Colvin Peru SA, Huallaga and Statkraft Peru Holding SAC.

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The following table provides information regarding the development of the electricity sub-sector for the years shown.

Principal Economic Indicators for the Electricity Sector

	For the year ended December 31,
	2016		2017		2018		2019		2020
Production of electricity sector (in GW/hr):
Thermal		24,479		20,458		19,220		20,313		17,431
Hydroelectric		23,520		28,123		29,358		30,168		29,703
Wind		1,054		1,065		1,494		1,646		1,803
Photovoltaic		242		227		745		762		778
Biomass										304
Total generation		49,295		49,873		50,817		52,889		50,021
Losses, transmission and distribution (in GW/hr)		3,548		3,040		4,531		4,320		4,086
Energy production (in millions of U.S.$)		1,587		1,606		1,755		1,703		1,756
Energy sale income (in millions of U.S.$)		4,278		4,422		4,780		5,054		4,968
Consumption by economic sector (in GW/hr):
Residential		9,124		9,261		9,548		9,819		10,072
Industrial		26,040		27,820		29,509		31,010		27,998
Government		953		989		1,040		1,117		1,137
Commercial		7,166		5,911		5,540		5,279		4,221
Total consumption		43,283		43,981		45,637		47,225		43,427

Source: OSINERGMIN, COES.

Water

The Government is responsible for water and sanitation services in Lima while Peru’s various municipalities are responsible for providing water and sanitation services in the urban and suburban areas of their respective jurisdictions. The central and municipal governments designate special service companies, which may be private, government-owned or mixed ownership, to provide water and sanitation services. In rural areas, communal administrative commissions are in charge of providing water supply and sanitation services. The provision of sanitation water services is regulated by the Superintendencia Nacional de Servicios de Saneamiento, or National Superintendence for Sanitary Services.

In 2016, water production increased 0.6% mainly due to increased production of potable water at the Sedapar, Sedalib, Sedapal and EPSEL facilities. In 2017, water production decreased 0.6% mainly due to the reduced production at the Sedapar, Sedalib, EPSEL, EPS Grau and Seda Chimbote facilities.

In 2018, the water sub-sector grew by 4.0% due to increased production by Sedapal (4.3%), Sedapar (8.7%), EPS Grau (7.2%), Epsel (6.3%), Seda Chimbote (2.6%), and Sedalib (0.6%). In 2014, water production grew 1.5% and in 2015 by 3.4% due to increased production of potable water at Seda Chimbote (4.2%), Sedalib (3.4%), Sedapar (3.4%), Sedapal (3.7%) and EPS Grau (0.3%), partially offset by a 1.6% decrease in the activity of the Lima and Callao wells.

In 2019, the water sub-sector grew by 1.9% due to the increased production by Sedapal (2.6%), Sedapar (3.8%), Epsel (2.2%) and Sedalib (2.1%). Increased water production at Sedapal resulted from higher activity at treatment facilities (3.6% growth) while well water production decreased 1.2% at the Lima and Callao wells.

In 2020, the water sub-sector grew by 1,59%, driven mainly by the higher export production of the following companies: Sedapal 1.14%, Seda Chimbote 11.31%, Sedalib 2.48% and EPS Grau 7.16%. On the other hand, these companes decreased their production: Epsel had a production decrease of 1.7% and Sedapar a production decrease of 0.16%. Sedapal’s increase was due to an increased production in the Lima and Callao Lots.

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Gas

In 2015, the gas sub-sector grew 1.2% due to a 1.5% increase in demand for gas from electricity generators and a 2.8% increase in demand for natural gas for vehicles. In 2016, the distribution of gas increased 9.2% due to an increase in demand for gas from electricity generators, and the distribution of vehicular natural gas increased by 12.7%. In 2017, the distribution of gas contracted by 5.6% mainly as a result of lower demand from electricity generators which contracted by 12.0% and reduced distribution of vehicular natural gas that decreased by 0.9%. In 2018, the gas sub-sector grew 22.5% due to increased demand by electric generators by 30.2%, by the industrial sector by 11.0%, and by the distribution of vehicular natural gas (Gas Natural Vehicular (GNV)), which increased 8.3%.

In 2019, in the gas sub-sector, gas distribution increased by 15.2% compared to 2018 driven by a 21.7% increase in demand from electricity producers and 1.0% increase from industrial users, while natural gas distribution for automobiles increased 1.4%.

In 2020, in the gas sub-sector, gas distribution decreased 15.6%, due to decreases of 16.0% in the distribution to power plants, of 15.2% in the distribution to the industrial sector, and of 25.5% in the distribution to vehicular natural gas. The supplying company Calidda decreased its supply by 17.1% with a supply share of 91.9%, Contugas decreased 1.5% with a share supply of 7.0%, and Quavii increased its supply by 91.9% with a share supply of 1.1%. Calidda operates in Lima and Callao, Contugas operates in Ica department, and Quavii operates in the cities of Huaraz, Chimbote, Trujillo, Pacasmayo, Chiclayo, Lambayeque and Cajamarca.

Services

Wholesale and Retail Trade

Wholesale and retail trade grew 1.8% in 2016, 1.0% in 2017, 2.6% in 2018 and 3.0% in 2019 and contracted 16.0% in 2020. During the five-year period from 2016 through 2020, this sector contributed on average 10.5% per year to GDP, making it the third most important sector of the economy.

In 2016, wholesale and retail trade increased 1.8% due to the increase in wholesale and retail trade. However, car sales showed negative tendencies.

In 2017, wholesale and retail trade increased by 1.0% driven mainly by an increase of 1.1% in wholesale and retail trade and of 1.0% in vehicle maintenance and repairs. In 2018, wholesale and retail trade increased by 2.6% compared to 2017 however, the automotive industry recorded a decrease. Wholesale trade grew 3.3%, primarily due to the good performance of fuel sales to productive sectors like construction, mining, and industry, which was due to an increase in receiving public and private contracts, and because of greater distribution to the retail sector (service stations). The retail sector registered a 2.8% increase due to a higher level of supermarket, superstore, minimarket, and bodega sales, primarily attributable to increased demand for necessity goods and the capturing of corporate clients. The automotive trade shrank by 1.55% due to the decrease in sales, maintenance, and repair of automotive vehicles, like trucks, buses, and minibuses.

In 2019, wholesale and retail trade increased by 3.0% compared to 2018 driven by increases of (i) 3.4% in wholesale trade primarily as a result of higher sales of machinery and health equipment and sales of industrial equipment designed to make retail trade more efficient at both public and private enterprises, (ii) a 2.9% increase in retail trade driven by higher sales of pharmaceutical and medical products, cosmetics and toiletries, automobiles and gas, and other consumer products including food products, alcohol and tobacco and (iii) a 0.3% increase in sales of new cars and car parts and accessories, including vehicle maintenance and repairs.

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In 2020, the wholesale and retail trade decreased by 16.0%, due to decreases in (i) wholesale (15.0%), (ii) retail (17.3%) and (iii) automobile (20.3%). These decreases were a consequence of the pandemic restrictions and the sector started a recovery as the economy reopened.

Other Services

The private sector in Peru offers a variety of services constituting the “Other Services” sector of Peru’s economy that in aggregate is an important part of the Peruvian economy. The Other Services sector includes services to companies, government services, transportation and communication, healthcare and education services, tourism and financial services. In aggregate, this sector grew 3.9% in 2016, 3.4% in 2017, 4.4% in 2018, and 3.6% in 2019 and decreased 10.3% in 2020. For a description of the evolution of the financial services sub-sector between 2015 and 2019, see “The Monetary System—Financial Sector”.

The “Other Services” sector accounted for 48.9% of GDP in 2016, 49.3% of GDP in 2017, 49.5% of GDP in 2018, 50.2% in 2019 and 50.7% in 2020.

Transportation, Warehousing and Telecommunications

The transportation, warehousing subsector and telecommunications and other information services sub-sector has grown each year since 2008 due to sustained domestic demand for telephone services. Because of greater dynamism in the transportation sub-sector the communications sub-sector grew at a compound annual rate of 5.4% in the period from 2016 to 2020.

In 2016, the transportation and telecommunications sector grew 5.7%, due to a 3.7% increase in transportation and an 8.4% growth in telecommunications.

In 2017, the transportation and telecommunications sector grew by 6.2% compared to 2016, mainly as a result of the 4.3% growth in transportation and warehousing activity. The telecommunications industry grew by 8.6% driven by growth in mobile services of 10.9%, offset by a 3.8% reduction in other information services.

In 2018, the transportation and telecommunications sector grew 5.5% and 5.2%, respectively, due to an increase in the transportation sub-sector, mainly driven by an increase in the number of passengers traveling by air. Growth in the communications sub-sector was driven by increased cellular traffic, internet and TV services, although slightly attenuated by a decrease in land-line telephone traffic.

In 2019, this sector grew by 4.2% compared to 2018, driven by (i) a 2.3% increase in transportation activity, with an increase of 1.9% in road transport and 3.3% in air transport, (ii) a 2.1% increase in warehousing and transportation support services activity, particularly during the first four months of the year and (iii) a 6.7% increase in telecommunications and other services activity primarily due to increased demand of 9.1% for internet and cable television service, 5.4% for telephony and 15.6% for data transmission, supported in each case by Archeological infrastructure improvements throughout the country. The other information services sub-sector contracted by 0.6% in 2019 compared to 2018.

In 2020, this sector contracted by 12.4%, transportation and warehouse subsector decreased by 26.7% due to the decreases of three suubcomponents: (i) air transportation (61.6%); (ii) ground transportation (19.7%); and (iii) maritime transportation (24.9%). Warehouse services decreased 15.6% due to the decrease in transportation. However, this decrease was offset by an increase by 5.0% in the telecommunications and other information services subsector.

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Telecommunications. The following table provides information on the evolution of the telecommunications sector.

Summary of Telecommunications Sector

	For the year ended December 31,
	2016(1)		2017(1)		2018(1)		2019(1)		2020(1)
Fixed wire lines in service		2,933,659		2,959,369		2,758,714		2,509,640		2,238,599
Cellular phones		37,719,697		38,915,386		42,154,771		39,844,613		37,249,903
Public phones		157,028		145,817		129,881		108,022		93,558

(1) Preliminary data.

Sources: OSIPTEL.

In 2019, services provided to companies in the telecommunications sector increased by 3.5%, compared to 2018, explained by the increase of its main components, while government services in real terms grew by 5.1%, due to the greater services provided to entities in public administration, defense and other services.

Financial and insurance services

In 2020, financial and insurance services grew 13.3% due to a 11.7% increase in loans, with a 19.1% increase in local currency and a 5.5% decrease in foreign currency.

Lodging and restaurants

In 2020, lodging and restaurants contracted by 50.2% due to a 47.0% reduction in activity in the restaurant subsector, and a 73.8% reduction in activity in the lodging subsector.

Tourism

See “Balance of Payments and Foreign Trade—Services Trade” below for information on the tourism sub-sector.

Public Administration

Privatization and the Role of the State in the Economy

Privatizations and Concessions

In 1991, Peru initiated an ambitious privatization program beginning with the enactment of various laws for the promotion of private investment. In 1991, in order to stimulate private investment, the Executive Branch enacted Legislative Decree N° 662, Ley de Promoción de la Inversión Extranjera, or the Foreign Investment Promotion Act, which authorized the Government to enter into legal stability agreements with foreign and domestic investors that invest at least U.S.$5 million, or U.S.$10 million in the case of mining and hydrocarbon sectors, within two years of the agreement. In 1991, the Executive Branch also enacted Ley Marco para el Crecimiento de la Inversión Privada, or the Private Investment Growth Framework Act. These investment laws provide for equal treatment of both national and foreign investors; automatic authorization of foreign investments, which must then be registered with Proinversión; the protection of the property rights of foreign investors; the free repatriation of property, dividends and profits; and the elimination of restrictions on the participation of foreigners in banks and insurance companies.

Since 1991, the Government has privatized most of its assets in the finance, fishing and telecommunications sectors. The Government has also made significant progress in privatizing the mining and hydrocarbons, manufacturing, electricity and agriculture sectors. The 269 privatizations and 72 concessions that have been completed in Peru since 1991 have generated investments of approximately U.S.$34.4 billion.

The pace of privatizations began to slow after 1996, when privatization proceeds reached record levels. This decline resulted in part from a shrinking supply of state-owned enterprises, President Fujimori’s retreat from unpopular privatization initiatives to gain support for his presidential bid and the political turmoil that accompanied President Fujimori’s reelection in 2000.

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Upon taking office in July 2001, the Toledo administration sought to revitalize Peru’s privatization agenda by charging two special privatization committees to develop privatization programs for projects including highway networks, ports, airports and tourism, corrections facilities, mining and agricultural development. The privatization program was viewed unfavorably by a significant percentage of Peruvians, who were fearful they would lose their jobs due to privatizations and who were opposed to the sale of well-known state assets to non-Peruvians. This opposition forced the Government to back down from the privatization of the Egasa and Egesur electric plants in Arequipa in 2002. In order to quell opposition, the Government sought in 2002 to reach agreements with presidents of the regional governments regarding resumption of the privatization process. The first of these agreements was reached on June 16, 2003 with the regional government of Pasco to proceed with the privatization of a 30-year concession for the Yuncan hydroelectric plant. Following negotiations with affected regional governments, the central government resumed the privatization program in 2004.

In 2016, concessions and privatizations reached U.S.$2.1 billion in projected investments. Concessions were granted in the telecommunications sector and privatizations took place in the energy sector. In 2016, concessions and privatizations reached U.S.$2.1 billion in projected investments. Concessions were granted in the telecommunications sector and privatizations took place in the energy sector.

In 2017, concessions and privatizations resulted in investments of U.S.$925.9 million, consisting of five telecommunications concessions accounting for U.S.$831.2 million of projected investments including development of transmission lines and high speed networks. In addition, one key projected related to the development of a river transport system involving navigation of the Huallaga, Marañón, Ucayali and Amazonas rivers which provides for a projected investment of U.S.$94.7 million.

In 2018, concessions and privatizations resulted in investments of U.S.$2.7 billion. Significant investments were made in telecommunications, transportation, and mining. Of special importance were (i) Southern Peru Copper Corporation’s Michiquillay Mine project with an expected investment of U.S.$2.0 billion, (ii) the Terminal Portuario Multiproposito de Salaverry project with an expected investment of U.S.$0.2 billion, (iii) the U.S.$0.4 billion concession for the license of spectrum for La Libertad, Ancash, Arequipa and San Martin, and (iv) the U.S.$0.1 billion concession for the license of spectrum for Huanuco and Pasco.

On April 29, 2019, a 30-year concession was granted in connection with the treatment of waste water at the Titicaca Lake in Puno. The projected investment in connection with such concession was U.S.$260.6 million (S/863.0 million). On October 30, 2019, three projects were concessioned in connection with the provision of electricity to the cities of Piura, Tumbes, Huánuco y Ucayali, with projected investment of U.S.$90.8 million).

On December 10, 2020 two projects were concessioned to Interconexión Electrica S.A. E.S.P, with a projected investment of U.S.$ 18.3 million. The “Subestación Chincha Nueva de 220/60 kV” Project will address the growing demand for electricity in the province of Chincha, specially in the districts of Chincha, El Carmen, Pueblo Nuevo, Pedregal and Tambo de Mora and the “Subestación Nazca Nueva de 220/60 kV” Project will improve the electricity supply in Nazca-Palpa-Puquio, Palpa Rural, Puquio Rural, Cora Cora and Nazca Rural.

Role of the State in the Economy

As a result of the privatization program undertaken by the Fujimori administration during the 1990s, and continued during the Paniagua, Toledo and García administrations, the public sector played a more limited role in the Peruvian economy than it did in previous decades. The García administration supported the privatization and deregulation process, based on the view that sustainable economic growth is driven primarily by private investment. President Humala demonstrated continuity with the prior administrations’ economic policies. The Humala administration was also focused on promoting a broader agenda of social inclusion by developing social programs that benefit the poorest sectors of the population, reducing barriers to formalization and increasing the quality and access to certain public services. The administration of President Kuczynski, in turn, expects to implement a plan of structural reforms to achieve potential growth of 5.0% in the short-term through greater capital accumulation    (unlocking infrastructure and simplifying investment) and capturing productivity gains (through increased formalization).

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Employment and Labor

Employment

Formal Employment

A significant portion of the Peruvian population lacks regular full-time employment. Despite periods of economic expansion in recent years, unemployment and underemployment remain one of Peru’s most entrenched problems. The Government discontinued nationwide employment surveys after 2001. However, these statistics can be calculated using the National Household Survey.

Unemployment in the Lima metropolitan area increased from 6.6% in 2016 to 12.7% in 2020, with employment resulting especially in labor intensive industries, such as agriculture, manufacturing and construction. Regarding regional statistics for 2018/2019, the urban unemployment rate of 4.2% in Peru is comparable with the rates in Argentina (10.4%), Brazil (12.2%), Chile (7.0%), Colombia (10.8%), Ecuador (4.6%) and Venezuela (7.3%) (for year 2018). Despite relatively favorable unemployment performance, underemployment remains high, and is considered the most important problem in the Peruvian labor market. Underemployment has increased in the last five years from 31.8% in 2016 to 36.6% in 2020.

Historically prevailing high levels of unemployment and underemployment have fueled social tensions and protests against privatizations and large industrial projects in the past.

During 2016, there were 41 strikes in which approximately 20,463 workers participated, resulting in the loss of approximately 3.1 million labor hours.

During 2017, there were 45 strikes involving participation of 56,510 workers and resulting in the loss of approximately 3.0 million labor hours. During 2018, there were 54 strikes in which 21,496 workers participated resulting in the loss or approximately 0.7 million labor hours. The strikes affected sectors including mining (26.0%), manufacturing (11%), commerce (6%), social services (15%), and others (16%).

During 2019, there were 67 strikes in which 110,154 workers participated resulting in the loss or approximately 2.1 million labor hours. The strikes affected sectors including mining (27.0%), manufacturing (15%), transportation (6%), commerce (5%), public administration and defense (37%), and others (10%).

During 2020, there were 23 strikes in which 127,868 workers participated resulting in the loss or approximately 3.6 million labor hours. The strikes affected sectors including public administration and defense (34.8%), mining (26.1%), health and social (13.0%), manufacturing (8.7%), financial intermediation (8.7%), transportation (4.4%) and education (4.3%).

The following table provides employment statistics in Metropolitan Lima from 2015 to 2019, the most recent date for which data is available.

Employment and Labor in Metropolitan Lima

(in percentages)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Participation rate(1)		69.3		70.0		69.2		69.2		57.2
Unemployment rate(2)		6.6		6.7		6.3		6.4		12.7

(1) Percentage of the working-age population (14 years old or older) that is in the labor force.

(2) Percentage of the working-age population (14 years old or older) that, in the week the employment survey was taken, was seeking remunerated employment.

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The following table provides information on employment by sector, as a percentage of total employment, in Metropolitan Lima from 2016 to 2020.

Employment in Metropolitan Lima

(percentage by economic sector)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Extractive(1)		1.4		1.4		1.3		1.5		1.8
Manufacturing		14.9		14.6		13.4		13.1		14.1
Transportation and telecommunications		10.9		10.4		10.0		10.6		10.8
Construction		7.3		6.3		6.8		6.7		8.3
Wholesale and retail trade		21.2		21.5		20.9		22.8		22.7
Services		40.3		41.8		43.8		41.3		39.3
Households		4.0		4.0		3.9		4.0		3.0
Total		100.0		100.0		100.0		100.0		100.0

(1) Includes agriculture, livestock, fishing, forestry and mining.

Source: Ministry of Labor. Figures are based on the Household Survey on Labor.

Informal Employment

The Peruvian economy has a significant “informal sector” that provides employment to the majority of the labor force, including a significant number of women. The term “informal sector” refers to economic activities that take place outside the formal norms for economic transactions established by the state or developed through formal business practices. It generally involves production and exchange of legal goods and services without the appropriate business permits, without the payment of taxes, without complying with labor regulations and without legal guarantees for suppliers and end users. Because of the nature of this sector, it is difficult to obtain reliable statistics measuring its contribution to the Peruvian economy.

The Ministry of Labor estimates the size of the informal sector based on ILO criteria pursuant to which workers in the informal sector are those who work in micro enterprises (either as wage earners or micro entrepreneurs), who are non-professional self-employed, or who are domestic and unpaid family workers. Based on this measurement, 59.8% of the workforce in Metropolitan Lima was employed in the informal sector during 2020, as compared to 58.3% in 2019, based on data from the Ministry of Labor.

Metropolitan Lima: Distribution of formal and informal employment

(in percentages)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Formal Sector
Public sector workers		8.6		8.7		9.0		8.0		9.4
Private sector workers		33.6		31.9		31.3		30.5		27.9
Small enterprises		15.7		16.3		15.9		14.9		14.4
Medium and large enterprises		18.0		15.6		15.4		15.5		13.5
Professional self-employed		2.2		3.0		3.0		3.2		2.8
Total		44.4		43.6		43.2		41.6		40.1
Informal Sector
Micro enterprises		24.1		23.8		23.7		24.1		24.4
Non-professional self-employed		24.1		25.1		26.3		26.7		28.8
Unpaid family worker		3.2		3.4		2.9		3.5		3.7
Household		4.0		4.0		3.9		4.0		2.9
Other		0.1		—		—		0.1		0.1
Total		55.5		56.4		56.7		58.3		59.8

Source: Ministry of Labor. Figures are based on the Household Survey on Labor.

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Public Administration

Based on an audit of the public sector, the total number of public employees as of December 2020 was 2,216,406 of which 51.2% are active workers, 43.8% are pensioners (i.e., retired employees) and 5.0% are classified as “other.” Most public employees are placed in regional governments and the economy and finance and education ministries.

Wages and Labor Productivity

The Ministry of Labor sets a single minimum wage for all sectors of the economy based on macroeconomic indicators such as GDP growth and the inflation rate. The minimum wage was last adjusted in April 2018 and is currently S/930.00 per month, equivalent to approximately U.S.$256.91 per month at the average exchange rate in 2020.

Peru does not currently compile statistics on labor productivity.

Poverty and Income Distribution

Peru classifies households with monthly per capita income of less than U.S.$99.45 (S/360.00) as being below the poverty line. This constitutes the minimum monthly income needed by a person to satisfy pay for food and other basic needs. According to the most recent available data, using this standard, the percentage of the population living below the poverty line decreased from approximately 21.8% in 2015, 20.7% in 2016, 21.7% in 2017, 20.5% in 2018, 20.2% in 2019 and 30.1% in 2020. In 2020, 30.1% of the population was below the poverty line meaning they had income lower than that required to purchase basic food needs. The rate of poverty in 2020 increased by 9.9%compared to 2019. A significant number of Peruvians have a monthly per capita income of less than S/195.00 (U.S.$58.88). However, the degree of extreme poverty, that is, the percentage of households whose per-capita expenditure does not allow them to buy a basic food basket, defined by INEI, has decreased in recent years. The percentage of the population living in extreme poverty decreased from an estimated 4.1% in 2015 to an estimated 2.9% in 2019.

In 2020, extreme poverty income increased 2.0% from S/187.00 in 2019 to S/191.00.

Extreme poverty, defined as households with per capita income S/191.00 (U.S.$52.76) accounted for 5.1% of the total population as of December 31, 2020. Extreme poverty increased by 2.2% from 2.9% in 2019 to 5.1% in 2020. This percentage reflects an additional 732,000 people living below the extreme poverty line.

Income distribution data show that the poorest 40.0% of the population earned 14.0% of national income in 2020, compared to 14.6% in 2016, while the share of the national income earned by the wealthiest increased from 33.0% in 2016 to 33.9% in 2020. The following table provides information regarding income distribution for the years presented.

Metropolitan Lima: Evolution of Income Distribution

(in percentages)

	For the year ended December 31,
Income group	2016		2017		2018		2019		2020
Lowest 40%		14.6		14.6		15.1		15.5		14.0
Next 20%		14.5		14.7		14.7		15.0		14.1
Next 20%		21.8		22.0		22.1		22.0		21.7
Highest 20%		49.1		48.7		48.1		47.4		50.2
of which, highest 10%		33.0		32.6		31.8		31.3		33.9

Source: INEI – Encuesta Nacional de Hogares.

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Values adjusted in accordance with the projections of the population derived from the Census of the Population 2007.

High poverty rates negatively affect social and political stability, causing social unrest and workers’ strikes. The García Administration implemented policies designed to raise the standard of living of the Peruvian population and remedying poverty was among the most important goals of the Humala Administration. The García Administration sought to achieve these goals through sustainable economic growth and by improving the efficiency and quality of social spending programs with a goal to reduce poverty below 30% of the total population and to reduce the rate of malnutrition below 24%. The Humala Administration adopted policies designed to expand these measures and adopted other policies to reduce the incidence of poverty.

In October 2011, the Government created the Development and Social Inclusion Ministry to improve the quality of life of the population by promoting the exercise of rights, access to opportunities and development of capacities. The Ministry had authority to address matters such as social development, reduction and eradication of poverty and promotion of social equity and inclusion, and also social protection of the population at risk. The Ministry was in charge of the following social programs: Juntos, FONCODES or Fondo de Cooperación para el Desarrollo Social (Cooperation Fund for Social Development), Pension 65, Cuna Más, and Qali Warma (school breakfast and lunch program).

Poverty in Peru has been attributed to unemployment and underemployment and the increasing disparity in income between skilled, educated workers and unskilled and relatively less educated workers. The educational system has suffered from a lack of resources and inadequate teacher training. For this reason, the most recent budgets have consistently increased spending on universal education. The 2017 budget increased the appropriations for education expenditures by 9.0% compared to 2016.

One of the aspects of the Government’s anti-poverty plan was the establishment of a social program known as A Trabajar Urbano (Let’s Work-Urban), currently called Trabaja Perú (Work Peru). Trabaja Perú is an urban program that places unemployed workers in public sector jobs in the development and maintenance of infrastructure for up to six months. The program also invests in job training and technical assistance to small businesses and in the improvement of the municipal governments’ capacities and public sector agencies to get effective actions in formulation, coordination and monitoring of social initiatives. The program had generated 14,251; 43,346; 44,788, 23,033 and 27,366 temporary jobs in 2015, 2016, 2017, 2018 and 2019, respectively. In 2019, 98% of its budget was executed equivalent to approximately U.S.$37.9 million.

Among the key sociopolitical proposals that continued to address poverty, are the following:

• Double the number of homes in the Juntos program targeted at families suffering extreme poverty and single mothers in dire economic need. In 2016, the Juntos program provided a total of 772,120 homes and invested U.S.$843.3 million of its budget. In 2017, Junto program provided a total of 763,367 homes and invested S/1.0 billion (U.S.$308 million) of its budget. In 2018, the Juntos program provided a total of 730,206 homes and invested S/1.0 billion (U.S.$295.8 million) of its budget. In 2019, the Juntos program served 747,540 homes. In 2020 the Juntos program served 695,390 homes out of 698,206 enrolled households. The program utilized 99.5% of its 2020 budget (U.S. $261 million).

• Develop the Cuna Más (One More Crib) program targeted at the first child in homes that are located in districts that experience the highest incidence of poverty. In 2016, Cuna Más served a total of 85,221 families and 51,364 children, investing a total of S/319.0 million (U.S.$95.1 million) of its total budget. This program has been expanded until March 2022. In 2017, Cuna Más served a total of 100,672

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families and 59,586 children, investing a total of S/369.3 million (U.S.$114.0 million) of its total budget. In 2018, Cuna Más served a total of 109,915 families and 60,695 children, investing a total of S/369.9 million (U.S.$111.6 million) of its total budget. In 2019, the One More Crib program provided assistance to 110,163 families and 59,378 children. The program utilized 98.5% of its 2020 budget (U.S. $124 million) and provided assistance to 116,774 families and 60,262 children.

• Qali Warma is a part of the National Plan for Nutrition, serving breakfast and lunch in all public schools and strengthening the preventive health plan for all students. As of September 2016, the Qali Warma program served 3.6 million children and invested S/160.8 million (U.S.$47.9 million) of its total budget. During 2017, this program served 3.7 million children and invested S/1.5 billion (U.S.$450.9 million) of its total budget. During 2018, this program served 3.8 million children and invested S/1.6 billion (U.S.$483.1 million) of its total budget while in 2019 the program served more than 4.0 million children through 64,448 educational institutions. The program utilized 99.3% of its 2020 budget (U.S. $483 million) and served 4.2 million children through 64,490 educational institutions.

• The Pension 65 plan to provide seniors 65 years of age and older who do not have access to any pension plan with a stipend of S/250.0 per month, the financing of which is to be provided by the National Treasury. This program did not impact any funds affiliated with or managed by the AFPs. The Pension 65 Plan aids senior citizens and operates on a national level. In 2016, the plan served 502,972 senior citizens, for whom 99.8% or S/800.6 million (U.S.$238.6 million) of its budget was utilized. In 2017, the plan served 545,508 senior citizens, for whom 99.9% or S/880.5 million (U.S.$271.5 million) of its budget was utilized. In 2018, the plan served 544,202 senior citizens, for whom 100% or S/863.2 million (U.S.$255.5 million) of its budget was utilized while in 2019 the program served 561,349 senior citizens. The program utilized 95.8% of its 2020 budget (U.S. $245.2 million) and served 563,386 senior citizens.

• The CONTIGO program provides pensioners one non-contribution pension to citizens with severe disabilities and who live under the property line. In 2019, this program saved 39,890 citizens. In 2020 this program utilized 98.4% of its budget (U.S. $37 million) and served 74,105 citizens nation wide.

• The PAIS program, created to improve the quality of life of the rural population, particularly through a network of service centers designed to support senior citizens at high risk or severe disability. As of December 31, 2019, there were 460 service centers providing 179,327 service calls to 103,520 beneficiaries. In 2020 this program utilized 98.9% of its budget (U.S.$0.3 million), there were 468 service centers providing 159,557 service calls to 80,183 beneficiaries.

• FONCODES is a program intended to finance the development of economically sustainable opportunities to rural residences facing extreme poverty. During 2019, an estimated 516,937 users supporting 311 completed projects. The complementary program Hogares Haku Wiñay has an additional 128,935 projects in process and has completed 117,459 projects. In 2020 this program utilized 99.1% of its budget (U.S. $287 million) an estimated 577,901 users supporting 129 completed projects. The complementary program Hogares Haku Wiñay has completed 140,132 projects.

• Environment

The most serious environmental problems confronting Peru are:

• scarcity and quality of the water supply;

• soil erosion;

• air pollution;

• deforestation; and

• inadequate waste management in urban centers.

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The Government seeks to address these environmental concerns through greater supervision, regulation and community and private sector awareness and involvement. To better address these problems, the Ministry of the Environment was created in May 2008. Its objectives are the design, implementation, execution and supervision of a coherent and consistent environmental policy at a national level and for each relevant sector. The Ministry of the Environment received a budget of S/648.6 million or U.S.$193.0 million in 2016, S/652.6 million or U.S.$201.4 million in 2017, S/681.7 million or U.S.$201.7 million in 2018, S/707.0 million or U.S.$195.3 million in 2019, S/4.0 million and S/734.8 million or U.S.$203.0 million in 2020.

The Government requests environmental impact studies before authorizing any public or private construction project. Each regulatory agency within each sector of the economy issues regulations to protect the environment and imposes its own sanctions for the violation of those rules. The Ministry of Energy and Mines has designed an effective environmental program that is viewed as a model for other governmental agencies. The Ministry’s Programa para Ahorro de Energía, or Energy Conservation Program, actively promotes energy savings and fuel-efficient energy alternatives. The Ministry also developed and implemented an environmental curriculum for public schools that emphasizes conservation. Once established and in operation, the Ministry of the Environment will assume some of the above-mentioned powers.

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BALANCE OF PAYMENTS AND FOREIGN TRADE

Balance of Payments

The balance of payments accounts are used to record the value of the transactions carried out between a country’s residents and the rest of the world. The balance of payments is composed of:

• the current account, which comprises:

• net exports of goods and services;

• net financial and investment income;

• net transfers; and

• the capital account, which is the difference between financial capital inflows and financial capital outflows.

The following table provides information, based on period-end exchange rates, regarding Peru’s balance of payments for the periods presented.

Balance of Payments

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Current account:
Trade balance:
Exports (FOB)(1)		37,082			45,422			49,066			47,688			42,413
Imports (FOB)(1)		(35,128	)		(38,722	)		(41,870	)		(41,074	)		(34,663	)
Trade balance		1,953			6,700			7,197			6,614			7,750
Services, net		(2,002	)		(1,544	)		(2,759	)		(3,152	)		(4,170	)
of which:
Net income from tourism(2)		1,444			1,385			954			963			43
Net income from transportation(3)		(1,240	)		(1,280	)		(1,300	)		(1,516	)		(1,765	)
Financial and investment income, net(4)		(8,982	)		(11,523	)		(11,908	)		(9,838	)		(6,146	)
Current transfers, net		3,967			3,589			3,556			3,718			4,071
of which:
Workers’ remittances		2,884			3,051			3,225			3,326			2,939
Current account balance		(5,064	)		(2,779	)		(3,915	)		(2,657	)		1504
Capital account:
Foreign direct investment		5,583			6,360			6,831			7,115			478
Portfolio investment		(307	)		(172	)		(442	)		(511	)		(209	)
Other medium and long-term capital(5)		113			(1,449	)		(2,595	)		2,158			8,053
of which:
Disbursements to the public sector		2,108			3,045			1,800			1,863			9,977
Other capital, including short-term capital		708			(1,152	)		(1,944	)		504			(977	)
Capital account balance		5,533			2,982			1,851			9,266			7,345
Errors and omissions(6)		(300	)		1,426			(1,565	)		301			(3,288	)
Balance of payments		168			1,629			(3,629	)		6,909			5,562
Financing:
Change in gross Central Bank reserves(7)		(168	)		(1,629	)		3,629			(6,909	)		(6,909	)
Exceptional financing, net		—			—			—			—			—
Total financing		(168	)		(1,629	)		3,629			(6,909	)		(6,909	)
Memorandum item:
Current account balance (deficit) (as a % of GDP)		(2.6	)		(1.3	)		(1.7	)		(1.2	)		(0.7	)

(1) Based on customs declarations, records of temporary admissions, free-trade zone imports, grants and other adjustments.

(2) Based on a survey of tourists. Income from tourism represents the total expenditure by a tourist multiplied by the total number of tourists.

(3) Includes freight services, passenger transportation and port expenses of ships and airplanes.

(4) Includes interest payments.

(5) Includes debt amortization payments.

(6) Represents errors and omissions from double-entry accounting resulting from incomplete or overlapping coverage, different prices and incomplete times of recording and conversion practices.

(7) Refers to changes in reserve used to finance balance of payments and corresponds to net international reserves excluding the use of IMF resources.

Source: Central Bank.

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Current Account

One of the most important aspects of the current account is the trade balance. The four primary factors that impact the trade balance are the following:

• The relative rate of economic growth of a country compared to that of its trading partners. Generally, if a country’s economy grows faster than that of its trading partners, its relative level of consumption of goods and services will tend to rise and its level of imports will tend to increase more rapidly than its level of exports.

• The relative level of domestic prices against foreign prices, as reflected by the real exchange rate. Generally, if a country’s domestic prices rise relative to those of its trading partners, there is a tendency for the country’s exports to decrease and for its level of imports to increase.

• Changes in production costs, technology and worker skills. More efficient production will tend to lower production costs, which in turn will tend to lower prices. As prices fall, there is a tendency for the country’s exports to increase.

• Changes in consumer tastes, which may affect the demand for a country’s goods and services abroad and the demand for foreign products in the domestic market.

In 2016, the current account registered a deficit of U.S.$5.1 billion, or 2.6% of GDP, primarily due to an increase in the trade balance to U.S.$1.9 billion resulting from growth of exports of U.S.$37.1 billion compared to U.S.$34.4 billion in 2015 and decrease in imports to U.S.$35.1 billion in 2016 compared to U.S.$37.3 billion in 2015.

In 2017, the current account registered a deficit of U.S.$2.8 billion, or 1.3% of GDP, primarily due to an increase in the trade balance to U.S.$6.7 billion resulting from growth of exports of U.S.$45.4 billion and an increase in imports to U.S.$38.7 billion. In 2018, the current account registered a deficit of U.S.$3.9 billion, or 1.7% of GDP, primarily due to an increase in the trade balance to U.S.$7.2 billion resulting from growth of exports of U.S.$49.1 billion and an increase in imports to U.S.$41.9 billion.

In 2019, the current account registered a deficit of U.S.$2.7 billion, or 1.2% of GDP compared to a deficit of 1.7% in 2018. This lower deficit in 2019 was due to reduced profits of companies with foreign direct investment, in line with lower economic activity, below the average 2.9% growth in the trade balance over the past ten years.

In 2020, the current account registered a surplus of U.S.$1.5 billion, or 0.7% of GDP compared to a deficit of 1.2% in 2019. This current account surplus was caused by the combination of a decrease of foreign dividend payments from multinationals in the country, the decreased demand for imports, and an improvement of the trade conditions due to commodities prices and exchange rates.

Services Trade

Peru’s services trade consists primarily of tourism, telecommunications, freight services and financial services. Of these, the most important is tourism. Tourism is also the most important individual source of foreign currency earnings. The commerce, restaurant, hotel, construction and real estate services sub-sectors depend significantly on tourism.

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The services deficit increased to U.S.$4.2 billion in 2020, a U.S.$1.0 billion increase, under a general context of pandemic public spending and policies. Compared to 2019, revenues decreased by 56.6% to a total of U.S.$3.3 billion, and spending decreased by 30.3% to a total of U.S.$7.4 billion. The substantial impact on income was due mainly to the restriction to travel and passangers transportation, as a direct consequence of the pandemic restrictions, including social distancing and the border restrictions imposed on March 16, 2020. Starting October 5, 2020 and after seven months of restrictions, international flights at Jorge Chavez international airpoirt were restablished.

From 2016 to 2020, net income from all activities related to tourism decreased from U.S.$1.6 billion to U.S.$64 million, primarily due to a decrease in the income from tourism.

Tourism Statistics

	For the year ended December 31,
	2016		2017		2018		2019		2020
International non-resident arrivals(1)		3,744		4,032		4,419		4,372		897
Average length of stay (number of nights)(2)		10		10		10		—		N/A
Hotel activity:
Number of rooms available		271,754		287,223		296,748		311,007		234,457
Occupancy rate by total number of rooms available (in %)		28.6		26.6		27.1		28.3		19.6
Aggregate value of hotels and restaurants (as a % of GDP)		4.5		4.5		4.6		—		N/A
Income from tourism(3) (in millions of U.S.$)		4,288		4,439		4,505		4,703		1,002
Expenses from tourism (in millions of U.S.$)(3)		2,700		2,893		3,352		3,627		938
Balance (income less expenses, in millions of U.S.$)		1,588		1,546		1,153		1,076		64

(1) Include foreign nonresident and Peruvian nonresident.

(2) Calculated from the survey of arriving foreign non-residents. PROMPERU.

(3) Data from Central Bank of Peru, it includes trips and transportation of passengers.

Sources: BCRP, Superintendencia Nacional de Migraciones, INEI and MINCETUR.

Trade Balance

In 2020, the trade balance was U.S$7.8 billion and accumulated five consecutive years of commercial surplus. The volumes of exports and imports decreased 13.4% and 11.1%, due to the pandemic restrictions, the economic crisis, the restriction to transportation and the impact both on domestic and global demand. The price of exportes increased due to the significant increase in the international prices of commodities such as copper, zinc, gold, and coffee, among others. The prices for imports decreased 5.1% due to a decrease in supplies such as oil, plastics, textiles, papers, among others.

The two primary commercial partners of Peru continue to be China and the United States. From 2016 to 2020, exports to the United States and China averaged 12.1 % and 20.8 % of total exports, respectively, while imports from these countries averaged 16.1 % and 18.5 %, respectively. The transactions with these countries represented 45.0% of total trade completed in 2020.

During the COVID pandemia, foreign trade decreased in general with all the main trade international partners, except with Canada.

In January 2012, Peru and Venezuela signed a Partial Scope Trade Agreement. In June 2012, Peru, Colombia, Chile and Mexico signed a framework agreement with the Pacific Alliance trade bloc. On January 7, 2012, Peru, Bolivia and Venezuela entered into a Partial Scope Trade Agreement; however, this agreement has not yet entered into force.

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In March 2012, the Economic Partnership Agreement executed in May 2011 by Peru and Japan entered into force. Likewise, in July 2012 the Free Trade Agreement with the Kingdom of Norway entered into force, as part of the Free Trade Agreement between Peru and the European Free Trade Association (EFTA). The main products exported to the EFTA states are: gold, fish oil, copper, fishery and agricultural products, asparagus, textiles and avocado. Switzerland is the main destination of these products.

In March 2013, a delegation of Peruvian officials was invited to India in order to initiate negotiations of a free trade agreement. On November 28, 2014, Peru and Turkey completed the second round of negotiations for the Peru-Turkey free trade agreement. On May 29, 2015, Peru signed a free trade agreement with Honduras in Lima.

On February 4, 2016, ministers of the 12 nation-members of the Trans-Pacific Partnership (TPP) attended a signing ceremony in Auckland, New Zealand. On April 29, 2016, Peru and Brazil executed the Agreement for Economic and Commercial Development. On January 1, 2017, Peru and Honduras initiated the formal approval process for the free trade agreement signed by the two sovereigns in May 2015. And in March 2017, a delegation from Peru held a technical meeting in New Delhi, India to agree on the terms of reference for negotiation of a trade agreement between Peru and India.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was executed in Santiago, Chile on March 8, 2018. The agreement is subject to an internal ratification process and therefore has not yet entered into force in Peru.

On February 12, 2019, the Minister of Trade and Tourism, Eduardo Ferreyros, and the Australian Minister for Trade, Tourism, and Investment, Steven Ciobo, signed a new trade deal in Canberra, Australia. The Free Trade Agreement with Australia which was effective as of February 11, 2020 is one of the most ambitious bilateral trade agreements Peru has ratified. This agreement includes a particular commitment relating to small- and medium-enterprises, as well as on development, competitiveness and reducing bureaucracy to facilitate business formation.

President Kuczynski’s administration sought to align Peru with other countries by reducing trade barriers and simplifying the procedures that regulate the flow of productive factors, in order to optimize the utilization of scarce resources. Following the resignation of President Kuczynski, President Martin Vizcarra has maintained the same policies.

Peru classifies its non-free trade zone exports as traditional and non-traditional exports. Traditional exports consist of goods that historically have constituted a greater share of Peru’s exports and include mostly raw materials. Non-traditional exports include goods that historically have not been exported in significant quantities and traditional export goods that have been transformed through manufacturing or other processing.

In 2020 and 2019, Peru’s exports consisted primarily of exports of:

• traditional mineral exports, such as gold, silver, copper, zinc and lead, valued at U.S.$25.8 billion during 2020, representing 60.8% of total exports while in 2019, was valued at U.S.$28.1 billion, representing 58.9% of total exports;

• petroleum and derivative products valued at U.S.$1.4 billion during 2020, representing 3.2% of total exports while in 2019, was valued at U.S.$3.0 billion, representing 6.2% of total exports;

• traditional fishing exports, such as fishmeal and fish oil, valued at U.S.$1.5 billion during 2020, representing 3.6% of total exports, and valued at U.S.$1.9 billion in 2019, representing 4.0% of total exports;

• non-traditional agriculture and livestock exports valued at U.S.$6.8 billion during 2020, representing 16.1% of total exports while in 2019 was valued at U.S.$6.3 billion, representing 13.2% of total exports; and

• non-traditional textile exports, such as textile fibers and cloth, valued at U.S.$1.0 billion during 2020, representing 2.4% of total exports, and valued at U.S.$1.4 billion in 2019, representing 2.8% of total exports during the year.

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The following tables provide further information on exports for the periods presented.

Exports

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Traditional:
Fishing		1,269		1,789		1,938		1,929		1,546
Agricultural		878		827		762		774		733
Mineral		21,819		27,582		28,899		28,074		25,774
Petroleum and derivatives		2,217		3,369		4,039		2,974		1,352
Total traditional		26,183		33,566		35,638		33,751		29,405
Non-traditional:
Agriculture and livestock		4,686		5,103		5,867		6,292		6,817
Fishing		926		1,089		1,375		1,613		1,321
Textiles		1,196		1,272		1,402		1,354		1,024
Timbers and papers, and manufactures		322		344		339		321		240
Chemical		1,344		1,385		1,562		1600		1,558
Non-metallic minerals		642		588		629		604		446
Basic metal industries and jewelry		1,085		1,273		1,325		1310		929
Fabricated metal products and machinery		450		520		591		558		458
Other products(1)		146		152		150		131		93
Total non-traditional		10,798		11,725		13,240		13,783		12,887
Other products(2)		101		130		189		154		121
Total exports		37,082		45,422		49,066		47,688		42,413

(1) Includes leather and handcrafts.

(2) Includes the sale of fuel and food to foreign vessels and the repair of foreign vessels.

Source: Central Bank.

Exports

(as a percentage of total exports, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Traditional:
Fishing		3.4		3.9		3.9		4.0		3.6
Agricultural		2.4		1.8		1.6		1.6		1.7
Mineral		58.8		60.7		58.9		58.9		60.8
Petroleum and derivatives		6.0		7.4		8.2		6.2		3.2
Total traditional		70.6		73.9		72.6		70.8		69.3
Non-traditional:
Agriculture and livestock		12.6		11.2		12.0		13.2		16.1
Fishing		2.5		2.4		2.8		3.4		3.1
Textiles		3.2		2.8		2.9		2.8		2.4
Timbers and papers, and manufactures		0.9		0.8		0.7		0.7		0.6
Chemical		3.6		3.0		3.2		3.4		3.7
Non-metallic minerals		1.7		1.3		1.3		1.3		1.1
Basic metal industries and jewelry		2.9		2.8		2.7		2.7		2.2
Fabricated metal products and machinery		1.2		1.1		1.2		1.2		1.1
Other products(1)		0.4		0.3		0.3		0.3		0.2
Total non-traditional		29.1		25.8		27.0		28.9		30.4
Other products(2)		0.3		0.3		0.4		0.3		0.3
Total exports		100.0		100.0		100.0		100.0		100.0

(1) Includes leather and handcrafts.

(2) Includes the sale of fuel and food to foreign vessels and the repair of foreign vessels.

Source: Central Bank.

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In 2020 and 2019, Peru’s imports consisted primarily of imports of:

• intermediate goods, such as fuels and raw materials for agricultural and industrial production, valued at U.S.$15.4 billion in 2020, representing 44.4% of total imports for such period, and valued at U.S.$19.1 billion in 2019, representing 46.5% of total imports for such period;

• capital goods, such as transportation and building equipment, valued at U.S.$10.4 billion in 2019, representing 30.1% of total imports for such period, and valued at U.S.$12.3 billion in 2019, representing 29.9% of total imports for such period; and

• consumer goods valued at U.S.$8.7 billion in 2020, representing 25.2% of total imports for such period, and valued at U.S.$9.6 billion in 2019, representing 23.3% of total imports for such period.

The following tables provide further information regarding imports for the periods presented.

Imports

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Consumer goods:
Durable goods		3,973		4,183		4,286		4,167		3,285
Non-durable goods		4,635		5,156		5,305		5,409		5,438
Total consumer goods		8,608		9,339		9,591		9,576		8,723
Intermediate goods:
Petroleum products, lubricants		3,820		5,390		6,593		5,648		2,970
Raw materials for agriculture		1,214		1,469		1,459		1,449		1,525
Raw materials for manufacturing		9,989		11,044		12,463		12,004		10,910
Total intermediate goods		15,022		17,902		20,516		19,101		15,405
Capital goods:
Construction materials		1,112		1,061		1,193		1,304		1,081
For agriculture		144		143		150		152		153
For manufacturing		7,391		7,399		7,373		7,803		7,108
Transportation equipment		2,584		2,714		2,926		3,037		2,103
									��
Total capital goods		11,232		11,316		11,641		12,295		10,445
Other(1)		267		164		123		102		90
Total imports		35,128		38,722		41,870		41,074		34,663
Memorandum items:
Temporal admission imports(2)		216		387		312		410		412
Imports into free trade zone(3)		212		212		212		220		166

(1) Includes the donation of goods, the purchase of fuels and Peruvian foodstuffs and the repair of capital goods in the exterior such as other goods not falling into any one of the classifications used.

(2) Imports that must be processed and exported within a definite period of time and are not subject to tariffs.

(3) Imports through the Tacna Special Processing Area, which is primarily dedicated to the assembly of motor vehicles. Peru has five free trade zones, but only the Tacna zone is economically active.

Source: Central Bank.

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Imports

(as a percentage of total imports, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Consumer goods:
Durable goods		11.3		10.8		10.2		10.1		9.5
Non-durable goods		13.2		13.3		12.7		13.2		15.7
Total consumer goods		24.5		24.1		22.9		23.3		25.2
Intermediate goods:
Petroleum products, lubricants		10.9		13.9		15.7		13.7		8.6
Raw materials for agriculture		3.5		3.8		3.5		3.5		4.4
Raw materials for manufacturing		28.4		28.5		29.8		29.2		31.5
Total intermediate goods		42.8		46.2		49.0		46.5		44.4
Capital goods:
Construction materials		3.2		2.7		2.8		3.2		3.1
For agriculture		0.4		0.4		0.4		0.4		0.4
For manufacturing		21.0		19.1		17.6		19.0		20.5
Transportation equipment		7.4		7.0		7.0		7.4		6.1
Total capital goods		32.0		29.2		27.8		29.9		30.1
Other(1)		0.8		0.4		0.3		0.2		0.3
Total import		100.0		100.0		100.0		100.0		100.0
Memorandum items:
Temporal admission imports(2)		0.6		1.0		0.7		1.0		1.2
Imports into free trade zone(3)		0.6		0.5		0.5		0.5		0.5

(1) Includes the donation of goods, the purchase of fuels and Peruvian foodstuffs and the repair of capital goods in the exterior such as other goods not falling into any one of the classifications used.

(2) Imports that must be processed and exported within a definite period of time and are not subject to tariffs.

(3) Imports through the Special Zone of Tacna, which is primarily dedicated to the assembly of motor vehicles. Peru has five free trade zones but only the Tacna zone is economically active.

Source: Central Bank.

Capital Account

The capital account reflects foreign direct investment and monetary flows into and out of a nation’s financial markets.

In 2016, the capital account balance decreased by 46.9% to U.S.$5.5 billion as compared to U.S.$10.4 billion in 2015, primarily due to a 31.3% decrease in foreign direct investment in 2016. This decrease in 2016 was partially offset by increases in short-term capital flows (147.2%) compared to 2015.

In 2017, the capital account balance decreased by 46.1% to U.S.$3.0 billion as compared to U.S.$5.5 billion in 2016. This decrease in 2017 was due primarily to reduced investment of other medium- and long-term capital.

In 2018, the capital account balance decreased by 37.9% to U.S.$1.9 billion as compared to U.S.$3.0 billion in 2017. This decrease in 2018 was due primarily to reduced or other medium- and long-term capital flows.

In 2019, the capital account balance highly increased to U.S.$9.3 billion as compared to U.S.$1.9 billion in 2018. This increase was due primarily to increased foreign direct investment and increased investment in sovereign debt and private debt securities by local residents and reduced investment abroad by AFPs and mutual funds, in the context of lower interest rates in the international markets and lower market volatility.

In 2020, the capital account balance decreased to U.S.$7.3 billion as compared to U.S.$9.3 billion in 2019, due to an increase of investments in public assets and, to a lower extent, a decrease of private investments overseas. The public balance account was determined by the increase of funds directed to public assets originated in the issuance of Global Bonds during the pandemic. In addition, the sale of foreign assest held by the pension system due to local pension demand decreased the flux of investments overseas.

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Geographic Distribution of Exports

(as a percentage of total exports, at current prices)

	For the year ended December 31,
	2016(1)		2017(1)		2018(1)		2019(1)		2020(1)
United States		16.8		15.4		16.2		11.9		15.1
Canada		4.6		2.6		1.9		5.1		0.6
Mexico		1.3		0.9		0.9		1.0		1.1
Total North America		23.9		18.9		19.0		17.9		16.9
Brazil		3.3		3.5		3.5		3.0		1.8
Colombia		1.9		1.5		1.6		1.7		1.5
Chile		2.7		2.3		2.5		2.7		2.7
Venezuela		0.2		0.1		0.1		0.1		0.1
Other		7.4		8.5		7.1		8.9		10.6
Total Latin America and the Caribbean		15.6		15.9		14.7		16.4		16.8
United Kingdom		1.8		1.6		1.4		1.0		1.0
Switzerland		6.9		5.2		4.3		4.8		3.3
Germany		2.4		2.1		2.3		2.2		2.2
Spain		3.3		4.1		3.7		2.5		2.7
Other		7.9		6.9		7.8		8.0		8.1
Total Europe		22.3		19.8		19.4		18.4		17.4
Japan		3.4		4.1		4.4		4.1		4.5
China		22.9		25.6		27.0		28.3		30.1
Other		10.2		13.4		13.4		13.0		13.1
Total Asia		36.6		43.1		44.8		45.4		47.7
Africa and others		1.7		2.2		2.1		1.8		1.3
Total exports		100.00		100.00		100.00		100.00		100.0

(1) Preliminary data.

Source: Central Bank.

Geographic Distribution of Imports

(as a percentage of total imports, at current prices)

	For the year ended December 31,
	2016(1)		2017(1)		2018(1)		2019(1)		2020(1)
United States		19.0		19.9		20.9		20.6		18.4
Canada		1.8		1.7		1.6		1.5		2.2
Mexico		4.7		4.5		4.5		4.4		4.2
Total North America		25.9		26.0		27.0		26.5		24.8
Brazil		5.8		6.1		5.5		5.6		5.5
Colombia		3.2		3.7		3.7		3.2		2.7
Chile		3.3		3.4		3.5		3.7		3.0
Venezuela		0.0		0.1		0.0		0.0		0.0
Other		8.3		9.2		9.3		9.0		8.8
Total Latin America and the Caribbean		20.6		22.5		22.0		21.4		20.0
United Kingdom		0.7		0.7		0.6		0.6		0.5
Switzerland		0.4		0.4		0.3		0.4		0.4
Germany		3.1		2.7		2.5		2.7		2.8
Spain		1.7		2.6		2.2		2.1		1.9
Other		7.2		7.1		6.7		6.8		6.9
Total Europe		13.2		13.4		12.3		12.5		12.5
Japan		2.8		2.5		2.4		2.5		2.0
China		22.6		22.1		23.3		24.2		28.7
Other		12.4		10.7		10.1		10.2		10.4
Total Asia		37.9		35.4		35.9		36.9		41.1
Africa and others		2.4		2.7		2.8		2.6		1.6
Total imports		100.0		100.0		100.0		100.0		100.0

(1) Preliminary data.

Source: Central Bank.

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Foreign Direct Investment

Peru has an open investment regime and a legal framework that generally promotes and protects foreign investment. The basis of this open investment regime was established in 1991 through the Foreign Investment Promotion Law and the Private Investment Growth Framework Law, as amended. This framework allows both foreign and domestic investors to enter into legal stability agreements with the Government. For a description of these measures, see “The Economy—Privatization and Role of the State in the Economy.”

Peru attracted more than U.S.$26.4 billion in foreign direct investment between 2016 and 2020. In 2016, foreign direct investment decreased 31.3% to U.S.$5.6 billion as compared to 2015, primarily due to decreased equity capital and net liabilities to capitalize enterprises. In 2017, foreign direct investment increased 13.9% to U.S.$6.4 billion as compared to 2016, primarily due to increased investment of equity capital and net liabilities to capitalize enterprises. In 2018, foreign direct investment increased 7.4% to U.S.$6.8 billion as compared to 2017 due to reinvestment primarily concentrated in the mining and service sectors. In 2019, foreign direct investment increased 4.1% to U.S.$7.1 billion as compared to 2018 due to reinvestment primarily concentrated in the mining and non-financial service sectors. In 2020, foreign direct investment decreased 93.3% to U.S.$478 million as compared to 2019 due to the general pandemic restrictions and global economic impact. The decrease in dividens to parent companies was an impulse to domestic reinvestment and a decrease of parent loans. Such funds were invested in mining (U.S.$970 million), manufacturing (U.S.$215 million) and energy (U.S.$251 million).

In 2016, Peru completed two privatizations and concession grants for U.S.$2.1 billion. In 2017, Peru completed six privatizations and concession grants for U.S.$0.93 billion. For a description of these transactions see “Privatizations and Concessions” above. In 2018, the state awarded investment projects for a sum of U.S.$2.7 billion. The two most important projects were Southern Peru Copper Corporation’s Michiquillay Mine in February totaling U.S.$1.95 billion and the Terminal Portuario Multiproposito de Salaverry in May totaling U.S.$0.23 billion.

Portfolio Investment

Flows of portfolio capital into and out of Peru fluctuated between 2016 and 2020 were as follows.

• In 2016, Peru experienced portfolio capital outflows of U.S.$307.0 million, primarily due to the sale of Peruvian securities by non-resident investors.

• In 2017, Peru experienced portfolio capital outflows of U.S.$172.0 million, primarily as a result of sales by non-resident investors of securities issued by local companies.

• In 2018, Peru experienced portfolio capital outflows of U.S.$442.0 million (which included the purchase of shares by non-resident investors through the Lima Stock Exchange and the placement of American Depositary Receipts), primarily as a result of sales by non-resident investors of securities issued by local companies.

• In 2019, Peru experienced portfolio capital outflows of U.S.$511.0 million (which included the purchase of shares by non-resident investors through the Lima Stock Exchange and the placement of American Depositary Receipts), primarily as a result of sales by non-resident investors of securities issued by local companies.

• In 2020, Peru experienced portfolio capital outflows of U.S.$209.0 million (which included the purchase of shares by non-resident investors through the Lima Stock Exchange and the placement of American Depositary Receipts), primarily as a result of sales by non-resident investors of securities issued by local companies.

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The following table provides information, by sector, on the stock of foreign direct investments registered with Proinversión as of the dates indicated, which does not include loans or reinvestments. The stock of foreign direct investment refers to the level of foreign funds directly invested in the Peruvian economy as of the dates indicated and does not reflect investment flows.

Registered Stock of Foreign Direct Investment by Sector*

(in millions of U.S. dollars at current prices)

	For the year ended December 31,
	2016		2017		2018		2019(1)		2020(1)
Agriculture		82.9		82.9		82.9		82.9		82.9
Commerce		851.3		851.8		851.8		851.8		851.8
Construction		387.7		396.6		398.5		399.8		399.8
Energy		3,449.8		3,451.1		3,453.7		3,496.4		3,496.4
Finance		4,715.0		4,715.0		4,766.5		4,795.0		4,795.0
Fishing		163.0		163.0		163.0		163.0		163.0
Forestry		1.2		1.2		1.2		1.2		1.2
Housing		46.9		81.6		81.6		81.6		81.6
Industry		3,216.4		3,216.4		3,216.4		3,216.4		3,216.4
Mining		5,840.5		5,872.2		6,257.0		6,257.0		6,257.0
Petroleum		701.6		701.6		701.6		701.6		701.6
Services		673.2		673.3		673.3		673.3		673.3
Telecommunication		5,324.2		5,327.4		5,480.1		5,480.1		5,480.1
Tourism		83.1		83.4		83.4		83.4		83.4
Transportation		522.6		522.6		522.6		522.6		522.6
Total		26,059.6		26,140.3		26,733.9		26,806.3		26,806.3

* Includes equity investments by foreign investors in domestic companies.

(1) Preliminary data. Updated as of December 31, 2020.

Source: Proinversión.

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The following table provides information on the stock of foreign direct investment by country of origin in dollars, and as a percentage of total foreign direct investment, as registered with Proinversión or its predecessor agency, as of the dates presented.

Registered Stock of Foreign Direct Investment by Country of Origin

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019(1)			2020(1)
Argentina		37.7		37.7		37.7		37.7			37.7
Australia		7.3		7.3		7.3		7.3			7.3
Austria		9.9		11.2		11.2		11.2			11.2
Bahamas		185.1		185.1		185.1		185.1	��		185.1
Belgium		175.7		175.7		175.7		175.7			175.6
Bermuda		293.1		293.1		293.1		293.1			293.1
Bolivia		3.1		3.1		3.1		3.1			3.1
Brazil		1,200.9		1,200.9		1,200.9		1,200.9			1,200.9
Canada		1,086.2		1,086.2		1,086.2		1,086.2			1,086.2
Cayman Islands		113.7		113.7		113.7		113.7			113.7
Chile		3,839.1		3,840.9		3,994.3		4,004.1			4,004.1
China		226.9		234.0		284.0		304.0			304.0
Colombia		1,179.1		1,179.1		1,179.1		1,179.1			1,179.1
Denmark		14.3		14.3		14.3		14.3			14.3
Ecuador		166.1		166.4		166.4		166.4			166.4
France		216.9		220.1		222.8		222.8			222.8
Germany		181.7		209.3		209.3		209.3			209.3
Great Britain		183.3		204.7		235.4		235.4			235.4
Honduras		2.9		2.9		2.9		2.9			2.9
Italy		173.9		173.9		173.9		173.9			173.9
Japan		233.5		233.5		233.5		233.5			233.5
Korea		46.2		46.2		46.2		46.2			46.2
Liechtenstein		19.3		19.3		19.3		19.3			19.3
Luxembourg		554.9		562.0		562.0		562.0			562.0
Malta		6.5		6.5		6.5		6.5			6.5
Mexico		542.6		542.6		577.7		577.7			577.7
Netherlands		1,575.7		1,575.7		1,575.7		1,575.7			1,575.7
New Zealand		7.2		7.2		7.2		7.2			7.2
Panama		944.8		944.8		944.8		944.8			944.8
Portugal		38.4		38.4		38.4		38.4			38.4
Russia		2.6		2.6		2.6		2.6			2.6
Singapore		365.5		365.5		365.5		365.5			365.5
Spain		4,633.4		4,633.4		4,636.1		4,678.8			4,678.8
Sweden		48.9		48.9		48.9		48.9			48.9
Switzerland		485.7		485.7		485.7		485.7			485.7
United Arab Emirates		4.9		5.0		5.0		5.0			5.0
United Kingdom(2)		4,312.8		4,323.2		4,642.1.1		4,642.1.1			4,642.1.1
Uruguay		156.5		156.5		156.5		156.5			156.5
United States		2,775.5		2,775.5		2,775.5		2,775.5			2,775.5
Venezuela		3.4		3.4		3.4		3.4			3.4
Others		4.1		4.6		4.6		4.6			4.6
Total		26,059.6		26,140.3		26,733.9		26,806.3			26,806.3

(1) Preliminary data. Updated as of December 31, 2020.

(2) Includes United Kingdom overseas territories.

Source: Proinversión.

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Registered Stock of Foreign Direct Investment by Country of Origin

(as a percentage of total direct investment, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019(1)			2020(1)
Argentina		0.14	%		0.14	%		0.14	%		0.14	%		0.14	%
Australia		0.03	%		0.03	%		0.03	%		0.03	%		0.03	%
Austria		0.04	%		0.04	%		0.04	%		0.04	%		0.04	%
Bahamas		0.71	%		0.71	%		0.69	%		0.69	%		0.69	%
Belgium		0.67	%		0.67	%		0.66	%		0.66	%		0.66	%
Bermuda		1.12	%		1.12	%		1.10	%		1.09	%		1.09	%
Bolivia		0.01	%		0.01	%		0.01	%		0.01	%		0.01	%
Brazil		4.61	%		4.59	%		4.49	%		4.48	%		4.48	%
Canada		4.17	%		4.16	%		4.06	%		4.05	%		4.05	%
Cayman Islands		0.44	%		0.43	%		0.43	%		0.42	%		0.42	%
Chile		14.73	%		14.69	%		14.94	%		14.94	%		14.94	%
China		0.87	%		0.90	%		1.06	%		1.13	%		1.13	%
Colombia		4.52	%		4.51	%		4.41	%		4.40	%		4.40	%
Denmark		0.05	%		0.05	%		0.05	%		0.05	%		0.05	%
Ecuador		0.64	%		0.64	%		0.62	%		0.62	%		0.62	%
France		0.83	%		0.84	%		0.83	%		0.83	%		0.83	%
Germany		0.70	%		0.80	%		0.78	%		0.78	%		0.78	%
Great Britain		0.70	%		0.78	%		0.88	%		0.88	%		0.88	%
Honduras		0.01	%		0.01	%		0.01	%		0.01	%		0.01	%
Italy		0.67	%		0.67	%		0.65	%		0.65	%		0.65	%
Japan		0.90	%		0.89	%		0.87	%		0.87	%		0.87	%
Korea		0.18	%		0.18	%		0.17	%		0.17	%		0.17	%
Liechtenstein		0.07	%		0.07	%		0.07	%		0.07	%		0.07	%
Luxembourg		2.13	%		2.15	%		2.10	%		2.10	%		2.10	%
Malta		0.02	%		0.02	%		0.02	%		0.02	%		0.02	%
Mexico		2.08	%		2.08	%		2.16	%		2.16	%		2.16	%
Netherlands		6.05	%		6.03	%		5.89	%		5.88	%		5.88	%
New Zealand		0.03	%		0.03	%		0.03	%		0.03	%		0.03	%
Panama		3.63	%		3.61	%		3.53	%		3.52	%		3.52	%
Portugal		0.15	%		0.15	%		0.14	%		0.14	%		0.14	%
Russia		0.01	%		0.01	%		0.01	%		0.01	%		0.01	%
Singapore		1.40	%		1.40	%		1.37	%		1.36	%		1.36	%
Spain		17.78	%		17.73	%		17.34	%		17.45	%		17.45	%
Sweden		0.19	%		0.19	%		0.18	%		0.18	%		0.18	%
Switzerland		1.86	%		1.86	%		1.82	%		1.81	%		1.81	%
United Arab Emirates		0.02	%		0.02	%		0.02	%		0.02	%		0.02	%
United Kingdom(2)		16.55	%		16.54	%		17.36	%		17.32	%		17.32	%
United States		0.60	%		0.60	%		0.59	%		0.58	%		0.58	%
Uruguay		10.65	%		10.62	%		10.38	%		10.35	%		10.35	%
Venezuela		0.01	%		0.01	%		0.01	%		0.01	%		0.01	%
Others		0.02	%		0.02	%		0.02	%		0.02	%		0.02	%
Total		100.0			100.0			100.0			100.0			100.0

(1) Preliminary data. Updated as of December 31, 2020.

(2) Includes United Kingdom overseas territories.

Source: Proinversi��n.

The principal sources of direct investment in Peru by country of origin in 2020 were Spain, the United Kingdom, the United States and Chile. Together they represented 60.1% of total foreign direct investment in 2020.

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THE MONETARY SYSTEM

Central Bank

Established in 1922, the Central Bank serves as Peru’s monetary authority. The Central Bank exists and operates under Chapter V of the 1993 Constitution and the Ley Orgánica del Banco Central de Reserva del Perú, or the Central Bank’s charter, enacted that same year. The 1993 Constitution and the Central Bank’s charter establish that the goal of the Central Bank is to maintain price stability. Congress vested the Central Bank with the authority to regulate Peru’s monetary base, manage Peru’s international reserves and gather and publish data on Peru’s finances. The Central Bank is also the sole issuer of sol.

The Central Bank is headed by a board of directors composed of seven members who each serve five-year terms that are coterminous with the Peruvian President’s term. Congress appoints three of the Central Bank’s directors, and the Executive Branch appoints four, including the president of the Central Bank’s board. Appointment of the president of the Central Bank’s board is subject to ratification by Congress. The Central Bank’s charter requires directors of the Central Bank to have extensive experience in and knowledge of economics and finance. The responsibility of the Central Bank’s board is to formulate a monetary program consistent with the Central Bank’s mandate to maintain price stability.

The Central Bank’s daily operations are under the supervision of its General Manager and the Money and Foreign Exchange Committee. This committee meets daily to make decisions regarding monetary operations, such as the amount of U.S. dollars to be purchased in the foreign exchange market, whether to auction Central Bank certificates of deposit and the interest rate that the Central Bank will charge on short-term credits, which is generally known as the discount rate.

Reform of the Central Bank and of Peru’s monetary policy has been a centerpiece of the economic program Peru began in the early 1990s. These reforms were based on the following two key elements that were promulgated under the 1993 Constitution and the Central Bank’s charter:

• the Central Bank’s principal purpose is to maintain price stability by preserving the value of the currency; and

• the Central Bank has full autonomy.

These reforms were implemented to address the high rates of inflation that Peru, along with other South American countries, experienced during the 1980s and early 1990s. The premise underlying these reforms was that the Central Bank could contribute most effectively to economic prosperity by focusing its activities on achieving price stability. Prior to these reforms, the Central Bank operated under a much broader mandate that made it directly responsible for fueling growth and for establishing credit and exchange rate conditions. Pursuit of these broader and occasionally incompatible objectives resulted in erratic policy choices that exacerbated adverse economic conditions and contributed to the hyperinflation experienced in the late 1980s and early 1990s.

The Central Bank was granted autonomy based on the belief that, to operate effectively, the Central Bank must be immune from political pressures. In the past, the Central Bank had often been required to pursue ill-advised policies, such as printing currency in order to finance public spending, as a result of government intervention. Since the reforms were implemented, technical rather than political management of Peru’s monetary policy has built confidence in the Government’s ability to formulate and implement a sound and stable monetary policy.

The 1993 Constitution and the Central Bank’s charter guarantee the autonomy of the Central Bank by prohibiting it from:

• providing financing to the public sector, except indirectly through limited purchases of treasury bonds;

• issuing guarantee certificates, surety bonds or any other kind of guarantees, using any other form of indirect financing, or providing insurance of any kind;

• imposing sector or regional ratios on the composition of the loan portfolios of financial institutions; and

• establishing multiple currency exchange regimes.

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The reform of the Central Bank’s role has been instrumental in the sharp decline in inflation experienced during the 1990s. Between 1994 and 2000, the Central Bank met or slightly exceeded its annual inflation targets. Since 2001, the Central Bank has maintained a restrictive monetary policy that produced a marked deceleration in the growth rate in the CPI, which was 3.2% in 2016, 1.4% in 2017, 2.2% in 2018, 1.9% in 2019 and 2.0% in 2020. This relatively stable rate of inflation has fostered confidence in the stability of the Peruvian currency.

Monetary Policy

The Central Bank’s primary goal is to maintain a stable monetary environment. To conduct monetary policy, the Central Bank has established a target inflation rate and has announced this target rate in order to shape market expectations. The inflation rate in 2020 was 2.0%, within the target range of 1% and 3%.

Decisions on monetary policy are translated into changes in an operational target chosen by the Central Bank. Since 2001, the Central Bank has gradually changed its monetary policy from a monetary base growth control scheme to an interbank interest rate control scheme. As a result, the volatility of the interbank interest rate has diminished continuously. The reduction in the volatility of the interbank interest rate has significantly reinforced the influence of this rate over the other banks’ interest rates. Even during 2001 and 2002, while monetary policy targeted the amount of demand deposits held by commercial banks at the Central Bank, it announced the reference interbank interest rate range. The upper limit of the reference interbank interest rate range is the interest rate for direct repos and the rediscount rate and the lower limit correspond to the interest rate for overnight deposits by commercial banks at the Central Bank.

Under the Central Bank’s charter, interest rates float freely in the Peruvian economy and are determined by market conditions. Only in exceptional circumstances may the Central Bank establish minimum and maximum interest rates. Since January 2003, the Central Bank has released its monetary policy decisions regarding the Central Bank’s interest rates for discount window operations and deposit facilities with commercial banks. These interest rates are intended to establish a reference rate for the interbank market.

In 2020, the Central Bank’s monetary policy measure continued to be oriented toward maintaining an expansive monetary position intended toward achieving inflation targets between 1% and 3%. This bore out in an environment where economic growth was below its potential in a period when heightened economic uncertainty in the international financial markets due mainly to the COVID-19 pandemic.

During 2020, the sol depreciated 9.2% in nominal terms against the dollar from S/3.31 per U.S.$1.00 to S/3.62 per U.S.$1.00, emerging currencies were greatly affected by the COVID-19 pandemic. The Peruvian sol reached a new historial maximum (S/ 3.667) associated with the uncertainty of the presidential impeachment. Even so, in volatility terms, the sol continues to be one of least volatile currencies in the world, even less volatile than the euro, sterling pound, yen, and the currencies of the region. However, 2020 was a year of high volatility for the sol, the highest since 2008 even with commodities, such as gold and copper, having a positive run.

During 2020, the Central Bank changed the reserve requirements for financial institutions in soles from 5% to 4% and the tasa de encaje (the legal reserve) on deposits in U.S. dollars remained at 35%. The following table provides information on interest rates applicable to commercial bank loans as of the dates presented.

During 2020, the Central Bank reduced the reference rate once, to 0.25% in March-April from 2.25%. The reference rate of 2.25% had been maintained at such rate since November 2019.

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Interest Rates on Commercial Bank Loans⁽¹⁾⁽²⁾

(annual percentage rates)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Domestic currency:
Interbank		4.4		3.3		2.8		2.3		0.2
Prime(1)		5.2		3.6		4.3		3.3		0.6
Average loan rate		17.2		15.8		14.3		14.1		12.1
Foreign currency:
Interbank		0.6		1.3		2.3		1.8		0.3
Prime(1)		1.2		2.2		3.4		2.7		1.1
Average loan rate		7.6		6.7		7.9		7.5		6.1

(1) Weighted average interest rates of commercial banks for each period based on the outstanding principal amount of loans and deposits.

(2) Average interest rates at which major banks are willing to offer 90-day loans to its lower risk corporate customers in the form of advances on current accounts.

Source: Central Bank.

As of December 31, 2016, the average interest rate on domestic currency loans increased to 17.2%, while the rate on foreign currency loans decreased to 7.6%. As of December 31, 2017, the average interest rate on domestic currency loans decreased to 15.8%, while the rate on foreign currency loans decreased to 6.7%. As of December 31, 2018, the average interest rate on domestic currency loans decreased to 14.3%, while the rate on foreign currency loans increased to 7.9%. As of December 31, 2019, the average interest rate on domestic currency loans decreased to 14.1%, and the rate on foreign currency loans decreased to 7.5%. As of December 21, 2020, the average interest rate on domestic currency loans decreased to 12.1%, and the rate on foreign currency loans decreased to 6.1%.

The following table provides information on interest rates applicable to deposits as of the dates presented.

Interest Rates on Deposits Paid by Commercial Banks

(annual percentage rates)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Domestic currency:
Saving deposits		0.5		0.6		0.8		0.7		0.6
Time deposits(1)		4.8		3.7		3.8		3.0		0.5
Average deposits rate(2)		2.6		2.5		2.4		2.2		1.0
Foreign currency:
Saving deposits		0.2		0.2		0.2		0.2		0.1
Time deposits(1)		0.6		1.2		1.7		1.4		0.3
Average deposits rate(2)		0.3		0.5		0.8		0.8		0.3

(1) Time deposits for 31 to 179 days.

(2) The average of the TIPMN rate published daily by SBS. The TIPMN is the average deposit rate in domestic currency expressed in annual effective rates.

Source: Central Bank.

The average interest rate on domestic currency deposits and foreign currency deposits were:

• 2.6% and 0.3%, respectively, as of December 31, 2016;

• 2.5% and 0.5%, respectively, as of December 31, 2017;

• 2.4% and 0.8%, respectively, as of December 31, 2018;

• 2.2% and 0.8%, respectively, as of December 31, 2019; and

• 1.0% and 0.3%, respectively, as of December 31, 2020.

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The interest rate on domestic currency deposits decreased 1.6% from 2016 to 2020, while the interest rate on foreign currency deposits increased remained at 0.3% during the same period.

The Central Bank employs several tools to implement its monetary operations. These tools fall into the following three major categories:

• open market operations, which include:

• auctions to financial institutions of Central Bank certificates of deposit (CDBCRP) and indexed certificates of deposit (CDR) (indexed to the exchange rate);

• temporary purchases of Central Bank certificates of deposits and of treasury bonds; and

• purchases and sales of foreign currencies in the interbank market;

• discount-window transactions, which include:

• monetary regulation loans, generally known as rediscounts, which consist of short-term loans made directly by the Central Bank to financial institutions to cover their short-term liquidity needs;

• direct repurchase agreements;

• overnight foreign currency swaps that allow the Central Bank to provide financial institutions with short-term liquidity; and

• remunerated overnight deposits in the Central Bank, in both domestic and foreign currencies, which allow the Central Bank to remove excess liquidity from the banking system; and

• minimum reserve requirements.

As of December 31, 2020, the minimum reserve requirement for local and foreign currency deposits was 4.0%. Foreign currency deposits were subject to a 9% marginal rate. On average, 4.3 % of local currency deposits and 35.1% of total foreign currency deposits were maintained as reserves. Financial institutions may satisfy the minimum reserve requirements with funds they hold in vaults or that are on deposit in their accounts at the Central Bank. Financial institutions also must maintain at least 1.0% and 3.0%, respectively, of local and foreign currency deposited with the Central Bank.

The Central Bank relies primarily on open market operations to regulate the liquidity of the banking system and promotes the perception of the Central Bank as a lender of last resort by imposing above-market rates and commissions on discount-window transactions.

The significant volatility of short-term capital flows has been a destabilizing factor in Peru’s monetary system since 1998 when large capital outflows occurred following the Russian financial crisis. Between 1999 and 2004, short-term capital fluctuated between U.S.$230 million of inflows in 2004 and U.S.$1.5 billion of outflows in 1999. Short-term capital inflows of U.S.$0.7 billion during 2016 and U.S.$0.5 billion during 2019, while outflows were U.S.$1.2 billion during 2017, U.S.$1.9 billion during 2018 and U.S.$1.0 billion during 2020. To confront the volatility of short-term capital flows, the Central Bank generally requires high foreign currency reserve requirements that discourage significant capital outflows and promote holdings of local currency. Since January 2008, the Central Bank has issued certificates of deposit with restricted trading in order to avoid speculation against the dollar in the local market. This type of certificate can only be purchased by domestic financial institutions in primary placements.

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Despite the positive impact that it may have on reducing cross-border transaction costs and preserving purchasing power, the high level of dollarization of the financial system has also increased the vulnerability of the economy (currency risk and liquidity risk). Dollarization generally refers to the degree to which the U.S. dollar has displaced the sol in the economy. Dollarization began during the 1980s as inflation rates started to rise. As inflation reached triple-digit rates between 1983 and 1985, foreign currency-denominated assets were increasingly used to store value. By 1990, when the annual inflation rate reached 7,650%, 47% of total deposits in the domestic financial system, and 76% of total deposits held by Peruvians domestically and abroad, were denominated in U.S. dollars. Since the 1990s, the Peruvian economy has remained highly dollarized, but in the past few years the ratio of dollarization has been decreasing.

As of December 31, 2020, U.S. dollar-denominated deposits equaled 33.4% of total deposits in the financial system (at the end of 2019 and 2018, they represented 37.3%, at the end of 2017, they represented 39.5%, compared to 42.4% at the end of 2016). At the same time, U.S. dollar-denominated credits in the private sector decreased to 22.0% of total credits in the financial system as of December 31, 2020 (25.7% at the end of 2019, 28.0% at the end of 2018, 28.8% at the end of 2017 and 29.0% at the end of 2016).

The continued demand for soles in the vast majority of transactions that take place in the Peruvian economy has preserved the sol as the main channel through which the Central Bank can affect aggregate demand and thus control inflation. The Central Bank expects that as it continues to meet its inflation targets, confidence in the value of the sol will grow, gradually restoring the sol as the principal currency for savings.

During 2020, the sol depreciated 9.3% against the U.S. dollar in nominal terms to S/ 3.62 at December 31, 2020 from S/ 3.31 at December 31, 2019. The second half of 2018 was characterized by high volatility in the international markets due to the U.S. Federal Reserve’s increase in interest rates and the commercial tensions between United States and China, which adversely affected emerging economies. In this context, the sol showed one of the lowest depreciation rates in the emerging countries.

During this time, the sol had less implied volatility as compared to currencies of other Latin-American countries, due to the fundamentals of the Peruvian economy and the Central Bank’s efforts to mitigate volatility.

One of the monetary policy instruments of the Central Bank is the use of reporting transactions (operaciones de reporte).–In 1977, the Central Bank started implementing securities reporting transactions (operaciones de reporte de valores) to provide short-term liquidity to banking entities with liquidity constraints. In May 2007, the Central Bank started doing currency reporting transactions (operaciones de reporte de moneda), to provide liquidity by transferring Soles to the financial system in exchange for U.S. dollars. In addition, in the context of the measures to reduce the dollar-denomination of the economy in December 2014, two additional types of reporting transactions were created: (i) expansion reporting transactions, with the goal of supporting the growth of Soles-denominated credit, and (ii) substitution reporting transactions, with the goal of supporting the conversion of foreign currency-denominated credit into Soles-denominated credit.

The following table provides bank credit to the private sector as a percentage of global credit for the periods presented.

Bank Credit to the Private Sector

(as percentage of total credit)

	Private Commercial Banks				Public Sector Banks
	S/		Foreign Currency		S/		Foreign Currency
As of December 31,
2016		71.0		29.0		85.2		14.8
2017		71.2		28.8		69.6		30.4
2018		72.0		28.0		77.0		23.0
2019		74.3		25.7		80.7		19.3
2020		78.0		22.0		74.4		25.6

Source: Central Bank.

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The Banking Law and the charter of the SBS, as defined below, provide that financial companies may freely establish interest rates and the commissions they charge on loans, deposits and other services they provide.

Supervision of the Financial System

Established in 1931, the Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones, or Banking, Insurance and AFP Superintendency, or the SBS, is responsible for regulating and supervising the financial, insurance and private pension systems in Peru. Since 1979, the SBS has had institutional autonomy from the Ministry of Economy and Finance. In 1981, the first Ley Orgánica de la Superintendencia de Banca y Seguros, or Banking and Insurance Superintendency Charter and Banking and Insurance Law, was adopted, which outlined in greater detail the powers and functions of the SBS. The role of the SBS was expanded in 2000 when it was given jurisdiction over the private pension system. In September 2007, the Financial Intelligence Unit, a specialized unit in charge of preventing money laundering and the financing of terrorism, was incorporated to the SBS.

The overarching goal of the SBS is to protect the interests of customers, depositors and beneficiaries of the financial, insurance and private pension systems, by ensuring the solvency and integrity of the companies that operate in these sectors. The SBS has pursued this goal from a free-market perspective, stepping away from the interventionist model that characterized the financial industry until the early 1990s. Accordingly, the SBS has sought to create incentives for financial institutions to manage adequately their levels of risk, while imposing minimum standards to ensure that the integrity and solvency of the industry are not jeopardized.

Under current banking law, and the regulatory norms and guidelines adopted by the SBS, financial institutions are subject to the following three basic regulations:

• Market-entry requirements designed to ensure that regulated entities have minimal capital levels to conduct their business and are otherwise reliable financial agents. In particular, the Banking Law requires that commercial banks have a minimum capital base of S/27.5 million, or approximately U.S.$8.1 million, for the fourth quarter of 2019 (readjusted quarterly based on the wholesale price index), and be managed by competent teams composed of persons of high integrity, aptitude and expertise in their particular fields.

• Prudential standards designed to ensure that the quality of the financial system’s loan portfolio meets minimum levels. These prudential standards include the following requirements:

• Strict limits on credit concentration. Financial institutions may not lend an amount equal to or greater than 10% of their capital to any single person or entity. These limits (10% and 5%) may be raised to 30% depending on the kind of guarantee or security offered. Additionally, financial institutions may not lend more than 5% of their capital to any single person or entity residing abroad. This limit may be raised to 10% and 30% depending on the type of guarantee or security offered. The 1996 Banking Law N° 26,702 also prescribes special limits for particular kinds of credits, such as loans to affiliates and other foreign and domestic financial institutions.

• Capital adequacy ratios. The regulatory capital may be no less than 10% of risk-weighted assets of financial institutions (calculated for three major components of risk that a bank faces: credit risk, market risk and operational risk) which is stricter than the Basel Accord guidelines.

• Loan-loss reserve requirements. These requirements, which are strictly enforced, range from a minimum 1.1% reserve for loans with normal risk levels when the cyclical rule is activated, to a maximum 100% reserve for loans classified as a loss.

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• Disclosure requirements designed for regulators, economic agents in other sectors of the economy and the public, with sufficient information to evaluate the activities of financial institutions. The principal requirements include the following:

• Banks must register their shares on the Bolsa de Valores de Lima, or Lima Stock Exchange, or BVL, and thereby become subject to the disclosure guidelines established by the Superintendencia de Mercado de Valores, or Peruvian Securities Superintendency.

• Banks must publish their quarterly financial statements in major newspapers.

• Banks must have two credit rating agencies assess their overall risk, which are published in a major newspapers semiannually.

With respect to loan-loss reserve requirements, current risk classifications of loans to corporate, large- and medium-sized enterprises take into consideration primarily a cash flow analysis of the borrower, how long payments are overdue and the classification of the borrower by other financial institutions. The borrower’s cash flow is based on the level of solvency, economic trends in its line of business and the quality of the borrower’s management and control systems. In the case of consumer, small and micro enterprises and mortgage loans, the risk classification is only based on the number of days payments are overdue. Additionally, guarantees or collateral may affect the specific level of reserves that must be maintained with respect to a particular loan.

The following table provides the risk-classification scheme mandated by the SBS.

Risk Category	Criteria
Normal:
Corporate, large and medium enterprises loans	0 days past due, high solvency, growing economic sector and adequate management and control systems.
Small and micro enterprises loans	Up to 8 days past due
Consumer loans	Up to 8 days past due
Mortgage loans	Up to 30 days past due
Potential problems:
Corporate, large and medium enterprises loans	Up to 60 days past due, based on cash flow analysis the company is able to fulfill all of its financial obligations, exhibits moderate solvency and adequate management and control systems, but is part of a temporarily destabilized economic sector.
Small and micro enterprises loans	9 to 30 days past due
Consumer loans	9 to 30 days past due
Mortgage loans	31 to 60 days past due
Deficient:
Corporate, large and medium enterprises loans	60 to 120 days past due, moderate to low solvency, unclear tendency in economic sector and inadequate management and control systems.
Small and micro enterprises loans	31 to 60 days past due
Consumer loans	31 to 60 days past due
Mortgage loans	61 to 120 days past due
Doubtful:
Corporate, large and medium enterprises loans	121 to 365 days past due, low solvency, falling revenues in economic sector and inadequate management and control systems.

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Risk Category	Criteria
Small and micro enterprises loans	61 to 120 days past due
Consumer loans	61 to 120 days past due
Mortgage loans	121 to 365 days past due
Loss:
Corporate, large and medium enterprises loans	More than 365 days past due, debtor insolvent, structural problems in economic sector and inadequate management and control systems.
Small and micro enterprises loans	More than 120 days past due
Consumer loans	More than 120 days past due
Mortgage loans	More than 365 days past due

Source: SBS.

The Government of Peru established social distancing and general restrictions during the COVID pandemic. These restrictions severely limited the economic activity and the flow of goods and services, preventing the financial institutions from operating. During the first phase of the restrictions, the SBS enacted rules covering the financial institutions and their users. The SBS permitted the financial institutions to follow exceptional financial policies, such as rescheduling loans. By March 2020 the financial institutions started to reschedule loans for a total of 36% of the system total loans accounting for 67% of the system debtors. In the following months the rescheduling loans decreased. By December 2020, rescheduled loans accounted for 23% of the system’s loans and 40% of the debtors. Small businesses accounted for 37% of the rescheduled loans, consumer loans for 36% and mortgages for 33%. Other measures were permitted byt the SBS and adopted by the financial institutions, such as: (i) granting certain guarantee credits; (ii) certain changes in capital, cash positions, and accounting requirements; (iii) certain measures to reinforce the assets of the financial institutions like reinvestment of dividends and capital increases.

The following table presents the minimum required loan-loss reserves by risk category.

Required Loan-Loss Reserves by Risk Category and Type of Loan

(for the year ended December 31, 2020)

	Loan-loss Reserves for Normal Loans
Type of Loan	Rate		Cyclical Component(1)
Corporate and large enterprises		0.70	0.4 or 0.45(2)
Medium enterprises		1.00	0.30
Small and micro enterprises		1.00	0.50
Consumer		1.00	1.0 or 1.5(3)
Mortgage		0.70	0.40

	With Liquid Guarantee		With Other Guarantee		Without Guarantee
Potential problems		1.25		2.50		5.00
Deficient		6.25		12.50		25.00
Doubtful		15.00		30.00		60.00
Loss		30.00		60.00		100.00

(1) The cyclical rule is deactivated since November 2014. The cyclical component applies when the rule based on GDP growth is activated.

(2) Cyclical component for corporate loans is 0.4% and for large enterprises loans is 0.45%.

(3) Cyclical component for non-revolving consumer loans is 1% and for revolving consumer loans is 1.5%.

(4) Loan-loss reserves rate for loans covered with highly liquid collaterals is 1%.

Source: SBS.

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The following tables provide information regarding loans of the financial system by risk category and type of institution and loans issued by commercial banks by risk category and type of loan.

Risk Classification of Loan Portfolio of the Financial System by Type of Institution

(as a percentage of total loans, as of December 31, 2020)

Risk Category	Commercial Banks		Finance Companies		Savings and Loans Associations				Small- Business Development Banks		Financial Leasing Companies		Total
					Municipal		Rural
Normal		87.61		75.35		75.32		56.51		76.06		81.97		86.17
Potential problems		6.11		5.23		14.95		23.64		11.33		8.01		6.78
Deficient		1.78		3.89		2.55		6.89		3.14		2.63		1.94
Doubtful		1.80		9.17		1.97		7.86		5.25		4.70		2.11
Loss		2.70		6.36		5.21		5.10		4.21		2.69		3.00
Total		100.00		100.00		100.00		100.00		100.00		100.00		100.00

Source: SBS.

Risk Classification of Loan Portfolio of Commercial Banks

(as a percentage of total loans, as of December 31, 2020)

Risk Category	Corporate Loans		Large Enterprises Loans		Medium Enterprises Loans		Small Enterprises Loans		Micro Enterprises Loans		Consumer Loans		Mortgage Loans
Normal		94.70		89.84		87.68		75.63		91.20		72.19		91.61
Potential problems		3.85		5.85		4.25		13.81		4.14		14.76		1.33
Deficient		0.90		2.60		1.70		2.09		1.05		2.76		1.45
Doubtful		0.53		0.82		1.34		2.49		1.27		5.47		2.18
Loss		0.01		0.89		5.03		5.98		2.35		4.82		3.42
Total		100.00		100.00		100.00		100.00		100.00		100.00		100.00

Source: SBS.

The following table provides the status of loans in the financial system as of December 31, 2020.

Status of Loans in the Financial System

(as a percentage of total loans, as of December 31, 2020)

Type of Institution	Current Loans				Refinanced and Restructured Loans		Loans Past Due		Loans Subject to Judicial Proceedings
	Short-term		Long-term
Commercial banks		26.4		68.1		1.7		2.2		1.6
Financial companies		21.8		63.2		4.2		10.2		0.6
Savings and loans associations:
Municipal		9.5		83.1		2.3		2.4		2.7
Rural		14.9		73.8		2.8		7.4		1.0
Small-business development banks		7.4		83.9		3.0		5.0		0.8
Financial leasing companies		0.0		92.9		0.3		4.2		2.6
Financial system		24.8		69.2		1.9		2.6		1.6

Source: SBS.

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The SBS performs its supervisory role in the following two principal manners:

• Supervision of regulated entities through on-site and off-site inspections. The SBS systematically reviews and analyzes the information that financial institutions are required to disseminate through the media and the Peruvian Securities Superintendency. Off-site inspections look to information disclosed by the supervised companies to ensure that the companies comply with applicable regulations, to review the management of the supervised financial institutions, and to identify risk factors that might indicate potential future problems. The SBS also conducts on-site inspections at least once a year. During such visits, the SBS may conduct either a general evaluation of the financial institution or a review of specific issues.

• Assessments made by third parties. The SBS regularly reviews the analyses of regulated entities conducted by auditors, foreign and domestic credit-rating agencies and other foreign and domestic supervisory agencies. These reviews allow the SBS to gain a broader perspective of the activities and performance of the Peruvian financial sector and to identify areas of concern.

In 1991, Peru introduced the Fondo de Seguros de Depósitos, or Deposit Insurance Fund, which, as of December 31, 2020, insures deposits in the financial system up to S/101,522.00, or approximately U.S.$28,044.75 (readjusted quarterly based on the wholesale price index), per person, for each financial institution member of the Deposit Insurance Fund. The introduction of the Deposit Insurance Fund eased some of the burdens created by several closures of deficient banks that resulted from the banking reforms undertaken by Peru.

Financial Sector

Prior to 1990, Peru’s regulation of the financial system was characterized by interventionist measures that limited and directed the activities of banks, restricted foreign competition and prevented profit remittances and credit payments abroad. This regulatory environment undermined competition in the financial services industry and limited the supply of medium- and long-term credit.

As part of its economic program, President Fujimori’s administration undertook to overhaul Peru’s financial system. Its first measures included liberalizing interest rates and eliminating exchange rate controls. In 1996, Congress passed the Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros, or the Banking Law (Law N° 26,702), which:

• adopted a policy of nondiscrimination among foreign and national banks, and state and private banks;

• opened the financial market to foreign banks and insurance companies;

• liberalized market-entry barriers for domestic banks; and

• tightened prudential standards and disclosure requirements.

As of December 31, 2020, the Peruvian financial system was composed of 82 financial institutions including insurance companies and private pension fund managers, which includes:

• 16 full-service commercial banks;

• 12 municipal savings and loan associations;

• 7 rural savings and loan associations;

• 9 small-business development non-bank institutions;

• 10 finance companies;

• 2 financial leasing companies;

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• 18 insurance companies;

• 4 private pension fund managers; and

• 4 state-owned entities (not including the Central Bank), Banco de la Nación, the Corporación Financiera de Desarrollo or COFIDE, Banco Agropecuario and Fondo MiVivienda.

Of the 16 full-service commercial banks in operation as of December 31, 2020, 12 are partly foreign-owned or have foreign owners holding. As of December 31, 2020, other institutions supervised by the SBS included one mortgage management company, six money transfer companies, three general deposit warehouses, three trust companies, one surety and bonding house, three cash transportation, custody and management companies, one financial factoring company and four electronic currency companies.

Established in 1966, Banco de la Nación is a state-owned bank that offers a variety of services to the public sector, including regional governments and local governments. These services include:

• collecting taxes on behalf of various governmental agencies;

• making payments and transfers on behalf of the Government;

• serving as paying and centralized collection agent for Peru’s internal indebtedness and its medium- and long-term external indebtedness; and

• providing banking and foreign exchange services for the Government’s foreign trade transactions.

Established in 1971, COFIDE is a state-owned development bank that specializes in providing credit to the financial sector. Through these credits, COFIDE is expected to promote private sector credit for the various sectors of the economy.

Established in 2001, Banco Agropecuario is a state-owned bank that provides credit services to the agriculture, cattle-ranch and aquaculture sectors, and to the activities of transformation and commercialization of products of the farming and aquaculture sectors. Established in 2006, Fondo MiVivienda is a state-owned enterprise that provides financing to financial intermediaries, such as full-service commercial banks, with the objective to promote the development of housing projects and to facilitate access to mortgage loans for all sectors of society.

During 2006, 2007 and 2008, the Peruvian financial system experienced several important events. In May 2006, Scotiabank Perú S.A. was created as a result of the merger of Banco Sudamericano and Banco Wiese Sudameris. In October 2006, October 2007, January 2008 and June 2008, HSBC Bank Perú S.A., Santander Perú S.A., Banco Azteca del Perú S.A. and Deutsche Bank (Perú) S.A., respectively, were authorized to start operations as full-service commercial banks in Peru. In addition, two finance companies related with retailers were authorized to start operating as full-service banks in June 2007 and January 2008.

In 2010, two new finance companies began operations. In 2011, the number of microfinance institutions increased as a result of the creation of a new municipal savings association in October 2011. In 2012, Edpyme Inversiones La Cruz, a company specializing in retail loans, was authorized to start operations. In August 2012, a new bank, Banco Cencosud, was authorized to start operations as a full-service commercial bank and Edpyme Proempresa transformed into a financial services company. In December 2012, CRAC Profinanzas merged with Financiera Universal which, as of December 31, 2012, ranked, with respect to total market share, eighth in terms of total direct credit (with 3.2%), third in terms of total deposits (with 6.5%) and ninth in terms of equity (with 4.1%). In May 2013, Financiera Confianza acquired CRAC Nuestra Gente and in October 2013, Edpyme Nueva Visión was authorized to convert into a financial services company.

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In March 2015, the merger of Financiera Edyficar and Mibanco was approved by the Banking Superintendence (SBS) and in September 2015 the merger of Financiera Nueva Visión and CRAC Credinka was also approved. In October, Financiera IFC acquired CRAC Libertadores de Ayacucho. In December 2015, the SBS revoked its authorization for operations of Financiera Edyficar, with the surviving entity remaining as a supervised company. In May 2016, Edpyme Raiz’s acquisition of CRAC Chavin was approved and in July 2016, Deutsche Bank Peru’s voluntary dissolution and subsequent liquidation was also approved. In August 2016, the acquisition of CRAC Cajamarca by Financiera Credinka was approved. In June 2017, the acquisition of Edpyme Solidaridad by CRAC Los Andes was approved. In July 2018, Congress passed the Ley que modifica la Ley 26702, Ley General del Sistema financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros, y otras normas concordantes, respecto de la regulación y supervisión de las cooperativas de ahorro y crédito (the Law that modifies the Banking Law regarding regulation and supervision of the Saving and Credit Cooperatives) (Law N° 30,822). This Law establishes the Superintendencia Adjunta de Cooperativas (Savings and Credit Cooperatives Deputy Superintendence or SACOOP) as a functional part of the SBS and creates the National Registry of Savings and Credit Cooperatives at the SBS. In 2019, the SBS authorized the acquisition of control of Banco Cencosud S.A. by Scotiabank, which sold 51% of its shares in May 2018, to Caja Rural de Ahorro y Crédito CAT Perú S.A. In August 2019, Peru’s National Financial Inclusion Policy was launched.

Bank of China was authorized, on April 2020, to start operating as a multipurpose banking entity. Bank of China is the banking entity with the longest continuous operation among Chinese banks, since it has been formally established in February, 1912. It was previously authorized by SBS to open a bank in Peru on January, 2019.

The following table presents the percentage of loans and deposits corresponding to each category of financial institution as of December 31, 2020.

Loans and Deposits

(as a percentage of total loans and total deposits by currency)

	For the year ended December 31, 2020
	Loans				Deposits
Type of Institution	S/		U.S.$		S/		U.S.$
Commercial banks		82.3		97.9		74.7		96.4
Finance companies		4.4		0.5		3.0		0.2
Municipal savings and loans associations		8.9		0.3		8.8		1.1
Rural savings and loans associations		0.8		0.1		0.6		0.1
Small business development banks		0.8		0.3		0.0		0.0
Financial leasing companies		0.0		0.3		0.0		0.0
State-owned banks(1)		3.0		0.5		13.0		2.2
Total		100.0		100.0		100.0		100.0

(1) Does not include loans to financial institutions.

Source: SBS.

The following table presents the number of financial institutions and the percentage interest in total assets of the financial system held by each category of financial institution as of the dates presented.

Number of Financial Institutions

and Share of Total Assets of the Financial System

	Number of Institutions for the year ended December 31,										Share of Total Assets (%) as of December 31,
Type of Institution	2016		2017		2018		2019		2020		2020
Commercial banks		16		16		16		15		16		81.6
Finance companies		11		11		11		10		10		2.4
Municipal savings and loans associations		12		12		12		12		12		5.5
Rural savings and loans associations		6		6		6		7		7		0.5
Small business development banks		10		9		9		9		9		0.5
Financial leasing companies		2		1		1		1		2		0.1
State-owned entities		4		4		4		4		4		9.4
		61		59		59		58		60		100.0

Source: SBS.

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In 2016, total assets increased by 1.7% compared to 2015, total assets increased by 8.9% in 2017 and in 2018, total assets increased by 0.4% compared to 2017. In 2019, total assets increased by 9.9% compared to 2018 and in 2020, total assets increased by 12.4% due to an increase in the asset base of all financial institutions.

The following table provides the total gross assets of the Peruvian financial system as of the dates presented.

Total Gross Assets of the Peruvian Financial System and the Commercial Banks

(in millions of U.S. dollars and percentage change from previous year)

	Financial System(1)				Commercial Banks
As of December 31,	U.S.$		Growth Rate (%)		U.S.$		Growth Rate (%)
2016		117,005		1.7		105,979		0.7
2017		127,457		8.9		114,564		8.1
2018		127,962		0.4		114,244		(0.3	)
2019		140,669		9.9		124,977		9.4
2020		158,053		12.4		142,419		14.0

(1) Does not include state-owned banks.

Source: SBS.

The financial system is the primary source of private-sector financing. For the year ended December 31, 2020, the trend continued with the wholesale and retail sector and the manufacturing sector having the largest share of loans with manufacturing having a slight decrease compared to previous years, with 18.7% and 12.6%, respectively. For the years ended December 31, 2019 and 2018, loans to the wholesale and retail section represented 15.9% and 16.6%, respectively, of total loans, while loans to the manufacturing sector as a percentage of total loans were 12.7% and 13.1% for 2019 and 2018, respectively.

The following tables provide information regarding the allocation of loans to each sector of the economy as of the dates presented.

Loans of the Financial System by Sector⁽¹⁾

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
Sector	2016		2017		2018		2019		2020
Agriculture and livestock		2,344		2,629		2,779		3,303		3,642
Fishing		428		360		394		342		422
Mining		1,961		2,669		2,755		2,402		2,673
Manufacturing		10,903		11,344		12,025		12,552		12,891
Electricity, gas and water		2,707		2,521		2,538		2,007		2,181
Construction		1,731		1,719		1,552		1,642		2,173
Wholesale and retail trade		12,942		14,110		15,175		15,743		19,109
Hotels and restaurants		1,276		1,484		1,550		1,698		1,983
Transportation, warehousing and telecommunications		4,044		4,434		4,962		5,653		6,527
Financial intermediation		2,586		2,612		2,891		3,405		2,372
Real estate		6,290		6,550		6,969		7,791		9,130
Public administration and defense		136		339		305		276		233
Education		952		1,131		1,187		1,265		1,386
Health and social services		405		436		421		486		624
Other(2)		30,340		34,043		36,018		40,572		37,048
Total loans		79,047		86,381		91,521		99,137		102,392

(1) Does not include state-owned banks and financial leasing companies.

(2) Includes consumer and mortgage loans, as well as loans to other community services and households with domestic services.

Source: SBS.

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Loans of the Financial System by Sector⁽¹⁾

(as a percentage of total loans)

	For the year ended December 31,
Sector	2016		2017		2018		2019		2020
Agriculture and livestock		3.0		3.0		3.0		3.3		3.6
Fishing		0.5		0.4		0.4		0.3		0.4
Mining		2.5		3.1		3.0		2.4		2.6
Manufacturing		13.8		13.1		13.1		12.7		12.6
Electricity, gas and water		3.4		2.9		2.8		2.0		2.1
Construction		2.2		2.0		1.7		1.7		2.1
Wholesale and retail trade		16.4		16.3		16.6		15.9		18.7
Hotels and restaurants		1.6		1.7		1.7		1.7		1.9
Transportation, warehousing and telecommunications		5.1		5.1		5.4		5.7		6.4
Financial intermediation		3.3		3.0		3.2		3.4		2.3
Real estate		8.0		7.6		7.6		7.9		8.9
Public administration and defense		0.2		0.4		0.3		0.3		0.2
Education		1.2		1.3		1.3		1.3		1.4
Health and social services		0.5		0.5		0.5		0.5		0.6
Other(2)		38.4		39.4		39.4		40.9		36.2
Total loans		100.0		100.0		100.0		100.0		100.0

(1) Does not include state-owned banks or financial leasing companies.

(2) Includes consumer and mortgage loans, as well as loans to other community services and households with domestic services.

Source: SBS.

Liquidity and Credit Aggregates

The most significant money supply measures in Peru are M1, M2 and M3, which consist generally of the following:

• M1 consists of currency in circulation plus demand and savings deposits in domestic currency held in private sector banks, that are easily convertible into cash;

• M2 consists of M1 plus time deposits in domestic currency held in private banks and mortgage certificates and other certificates, in domestic currency, issued by private banks; and

• M3, or “broad money,” consists of M2 plus foreign currency in circulation.

During the five-year period ended December 31, 2020, Peru’s monetary base increased by 49.5%, from U.S.$15.9 billion as of December 31, 2016 to U.S.$23.8 billion as of December 31, 2020. For the five-year period ended December 31, 2020, M1 grew at a compound annual rate of 13.6%, M2 grew at a compound annual rate of 13.6% and M3 grew at a compound annual rate of 10.5%.

The following table shows changes in selected monetary indicators as of the stated dates.

Selected Monetary Indicators

(percentage change from previous year)⁽¹⁾

	For the year ended December 31,
	2016		2017		2018		2019		2020
M1		5.1		7.9		13.5		10.1		34.2
M2		7.3		11.2		13.1		10.5		26.3
M3		8.5		5.2		10.9		9.1		22.2

(1) Average indicators of the period.

Source: Central Bank.

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The following table presents the composition of the monetary base and international reserves as of the dates presented.

Monetary Base and Central Bank’s International Reserves

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Currency in circulation and cash in vaults at banks		15,195		17,059		17,580		18,761		22,842
Commercial bank deposits at the Central Bank		690		598		630		745		911
Monetary base		15,885		17,657		18,210		19,506		23,753
Gross international reserves		61,746		63,731		60,288		68,370		74,909
Net international reserves		61,686		63,621		60,121		68,316		74,707

The ratio of gross international reserves at the Central Bank to the monetary base was approximately 3.9 to 1 at December 31, 2016, 3.6 to 1 at December 31, 2017, 3.3 to 1 at December 31, 2018, 3.5 to 1 at December 31, 2019, and 3.1 to 1 at December 31, 2020.

Total credit aggregates and total deposits were:

• U.S.$56.7 billion and U.S.$63.2 billion, respectively, as of December 31, 2016,

• U.S.$67.7 billion and U.S.$71.6 billion, respectively, as of December 31, 2017,

• U.S.$79.1 billion and U.S.$75.6 billion, respectively, as of December 31, 2018,

• U.S.$81.2 billion and U.S.79.8 billion, respectively, as of December 31, 2019, and

• U.S.$94.7 billion and U.S.$97.4 billion, respectively, as of December 31, 2020

For the five-year period ended December 31, 2020, private-sector credit increased at a compound annual growth rate of 6.8%, to U.S.$104.3 billion at the end of the period. For the same period, total deposits increased at a compound annual growth rate of 10.2%, while foreign currency-denominated deposits increased at a compound annual growth rate of 3.5%, to U.S.$32.5 billion. During the same period, local currency-denominated deposits had a compound annual growth rate of 14.7%, totaling U.S.$64.9 billion at December 31, 2020.

As of December 31, 2020, Peru’s monetary base was U.S.$23.8 billion. From December 31, 2019 to December 31, 2020 gross international reserves increased U.S.$6.5 billion, to U.S.$74.9 billion and net international reserves increased to U.S.$74.7 billion as of December 31, 2020, from approximately U.S.$68.3 billion as of December 31, 2019.

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The following table presents liquidity and credit aggregates, and changes in selected monetary indicators as of the dates presented.

Liquidity and Credit

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Monetary aggregates
Currency in circulation		12,886			14,253			14,785			15,675			19,492
M1		21,966			25,220			27,373			29,962			39,229
M2		50,658			59,104			63,769			68,307			89,484
M3		77,496			87,407			92,006			102,117			120,330
Credit by sector(1):
Public sector(2)		(23,274	)		(19,391	)		(17,032	)		(18,868	)		(9,609	)
Private sector		79,929			87,123			92,424			100,116			104,337
Total credit aggregates		56,655			67,732			75,392			81,248			94,728
Deposits:
Local currency(3)		36,394			43,322			47,403			54,170			65,866
Foreign currency(4)		26,775			28,288			28,244			30,190			32,928
Total deposits		63,169			71,610			75,647			84,360			98,794

(1) Includes securities offerings and cash advances from checking accounts of depository corporations.

(2) Net claims on public sector of depository corporations.

(3) Includes sight deposits, saving deposits, time deposits and other certificates in domestic currency of depository corporations.

(4) Includes demand deposits, savings deposits and time deposits in foreign currency of depository corporations.

Source: Central Bank.

Inflation

The economic and monetary program the Government implemented during the early 1990s resulted in a sharp decline in inflation. Peru experienced hyperinflation during the late 1980s and 1990s, but by 1999 inflation had declined to a rate of 3.5% per year. During the five-year period ended December 31, 2020, inflation has been relatively stable at rates of 3.2% in 2016, 1.4 % in 2017, 2.2% in 2018, 1.9% in 2019 and 2.0% in 2020.

In 2016, the inflation rate was 3.2%, primarily due to the higher prices for transportation, communications, food and beverages, clothes and shoes, gasoline, electricity and other consumer goods. In 2017, the inflation rate was 1.4%, primarily as a result of higher prices for transportation, communications, food and beverages, clothes and shoes, gasoline, electricity and other consumer goods. In 2018, the inflation rate was 2.2%, reflecting higher vehicle sales and education services. In 2019, the inflation rate was 1.9% principally due to higher consumption of educational services and water. In 2020, the determinants of the inflation rate came from sanitary measures, supply-related factors that affected some food products and the increase of the foreign exchange rate.

The following table shows changes in the CPI for the periods presented.

Consumer Price Index

(percentage change)

	End of Period(1)		Average(2)
December 31,
2016		3.2		3.6
2017		1.4		2.8
2018		2.2		1.3
2019		1.9		2.1
2020		2.0		1.8

(1) Accumulated during the 12-month period.

(2) 12-month average.

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Foreign Exchange and International Reserves

Foreign Exchange

Prior to 1991, Peru exercised control over the foreign exchange markets by imposing multiple exchange rates and placing restrictions on the possession and use of foreign currencies. In 1991, the Fujimori administration eliminated all foreign exchange controls and the exchange rates were unified. Currently, foreign exchange rates are determined by market conditions, with regular operations by the Central Bank in the foreign exchange market in order to reduce volatility in the value of the sol against the U.S. dollar.

The following table shows the sol/U.S. dollar exchange rates for the periods presented.

	Exchange Rates(1) (S/ per U.S.$)
	End of Period(2)		Average
As of December 31,
2016		3.36		3.38
2017		3.25		3.26
2018		3.38		3.29
2019		3.32		3.34
2020		3.62		3.50

(1) Formal rates offered by private commercial banks.

(2) As of the last day of the year.

International Reserves

Under Article 72 of the Central Bank’s charter, the international reserves administered by the Central Bank may consist of:

• gold and silver reserves;

• foreign currencies and notes generally accepted as a means of payment in the international markets;

• negotiable bank acceptances with terms of less than 90 days from the date of acquisition by the Central Bank;

• Special Drawing Rights, or SDRs, or any other gold substitute included in the Articles of Agreement of the IMF, corresponding to Peru;

• reciprocal credit agreements between the Central Bank and similar entities;

• contributions in gold, foreign currencies and SDRs to international monetary organizations; and

• in the discretion of the Central Bank’s board:

• foreign currency deposits of less than 90 days;

• certificates of deposits of less than 90 days issued by banks; and

• highly-liquid investment-grade securities issued by international organizations or public foreign entities.

During the 1990s, the Central Bank maintained a policy of accumulating international reserves. International reserves help Peru to maintain economic and financial stability by ensuring the availability of foreign currency in extraordinary situations. These situations can include sudden, significant withdrawals of foreign currency deposits from the banking system and sharp downturns in exports and economic activity.

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The policy of the Central Bank to manage its international reserves generally emphasizes capital preservation and liquidity. Nevertheless, once the international reserves have reached certain threshold levels, the policy of the Central Bank is to balance capital preservation with adequate returns on reserves.

In order to guide the optimal investment distribution of its reserves, the Central Bank uses a model benchmark portfolio that reflects the risk-return combination chosen by the Central Bank’s board to accomplish the general principals of capital preservation, liquidity and return. This portfolio is designed in light of actual market conditions to ensure that it provides feasible goals and shuns speculative assumptions. The Central Bank adjusts the value of its investment portfolio daily on the basis of market prices.

The Central Bank considers and actively manages the following four kinds of risks in investing its international reserves:

• Liquidity risk. The Central Bank manages liquidity risk by distributing its investments among three kinds of assets, following the guidelines of its benchmark portfolio:

• highly-liquid, short-term assets to cover unexpected contingencies;

• liquid assets with maturities not exceeding one year, which include bank time deposits with maturities not exceeding three months and staggered maturity dates, and highly-liquid fixed-income securities; and

• assets with maturities exceeding one year, generally consisting of bonds that offer a relatively higher return because of the longer maturity. To ensure an adequate level of liquidity, these bonds must have been issued in minimum amounts as prescribed by the Central Bank.

• Credit risk. To minimize risks that may arise because of the insolvency of the creditor, the Central Bank does not invest in debt or equity issued by private entities and diversifies its investments among:

• deposits in foreign banks that are rated in the three highest categories of Standard & Poor’s (a division of the McGraw-Hill Companies), Moody’s Investor Service and Fitch Ratings; and

• fixed-income securities or securities guaranteed by international organizations, foreign governments or their agencies, which are rated in the three highest categories by Standard & Poor’s, Moody’s Investor Service and Fitch Ratings.

• Foreign exchange risk. Fluctuations in the foreign exchange markets can pose a significant risk to the level of reserves at the Central Bank because the Central Bank accounts for its reserves in U.S. dollars and because of the significant U.S. dollar-denominated liabilities of the Peruvian banking system. Moreover, the majority of Peru’s foreign trade and capital flows are also denominated in U.S. dollars, which can also exert significant pressure on the Central Bank’s international reserves. To safeguard its international reserves from fluctuations in the foreign exchange markets, the Central Bank invests primarily in U.S. dollar-denominated assets.

• Market risk. To mitigate market risk, the Central Bank tries to match the average maturity of its assets to that of its liabilities. The average duration, or length of time required to receive the present value of future payments, of the Central Bank’s portfolio does not exceed one year, which protects it significantly from market fluctuations. Additionally, the Central Bank imposes limits on the maximum term of its portfolio securities.

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• Interest rate risk. To mitigate interest rate risk, the Central Bank takes the terms of its liabilities into account when fixing the terms of its assets. As such, the average duration of the total portfolio is short, which reduces the impact of interest rate variations on the market value of the portfolio.

The Central Bank’s net international reserves decreased from U.S.$61.7 billion in 2016 to U.S.$74.7 billion in 2020:

• In December 2016, net international reserves increased to U.S.$61.8 billion, of which 60% was invested in securities, 35% was invested in deposits and 5% was invested in gold and other assets.

• In 2017, net international reserves increased to U.S.$63.6 billion, primarily as a result of a gain in net sales in foreign currency of U.S.$9.6 million and interest earned of U.S.$543 million.

• In 2018, net international reserves decreased to U.S.$60.1 billion, primarily attributable to a decrease of the Central Bank’s net international position and in deposits by the public and private sectors, which was partially offset the increase in the exchange position of the Central Bank.

• In 2019, net international reserves increased to U.S.$68.3 billion, primarily attributable to an increase of the deposits of financial intermediaries and operations with the public sector.

• In 2020, net international reserves increased to U.S.$74.7 billion, primarily attributable to an increase in the Central Bank’s foreign exchange position that went from U.S.$42.6 billion to U.S.$58.2 billion, of which 71% of the total portfolio of investments from international reserves where invested in liquid assets with high credit ratings, 26% in bank deposits at ranked financial institutions, and 3% in gold. The portfolio represents mainly treasury and public notes with credit ratings of no less than A+.

From 2016 to 2020, the total gross reserves of the Peruvian banking system (in months of total imports) fluctuated between 22.0% in 2016 and 27.1% in 2020.

The following table sets the composition of the international reserves of Peru’s banking system.

Net International Reserves of the Banking System

(in millions of U.S. dollars, at period end, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Central Bank
Assets		61,746			63,731			60,288			68,370			74,909
Liabilities		(60	)		(110	)		(167	)		(54	)		(202	)
Total (assets less liabilities)		61,686			63,621			60,121			68,316			74,707
Banco de la Nación and development banks:
Assets		69			104			54			76			67
Liabilities		—			—			—			—			—
Total (assets less liabilities)		69			104			54			76			67
Private banks
Assets		2,577			3,164			3,056			2,551			3,390
Liabilities		(1,969	)		(2,631	)		(2,898	)		2,829			2,571
Total (assets less liabilities)		608			533			158			(278	)		819
Net international reserves		62,363			64,258			60,334			68,115			75,593
Memorandum items:
Gross reserves of the Central Bank		61,746			63,731			60,288			68,370			74,909
Gross reserves of the banking system		64,392			67,000			63,398			70,998			78,366
Gross reserves of the Central Bank (in months of total imports)		21.1			19.8			17.3			20.0			25.9
Gross reserves of the banking system (in months of total imports)		22.0			20.8			18.2			20.7			27.1

Source: Central Bank.

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Securities Markets

The securities markets in Peru are regulated by the Peruvian Securities Superintendence that has as its primary purpose to protect investors and promote the efficient operations of securities markets. In particular, the Peruvian Securities Superintendence’s functions include:

• supervising the activities and management of the various market participants, including the BVL, brokerage firms, issuing companies, mutual and other investment fund and credit-rating agencies, and

• promoting market transparency through disclosure requirements.

Peru’s capital markets underwent significant changes during the 1990s as a result of various reform initiatives undertaken by the Government. These reforms began in 1991 with passage of the Ley del Mercado de Valores, or the Securities Market Law of 1991, which implemented a comprehensive set of measures that liberalized and modernized the operations of the Peruvian capital markets. These measures included:

• requirements for securities exchange and broker dealers, such as the introduction of a special fund these entities must provide in order to guarantee the proper execution of trades;

• market transparency and disclosure requirements, particularly through the creation of the Registro Público de Valores e Intermediarios, or Public Registry of Securities and Broker Dealers, a public record of all the participants in the Peruvian capital markets, including issuers, broker-dealers and credit-rating agencies;

• a regulatory framework for new institutions that were authorized to operate in the Peruvian capital markets and which would play an increasingly important role (these new institutions included mutual funds and credit-rating agencies); and

• requirements for the operation of primary and secondary markets, including guidelines for the settlement of securities transactions, dealer commissions, dispute resolution and asset securitization.

In 1996, a new Ley del Mercado de Valores, or Securities Market Law of 1996, was introduced. This Law preserved the basic market structure adopted under the Securities Market Law of 1991, but introduced changes to streamline the operations of the Peruvian capital markets, making them more compatible with international standards. These changes included:

• vesting with the BVL self-regulatory authority;

• creating CAVALI ICLV S.A., a private securities clearing and depositary agency independent of the BVL;

• liberalizing the brokerage business by introducing less stringent minimum capital requirements and broadening the range of transactions in which brokerage firms may participate; and

• restricting insider trading.

To stimulate the growth of Peru’s capital markets, the Government also encouraged greater participation in the markets through economic incentives. In 1993, Peru adopted tax exemptions for both capital earnings generated through stock exchange trading and interest income obtained from any kind of bond. These tax exemptions, which expired in 2011, played a pivotal role in funneling funds toward the Peruvian capital markets.

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Another significant factor in the development of the Peruvian capital markets was the introduction in 1993 of private pension funds, which have become important for institutional investors. Administradoras Privadas de Fondos de Pensiones, private pension fund managers, or AFPs, were created under Decree Law N° 25,897, or the Private Pension System Law of 1992. These AFPs were introduced not only to improve Peru’s social security system, but also to channel funds towards development of the capital markets. For a description of Peru’s private pension system, see “Public Sector Finance—Social Security” below. In April 2016, Law N° 30,425 modified the Pension law to provide that pensioners 65 years of age and older may elect to receive up to 95.5% of the funds available from the AFPs to such pensioner or to receive benefits in traditional payment schedules.

From 2016 to 2020, membership in these funds increased at an average annual rate of approximately 5.5%. As of December 31, 2020, there were four AFPs with 4 types of funds in operation, with approximately 7.8 million members and approximately U.S.$45.5 billion in assets under management. These funds invest in equity securities, representing approximately 12.6% of their portfolios, fixed-income securities, representing approximately 35.7% of their portfolios, and mutual funds and investments, representing approximately 46.4% of their portfolio balances, and other investments in securities issued abroad, representing 5.3% of their portfolio balances. Mutual funds entered the market as a result of the Securities Market Law of 1991, which established a regulatory framework for their operations. As of December 31, 2020, there were thirteen mutual fund companies in operation that administered 161 mutual funds and managed approximately U.S.$12.7 billion in assets for approximately 437,152 investors.

The Peruvian capital markets grew significantly during the 1990s as a result of the reforms implemented by the Government during that period. Despite this growth, the Peruvian capital markets remain relatively small and illiquid. Accordingly, most businesses, particularly small and medium-size businesses, raise capital through the local banking system. Large businesses also benefit from limited access to foreign credit.

Founded in 1971, the BVL is the only securities exchange operating in Peru. The BVL was privatized as part of the capital-market reforms implemented by the Government in 1991 and currently operates as an entity with regulatory and enforcement power under the supervision of the Superintendence of Securities Market (SMV). Cash transactions with equity securities accounted for 66.9% of the total traded volume in the BVL during 2014, while cash transactions with fixed income securities accounted for 18.1% of such amount.

As of December 31, 2015, there were 276 companies that had their equity securities listed on the BVL. Market capitalization of domestic companies’ listed securities has decreased from U.S.$121.6 billion as of December 31, 2011, to U.S.$90.7 billion as of December 31, 2015. Otherwise, the annual traded value on the BVL has decreased from U.S.$7.8 billion in 2011 to U.S.$3.2 billion in 2015. As of December 31, 2016, there were 283 companies that had equity securities listed on the BVL. Total market capitalization reached U.S.$124.0 billion as of December 31, 2016. The annual traded amount on the BVL exceeded U.S.$4.5 billion during 2016.

As of December 31, 2017, there were 284 companies that had equity securities listed on the BVL. Total market capitalization reached U.S.$162.4 billion as of December 31, 2017. The annual traded amount on the BVL exceeded U.S.$8.9 billion during 2017. As of December 31, 2018, there were 270 companies with equity securities listed on the BVL, with a total market capitalization reached U.S.$142.4 billion as of December 31, 2018. Likewise, the annual traded amount exceeded U.S.$6.2 during 2018.

As of December 31, 2019, there were 260 companies with equity securities listed on the BVL, market capitalization of domestic companies has increased from U.S.$90.7 billion as of December 31, 2015, to U.S.$162.0 billion as of December 31, 2019. Likewise, the annual traded amount exceeded U.S.$5.4 billion during 2019.

As of December 31, 2020, there were 253 companies with equity securities listed on the BVL, Market capitalization of domestic companies has increased from U.S.$90.7 billion as of December 31, 2015, to U.S.$165.5 billion as of December 31, 2020. Likewise, the annual traded amount reached U.S.$5.8 billion during 2020.

The Latin American Integrated Market, or MILA, is the product of an agreement between the stock exchanges of Santiago (Chile), Colombia and Lima (Peru) to form a regional capital market for the exchange of shares in securities. MILA began operations in May 2011. While MILA aims to integrate the capital markets of the member states to promote investment, each member state retains regulatory autonomy over its own capital market.

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Peru’s Capital Markets

Transaction Volume and Market Capitalization(1)

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Equities:
Stocks		2,558.4		6,130.0		3,268.2		3,506.5		3,534.2
Other		107.1		163.0		124.3		123.8		237.0
Total		2,665.5		6,293.0		3,392.5		3,630.4		3,771.2
Fixed income securities:
Auctions		—		—		—		—		—
Continued trading		1,072.0		1,580.9		1,717.4		889.1		1,143.3
Bonds-money market		308.6		333.9		355.2		366.4		320.2
Mortgage bills		—		—		—		—		—
Certificate of deposit		—		—		—		—		—
Other		0.6		—		—		—		—
Total		1,381.2		1,914.8		2,072.6		1,255.4		1,463.6
Report transactions:
Equities		440.1		664.6		662.2		523.6		468.4
Debt instruments		58.0		33.3		31.5		29.8		28.3
Total		498.1		697.9		693.8		553.5		496.7
Primary Auction		21.7		38.1		48.5		33.6		47.3
Securities lending		0.2		0.2		0.2		0.1		0.0
Non-massive issued instruments		—		—		—		—		—
Total transaction volume		4,566.7		8,944.0		6,207.6		5,472.9		5,778.7
Market capitalization		124,043.8		162,354.8		142,373.7		162,010.6		165,540.3

(1) BVL.

Sources: Peruvian Securities Superintendence and BVL.

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PUBLIC SECTOR FINANCES

Non-Financial Public Sector

Peru’s non-financial public sector consists of:

• the Government;

• the Government’s various decentralized administrative and regulatory agencies, such as:

• ESSALUD; and

• the National Superintendence for Tax Administration, or SUNAT;

• the local governments; and

• non-financial state-owned enterprises, such as Petroperú; and Empresa de Electricidad del Perú S.A., or Electroperu.

In 2016, the non-financial public sector registered a deficit of U.S.$4.6 billion or 2.3% of GDP compared to a deficit of U.S.$6.4 billion or 3.0% of GDP in 2017. In 2018, the non-financial public sector registered a deficit of U.S.$5.2 billion or 2.3% of GDP. In 2019 the non-financial public sector registered a deficit of U.S.$3.7 billion or 1.6% of GDP. In 2020 the non-financial public sector registered a deficit of U.S.$18.2 billion or 8.9% of GDP. For a description of the Government’s fiscal accounts see “—Central Government” below.

By Law N° 27245, the Fiscal Restraint Act was approved in December 1999 to foster fiscal stability by establishing specific guidelines concerning non-financial public sector deficits, as well as growth in government spending and in public sector debt. In May 2003, Congress amended the Fiscal Restraint Act by changing its name to Ley de Responsabilidad y Transparencia Fiscal, Law N° 27958 or the “Fiscal Responsibility and Transparency Act”, and adapting the law to the regional governments established at that time. This law was subsequently modified by Law N° 30099, with a view to strengthening fiscal responsibility and transparency (Ley de Fortalecimiento de la Responsabilidad y Transparencia Fiscal).

In December 2016, pursuant to Legislative Decree N° 1276, the Government approved a new framework under the Fiscal Responsibility and Transparency Act to facilitate monitoring and accountability of public sector finance management and permit an adequate management of assets and liabilities under a fiscal risk approach.

In August 2017, through Law N° 30637, the fiscal deficit was temporarily increased for the period from 2017-2020, by 3.2% percentage points of GDP compared to the budget approved for that year. For 2021, the fiscal deficit is limited by law to 1.0% of GDP. The temporary expansion of the fiscal deficit is due exclusively to the priority need for the reconstruction of the country as a result of the damage caused by the El Niño Costero phenomenon.

In 2016, the non-financial public sector deficit was U.S.$4.6 billion, or 2.3% of GDP, compared to 2015. This higher deficit in 2016 was mainly driven by the same factors as was the case in 2015.

In 2017, the non-financial public sector deficit was U.S.$6.4 billion, or 3.0% of GDP, compared to 2016. This higher deficit in 2017 was mainly driven by lower economic growth and the impact of certain tax regulations on tax collections, which led to a 0.6% contraction in GDP. In 2018, the non-financial public sector registered a deficit of U.S.$5.2 billion, or 2.3% of GDP, a decrease of 0.7% compared to 2017. This fiscal improvement is attributable to an increase in government revenue (1.2% increase as a percentage of GDP), particularly in tax revenue, which reflects increasing economic activity during the year.

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In 2019, the non-financial public sector registered a deficit of U.S.$3.7 billion or 1.6% of GDP a decrease of 0.7% compared to the deficit registered in 2018 relative to GDP, the second consecutive year the non-financial public sector was reduced as a percentage of GDP. The improved fiscal deficit in 2019 was primarily a result of higher current account balances of the central government which increased by 0.4% of GDP, both by tax receipts and non-tax receipts. Similarly, this improvement in the non-financial public sector deficit in 2019 was accompanied by a 0.1% reduction in government expenditures and improved gross capital formation and improved primary results of state-owned enterprises.

In 2020 the non-financial public sector registered a deficit of U.S.$18.2 billion or 8.9% of GDP, an increase of 7.3% compared to the deficit registered in 2019 relative to GDP, due to the combination of the COVID public spending policy and the decrease of economic activity and its impact in public revenue. To a certain extent other factors like higher deficit from public companies and increased public debt services. As a consequence, the current public deficit is the highest since 1990.

The impact of the COVID-19 pandemic has generated a reduction in tax revenues as a result of lower economic activity, while at the same time requiring increased demand for public spending in the face of the national health emergency. In this context, the government decided to temporarily suspend the fiscal rules previously established for 2020 and 2021, in such a way that required financing can be procured to meet the priorities of the population. The spread of the virus in the national territory required a flexible and unprecedented fiscal response. By taking into account the extreme uncertainty of the pandemic on tax collections and given the public spending required to mitigate the impacts of COVID-19, Legislative Decree N° 1457 was approved in April 2020, temporarily suspending the fiscal rules for 2020 and 2021 which set limits of 2.1% of GDP in 2020 and 1.8% of GDP in 2021, as provided for in numeral 6.1 of article 6 of Legislative Decree N° 1276; in numeral 2.2 of article 2 of Law N° 30637; and in numeral 2.1 of article 2 of Emergency Decree N° 032-2019. However, in the 2020 MEF Fiscal Report, these limits were updated to 10.7% of GDP for 2020 and 6.2% GDP in 2021, in accordance with the public spending measures under the pandemic and the projected 2021 budget. Finally, the 2020 deficit of 8.9% of GDP was lower than expected in these previous calculations.

The following tables provide information on the non-financial public sector accounts for the periods presented.

Consolidated Accounts of the Non-Financial Public Sector (NFPS)⁽¹⁾⁽²⁾

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019		2020
Primary balance (deficit):
Central government		(2,272	)		(4,323	)		-1 734			-2 014		-16 153
Decentralized agencies		367			181			203			746		53
Local governments		(207	)		465			(93	)		1 044		2 094
State-owned enterprises		(314	)		- 181			- 486			- 293		- 924
Primary NFPS		-2 426			-3 858			-2 110			- 518		-14 930
Interest payments:
External debt		891			977			1,065			1,021		962
Domestic debt		1,239			1 588			1,982			2,176		2 323
Total interest payments		2,131			2,565			3,047			3,197		3 285
Overall NFPS		-4 556			-6 423			-5 157			-3 715		-18 215
Financing:
External		1,277			(3,181	)		(182	)		1,403		9 814
Domestic		2 393			9 589			5 323			2 291		8 396
Privatization		886			16			16			21		4
Total financing		4 556			6 423			5 157			3 715		18 215

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.

(2) Preliminary data.

Sources: Central Bank.

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Consolidated Accounts of the Non-Financial Public Sector (NFPS)(1)(2)

(as a percentage of GDP, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Primary balance
Central government		(1.2	)		(2.0	)		(0.8	)		(0.9	)		(7.9	)
Decentralized agencies		0.2			0.1			0.1			0.3			0.0
Local governments		(0.1	)		0.2			(0.0	)		0.5			1.0
State-owned enterprises		(0.2	)		(0.1	)		(0.2	)		(0.1	)		(0.5	)
Primary NFPS		(1.2	)		(1.8	)		(0.9	)		(0.2	)		(7.3	)
Interest payments:
External debt		0.5			0.5			0.5			0.4			0.5
Domestic debt		0.6			0.7			0.9			0.9			1.1
Total interest payments		1.1			1.2			1.4			1.4			1.6
Overall NFPS		(2.3	)		(3.0	)		(2.3	)		(1.6	)		(8.9	)
Financing:
External		0.7			(1.5	)		(0.1	)		0.6			4.8
Domestic		1.2			4.5			2.4			1.0			4.1
Privatization		0.5			0.0			0.0			0.0			0.0
Total financing		2.3			3.0			2.3			1.6			8.9

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.

(2) Preliminary data.

Source: Central Bank.

Central Government

Peru’s central government comprises the executive branch, including its ministries and other centralized agencies. Prior to January 1, 2003, the central government also included Peru’s 24 regional councils, whose representatives were appointed by the President and public universities. As of January 1, 2003, the regional councils were replaced by 25 regional governments headed by elected officials. See “The Republic of Peru—History, Government and Political Parties—Government—Regional Governments.”

The Government derives its revenues primarily from:

• tax collections;

• import tariffs;

• non-tax revenues, such as fees, interest income and royalties from mining and hydrocarbon production; and

• dividends from state-owned companies.

Between 2016 and 2020, total Government revenues fluctuated from U.S.$30.2 billion, or 15.6% of GDP, in 2015, to U.S.$30.5 billion, or 14.9% of GDP, in 2020. During this period, tax revenues fluctuated from U.S.$26.5 billion in 2016, or 13.6% of GDP, to U.S.$26.6 billion, or 13.0% of GDP, in 2020. Compared to GDP registered in 2019, in 2020, total revenues decreased 20.8%, tax revenues decreased 19.9%, and non-tax revenues decreased 21.8%.

Government expenditures consist primarily of:

• wages of public sector employees;

• transfers to public sector entities;

• interest payments on debt;

• public investments in infrastructure; and

• pension expenditures.

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Between 2016 and 2020, total Government expenditures, excluding interest payments on the Government’s debt outstanding, fluctuated between U.S.$32.5 billion, or 16.7% of GDP, in 2016, to a high of U.S.$46.7 billion, or 22.8% of GDP, in 2020. In 2020, total Government expenditures, excluding interest payments on the Government’s debt, increased in terms of percent of GDP 5.3%, as compared to that recorded in 2019. In 2020, total Government expenditures were U.S.$49.7 billion, or 24.3% of GDP, compared to U.S.$43.5 billion, or 18.8% of GDP, in 2019.

In 2016, the overall fiscal deficit registered U.S.$4.2 billion, or 2.2% of GDP and tax collections totaled U.S.$26.5 billion or 13.6% of GDP, a decrease of 6.4% compared to 2015. In 2017, the overall fiscal deficit reached U.S.$6.7 billion or 3.1% of GDP and tax collections totaled U.S.$27.8 billion or 13.0% of GDP, an increase in nominal terms of 5.0% as compared to 2016.

In 2018, the overall fiscal deficit reached U.S.$4.5 billion or 2.0% of GDP and tax collections totaled U.S.$31.8 billion or 14.1% of GDP, an increase of 14.3% as compared to 2017. In 2019, the overall fiscal deficit reached U.S.$4.9 billion or 2.1% of GDP and tax collections totaled U.S.$33.2 billion or 14.4% of GDP, an increase of 4.3% as compared to 2018.

In 2020, the overall fiscal deficit reached U.S.$19.2 billion or 9.4% of GDP and tax collections totaled U.S.$26.6 billion or 13.0% of GDP, a decrease of 19.9% as compared to 2019.

In 2016, the primary fiscal deficit was U.S.$2.3 billion or 1.2% of GDP representing an increase of 31.2% compared to 2015. Fiscal revenue decreased 6.1% compared to 2015. In 2017, the primary fiscal deficit was U.S.$4.3 billion or 2.0% of GDP, representing a decrease of 90.3% compared to 2016. Fiscal revenue increased 8.2% compared to 2016 in nominal terms although, there was a decrease in revenue equivalent to 0.3% of GDP (15.6% of GDP in 2016 compared to 15.3% of GDP in 2017).

In 2018, the primary fiscal deficit was U.S.$1.7 billion or 0.8% of GDP, representing an increase of 59.9% compared to 2017. Fiscal revenue increased 12.2% compared to 2017 in nominal terms and there was an increase in revenue equivalent to 1.0% of the GDP (15.3% of GDP in 2017 compared to 16.3% of GDP in 2018).

In 2019, the primary fiscal deficit was U.S.$2.0 billion or 0.9% of GDP, representing a decrease of 16.1% compared to the fiscal deficit in 2018. Fiscal revenue increased 4.9% compared to 2018 in nominal terms and there was an increase in revenue equivalent to 0.4% of the GDP (16.3% of GDP in 2018 compared to 16.7% of GDP in 2019).

In 2020, the primary fiscal deficit was U.S.$16.2 billion or 7.9% of GDP, representing a decrease of 701.9% compared to the fiscal deficit in 2019. Fiscal revenue decreased 20.8% compared to 2019 in nominal terms and there was a decrease in revenue equivalent to 1.8% of the GDP (16.7% of GDP in 2019 compared to 14.9% of GDP in 2020).

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The following tables provide information regarding government accounts for the periods presented.

Central Government Accounts⁽¹⁾⁽²⁾

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017(2)			2018(2)			2019(2)			2020(2)
Fiscal revenue:
Current revenue:
Tax revenue:
Income tax		11,040			11,282			12,658			13,196			10,902
Capital gains tax		—			—			—			—
Taxes on goods and services:		17,383			18,711			20,548			21,502			17,795
General sales tax		15,632			16,773			18,461			19,039			15,819
Excise taxes		1,751			1,938			2,087			2,463			1,977
Import tariffs		476			444			443			427			331
Other taxes		(2,408	)		(2,616	)		(1,844	)		(1,943	)		(2,445	)
Total tax revenue		26,491			27,822			31,805			33,183			26,583
Non-tax revenue(3)		3,485			4,513			4,578			4,874			3,813
Total current revenue		29,976			32,335			36,383			38,057			30,397
Capital revenue		279			398			352			485			132
Total fiscal revenue		30,255			32,732			36,734			38,542			30,529
Expenditures:
Current non-financial expenditures:
Wages and salaries		9,364			10,669			11,557			12,115			12,467
Goods and services		8,345			8,975			8,760			9,344			9,223
Current transfers		7,372			8,501			9,559			9,898			17,082
Total current non-financial expenditures		25,081			28,145			29,876			31,357			38,773
Capital expenditures:
Fixed investment		4,442			4,760			5,244			5,249			4,374
Other		3,004			4,150			3,349			3,949			3,536
Total capital expenditures		7,446			8,910			8,592			9,198			7,909
Total expenditures		32,527			37,055			38,469			40,556			46,682
Fiscal balance:
Primary fiscal balance (deficit)		(2,272	)		(4,323	)		(1,734	)		(2,014	)		(16,153	)
Interest		1,978			2,358			2,741			2,914			3,036
Overall fiscal balance (deficit)		(4,249	)		(6,681	)		(4,476	)		(4,928	)		(19,189	)
Financing:
Foreign financing		427			(3,349	)		(781	)		477			9,181
Domestic financing		2,936			10,014			5,241			4,430			10,004
Privatization		886			16			16			21			4
Total financing		4,249			6,681			4,476			4,928			19,189

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.

(2) Preliminary data.

(3) Includes transfers from state-owned enterprises and royalties from petroleum companies.

Source: Central Bank.

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Central Government Accounts⁽¹⁾⁽²⁾

(as a percentage of GDP, at current prices)

	For the year ended December 31,
	2016			2017(2)			2018(2)			2019(2)			2020(2)
Fiscal revenue:
Current revenue:
Tax revenue:
Income tax		5.7			5.3			5.6			5.7			5.3
Capital gains tax		—			—			—			—			—
Taxes on goods and services:		8.9			8.7			9.1			9.3			8.7
General sales tax		8.0			7.8			8.2			8.2			7.7
Excise taxes		0.9			0.9			0.9			1.1			1.0
Import tariffs		0.2			0.2			0.2			0.2			0.2
Other taxes		(1.2	)		(1.2	)		(0.8	)		(0.8	)		(1.2	)
Total tax revenue		13.6			13.0			14.1			14.4			13.0
Non-tax revenue(3)		1.8			2.1			2.0			2.1			1.9
Total current revenue		15.4			15.1			16.1			16.5			14.9
Capital revenue		0.1			0.2			0.2			0.2			0.1
Total fiscal revenue		15.6			15.3			16.3			16.7			14.9
Expenditures:
Current non-financial expenditures:
Wages and salaries		4.8			5.0			5.1			5.2			6.1
Goods and services		4.3			4.2			3.9			4.0			4.5
Current transfers		3.8			4.0			4.2			4.3			8.4
Total current non-financial expenditures		12.9			13.1			13.3			13.6			19.0
Capital expenditures:
Fixed investment		2.3			2.2			2.3			2.3			2.1
Other		1.5			1.9			1.5			1.7			1.7
Total capital expenditures		3.8			4.2			3.8			4.0			3.9
Total expenditures		16.7			17.3			17.1			17.6			22.8
Fiscal balance:
Primary fiscal balance (deficit)		(1.2	)		(2.0	)		(0.8	)		(0.9	)		(7.9	)
Interest		1.0			1.1			1.2			1.3			1.5
Overall fiscal balance (deficit)		(2.2	)		(3.1	)		(2.0	)		(2.1	)		(9.4	)
Financing:
Foreign financing		0.2			(1.6	)		(0.3	)		0.2			4.5
Domestic financing		1.5			4.7			2.3			1.9			4.9
Privatization		0.5			—			—			—			—
Total financing		2.2			3.1			2.0			2.1			9.4

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.

(2) Preliminary data.

(3) Includes transfers from state-owned enterprises and royalties from petroleum companies.

Source: Central Bank.

Tax Regime

All government taxes in Peru are collected by the Superintendencia Nacional de Administración Tributaria, or SUNAT. SUNAT’s budget is determined primarily through a percentage-based funding mechanism that provides the agency with 1.6% of its domestic tax collections and with 1.5% of import tariffs.

The following table presents the composition of Peru’s tax revenues for the periods presented.

Tax Revenue of Peru (Central Government)

(as a percentage of total tax revenue)

	For the year ended December 31,
	2016(1)			2017(1)(2)			2018(1)(2)			2019(1)(2)			2020(1)(2)
Income Tax:
Individual		12.5			12.6			11.9			12.5			13.5
Corporate		24.9			22.5			21.8			21.5			22.6
Clearing		4.3			5.4			6.1			5.7			4.9
Total income tax		41.7			40.6			39.8			39.8			41.0
Property tax		—			—			—			—
Taxes on goods and services:
General Sales Tax		59.0			60.3			58.0			57.4			59.5
Selective Consumption Tax:
Fuel tax		2.7			2.9			2.5			2.9			3.2
Other		3.9			4.1			4.1			4.5			4.2
Total Selective Consumption Tax		6.6			7.0			6.6			7.4			7.4
Total taxes on goods and services		65.6			67.3			64.6			64.8			66.9
Import tariffs		1.8			1.6			1.4			1.3			1.2
Other taxes		9.2			9.6			10.1			10.5			9.3
Tax refund		(18.3	)		(19.0	)		(15.9	)		(16.3	)		(18.5	)
Total		100.0			100.0			100.0			100.0			100.0

(1) Reflects adjustments to reconcile estimated income tax withheld with actual income tax liabilities.

Source: Central Bank, Nota Semanal N° 15-2019.

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Income Taxes

The current income tax law is structured over the basis of five income categories. First and Second category income comprises income from capital gains, Fourth and Fifth category income comprises income from labor, and Third category income is related to corporate income.

Income from capital gains is subject to a rate of 6.25% applied over reported net income. In calculating the net income, a fixed deduction of 20% from the gross income is allowed. First category income is the one received by individuals from the lease of movable and fixed property located within Peru. Second category income is the result of capital gains.

Employment income (which may result from employed or self-employed work) is subject to the following tax rates effective as of the 2020 tax year:

Personal Annual Income (in UIT(1))	2020(%)
Up to 5		8
Between 5-20		14
Between 20-35		17
Between 35-45		20
Greater than 45		30

(1) UIT is an annual reference index used for tax purposes. For 2020, the UIT is equivalent to S/4,300.00, or approximately U.S.$1,188.

Source: Ministry of Economy and Finance.

The dividends which are capital gains are taxed at a rate of 5%.

Peru treats capital gains as ordinary income for tax purposes. The income tax rate for enterprises legally regarded as located in Peru is 29.5% effective as of fiscal 2017, which applies to net worldwide income. Companies also pay the Temporary Net Asset Tax (ITAN) which is applied at a rate of 0.4% on assets exceeding S/1.0 million, or approximately U.S.$0.3 million.

Furthermore, there are other specific exemptions that apply to certain industries and regions.

Capital Gains Tax

Peru treats all capital gains as ordinary income for tax purposes. In the past, a significant source of capital income was exempt from the tax base.

As of 2016, the following sources of income will no longer be exempt:

• capital gains from the transfer of equities, shares, corporate bonds and other securities;

• interest generated from securities such as corporate bonds, certificates of deposits and mortgage loans;

• yields from participations in mutual funds and investment funds;

• interest received by corporations from deposits in the financial system; and

• yields from voluntary contributions to pension funds.

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Nevertheless, some exemptions remain effective. For instance, interest by individuals from their deposits in the financial system and yields from mandatory contributions to pension fund administrators remain exempt. Current exemptions are scheduled to be effective through 2018.

Value-Added Tax

Effective as of March 1, 2011, Peru imposed an 18.0% value-added tax called the Impuesto General a las Ventas, or IGV, that is applicable to:

• the sale or import of movable personal property within Peru;

• the rendering or use of services in Peru;

• construction agreements; and

• the first transfer of real estate by a builder.

Each party in the chain of production generally collects the IGV tax from its customer and pays SUNAT the difference between the tax paid to its suppliers and the tax collected from its customers. For imports of goods, the taxable base is the cost, insurance and freight price plus customs duties, surcharges and excise tax paid on those goods.

Some products and services are currently exempt from payment of the IGV, such as fishmeal, various agricultural products, including potatoes, tomatoes, beans, coffee, tea, cocoa and wheat, urban public and cargo transport, financial services, live entertainment and some medicines for cancer, HIV/AIDS and diabetes treatment. Peru also applies a special exemption for purchases made as part of the development of natural resources.

The IGV does not apply to the export of goods or services or construction contracts performed abroad. Exporters are reimbursed any portion of the IGV they pay on the purchase of goods and services they export and can apply those refunds as credits to offset the IGV or income tax liabilities.

A 2% tax known as the Impuesto de Promoción Municipal, or Municipal Development Tax, is also imposed, which is included in the IGV.

Excise Tax

Peru applies an excise tax on selected goods and on gambling activities. The following table shows the tax rates applicable to selected goods as of December 31, 2018.

Product	Rate (%)
Soda		17.0
Gambling		10.0
New cars		10.0
Used cars		30.0
Ethyl alcohol		20.0
Cigarettes		S/0.27 per unit
Horse races		2.0
Beer		30.0

Source: Ministry of Economy and Finance.

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In the case of Pisco, an alcoholic beverage, the applicable tax is S/1.50 minimum and S/2.50 maximum per liter.

Peru also imposes an excise tax on fossil fuel products. The tax is levied on the volume sold or imported, expressed in units of measurement established by the Ministry of Economy and Finance. The following table shows the tax rates currently applicable to selected fuel products.

Fuel	S/ per gallon(1)
Gasoline:
less than 84 octane		0.93
from 84–89 octane		0.88
from 90–94 octane		0.99
from 95–97 octane		1.07
greater than 97 octane		1.13
Kerosene		1.93
Gas oil		1.40
Diesel B2		1.04
Residual 6		0.68

(1) As of November 11, 2016.

Source: Ministry of Economy and Finance.

On May 9, 2018, the Ministry of Economy and Finance, approved the Supreme Decree N° N ° 095-2018-EF which amended the selective tax for consumption (ISC) and which would be implemented from January 1, 2019. The measures implemented are the following:

New and used vehicles

The supreme decree is encouraging the use of less polluting vehicles and the renewal of the fleet. For this reason, the supreme decree establishes that new vehicles for transport of passengers having some hybrid mechanism as gas or electric will not pay taxes and new vehicles that use petroleum-based products will have a tax rate of only 10%. Conversely, it discourages the use of gasoline vehicles that will have a 40% tax rate. Also, new vehicles that use diesel or semi-diesel will have a 20% tax rate, while used vehicles will apply a rate of 40%. In addition, pick-up trucks will not pay tax for being a capital good.

Sugar-sweetened beverages and tobacco

A new range has been created in the ISC for sweetened beverages in order to disincentivize consumption of sugary drinks. Thus, all drinks that have less than 6 grams per 100 milliliters of sugar will maintain a rate of 17% and those containing higher sugar contents will see the rate increase to 25%.

In the case of black and blond tobacco cigarettes, the regulations seek to discourage their consumption. For this reason, the ISC for cigarettes will increase from S/0.18 to S/0.27 for each unit of cigarette.

Alcoholic beverages

The recent modification of the ISC for alcoholic beverages seeks: (i) to disincentivize consumption of these drinks, and (ii) to provide a greater progressivity to the value tax. Therefore spirits having between 0 and 6 degrees of concentration of alcohol will remain subject to the ISC of S/1.25 per liter produced and those containing higher alcohol concentrations will see the rate will be increased from 30% to 35% (according to the sale price).

For liquors with higher concentration of alcohol, which exceed 20 degrees, will remain subject to the ISC of S/3.40 per liter. However, the value added tax affecting them will increase from 25% to 40%.

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Fuels

In the case of the ISC for fuels, the adjustments were made to reflect their degree of harmfulness. With this measure, the regulations seek to correct the existing distortion requiring gasohol of 97 octane to pay more ISC than diesel, as the latter is a more noxious fuel.

Financial Transactions Tax

On March 1, 2004, a financial services transaction tax, or ITF, became effective. The ITF is a levy applicable to almost all banking transactions, including transfers and foreign exchange transactions, as well as certain non-banking transactions such as transfers made by fund transfer companies. Although the ITF was initially set at 0.15%, the Government proposed in early March 2004 to decrease the rate. On March 25, 2004, Congress approved the Government’s proposal, effective March 27, 2004, to set the rate at 0.10% through the end of 2004, decreasing to 0.08% during 2005. In late 2006, the Government established a schedule that gradually decreased the rate to 0.05% in 2010. On February 20, 2011, Congress approved, effective April 1, 2011, to decrease the rate to 0.005%, which is the current applicable ITF rate on financial transactions.

Royalty Fee

In September 2011, the Mining Royalty Law, Law N° 28258, was amended by Law N° 29788 to increase the tax payable on metallic and non-metallic mineral resources. Effective October 1, 2011, the royalty for the exploitation of metallic and non-metallic resources is payable on a quarterly basis in an amount equal to the greater of (i) an amount determined in accordance with the statutory scale of tax rates based on a company’s operating profit margin and applied to the company’s operating profit, as adjusted by certain non-deductible expenses, and (ii) 1% of a company’s net sales, in each case, during the applicable quarter. The royalty rate applied to the company’s operating profit is based on its operating profit margin and the rate ranges from 1% to 12%.

In addition, there is a royalty fee on hydrocarbons which is calculated according to the value of the hydrocarbon produced and is established on each exploration and production contract.

Special Mining Tax

In September 2011, Congress passed Law N° 29789 that institutes a special mining tax on the operating profits of mining companies that results from the sale of metallic mining products, self-consumption or unauthorized withdrawals of such products. The special mining tax rate ranges from 2% to 8.40%, depending on the subject company’s quarterly operating profit margin.

Tax Amnesty

There have been no tax amnesties in the five-year period ended December 31, 2011. However, in December 2009, Congress passed Law N° 29482 in order to exempt from income tax those economic activities performed between 2,500 and 3,200 meters above sea level. The exemption will last ten years and it excludes mining activities and those activities performed in capital cities.

International Tax Treaties

Peru has entered into tax treaties in order to avoid double taxation with Chile, Canada, Brazil, the Andean Community (Ecuador, Colombia and Bolivia), Mexico, South Korea, Switzerland and Portugal.

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Deduction of three Tax Units (UIT)

On May 12, 2017, the Resolution of Superintendent N° 123-2017/SUNAT was published. This resolution sets forth guidelines for what constitutes adequate proof of payment for the deductibility of personal expenses in payment of the income tax. In this sense, the self-employed (which issued receipts for fees) or dependent, for purposes of the tax determination of the income tax for year 2018 and thereafter, may credit the following concepts as additional expenses in the determination of the tax to pay up to 3 UIT (approximately U.S.$3,690.00):

• 30% corresponding to leasing and subleasing;

• 30% corresponding to fourth category services;

• 100% corresponding to contributions of ESSALUD of home workers;

• 30% corresponding to fourth category of medical and dental care service; or/and

• 100% for first home mortgage interest.

In addition, on December 28, 2018, the Resolution of Superintendent N° 303-2018/SUNAT was published and established that for purposes of income tax determination corresponding to year 2019 and thereafter, first home mortgage interests shall not be considered for purposes of the above mentioned deductions.

The 2021 Budget

Pursuant to the Constitution and the Ley General del Sistema Nacional de Presupuesto, or General Law of the National Budget System, published on December 8, 2004, and effective as of January 1, 2005, the Ministry of Economy and Finance, acting through the Dirección General de Presupuesto Público, or General Directorate of Public Budget, is responsible for preparing Peru’s annual budget.

The annual budget is prepared on the basis of:

• proposals submitted by the various public entities;

• matching revenue estimates with goals and priorities established for each entity; and

• coordinating balances for previous fiscal years and estimates for future fiscal years.

The Public Budget Administration Office submits its proposed budget to the Council of Ministers for approval. If the Council of Ministers approves the proposed budget, it is submitted by the President to Congress by August 30 of each year. Upon congressional approval, the proposed budget becomes the Annual Law of the Public Sector Budget. Under the Constitution, if by November 30 of any year, Congress has not submitted to the executive branch an official document commenting on or approving the budget, the budgetary proposal submitted by the President is automatically adopted as the Annual Law of the Public Sector Budget.

The 2021 Budget

The 2021 budget was submitted to the Congress of the Republic of Peru in August 2020 for approval. The following table summarizes the principal assumptions on which the 2021 budget is based.

Principal Budgetary Assumptions for 2021

Projected real GDP growth	10.0%
Projected (cumulative) inflation	2.0%
Projected average exchange rate	S/3.46 per U.S. dollar

Source: Ministry of Economy and Finance.

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Based on these assumptions, the 2021 budget proposal projects the following:

• fiscal revenues of S/99.5 billion, or approximately U.S.$27.5 billion;

• public expenditures of S/146.4 billion, or approximately U.S.$40.4 billion; and

• an overall non-financial public sector deficit of S/47.5 billion, or approximately U.S.$13.1 billion, or 6.2% of projected 2021 GDP.

The following table sets forth the assumed sources of expenditures for purposes of the 2021 budget:

	National Government		Regional Governments		Local Governments		Total
	(in millions of soles)
Current expenditures		83,018		25,378		12,293		120,689
Capital investments		30,795		7,362		8,216		46,373
Debt services		15,231		352		384		15,967
Total expenditures		129,044		33,093		20,894		183,030

Source: Central Bank and Ministry of Economy and Finance.

The following table sets forth the assumed sources of revenue for purposes of the 2021 budget:

Sources of Revenue	Amount
	(in millions of soles)
Tax revenue		99,541
Administrative and governmental fees		12,519
Third-party credit sources		47,651
Donations and transfers		476
Other (1)		22,842
Total		183,030

(1) Includes revenue from mining rights, concession fees, and related items.

Source: Central Bank and Ministry of Economy and Finance.

Social Security

Peru has a two-tiered pension system. The public pension system is a pay-as-you-go system by which current social security contributions are used to pay benefits currently provided by the Government. This system requires that the Government contribute to finance pension payments. In 1992, the Government created the private pension system, through the licensing of AFPs, as an alternative to the public pension system.

The public pension system has two components:

• the general pay-as-you-go-system, which applies to the general population and is administered by the Oficina de Normalización Previsional, or Office of Pension Regularization; and

• the special public sector regimes for the military, police, teachers, various judges and magistrates, other special segments of the population and other public servants.

The public sector has two pension reserve funds funded by privatization receipts:

• the Fondo Consolidado de Reservas Previsionales, or Consolidated Reserve Fund, an autonomous fund with resources earmarked to meet public pension obligations falling due over the medium and long term; and

• the Fondo Nacional de Ahorro Público, or National Public Savings Fund, the objective of which is to provide supplemental pensions to all low-income pensioners in the public pension system.

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As of December 31, 2014, there were four AFPs in the private pension system. New entrants to the labor market are automatically enrolled in an AFP unless they elect to enroll in the public pension system within ten days of employment. Workers may leave the public pension system for an AFP at any time, but once they leave they cannot re-enroll in the public pension system, except as described below. To compensate individuals who switch to the AFPs for pension rights they had accumulated while participating in the public pension system, the Government has authorized the issuance of recognition bonds. Recognition bonds are transferable, zero-coupon bonds indexed to the CPI and redeemable at retirement.

To provide an incentive for individuals to join AFPs and to discourage participation in the public pension system, the Government increased the public pension system contribution rate from 3.0% to 11.0% at 1995 and 13% at 1997. In 2019, Congress approved an increase of the minimum monthly pension in the public pension system from S/415.00 to S/500.00. As of December 31, 2020, the private pension system contribution rate was 11.2%. Workers become eligible to receive benefits at age 65.

In November 2004, Congress enacted a constitutional reform to unify the administration of public pensions, reduce the financial deficits of the pension funds and improve its distributions to different economic classes. The indexed pension scheme that allowed certain retired government employees to receive a life pension equal to the salary of a worker currently serving in the retiree’s former post or one equivalent to it was eliminated and pension caps were established.

In March 2007, Congress enacted a law to reform the affiliation and return to the public pension system process, with the aim that people who left the public pension system for an AFP, or chose an AFP from the start, and would as a consequence receive a lower pension, were allowed to return or transfer to the public pension system. Accordingly, this law regulates the conditions under which a person may choose to return or transfer to the public pension system and provides mechanisms for making that an informed decision. The estimated cost of this reform for Peru was approximately U.S.$2.1 billion in actuarial present value. This amount was calculated for 410,000 people and considered greater social security costs to the public pension system due to people who return or transfer to it from the private pension system, the payment of additional pensions and the financial costs of advancing recognition bonds under the exceptional regime of early retirement. As of December 31, 2020, 165,876 have returned to the public pension system.

On September 23, 2013, Law N° 30082 became effective as an amendment to Law N° 29903 – Ley de Reforma del Sistema Privados de Pensiones that provides for the voluntary inclusion in the pension plan of an employer of independent workers who are under 40 years of age. Among the policies relating to Peru’s pension system that President Humala proposed, was the creation of Pension 65 that requires payment of S/250.00 per month to seniors 65 years of age and older who did not previously have a pension plan to be funded with financing from the National Treasury. As of December 31, 2020, the Government had spent U.S. $245.2 million or 95.8% of the budgeted funds and more than 563,386 senior citizens participated in the program.

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PUBLIC SECTOR DEBT

Peru’s total public sector debt consists of foreign currency-denominated debt and sol-denominated debt. Peru’s total public external debt consists of loans from foreign creditors to the Government, the Central Bank and public sector entities.

External Debt

As of December 31, 2020, taking into account swap agreements, 52.9% of public debt was denominated in soles. As of December 31, 2020, public external debt totaled U.S.$32.5 billion, or 15.9% of GDP, compared to U.S.$22.6 billion, or 9.8% of GDP, as of December 31, 2019.

The following tables provide further information on public sector external debt as of the dates presented.

Public Sector External Debt

(in millions of U.S. dollars, except for percentages)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Public sector external debt		23,762		22,710		22,977		22,554		32,455
Total public sector external debt as % of GDP(1)		12.2		10.6		10.2		9.8		15.9
Total public sector external debt as % of total exports(1)		64.1		50.0		46.8		47.3		76.5

(1) Peru does not include IMF credit use in reports of total public sector external debt. Debt ratios are calculated on the basis of Peru’s total official non-reserve liabilities.

Source: Central Bank.

Public Sector External Debt, Net of Reserves

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016			2017			2018			2019			2020
Public sector external debt(1)		(23,762	)		(22,710	)		(22,977	)		(22,554	)		(32,455	)
Gross international reserves of the Central Bank		61,746			63,731			60,288			68,370			74,909
Public sector external debt, net of reserves		37,984			41,021			37,311			45,816			42,453

(1) Peru does not include IMF credit use in reports of total public sector external debt.

Source: Central Bank.

Peru’s credit ratings are as follows as of October 15, 2021:

• Fitch: long term foreign currency issuer default rating at BBB (outlook stable);

• Standard & Poor’s: long term foreign currency credit rating at BBB+ (outlook negative); and

• Moody’s: long term foreign currency bonds rating at Baa1 (outlook stable).

On October 15, 2021, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru, but changed the outlook from stable to negative. On October 14, 2021, Fitch downgraded Peru’s long term foreign currency issuer default rating to BBB from BBB+, upgrading the outlook from negative to stable. On September 1, 2021, Moody’s changed the rating of Peru’s long-term foreign currency debt from A3 to Baa1 and the outlook to stable from negative.

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A Fitch’s “BBB” rating indicates that expectations of default are currently low. The capacity for payment of financial commitments is considered adequate but adverse business and economic conditions are more likely to impair this capacity. This is the second notch in investment grade category. A Fitch outlook indicates the direction in which a rating is likely to move over a one to two-year period. Outlooks may be “positive,” “stable” or “negative.” A Positive or Negative outlook does not imply a rating change is inevitable. Similarly, a rating for which outlook is “stable” could be upgraded or downgraded before an outlook moves to Positive or Negative if circumstances warrant such an action. On November 10, 2011, Fitch upgraded Peru’s long term foreign currency debt rating from “BBB-” to “BBB” with an outlook of stable. On October 23, 2013, Fitch further upgraded Peru to BBB+ with “stable” outlook. On March 24, 2017, Fitch reaffirmed its rating and outlook (BBB+; outlook stable). On September 27, 2018, Fitch reaffirmed its rating and outlook (BBB+; outlook stable). On March 28, 2019, Fitch reaffirmed its rating and outlook (BBB+; outlook stable). On December 15, 2020 Fitch reaffirmed its rating (BBB+) but changed the outlook from stable to negative. On October 14, 2021, Fitch downgraded Peru’s long term foreign currency issuer default rating to BBB from BBB+, upgrading the outlook from negative to stable.

A Standard & Poor’s “BBB” rating indicates that an obligor exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Securities rated in this category are investment grade. A Standard & Poor’s rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term. In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. A Standard & Poor’s outlook of “positive” means that a rating may be raised; however, an outlook is not necessarily a precursor of a rating change. On August 30, 2011, Standard & Poor’s upgraded Peru’s long-term foreign currency debt rating from “BBB-” to “BBB” with an outlook of stable. On August 19, 2013, Standard & Poor’s further upgraded Peru to BBB+ with an outlook of stable. On June 14, 2017, Standard & Poor’s reaffirmed its rating and outlook (BBB+; outlook stable). On June 15, 2018, Standard & Poor’s reaffirmed its rating and outlook (BBB+; outlook stable). On November 24, 2020, Standard & Poor’s reaffirmed its rating and outlook (BBB+; outlook stable). On October 15, 2021, S&P Global Ratings reaffirmed its BBB+ long-term foreign currency sovereign credit rating on Peru; but changed the outlook from stable to negative.

A Moody’s “Baa2” rating indicates that obligations are judged to be subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Moody’s appends numerical modifiers 1, 2 and 3 to each generic rating classification. This is the second lowest investment grade category. Securities rated in this category are investment grade. The modifier 1 indicates a high-range ranking in the Baa generic rating classification. Moody’s rating outlook is an opinion regarding the likely direction of a rating over the medium term. Where assigned, rating outlooks fall into the following four categories: “Positive,” “Negative,” “Stable” or “Developing” (contingent upon an event). On July 2, 2014, Moody’s upgraded Peru’s foreign currency rating from “Baa2” to “A3” with an outlook of stable. On August 23, 2017, Moody’s reaffirmed its rating and outlook (A3; outlook stable). On August 28, 2018, Moody’s reaffirmed its rating and outlook (A3; outlook Stable). On June 25, 2019, Moody’s affirmed Peru’s A3 ratings and maintained stable outlook. On May 21, 2021 Moody’s reaffirmed Peru’s A3 rating but changed the outlook from stable to negative. On September 1, 2021, Moody’s changed Peru’s A3 rating to Baa1, upgrading the outlook from negative to stable.

Ratings are not a recommendation to purchase, hold or sell securities and may be changed, suspended or withdrawn at any time. Peru’s current ratings and the rating outlooks currently assigned to Peru are dependent upon economic conditions and other factors affecting credit risk that are outside the control of Peru. Each rating should be evaluated independently of the others. Detailed explanations of the ratings may be obtained from the rating agencies. The information above was obtained from information available on the websites of the rating agencies.

During the period from 2016 to 2020, multilateral debt represented, on average, 19.3 % of Peru’s public sector external debt. Peru’s principal multilateral creditors are the World Bank, representing, on average, 40.9% of outstanding multilateral debt each year from 2016 to 2020, and the IADB, representing, on average, 32.7% of outstanding multilateral debt each year from 2016 to 2020. Loans from the World Bank have funded irrigation, agriculture, poverty reduction, education, health reform and transportation projects. Loans from the IADB have been used to fund projects relating to poverty reduction, education, financial-sector reform, environment and state modernization.

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The following table provides information on capital flows from multilateral lenders for the periods presented.

Capital Flows from Multilateral Lenders

(in millions of U.S. dollars)

	For the year ended December 31,
	2016			2017			2018			2019			2020
World Bank:
Disbursements minus principal amortizations		(104	)		(1517	)		264			420			1,877
Disbursements minus principal, interest and commissions		(160	)		(1594	)		219			367			1831
IADB:
Disbursements minus principal amortizations		423			(1192	)		4			(81	)		442
Disbursements minus principal, interest and commissions		367			(1255	)		(48	)		(140	)		409

Source: Ministry of Economy and Finance (Dirección General de Endeudamiento y Tesoro Público, or General Bureau of Public Debt and Treasury).

The following is a brief overview of the principal debt incurrences by Peru. See “Annex A—Republic of Peru: Global Public Sector External Debt” for further information regarding Peru’s debt outstanding as of December 31, 2020.

• On April 4, 2016, Peru entered into a loan agreement with IBRD, in an aggregate amount of U.S.$1.25 billion, to fund public spending and fiscal risk management.

• On April 4, 2016, Peru entered into a loan agreement with IBRD, in an aggregate amount of U.S.$1.25 billion, to stimulate human capital and productivity.

• On April 29, 2016, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$20.0 million, to fund foreign trade projects.

• On June 28, 2016, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$30.0 million, to fund youth employment projects.

• On June 28, 2016, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$40 million, to fund innovation projects.

• On July 21, 2016, Peru entered into a loan agreement with CAF, in an aggregate amount of U.S.$153.8 million, to fund hydraulic infrastructure projects.

• On October 21, 2016, Peru entered into a loan agreement with IFAD, in an aggregate amount of SDR20.7 million, to fund sustainable development projects in rural areas.

• On December 22, 2016, Peru entered into a loan agreement with KfW Bank (Germany), in an aggregate amount of €192.3 million, to fund the construction of Line 2 of Lima’s subway.

• On December 30, 2016, Peru entered into a loan agreement with CAF, in an aggregate amount of U.S.$80.8 million, to fund irrigation projects.

• On September 14, 2017, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$80.0 million, to fund the development of the Huanuco-Conococha highway.

• On September 25, 2017, Peru entered into a loan agreement with IBRD, in an aggregate amount of U.S.$40.0 million, to fund the coordinated management of water resources in ten basins project.

• On May 21, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$65.0 million, to finance the project Improvement of the management of public investment and Improvement of the capacity for the generation of knowledge and continuous improvement in the management of public procurement.

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• On September 12, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$100.0 million, to finance the Comprehensive Program of Rural Water and Sanitation – PIASAR.

• On September 12, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$50.0 million, to finance the project Improvement and Extension of support services for the provision of services to the citizens and companies at national level.

• On September 12, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$75.0 million, to finance the Program for the improvement of the quality and relevance of services of university and technological higher education at the national level.

• On October 1, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$100.0 million, to finance the Development Program of agricultural health and food safety – Phase II.

• On October 22, 2018, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$30.0 million, to finance the Program of recovery of areas degraded by waste in priority areas.

• On December 17, 2018, Peru entered into a loan agreement with KFW, in an aggregate amount of €60.0 million equivalent to U.S.$70.9 million, to finance the improvement, expansion and creation of the system of treatment of wastewater in the 7 and 3 districts in Huánuco and Tacna, respectively.

• On July 31, 2019, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$16.8 million, to finance support programs for sustainability of biodiversity in the San Martín, Loreto and Madre de Dios ecosystems and the improvement of environmental information for the mapping of deforestation in the Amazon forests of Peru.

• On November 27, 2019, Peru entered into a loan agreement with IBRD, in an aggregate amount of U.S.$85.0 million, to fund the modernization of the judicial system under the program “Programa de Mejoramiento de los Servicios de Justicia no Penales a través de la implementación del Expediente Judicial Electrónico”.

• On May 22, 2020, Peru entered into a loan agreement with IBRD in an aggregate amount of U.S.$50.0 million, to fund municipal planning projects in the provinces Chiclayo, Lambayeque, Lima and Piura.

• On June 01, 2020, Peru entered into a loan agreement with IBRD in an aggregate amount of U.S.$93.0 million to fund the infrastructure project COSAC I from Estación el Naranjal to Av. Chimpu Ocllo, Comas and Carabayllo Districts, Lima.

• On June 16, 2020, Peru entered into a loan agreement with IADB in an aggregate amount of U.S.$50.0 million to fund production standards under human capital and productivity programs.

• On June 30, 2020 Peru entered into a loan agreement with IADB in an aggregate amount of U.S.$100.0 million to fund an urban water management project in Cuzco, Wanchaq, Santiago and San Sebastian at Cuzco Province and the districts of Zarumilla and Aguas Verdes at the Zarumilla Province.

• On July 1, 2020, Peru entered into a loan agreement with IFAD in an aggregate amount of U.S.$24.0 million to finance local public services.

• On July 8, 2020, Peru entered into a loan agreement with IADB in an aggregate amount of U.S.$100.0 million to finance the modernization of the criminal justice system.

• On July 16, 2020, Peru entered into a loan agreement with IBRD in an aggregate amount of U.S.$36.3 million to finance the modernization of the first emergency response system.

• On December 10, 2020, Peru entered into a loan agreement with IBRD in an aggregate amount of 50.0 million to finance a program for the development of human resources.

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• Since January 1, 2021, Peru has entered into the following principal debt instruments:

• On March 3, 2021, Peru issued U.S.$4.0 billion Dollar-denominated bonds and U.S.$825 million Euro-denominated bonds, the proceeds will be used to finance general budgetary requirements for fiscal year 2021.

• On April 12, 2021, Peru entered into a contingent loan agreement with BID in an aggregate amount of US$ 400.0 million to finance a set of programs for reforms aimed at the economic recovery.

• On June 3, 2021, Peru entered into a contingent loan agreement with CAF in an aggregate amount of US$ 350.0 million to finance additional measures to manage the effects of COVID-19.

• On June 8, 2021, Peru entered into a loan agreement with BIRF in an aggregate amount of US$ 750.0 million to finance additional measures to manage the effects of COVID-19.

• On June 30, 2021, Peru entered into a contingent loan agreement with BID in an aggregate amount of US$ 600.0 million to finance the improvement of social policies to support low-income citizens and households.

• On July 16, 2021, Peru entered into a loan agreement with BIRF in an aggregate amount of US$ 350.0 million to finance a set of programs aimed at improving human capital and resources.

During 2020, disbursements from Peru’s available debt facilities included U.S.$0.2 billion for specific projects, U.S.$3.1 billion balance of payment support which includes a U.S. $3.0 bond issuance, U.S.$4.0 billion to finance expenditures relating to the prevention and containment of COVID-19, as well as for the stimulation of the economy and for expenditures included in the Public Sector Budget for Fiscal Year 2020 that were affected by the reduction in income resulting from COVID-19 and U.S.$2,1 billion from contingent credit lines.

As of December 31, 2020, outstanding public sector external debt increased to approximately U.S.$32.5 billion, equivalent to 15.9% of GDP, an increase of U.S.$9.9 billion compared to debt outstanding as of December 31, 2019. This increase resulted primarily from amounts in the aggregate principal amount of bonds, which increased by U.S.$7.0 billion and contingent credit lines disbursements which increased by U.S.$1.7 billion from U.S.$ 0.4 billion in 2019 to U.S.$ 2.1 billion in 2020.

The following tables summarize public sector external debt by creditor for the periods indicated.

Public Sector External Debt by Creditor(1)

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Official creditors:
Multilateral debt:
IADB		2,513		1,329		1,244		1,168		1,610
World Bank		2,610		1,093		1,145		1,564		3,441
IFAD		34		37		42		48		54
IMF		—		—		—		—		—
OPEC		—		—		—		—		—
CAF		1,601		1,437		1,011		1,065		1,019
Other		—		—		—		—		—
Total multilateral debt		6,759		3,897		3,442		3,846		6,125
Bilateral debt:
Paris Club		545		659		743		788		1,101
United States		31		28		26		24		22
Latin America		—		—		—		—		—
East European countries and China		—		—		—		—		—
Japan (Paris Club)		951		449		426		431		446
Other countries		—		—		—		—		—
Total bilateral debt		1,526		1,136		1,195		1,243		1,569
Total official debt		8,285		5,033		4,636		5,089		7,694
Private creditors:
Banking		874		135		1,319		1,326		1,381
Suppliers		11		8		5		2		—
Total debt with private creditors		886		143		1,324		1,328		1,381
Bonds:
Brady + Global Bonds		14,591		17,534		17,017		16,137		23,381
Total bond		14,591		17,534		17,017		16,137		23,3881
Total public sector external debt		23,762		22,710		22,977		22,554		32,455

(1) Medium- and long-term debt, excluding IMF financing.

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Public Sector External Debt by Creditor⁽¹⁾

(as a percentage of total public sector external debt)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Official creditors:
Multilateral debt:
IADB		10.6		5.9		5.4		5.2		5.0
World Bank		11.0		4.8		5.0		6.9		10.6
IFAD(2)		0.1		0.2		0.2		0.2		0.2
IMF		—		—		—		—		—
OPEC(3)		—		—		—		—		—
CAF		6.7		6.3		4.4		4.7		3.1
Other		—		—		—		—		—
Total multilateral debt		28.4		17.2		15.0		17.1		18.9
Bilateral debt:
Paris Club		2.3		2.9		3.2		3.5		3.4
United States		0.1		0.1		0.1		0.1		0.1
Latin America		—		—		—		—		—
East European countries and China		—		—		—		—		—
Japan (Paris Club)		4.0		2.0		1.9		1.9		1.4
Other countries		—		—		—		—		—
Total bilateral debt		6.4		5.0		5.2		5.5		4.8
Total official debt		34.9		22.2		20.2		22.6		23.7
Private creditors:
Banking		3.7		0.6		5.7		5.9		4.3
Suppliers		—		—		—		—		—
Total debt with private creditors		3.7		0.6		5.8		5.9		4.3
Bonds:
Brady + Global Bonds		61.4		77.2		74.1		71.6		72.0
Total bond		61.4		77.2		74.1		71.6		72.0
Total public sector external debt		100.0		100.0		100.0		100.0		100.0

(1) Medium- and long-term debt, excluding IMF financing

(2) International Fund for Agricultural Development

(3) Organization of Petroleum Exporting Countries

Source: Ministry of Economy (Office of Public Credit).

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Public Sector External Debt Structure by Maturity

(in millions of U.S. dollars and as a percentage of total public sector external debt)⁽¹⁾

	For the year ended December 31,
	2016		2017		2018		2019		2020
Short-term debt		60		110		167		54		202
Medium- and long-term debt		23,762		22,710		22,977		22,554		32,455
Total		23,822		22,821		23,144		22,608		32,657
Short-term debt (as a % of total public sector external debt)		0.3		0.5		0.7		0.2		0.6
Medium- and long-term debt (as a % of total public sector external debt)		99.7		99.5		99.3		99.8		99.4

(1) Includes Central Bank debt.

Source: Central Bank.

The following table sets forth public sector external debt by currency as of December 31, 2020, 2019 and 2018.

Summary of Public Sector External Debt by Currency⁽¹⁾

(in millions of U.S. dollars, except for percentages)

	For the year ended December 31,
	2018				2019				2020
	U.S.$		%		U.S.$		%		U.S.$		%
Currency
U.S.		18,547		80.7		18,414		81.6		27,694		85.3
Japanese yen		509		2.2		520		2.3		550		1.7
Single currency pool (SCP)(3)		—		—		—		—		—		—
English Pound		—		—		—		—		—		—
Canadian Dollar		—		—		—		—		—		—
SDRs(3)		42		0.2		48		0.2		53		0.2
Euro		3,212		14.0		3,119		13.8		3,744		11.5
Swiss Franc		—		—		—		—		—		—
Sol(4)		668		2.9		452		2.0		414		1.3
Total		22,977		100.0		22,554		100.0		32,455		100.0

(1) Includes outstanding COFIDE loans not guaranteed by Peru.

(2) Exchange rate as of December 31, 2020.

(3) Special Drawing Rights is a World Bank unit of account, based on a basket of national currencies.

(4) IADB loans converted to soles.

Source: Ministry of Economy (Office of Public Credit).

Total public sector external debt service decreased, as a percentage of total fiscal revenue, from 9.9% in 2016 to 6.8% in 2020, including Brady Par Bonds early redemption. Public sector external debt service measured as a percentage of total exports, including exports of goods and services and investment income, decreased from 6.7% in 2016 to 4.4% in 2020. As a percentage of GDP, public sector external debt service decreased from 1.5% in 2016 to 1.0% in 2020. For 2016, 2017, 2018, 2019 and 2020, the amortization amount includes payment, to Paris Club creditors, multilateral lenders, amounts due on the Global Bonds, current payments to holders of Global Bonds and payments made in the tender offer and exchange of Global Bonds and prepayments.

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The following table provides information regarding Peru’s public sector external debt service as of the dates presented.

Public Sector External Debt Service⁽¹⁾

(in millions of U.S. dollars, except for percentages)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Interest payments		1,033		1,121		1,152		1,170		1,150
Amortizations		1,957		4,505		1,614		2,205		935
Total public sector external debt service		2,989		5,626		2,766		3,375		2,085
As % of total exports(2)		6.7		10.4		4.8		5.9		4.4
As % of total exports and workers’ remittances		6.3		9.8		4.5		5.5		4.1
As % of GDP		1.5		2.6		1.2		1.5		1.0
As % of total fiscal revenue		9.9		17.2		7.5		8.8		6.8

(1) Medium- and long-term debt service; excludes Central Bank debt and excludes extraordinary financing and refinancing.

(2) Includes exports of goods and services and investment income.

Source: Central Bank.

In 2016, interest payments on public sector external debt totaled U.S.$1.0 billion, or 0.5% of GDP. During 2016, Peru paid U.S.$33.0 million in interest to Paris Club creditors, U.S.$152.4 million to multilateral creditors, U.S.$2.2 million to holders of Brady Bonds, U.S.$806.5.0 million to holders of Global Bonds, and U.S.$38.5 million to other creditors.

In 2017, interest payments on public sector external debt totaled U.S.$1.1 billion, or 0.5% of GDP. During 2017, Peru paid U.S.$29.6 million in interest to Paris Club creditors, U.S.$187.9 million to multilateral creditors, U.S.$2.2 million to holders of Brady Bonds, U.S.$885.4 million to holders of Global Bonds, and U.S.$18.0 million to other creditors.

In 2018, interest payments on public sector external debt totaled U.S.$1.2 billion, or 0.5% of GDP. During 2018, Peru paid U.S.$21.6 million in interest to Paris Club creditors, U.S.$153.2 to multilateral creditors, U.S.$2.2 million to holders of Brady Bonds, U.S.$968.4 million to holders of Global Bonds, and U.S.$9.3 million to other creditors.

In 2019, interest payments on public sector external debt totaled U.S.$1.2 billion, or 0.5% of GDP. During 2019, Peru paid U.S.$21.0 million in interest to Paris Club creditors, U.S.$161.6 to multilateral creditors, U.S.$2.2 million to holders of Brady Bonds, U.S.$936.0 million to holders of Global Bonds, and U.S.$49.2 million to other creditors.

In 2020, interest payments on public sector external debt totaled U.S.$1.2 billion, or 0.6% of GDP. During 2020, Peru paid U.S.$22.5 million in interest to Paris Club creditors, U.S.$117.9 million to multilateral creditors, U.S.$954.1 million in interest to holders of Global Bonds, and U.S.$54.2 million to other creditors.

The following table provides estimated medium- and long-term public sector external debt service through 2025.

Estimated Public Sector Debt Service by Debtor⁽¹⁾

2020– 2024

(in millions of U.S. dollars)

	2021						2022							2023						2024						2025
	Principal		Interest		Total		Principal		Interest		��	Total		Principal		Interest		Total		Principal		Interest		Total		Principal		Interest		Total
Non-financial public sector:		534		1,104		1,638		989		1,092			2,080		995		1,085		2,080		895		1,072		1,968		2,488		1,053		3,542
Central government(2)		405		959		1,363		862		951			1,813		869		948		1,817		770		939		1,709		2,363		925		3,287
Local government		3		0		4		3		0			3		3		0		3		2		0		2		2		0		2
Public enterprises		126		145		271		124		141			265		124		137		261		124		133		257		124		129		252
Financial public sector		35		117		153		184		111			295		696		94		790		441		67		508		442		53		495
Total public sector		569		1,222		1,791		1,173		1,203			2,376		1,691		1,179		2,870		1,336		1,140		2,476		2,931		1,106		4,037

(1) Disbursements include preliminary estimates as of December 31, 2020.

(2) Includes Loans to COFIDE, Banco Agropecuario, Fondo Mivivienda and Petroperu, not guaranteed by Peru.

Source: Ministry of Economy (Office of Public Credit).

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Peru issued public sector external bonds in connection with the Brady restructuring. As of December 31, 2020, no principal remained outstanding on the Brady Bonds since the call option for the remaining principal U.S.$53.7 million was exercised. For a description of the Brady restructuring, see “Debt Management and Restructuring” below.

In 2016, Peru issued €1.0 billion Euro-denominated bonds to pre-finance 2017 financing needs.

In 2019, Peru issued U.S.$750 million Dollar-denominated bonds to finance in part the repurchase of existing bonds and to pre-finance budget requirements.

In 2020, Peru issued U.S.$7 billion Dollar-denominated bonds to give support to the balance of payments and to finance the bigger expenditures due to COVID-19 pandemic. The proceeds of the U.S.$3.0 billion issuance in April 2020 were used to partially finance the general requirements for fiscal year 2020 and to prefinance the general requirements for fiscal year 2021. The proceeds of the U.S.$4.0 billion issuance in November 2020 were used to finance expenditures relating to the prevention and containment of COVID-19, as well as for the stimulation of the economy and for expenditures included in the Public Sector Budget for Fiscal Year 2020 affected by the income reduction from COVID-19.

In 2021, Peru issued U.S.$4.0 billion Dollar-denominated bonds and U.S.$825 million Euro-denominated bonds, the proceeds of which will be used to finance general budgetary requirements for fiscal year 2021.

Domestic Debt

The following table provides certain information regarding total public sector domestic debt, excluding intra-governmental debt, as of the dates presented.

Total Public Sector Domestic Debt

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Long-term debt:
Banco de la Nación		1,541		1,012		923		169		123
Treasury bonds		21,537		29,287		32,139		38,233		35,510
Other		—		—		—		—		—
Total long-term debt		23,078		30,300		33,062		38,402		35,633
Short-term debt		1,823		2,422		1,921		2,393		2,340
Total public sector debt		24,902		32,721		34,983		40,795		37,973
Total public sector domestic debt, as % of GDP		12.8		15.3		15.5		17.7		18.6

Source: Central Bank.

The following table provides a list of Peru’s outstanding domestic public sector bonds as of the dates presented.

Public Sector Domestic Bonds⁽¹⁾

(in millions of U.S. dollars, at current prices)

	For the year ended December 31,
	2016		2017		2018		2019		2020
Central Bank capitalization bonds		210		199		191		119		—
Financial system support bonds		—		—		—		—		—
Debt exchange bonds		304		238		161		89		81
Pension recognition bonds		1,942		1,843		1,516		1,284		1,058
Sovereign bonds		19,082		27,008		30,270		36,741		34,370
Other bonds		—		—		—		—		—
Total		21,537		29,287		32,139		38,233		35,510

(1) Excludes intra-governmental debt issued in the form of bonds.

Source: Central Bank.

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In March 2001, the Government established a public auction system for bonds issued in soles. This system has increased the availability of investment instruments in the domestic capital markets and reduced Peru’s exposure to currency exchange risk. In 2003, Peru launched the Market Makers’ Program to create a domestic market for Peru’s sol-denominated public sector debt. Since 2003, Peru has issued its public sector, sol-denominated debt through this program. The Market Makers’ Program has also helped increase the depth and liquidity of the domestic market for public sector debt.

In May 2013, Peru approved new rules in connection with the Market Makers Program and its treasury bills. The Market Makers Program aims to promote investment and improve liquidity and allows Peru to issue sovereign bonds that approved credit entities and entities that deal in securities may bid on. The new rules for the treasury bills allow bills to be issued on the primary market and be bought and sold on the secondary market by investors such as insurance companies, credit agencies and financial institutions, entities that deal in securities and other investment entities. Non-profit organizations and private individuals may also purchase treasury bills. In July 2013, Peru began issuing treasury bills and sovereign bonds in accordance with these rules.

The latest amendment to this regulation was made in February 2017 in order to, among others, permit and establish the procedures for the Republic of Peru to utilize an International Settlement and Depositary Entity such as Euroclear in such issuances. To that extent, MEF can issue sovereign bonds denominated in local currency and that their settlement takes place in an International Settlement and Depositary Entity, thus contributing to the internationalization of these instrument.

Pursuant to the Market Maker’s Program, Peru has issued sovereign bonds denominated in soles in the domestic capital markets under auctions and bookbuilding mechanism to finance current funding requirements, prefinancing requirements and liability management transactions including offers to residential and non residential investors.

During 2016, Peru issued sol-denominated sovereign bonds equivalent to U.S.$6.4 billion including a U.S.$3.0 billion offering to manage external and internal liabilities.

During 2017, Peru issued sol-denominated sovereign bonds equivalent to U.S.$7.4 billion including U.S.$3.1 billion destined to pre-finance 2018, and prepay certain debts to multilateral and bilateral creditors. During 2018, Peru issued sol-denominated sovereign bonds equivalent to U.S.$19.7 billion including U.S.$3.1 billion destined to pre-finance 2019, investment projects and prepay certain debts to multilateral and bilateral creditors and to tender global and local bonds.

During 2019, Peru issued sol-denominated sovereign bonds equivalent to U.S.$15.9 billion including U.S.$4.8 billion destined to pre-finance 2020, and repurchase existing global and local bonds. During 2020, Peru issued sol-denominated sovereign bonds equivalent to U.S.$0.8 billion destined to finance current funding requirements.

In 2020, Peru issued U.S.$7 billion Dollar-denominated bonds to give support to the balance of payments and to finance the bigger expenditures due to COVID-19 pandemic. The proceeds of the U.S.$3.0 billion issuance in April 2020 were used to partially finance the general requirements for fiscal year 2020 and to prefinance the general requirements for fiscal year 2021. The proceeds of the U.S.$4.0 billion issuance in November 2020 were used to finance expenditures relating to the prevention and containment of COVID-19, as well as for the stimulation of the economy and for expenditures included in the Public Sector Budget for Fiscal Year 2020 affected by the income reduction from COVID-19.

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In 2021, Peru issued U.S.$4.0 billion Dollar-denominated bonds and U.S.$825 million Euro-denominated bonds, the proceeds of which will be used to finance general budgetary requirements for fiscal year 2021.

Debt Management

During 2016, Peru issued sol-denominated sovereign bonds in a principal amount of S/10.25 billion equivalent to U.S.$3.0 billion to finance a liability management transaction. Forty-seven percent of such sovereign bonds were issued to non-resident investors, of which holders representing 86% of the principal amount outstanding tendered for cash.

During 2017, Peru issued sol-denominated sovereign bonds in a principal amount of S/10.00 billion equivalent to U.S.$3.1 billion to finance a liability management transaction under the form of partial and/or total prepayment to multilateral and bilateral organizations. Seventy percent of such sovereign bonds were issued to non-resident investors, and 30% to local investors. This was the first Euroclearable PEN-denominated transaction.

During 2018, Peru issued sol-denominated sovereign bonds in an aggregate principal amount of S/10.35 billion equivalent to U.S.$3.1 billion to finance, among others, a liability management transaction, of which 82% were issued to non-resident investors and 18% to local investors. This was the second Euroclearable sol-denominated transaction.

During 2019, Peru issued bonds in June and November. The June issuance was for a total of S/5.8 billion equivalent to U.S.$1.8 billion and U.S.$750 million, respectively, to finance a liability management transaction. Approximately 79% of the principal amount of this issuance of Soles-denominated bonds and 7% of the U.S. dollar-denominated Global Bonds was subscribed by local residents. The November issuance consisted of a total of S/8.3 billion of Soles-denominated bonds and another in a principal amount of S/1.8 billion the proceeds both equivalent to U.S.$3.0 billion of which was used to finance a liability management transaction with participation by non-resident investors of 30% and 80%, respectively.

During 2020, Peru issued sol-denominated sovereign bonds in a principal amount of S/ 187.5 million to finance the repurchase of Brady Bonds at par value which remaining principal was U.S.$53.7 million.

Debt Management and Restructuring

The debt crisis throughout Latin America, which started in 1982, resulted in a growing unwillingness of foreign commercial banks to lend to Peru. At the same time, a sharp decrease in the export prices of mining products and the 1982 – 1983 El Niño phenomenon led to a deterioration in Peru’s balance of payments and fiscal accounts, which made it difficult for Peru to service its debt. Faced with an unsustainable debt burden, the Government suspended payment on its external commercial bank debt in 1984. By the end of 1984, Peru had failed to make scheduled payments of U.S.$1.0 billion in principal and interest on its commercial bank debt.

In 1985, the first García administration declared that service of the public sector external debt would not exceed 10% of total exports. In 1986, the IMF declared Peru ineligible for additional funds, and, in 1987, the World Bank suspended loan disbursements to Peru. Despite a decline in new loans, Peru’s total public sector debt increased from U.S.$10.9 billion to U.S.$18.9 billion from 1985 to 1990, as unpaid interest continued to accrue and was capitalized.

In 1991, the Fujimori administration began a series of negotiations that led to a normalization of relations with multilateral creditors. In September 1991, Peru paid all amounts in arrears owed to the IADB. In March 1993, Peru paid a total of U.S.$1.8 billion in arrears owed to the IMF and the World Bank. Since 1993, the IMF approved multiple standby arrangements with the most recent having been in effect through 2009.

Drawings on these IMF standby facilities were primarily used to help Peru finance its fiscal deficits.

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The Fujimori administration also negotiated substantial reductions in Peru’s short-term external debt with its principal bilateral creditors. During the 1990s, Peru conducted the following three rounds of negotiations with the Paris Club:

• in September 1991, Peru rescheduled U.S.$4.7 billion of its Paris Club debt maturing between October 1991 and December 1992;

• in May 1993, Peru rescheduled an additional U.S.$1.9 billion of its Paris Club debt maturing between March 1993 and March 1996; and

• in July 1996, Peru rescheduled an additional U.S.$6.8 billion of its Paris Club debt maturing between April 1996 and December 1998.

As a result of this restructuring with its Paris Club lenders, Peru obtained the following extensions with respect to credits maturing in the relevant period:

• a 20-year extension for concessionary credits, with a 10-year grace period; and

• a 14-year extension for commercial credits, representing the majority of Peru’s Paris Club debt, with a seven-year grace period.

Additionally, as a result of the 1996 restructuring, Peru obtained the following reductions in its debt:

• a reduction in debt payments from U.S.$970.0 million per year to approximately U.S.$530.0 million per year for indebtedness maturing between April 1996 and December 1998; and

• a reduction in debt payments from U.S.$1.2 billion per year to approximately U.S.$1.0 billion per year for indebtedness maturing between 1999 and 2006.

In 1997, Peru renegotiated its debt with international commercial banks under the Brady restructuring. The Brady restructuring reduced Peru’s international commercial bank debt from U.S.$10.6 billion to U.S.$4.9 billion, U.S.$2.4 billion of which were Past-Due Interest Bonds, U.S.$1.7 billion were Front-Loaded Interest Reduction Bonds, U.S.$572.0 million were Floating Rate, or Discount, Bonds and U.S.$183.0 million were Fixed Rate, or Par, Bonds. The Past-Due Interest Bonds and Front-Loaded Interest Reduction Bonds each have a 20-year term. The Discount Bonds and the Par Bonds each have a 30-year term and are collateralized by zero-coupon U.S. Treasury bonds.

Since the restructuring, Peru has not defaulted on the payment of any amounts in respect of its public external debt obligations.

In February 2002, Peru launched its first international bond offering in 74 years issuing U.S.$500.0 million principal amount of Global Bonds. At the same time, Peru repurchased U.S.$1.2 billion principal amount of its outstanding Brady Bonds in exchange for a further U.S.$923.0 million principal amount of Global Bonds. The exchange lowered Peru’s debt by U.S.$111.0 million and released U.S.$50.0 million in collateral backing the Brady Bonds. After issuing the Global Bonds and taking into account amortization of the Past-Due Interest Bonds in March 2002, the current amounts outstanding are U.S.$1.1 billion of Past-Due Interest Bonds, U.S.$1.2 billion of Front-Loaded Interest Reduction Bonds, U.S.$198.0 million of Discount Bonds and U.S.$64.0 million of Par Bonds.

Since the February 2002 international bond offering, Peru has issued multiple additional series of bonds in the international markets and has established and maintains a shelf registration statement with the U.S. Securities and Exchange Commission.

Peru has used the proceeds from these international bond offerings to repay existing debt, to undertake refinancing of existing public sector debt through liability management transactions international reserves, and for the general purposes of the Government, including financial investment and the refinancing, repurchasing and retiring of domestic and external indebtedness.

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Peru’s Paris Club creditors are governmental institutions located in 15 countries. On May 23, 2007, the Paris Club creditors and Peru signed a multilateral agreement in which the Paris Club accepted Peru’s proposal to prepay, at par and by voluntary participation of each creditor, up to U.S.$2.5 billion (after payment of the June 30, 2007 and August 15, 2007 installments) of the Paris Club debt, to be paid up to 2015. The multilateral agreement set out the basic terms of the prepayment operation and established the framework under which Peru would engage in bilateral prepayment agreements with participating creditors. Under this multilateral agreement, the Government will prepay each participating creditor the capital requested for prepayment at par on October 1, 2007, and the interest accruing on the capital requested for prepayment up to October 1, 2007 under each rescheduling agreement. On July 2, 2007, Peru announced the individual Paris Club creditor countries that had accepted the prepayment offer.

In October 2007, the prepayment described above was finalized resulting in an aggregate payment of U.S.$1.7 billion, representing approximately 32% of the total outstanding principal amount of Peru’s Paris Club debt. As a result of the prepayment, Peru reduced its Paris Club commercial debt amortization payments by approximately U.S.$260.0 million for each year from 2010 through 2015. Funding for the prepayment was obtained from the proceeds of a 30-year sovereign bond issuance in local currency in an aggregated principal amount of S/4,750 million (approximately U.S.$1.5 billion at then-prevailing exchange rates), and approximately U.S.$290 million in proceeds from the Treasury.

As of December 31, 2016, Peru’s total outstanding debt with Paris Club creditors, amounted to U.S.$1.5 billion (approximately 6.4% of total public external debt), U.S.$1.1 billion as of December 31, 2017 (approximately 5.0% of total public external debt), U.S.$1.2 billion as of December 31, 2018 (approximately 5.2% of total public external debt), U.S.$1.2 billion as of December 31, 2019 (approximately 5.5% of total public external debt) and U.S.$ .1.6 billion as of December 31, 2020 (approximately 4.8% of total public external debt).

Debt Record

Since the Brady restructuring in 1997, Peru has, except as described below, timely serviced its external debt without default.

Upon completion of the Brady restructuring, Peru ceased paying principal and interest to lenders who did not participate in the restructuring. These lenders included Elliot Associates, L.P., a private investment firm that acquired U.S.$20.0 million in debt issued by Peru. Elliot Associates obtained a U.S.$55.7 million judgment against Peru for non-payment of interest and an attachment of Peru’s funds held at Chase Manhattan Bank of New York that Peru had allocated to interest payments due on its Brady Bonds. As a result of the attachment, on September 7, 2000, Peru failed to make a required interest payment of U.S.$80.0 million on the Brady Bonds, even though it had deposited the requisite amount in its account at Chase Manhattan Bank of New York.

On September 26, 2000, Elliot Associates obtained an injunction against Euroclear System that prevented it from receiving or distributing funds provided by Peru to pay interest on the Brady Bonds. The Elliot Associates litigation was settled following the issuance of the injunction against Euroclear, and Peru made interest payments on the Brady Bonds on October 4, 2000, within the applicable 30-day grace period. Peru has made all of its debt payments to Elliot Associates in accordance with the terms of the settlement agreement.

Other creditors also failed to participate in the Brady restructuring for reasons that included failure to provide the required documentation and failure to identify the actual holder of the debt to be exchanged. Since the Brady Bond restructuring, Peru has been in default on payments to these creditors. As of December 31, 2011, there were no further scheduled amortizations or interest payments on these debts. None of these creditors has submitted claims against Peru for overdue amounts.

As of the date of this annual report, Peru is not aware of any other claims filed against it, in Peru or abroad, for overdue debt payments and Peru is not involved in any disputes with its internal or external creditors.

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For further information regarding Peru’s indebtedness outstanding as of the date hereof, see “Annex A – Republic of Peru: Global Public Sector External Debt.”

D-140

ANNEX A

REPUBLIC OF PERU: GLOBAL PUBLIC SECTOR EXTERNAL DEBT

Tables and Other Supplemental Information

as of December 31, 2020

(in thousands of U.S. dollars, at current prices)

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		3,005	12 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		2,500	2 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.00		1,657	2 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		3,121	13 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.00		1,153	3 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.00		4,729	3 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		1,737	14 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		14,530	15 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		8,713	5 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		5,048	16 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		875	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		3,973	17 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		1,267	7 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		5,876	17 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		3,623	7 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		4,030	7 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		5,537	7 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		1,927	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		4,534	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		7,782	18 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		3,115	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		2,720	9 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		842	11 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		3,538	11 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		4,680	13 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.00		2,367	13 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		1,717	13 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		12,157	15 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.00		6,362	15 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		3,293	15 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		2,234	16 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.64		10,060	1 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.38		6,092	2 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.77		1,354	6 M
Paris Club	Germany	KFW	US$	Fixed		0.00		5.46		18,000	4 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		1,340	19 Y

D-D-1

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.29		37,494	7 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.75		18,747	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.76		33,346	9 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.76		20,011	9 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		6,934	19 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.75		143	31 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		777	21 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		2.00		7,698	21 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		3.77		20,306	14 Y
Paris Club	Germany	KFW	US$	Fixed		0.00		1.95		15,558	4 Y
Paris Club	Germany	KFW	US$	Fixed		0.00		2.59		2,396	11 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		1.91		18,747	11 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		1.74		19,527	12 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		1.74		19,527	12 Y
Paris Club	Germany	KFW	US$	Fixed		0.00		2.00		12,902	7 Y
Paris Club	Germany	KFW	US$	Fixed		0.00		2.00		21,828	7 Y
Paris Club	Germany	KFW	US$	Fixed		0.00		3.70		24,000	10 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		1.47		206,947	10 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		1.20		21,416	4 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.50		404	8 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.98		27,075	3 Y
Paris Club	Germany	KFW	US$	Libor 6 months		0.15		Variable		87,176	14 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.6625		20,306	10 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.6625		20,306	10 Y
Paris Club	Germany	KFW	EURO	Fixed		0.00		0.6625		20,306	10 Y
Paris Club	Spain	Official Credit Institution of Spain	US$	Libor 6 months		0.67		Variable		12,500	13 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		4.00		3,057	7 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		2.50		1,603	9 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		1.00		4,103	10 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		1.00		4,449	11 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		1.00		3,212	13 Y
Paris Club	USA	PL 480	US$	Fixed		0.00		1.00		5,495	15 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		1.30		27,075	2 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.61		6,769	2 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.92		7,521	2 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.77		15,042	2 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.79		30,083	2 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.88		47,381	10 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.82		47,381	10 Y
Paris Club	France	French Development Agency	EURO	Fixed		0.00		0.77		47,381	10 Y

D-D-2

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
Paris Club	France	French Treasury	EURO	Fixed		0.00		3.00		36	3 Y
Paris Club	France	French Treasury	EURO	Fixed		0.00		3.00		1,651	3 Y
Paris Club	France	French Treasury	EURO	Fixed		0.00		0.80		6,946	13 Y
Paris Club	The Netherlands	Nederlanse Investiringsbank Voor Ontwikellingslande (NIO)	EURO	Fixed		0.00		0.75		564	7 Y
Paris Club	The Netherlands	Nederlanse Investiringsbank Voor Ontwikellingslande (NIO)	EURO	Fixed		0.00		0.75		1,615	5 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		3.00		26,182	5 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		2.10		828	9 M
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.70		5,495	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		1,312	18 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		41,716	18 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.70		4,278	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		2.20		12,347	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		5,339	18 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		19,255	18 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		1,876	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		4,093	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		720	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		359	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		952	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		10,098	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		501	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.75		27,301	19 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.40		18,464	2 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		3,589	2 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.80		5,916	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.40		8,839	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		3,289	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.80		1,734	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		1,182	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.80		12,491	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		3,620	3 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		16,103	13 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.70		21,645	16 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		9,471	16 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.70		14,328	16 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		6,419	16 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.60		24,187	6 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		4,759	6 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.60		50,004	6 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		1,015	6 Y

D-D-3

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.60		14,371	6 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.70		41,762	17 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		11,166	17 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.60		769	7 M
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		1.00		2,508	12 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		3,108	12 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.01		2,254	13 Y
Paris Club	Japan	Japan International Cooperation Agency	Y	Fixed		0.00		0.40		151	13 Y
International Organizations	958-SF-PE	Interamerican Development Bank	US$	Fixed		0.00		2.00		5,435	4 Y
International Organizations	1128-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-Adjustable Rate		0.80		Variable		4,091	2 Y
International Organizations	1501-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		19,167	8 Y
International Organizations	2118-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		60,000	8 Y
International Organizations	2234-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		11,520	8 Y
International Organizations	2269-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		592	9 Y
International Organizations	2303-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		3,439	14 Y
International Organizations	2445-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		12,376	14 Y
International Organizations	2534-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		20,965	16 Y
International Organizations	2645-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		85,086	16 Y
International Organizations	2759-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		15,000	3 Y
International Organizations	2661-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		21,804	16 Y

D-D-4

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
International Organizations	2703-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		7,903	16 Y
International Organizations	2693-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		31,385	16 Y
International Organizations	2769-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		70,000	6 Y
International Organizations	2969-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		19,914	3 M
International Organizations	3088-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		39,744	2 Y
International Organizations	3214-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		837	1 Y
International Organizations	3214-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		12,000	1 Y
International Organizations	3272-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		5,039	1 Y
International Organizations	3373-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		170,359	9 Y
International Organizations	3370-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		15,500	9 Y
International Organizations	3449-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		300,000	4 Y
International Organizations	3587-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		21,248	7 Y
International Organizations	3586-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		300,000	7 Y
International Organizations	3546-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		9,510	4 Y
International Organizations	3547-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		9,868	4 Y

D-D-5

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
International Organizations	3700-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		16,817	6 Y
International Organizations	3881-OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		26,405	6 Y
International Organizations	1915/OC-PE-1	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		27,047	5 Y
International Organizations	4428/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		5,193	9 Y
International Organizations	4428/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		2,323	9 Y
International Organizations	4442/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		34,892	6 Y
International Organizations	4399/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		10,460	9 Y
International Organizations	4555/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		13,167	5 Y
International Organizations	4457/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		25,471	9 Y
International Organizations	4291/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		686	4 Y
International Organizations	4297/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		2,427	6 Y
International Organizations	4714/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		100,000	4 Y
International Organizations	4724/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		10,697	6 Y
International Organizations	4725/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		991	6 Y
International Organizations	4726/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		5,269	9 Y

D-D-6

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
International Organizations	4604/SX-PE	Interamerican Development Bank	US$	Fixed		0.00		0.25		97	38 Y
International Organizations	4873/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		5,085	8 Y
International Organizations	4957/OC-PE	Interamerican Development Bank	US$	UNIMONETARIA Facility-LIBOR Rate		0.80		Variable		50,000	6 Y
International Organizations	CFA-3572	CAF Development Bank	US$	USD 6 month LIBOR		1.40		Variable		1,354	10 M
International Organizations	CFA-004495/4496	CAF Development Bank	US$	USD 6 month LIBOR		1.05		Variable		89,286	4 Y
International Organizations	CFA-4579/4580	CAF Development Bank	US$	USD 6 month LIBOR		1.05		Variable		58,929	5 Y
International Organizations	CFA-6141	CAF Development Bank	US$	USD 6 month LIBOR		2.40		Variable		160,592	7 Y
International Organizations	CFA-6616	CAF Development Bank	US$	USD 6 month LIBOR		1.65		Variable		41,067	7 Y
International Organizations	CFA-6923	CAF Development Bank	US$	USD 6 month LIBOR		1.80		Variable		83,333	4 Y
International Organizations	CFA-7705	CAF Development Bank	US$	USD 6 month LIBOR		2.40		Variable		35,248	8 Y
International Organizations	CFA-8322	CAF Development Bank	US$	USD 6 month LIBOR		1.35		Variable		6,785	10 M
International Organizations	CFA-8386	CAF Development Bank	US$	USD 6 month LIBOR		1.15		Variable		3,710	1 Y
International Organizations	—	CAF Development Bank	US$	USD 6 month LIBOR		4.50		Variable		7,437	2 Y
International Organizations	CFA 008519	CAF Development Bank	US$	USD 6 month LIBOR		1.35		Variable		91,667	5 Y
International Organizations	CFA-8972	CAF Development Bank	US$	USD 6 month LIBOR		1.05		Variable		117,551	2 Y
International Organizations	CFA009448	CAF Development Bank	US$	USD 6 month LIBOR		1.45		Variable		41,067	7 Y
International Organizations	CFA009691	CAF Development Bank	US$	USD 6 month LIBOR		2.05		Variable		31,382	11 Y
International Organizations	CFA010666	CAF Development Bank	US$	USD 6 month LIBOR		1.45		Variable		250,000	6 Y
International Organizations	7209-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.50		Variable		2,155	2 Y
International Organizations	7455-O PE	International Bank For Reconstruction and Development	US$	Fixed		0.00		3.25		37,500	2 Y
International Organizations	7674-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.46		Variable		20,000	9 Y

D-D-7

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
International Organizations	7668-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.47		Variable		20,000	9 Y
International Organizations	7668-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.97		Variable		199,142	9 Y
International Organizations	7643-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.26		Variable		11,129	13 Y
International Organizations	7701-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.26		Variable		9,898	6 Y
International Organizations	7810-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.46		Variable		50,000	8 Y
International Organizations	7950-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.67		Variable		75,000	7 Y
International Organizations	7878-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.67		Variable		19,932	7 Y
International Organizations	8034-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.67		Variable		43,834	8 Y
International Organizations	7961-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.66		Variable		25,000	8 Y
International Organizations	8025-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.67		Variable		54,500	8 Y
International Organizations	8212-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.66		Variable		24,828	9 Y
International Organizations	8331-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.47		Variable		39,190	2 Y
International Organizations	8306-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.47		Variable		5,631	14 Y
International Organizations	8468-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		1.10		Variable		43,688	17 Y
International Organizations	8478-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.77		Variable		70,000	9 Y
International Organizations	8517-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.67		Variable		70,000	10 Y
International Organizations	8562-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.77		Variable		16,893	7 Y
International Organizations	8585-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.79		Variable		1,250,000	8 Y
International Organizations	8583-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.77		Variable		245,680	8 Y
International Organizations	8583-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.77		Variable		100,000	7 Y
International Organizations	8583-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.49		Variable		140,000	5 Y
International Organizations	8583-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.49		Variable		180,000	5 Y

D-D-8

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
International Organizations	8583-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.49		Variable		584,320	8 Y
International Organizations	8692-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.75		Variable		32,104	5 Y
International Organizations	8680-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.75		Variable		4,239	1 Y
International Organizations	8682-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.75		Variable		38,000	1 Y
International Organizations	8740-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.70		Variable		15,977	3 Y
International Organizations	8899-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.70		Variable		552	9 Y
International Organizations	8899-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.70		Variable		231	9 Y
International Organizations	8920-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.50		Variable		1,046	8 Y
International Organizations	8975-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.50		Variable		177	6 Y
International Organizations	8975-O PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.50		Variable		36	6 Y
International Organizations	9040-PE	International Bank For Reconstruction and Development	US$	USD 6 month LIBOR		0.50		Variable		10,698	10 Y
International Organizations	602-PE	International Fund For Agricultural Development	DEG	FIDA		0.97		Variable		643	2 M
International Organizations	744-PE	International Fund For Agricultural Development	DEG	FIDA		0.97		Variable		7,038	6 Y
International Organizations	799-PE	International Fund For Agricultural Development	DEG	FIDA		0.97		Variable		4,266	7 Y
International Organizations	I-884-PE	International Fund For Agricultural Development	DEG	FIDA		0.97		Variable		17,060	11 Y
International Organizations	2000001547-PE	International Fund For Agricultural Development	DEG	FIDA		0.97		Variable		23,789	10 Y
International Organizations	2000003288-PE	International Fund For Agricultural Development	US$	FIDA		0.53		Variable		1,200	7 Y
Commercial Banks	—	American Family Life Assurance Company of Columbus	Y	Fixed		0.00		3.75		104,305	10 Y
Commercial Banks	—	Deutsche Bank S.A.E.	US$	Fixed		0.00		3.29		1,236,717	9 Y
Commercial Banks	—	Deutsche Bank S.A.E.	US$	Fixed		0.00		3.29		40,111	9 Y
Gobal Bondholders	—	Global Bonds 2033	US$	Fixed		0.00		8.75		442,890	12 Y
Gobal Bondholders	—	Global Bonds 2033	US$	Fixed		0.00		8.75		400,000	12 Y
Gobal Bondholders	—	Global Bonds 2025	US$	Fixed		0.00		7.35		529,619	4 Y

D-D-9

Type of lender	Country	Lender	Currency	Type of Interest Rate	Spread (%)		Interest Rate (%)		Amount outstanding (in thousand USD)		Maturity
Gobal Bondholders	—	Global Bonds 2025	US$	Fixed		0.00		7.35		500,000	4 Y
Gobal Bondholders	—	Global Bonds 2033	US$	Fixed		0.00		8.75		84,636	12 Y
Gobal Bondholders	—	Global Bonds 2037	US$	Fixed		0.00		6.55		1,130,041	16 Y
Gobal Bondholders	—	Global Bonds 2025	US$	Fixed		0.00		7.35		511,997	4 Y
Gobal Bondholders	—	Global Bonds 2033	US$	Fixed		0.00		8.75		1,224,409	12 Y
Gobal Bondholders	—	Global Bonds 2050	US$	Fixed		0.00		5.625		1,000,000	29 Y
Gobal Bondholders	—	Global Bonds 2050	US$	Fixed		0.00		5.625		500,000	29 Y
Gobal Bondholders	—	Corporate Global Bonds 2022	US$	Fixed		0.00		4.75		36,280	1 Y
Gobal Bondholders	—	Corporate Global Bonds 2022	US$	Fixed		0.00		4.75		100,000	1 Y
Gobal Bondholders	—	Corporate Global Bonds 2023	US$	Fixed		0.00		3.50		500,000	2 Y
Gobal Bondholders	—	Corporate Global Bonds 2029	US$	Fixed		0.00		5.25		300,000	8 Y
Gobal Bondholders	—	Global Bonds 2050	US$	Fixed		0.00		5.625		500,000	29 Y
Gobal Bondholders	—	Global Bonds 2050	US$	Fixed		0.00		5.625		545,000	29 Y
Gobal Bondholders	—	Corporate Global Bonds 2025	US$	Fixed		0.00		4.75		411,548	4 Y
Gobal Bondholders	—	Global Bonds 2027	US$	Fixed		0.00		4.125		1,013,140	6 Y
Gobal Bondholders	—	Global Bonds 2026	EURO	Fixed		0.00		2.75		1,485,473	5 Y
Gobal Bondholders	—	Global Bonds 2030	EURO	Fixed		0.00		3.75		1,351,587	9 Y
Gobal Bondholders	—	Corporate Global Bonds 2023	US$	Fixed		0.00		3.50		150,000	2 Y
Gobal Bondholders	—	Corporate Global Bonds 2024	S/	Fixed		0.00		7.00		413,907	3 Y
Gobal Bondholders	—	Corporate Global Bonds 2032	US$	Fixed		0.00		4.75		1,000,000	11 Y
Gobal Bondholders	—	Corporate Global Bonds 2047	US$	Fixed		0.00		5.625		1,000,000	26 Y
Gobal Bondholders	—	Global Bonds 2030 US$	US$	Fixed		0.00		2.844		750,000	9 Y
Gobal Bondholders	—	Global Bonds 2026 US$	US$	Fixed		0.00		2.392		1,000,000	5 Y
Gobal Bondholders	—	Global Bonds 2031 US$	US$	Fixed		0.00		2.783		2,000,000	10 Y
Gobal Bondholders	—	Corporate Global Bonds 2027	US$	Fixed		0.00		2.40		500,000	6 Y
Gobal Bondholders	—	Global Bonds 2032	US$	Fixed		0.00		1.862		1,000,000	11 Y
Gobal Bondholders	—	Global Bonds 2060	US$	Fixed		0.00		2.780		2,000,000	39 Y
Gobal Bondholders	—	Global Bonds 2121	US$	Fixed		0.00		3.230		1,000,000	100 Y

Source: Ministry of Economy and Finance

D-D-10