Economic studies
Peru

Peru

Population 32.2 million
GDP per capita 7,007 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.5 4.0 2.2 3.0
Inflation (yearly average, %) 2.8 1.3 2.2 1.9
Budget balance (% GDP) -3.0 -2.3 -1.9 -2.0
Current account balance (% GDP) -1.2 -1.6 -2.0 -2.0
Public debt (% GDP) 24.9 25.7 26.5 27.4

(e): Estimate. (f): Forecast.

STRENGTHS

  • Membership of the Pacific Alliance
  • Mineral, energy, agricultural, and fishery resources
  • Low level of public debt
  • Independence of the central bank
  • Tourist destination

WEAKNESSES

  • Dependent on raw materials and demand from China
  • Underdevelopment of credit (42% of GDP)
  • Inadequate infrastructure, health care, and education systems
  • Huge informal sector (70% of jobs)
  • Regional disparities (poverty in the Andean and Amazonian regions)

RISK ASSESSMENT

GDP should gain some strength in 2020

GDP growth slowed down in 2019, amid the rising global trade tensions (affecting mining exports) and the political crisis that escalated in the end of Q3 2019. In 2020, GDP should gain some strength as political tensions abate, improving confidence indicators and, finally, expanding private and public investments. Moreover, a stable inflation and the expansionary monetary stance that the central bank has conducted should be supportive to household consumption. Finally, in end October 2019, the government announced some marginal stimulating measures, such as an increase in minimum wage and pension, tax relief measures for consumers, and USD 4 billion public investment plan that aimed to reactivate several public infrastructure projects. Nonetheless, the scenario is not without risk. A further escalation in the US-China trade war could take a toll on Peru, through undermined mineral prices and lower Chinese demand (main market for exports). Alongside, although political tensions should calm down in 2020, in case this scenario fails, investment would remain undermined by the eroded business confidence.

 

Twin deficits remain generally well controlled

Current account deficit widened in 2019, due to the lower trade surplus registered in the year. That movement is a side effect of the deteriorated terms of trade, consequence of rising trade tensions between the US and China which affect mineral commodity prices. Although this scenario is not likely to give in significantly in 2020, foreign direct investments (mainly in mining, telecommunication, energy and financial services) should continue to cover comfortably the external account imbalance. Strong net international reserves of roughly USD 68 billion (30% of GDP, implying a coverage ratio of 15 months of imports) give further cushion in case of a sudden change in external investors’ mood. Alongside, external debt stands at roughly 35.8% of GDP and is mostly privately owed (roughly 73%). Regarding the financial sector, the economy has been successful in curbing the dollarization of its local credit market (from the peak of 51% of total credit in 2008 to 27% in Q2 2019). Moreover, the banking system counts with sound capital adequacy ratios and low level of leverage. Peru also has a low level of public debt, thanks to the prudential fiscal policy in force since the start of the commodities super cycle back in the early 2000s. The government of President Vizcarra has continued with the fiscal commitment approach. The fiscal measures unveiled in late October 2019 will have limited fiscal impact, not compromising debt sustainability.

 

Political climate is likely to improve after the turmoil registered in 2019

Peru may have been the country, other than Brazil, where the “car wash” operation, the far-reaching corruption probe that began in Brazil but has roiled politics across Latin America, had the largest repercussion. The past four Peruvian presidents and key figures of the current right-wing opposition party Popular Force have either been imprisoned on corruption charges or are currently under investigation for fraud. In this context, incumbent President Martín Vizcarra from the centre-right Peruvians for Change party has worked to step up the fight against high-level corruption through a judicial and political reform agenda. Nevertheless, the opposition-led Congress (composed in majority by members of Popular Force) has consistently undermined the government´s reform agenda. This political gridlock prompted President Vizcarra to propose early elections for both the presidency and the Congress (from 2021 to 2020). Congress rejected the government’s proposal, leading Mr Vizcarra to call for a vote of confidence over changes on the way the Constitutional Tribunal (CT) judges are appointed, and halt the legislative process to replace six (out of seven) judges whose terms expired. The President argued that the process lacked legitimacy and transparency. The Congress, however, defied the government and elected a new judge on September 30, 2019. That led Mr Vizcarra to dissolve the Congress on the same day and call for snap legislative election. In response, the Congress voted to suspend Vizcarra. The Peruvian Constitution allows dissolution, when confidence is denied twice (the first cabinet was fired under the administration of Pedro Pablo Kuczynski, to whom Vizcarra succeeded after his resignation). However, Mr Vizcarra said he would count the election of new members of the CT as a vote of no-confidence. Although the political tensions had some negative short-term impacts on activity, it has strengthened President Vizcarra’s approval rating. After the Constitutional Court supported the President’s position, a new legislature was voted on January 26, 2020. The political environment (notably the relation between the legislative and executive branches) should evolve positively this year.

 

Last update: February 2020

Payment

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

 

Debt collection

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

 

Amicable phase

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

 

Legal proceedings

Conciliation Proceedings

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

 

Fast-track proceedings

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

Two fast-track proceedings are available in Peruvian law:

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

 

Executive proceedings

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

 

Ordinary proceedings

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

 

Enforcement of a Legal Decision

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

 

Insolvency proceedings

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

 

Out-of-court proceedings: preventive proceeding

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

 

Reorganisation

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

 

Liquidation

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

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