Peru country brief

Introduction

Australia and Peru celebrate 50 years of diplomatic relations in 2013. As resource rich countries bordering the Pacific Ocean, Australia and Peru share membership of the Asia Pacific Economic Cooperation Forum (APEC). Australia and Peru have growing commercial, investment and people-to-people links and also engage in a wide range of multilateral bodies, particularly the United Nations and the WTO.  

Reflecting Australia's commitment to enhancing its engagement with Peru and with Latin America more generally, Australia re-opened its embassy in Lima in September 2010. Australia opened an Embassy in Lima in 1968, but closed it in 1986. The Peruvian government established consular representation in Sydney as early as 1930 and an embassy in Canberra in 1963. Peru now maintains an Embassy and a Consulate-General in Sydney.

Political overview

Background

From 1532-33, Spanish conquistadores led by Francisco Pizarro defeated the Incan empire that became part of the vice-royalty of Peru with its capital Lima. The vice-royalty, the largest in Latin America, was created in 1542. Peru gained independence from Spain on 28 July 1821, following a proclamation by the leader of the independence struggle, Argentinean Jose de San Martin. However, liberation was not completed until December 1824, when another independence leader the Venezuelan Simon Bolivar, defeated a Spanish army in Junín and Venezuelan Marshall Antonio Jose de Sucre defeated a Spanish army at Ayacucho, ending Spain's rule in South America. Spain recognised Peru's independence in 1879.

Peru is a republic headed by a president directly elected for a five-year term. Under Peru's Constitution, the President cannot stand for re-election for a consecutive term, but can do so at a later time.

The President appoints the head and members of a Council of Ministers, the country's principal executive body. The powers of the head, or president, of the Council of Ministers are equivalent to those of a prime minister. The legislature consists of a single 130-member chamber and can be dissolved once during a presidential term. Peru is divided into 25 administrative regions and 24 geographical departments plus the constitutional province of Callao. Regions hold political, economic and administrative autonomy. The metropolitan area of Lima, the capital city, is however treated separately. It is governed by a mayor and is separate from the surrounding region which has the same name. Regions and Departments are divided into provinces, which are in turn sub-divided into districts. Provincial and district-level leaders are popularly elected. The judicial hierarchy includes provincial and departmental courts and is headed by the Supreme Court in Lima. There is a separate Constitutional Court which supervises the Constitution of the country.

Political outlook

President Ollanta Humala was sworn into office on 28 July 2011, following his defeat of centre-right candidate Keiko Fujimori (daughter of jailed former President Alberto Fujimori) in the second round of presidential elections in June 2011.

President Humala succeeded Alan Garcia, who replaced Alejandro Toledo in 2006. Toledo had been elected President in 2001 in an election held following the fleeing to Japan of former President Alberto Fujimori, who had been charged with human rights and corruption offences. Fujimori was subsequently extradited to Peru from Chile in 2007 and remains in gaol in Lima. Macroeconomic reform, market liberalisation and the implementation of policies designed to attract foreign investment began during the Fujimori era and marked the administrations of both Toledo and Garcia during the period 2001-2011.

President Humala, who ran on a centre-left platform, is a former army officer who previously ran unsuccessfully for President in 2006. Humala is continuing the economic policies that helped Peru sustain its impressive growth rates over the last decade, while putting greater emphasis on policies to increase social inclusion. Humala's Gana Perú party holds the greatest number of seats in the Congress (42 out of 130), followed by Fujimori's Fuerza 2011 (37 seats). Former President Garcia's American Popular Revolutionary Alliance (APRA) has four seats, down from 36 in the 2006 Congress.

Social conflict around mining projects continues to be one of the major problems facing the Humala government. The most significant has been the controversy over the USD 4.8 billion Conga mining project in Cajamarca, where the local community has protested fiercely over what they fear will be the loss of water in the area to be mined. The project was initially approved by the previous Peruvian government and when protests erupted the Humala government commissioned an independent evaluation of the Environmental Impact Assessment on the proposed mine. This resulted in further recommendations which were accepted by both the government and the company involved (Yanacocha), but the project remains stalled.  

In July 2012, former Prime Minister Oscar Valdez resigned over criticism of the government's handling of social protests causing a second major cabinet reshuffle in the Humala government's first year in office. The Peruvian Constitution requires that following the Prime Minister's resignation, all ministers submit their resignations. President Humala replaced a further five ministers and Valdez was replaced by then Minister of Justice, Juan Jimenez.

Peru has an active and dynamic political scene with fluctuating coalitions, no dominant individual parties and sharp social divisions. The economic recovery since 2001 has had a strong positive impact in reducing poverty, which according to official figures is currently around 27.8 per cent of the population, down from 42.4 per cent in 2007. This is likely to continue so long as sound macroeconomic measures are maintained, although large regional disparities persist. Someremnants of the Shining Path terrorist movement, which was responsible for a violent uprising throughout Peru in the late 1980s and early 1990s, still operate in remote areas, although the small numbers of adherents to the organisation are now more involved in drug-trafficking and other criminal activities. The government still faces a considerable challenge in combating this group and other narco-trafficking groups. Efforts to defeat these groups continue to cost the lives annually of dozens of police and army personnel.

International relations

Peru shares its borders with Ecuador, Colombia, Brazil, Bolivia and Chile. Tensions have arisen over land and maritime borders from time-to-time, particularly with Chile and Ecuador. A maritime dispute between Peru and Chile is currently before the International Court of Justice, with a decision expected to be handed down in mid 2013. Peru's relationships with its neighbours are generally cooperative, increasingly so with those countries which are part of the Pacific Alliance (Mexico, Colombia and Chile in addition to Peru). Support for greater regional integration in Latin America is an important priority for President Humala. Peru has publicly supported Argentina's position over the dispute with the United Kingdom on the Falkland Islands. It has also mediated in the border dispute between Bolivia and Chile.

Peru participates in a wide range of international and regional fora, including the UN, the WTO, the Organisation of American States (OAS), APEC, IMF, the World  Bank, the Union of South American States (UNASUR) - which Peru is chairing in 2013, the Forum for East Asia and the Pacific (FEALAC), Andean Community of States, the Community of Latin American and Caribbean States (CELAC), and the Pacific Alliance. Peru was a non-permanent member of the UN Security Council in 2006 and 2007. Peruvian diplomat, Javier Perez de Cuellar served as UN Secretary General from 1981 to 1991.

The Peruvian government has good relations with the United States - Peru's second-largest trading partner. The United States and Peru signed a Trade Promotion Agreement (essentially a Free Trade Agreement) in 2006 to boost economic and trade ties. This  entered into force on 1 February 2009. Peru and the United States cooperate extensively on law enforcement issues, particularly in relation to narcotics. In 2012, Peru and Colombia successfully finalised the negotiation of a FTA with the European Union and this entered into force on 1 March 2013.

China and Peru established diplomatic relations in 1971. China was Peru's number one trade partner in 2011, followed closely by the US, Japan and Canada. Bilateral trade was USD12.6 billion, with Peru's exports to China worth USD7.9 billion. Peru and China established a strategic partnership in November 2008. Since 1998, the two sides have hosted visits by high-level military officers and in November 2010, the two militaries took part in a humanitarian medical exercise in Peru.

Economic overview

Peru economic fact sheet [PDF 32 KB]

Economic and trade policy directions

Since the 1990s, successive governments have sought to restructure Peru's economy, dramatically improving the government's fiscal position. Peru is currently enjoying its longest expansion on record, with low inflation, a solid external position and declining indebtedness ratios. Public expenditure has been reduced through the abolition of subsidies and the privatisation of state-owned companies. Trade barriers have been cut, direct subsidies to exporters and domestic producers have been eliminated and equal treatment has been granted to foreign and domestic investors. The tariff system on imports comprises three rates: zero per cent, nine per cent and 16 per cent, with a weighted average tariff of around 3.2 per cent.

Over the last decade, Peru has been very active in engaging the global economy through regional integration and a commitment to pursuing bilateral free trade agreements (FTAs). Peru has concluded negotiations on FTAs with Chile, the United States, Singapore, China, Korea, Japan, Mexico, Panama, Costa Rica,  Canada and the EU. It also has a protocol on acceleration of the liberalisation of trade in goods and trade facilitation with Thailand. Peru is a member of the Andean Community Customs Union and has signed partial preferential trade agreements with Cuba, Argentina and Brazil.

Peru, along with Australia, New Zealand, Brunei, Chile, Singapore, Malaysia, Vietnam, the United States, Canada and Mexico, is negotiating an expanded Trans-Pacific Strategic Economic Partnership (TPP) agreement. The agreement is seen as a potential pathway to advancing broader Asia-Pacific regional economic integration.

Peru has been a strong driver in the development of the Pacific Alliance, a trade liberalising pact between Peru, Chile, Colombia and Mexico. Australia has been admitted as an Observer to the Pacific Alliance.

Economic outlook

Peru has experienced impressive real economic growth of around 7 per cent per annum over the past eight years, bouncing back from a low of 0.9 per cent GDP growth at the height of the financial crisis in 2009 to 8.8 per cent in 2010 falling to and 6 per cent in 2012. Higher economic growth has been largely supported by mining and construction activity. Hence, resolving the disputes against resource projects is seen as key to confirming Peru as a strong investment destination for new mining projects. Diversification into non-traditional exports, investment growth, strong consumer confidence and rising employment rates has also supported this trend. President Humala's government is pursuing similar economic policies to those that have facilitated impressive economic growth over the last decade, including fiscal discipline, inflation targeting, a managed exchange rate for the currency and investment in infrastructure, albeit with more emphasis on social inclusion expenditure.  China, the United States, and Switzerland are Peru's largest export markets, and its economy will continue to be affected by economic conditions in these markets. Minerals account for 63 per cent of total merchandise exports, exposing the economy to global commodity price fluctuations. While a slowdown in the US economy can constrain exports, rising demand from Asia, which is now the destination for more than 30 per cent of Peru's exports can be an important factor in Peru’s economic success.

Bilateral relationship

Australia and Peru share significant interests and cooperate internationally in an increasing range of areas, including the environment, fisheries management and international law enforcement.

Australia and Peru work together in the United Nations.  In the WTO, the Cairns Group and APEC, Australia and Peru work togetherto promote greater liberalisation of trade and investment and to enhance regional integration. Australia hosted APEC in 2007, Peru in 2008. Both countries are part of the group of eleven APEC members who are negotiating the Trans Pacific Partnership Agreement. In 2012, Australia was accepted as an observer of the Pacific Alliance (Chile, Colombia, Peru and Mexico). Australia and Peru are also members of the Forum for East Asia Latin America Cooperation (FEALAC).

A number of Australian ministers and senior officials visited Peru for APEC meetings in 2008, including then-Prime Minister Rudd, then-Foreign Minister Smith, then-Trade Minister Crean and former Parliamentary Secretary for Early Childhood Education and Childcare McKew.

Peruvian Vice Minister for Mining, Guillermo Shinno visited Australia in May 2012. Former President Garcia, accompanied by former Peruvian Foreign Minister Belaunde and then-Trade Minister Araoz, visited Sydney in 2007 for the APEC Summit and ministerial meetings. In November 2011, Australia and Peru signed an MOU on The Establishment of a Framework Mechanism to promote Bilateral Consultations and Cooperation. In April 2012, Australia and Peru signed an MOU on Development Cooperation. An Air services Agreement between the two countries is almost ready for signature.

Australia and Peru have had a bilateral Investment Promotion and Protection Agreement since 1997. The Australian Bureau of Meteorology has an MOU with its Peruvian counterpart, the National Meteorology Service, to facilitate, inter alia, cooperation on research into the El Niño climatic phenomenon.

In 2006 Australia and Peru signed an MOU on cooperation in education. Educational ties are growing. Many Australian Universities (including Edith Cowan, Griffith, Canberra, Tasmania, Queensland, Adelaide, Macquarie and La Trobe) have agreements with their Peruvian counterparts. Australia was selected in 2012 to be the first country to host post-graduate Peruvian students sent abroad on full scholarship by Peru’s National Scholarship Agency, PRONABEC. 29 students are studying in Australian universities under this scheme in 2013.

Australia's Peruvian community consists of around 8,441 Peru-born persons (2011 Census). In 2011, around 30,000 Australians travelled to Peru (the great majority of these visits were for tourism), a 40 percent increase over the previous four years. The figures reflect the growing business and tourism ties between Australia and Peru.

Peru is emerging as a significant partner in Australia's new development cooperation program with Latin America. Peruvian students were awarded nine postgraduate scholarships for study in Australia in 2012, and seven in 2013, under the new Australian Awards Scholarship program for Latin America.

Bilateral economic and trade relationship

Australian investment is the most important feature in Australia's commercial ties with Peru. Australia's commercial presence in Peru has increased significantly with 46 Australian companies now claiming an office in Peru or investment in a project in Peru. Trade is modest but continues to grow steadily. The relationship is enhanced by Peru's attractiveness as a destination for mining investment and exports of mining services and equipment.

In 2011-12 merchandise trade between Australia and Peru totalled approximately A$244 million. Major Australian merchandise exports to Peru ($153 million in 2011-12) included machinery and parts, milk and cream, goods vehicles, and, soap and cleaners. Major merchandise imports from Peru to Australia (A$92 million in 2011-12, include zinc and lead ores and concentrates, animal feed and animal oils and fats. Trade in services has has improved significantly, totalling $119 million in 2011, up from $62 million in 2007.

Peru's open investment regime, stable government and abundance of natural resources make it an attractive investment destination, particularly in the extractive sectors. The majority of the Australian companies with offices in Peru are involved in the mining sector. Australian investment is estimated by Australian authorities to be at least A$1.7 billion (with more than A$5 billion in new projects pending). Australia is among Peru's top 10 investors.

Export opportunities

Australia's Trade Commissioner in Lima is responsible for Austrade's activities in Peru, Ecuador and Venezuela. In addition to assisting Australian companies successfully invest and expand in Peru, Austrade helps companies take advantage of opportunities to export goods and services to Peru with a particular focus on education. Opportunities exist in selling goods and services to the extractive industries, infrastructure (energy, airports and traffic systems), agribusiness (sugar, dairy and gourmet foods, agricultural equipment, genetics and veterinary products), environmental management, water, medicaments, education, tourism, fashion, sporting and surfing goods, gaming equipment and other services.

Mining

Mining is vital to Peru’s development and is a significant contributor to its GDP. It is in the top five rankings globally for production of important minerals and metals including lead, silver, zinc, tin, gold and copper. It holds fourth place in global mining exploration investment. New projects valued at more than USD 30 billion are expected to proceed over the next five years. While a high proportion of Peru’s mineral exports derive from the largely multinational-owned open cut operations, the majority of Peru’s mines are locally-owned and are underground operations.

Australian companies are playing important roles in the provision of goods and services and increasingly as investors. While larger miners such as BHP Billiton and Xstrata Copper have been involved in Peru for many years, Australian ‘juniors’ are establishing project offices in Peru. Examples of companies developing significant projects in Peru include Latin Resources, Metminco and Minera Gold, Laconia Resources and Minera IRL. Australian global engineering firms such as Worley Parsons, Ausenco and SKM have also opened offices in Peru. In addition numerous Australian technology companies have recently established a presence to target the mining industry. Educational institutions such as University of Queensland’s Sustainable Mining Institute are actively developing relationships with Peruvian counterparts and there are many opportunities to assist Peru’s mining industry develop along a sustainable mining path. Former Queensland Premier, Peter Beattie led a high-level mining services business mission to Peru in April 2012.

Every two years Peru hosts a major mining Expo and Convention - Extemin and Perumin. 27 Australian companies participated in the Austrade managed Australia pavilion at Extemin in September 2011. The next Extemin and Perumin will be held in Arequipa in September 2013 and Austrade is expecting the number of Australian participants to increase.

Education

Enrolments of Peruvian students in Australian institutions continue to grow well.

In December 2012, 1773 students  from Peru enrolled to study in Australian institutions. Visits by education institutions have highlighted the opportunity for Australian education services, both for studies in Australia and courses delivered in Peru, as well as research and collaboration between institutions.

Agribusiness

Australian companies can now export both refrigerated and frozen beef to Peru following the 2004 decision by the Peruvian quarantine agency, SENASA, to approve the import of Australian beef to Peru. A protocol between Peru and Australia on kangaroo meat has also been agreed; as has an agreement on beef serosa. Ovine genetics can also be exported to Peru from Australia.

Updated March 2013