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Peru country brief

Introduction

Australia and Peru celebrated 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 in Canberra 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. 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, Argentine 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.

System of government

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 next presidential elections are to be held in 2016.

The President, as head of government and head of state, 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 similar 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 treated separately. It is governed by a mayor and is separated 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 and can be recalled by referendum. 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.

Recent developments

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.

In June 2011, President Humala (of the left-leaning “Gana Perú” party) succeeded Alan Garcia, who replaced Alejandro Toledo in 2006. Toledo had been elected President in 2001 in an election held following the conclusion of the provisional government, led by Valentin Paniagua, which lasted 8 months 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 is currently serving a maximum 25-year jail term. Despite continued political pressure, President Humala has maintained his refusal to grant a pardon to Fujimori. 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 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 largest number of seats in the Congress (43 out of 130), followed by Fujimori's Fuerza Popular (36 seats). Until early 2013, Gana Perú relied on support from former President Toledo’s party, “Perú Posible”, to pass legislation. However, the number of Perú Posible members in Congress has since decreased and relations between the two parties have become strained, forcing Humala to rely on ad hoc coalition building to pass legislation.  

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 US$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 (Minera Yanacocha), but the project remains stalled.

Former Minister for Housing, Construction and Sanitation, René Cornejo, replaced César Villanueva as Prime Minister in late February 2014. Villanueva resigned over differences with Finance Minister Luis Miguel Castilla on a possible increase in the minimum wage. Villanueva, who was only four months into his term, is the fourth Prime Minister to resign during Humala’s administration. Once the Prime Minister resigns, the Peruvian Constitution requires that all ministers submit their resignations.  There have been seven other ministerial changes in the latest cabinet reshuffle, including the appointment of a number of technocrats to cabinet positions, such as Dr Piero Ghezzi Solis, who will take over the Ministry of Production.

Peru has an active and dynamic political scene with fluctuating coalitions, no dominant individual parties and sharp social divisions. This however has led to a degree of instability in Congress, with the legislature often unable to reach agreement on important issues including appointments to bodies such as the Constitutional Tribunal, the Board of the Central Bank and the appointment of the Defensor del Pueblo. The economic recovery since 2001 has had a strong positive impact in reducing poverty, which is currently around 25.8 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. Some remnants 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. On 27 January 2014, the International Court of Justice issued its final judgment over a longstanding maritime border dispute between Chile and Peru, ultimately requiring Chile to cede territory. Both countries have agreed to abide by the ruling, giving cause for optimism regarding bi-lateral relations between the two nations. 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 land-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 Latin America Cooperation (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, which is Peru's second-largest trading partner. The United States and Peru signed a Trade Promotion Agreement (essentially a Free Trade Agreement (FTA)) 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 has been Peru's number-one trade partner since 2011. Bilateral trade was US$15.7 billion in 2013, with Peru's exports to China worth US$7.3 billion. Peru and China established a strategic partnership in November 2008. Since 1998, the two countries 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

At a glance

For the latest economic data refer to the Peru economic fact sheet [PDF 32 KB]

Economic outlook

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. Tariffs are levied on imports at either 9 per cent or 17 per cent, with a weighted average tariff of around 1.9%.

Peru’s GDP has expanded at an average rate of 6.5 per cent over the last four years. 2013 saw a slowdown in GDP growth from 6.3 per cent to five per cent, largely due to a sharp fall in private fixed investment and slowing export growth. Despite this recent slowdown, Peru has experienced impressive economic growth during the last decade, and further growth is forecasted in the coming years. Higher economic growth has been largely supported by mining and construction activity. Hence, easing the social unrest surrounding large-scale 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 growth. 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.

Over the last decade, Peru has been very active in engaging the global economy through regional integration and a commitment to pursuing bilateral 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, Mexico and now Japan, 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, Mexico, and soon, Costa Rica, which is in the process of becoming a full member. Australia was admitted as an observer to the Pacific Alliance in 2012 and attended the May 2013 Summit in Colombia.

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 together to 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. Australia and Peru are members of the Forum for East Asia Latin America Cooperation (FEALAC), and Australia is an observer to the Pacific Alliance.

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, Maxine McKew.

A Parliamentary delegation consisting of seven members of the Peruvian congress visited Australia in May 2014. Peruvian Mines and Energy Minister Jorge Merino visited Australia in May 2013 and Peruvian Vice Minister for Mining, Guillermo Shinno visited Australia in May 2012 and again in May 2013 and May 2014. Former President Garcia, accompanied by former Foreign Minister Belaunde and former Trade Minister Araoz, visited Sydney in 2007 for the APEC Summit and ministerial meetings. In November 2011, Australia and Peru signed a Memorandum of Understanding (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 and a memorandum of understanding on Air Services has now been finalised.

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 cooperation on research into the El Niño climatic phenomenon, among other things.

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. Since then, 77 Peruvian students have been awarded scholarships to study in 12 Australian universities.

From 2010 to 2014, Australia provided $100 million in official development assistance to Latin America, including 250 Australia Awards scholarships.  Peru received 19 Australia Awards Scholarships and 21 Australia Awards Fellowships. The regional program has now closed, though some activities that have already been funded will continue until 2017. To support sustainable economic development in Peru, Australia contributed $2 million toward the SALTA project that provided 100,000 female micro-entrepreneurs with information on financial literacy and business development. The project was implemented in partnership between the Australian Government, the Inter-American Development Bank and the Peruvian Bank, MiBanco.

In 2012, around 35,000 Australians travelled to Peru (the great majority of these visits were for tourism), these figures marking impressive annual increases. The figures reflect the growing business and tourism ties between Australia and Peru. Peruvians have been in Australia from at least the late 1800s, with the 1901 census indicating 28 Peruvians in Australia at the time. Migration from Peru to Australia remained low until 1986, from when numbers emigrating from Peru to Australia grew into the hundreds-per-year. Australia's Peruvian community consists of around 8,440 Peru-born persons (2011 Census). More information can be found at the Department of Social Services Community Information Summary page.

In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America.  For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.

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 62 Australian companies now claiming an office in Peru or investment in a project in Peru, 17 of which are ASX200 companies. 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 2013 merchandise trade between Australia and Peru totalled approximately A$215 million. Major Australian merchandise exports to Peru totalled A$78 million and included specialised machinery and parts, measuring and analysing instruments and civil engineering parts and equipment. Major merchandise imports from Peru to Australia totalled A$137 million and included zinc and lead ores and concentrates, animal oils and fats, and crude fertilizers. Trade in services has improved significantly, totalling A$175 million in 2013, up from A$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 and investment 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 and reducing its poverty rates from around 40 per cent to 25.8 per cent over the last ten years. Peru 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 US$30 billion are expected to proceed over the next five years. While a high proportion of Peru’s mineral exports is derived 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 Glencore (formerly 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, 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. 25 Australian companies participated in the Austrade managed Australia pavilion at Extemin in September 2013.

Education

Enrolments of Peruvian students in Australian institutions continue to grow.

In 2013, approximately 1600 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 June 2014