After three debilitating years, Peru’s economy is pulling out of economic recession. The government is aiming for 3.5 to four percent growth this year, partly due to the reinvigorated mining sector.
Peru is swapping debt for more than $1 billion of Brady bonds, a move that comes hot on the heels of the Andean nation’s first international bond offering for more than 70 years. The nation issued $500 billion in internationally traded bonds in February, highlighting Wall Street’s approval of the economic policies of President Alejandro Toledo.

Economy minister Pedro Kuczynski hails Peru’s return to international capital markets with a global issue and calls the Brady bond swap, which has cut the country’s debt by $30 million, a “real success.”
Economic analysts say state policy is to diversify the sources of financing. The government’s fiscal deficit target is 1.9 percent of gross domestic product (GDP).
The International Monetary Fund (IMF) has approved a two-year, $316 million standby loan, but President Toledo has told the IMF that the government will not draw on it. He says the aim is to not only meet the challenge of globally competitive markets but also to “confront the enormous challenge of combining responsible management of economic policies with deep social concern. It is a dream that will combine a market economy with a human face.”

The government is less than a year old, but already there is a new mood of optimism in Peru, Latin America’s seventh-biggest economy. The president is making education and health his priorities, while military spending has been slashed by a fifth.
Dr Toledo points out: “In Peru, 54 percent of the population live below the poverty line [calculated as per capita income of $2 a day] and 16 percent – four million people – are below the extreme poverty line [less than $1 a day].
“Peru cannot be successful and competitive, and engage in the global economy and the internet world, if 70 percent of its population cannot participate.

“Irrespective of how many natural resources a country has, its population must be able to participate in its own economy and in the world economy for it to develop. The only issue is poverty and every decision we make as a government is with the objective of reducing poverty,” he says.
Dr Toledo says it is unhealthy
for Peru to rely so heavily on its main trading partner, the U.S. “The world is more competitive and we need to become more aggressive and penetrate more markets in the world,” he explains.
He desires greater integration among members of the Andean Community, which should be strengthened as a trading bloc.

“Europe has been showing an interest. We have been receiving a great deal of interest from French businessmen who are interested in investing in water, power, transportation, and oil and gas,” says Mr Toledo. “We also have a very good relationship with Spain, the top investor in Peru.”
The president, who gained his economics doctorate at Stanford, is only too aware that his country’s fortunes cannot be improved over-night. The government’s honeymoon period is over and people will want to see results soon. “We have five years to govern and we have a country full of potential for profitable investments. We will be working very hard during those years to make them as fruitful as possible,” he adds.

The finance minister wants to cut Peru’s debt ratio. “Our target is to double exports by 2006. It sounds ambitious, but it is feasible. Europe is the main market for some of our products and, overall, Europe is Peru’s second market, taking 21 percent of our exports, so it has a very important role,” says Mr Kuczynski “We need to attract investment in value-added industries, improve infrastructure and have a flexible labor market. We are planning to privatize the ports and the airport, which will improve our infrastructure.”

The president of the Council of Ministers, Roberto Danino Zapata, says: “Centralization has always been a problem in Peru and that is something we need to change. We see decentralization as a way of helping local communities to develop, and we must encourage local power bases and local development in terms of education, health and public works.”
Mr Danino, who works closely with the president, adds: “The country is expecting a dignified exit from poverty and that should be the main issue that the country judges us on.”