IMF Executive Board Concludes 2010 Article IV Consultation with Peru

Public Information Notice (PIN) No. 10/50
April 15, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On April, 14, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Peru.1


Peru’s economic performance over the last decade has been impressive by domestic and international standards. Strong economic fundamentals, a sound institutional policy framework, and a solid track-record of prudent macroeconomic policies helped reduce vulnerabilities, achieve record-high economic growth, and advance significantly with poverty reduction. Reflecting on these achievements, Peru was granted investment grade by Fitch and Standard & Poor’s in 2008 and by Moody’s at end-2009, consolidating its standing among major emerging market economies. Peru’s medium-term prospects remain bright, linked to sustained efforts in the implementation of an ambitious structural reform agenda.

Peru’s economic resilience during the global financial crisis was the result of the proactive policy response and sound fundamentals. Growth in Peru decelerated sharply in 2009, due to the global financial crisis, but remained positive at about 1 percent for the year, despite a few months in negative territory. Thanks to the strong buffers built in recent years, Peru was able to implement a significant monetary and fiscal policy response, which helped to avoid a credit crunch, support domestic demand and sustain employment. The central bank injected substantial liquidity in the financial system and lowered the policy rate to an historic low of 1.25 percent. A significant fiscal stimulus plan was introduced, which entailed a positive fiscal impulse of about 2.5 percent of GDP in 2009. Peru’s financial sector proved resilient to the global financial crisis thanks to the sound prudential framework put in place in past years and its strong initial standing, and it has remained well-capitalized, liquid and profitable. Peru’s external financial account showed also resilience to the global financial crisis, with a resurgence of capital inflows and appreciation pressures in recent months. To moderate currency volatility, the central bank has intervened in the foreign exchange market, purchasing US$2.5 billion so far this year.

Economic activity is expected to grow strongly in 2010, with limited slack in resource utilization thanks to the successful policy response. With the economy already gaining momentum, a sustained improvement in global conditions and the remaining stimulus, staff projects growth at 6.25 percent this year and 6 percent in 2011. Peru’s recovery appears less dependent on policy support than in other advanced and emerging market economies, as it did not open a significant output gap and the balance sheets of the corporate, household, and financial sectors remain unimpaired. Moreover, the balance of risks to growth in Peru appears tilted to the upside, linked to prospects of renewed capital inflows to strong emerging markets and domestic demand dynamics, including the cyclical rebuilding of inventories and acceleration of private investment projects put on hold last year. A relapse in global growth and a return of global risk aversion are the principal tail risk that could encumber the growth outlook for Peru.

Executive Board Assessment

Executive Directors commended the Peruvian authorities for their impressive track-record of prudent macroeconomic policies which helped limit the impact of the global crisis and jump start a vigorous economic rebound. Given its strong fundamentals, the economy is expected to return to rapid growth. Peru’s medium–term outlook remains bright, supported by the authorities’ ambitious reform agenda.

Directors noted that the balance of risks to Peru’s growth is tilted to the upside because of domestic demand dynamics and renewed capital inflows. They agreed that, with limited slack in resource utilization, these risks call for early withdrawal of policy stimulus to avoid a buildup in inflationary pressures. Directors also noted that a renewed surge in capital inflows would require close monitoring and would benefit from a strategy that focuses on fiscal consolidation and greater exchange rate flexibility. Directors observed that normalizing monetary conditions may rely on a combination of measures, including reserve requirements, along with macro–prudential measures to prevent credit and asset booms.

Directors welcomed the authorities’ intention to manage spending plans carefully to achieve in 2011 the fiscal deficit limit established by the Fiscal Responsibility and Transparency Law. They supported the plans to strengthen the Oil Price Stabilization Fund (FEPC) for addressing the rising liabilities and reducing fiscal risks. Directors also welcomed the authorities’ interest in exploring ways to reduce pro-cyclicality of the fiscal framework.

Directors noted the progress made with de-dollarization over the last decade and agreed that improved fundamentals would continue to advance this process and allow the exchange rate to play a larger role as shock absorber. A gradual increase in currency flexibility could foster the development of foreign exchange hedging instruments and reduce dollarization.

Directors commended the authorities’ resolve to further solidify Peru’s strong prudential framework, with some regulatory norms ahead of international standards. The challenge would be to reassess the framework in light of the moving international standards, and incorporate in it the elements relevant for Peru. Directors noted that it would be important to continue strengthening macro–prudential supervision. Consideration could be given to assessing the scope for incorporating systemic risk into the regulatory framework, reviewing the crisis resolution framework, and extending the prudential perimeter to cooperatives and public financial institutions.

Directors welcomed the authorities’ ambitious reform agenda to preserve high growth over the medium term, underpinned by continued prudent macroeconomic policies. The authorities’ plans to further develop Peru’s capital market would be key to effectively channel resources to sustained capital formation over the long term. Directors encouraged the authorities to continue with their poverty reduction efforts.

Peru: Selected Economic Indicators

  2005 2006 2007 2008 2009 2010 2011

Social Indicators


Life expectancy at birth (years)

70.7 72.8 73.1 73.3 ... ... ...

Infant mortality (per thousand live births)

22.8 18.9 17.2 17.0 ... ... ...

Adult literacy rate

87.9 88.7 89.6 ... ... ...

Poverty rate (Total) 1/

48.7 44.5 39.3 36.2 ... ... ...

Unemployment rate

9.6 8.5 8.4 8.4 8.6 ... ...
(Annual percentage change; unless otherwise indicated)

Production and prices


Real GDP

6.8 7.7 8.9 9.8 0.9 6.3 6.0

Real domestic demand

5.8 10.3 11.9 12.1 -2.9 7.4 7.0

Of which: Private sector

5.9 9.0 11.4 12.6 -2.1 4.9 6.2

Consumer Prices (end of period)

1.2 1.1 3.9 6.7 0.2 2.0 2.0

Consumer Prices (period average)

1.6 2.0 1.8 5.8 2.9 1.5 1.8

External sector



35.6 37.2 17.0 13.1 -14.7 19.7 10.0


23.2 22.9 32.0 45.1 -26.1 21.4 13.4

Terms of trade (deterioration -)

5.9 28.3 3.4 -13.7 -0.8 3.7 1.1

Real effective exchange rate (depreciation -) 2/

-0.5 -1.3 -0.6 4.9 2.4 ... ...

Money and credit 3/ 4/


Liabilities to the private sector

18.4 8.8 22.7 24.2 6.2 14.7 14.0

Net credit to the private sector

16.3 6.2 30.8 31.5 1.7 14.4 14.1
(In percent of GDP; unless otherwise indicated)

Public sector


General government current revenue

18.0 19.9 20.7 20.9 18.5 19.2 19.0

General government noninterest expenditure

16.8 16.3 16.0 17.3 19.5 19.6 18.9

Combined public sector primary balance

1.6 4.1 5.1 3.7 -0.7 -0.2 0.3

Interest due

1.9 1.9 1.8 1.6 1.3 1.3 1.3

Combined public sector overall balance

-0.3 2.2 3.3 2.2 -2.0 -1.5 -1.0

Combined public sector debt (including CRPAOs)

37.7 33.2 30.9 25.7 27.4 26.7 25.6

External Sector


External current account balance

1.4 3.1 1.3 -3.7 0.2 -0.7 -1.8

Gross reserves


In millions of U.S. dollars

14,120 17,329 27,743 31,250 33,190 35,690 37,190

Percent of short-term external debt 5/

314.2 174.9 405.3 421.1 397.5 473.7 481.4

Percent of foreign currency deposits at banks

131.0 148.2 208.7 175.0 190.3 180.6 182.3



Total external debt

36.1 30.8 32.4 28.9 32.3 28.6 29.6

Combined public sector debt (including CRPAOs)

37.7 33.2 30.9 25.7 27.4 26.7 25.6

External 6/

28.1 23.9 19.9 16.7 17.4 15.8 15.1


9.7 9.2 11.0 9.0 10.0 10.9 10.6

Savings and investment


Gross domestic investment

17.9 20.0 23.0 26.7 20.6 23.3 24.9

Public sector 7/

2.9 2.8 3.1 4.2 5.3 6.0 6.0

Private sector

15.0 17.2 19.9 22.5 15.3 17.3 18.8

National savings

19.3 23.1 24.2 23.0 20.8 22.6 23.1

Public sector 8/

2.6 5.1 6.0 6.1 3.4 4.2 4.7

Private sector

16.8 18.0 18.3 16.9 17.4 18.4 18.4

External savings

-1.4 -3.1 -1.3 3.7 -0.2 0.7 1.8

Memorandum items


Nominal GDP (S/. billions)

261.7 302.3 335.2 372.6 381.7 415.5 449.3

GDP per capita (in US$)

2,917 3,340 3,797 4,446 4,356 4,950 5,147

Sources: Central Reserve Bank of Peru; Ministry of Economy and Finance; ECLAC 2002-03; National Statistical Institute (INEI);

and IMF staff estimates/projections.


1/ Defined as the percentage of households with total spending below the cost of a basic consumption basket.

2/ Based on Information Notice System.


3/ Corresponds to the banking system.


4/ Foreign currency stocks are valued at end-of-period exchange rates.

5/ Short-term debt is defined on a residual maturity basis, and includes amortization of medium- and long-term debt.

6/ Includes debt by the Central Reserve Bank of Peru.


7/ Includes CRPAOs.


8/ Excludes privatization receipts.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100