Press Release No. <a name="P16_75"></a>05/226

The following statement was issued today in Lima by an International Monetary Fund (IMF) staff mission:

"A mission of the IMF visited Lima during the past ten days, for discussions in the context of the third review under Peru's 26-month Stand-By Arrangement (SBA). The SDR 287 million (US$416 million) SBA, which is being treated as precautionary, was approved by the Executive Board of the IMF on June 9, 2004.

"The mission welcomed the strong performance of the Peruvian economy in 2005, which reflects the continued implementation of the authorities' economic program and a favorable external environment. Output growth, expected to be close to 6 percent in 2005, has been broad-based, driven by surging exports and private investment and a greater dynamism in consumption. Twelve-month inflation was 1.1 percent in September and is expected to be within the target band of the central bank (1.5-3.5 percent) by year-end. The trade surplus is estimated at over 5 percent of GDP and net official international reserves have increased and reached comfortable levels, helping mitigate risks associated with existing global imbalances or a possible downturn in commodity prices. The mission commended the authorities for their progress in the structural reform area, including in the legal fiscal framework.

"The mission supported the authorities' commitment to a fiscal deficit ceiling of 1 percent of GDP in both 2005 and 2006, in line with the Fiscal Responsibility and Transparency Law. It welcomed efforts to prioritize public expenditure and avoid boosting government spending on a permanent basis. The authorities reaffirmed their commitment to continue implementing reforms to achieve high and sustainable output and employment growth over the medium-term. In 2006, reforms would focus on the institutional framework for Private-Public-Partnerships, further enhancing public financial management, and strengthening banking supervision and regulation to help reduce the risks associated with dollarization.

"The mission has returned to headquarters in Washington D.C., where it will continue to work closely with the authorities with a view toward concluding the review."