Press Release No. 06/129

Press Release: Statement by an IMF Staff Mission in Peru

June 14, 2006

Mr. Anoop Singh, Director of the Western Hemisphere Department of the International Monetary Fund (IMF), issued the following statement today in Lima:

"I am delighted to have had the opportunity of visiting Peru over the past two days, overlapping with an IMF mission led by Mr. Gilbert Terrier. We have had the privilege of meeting with President Alejandro Toledo; President-elect Alan García; President of the Council of Ministers Pedro Pablo Kuczynski; Economy and Finance Minister Fernando Zavala; Acting Central Bank President Oscar Dancourt; and other members of the economic team. We also had insightful discussions with the President of the Peruvian Episcopal Conference, Monsignor Héctor Miguel Cabrejos, and with a wide spectrum of civil society representatives, including from the private sector and will soon meet with trade unions. Mr. Javier Silva Ruete, Alternate Executive Director of the Fund, participated in all the meetings.

"I congratulated President Toledo on the peaceful electoral process and the ongoing smooth transition to a newly elected government. During his administration, Peru experienced strong economic growth reflecting the success in maintaining macroeconomic stability and low inflation, reducing vulnerabilities associated with high indebtedness and dollarization, and adopting structural reforms to foster an environment conducive to investment and job creation.

"President-elect García has emphasized to me his commitment to raising investment and sustaining rapid economic growth, while ensuring much greater poverty reduction. Toward these goals, the President-elect explained that he would maintain prudent macroeconomic policies and intensify microeconomic reforms. In this context, he reaffirmed his determination to ensure that the needed increases in social and anti-poverty spending would be fitted into a prudent fiscal and overall macroeconomic framework consistent with maintaining low inflation and a supportive investment environment. I conveyed to him the IMF's readiness to assist in the process to the fullest extent feasible under our mandate.

"Mr. Terrier's mission has been in Lima for the past ten days, for discussions in the context of the final reviews under Peru's 26-month Stand-By Arrangement (SBA), approved by the Executive Board of the IMF on June 9, 2004.¹ The mission confirmed the continuing strong performance of the Peruvian economy. With the firm implementation of the authorities' economic program and the favorable external environment, output grew by about 6½ percent in 2005—the fastest this decade—driven by surging exports and private investment. This economic momentum is being maintained in 2006. Public finances continued to strengthen which, as a result, led to additional declines in public debt relative to GDP, to about 38 percent by the end of 2005. Twelve-month inflation was 2.2 percent in May, and it is expected to remain well within the target band of the central bank in the period ahead. The external current account remains in surplus and net official international reserves are at a comfortable level, helping mitigate external risks. The mission commended the authorities for their progress in structural reforms, especially in improving the business climate, enhancing public financial management, and strengthening banking supervision and regulation to help reduce the risks associated with dollarization.

"The mission will return tomorrow to Headquarters in Washington D.C., and it is anticipated that the IMF Executive Board will consider the conclusion of the 2004-06 program reviews by end-July."