As Lima prepares to play host to the World Bank and IMF Annual Meetings, the eyes of the world turn to Peru after more than a decade of growth that has transformed the country into a shining economic example on a regional and global level
Lima, which hosts the annual meeting of the International Monetary Fund (IMF) and the World Bank opening here today, is a striking illustration of Peru’s vibrancy and economic renaissance. Long ignored by visitors and even once dubbed “Lima the ugly”, the 8.5 million capital city has become a hotspot for creative and business-minded trendsetters alike. With the emergence of a Peruvian middle class, thanks to an average annual growth of 6.4% since the mid-2000s, Lima is now peppered with trendy restaurants, art galleries, and all kinds of innovative small businesses, fashion shops and retail malls.
The rise in commodity prices over the past 15 years has fuelled the economic boom of this predominantly mining country, but economists and international institutions all agree that the keys that unlocked the Andean nation’s potential are good governance, economic diversification, and market-friendly policies combined with hands-on measures to fight poverty and lack of education.
Even though the fall in commodity prices last year has slowed down growth to a projected 3.1% for this year, the mining-led economy is expected to regain momentum as diversification efforts continue and government measures to stimulate investment take effect.
Peru’s main economic activities include agriculture, fisheries, mining, the exploitation of petroleum and gas, and the manufacturing of goods, most notably textiles. Peru is the world’s top producer of fishmeal (2012), and the sixth largest producer of coffee, according to international consulting firm Ernst & Young. In mining, according to the Mineral Commodity Summaries Publication of the U.S. State Department, Peru ranked third in the world in 2012 in the production of silver, copper, tin and zinc, fourth in mercury and sixth in gold, besides having large deposits of iron ore, phosphates, manganese, petroleum, and gas.
As the authorities strive to diversify the economy, tourism is also becoming a leading sector. According to the Ministry of Foreign Trade and Tourism, it is now the third most important source of revenue for the national economy. International arrivals increased 7.9% in the first semester of 2015, totaling 1.6 million, according to the Ministry. The improvement of security and investments in infrastructure connectivity are among the key elements that drive tourism.
The present administration elected in 2011 and led by the left-leaning President Ollanta Humala, whose political views are comparable to those of Brazilian President (from 2003 to 2011) Luis Ignacio “Lula” da Silva, has pledged to pursue free-market policies while at the same time giving top priority to the fight against social exclusion, in particular of the indigenous population. According to figures of the National Institute of Statistics and Information (INEI according to the Spanish acronym), poverty levels have fallen from half of the population 20 years ago to 22.7% today.
“We have created an essential basis for growth – macroeconomic stability – which encourages investors, providing them with clarity and transparency. We were a very closed economy. Now we are one of the most open economies in Latin America. These factors were key to achieving sustainable growth,” said the Governor of the Central Reserve Bank of Peru, Julio Velarde.
Over the past decade, Peru has become, according to the World Economic Forum, one of the most business-friendly countries in the world, ranking among the top 20 for its macroeconomic environment. The world’s leading rating agencies consistently give it an investment grade level. Furthermore, Peru has signed trade agreements with the U.S. the European Union, and a number of other countries and regions representing in total 73% the world’s GDP and 92% of the world’s trade, according to the Ministry of Economy and Finance.
Christine Lagarde, the Managing Director of the IMF who is expected here today, said, “Peru continues to be one of the most vibrant economies in the world. Economic performance over the past decade has been exceptionally strong – nurtured by positive fundamentals, a sound policy framework, and prudent macroeconomic policies. The economic expansion allowed per capita income to double, and employment to increase substantially. Peru also made good progress on its social agenda as poverty and inequality rates continue to decline.”
As for the President of the World Bank Group, Jim Yong Kim, who spent a lot of time in Peru earlier in his career when he was an infectious disease doctor, he said after a meeting with President Humala in May, “This impressive and improving track record shows that Peru has much to share with the world about promoting development and doing development right.”
As IMF and World Bank officials gather in the rejuvenated Peruvian capital, the President of the central bank is keen to advocate for a better representation of emerging countries in the world’s financial institutions. “The structure of the IMF dates back to the post-WWII period and increasingly big economies, such as China or Brazil, still have little weight in it,” said Mr. Velarde. “A debate is necessary on this issue because if reforms aren’t made, I wouldn’t be surprised to see the creation of new international financial institutions representing better the emerging countries.”