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Peru Country Update: October 2007

September 30, 2007

Topics this issue:
Economy chugs along
Drilling for exports
Fujimori returns

 

Economy chugs along

The positive outlook for passage of free-trade agreements (FTAs) with the U.S. and Canada, along with Peru’s role as the 2008 Asia-Pacific Economic Cooperation (APEC) host, strengthens Peru’s already positive economic outlook. This Economist Intelligence Unit prediction coincides with the rapid growth of the past few years. Real GDP growth has increased from 3.9 percent in 2003 to an impressive 7.3 percent in 2006. This year forecasts point to a likely 6.7 percent growth, according to an ISI Emerging Markets report.  Inflation is the lowest in any Latin American country, staying below 3.15 percent for the past four calendar years.  This year it is expected to be a mere 1.81 percent.  Foreign direct investment has also grown from $2.4 billion in 2002 to $3.5 billion in 2006.

Positive economic performance has helped the government alleviate poverty. Last year, the poverty rate fell by around 4.2 percent. However, poverty reduction has been more effective in the coastal region than in the mountainous inland.  According to a poll released by the Universidad Católica, many Peruvians think their economic situation is similar or worse today than one year ago. The biggest challenge for President Alan García will be to reverse these disparities and the perceptions of stagnation. 

Drilling for exports

Peru ranks sixth as the worldwide provider of copper and is the second biggest source for silver. Not surprisingly, mining production continues to represent a significant percentage of export revenue. Mining accounts for 62 percent of total exports (2006) and about 13.5 percent of total GDP (2005). The formal mining industry employs at least 60,000 workers.

Peru’s natural resources industry takes center stage this month. Workers at Peru’s Southern Copper Corporation (SCC) —a branch of the Mexican conglomerate Grupo Mexico— staged a wide-scale strike with over 3,000 workers. The strikers, hailing from the Toquepala and Cuajone mines and Ilo refinery, are pushing for an 11 percent wage increase (the current pay is $25/day) and improvements in working conditions. They have called on the Ministry of Labor to help respond to their demands. Strikes across the mining sector are common in Peru, and organizers are already preparing for a November 5 nationwide strike. 

The recent strike is generating international headlines due to the resulting impact on global copper prices. Production decreases could potentially raise prices by 10 percent. This year, with rapid increases in demand, copper prices have jumped 31 percent.

Fujimori returns

Chile's Supreme Court approved a Peruvian request to extradite former president Alberto Fujimori on September 21.  Fujimori, who ran the country from 1990 to 2000, has been charged with corruption and human rights violations, and if found guilty, he could face up to 30 years in prison.

Fujimori’s return marks a clear contrast with the heyday of his presidency. Today, his popularity has faded dramatically. According to a recent poll by Ipsos APOYO Opinión y Mercado, 63 percent of Peruvians do not think he has a political future and 73 percent are in favor of his extradition.

However, the former President still enjoys support among Peruvians. His daughter, Keiko Fujimori leads the Fujimorian party, Alianza por el Futuro, which has 13 seats in the unicameral Congress.  Despite requests from some party members, the government has said it will not interfere with the judicial process and has dismissed any possibility of granting a pardon.   

Fujimori is confined to a large prison cell at the Police Special Operation Headquarters.  His first trial, for murder and kidnapping, is set to begin November 26.  A three party jury from the Penal Supreme Court will hear the case.  Justice Cesar San Martín, a former partner at the law firm of Benites, de las Casas, Forno y Ugaz, will serve as the presiding judge. His colleagues will include Justice Víctor Prado Saldarriaga and Justice Hugo Príncipe Trujillo. However, tough times may lie ahead.  In a national urban poll conducted by IPSOS, the judicial branch has one of the lowest approval ratings in Peru (20 percent).