Peru: Recent developments & outlook Día del Perú Cámara de Comercio de Hamburgo September 11, 2007
Peru at a glance Key indicators Units Gross Domestic Product (2006) US$ 93 billion Population (2006, estimate) 27.5 million Per capita GDP (2006) US$ 3,375 Mean CPI inflation (2002-2006) 2.0% Public debt as % of GDP (Dec. 2006) 32.7% Poverty as % of population (2006) 44.5% Net international reserves (Sep. 2007) US$ 24.2 billion Dollarization of loans (Dec. 2006, banking system) 54% Openness [(X+M)/GDP, 2006] 48 % Country GDP per capita US$ (2006) Main commodities exported World ranking (2006) Chile 9,227 Gold 5 Brazil 5,738 Copper 3 Argentina 5,349 Fishmeal 1 Peru 3,375 Zinc 3 Ecuador 3,031 Silver 1 Colombia Bolivia 2,801 1,081 Tin Coffee 3 9
Presidential approval 70.0 63 Presidential approval during Toledo and Garcia s first months in office (in % of surveyed people) 60.0 58 57 50.0 59 50 55 52 50 51 50 49 46 40.0 30.0 42 32 32 33 30 28 26 42 Alan García 35 32 44 20.0 10.0 Alejandro Toledo Ago Sep Oct Nov Dic Ene Feb Mar Abr May Jun Ago Sep 22 21 18 18 17 Source: Apoyo Opinión y Mercado
Peru s debt risk rating was recently upgraded Long-term foreign currency debt rating scale S & P Chile Mexico Brasil Colombia Venezuela Bolivia Ecuador S&P / Fitch Moody's Explanation AAA Aaa Highest quality (risk free) AA+ Aa1 AA Aa2 Superior quality AA- Aa3 A+ A1 A A2 Debt repayment capacity considered strong A- A3 BBB+ Baa1 BBB Baa2 Moderate repayment capacity BBB- Baa3 BB+ Ba1 BB Ba2 Some repayment capacity BB- Ba3 B+ B1 High repayment uncertainty. B B2 repayment uncertainty. Investment considered Investment considered risky B- B3 CCC+ Caa1 CCC Caa2 Highly vulnerable to default CCC- Caa3 CC C D Ca In default Investment grade Fitch: Peru s risk rating was upgraded to BB+ in August 06 S&P: Peru s risk rating was upgraded to BB+ in November 06 Moody s: Peru s risk rating was upgraded to Ba2 in y 07 Source: Standard&Poors, Moodys, Fitch
Peru priced as investment grade Peru & Latin America - Stripped spread sovereign bond index (JP Morgan Emerging Market Bond Index - basic points) 1,200 EMBI Latino 1,100 1,000 900 800 EMBI México 700 600 500 400 300 EMBI Perú EMBI Perú (12/09/07): 171 pbs 200 100 0 Ene-00 May-00 Sep-00 Ene-01 May-01 Sep-01 Ene-02 May-02 Sep-02 Ene-03 May-03 Sep-03 Ene-04 May-04 Sep-04 Ene-05 May-05 Sep-05 Ene-06 May-06 Sep-06 Ene-07 May-07 Sep-07 EMBI: Emerging Markets Bond Index The EMBI tracks total returns for traded external debt instruments in the emerging markets, in this case, Latin American instruments. The Latin Amercian EMBI is concentrated in instruments from the three major Latin American countries (Argentina, Brazil, and Mexico), reflecting the size and liquidity of these external debt markets. Source: Bloomberg
Inflation within the range set by the Central Bank 5.0 CPI inflation and core inflation, 2002-2007e (YoY % change) Inflation Forecast 4.0 3.0 Max 3.0% 2.0 1.0 0.0 Core inflation Min 1.0% -1.0 Ene 04 Mar May Sep Nov Ene-05 Mar May Sep Nov Ene-06 Mar May Sep Nov Ene-07 Mar May Sep Nov Source: BCRP, IPE
3.80 3.70 3.60 3.50 3.40 3.30 3.20 3.10 3.00 2.90 2.80 2.70 2.60 2.50 Sep-07 Mar-97 Jun-97 Oct-97 Feb-98 Jun-98 Oct-98 Feb-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Dec-00 Apr-01 Aug-01 Dec-01 Apr-02 Aug-02 Dec-02 Mar-03-03 Nov -03 Mar-04-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Sep-06 Jan-07 May-07 Exchange rate: : 1997-2007 Foreign exchange rate, 1997-2007 (S/. per US$, montly average) Asian crisis 2001 Presidential elections Brazilian elections ( Lula effect) BCRP stopped its purchases, annual inflation (4.6%) well above the official target Russian crisis Brazilian Crisis Source: BCRP, IPE 2006 Presidential elections (Humala upraises in polls)
Export growth Peru - Exports, 1997-2006 (US$ millions) Trade Balance, 1997-2008e (US$ billions) 30.0 25.0 Non Traditional Exports Traditional Exports Forecasts 10.0 8.0 8.9 8.2 6.7 6.0 5.2 20.0 4.0 3.0 15.0 10.0 5.0 0.0 97 98 99 00 01 02 03 04 05 06 07e 08e 2.0 0.0-2.0-4.0 0.9 0.3-0.7-0.4-0.2-1.7-2.4 Forecasts 97 98 99 00 01 02 03 04 05 06 07e 08e Source: BCRP, IPE
Fishing and mining exports Fishmeal exports, 1997-2006 (US$ millions) Price and volume indexes of mining exports, 1999-2007 (index 1994 II quarter =100) 2,500 2,000 1,500 1,000 500 0 1,926 666 1,482 2,352 1,942 1,518 1,751 1,370 2,000 97 98 99 00 01 02 03 04 05 06 1,337 Índice Cantidad 550 500 450 400 350 300 250 200 Price (right axis) Volume 99-I 00-I 01-I 02-I 03-I 04-I 05-I 06-I 07-I 350 325 300 275 250 225 200 175 150 125 100 75 50 Índice Precios Source: BCRP Source: BCRP, IPE
Non-traditional exports 6,000 5,000 Agriculture Fishing Textile & apparel Others Non-traditonal exports, 1993-2006 (in US$ millions) ATPDEA-USA 4,000 3,000 2,000 1,000 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 Source: BCRP
Trade between Peru and Germany is over US$ 1,300 millions Peru Main trading partners, year 2006 (in % of total exports) Peru - Germany Exports and Imports (US$ millions) Others 28.3% USA 23.3% 900 800 700 Exports Imports 812 Spain 3.2% Italy 3.2% Brazil 3.5% Germany 3.5% Japan 5.2% Chile 6.1% Suiza 7.2% Canada 6.8% China 9.7% 600 500 400 300 200 100 255 242 382 273 524 401 506 439 377 0 2003 2004 2005 2006 2007* Source: Sunat-Aduanas * January-july Source: Prompex
Foreign direct investment 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Foreign direct investment, 1990-2006e (US$ millions) Direct investment without privatization Privatization Stock year 2006: US$ 15,4 billion 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 Spain U.S. Mexico Chile Switzerland South Africa Canada England Brazil China Holanda Francia Alemania Others 2% 1% 1% Stock of FDI, 2006 5% 5%6% 3% 2% 2% (a) By origin 8% 7% 8% 18% 33% 0% 5% 10% 15% 20% 25% 30% 35% Telecom 32% (b) By sector Transport Others 2% 5% Commerce 4% Energy 11% Finance 12% Source: BCRP, Proinversión Mining 19% Manufacturing 15%
Banking system Peru Banking system indicators (in US$ billions and as % of total loans, respectively) Direct credits by type (en miles de millones de S/.) Deposits & loans US$ millions 23,000 21,000 19,000 17,000 15,000 13,000 11,000 9,000 Loans Non performing loans (% of total loans - right axis) Deposits Jan-99 Jan-00 Jan-01 Jan-02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 NPL, as % of gross loans 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Mortgage Consum. Microenter. Commer. 60.9 50.3 43.7 36.6 37.9 35.6 36.2 39.1 32.3 28.8 29.0 29.4 25.9 24.6 3.2 2.7 2.2 10.8 1.5 8.3 6.3 0.9 0.9 1.0 3.2 3.6 4.1 4.9 3.6 4.0 4.6 5.1 6.5 7.1 7.9 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 07 Source: SBS
Reserves and liquidity Net international reserves (NIR) composition (US$ millions) Liquidity: private pension and mutual funds (US$ millions) Public sector deposits at BCRP USD 10,361 24,000 20,000 Private pension fund Mutual funds Funds administered by ONP BCRP's net international position USD 3,042 USD 6,360 16,000 12,000 8,000 Deposits of financial intermediaries Source: BCRP US$ 24,221 (September 7 2007) USD 4,457 4,000 - Jan 03 Apr Oct Jan 04 Abr Oct Jan 06 Abr Oct Jan 06 Abr Oct Jan 07 Abr
GDP growth GDP growth (% change) Sectors Peso 2006 2007 2008 2009 Agriculture and livestock 7.6 7.7 3.5 4.5 4.2 Fishing 0.7 2.1 4.8-2.4 6.5 Mining and fuel 4.7 0.9-1.0 4.7 5.0 Manufacturing 16.0 6.8 6.8 5.7 7.0 Based on raw materials 3.7 2.4 0.5 4.0 4.0 Non-primary 12.3 7.8 13.0 7.5 7.5 Construction 5.6 14.7 15.0 12.3 13.0 Commerce 14.6 12.1 10.0 6.0 6.1 Other services 41.2 8.2 7.3 5.6 6.1 Gross Value Added (GVA) 8.3 8.2 6.0 6.9 Primary sectors (sectors characterized by their low contribution to overall value-added, associated to traditional production & commodity exports) Non-primary sectors (these sectors have a weight of 83% in the growth of the global real GDP, and are associated with domestic demand & non-commodity exports) Taxes on products and import duties 9.8 5.3 6.3 6.5 6.2 GDP 8.0 7.5 6.1 6.3 Primary sectors GVA 16.7 4.0 1.5 4.1 4.5 Non-primary sectors GVA 83.3 9.3 9.0 6.5 6.7 Growth is expected to continue be leaded by nonprimary sectors Source: BCRP, IPE
Manufacturing Rate of capital use of the non primary manufacturing sector, 1997-2007 (as % of total capacity) Growth Contribution to Manufacturing of the External and Internal Markets (as % of total growth) 85.0 80.0 75.0 73.9 78.9 100.0 90.0 80.0 70.0 42 47 45 31 25 31 23 38 4 11 13 19 13 9 70.0 68.9 60.0 65.0 60.0 55.0 58.7 56.2 53.0 54.9 55.5 58.6 60.6 64.7 50.0 40.0 30.0 20.0 10.0 58 53 55 69 75 69 77 62 96 89 87 81 87 91 50.0 97 98 99 00 01 02 03 04 05 06 I Sem 07 Source: BCRP 0.0 04-I 04-05-I 05-06-I 06-07-I Internal Market External Market
Construction Unsatisfied housing demand in Lima, by price (in thousand of houses and US$ respectively) Construction GDP, 1996-2007 (YoY % change, moving average 12m) 500 000 and more 0.0 20.0 100 001-500 000 80 001-100 000-0.5 0.6 15.0 Housing Prices (US$) 70 001-80 000 60 001-70 000 50 001-60 000 40 001-50 000 30 001-40 000 25 001-30 000 20 001-25 000 10 001-20 000-0.4 1.3 3.5 8.1 22.4 18.7 51.4 52.1 10.0 5.0 0.0-5.0 8 001-10 000 4 001-8 000 21.6 70.9-10.0 Until 4 000 17.6-20 0 20 40 60 80-15.0 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-04 Jan-06 Jan-07 Source: CAPECO Source: BCRP
Trickle down positively impact on households income in Lima Distribution of households in Lima by income, 2002 & 2006 (% of surveyed households) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 48 3.5% 5.3% 17% 28% 57 18% 34% Category Mean household income (US$ per month) A US$ 3,534 94.7 Estimated # of households (thousands) B US$ 838 323.8 C US$ 408 605 40.0% 30.0% 20.0% 52 31% 43 28% D US$ 248 497.6 10.0% 0.0% 21.3% 15.5% 2002 2006 E US$ 171 279.6 Source: Apoyo Opinión y Mercado
and in the main cities Mean household income by city, 2003-2007 (constant S/. of june 2007) 2000 1900 1800 1600 2003 2007 1660 1400 1200 1200 1300 1150 1100 1250 1100 1200 1000 800 980 1000 970 880 800 820 840 600 400 200 0 Arequipa Trujillo Piura Chiclayo Cusco Huancayo Iquitos Lima Source: Apoyo Opinión y Mercado
Private investment 25.0 20.0 15.0 10.0 Quarterly growth of private investment, domestic demand & real GDP (moving average last 4-quarters of YoY % change) Private investment Domestic demand 50.0 45.0 40.0 35.0 30.0 25.0 How do you consider that the economy will perform in the following 3 months?, Central Bank of Peru's survey to business (in %) 26 37 27 37 25 24 24 29 33 28 29 Better 29 26 45 39 45 46 5.0 0.0-5.0-10.0 GDP I-02 II IV I-03 II IV I-04 II IV I-05 II IV I-06 II IV I-07 II 20.0 15.0 10.0 5.0 0.0 13 13 5 5 21 9 7 5 19 18 7 6 18 Worse 10 4 3 2 3 2 2 1 II-02 IV I-03 II IV I-04 II IV I-05 II IV I-06 II IV I-07 II 6 2 1 Source: BCRP
Public debt and economic result Domestic and external public debt, 2002-2007e (as % of GDP) Economic Result of the SPNF (as % of GDP) 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 47.5 9.9 37.6 44.3 8.5 35.8 37.7 9.3 28.4 32.6 9.1 23.5 External Serie4 Forecasts 29.10 9.3 19.8 Domestic 27.10 9.1 18 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-1.0-0.3 2.0 The fiscal superavit is expected to reach or exceed 1.5% of GDP 1.5 0.0 03 04 05 06 07e 08e -2.0-1.7 03 04 05 06 07e Source: BCRP, IPE
Public debt Domestic and external public debt, 2002-2007e (as % of GDP) Forecasts 27.1 Domestic 9.1 External 18 08e Source: BCRP
Low levels of infrastructure investment 5.0% 4.5% Peru Infrastructure investment, 1980-2004 (as % of GDP) 4.0% Private 3.5% 3.0% 2.5% 2.0% Public 1.5% 1.0% 0.5% 0.0% 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Source: IPE
Infrastructure gap Infrastructure investment gap (US$ million) Sector Lima Metr. Regions Total Transport 680 7,004 7,684 Roads 58 6,771 6,829 Ports 560 135 695 Airports 63 80 143 Railroads - 17 17 Water & sewerage 2,369 2,250 4,619 Electricity 207 5,316 5,523 Natural gas 100 320 420 Telecom 2,745 1,888 4,633 TOTAL 6,102 16,778 22,879 Distribution % 26.7% 73.3% Source: IPE
Mining projects Project Mineral Location Investment (US$ millions) Toromocho Copper - Zinc - Lead Junín 1,500 Las Bambas Copper Apurimac 1,000 Minas Conga Gold - Copper Cajamarca 900 Cerro Verde Copper Apurimac 850 Quellaveco Copper Moquegua 830 La Granja Copper - Gold Cajamarca 700 Southern Los Chancas Gold Apurimac 600 Proyecto Antapaccay Cooper Cuzco 600 Southern - Ilo Modernization Copper Moquegua 600 Michiquillay Copper - Gold Piura 600 Sinchao Gold Cajamarca 400 Bayovar Phosphates Piura 350 Opaban Iron Apurimac 350 San Gregorio Zinc - Lead Pasco 300 Cerro Corona Copper - Zinc - Lead Cajamarca 270 Rio Blanco Copper Piura 200 Berenguela Copper - Silver Piura 150 Magistral Copper Ancash 130 Marcapunta Copper - Gold Pasco 100 Other projects (5 projects) - - 280 TOTAL MINING 10,710
Other projects Project / Company Sector US$ mill Petrobras Energía Perú Fuel - Contracts 2005-2006 134 Amerada Hess Peru Fuel - Contracts 2005-2007 107 Others Fuel - Contracts 2005-2008 468 Fuel 709 Etevensa Energy - Investment 2006-2007 100 Enersur Energy - Investment 2006-2008 100 BPZ Energy - Investment 2006-2009 100 Globeleq Energy - Investment 2006-2010 150 Energy 450 Red Vial 6 Infrastructure - Investment 2006-2009 161 Olmos Infrastructure - Investment 2006-2010 185 IIRSA Norte Infrastructure - Investment 2006-2011 205 Interoceánica Sur Infrastructure - Investment 2006-2012 788 Muelle Sur - DP World Callao S.A Infrastructure - Investment 2007-2026 617 Infrastructure 1,956 Camisea II Gas 2,150 Gas 2,150 Total 5,265
Poverty level could reach 38% by 2010 Poverty Level, 1985-2011e (as % of total population) Poverty Level, 2004-2006 (as % of total population) 60.0 55.0 50.0 45.0 40.0 41.6 57.4 42.7 51.3 44.5 6.5% Growth for 08-11 38.0 2004 2006 National 48.6 44.5 Costa 35.1 28.7 Sierra 64.7 63.4 Selva 57.7 56.6 35.0 Public service improvement 30.0 Goverment s goal for 2011 30.0 25.0 1985 1991 1997 2001e 2006 2011e Source: MEF, INEI, IPE
Summary 2005 2006 2007e 2008e 2009e R E A L S E C T O R GDP (US$ bn) 78,432 93,330 101,730 108,851 116,470 Real GDP growth (%) 6.7 8.0 7.5 6.1 6.3 Private investment (% change) 13.9 19.9 18.0 12.0 14.5 High growth rates P R I C E S CPI (% change YoY) 1.5 1.1 3.0 2.0 2.5 Exchange rate (average - NS per US$) 3.43 3.21 3.17 3.22 3.35 Annual depreciation (% change of ER) 4.4-6.4-1.1 1.6 4.0 P U B L I C A C C O U N T S Tax revenues (% of GDP) 14.0 14.9 15.3 14.9 14.6 Overall result (% of GDP) -0.3 2.1 1.5 0.0-0.4 E X T E R N A L S E C T O R Exports of goods 17,336 23,800 26,201 26,842 27,161 Imports of goods 12,076 14,866 17,988 20,188 22,159 Trade Balance (US$ mill) 5,260 8,934 8,213 6,654 5,002 Current Account (% of GDP) 1.4 2.6 0.8 0.2-0.5 Internac. Net Reserves (US$ bnl) 14.1 17.3 22.0 23.2 24.1 Moderate fiscal deficits Positive trade balance
Moreover: Padlocks introduced in to the Constitution that we approved in 1993 in order to assure a market economy. Prohibited all kind of control of prices. (Assuring freedom of prices). Monopolies prohibited. (Assuring free competition) Prohibited the control of the exchange rate. (Assuring the free exchange of foreign currency ) Prohibited restrictions on repatriate utilities. (Assuring the free repatriation of utilities)
Prohibited tributary differences for national and foreign investments. (Assuring an equal tributary treatment for all foreign investments) Prohibited the State from modifying contractual terms. (Respecting all contracts between individuals and the State and individuals) The Legislation allows the subscription of stability tributary contracts. Legislation allows the anticipated recovery of sales tax for investments greater than XXX dollars in any sector.
Possible sectors of investment: Construction Mining Forestry Aquiculture Petro-chemicals Energy Manufacturing Agriculture Fishing (direct human consumption) Agribusiness (bio energy, ethanol) Possible public-private projects to accede to the PPP Fund (Germany)
Peru: Recent developments & outlook Peru: Recent developments & outlook Día del Perú Cámara de Día Comercio del Perú de Hamburgo Cámara September de Comercio XX, de 2007 Hamburgo September, 2007