Peru Economy Development

By | May 29, 2021

Peru Economy

Peru Economy

Estimated GDP: $ 206.5 billion

Per capita income (purchasing power parity): 12,323 PPP $ (2018, HDR 19)

Human Development Rank (HDI): Rank 82 (2018, HDR 19)

Population prone to multidimensional poverty: 12.5% (2018, HDR 19)

Distribution of income (Gini coefficient): 0.433 (2018, HDR 19)

Economic Transformation Index (BTI): Rank 29 (of 129) (2018)

Economic policy and development

In the last few decades, economy and politics have been exposed to strong fluctuations between dirigism and liberalism, interventionism and free trade, state and market economy, which resulted in an unstable development.

Since 1990 – the various governments in the country – have pursued a consistent neoliberal economic policy aimed at privatization, budget discipline, monetary stability, export promotion, increasing competitiveness and growth. Fujimori (1990-2000) initiated this process in August 1990 with the ” Fujischock “, which was accompanied by high social costs. Growing poverty, unemployment, underemployment, a deterioration in the educational and health situation and the privatization of old-age pensions were the result (many people are left out due to their low incomes).

The modernization processes in politics and business have a strong influence on one another. The Bertelsmann Transformations Index (BTI), which also refers to Peru, covers both dimensions, both quantitatively and qualitatively.

Economic development

According to commit4fitness, the country of Peru has recorded one of the highest growth rates in the Latin American context in the last ten years and many economic indicators show a positive development. The growth rate for 2019 showed a good result of 2.2% compared to neighboring countries. The forecast for 2020 was 2.3%; this has been corrected downwards in recent months because the prescribed lockdown and the strict quarantine of more than 100 days as a result of the corona crisis have practically led to a collapse of the economy. In March, GDP fell by 16% and in the 2nd quarter of 2020 by as much as 30%. For 2020, the World Bank predicts a decline of 12%, the strongest in Latin America. An ambitious 1.5 billion euro reconstruction program is intended to stimulate the economy again.

Regardless of the undisputed great successes and economic policies of the governments in office, the positive economic development with a stable economic system and sustained high growth rates since 2001 has been accompanied by high rates of poverty and resentment among the population about the low social progress. The number of Peruvians living below the poverty line in 2019 was according to the INEI at 20.2% (2015 at 21.8% – of which 4.1% in extreme poverty). The then head of the INEI, Sánchez Aguilar, told press representatives that in the last 10 years poverty has fallen by 28.4%, which is due to the high growth rates of the economy and the better focus and effectiveness of social programs. The poor are mainly employed in the extractive sector (mining) and in the informal sector, ie without social security. However, the distance between the urban and rural poor is still great. Growth alone will not automatically overcome persistent rural poverty. The corona crisis will have a strong impact on the poverty situation in Peru. Specialists assume that by the end of 2020, poverty will rise again to 28%, which would correspond to the level of 2011.

Peru tries to join the select club of the 34 countries of the Organization for Development and Cooperation (OECD) before 2021. So far only Chile and Mexico have made it in Latin America, Colombia is well advanced in the application process. A group of Peruvian land bond owners filed a report questioning Peru’s eligibility as an OECD member.

Regional integration

After Venezuela’s exit, the Andean Community got into a crisis. Perú, Bolivia, Ecuador, Colombia and the newly associated Chile have made a fresh attempt to integrate their countries more economically and politically. Relations with other regional associations – such as Mercosur – are also to be intensified. These were all prerequisites for the creation of a community of South American nations, which was born on December 8th, 2004 in Cusco. This sees itself as an own initiative, which is a counterpart to the Latin American free trade zone ALCA launched by the USA represents. The Venezuelan President Hugo Chávez and Fidel Castro were staunch opponents of this institution and therefore founded the ALBA (Bolivarian Alternative for America) in 2004. It has become very quiet around the community of South American nations.

Shortly before the end of his term of office, the Pacific Alliance was launched on April 28, 2011 in Lima at the initiative of the still incumbent President of Peru, Alan García. The initiators include Chile, Colombia, Mexico and Peru. In May 2013, Costa Rica joined the alliance as a candidate for full membership and seven other states as associate members. Germany has also been an associate member since November 2013. The Pacific Alliance sees itself as an alternative to the ALBA and as an economic alliance. The founding members contribute around 39% to Latin America’s gross domestic product. With a combined economic output of around 2 trillion US dollars, they are ahead of India (9th place) in an international comparison.