Background Notes: Peru, March 1998

Released by the Bureau of Inter-American Affairs.

Official Name: Republic of Peru

PROFILE

Geography

Area: 1.28 million sq. km. (496,225 sq. mi.); three times larger than California.
Cities: Capital--Lima/Callao metropolitan area (pop. 7 million, 1996). Other cities--Arequipa, Chiclayo, Cuzco, Huancayo, Trujillo, Ayacucho, Piura, Iquitos, Chimbote.
Terrain: Western coastal plains, central rugged mountains (Andes), eastern lowlands with tropical forests.
Climate: Coastal area, arid and mild; Andes, temperate to frigid; eastern lowlands, tropically warm and humid.

People

Nationality: Noun and adjective--Peruvian(s).
Population (1997 est.): 24.9 million (70% urban).
Annual growth rate (1997 est.): 1.7%.
Ethnic groups: Indian 45%; Mestizo 37%; White 15%; Black, Japanese, Chinese, and other 3%.
Religion: Roman Catholic (90%).
Languages: Spanish (official), Quechua (official), and Aymara.
Education: Years compulsory--11. Literacy--about 89%.
Health: Infant mortality rate (1997 est.)--43/1,000. Life expectancy (1997)--67 yrs. male; 71 yrs. female.
Work force (1995, 7.6 million): Manufacturing--22%. Commerce--14%. Agriculture--12%. Mining--11%. Construction--9%. Government--5%. Other services--27%.

Government

Type: Constitutional republic.
Independence: 1821.
Constitution: December 1993.
Branches: Executive--president, two vice presidents, Council of Ministers. Legislative--unicameral Congress. Judicial--Supreme Court and lower courts, Tribunal of Constitutional Guarantees.
Administrative subdivisions: 12 regions, 24 departments, 1 constitutional province.
Political parties and movements: Change 90/New Majority, Union For Peru (UPF), American Popular Revolutionary Alliance (APRA), Independent Moralizer Front (FIM), Popular Christian Party (PPC), Popular Action (AP).
Suffrage: Universal over 18; compulsory until age 70 (members of the military may not vote).

Economy (1997)

GDP (est.): $54.0 billion.
Annual growth rate: 7.4%.
Per capita GDP: $2,150.
Inflation rate: 6.5%.
Natural resources: Minerals, metals, petroleum, forests, and fish.
Agriculture (12% of GDP): Products--sugar, potatoes, rice, plantain, milk, yellow corn, cotton, coffee.
Industry (22% of GDP): Types-plastics, soft drinks, paper, varnishes and lacquers, non-metallic minerals, cement.
Trade: Exports--$6.8 billion: petroleum, fish meal, textiles, zinc, gold, coffee, sugar, petroleum products. Major markets--U.S. (23%), China (7.3%), Switzerland (6.1%), Germany (5.7%). Imports--$8.6 billion: machinery, cereals, chemicals, pharmaceuticals, petroleum and mining equipment. Major suppliers--U.S. (25%), Andean Pact countries, Argentina, EU, and Japan.
Official exchange rate (new soles per dollar, March 1998): 2.75=U.S.$1.

PEOPLE

Most Peruvians are mestizo, a term that usually refers to a mixture of Amerindians and Peruvians of European descent. Peruvians of European descent make up about 15% of the population; there are also smaller numbers of persons of African, Japanese, and Chinese descent. In the past decade, Peruvians of Asian heritage have made significant advancements in business and political fields; the president, a cabinet member, and several members of the Peruvian Congress are of Japanese or Chinese descent. Socio-economic and cultural indicators are increasingly important as identifiers. For example, Peruvians of Amerindian descent who have adopted aspects of Hispanic culture are also considered mestizo. With economic development, access to education, intermarriage, and large-scale migration from rural to urban areas, a more homogeneous national culture is developing, mainly along the relatively more prosperous coast.

Peru has two official languages--Spanish and the foremost indigenous language, Quechua. Spanish is used by the government and the media, and in education and commerce. Amerindians who live in the Andean highlands speak Quechua and Aymara and are ethnically distinct from the diverse indigenous groups who live on the eastern side of the Andes and in the tropical lowlands adjacent to the Amazon basin.

Peru's distinct geographical regions are mirrored in a socio-economic divide between the coast's mestizo-Hispanic culture and the more diverse, traditional Andean cultures of the mountains and highlands. The indigenous populations east of the Andes speak various languages and dialects. Some of these groups still adhere to traditional customs, while others have been almost completely assimilated into the mestizo-Hispanic culture.

Education

Under the 1993 constitution, primary education is free and compulsory. The system is highly centralized, with the Ministry of Education appointing all public school teachers. Eighty-four percent of Peru's students attend public schools at all levels.

School enrollment has been rising sharply for years, due to a widening educational effort by the government and a growing school-age population. The illiteracy rate is 25.3 % (37.5% for women) in rural areas and is estimated at 5.3% (8.1% for women) in urban areas. Elementary and secondary school enrollment is approximately 6.l million. Peru's 65 universities (1997), roughly divided between public and private institutions, enrolled about 380,000 students in 1996.

Culture

The relationship between Hispanic and Indian cultures determines much of the nation's cultural expression. During pre-Columbian times, Peru was one of the major centers of artistic expression in America. Pre-Inca cultures, such as Chavin, Paracas, Nazca, Chimu, and Tiahuanaco, developed high quality pottery, textiles, and sculpture. Drawing upon earlier cultures, the Incas continued to maintain these crafts but made even more impressive achievements in architecture. The mountain town of Machu Picchu and the buildings at Cuzco are excellent examples of Inca architectural design.

Peru has passed through various intellectual stages--from colonial Hispanic culture to European Romanticism after independence. The early 20th century brought "indigenismo," expressed in a new awareness of Indian culture. Since World War II, Peruvian writers, artists, and intellectuals have participated in worldwide intellectual and artistic movements, drawing especially on U.S. and European trends.

During the colonial period, Spanish baroque fused with the rich Inca tradition to produce mestizo or creole art. The Peruvian (Cuzco) school followed the Spanish baroque tradition with influence from the Italian, Flemish, and French schools. Painter Francisco Fierro made a distinctive contribution with his portrayals of typical events, manners, and customs of mid-19th century Peru. Francisco Lazo, forerunner of the indigenous school of painters, also achieved fame for his portraits, as did others. Peru's 20th century art is widely known for its extraordinary variety of styles and originality.

In the decade after 1932, the "indigenous school" of painting headed by Jose Sabogal dominated the cultural scene in Peru. Nevertheless, a reaction among Peruvian artists led to the beginning of modern Peruvian painting. Sabogal's resignation as director of the National School of Arts in 1943 coincided with the return of several Peruvian painters from Europe who revitalized "universal" and international styles of painting in Peru. During the 1960s, Fernando de Szyszlo, an internationally recognized Peruvian artist, became the main advocate for abstract painting and pushed Peruvian art toward modernism. Peru continues to be an art-producing center with painters such as Gerardo Chavez, Alberto Quintanilla, and Jose Carlos Ramos, along with sculptor Victor Delfin, gaining international stature. Promising young artists continue to develop now that Peru's economy allows more promotion of the arts.

HISTORY

When the Spanish landed in 1531, Peru's territory was the nucleus of the highly developed Inca civilization. Centered at Cuzco, the Inca Empire extended over a vast region from northern Ecuador to central Chile. In search of Inca wealth, the Spanish explorer Francisco Pizarro, who arrived in the territory after the Incas had fought a debilitating civil war, conquered the weakened people. The Spanish had captured the Incan capital at Cuzco by 1533 and consolidated their control by 1542. Gold and silver from the Andes enriched the conquerors, and Peru became the principal source of Spanish wealth and power in South America.

Pizarro founded Lima in 1535. The viceroyalty established at Lima in 1542 initially had jurisdiction over all of South America except Portuguese Brazil. By the time of the wars of independence (1820-24), Lima had become the most distinguished and aristocratic colonial capital and the chief Spanish stronghold in America.

Peru's independence movement was led by Jose de San Martin of Argentina and Simon Bolivar of Venezuela. San Martin proclaimed Peruvian independence from Spain on July 28, 1821. Emancipation was completed in December 1824, when General Antonio Jose de Sucre defeated the Spanish troops at Ayacucho, ending Spanish rule in South America. Spain made futile attempts to regain its former colonies, but in 1879 it finally recognized Peru's independence.

After independence, Peru and its neighbors engaged in intermittent territorial disputes. Chile's victory over Peru and Bolivia in the War of the Pacific (1879-83) resulted in a territorial settlement. Following a clash between Peru and Ecuador in 1941, the Rio Protocol--of which the United States is one of four guarantors--sought to establish the boundary between the two countries. Continuing boundary disagreement led to brief armed conflicts in early 1981 and early 1995.

The military has been prominent in Peruvian history. Coups have repeatedly interrupted civilian constitutional government. The most recent period of military rule (1968-80) began when General Juan Velasco Alvarado overthrew elected President Fernando Belaunde Terry of the Popular Action Party (AP). As part of what has been called the "first phase" of the military government's nationalist program, Velasco undertook an extensive agrarian reform program and nationalized the fish meal industry, some petroleum companies, and several banks and mining firms.

Because of Velasco's economic mismanagement and deteriorating health, he was replaced by General Francisco Morales Bermudez Cerruti in 1975. Morales Bermudez moved the revolution into a more pragmatic "second phase," tempering the authoritarian abuses of the first phase and beginning the task of restoring the country's economy. Morales Bermudez presided over the return to civilian government in accordance with a new constitution drawn up in 1979. In the May 1980 elections, President Belaunde Terry was returned to office by an impressive plurality.

Nagging economic problems left over from the military government persisted, worsened by an occurrence of the "El Nino" weather phenomenon in 1982-83, which caused widespread flooding in some parts of the country, severe droughts in others, and decimated the schools of ocean fish that are one of the country's major resources. After a promising beginning, Belaunde's popularity eroded under the stress of inflation, economic hardship, and terrorism.

During the 1980s, cultivation of illicit coca was established in large areas on the eastern Andean slope. Rural terrorism by Sendero Luminoso (SL) and the Tupac Amaru Revolutionary Movement (MRTA) increased during this time and derived significant financial support from their alliances with the narcotraffickers. In 1985, the American Popular Revolutionary Alliance (APRA) won the presidential election, bringing Alan Garcia Perez to office. The transfer of the presidency from Belaunde to Garcia on July 28, 1985, was Peru's first exchange of power from one democratically elected leader to another in 40 years.

Extreme economic mismanagement by the Garcia Administration led to hyperinflation from 1988 to 1990. Concerned about the economy, the increasing terrorist threat from Sendero Luminoso, and allegations of official corruption, voters chose a relatively unknown mathematician-turned-politician, Alberto Fujimori, as president in 1990.

GOVERNMENT

The president is popularly elected for a 5-year term, and the 1993 Constitution permits one consecutive re-election. The first and second vice presidents also are popularly elected but have no constitutional functions unless the president is unable to discharge his duties. The principal executive body is the Council of Ministers, headed by a prime minister. The prime minister and the Cabinet are appointed by the president. All presidential decree laws or draft bills sent to Congress must be approved by the Council of Ministers.

The legislative branch consists of a unicameral Congress of 120 members. In addition to passing laws, Congress is empowered to approve treaties, authorize government loans, and approve the government budget. The president has the power to block legislation with which the executive branch does not agree.

The judicial branch of government is headed by a 16-member Supreme Court seated in Lima. The Constitutional Tribunal interprets the constitution on matters of individual rights. Superior courts in departmental capitals review appeals from decisions by lower courts. Courts of first instance are located in provincial capitals and are divided into civil, penal, and special chambers. The judiciary has created several temporary specialized courts, in an attempt to reduce the large backlog of cases pending final court action. In 1996, a Human Rights Ombudsman's office was created to address human rights issues.

Peru is divided into 24 departments and the constitutional province of Callao, the country's chief port, adjacent to Lima. The departments are subdivided into provinces, which are composed of districts. Local authorities below the departmental level are elected.

Principal Government Officials

President--Ing. Alberto FUJIMORI Fujimori
First Vice President--Ing. Ricardo MARQUEZ Flores
Second Vice President--Dr. Cesar PAREDES Canto

Ministers:

Prime Minister--Ing. Alberto PANDOLFI Arbulu
Foreign Minister--Dr. Eduardo FERRERO Costa
Defense--Gen. Cesar SAUCEDO Sanchez
Economy and Finance--Ing. Jorge CAMET Dickmann
Interior--Gen. Jose VILLANUEVA Ruesta
Justice--Dr. Alfredo QUISPE Correa
Education--Ing. Domingo PALERMO Cabrejos
Health--Dr. Marino COSTA Bauer
Agriculture and Food--Ing. Rodolfo MUNANTE Sanguinetti
Labor--Econ. Jorge GONZALEZ Izquierdo
Industry, Commerce, Tourism, and Integration--Ing. Gustavo CAILLAUX Zazzali
Transportation and Communications--Ing. Antonio PAUCAR Carbajal
Energy and Mines--Ing. Daniel HOKAMA Tokashiki
Fisheries--Sr. Ludwig MEIER Cornejo
Promotion of Women & Human Resources Development--Dra. Miriam SCHENONE Ordinola
Minister of the Presidency--Ing. Tomas GONZALES Reategui
Ambassador to the United States--Ricardo LUNA Mendoza
Permanent Representative to the United Nations--Fernando GUILLEN Salas
Ambassador to the Organization of American States--Dra. Beatriz RAMACCIOTTI

Peru maintains an embassy in the United States at 1700 Massachusetts Avenue, NW, Washington, DC 20036 (tel. 202-833-9860/67, consular section: 202-462-1084). Peru has consulates in New York; Paterson, NJ; Miami; Chicago; Houston; Los Angeles; San Francisco; and San Juan, Puerto Rico.

POLITICAL CONDITIONS

Peru is a republic with a dominant executive branch headed by President Alberto Fujimori. President Fujimori won re-election to a second five year term in 1995, and his "Change 90/New Majority" supporters enjoy a substantial majority in Congress. In 1996, the Congress passed legislation interpreting the Constitutional term limits for president, making it possible for President Fujimori to seek re-election in 2000.

In April 1992, two years after his election, President Fujimori carried out an "auto-coup," dissolving Congress and regional governments and assuming control over the judiciary. There was broad popular support for the coup, which reflected deep public frustration with politicians' inefficiency and corruption. The president subsequently convened elections for a constituent congress on November 1992, and won public approval of the new constitution in an October 1993 referendum.

The Fujimori Government has substantially reduced the terrorist threat of Shining Path (SL) and the MRTA. Although greatly weakened since the 1992 capture of its leader Abimael Guzman, Shining Path remains capable of launching violent attacks, particularly in the coca-producing Upper Huallaga Valley and occasionally in Lima. Elements of SL are reported to be actively recruiting in some of Lima's shantytowns. Despite the December 1995 arrest of MRTA leader Miguel Rincon Rincon and others at a safe house in a Lima suburb, remaining armed militants of the MRTA were able to carry out an attack on a diplomatic reception at the residence of the Japanese Ambassador to Peru in December 1996. More than 500 guests were initially held captive by the MRTA, which demanded the release of all MRTA members being held in Peruvian prisons. On April 22, 1997, after 126 days, Peruvian commandos stormed the residence and freed 71 of the remaining 72 hostages. One hostage, two commandos and all of the hostage-takers were killed.

Human rights violations by the security forces dropped considerably over the last four years, although their use of torture, and the lack of accountability and due process remain areas of concern. In 1995, the Peruvian Congress passed a law which granted amnesty from prosecution to those who committed human rights abuses during the war on terrorism from May 1980 to June 1995. The Peruvian Government established in 1996 the Human Rights Ombudsman's office to address human rights issues and an ad hoc commission to review and recommend for presidential pardon those unjustly detained for terrorism or treason.

ECONOMY

Peru's economy rebounded in 1997, spurred mainly by a growth in exports (especially, so-called "non-traditional" exports). GDP grew 7.4% in 1997, much improved from the previous year's slump, during which the economy grew only 2.8%, and much better than most observers predicted. January 1998's output grew only 0.2%--clearly affected by "El Nino." The Lima Stock Exchange had an extraordinary year in 1997, despite significant declines in October (along with most other stock exchanges worldwide). The general index rose 25.5% in nominal terms in 1997; the selective ("blue chip") index rose 32.2%. Since the end of 1997, both indices have experienced nominal declines of 11.5% and 11.3%, respectively.

1997's inflation rate was at a 25-year low, at 6.5%. This measure far exceeded expectations, which at the beginning of the year were that inflation might reach 9% under optimal conditions. Due to the two exogenous shocks--the "El Nino" weather phenomenon and the Asian economic and financial crisis--1998 inflation is officially predicted at 8%, due to supply bottlenecks domestically (especially on food items) and higher dollar costs of imports (due to faster depreciation of the sol vis-a-vis the dollar). Although accumulated inflation for January and February was 2.2%, inflation is predicted to slow significantly in the second half of the year, after the effects of "El Nino" are expected to have moderated.

Foreign Trade and Balance of Payments

After falling between 1995 and 1996, Peru's merchandise trade deficit was expected to rise slightly in 1997. Instead, the deficit narrowed significantly, as exports grew much faster than did imports. Overall, export revenues rose 14.5% (compared to early 1997 estimates of 2%) to $6.8 billion. Imports also rose faster than expected (8.5% vs. 2.0%) to $8.6 billion. Peru's total capital inflows (including estimated illicit narcotics earnings of $300 million to $600 million) are forecast to be more than enough to cover the country's 1997 current account deficit (equal to about 5.2% of GDP.) The effects of "El Nino" and the Asian crisis are expected to cause the current account deficit to increase to about 6% of GDP in 1998.

During 1997, Peru re-inserted itself into the international financial system, beginning with a Brady debt restructuring in March. In December, it also completed a debt swap with the United States Government, by which it repaid part of its debt (part of which had already been written-off by the U.S.) in return for using part of the funds for environmental projects or projects that will enhance child survival.

Net international reserves of the Central Bank stood at $10.2 billion at the end of 1997, $1.6 billion higher than at the end of the previous year.

Foreign Investment

The Peruvian Government actively seeks to attract both foreign and domestic investment in all sectors of the economy. International investment has been spurred by the significant progress Peru has made over the last seven years toward economic, social, and political stability. While Peru was previously marked by terrorism, hyperinflation, and government intervention in the economy, the Government of Peru under President Alberto Fujimori has taken the steps necessary to bring those problems under control. However, democratic institutions, especially the judiciary, remain weak.

The Government of Peru's economic stabilization and liberalization program has lowered trade barriers, eliminated restrictions on capital flows, and opened the economy to foreign investment, with the result that Peru now has one of the most open investment regimes in the world. Between 1991 and 1997, Peru attracted over $7 billion in foreign direct investment in Peru, mainly from Spain (34%), the United States (21%), the United Kingdom (13%), and Panama and the Netherlands (7% each). The basic legal structure for foreign investment in Peru is formed by the 1993 Constitution, the Private Investment Growth Law, and the Investment Promotion Law of November 1996. While Peru has neither a bilateral investment treaty nor a bilateral taxation treaty with the United States, it has signed an agreement (1993) with the Overseas Private Investment Corporation concerning OPIC-financed loans, guarantees, and investments. Peru has also committed itself to arbitration of government-to-government investment disputes under the auspices of ICSID--the World Bank's International Centre for the Settlement of Investment Disputes.

Economic Outlook

Although 1997 was a good year for Peru's macroeconomy, 1998 will be substantially more difficult. The Asian economic and financial crisis and the unexpectedly harsh effects of the "El Nino" weather phenomenon will both adversely affect Peru's economy, which is not likely to meet 1997's 7.4% GDP growth rate and 6.5% inflation rate. Official forecasts are for 4% output growth and 8% inflation. Forecasts for the medium- and long-term remain bright, as the country continues to attract both domestic and foreign investment in the tourism, mining, petroleum and natural gas, and electric power industries.

Narcotics

The fight against narcotics trafficking in Peru has resulted in an unprecedented 40% decline in the number of acres of illegal coca leaf under production in the past two years: however, most of the world's cocaine supply still originates from coca leaf grown in Peru. The contribution of this illicit industry to the national economy is difficult to measure, but estimates range from $300-600 million. An estimated 200,000 Peruvians are engaged in the production, refining, or distribution of the narcotic. Many economists believe that large flows of dollars into the banking system contribute to the traditional depression in the dollar exchange rate vis-a-vis the sol, prompting the Central Bank to engage in open market activities to prevent the price of the sol from rising to levels that would otherwise hurt Peruvian exports.

Confronted by effective Peruvian Air Force interdiction efforts, drug traffickers are increasingly using land and river routes to transport cocaine paste around the country. Peru continues to seize drug traffickers and drugs, destroy coca labs, disable clandestine airstrips, and prosecute security officers involved in narcotics corruption.

Working with the U.S. Agency for International Development (USAID), the Peruvian Government has begun alternative development programs in the leading coca-growing areas in an effort to convince coca farmers not to grow that crop. The government also has programs to eradicate coca seed beds and is working to eliminate precursor chemicals. In 1996, the Fujimori Administration created a new office--"Contradrogas"--to facilitate coordination among Peruvian Government agencies working on counternarcotics issues.

FOREIGN RELATIONS

Armed conflict broke out between Peru and Ecuador in January 1995 over an undemarcated portion of their border. Both countries agreed to a cease-fire in February 1995 which remains in effect. The United States, along with Argentina, Brazil, and Chile, are guarantors of the 1942 Rio Protocol and are supporting Peruvian and Ecuadorian efforts to find a permanent viable solution to the border demarcation issue. In April 1997, Peruvian and Ecuadorian delegations began substantive discussions in Brasilia aimed at this objective. In November, Peru and Ecuador signed the Declaration of Brasilia agreeing to work in four areas to achieve a settlement of their differences. In January 1998, they adopted a workplan to implement the Declaration of Brasilia by establishing four commissions to: prepare a treaty of commerce and navigation; draft a comprehensive agreement on border integration; fix on the ground the common land border; and establish a binational commission on mutual confidence measures and security. The commissions began work in February. Peru and Ecuador set a target date of May 30 for achieving a definitive settlement of their border dispute.

President Fujimori is increasing Peru's ties to Japan and other countries on the Pacific Rim. In 1996, the Prime Minister of Japan and the President of South Korea visited Peru. In the wake of the December 1996 hostage-taking by MRTA terrorists at the Japanese ambassadorial residence in Lima, the Japanese and Peruvian Governments consulted closely on the means of resolving the crisis. Prime Minister Hashimoto of Japan visited Lima in April 1997 to express gratitude for the rescue operation by Peruvian security personnel which claimed the life of only one of the 72 remaining hostages.

Peru has been a member of the United Nations since 1949, and Peruvian Javier Perez de Cuellar served as UN Secretary General from 1981 to 1991. The April 1992 auto-coup strained Peru's relations with many Latin American and European countries, but relations improved as the government returned to democratic processes. Peru recently reached agreement with the other members of the Andean community on full integration into the Andean Free Trade Area.

U.S.-PERUVIAN RELATIONS

The United States enjoys friendly relations with Peru. Relations were strained after the 1992 auto-coup, but improved subsequently as Peru undertook steps to restore democratic institutions and to address human rights problems related to its counter-terrorism efforts. The United States continues to promote the strengthening of democratic institutions and human rights safeguards in Peru.

The United States and Peru cooperate on efforts to interdict the flow of narcotics, particularly cocaine, to the United States. The Peruvian Air Force has successfully interdicted narcotics trafficking aircraft, and appears to have significantly curbed the flow of narcotics through Peruvian air space. In tandem with successful law enforcement operations, the United States and Peru cooperate on promoting programs of alternative development in coca-growing regions.

The United States has supported Peru's efforts to become more integrated with the international financial community. Those efforts, together with increased economic and social stability, have resulted in a substantial increase in U.S. investment and tourism in Peru in recent years. U.S. exports to Peru (1997) were valued at $1.96 billion, accounting for about 25% of Peru's imports. In the same year, Peru exported $1.77 billion in goods to the United States ($1.58 billion according to Peruvian statistics), accounting for about 23% of Peru's exports to the world.

In 1997, approximately 140,000 U.S. citizens visited Peru for business, tourism, and study. About 10,000 Americans reside in Peru and over 200 U.S. companies are represented in the country.

U.S. Economic Assistance

U.S. bilateral assistance to Peru, including food aid and disaster relief and rehabilitation, totaled more than $950 million during the 1990-97 period. The Agency for International Development's largest South American program is in Peru. USAID has provided resources for priority development projects at a time when Peru's own domestic resources have been severely restricted by the need for austerity in public spending.

U.S. assistance to Peru is focused on achieving five strategic objectives: broader citizen participation and more responsive government; increased incomes for Peru's poor; improved health of high risk populations; improved environmental conditions; and, perhaps most importantly, reduced production of illicit narcotics.

Broader Citizen Participation. The United States Government, through USAID, provides support to Government of Peru electoral bodies and non-governmental organizations (NGO's) to strengthen the electoral system, to the Controller General to improve public accountability, and to local NGO's to promote greater civic action and public interest in governmental affairs. A significant amount of funding is given to the Human Rights Ombudsman's Office and NGO's working in the human rights field. USAID also has a program to strengthen local governments and promote community participation in targeted areas.

Increased Incomes. USAID has sought to provide much needed services to the 20% of Peru's population characterized as "extremely poor." Working principally through private sector and not-for-profit organizations, USAID has provided assistance to 270,000 nutritionally at-risk children and 200,000 heads of households in poor areas.

Improved Health. The United States Government supports immunization, family planning, prenatal care, safe childbearing, and oral rehydration programs in Peru. USAID assistance has contributed to decreases in infant and child mortality over the past decade.

Improved Environmental Conditions. USAID provides assistance to help Peru (a) improve its legal, policy, and regulatory framework governing environmental protection; (b) prevent pollution in selected settings; and (c) protect biologically diverse areas.

Alternative Development. The United States Government provides integrated development services to farmers in five target areas in order to wean them from coca production. USAID hopes to reduce coca cultivation by 50% in the targeted areas within several years.

Principal U.S. Officials

Ambassador--Dennis C. Jett
Deputy Chief of Mission--Heather M. Hodges
Director, AID Mission--Donald W. Boyd
Counselor for Political Affairs--Jim E. Wagner
Counselor for Economic Affairs--Krishna R. Urs
Counselor for Narcotics Affairs (NAS)--John M. Crow
Counselor for Public Affairs (USIS)--John S. Dickson
Counselor for Administrative Affairs--Alphonse Lopez
Counselor for Consular Affairs--Annette L. Veler
Naval and Defense Attache--Capt. Francis G. Satterthwaite
Army Attache--Lt. Col. Leocadio Muniz (until 4/98; then Col. Samuel K. Stouffer)
Air & Defense Attache--Col. Charles W. Griffin (until 7/98; then Col. Michael McCarthy)
Chief, Military Assistance Advisory Group (MAAG)--Col. Manuel Fuentes
Consular Agent, Cuzco--Dr. Olga Villagarcia

The U.S. Embassy in Peru is located at Avendia la Encalada, Cuadra 17 s/n, Monterrico (Surco), Lima 33 (tel. (511) 434-3000; fax. (511) 434-3037). Home page: http://ekeko.rcp.net.pe/usa/

The embassy is open from 8:00 a.m. to 5:00 p.m., except U.S. holidays. The mailing address from the United States is American Embassy Lima, APO AA 34031 (use U.S. domestic postage rates). The American Citizen Services section is open to the public from 8:00 a.m. to 12:00 p.m.

The Consular Agency in Cuzco is located at Anda Tullamayu 125 (tel. (51) (84) 224112 or (51) (84) 239451; fax. (51) (84) 233541).

OTHER CONTACT INFORMATION:

U.S. Department of State
Bureau of Inter-American Affairs
Office of Andean Affairs (Room 5906)
2201 "C" Street NW
Washington, DC 20520-6263
Tel: 202-647-3360
Fax: 202-647-2628
Home Page: http://www.state.gov

U.S. Department of Commerce
International Trade Administration
Office of Latin America and the Caribbean
14th and Constitution, NW
Washington, DC 20230
Tel: (202) 482-0475
(800) USA-TRADE
Fax: (202) 482-0464
Home Page: http://www.ita.doc.gov

American Chamber of Commerce of Peru
Avenida Ricardo Palma 836, Miraflores
Lima 18, Peru
Tel: (511) 241-0708
Fax: (511) 241-0709
E-Mail: amcham@amcham.tci.net.pe
Home Page: http://www.amcham.org.pe

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheets exist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country.

Peru is a republic with a dominant executive branch headed by President Albert Fujimori, who was first elected in 1990 and won reelection by a landslide in 1995. The President appoints a number of ministers to carry out and oversee the work of the executive branch. The legislative branch is a unicameral congress with 120 members elected at large. Like the president, they serve five-year terms.

Major political parties include President Fujimori's rather loosely organized "Cambio 90/Nueva Mayoria," which holds a majority in the new congress; the equally loosely organized "Union por el Peru" (UPP) whose leader is former UN Secretary General and presidential runner-up Javier Perez de Cuellar; and the quasi-socialist "American Popular Revolutionary Alliance (APRA)". There are a number of smaller parties with seats in the congress, including the socialist/marxist "United Left," centrist "Popular Action," center-right "Popular Christian Party" (PPC), and the "Independent Moralizing Front" (FIM). Because Peruvians' faith in the traditional political parties has waned, independent candidates made the strongest showing in the November 1995 nationwide municipal elections.

U.S. policy in Peru reflects varied goals: the strengthening of democracy, fostering respect for human rights, the curtailment of illegal narcotics trafficking, supporting U.S. businesses and citizens, and encouraging sustainable development. The U.S.-sponsored development and humanitarian assistance program is currently the largest in South America.

Peru's human rights record has improved markedly during the last few years as the level of political violence has declined. The numbers of political disappearances and extrajudicial killings have dropped dramatically since 1992. Nonetheless, the U.S. government remains concerned about continued arbitrary detentions, lack of due process, reports or torture of detainees, and limited prosecution of those government and military officials accused of abuses.

Armed conflict broke out between Peru and Ecuador in January 1995 over a portion of the undemarcated border. Casualties for both sides were about 100 to 150 deaths. A cease-fire was agreed to in February 1995, and is still respected. The U.S., along with Argentina, Brazil, and Chile, are guarantors of the Peru-Ecuador 1942 border treaty and are supporting Peruvian and Ecuadorian efforts to end the border conflict.

The security situation has improved considerably since the September 1992 capture of terrorist leader Abimael Guzman. However, Peru's two terrorist groups, Shining Path (SL) and the Tupac Amaru Revolutionary Movement, although seriously debilitated by the capture of their top leaders, have not been defeated. Both groups continue to carry out terrorist activities, including attacks on foreign businesses and diplomatic missions.

For up-to-date information regarding the security situation, contact the U.S. Department of State or U.S. Embassy in Lima.

Labor is abundant and trainable, although there is a shortage of highly skilled workers. The presence of organized labor in the Peruvian economy continues to decline. Probably less than 6 percent of the labor force is organized. As much as 50 percent of the economically active population works in the informal sector, with many working at low wage levels (below what the government considers a subsistence wage). Since April 1994, the legal minimum wage for workers has been 132 soles per month (about $55 at the May 1996 exchange rate) which is far below that necessary to meet minimum living requirements. Only a few new employees outside Lima (where living costs are substantially lower than in the capital) are paid the minimum wage. A comprehensive labor law was promulgated in 1992, allowing for multiple forms of unions across company or occupational lines, thus permitting multiple unions in the same company. Workers in probation status or on short-term contracts are not eligible for union membership. Bargaining agreements are considered contractual agreements, valid only for the life of the contract. The concept of "acquired rights" carrying over from previous contracts has been abolished. Productivity provisions must be included in any collective bargaining agreement. The number of officials and the amount of time union officials may devote to union work with pay is limited to 30 days per year. Unless there is a pre-existing labor contract covering an occupation or industry as a whole, unions must negotiate with each company individually. A labor law passed in July 1995 has further liberalized hiring.

Union or management can request binding arbiration in contract negotiations. Strikes can be called only after approval by a majority of all workers (union and non-union) voting by secret ballot. Unions in essential public services, as determined by the government, must provide during a strike a sufficient number of workers (as determined by the employer) to maintain operations. The 1993 constitution provides for a maximum work day of 8 hours, with 48 hours as the maximum week. The labor code also sets a 45-hour work week for women, including 24 hours rest per week and 30 days paid annual vacation for all workers. These and other benefits are readily sacrificed in exchange for regular employment. Strike activity has declined markedly over the past four years.

Holidays

The Peruvian official holidays are:

Peru's financial system consists of 23 commercial banks, the Central Bank, the Peruvian government's Banco de la Nacion, the quasi governmental financing company Cofide, and four private financing companies. Four of the commercial banks (Citibank, Banco de Credito, Extebandes and Bank of Boston) have offices in the United States. At the end of March 1996, total liquidity of the banking system amounted to about US$ 10,442 million of which US$ 3,825 was denominated in local currency and US$ 6,617 million or 63 percent in dollars. In 1995, commercial bank loans increased around 36 percent, from US$ 5,434 million to US$ 7,417 million. Also in 1995, share capital and reserves of commercial banks increased 22 percent and 29 percent respectively. The Banking Superintendency (SBS) reported that at the end of 1995, only about 4.8 percent of the lending portfolios was non-performing. The SBS also estimated that around 5.5 percent of the portfolios comprised high-risk loans. Under the banking law of December 1993, the SBS was given greater supervisory responsibilities, and banks were required to recapitalize as well as follow more prudent financial policies. In addition to commercial banks, the law allows for the creation of consumer credit companies and investment banks. The law has played a major role in making the banking system more solvent with the liquidation of inefficient government sectorial development banks, savings and loans, and cooperatives. In part, this cleanup was required under the conditions of financial-sector loans from the World Bank and the Inter-American Development Bank (IDB) that accompanied Peru's clearance of its arrears to international financial institutions (IFIs) and reinsertion into the international financial community. The SBS has received IMF and IDB support in reclassifying bank portfolios and setting new standards of prudence, including norms on concentration of loan portfolios. As a result, the percentage of non-performing debt in the commercial banking system has fallen sharply.

Peruvian law allows banks to freely take deposits and to make loans in both foreign and domestic currency. The Peruvian banking system is highly "dollarized" and at present about 63 percent of liquidity in the banking system is denominated in dollars. Lending rates for both dollars and soles still are high, but they have moved downward in the past year. These higher rates primarily are a reflection of a high reserve requirement (45 percent) on dollar deposits as well as country risk factors. In April 1996, lending rates for soles averaged 36.5 percent per annum, while dollars fetched 17.5 percent. At the same time, interest rates for deposits of soles and dollars were 15.5 and 8.7 percent per annum respectively. The large spread (21 percentage points) between lending and deposit rates for soles contrasted sharply with the projected 11 percent inflation target for 1996. As mentioned previously, consumer credit is available, but rates are very high, often two or three times the level of bank credit. Two types of credit cards are issued by local banks: one for domestic transactions, and the other for international use. The sol and dollar are freely convertible and there are no exchange controls or import or export licensing requirements that would affect access of importers to foreign currency.

Financing Available

The foreign business community as well as larger Peruvian companies have easy access to financing both within and outside Peru. Most Peruvian banks now boast that they have access to short and medium-term capital for LIBOR plus 2-3 percent. Thus, local lending rates to preferred customers (both foreign and Peruvian) can be quite competitive. While average dollar lending rates were around 18 percent per annum in April 1996, top companies in Peru can get local financing in dollars for 11 percent per annum. On the other hand, many smaller companies still have to pay over 25 percent. However, improved access to cheaper financing is expected following the recent decision of the Peruvian government to finalize a Brady Plan in 1996 which will set up a mechanism to begin repayment of an estimated US$ 8-10 billion in arrearages to foreign commercial banks. Also, more financing capital should become available through Peru's private pension system (which began functioning in June, 1993) and increased issuance of bonds by both banks and "blue chip" Peruvian firms.

Peruvian firms import through letters of credit confirmed by correspondent banks in the United States or other supplying countries. All Peruvian commercial banks have correspondent relationships with banks in the U.S., Europe and Asia, although until recently only smaller, regional U.S. banks have been interested in establishing these relationships. Given Peru's improving track record, larger banks have begun to show interest in short-term trade financing and correspondent relationships. The U.S. Export Import Bank recently re-entered Peru and is providing short and medium-term financing to government institutions and up to long term for private companies. In July 1996 the EximBank's board reviews its risk charges for Peruvian operations.

The World Bank Group

The World Bank Group is a multilateral lending agency consisting of four closely related institutions: the International Bank for Reconstruction (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The World Bank provides loans to developing countries to help reduce poverty and to finance investments that contribute to economic growth. The International Bank for Reconstruction and Development (IBRD), frequently called the "World Bank", was conceived in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The World Bank opened for business in June, 1946 and its first focus was the reconstruction of war-torn Europe. Today the World Bank lends to the developing countries of Africa, Asia, Latin America and the Caribbean, and the Middle East and Europe. The World Bank and its affiliates are headquartered in Washington, D.C. A brief description of each group member follows.

The International Bank for Reconstruction and Development (IBRD) provides funding for creditworthy developing countries with relatively high per capita income. It also provides technical assistance and policy advice. IBRD raises the money through the sale of AAA-rated bonds in international capital markets. Loans are made only to governments or to agencies that can obtain a government guarantee. The IBRD also provides partial risk or partial credit guarantees (with a conter-guarantee from their government) to private lenders on development projects. The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR. Repayment is usually over 12 to 15 years, including a grace period of three to five years. Opportunities for U.S. companies exist to supply goods and services in connection with these loans.

The International Development Association (IDA) provides assistance on concessional terms to the poorest developing countries (per capita incomes below $865 in 1994 dollars) that are not sufficiently creditworthy for IBRD financing. It receives its funding largely from contributions from its wealthier member countries. The terms for IDA credits are maturities of 35 or 40 years (depending on the level of development of the borrower), including a ten-year grace period and no interest but a 0.75% annual service charge. IDA credits are made only to governments. As with the IBRD, procurement procedures are well-established and offer opportunities for U.S. suppliers, engineers and consultants.

The International Finance Corporation (IFC) is an affiliate of the World Bank that provides project financing for private investment in developing countries. IFC offers long-term loans and equity investments, as well as other financing services. IFC will generally invest up to 25% of the total project cost. In addition to project finance, IFC also provides legal and technical assistance to private enterprises. Unlike the IBRD and IDA, the IFC does not require government guarantees. U.S. companies seeking direct investment funds should contact the IFC.

The Multilateral Investment Guarantee Agency (MIGA) was established in April 1988 to help investors overcome the problems of political risk. Investors' concerns about political risk had the effect of slowing down the flow of foreign direct investment which in turn slowed the creation of jobs, and the transfer of modern technology. MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate. U.S. companies seeking investment guarantees should contact MIGA.

For further information and assistance contact the Commercial Service Liaison Staff, Office of the U.S. Executive Director, The World Bank, 1818 H Street NW, Washington DC 20433, USA. Tel 202/458-0118 or 0120, Fax 202/477-2967.

Only a U.S. passport is required for a 90-day stay in Peru for tourism purposes. Travelers can extend their stay twice beyond the 90-days by paying US$ 20 for each additional 30-day stay. It is recommended that U.S. business persons traveling to Peru use their tourist passport provided they are not reimbursed in Peru for their services. However, if any monies are to be earned in-country, a business visa is required, and a tax declaration must be processed before departing the country. This process takes approximately 3 days. For more information on Peruvian visa requirements, contact the Peruvian Embassy in Washington, D.C. or consulates in the following cities: Chicago, Houston, Los Angeles, Miami, New York, Paterson, San Francisco, and Washington, D.C.

Protecting Your Product and IPR Infringement

Protection of intellectual property in Peru has improved significantly in recent years, but it still falls short of U.S. and international standards in several areas. Peru thus remains on the Special 301 Watch List.

The Peruvian government agency charged with promoting and defending intellectual property rights is the Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI), established in 1992. Patents, trademarks, utility models, and industrial designs are protected by Law No. 26017 of 1992 and by Andean Pact Decisions 344 and 345. In case of conflict, the statute offering the stronger protection will prevail. Copyrights are protected by recently enacted Legislative Decree No. 822 and by Andean Pact Decision 351. Peru is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Geneva Convention for the Protection of Sound Recordings, the Brussels Convention on the Distribution of Satellite Signals, and the Paris Convention on Industrial Property. In December 1994, the Peruvian Congress ratified the Uruguay Round agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

Registering a trademark is not a cumbersome procedure, although as a practical matter local legal counsel must be obtained. Counterfeiting of trademarks is prevalent. At times the local courts have failed to uphold INDECOPI trademark enforcement decisions in clear-cut cases. Illegal copies of copyrighted books, audio cassettes, motion-picture videos, and computer software are openly sold on the streets, as well as in video-rental outlets, computer stores, and shopping centers. INDECOPI enforcement efforts, together with greater availability of legitimate merchandise, have reduced the level of piracy somewhat in the last two years.

Decision 344 contains compulsory licensing provisions, but they are not likely to be applied in Peru, because of the onerous conditions that must be met. There is no pipeline protection for pharmaceutical patents. Patents may not be taken out on animal species, materials derived from the human body, nuclear and other fissible materials, or inventions deemed to be contrary to the public order or to the sustainable development of the environment. Peruvian law does not protect semiconductor chip layout designs, but the Embassy is not aware of any infringements in this area. Private freebooting of broadcast satellite signals may exist, but the commercialization of the captured signals without a license appears to have ended.

Dispute settlement

The Fujimori administration has worked from the outset to resolve investment and expropriation disputes which were inherited from previous governments. The eight year-old dispute over the Belco Petroleum expropriation was finally resolved on August 28, 1993. The Fujimori government signed a compensation agreement with the American International Group for the 1985 expropriation of Belco assets. The long-standing dispute between AIG and the GOP came to a close on September 28, 1993, with the first payment of $30 million toward settlement of AIG's $184.7 million claim. The next payment under the seven-year agreement was made July 31, 1995. The GOP paid AIG about $54 million in 1994 and remains on track with payments of $24 million per year through 1999. Investment disputes with Southern Peru Copper Ltd. (controlled by ASARCO) and Occidental Petroleum were resolved in December 1991.

Peru accepts binding international arbitration of investment disputes between foreign investors and the state, in accordance with national legislation or international treaties signed by the government. A law permitting international arbitration of disputes between foreign investors and the government or state-controlled firms was issued by decree in December 1992. Peru is a party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitration awards, and to the International Center for Settlement of Investment Disputes (Washington Convention). These have improved the GOP's ability to attain investment agreements with European countries. Disputes between foreign investors and the state regarding pre-existing contracts must still be submitted to national courts. However, investors who conclude a juridical stability agreement for additional investments are permitted to submit contract disputes with the government to national or international arbitration by mutual agreement. Peru has written commercial and bankruptcy laws. Bankruptcy law is administered by Indecopi (the National Institute for the Defense of Free Competition and the Protection of Intellectual Property). The creditor hierarchy is similar to U.S. bankruptcy law and monetary judgments are usually made in local currency. In principle, secured interests in property, both chattel and real, are recognized. Even in times of great instability in terms of real property, the government is still working to complete the retitling of agricultural land expropriated under the agricultural reform of 1968. A system of home mortgages secured by property did not exist for several years, but beginning in 1994, local commercial banks began mortgage lending again.

Peru imposes 15-percent duties on 95 percent of the items on its tariff schedule and 25-percent on the rest (primarily textiles and footwear). The weighted-average tariff is approximately 16 percent, down from 80 percent in mid-1990. The government has announced a desire to move a flat 15 percent rate, which will eventually be reduced to 10 percent. But no timetable has been set. This could change if Peru decides to join the Andean Customs Union and adopt its common external tariff schedule, which has rates varying from 5 to 20 percent. Most imports are also subject to an 18 percent value added tax, on the same basis as domestically produced goods. In addition, selective consumption taxes are applied to certain products. There are no quantitative import restrictions.

In March 1991, Peru introduced "temporary" import surcharges on six basic agricultural commodities: wheat, wheat flour, rice, corn, sugar and milk products. The government argued that the surcharges were necessary to offset subsidies by exporting countries. The surcharges are calculated on a weekly basis, according to prevailing international prices for each commodity. As a condition for disbursement of a trade-sector loan from the InterAmerican Development Bank, the government agreed to phase out the surcharges over a three-year period ending in 1997. The government began reducing the surcharges in increments in April 1994. In any case, the surcharges have been practically non-existent over the last year because of high prevailing international prices. In early 1996, some U.S. exporters of agricultural products encountered difficulties selling their products in Peru because of strict application of what they considered to be unreasonable phytosanitary standards. For example, phytosanitary authorities were requiring some U.S. farm products to be treated for pests that do not exist in North America. The U.S. Embassy has been working with Peruvian authorities to resolve these problems. With the opening of an APHIS office in the Embassy this year more support can be provided to U.S. farm exporters/importers.

Customs Valuation

The Peruvian Customs Authority has been reformed and modernized over the last five years, with help from the InterAmerican Development Bank and the UN Development Program. Collections have more than tripled since 1991, despite dramatically lower tariff rates, and Customs officials claim contraband has been reduced 65 percent to US$ 350 million, from more than US$ 1 billion in 1990. A new Customs Law was promulgated in April 1996 to consolidate these reforms. Implementing regulations for the new law are to be published by July 1996. However, some U.S. exporters continue to encounter problems with Peruvian Customs. For example, one of the reforms, designed to combat chronic under-invoicing, was the implementation of a pre-inspection system. The Customs service employs private firms, called supervisors, to evaluate all shipments worth more than US$ 2,000. The importer pays up to 1 percent of the FOB value of the goods to cover the cost of the valuation. Importers complain that this system creates excessive delays and forces them to meet dual sets of requirements -- one set by the Customs officials and one by the supervisor. Also, importers have complained that customs inspectors frequently disregard the valuations of the supervisors. Valuation of software has been another problem. Peru plans to implement the GATT customs valuation code by the year 2000.

Import Licenses

The government has abolished import licenses for the vast majority of products. The only remaining products requiring licenses are firearms, munitions and explosives imported by private persons, chemical precursors (used in cocaine production) and ammonium nitrate fertilizer, which has been used as a blast enhancer for terrorist car bombs.

Export Controls

Export licenses are required for cultural relics and items of antiquity. In addition, end-user certificates are required for the export or re-export of items on the international munitions list, the international chemical/biological warfare (CBW) list and the missile technology control regime (MTCR) list. Such licenses cover an extremely small portion of total Peruvian exports -- less than one percent.

Import/Export Documentation

For imports, the government requires an invoice, bill of lading, a packing list, proof of insurance and a certificate of customs inspection for items worth more than US$ 2,000 prior to shipment. If the product is imported from the Andean Pact (Colombia, Venezuela, Ecuador and Bolivia), a certificate of origin is required to qualify for tariff preferences. A certificate of quality is required for pharmaceutical products.

For exports, a bill of lading and invoice are required, as well as an end-user certificate in the case of the export of munitions-controlled, CBW, or MTCR items.

Temporary Entry

Goods admitted into the country temporarily for re-export can receive duty drawback from customs. Documentation requirements are the same as those listed above.

Labeling, Marking Requirements

Labeling requirements are not onerous. Basically products normally retain their original labels and the name and taxpayer identification number (RUC) must be added to the packaging.

Prohibited Imports

Very few items have been prohibited from import in the last three years. The importation of used clothing and shoes is prohibited, although imports of donated used clothing and shoes are exempt from the prohibition. Import of plagicides (insecticides against insect plagues) and toxic waste is also restricted. Imports of used cars were prohibited in January, 1996, although the government is discussing lifting the ban for cars up to 4 years old.

Standards

The government has no specific standards required for imports. Even right-hand drive vehicles are permitted, although purchasers are supposed to adapt them to left-hand drive once they are imported. Some industry standards are developing in the private electronics and construction industries.

Free Trade Zones

Peru currently has two free trade zones: Ilo and Tacna. Both are located near the Chilean border and were areas previously subject to a substantial contraband trade. Eligible items enter the free trade zones free of duty, but when they enter the rest of Peru they are subject to normal duties. The number of products eligible for duty-free treatment under this regime was reduced substantially in early 1996.

Special Import Provisions

Products destined to the sparsely populated jungle areas are subject to a special tariff regime. However, to prevent fraud, the government attempts to closely monitor these products to ensure they remain in the jungle.

Distribution and Sales Channels

The exporter's first step is to carry out market research that will primarily point out the market potential for the product about to be launched or sold. He must be aware of the type of distribution channels that are available and most likely to succeed. The new to export marketer should participate in trade shows, an ideal place to obtain knowledge of the distribution and marketing opportunities.

The population of Peru is extremely centralized, with 30% of all inhabitants living in the capital city of Lima. Therefore, most sales occur in Lima, but opportunities exist in other major population centers which should be part of an overall marketing strategy. Representatives in Lima will have sales agents in these cities, thereby maintaining constant communication.

The most common method of distribution is the acquisition of a strong and qualified representative. Appointing an agent or distributor is advisable if your company is seriously considering entering the market. At present, U.S. companies are finding good success in locating qualified local agents.

An alternative approach in distribution is to establish a local subsidiary or branch office. This method can create the best opportunity for you to give effective service and aggressive promotion of your product. Expenses for commercial and industrial space are rapidly rising in the Lima area, which could make this an expensive option.

Use of Agents and Distributors - Finding a Partner

Customarily, suppliers enter the Peruvian market by appointing an agent, distributor, or wholesaler. Most are located in Lima with branch offices in the other main cities such as Arequipa, Trujillo, and Tacna.

Peruvian law does not require the use of local distributors for private sector commercial sales. However, for sales to the government, you should contract and register a local agent. It is advisable to have a representative "on the ground" to keep up with the latest opportunities and developments. (See "Selling to the Government" further in this chapter.)

You should be thorough in the selection of an agent or a representative. You may wish to take advantage of U.S. Department Commerce services by contacting you local Commercial Service Office in the U.S. These include the Agent/Distributor Service (ADS), which helps identify interested agents and distributors, the Gold Key Service (GKS), which identifies potential distributors and arranges for meetings, and the International Company Profile (ICP), which reports on individual companies.

Direct Marketing

Direct marketing is fairly well-established in Peru in the service sector, especially among financial institutions and seminar organizers. One common practice is to hire personnel for telemarketing and mailing campaigns or to contract these services from specialized firms. Data bases for direct marketing are zealously guarded and thus are not readily available. Nevertheless, commercial information can be obtained through the chambers of commerce and trade associations (See Section X, Appendix E: U.S. Country Contacts).

Catalog sales for consumer goods in Peru are almost non-existent because of the high degree of mistrust in the quality of the product and the impossibility of obtaining warranty claim approvals if the good purchased is not entirely satisfactory to the customer.

Advertising and Trade Promotion

Lima boasts 15 daily newspapers, each of which strives to be a "national" newspaper. Locally oriented dailies can be found in most provincial capitals. First in influence and national readership is "El Comercio", which is also the nation's oldest paper with over 150 years of continuous publication. The other most influential dailies are the right-of-center tabloid "Expreso", its leftist counterpart "La Republica" and business dailies "Gestion" and "Sintesis". The government daily which contains all procurement information is "El Peruano".

EL COMERCIO
Director: Aurelio Miro Quesada
Jr. Antonio Miro Quesada 300
Lima - 1, Peru
Tel: (511) 426-4676/6292/4703 Fax: (511) 426-0810/7224

EXPRESO
Director: Manuel D'Ornellas
Av. Libertad 117, Miraflores
Lima - 18, Peru
Tel: (511) 444-7088/421-9828 Fax: (511) 447-9900

GESTION
Director: Manuel Romero Caro
Calle General Salaverry 156, Miraflores
Lima - 18, Peru
Tel: (511) 447-6919/6634 Fax: (511) 447-6569/6763

SINTESIS
Director: Luis Gonzales del Valle
Av. Las Camelias 491, San Isidro
Lima - 27, Peru
Tel; (511) 421-8048, 221-0098/0218 Fax: (511) 442-3489

EL PERUANO
Director: Luis Arista Montoya
Av. Alfonso Ugarte 873
Lima - 1, Peru
Tel: (511) 428-3460 Fax: (511) 424-9507

Radio has the largest audience of all communications media, reaching even the most isolated populations. It is often the first source of up-to-the-minute news, and is the principal vehicle for transmitting information about local issues and events outside of Lima. However, it has little power to shape opinions, particularly among Peru's decision makers.

In all, there are close to 1,000 radio stations in Peru, broadcasting on AM, FM, and short wave frequencies. Many of these stations are small storefront operations that serve relatively limited audiences. Radio's most influential source of news and information is "Radio Programas del Peru" (RPP), one of the many media holdings of the Delgado Parker family. With transmitters and correspondents in virtually every important city in Peru, RPP constitutes the country's only true national radio network. In most major cities, including Lima, RPP leads AM ratings and is second in FM listenership to music-oriented "Radio Panamericana"

Television permeates the urban environment in Peru and has become increasingly available to rural audiences as well. As in the U.S., television is often the primary source of news for a majority of those who watch it.

The most important players in TV are the four Lima-based television networks, along with a government-owned service which for years was the only station available in many parts of the country. These five broadcasters use affiliates in the provinces much like their counterparts in the U.S. In addition there are several independent stations which serve the needs of particular cities and regions.

Cable television has also begun to make inroads into the Peruvian market with three companies serving approximately 40,000 homes in the greater Lima area. These packages include CNN, the major U.S. networks, and programming from other Latin American and European countries. The cable company, Telecable, also carries the WORLDNET signal.

Peruvian advertising spending is growing 20% a year and last year advertisers invested $200 mn in publicity. Bozell Worldwide, New York is the last major US ad agency without local representation, since Ogilvy & Mather set up shop with Momentum Publicidad SA. Currently Publicistas Asociados runs head to head with J. Walter Thompson, as the country's highest billing agencies.

Pricing the Product

In general, Peru enjoys a very open market with, trade restrictions held to a minimum. Revised tariff rates are 15 percent ad-valorem. Distributor mark up varies according to type of product, but usually ranges between 15 and 30 percent. All imports are subject to a 18 percent value-added local sales tax. Imports of US$ 2,000 or more into Peru are also subject to pre-shipment inspection, which must be performed by one of the three selected supervision service companies. There are some exceptions: government entities do not pay these fees; decentralized industrial entities as classified by the General Industrial Law; industrial entities that have signed tax-stability or tax-exemption contracts with the government of Peru; enterprises established in the industrial free zones and special treatment zones; and companies that have their operations in the jungle regions of Loreto, Ucayali, Madre de Dios, Amazonas, and San Martin in accordance with the Peruano-Colombiano treaty. Some luxury items have higher tariffs and some specific goods such as cigarettes, beer, wine, liquors, automobiles, etc., pay an excise tax according to the lists and rates included in Appendixes III and IV of Legislative Decree No. 821. Imports from countries with which Peru has bilateral agreements are covered by different, preferential tariff schedules.

Sales Service/Customer Support

Peruvians consider service and support a critical factor in making the final purchasing decision, especially for products that require periodic servicing. The buyer must know and feel that he has service guaranteed. It is important for the product to be sold through a reliable distributor that offers the quality and services that the client requires for his product. Servicing and availability are currently the two perceived advantages that Asian autos enjoy over their U.S. competitors in the Peruvian market.

The transportation sector is still in poor shape due to long neglect, but efforts are underway to remedy the situation. During 1996-2000, the government has targeted US$ 2,828 million for investment in the transport sector (primarily roads and airports.) The state-run railroad system is underdeveloped, but as privatization proceeds, it is expected that the new investors will improve the rail system. There are a number of Peruvian airlines serving routes within the country (Aero Condor, Aero Continente, Americana, Expreso Aereo and Imperial Air), but on-time performance and safety procedures are not up to U.S. standards. Peru has two international airlines--Faucett and AeroPeru that also serve domestic routes. Lima is also served by three U.S. airlines--American Airlines, Continental Airlines and United Airlines. International flights are available to most major cities in South America. Currently, the only direct flights to the United States are to Miami, Newark and Los Angeles. Flights between Peru and the United States have increased significantly since early 1995 and are to be further expanded in November 1996, with the likely addition of daily direct service to Houston. There are also regular cargo flights to Miami on both U.S. and Peruvian carriers.

There is a high incidence of traffic accidents in Peru, frequently involving mini-buses and buses. Public ground transportation is not recommended. Taxis are abundant and not metered, so fares must be negotiated. More reliable radio taxis are recommended. Transportation to and from the airport by radio taxi or taxi service is approximately US$ 15. Tips are not expected on short rides. If you have a car and driver a tip is common.

Hotel infrastructure deteriorated during the crisis period from 1988 to 1992, and there is currently a shortage of business-class hotel rooms. We suggest you make reservations at least two weeks in advance. However, a number of new hotel projects are in the works, and existing hotels are being renovated and expanded. Cost and availability of rented residential space, apartments, or homes is surprisingly high, driven by increased demand by returning businessmen. Construction in these areas has been expanding rapidly to meet growing demand.

The communications system is being modernized following the privatization of the telephone company. Cost of a call to the U.S. is approximately US$ 1.90 per minute. The demand for better communications services is tremendous after many years of poor service and non-investment. Cellular phones are becoming very popular among businessmen in Lima and other major cities. Direct access to credit card number for AT&T, Sprint, MCI, and Worldcom is also available.