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Peru (12/05)For the most current version of this Note, see Background Notes A-Z.
PROFILE OFFICIAL NAME: Geography People Government Economy PEOPLE Most Peruvians are either Spanish-speaking mestizos--a term that usually refers to a mixture of indigenous and European/Caucasian--or Amerindians, largely Quechua-speaking indigenous people. Peruvians of European descent make up about 15% of the population. There also are small numbers of persons of African, Japanese, and Chinese ancestry. Socioeconomic and cultural indicators are increasingly important as identifiers. For example, Peruvians of Amerindian descent who have adopted aspects of Hispanic culture also are 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's distinct geographical regions are mirrored in a socioeconomic divide between the coast's mestizo-Hispanic culture and the more diverse, traditional Andean cultures of the mountains and highlands. HISTORY, GOVERNMENT, AND POLITICAL CONDITIONS The Inca Empire and Spanish Conquest 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 the Americas. 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 (along with Argentina, Brazil and Chile)--sought to establish the boundary between the two countries. Continuing boundary disagreement led to brief armed conflicts in early 1981 and early 1995, but in 1998 the governments of Peru and Ecuador signed an historic peace treaty and demarcated the border. In late 1999, the governments of Peru and Chile likewise implemented the last outstanding article of their 1929 border agreement. Contemporary Politics Because of Velasco's economic mismanagement and deteriorating health, he was replaced in 1975 by Gen. Francisco Morales Bermudez Cerruti. 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 Niño" weather phenomenon in 1982-83, which caused widespread flooding in some parts of the country, severe droughts in others, and decimated the fishing industry. The fall in international commodity prices to their lowest levels since the Great Depression combined with the natural disasters to decrease production, depress wages, exacerbate unemployment, and spur inflation. The economic collapse was reflected in worsening living conditions for Peru’s poor (as witnessed in rising infant mortality, dropping life expectancy, child malnutrition, etc.), and provided a breeding ground for social and political discontent. The emergence of the terrorist group Sendero Luminoso (SL) in rural areas in 1980--followed shortly thereafter by the Tupac Amaru Revolutionary Movement (MRTA) in Lima--sent the country further into chaos. The terrorists were financed in part from alliances with narcotraffickers, who had established a stronghold in the Peruvian Andes during this period. Peru and Bolivia became the largest coca producers in the world, accounting for roughly four-fifths of the production in South America. After a promising beginning, Belaunde's popularity eroded under the stress of inflation, economic hardship, and terrorism. 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. 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. Fujimori implemented drastic orthodox measures that caused inflation to drop from 7,650% in 1990 to 139% in 1991. Faced with opposition to his reform efforts, Fujimori dissolved Congress in the "auto-coup" of April 4,1992. He then revised the constitution; called new congressional elections; and implemented substantial economic reform, including privatization of numerous state-owned companies, creation of a more investment-friendly climate, and much improved management of the economy. Fujimori’s constitutionally questionable decision to seek a third term, and subsequent tainted electoral victory in June 2000, brought political and economic turmoil. A bribery scandal that broke just weeks after he took office in July forced Fujimori to call new elections in which he would not run. Fujimori fled the country and resigned from office in November 2000. He currently resides in his parents’ native Japan, amid controversy regarding his involvement in corruption scandals and human rights violations during his tenure as President. A caretaker government under Valentin Paniagua presided over new presidential and congressional elections in April 2001. The new elected government, led by President Alejandro Toledo, took office July 28, 2001. Regional and Municipal elections were held in November 2002, a majority of which were won by opposition or independent parties. Toledo Administration Despite high economic indicators, President Toledo’s approval ratings dipped into single digits throughout 2005, from a high of 59% when he took office in 2001. Public dissatisfaction is due in part to allegations of corruption and influence-peddling in his government, but also to frustration amongst workers who are largely not experiencing the benefits of Peru's macroeconomic success. In an effort to reinvigorate support for his administration, Toledo has presided over six major cabinet reshufflings since he took office, the most recent one in August 2005. In January 1 of 2005, ultra-nationalist radical Antauro Humala and a dozen partisans of his and brother Ollanta's Ethnocacerist movement took over the police station in the southern town of Andahuaylas, demanding Toledo's resignation. Despite the President's low popularity, Peruvians of all stripes widely rejected the insurgents and, after three days and five deaths, they surrendered to the authorities. President Toledo’s Peru Posible party has a weakened position in Congress--holding just 36 of 120 seats by end year 2004--and lost its leadership position in July 2004. Led by President Alejandro Toledo, the executive branch is becoming more transparent and accountable. Previously a rubber-stamp body, the Congress is emerging as a strong counter-balance to the once dominant executive branch, with increased oversight and investigative powers. Together, the executive branch and Congress are attempting to reform the judicial branch, which is antiquated and suffers from corruption. Elections and Transition The president is popularly elected for a 5-year term. A constitutional amendment passed in 2000 prevents reelection. 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 presidentially-appointed Council of Ministers, comprised of 15 members and headed by a prime minister. 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 ratifies treaties, authorizes government loans, and approves 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. Peru is divided into 25 regions. The regions are subdivided into provinces, which are composed of districts. High authorities in the regional and local levels are elected. The country is undergoing a progressive decentralization program to devolve power and budgets to local authorities. Principal Government Officials ECONOMY Peru’s economy is well managed, and better tax collection and growth are hiking revenues, with expenditures keeping pace. Private investment is rising and becoming more broad-based. The government has had success with recent international bond issuances, resulting in ratings upgrades. Foreign Trade and Balance of Payments Peru’s major trading partners are the U.S., EU, China, Chile and Japan. In 2003, 27% of exports went to the U.S. and 19% of imports came from the U.S. Exports include gold, copper, fishmeal, petroleum, zinc, textiles, apparel, asparagus and coffee. Imports include machinery, vehicles, processed food, petroleum and steel. Peru seeks to conclude free trade agreement negotiations with the U.S. in early 2005. Peru belongs to the Andean Community, APEC, and the WTO. Foreign Investment The basic legal structure for foreign investment in Peru is formed by the 1993 constitution, the Private Investment Growth Law, and the November 1996 Investment Promotion Law. Although Peru does not have a bilateral investment 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 also has committed itself to arbitration of investment disputes under the auspices of the World Bank's International Center for the Settlement of Investment Disputes (ICSID) or other international or national arbitration tribunals. Section 527 Report to Congress on Expropriation Claims and Certain Other Investment Disputes lists 12 active investment disputes in Peru involving U.S. companies for 2004, many of which are either under arbitration or the jurisdiction of the local courts. In August 2004, Peru inaugurated operations of the Camisea natural gas project. Camisea gas is fueling an electricity generator and six industrial plans in Lima, with other facilities in the process of switching to gas. In a second phase, liquefied natural gas (LNG) will be exported to the west coast of the United States and Mexico. The gas and condensates from Camisea are equivalent to some 2.4 billion barrels of oil, approximately seven times the size of Peru’s proven oil reserves. The Camisea project is expected to gradually transform Peru’s economy and catalyze national development. Once the export phase is in place, the project is expected to boost GDP by 1.3% annually for 20 to 40 years, draw over $3 billion in FDI, create thousands of jobs, generate $10 billion in government revenues, and turn Peru into a net energy exporter. Peru is the world’s second-largest producer of silver, sixth-largest producer of gold and copper, and a significant source of the world’s zinc and lead. Mineral exports have consistently accounted for the most significant portion of Peru’s export revenue, averaging around 50% of total earnings in 1998 to 2003 Economic Outlook Despite Peru’s macroeconomic success, major challenges remain. The Government of Peru faces strong social pressures to reduce poverty of 54% (under $58/month) and extreme poverty of 24% (under $32/month). One-fourth of children under five are malnourished. Wealth and economic activity are overly concentrated in Lima and other major cities, with rural Andean and jungle areas suffering extreme poverty. Unemployment and underemployment levels total 56% nationwide. Growth is barely strong enough to generate employment faster than new entrants come into the labor force. The government lacks revenues for adequate social investment. Boosting long-term growth and reducing poverty will require strengthening the judiciary and other institutions, reducing corruption and completing other reforms to improve the investment climate. Peru has expressed concern over weapon purchases by its neighbors, in particular Chile, citing the need to avoid a regional arms race. In November 1999, Peru and Chile signed three agreements that put to rest the remaining obstacles holding up implementation of the 1929 Border Treaty. (The 1929 Border Treaty officially ended the 1879 War of the Pacific.) However in late 2005, a unilateral declaration of maritime borders by Peru's Congress set off a new round of recriminations with Chile, which claims that the maritime borders were agreed to in fishing pacts dating from the early 1950s. Cooperation with Chile became imperative when former President Fujimori unexpectedly flew to Santiago from Japan in October 2005. Chilean authorities immediately detained him, pending extradition proceedings. 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. Former President Fujimori’s tainted re-election to a third term in June 2000 strained Peru's relations with the United States and with many Latin American and European countries, but relations improved with the installation of an interim government in November 2000 and the inauguration of Alejandro Toledo in July 2001 after free and fair elections. Peru is planning full integration into the Andean Free Trade Area. In addition, Peru is a standing member of APEC and the WTO, and is an active participant in negotiations toward a Free Trade Area of the Americas (FTAA). The United States and Peru cooperate on efforts to interdict the flow of narcotics, particularly cocaine, to the United States. Bilateral programs are now in effect to reduce the flow of drugs on Peru's extensive river system and to perform ground interdiction in tandem with successful law enforcement operations. The United States is considering whether to resume cooperation on an aerial interdiction program. The United States and Peru cooperate on promoting programs of alternative development in coca-growing regions. U.S. investment and tourism in Peru have grown substantially in recent years. U.S. exports to Peru were valued at $2.0 billion in 2001, accounting for about 30% of Peru's imports. In the same year, Peru exported $1.9 billion in goods to the United States, accounting for about 27% of Peru's exports to the world. About 200,000 U.S. citizens visit Peru annually for business, tourism, and study. About 16,000 Americans reside in Peru, and more than 400 U.S. companies are represented in the country. The embassy is open from 8:00 a.m. to 5:00 p.m., Monday-Friday, except U.S. and some Peruvian 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). The USAID Building is located at Av. Encalada cdra. 17 s/n, Monterrico (Surco) Lima 33, (tel. (511) 618-1200. Other Contact Information U.S. Department of Commerce American Chamber of Commerce of Peru |
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