Estudos Económicos
Peru

Peru

Population 33.2 million
GDP 6,958 US$
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Country risk assessment
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 4.0 2.2 -12.0 8.0
Inflation (yearly average, %) 1.3 2.1 1.8 1.9
Budget balance (% GDP) -2.3 -1.6 -9.4 -4.3
Current account balance (% GDP) -1.7 -1.5 -1.3 -1.5
Public debt (% GDP) 25.8 26.8 36.5 38.0

(e): Estimate (f): Forecast

STRENGTHS

  • Membership of the Pacific Alliance and Andean Community
  • Mineral, energy, agricultural, and fishery resources
  • Low level of public debt
  • Independence of the central bank

WEAKNESSES

  • Dependent on commodities and demand from China
  • Underdevelopment of credit (42% of GDP)
  • Inadequate infrastructure, healthcare, and educational systems
  • Huge informal sector (70% of jobs)
  • Regional disparities (poverty in the Andean and Amazonian regions)

RISK ASSESSMENT

After the massive COVID-19 shock, a rebound is expected in 2021

Peru registered its first COVID-19 case on 6 March 2020. While the then President Vizcarra did not hesitate much before implementing strict mobility restriction measures, the virus’ evolution was dramatic. Therefore, GDP registered a strong slide in H1 2020 (among the worst in the region). Moreover, unlike in Chile, mining was not classified as an essential activity and was put to a standstill. In H2 2020, the economy started to show some recovery at the margin, underpinned by the last phase of the economic reopening initiated on 1 October 2020. Simultaneously, a large fiscal stimulus combined with an expansionary monetary policy also contributed to this rebound. It includes the Reactiva Perú plan (estimated at roughly 8% GDP) that provides additional low-interest loans for small companies to help them resume operations. In contrast with 2020, the economy should outperform the region´s average in 2021 (albeit GDP by the end of 2021 should still be 5% 7% below the 2019 level). This brighter outcome will be supported by the sustained fiscal stimulus measures. Moreover, household consumption will also benefit from the gradual rebound on the job market. Furthermore, exports should return to growth, as the global economy rises from recession and thanks to higher copper prices (also favouring private investments). Downside risks to the economic scenario are related to the uncertainty regarding the COVID-19 pandemic’s evolution, the deteriorated political environment and the April 2021 general election that may lead to some investment postponement.

 

The fiscal deficit will moderately narrow in 2021

The current account deficit remained weak in 2020. The drop in net income payments (resulting mainly from lower profits in foreign-owned mining firms) offset the weaker surplus in the trade balance and the higher deficit in services (due to a decrease in travel revenues). On the financing side, while FDI deteriorated, they still fully covered the small deficit in the current account. As of Q2 2020, international reserves stood at USD 71.5 billion (covering 26 months of imports). Moreover, total external debt stood at 34.9% of GDP (20% of GDP for public debt and 14.9% for the private sector). Regarding the financial sector, the economy has been successful in curbing the dollarization of its local credit market (from the peak of 51% of total credit in 2008 to 24% in Q2 2020). Concerning public accounts, the fiscal deficit will narrow in 2021, but will remain high as activity will not fully return to the pre-crisis level (limiting the rebound in tax revenues) and the stimulus will not have been fully dismantled. It is important to note that, in April 2020, a bill allowed Peruvians to withdraw up to 25% of their savings from their private pension accounts (limited to USD 3600). This resulted in an outflow of roughly USD 5.6 billion from the private pension system. As of September 2020, the system’s total assets stood at 21% of GDP, down from 23 % (49% invested abroad). Additionally, in early November 2020, legislators approved a second withdrawal from pension funds with a limit of roughly USD 4.800 (outflow could reach USD 4.2 billion according to estimates). Finally, in December 2020, Congress also approved the transfer of a one-off refund of up to USD 1200 towards affiliates of the public pension scheme (in Peru, formal workers must choose between joining the public or the private pension system). Nonetheless, the interim president Sagasti submitted an appeal to the Constitutional Court, aiming to review the legislation (due to the fiscal impact of the bill).

 

Tension between the legislative and the executive until the 2021 elections

A new legislative took office in March 2020 for the remainder of the 2016–2021 congressional period, but it failed to improve the political environment. In July 2020, the refusal of legislators to eliminate their immunity generated a direct conflict with the executive and prompted the Congress to remove presidential immunity (the bill was approved in the first vote, but a second round is required). Beyond that, in September 2020, Vizcarra faced an impeachment proceeding over alleged links to irregular government contracts with a little-known singer. The president survived the vote, as the large majority of Congress stepped back in the final stage (probably due to the population’s large disagreement with it), but the calm did not last. Less than a month later, Vizcarra was involved in a new allegation of corruption and was impeached. This time around, he was accused of accepting bribes from a consortium of construction firms in exchange for a contract to carry out work in the Moquegua region, where he was a Governor from 2011 to 2014. Vizcarra´s successor, Manuel Merino, who was the then president of Congress, resigned however five days after being sworn in (following violent protests against Vizcarra´s removal). Finally, on November 16, Congress elected the current interim president Francisco Sagasti, who is seen as a conciliatory figure. Overall, the troubled political environment increases the chances of outsider candidates in the electoral race of April 2021.

 

Last updated: March 2021

Payment

Electronic payment is prefered for both high-value and low-value transactions. Post-dated cheques are commonly issued in Peru. Credit transfers are used for both high-value and low value payment transactions. The majority of low-value electronic credit transfers in Peru continue to be made between accounts in the same bank, known as intrabank or “on-us” transactions. Bills of exchange are a commonly used payment instrument for debt collections.

 

Debt collection

The Peruvian judicial system is structured hierarchically. The Corte Suprema (Supreme Court) is the highest court, followed by courts that specialise in civil law, criminal law, constitutional law and labour law. These sit above the Corte Suprema in each judicial district, which deal with civil and commercial law cases. The Juzgados Especiales (specialised judges) are located in major cities in the country and deal with matters concerning, among others, civil and commercial law. Following this is the professional Juzgados de Paz (peace judges), located in major cities, and in charge of low economic value cases and other minor issues. Finally, Cortes de Paz (peace courts) are located in cities with lower populations, comprised of one judge who may or may not have the status of lawyer.

 

Amicable phase

The amicable phase in Peru is characterised by phone calls, written reminders, visits, and meetings, with the goal of settling the debt between two parties without triggering legal proceedings.

 

Legal proceedings
Conciliation Proceedings

Prior to judicial proceedings, Peruvian law requires of a conciliation process in order to reach a debt settlement agreement. The process constitutes two hearings, if an agreement cannot be reached, the proceeding ends, and both parties have to sign a conciliation act, which is then presented at the beginning of the judicial process.

 

Fast-track proceedings

The below text makes reference to the Unidad de Referencia Procesal (Unit of Procedural Reference), which is a reference value according to Peruvian law: each URP is 10% of the Unidad Impositiva Tributaria (UIT), which can be used in tax regulations to determine tax bases, deductions, limits of affectation and other aspects of taxes that the legislator deems appropriate. It may also be used to apply sanctions and to determine accounting obligations, The UIT is set at the beginning of the year by the Economic Ministry.

Two fast-track proceedings are available in Peruvian law:

  • simplified proceedings (proceso sumarisimo) concern cases which the value is below URP 100. Juzgados de Paz have jurisdiction for amounts between URP 50 and 100. Defendants have five days to file a dispute after they received the notification from the judge. Within 10 days, the judge organises hearing for discovery, conciliation, evidence and judgment;
  • shortened proceedings (proceso Abreviado) concern cases in which the value is between URP 100 and 1,000. Juzgados de Paz have jurisdiction for amounts between URP 100 and 500 and Juzgados Civiles have jurisdiction in cases for amount above URP 500. The defendant has 10 days to file a dispute from the admission of the petition by the judge. Discovery and conciliation will be examined during one hearing. If the conciliation was not successful, the judge mentions the disputed points and evidence to be provided or updated. Within 50 days of the conciliation hearing, the judge sets up an evidence hearing.
Executive proceedings

When creditors are owed an undisputed and certain debt, they can start executive proceedings. The debtor has five days from the notification to submit his defence. The judge will render a judgment, after which each party has up to three days to file an appeal.

 

Ordinary proceedings

Ordinary proceedings apply to cases with a value of over URP 1,000. The plaintiff sends a written petition to the court. The defendant can file a defence expressing the facts on which he intends to argue, within 30 days from the service of the writ. If the claim is complete (i.e. includes all the relevant information), the judge sets up a hearing for conciliation. If the parties reach an agreement, it has the same effect as a judgment. If an agreement is not reached, the judge organises a hearing within 50 days of the conciliation hearing. The proceedings end when the judge delivers his or her decision. The length of proceedings depends mainly on the nature of the conflict, the number of parties involved, the complaints that occur, and the caseload of the judge in charge of the process. Based on these criteria, a first-instance judgment in a typical commercial litigation case may take approximately twelve to 18 months.

 

Enforcement of a Legal Decision

A domestic judgment becomes final and enforceable once all venues for appeal have been exhausted. The first instance judge is in charge of enforcing judgments, and will issue a writ of execution ordering the relevant party to comply with the judgment within five working days. If the order is not complied with during the five-day period, the judge must order the seizure of the debtor’s assets in order to sell them at auction. For foreign awards, creditors located in Peru must file a claim before the Superior Court located in the debtor’s place of domicile. The Court will consider whether the foreign judgment is compatible with Peruvian law and any international treaties between the two countries. If it is found to conform, the judge shall authorize the enforcement of the judgment in the Peruvian Jurisdiction.

 

Insolvency proceedings

The Instituto Nacional de Defensa de la Competencia y de la Proteccion de la Propriedad Intelectual (INDECOPI) is the specialized administrative agency that deals with insolvency proceedings.

 

Out-of-court proceedings: preventive proceeding

Preventive proceedings aim to provide a forum for debtors to reach a consensual restructuring agreement with their creditors. It is intended to be a fast track process that only debtors can initiate.

The PARC was created by Indecopi to prevent the insolvency and bankruptcy of those companies that, because of the health emergency caused by the coronavirus pandemic, lack liquidity to meet their obligations.

This procedure is regulated in Legislative Decree No. 1511 and its Regulations.

With this bankruptcy procedure, Indecopi offers an alternative that seeks to reschedule the unpaid obligations of the rated entity, avoid its insolvency, the loss of business and sources of employment and, with this, contribute to the recovery of credit and continuity in the chain of payments in the national economy.

Joining the PARC is very simple, fast and safe, since the entire procedure is carried out virtually.

 

Reorganisation

If creditors decide to allow their debtors to restructure, they will be asked to approve a reorganisation plan within 60 days from the decision to proceed with reorganization. Both the decision to reorganise and the organisation plan must be approved by more than 66.6% of the allowed creditor claims. During the process, creditors decide whether to allow the debtor’s management, to continue operating the business, or to replace the debtor’s management. Once the reorganisation plan is approved and all the pre-publication claims are paid according to their terms, then INDECOPI grants a decision declaring the formal conclusion of the reorganization proceeding.

 

Liquidation

If the creditors decide to liquidate, then a liquidator will be appointed at the Creditors’ Meeting from the list registered with INDECOPI or under La Ley General de Sociedades 26887. The will be asked to approve a liquidation plan for the debtor and decide whether the debtor should be authorized to continue its business during the liquidation. Whether voluntary or involuntary, the liquidator must follow a mandatory order in the payment claims. To conclude the liquidation process, the liquidator files a petition before the Public Registry in order to register the extinction of the company. However, if creditors remain unpaid, then the liquidator must file a petition before a civil judge to obtain a judicial bankruptcy declaration.

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