2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Openness to Foreign Investment

The Peruvian government seeks to attract investment -- both foreign and domestic -- in nearly all sectors of the economy. Peruvians and Americans benefit from the U.S.-Peru Trade Promotion Agreement (PTPA). The United States and Peru signed the PTPA on April 12, 2006. The Peruvian Congress ratified the Agreement in June 2006 and a Protocol of Amendment in June 2007. On December 14, 2007, the United States-Peru Trade Promotion Agreement Implementation Act became law, and the PTPA entered into force on February 1, 2009.

The PTPA establishes a secure, predictable legal framework for U.S. investors operating in Peru. All forms of investment are protected under the PTPA. U.S. investors will enjoy in almost all circumstances the right to establish, acquire and operate investments in Peru on an equal footing with local investors.

In April 2002, the Peruvian Government created Peru’s Private Investment Promotion Agency, ProInversion. It evolved from COPRI, which was the privatization agency created in 1991. ProInversion has become a "one-stop shop" for current and potential investors. ProInversion has successfully completed both concessions and privatizations of state-owned enterprises and natural resource-based industries. ProInversion’s current focus is on concessions, and local observers consider it an effective institution. Major recent concession areas include ports, oil and gas, mining, and telecommunications. In the case of foreign investments, there is now a requirement that nationals own shares, or that the share of foreign equity be reduced over time, except as noted below in this section. Foreign investors are welcome to participate in Peru’s ongoing privatization program, and they may participate from the beginning of the privatization process. The Peruvian Government usually modifies the bidding terms and timelines several times in coordination with interested companies.

In addition to the 1993 Constitution (enacted January 1, 1994), major laws concerning foreign direct investment (FDI) in Peru include the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) which incorporates Legal Stability Agreements and the Framework Law for Private Investment Growth (DL 757 of November 1991). The two 1991 laws were implemented by Supreme Decree 162-92-EF (October 1992). Other important laws are the Private Investment in State-Owned Enterprises Promotion Law (DL 674), the Private Investment in Public Services Infrastructure Promotion Law (DL 758), and specific laws related to agriculture, fisheries and aquaculture, forestry, mining, oil and gas, and electricity. The aforementioned sectors are among the industries capable of receiving major FDI amounts in Peru.

The Government of Peru has undertaken a decentralization process. The Base Law for Decentralization (DL 27783 issued in 2002), the Organic Law on Regional Governments (DL 27867), and the Organic Law of Municipalities (DL 27972) facilitate and promote direct private investment with regional and local governments. The Framework Law for the Promotion of Decentralized Investment (Law no. 28059, and regulations in Supreme Decree No. 015-2004-PCM), establishes the regulatory framework so that Peru may promote decentralized investment at its three government levels (national, regional and local). The Peruvian Government provides a link to these laws, the 1993 Constitution, and a Basic Rights of Foreign Investors list on the ProInversion website, www.proinversion.gob.pe.

The 1993 Constitution guarantees national treatment for foreign investors and permits foreign investment in almost all economic sectors. Under the Constitution, foreign investors have the same rights as national investors to benefit from any investment incentives, such as tax exemptions. The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws and treaties. However, a few exceptions exist. For example, the law excludes foreign investment activities in reserved natural protected areas and manufacturing of war weapons, pursuant to Article 6 of Legislative Decree No. 757. The law states Peruvians must own a majority share in the companies of certain sectors: media, air and land transportation, and private security surveillance services. Prior approval is required in the banking (for regulatory reasons, and also applies to domestic investment) and defense-related sectors. Foreigners are legally forbidden from owning a majority interest in radio and television stations in Peru; nevertheless, at times foreigners have in practice owned controlling interests in such companies. Under the Constitution, foreign interests cannot "acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources" within 50 kilometers of Peru's international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.

Although Peru’s Constitution guarantees economic freedom under Article 63 (pertaining to Domestic and Foreign Investment which stipulates that “…production of goods and services and foreign trade are free…”), from time to time the Peruvian Government has passed measures that contravene free market principles. For example, in January 2011, under the stated reason of consumer protection, the Peruvian Government tried to prevent the exportation of a sugar shipment.

In December 2008, the Peruvian Government issued two important decrees aimed to prevent an economic slowdown in Peru caused by the global economic crisis by creating investment projects. The first decree contains the regulations for the Law on Public-Private Partnership. The second decree presents a priority list of projects for the public-private partnerships. Among these public-private partnerships are major ports (Paita, San Martin, Pisco, Salaverry, Pucallpa, Iquitos, Yurimaguas) as well as some regional airport projects, a South American Integrated Regional Infrastructure Project (IIRSA), water treatment and agricultural projects (Majes-Siguas and Chavimochic). As of January 2011, the Peruvian government has awarded a number of these projects, such as the port in San Martin, six airports in southern Peru, and the Majes-Siguas water treatment project.

Peru has continued to improve in rankings of economic freedom and ease of doing business. The latest Transparency International research has found perceptions of corruption have worsened since 2009.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Transparency International Corruption Perceptions Index, 2010:

78/178

Heritage Index of Economic Freedom, 2011:

41/179

World Bank Ease of Doing Business Rank, 2011:

36/183

The Heritage Index of Economic Freedom ranks Peru as having the world’s 41st highest level of economic freedom out of 179 countries in 2011. Since Peru was declared an upper-middle income country in 2009, there have not been any further scorecards developed for Peru because it is now officially ineligible for MCC assistance.

Conversion and Transfer Policies

There are no reported difficulties in obtaining foreign exchange. Under Article 64 of the 1993 Constitution, the Peruvian government guarantees the freedom to hold and dispose of foreign currency. Hence, there are no foreign exchange controls in Peru except as noted in the paragraph below. The Peruvian Government has eliminated all restrictions on remittances of profits, dividends, royalties, and capital, although foreign investors are advised to register their investments with ProInversion to ensure these guarantees. Exporters and importers are not required to channel foreign exchange transactions through the Central Reserve Bank of Peru. Exporters and importers can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks. U.S. firms have reported no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments since Peru's economic reforms of the early 1990s.

The 1993 Constitution guarantees free convertibility of currency. There is, however, a legal limit on the amount that private pension fund managers can invest in foreign securities. Between April 2004 and September 2010, the Central Reserve Bank of Peru (BCR) gradually increased this limit from 9 percent to its current rate of 30 percent. Under the PTPA, portfolio managers in the U.S. are able to provide portfolio management services to both mutual funds and pension funds in Peru, including funds that manage Peru’s privatized social security accounts.

The BCR is an independent institution, free to manage monetary policy to maintain financial stability. The BCR's primary goal is to maintain price stability, via inflation targeting. Inflation at year-end in Peru was 3.9 percent in 2007, 6.7 percent in 2008, 0.3 percent in 2009, and 2.1 percent in 2010. The Peruvian Government has also implemented policies to de-dollarize the economy. U.S. dollars are progressively accounting for a decreasing share of banking system transactions, according to the Peruvian Banking Superintendency (SBS). In 2001, U.S. dollars accounted for 82 percent of loans and 73 percent of deposits. By November 2010, U.S. dollars accounted for 46 percent of loans and 41.7 percent of deposits.

Expropriation and Compensation

According to the Peruvian Constitution, the Peruvian government can only expropriate private property on public interest grounds (such as for public works projects) or for national security. Any expropriation requires the Congress to pass a specific act. The Government of Peru has expressed its intention to comply with international standards concerning expropriations. According to ProInversion, the only expropriation in 2010 was a legal expropriation for port construction in Yurimaguas, Loreto department. The Peruvian Government compensated the prior owners for this minor expropriation.

Dispute Settlement

The PTPA includes a chapter on dispute settlement. The core obligations of the Agreement, including labor and environment provisions, are subject to the dispute settlement provisions of the agreement. Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes promoting compliance through consultation and trade-enhancing remedies.

Dispute settlement generally remains problematic in Peru, although in late 2004 the Peruvian Government began taking steps to improve the dispute settlement process. From December 2004 through 2006, the Peruvian Government established 24 commercial courts in Lima to rule on investment disputes, including two courts of appeal. Commercial courts have substantially improved the process for commercial disputes. Prior to the existence of the commercial courts, it took an average of two years to resolve a commercial case through the civil court system. These new courts with their specialized judges have reduced the amount of time to resolve a case to two months. Additionally, the enforcement of court decisions has been reduced from 36 months to 3-6 months. While about 40 percent of decisions are appealed, most of these are resolved at the appeals level. Few decisions are appealed to the Supreme Court.

The criminal and civil courts of first instance and appeal are located in the provinces and in Lima. The Supreme Court is located in Lima. In principle, Peruvian law recognizes secured interests in property, both chattel and real. However, the judicial system is often extremely slow to hear cases and to issue decisions. A large backlog of cases further complicates decision-making. In addition, court rulings and the degree of enforcement have been often difficult to predict. Individual judge capability varies, and allegations of corruption and outside interference in the judicial system are common. The Peruvian appeals process also tends to delay final decisions. As a result, foreign investors, among others, have found that contracts are often difficult to enforce in Peru.

The 1997 Law of Conciliation (DL 26872), which went into effect on January 1, 2000, requires disputants in many types of civil and commercial matters to consider conciliation before a judge can accept a dispute for litigation. Private parties often stipulate arbitration to resolve business disputes, as a way to avoid involvement in judicial processes.

Peru's commercial and bankruptcy laws have proven difficult to enforce through the courts. Compounding this difficulty are occasional laws passed to protect specific debtors from bankruptcy. An administrative bankruptcy procedure under INDECOPI (the National Institute for the Defense of Free Competition and the Protection of Intellectual Property), has proven to be slow and subject to judicial intervention. Peru has a creditor hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract.

The 1993 Constitution permits international arbitration of disputes between foreign investors and the government or state-controlled firms. Although Peruvian law stipulates the Peruvian Government must accept binding arbitration, parastatal companies and Government Ministries disregarded unfavorable judgments several times over the past three years. Previously, the Government of Peru turned these arbitration cases over to the judiciary, where they were bureaucratically delayed until the companies conceded the cases. To reinforce Peruvian law, the Supreme Court ruled that effective July 2005 all arbitration findings and awards are final and not subject to appeal.

Peru is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention of 1958), and to the International Center for the Settlement of Investment Disputes (the Washington Convention of 1965). Disputes between foreign investors and the Peruvian Government regarding pre-existing contracts must still enter national courts. However, investors who conclude a juridical stability agreement for additional investments may submit disputes with the government to national or international arbitration if stipulated in the agreement. Several private organizations -- including the Universidad Catolica, the Lima Chamber of Commerce and the American Chamber of Commerce -- operate private arbitration centers. The quality of these centers varies, however, and investors should choose arbitration venues carefully.

Performance Requirements and Incentives

The U.S.-Peru Trade Promotion Agreement (PTPA) has resulted in benefits to U.S. enterprises seeking to invest in Peru. Peru has agreed to exceed its commitments made in the WTO, and to dismantle significant services and investment barriers, such as measures that require U.S. firms to hire nationals rather than U.S. professionals and measures requiring the purchase of local goods.

Peru offers both foreign and national investors legal and tax stability agreements to stimulate private investment. These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes (such as drawback), administrative procedures, and labor hiring regimes in effect at the time of the investment contract will remain unchanged for that investment for 10 years. To qualify, an investment must exceed US$10 million in the mining and hydrocarbons sectors or US$5 million in other sectors within two years. An agreement to acquire more than 50 percent of a company's shares in the privatization process may also qualify an investor for a juridical stability agreement, provided that the infusion will expand the installed capacity of the company or enhance its technological development.

There are no performance requirements that apply exclusively to foreign investors. Peruvian civil law applies to legal stability agreements, which means the Peruvian Government cannot unilaterally alter agreements. Investors are also offered protection from liability for acquiring state-owned enterprises.

Laws specific to the petroleum and mining sectors also provide similar assurances as above to investors. Notably, in 2000, the government modified the General Mining Law, substantially reducing benefits to investors in that sector. Among the changes was a reduction in the term concessionaires are granted to achieve the minimum annual production, an increase in fees for holding non-productive concessions, an increase in fines for not achieving minimum production within the allotted time, a reduction in the maximum allowable annual accelerated depreciation, and revocation of the income tax exemption for reinvested profits. In 2004, Congress approved a bill charging a 1 to 3 percent royalty on mining companies' sales. The changes do not affect those investors who have signed legal stability agreements with the government during the lifetime of the agreement.

After more and more communities demanded a share of mining profits in December 2006, the Garcia Administration and mining companies agreed to a "voluntary contribution" system whereby mining companies will invest in community infrastructure projects. This agreement averted adoption of a more restrictive mining law. The agreement allows mining companies to control where they invest their contributions and ceases to apply if the prices of metals or minerals drop from certain levels.

Parties may freely negotiate contractual conditions related to licensing arrangements and other aspects of technology transfer without prior authorization. A fairly straightforward registry of a technology transfer agreement with INDECOPI is required for a payment of royalties to be counted against taxes.

Current laws limit foreign employees to no more than 20 percent of the total number of employees in a local company (whether owned by foreign or national interests). Current law restricts their combined salaries to no more than 30 percent of the total company payroll. However, DL 689 from November 1991 provides a variety of exceptions to these limits. For example, a foreigner is not counted against a company's total if he or she holds an immigrant visa, has a certain amount invested in the company (currently about US$4,000), or is a national of a country that has a reciprocal labor or dual nationality agreement with Peru. While the U.S. and Peru have no reciprocal dual nationality or labor agreement, both nations tolerate dual nationality. Furthermore, the law exempts foreign banks, foreign service companies, and international transportation companies from these hiring limits, as well as all firms located in free trade zones. Companies may apply for exemption from the limitations for managerial or technical personnel.

The Peruvian government does not maintain any measures that are inconsistent with (Trade-Related Investment Measure) TRIM requirements, according to a WTO Committee on Trade-Related Investment Measure notification dated August 19, 2010.

According to post’s knowledge, there are no discriminatory or onerous visa, residence, or work permit requirements that inhibit foreign investors' mobility.

Right to Private Ownership and Establishment

Peruvian law generally grants foreign and domestic entities the right to establish and own business enterprises and to engage in most forms of remunerative activity. Subject to the restrictions listed earlier in this document, both foreign and domestic entities may invest in any legal economic activity -- including foreign direct investment, portfolio investment, and investment in real property. Private entities may generally freely establish, acquire, and dispose of interests in business enterprises. In the case of some privatized companies deemed important by the government, the privatization agency ProInversion has included a so-called "golden share" clause in the sales contract, which allows the government to veto a potential future purchaser of the privatized assets.

Protection of Property Rights

The Peruvian Government recognizes and enforces secured interests in property, both movable and real. The Peruvian Government is working on improving the registry of those rights which will further enable the government’s enforcement capabilities.

While the legal framework for protection of intellectual property rights (IPR) in Peru has improved over the past decade, enforcement mechanisms remain weak. Peru has stayed on USTR's Section 301 "Watch List" since 2001 because of continued high piracy rates and inadequate enforcement of IPR laws. Weak or nonexistent penalties for IPR violators contributed to the Watch List determination.

Under the U.S.-Peru Trade Promotion Agreement, in all categories of intellectual property rights (IPR), U.S. companies will be treated at least as well as Peruvian companies, and the agreement makes a number of important improvements to IPR protections. The Agreement provides for improved standards for the protection and enforcement of a broad range of intellectual property rights, which are consistent, both with U.S. standards of protection and enforcement and with emerging international standards. Such improvements include state-of-the-art protections for digital products such as U.S. software, music, text, and video; stronger protection for U.S. patents, trademarks and pharmaceutical and agrochemical test data (an electronic system for the registration and maintenance of trademarks); and legal penalties to deter piracy. The Peruvian government in July 2004 increased the minimum penalty for piracy to four years imprisonment. Through PTPA implementation legislation passed by the Peruvian Congress in January 2009, the penalty for piracy increased to eight years of imprisonment.

Despite PTPA implementation and recent legal code amendments creating stricter penalties for some types of piracy (not all), the judicial branch has failed to impose sentences that adequately deter future IPR violations. Prosecutors have yet to pursue more piracy cases to a final judgment. Judges have yet to give deterrent-level sentences allowed under the expanded criminal code. Furthermore, the Peruvian public does not appear willing or motivated to change perceptions regarding IPR infringement. The public continues to purchase pirated software, CDs, DVDs, pharmaceutical products, and books from street vendors at stop lights, peddlers at popular beach destinations, or popular markets known for supplying these items. The purchases continue openly since most Peruvians realize there is only a remote chance they will be prosecuted.

Parts of the Peruvian Government continue to sponsor public awareness campaigns to improve the public’s perception and promote the legal purchase of original products. Peruvian newspapers complain about piracy, including books by Peru’s Nobel Laureate Mario Vargas Llosa. While the Peruvian government has carried out numerous raids over the last few years on large-scale distributors and users of pirated goods, and has increased customs enforcement, piracy continues to be a significant problem for legitimate owners of copyrights in Peru.

The International Intellectual Property Alliance (IIPA) estimated in February 2010 that the piracy level in Peru for recorded music is at 98 percent, with trade losses estimated at US$57.2 million in 2008, a slight decrease from 2007 levels. The Business Software Alliance estimates that software piracy levels remained at 71% in 2009, with a loss of $50 million in 2009. All observers would agree the majority of motion pictures are pirated in Peru. Peru’s fiscal police seized 37,647,000 copies of recorded and blank CD-Rs and DVD-Rs of movies and music in 2009.

The research-based pharmaceutical industry claims that the Peruvian Government fails to provide data exclusivity protection for all pharmaceutical products, nor does the Peruvian Government provide patent linkage or “second use” medical patents. The pharmaceutical industry also claims the Peruvian Government does not offer any extension of the patent term for pharmaceutical products to compensate for delays at the patent office.

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, www.indecopi.gob.pe ), established in 1992. Legislative Decree 1075 and Andean Community Decision 486 protect patents, trademarks, and industrial designs. Copyrights are protected by Legislative Decree No. 822 of 1996 and by Andean Community Decision 351. Pharmaceutical and agrochemical test data are protected by Legislative Decrees 1072 and 1074, respectively.

Peru belongs to the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). It is also a signatory to the Paris Convention on Industrial Property, Geneva Convention for the Protection of Sound Recordings, Bern Convention for the Protection of Literary and Artistic Works, Brussels Convention on the Distribution of Satellite Signals, Phonograms Convention, Satellites Convention, Universal Copyright Convention, the World Copyright Treaty, and the World Performances and Phonographs Treaty and the Film Register Treaty. In December 1994, the Peruvian Congress ratified the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (TRIPs).

Under the PTPA, each party shall ratify or accede to the following agreements: the Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite; the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure; the WIPO Copyright Treaty; the WIPO Performances and Phonograms Treaty; the Patent Cooperation Treaty; the Trademark Law Treaty; and, the International Convention for the Protection of New Varieties of Plants (UPOV Convention). Under the PTPA, each party shall make all reasonable efforts to ratify or accede to the following agreements: the Patent Law Treaty; the Hague Agreement Concerning the International Registration of Industrial Designs; and, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. As of January 2011, the Patent Cooperation Treaty (PCT) and the Trademark Law Treaty (TLT) have been in force since June 6, 2009 and February 1st, 2009, respectively. The Peruvian Congress has accepted the UPOV Convention in July 2010 through Resolution No. 29557 and the law is now waiting signature by the President.

Peru’s legal framework provides for easy registration of trademarks and inventors have been able to patent their inventions since 1994. Peru’s 1996 Industrial Property Rights Law provides an effective term of protection for patents and prohibits devices that decode encrypted satellite signals, along with other improvements. Peruvian law does not provide pipeline protection for patents or protection from parallel imports. Peru’s Copyright Law is generally consistent with the TRIPS Agreement.

Transparency of Regulatory System

Regulatory transparency and independence have become central issues for foreign investors in Peru. Many of the central government regulators related to foreign investment have relatively transparent and predictable procedures. CONASEV maintains the company registry and supervises securities and exchanges, ProInversion handles privatization and investment issues, INDECOPI handles competition policy and intellectual property matters. The Superintendency of Banking and Insurance (SBS) regulates banks, insurance companies, and private pension funds. The SBS determines the qualifications of potential market entrants and regulates firms once they have begun operations.

When the Government of Peru (GOP) privatized state-owned monopolies in the areas of telecommunications, energy, and the hydrocarbons sector in the late 1990s, it also established regulatory institutions to oversee the new private sectors. Delays and the lack of predictability in the rulings of these institutions, including OSIPTEL (telecom) and OSINERGMIN (energy, mining, and hydrocarbons), have been impediments to doing business in Peru.

In August 2010, Peru’s telecommunications regulator (OSIPTEL) established a “glide path” plan to continuously lower the mobile termination rates for all carriers by October 2013. This created a more favorable competitive environment for the smaller carriers. While a company may be pleased that its final rate in 2013 will be competitive with the other carriers, concerns remain that the 2013 rates are based on the today’s cost structure. Historically, telecommunication companies have experienced a downward trend in cost per call. Therefore, today’s costs will not reflect actual costs in two to three years.

U.S. firms and investors have also complained about the reinterpretation of rules and the imposition of disproportionate fines by the tax agency. They allege SUNAT's (Peruvian Tax and Customs Agency) aggressive behavior and interpretation of law are often contrary to the spirit of the law and intent of government policies, complicating normal business operations. The remuneration of SUNAT employees is determined, in part, by the theoretical tax liability they uncover in audits.

Businesses point out that SUNAT's retroactive reinterpretation of regulations and laws, its levying of disproportionate fines, and initiation of full company audits when companies request a refund or legal revaluation of assets for depreciation purposes, create additional investment and trade barriers. In one case, a U.S. firm requested by clerical mistake an improper drawback of US$1,345, only to face SUNAT fines of US$645,000. Although the case was resolved, new legislation was needed to correct the problem. To correct such problems, independent tax tribunals act to check any abuses by SUNAT. However, SUNAT normally appeals tax tribunals’ rulings, thereby extending indefinitely both the resolution of disputed assessments and liabilities on companies’ balance sheets. As a balance to this tendency, a tax ombudsman must approve SUNAT's request to appeal adverse tax tribunal decisions. At times, the ombudsman has also acted to end unwarranted litigation of disputed assessments. For example, in 2005, a U.S. company won long-standing tax cases against SUNAT as a result of these improvements.

The World Bank 2011 Report on Doing Business moves Peru to 36, up from 56 in 2010 and 65 in 2009 in the global ease of doing business ranking. Peru completed reforms in five of the ten areas measured including reformed business start-up, dealing with construction permits, property registration, international trade, and closing a business. Peru has made significant progress in reforming business start-up, moving in the World Bank’s business start-up ranking from 103 in 2010 to 54 in 2011. Peru has significantly lowered the average amount of days it takes to start a business. Peru progressed from 72 days (in 2008) to 41 days (in 2010) to 27 days (in 2011). Additionally, the World Bank report notes Peru has eliminated three steps for starting a business in the past year. Businesses have complained about the 19 percent value added tax on goods, high social security tax rates, and certain labor laws. Businesses state these tax and labor policies increase investment costs and hinder investment capital flows. Businesses can apply for VAT reimbursement.

Efficient Capital Markets and Portfolio Investment

Credit is allocated on market terms and the banking industry in Peru is generally considered to be competitive in offering services to business customers. Private pension funds have competed in recent years with financial companies for bonds issued locally by companies and the Peruvian Government. These entities compete because the supply of securities is insufficient given the small size of the market. Foreign investors can obtain credit and float bonds on the local market. Several of them have done so in the last few years while terms remain more competitive than terms of usual international centers. Under the U.S. - Peru Trade Promotion Agreement, U.S. financial service suppliers have full rights to establish subsidiaries or branches for banks and insurance companies.

The private sector has access to a variety of credit instruments. In November 2010, firms placed US$1.1 billion on the local bond market. Mutual Funds managed US$5.5 billion in November 2010, a large recovery from the November 2008 level of US$2.8 billion and above the earlier record level of US$5.2 billion in July 2008. By October 2010, private pension funds managed a total of US$23.73 billion, still recovering from the October 2008 level of US$29.8billion.

CONASEV (the National Commission for the Supervision of Companies, Securities and Exchanges) is the Peruvian government entity charged with the study, promotion, and regulation of the securities and commodities markets. CONASEV’s mandate includes the control of market participants, the maintenance of a transparent and orderly market, the setting of accounting standards, and the publication of financial information about covered companies. As part of CONASEV's goal to promote market transparency, to prevent monopolies, and to prevent fraud, issuers of stock are required to inform CONASEV and the relevant trading authority of events that may affect the stock, the company, or any public offerings. Although trading on insider information is technically a crime, no one has been charged and punished under the law. All firms listed on the Lima Stock Exchange (Bolsa de Valores de Lima) or the Public Registry of Securities must be vetted by CONASEV, which maintains the Public Registry of Securities and Stock Brokers. CONASEV is studying ways to improve the regulatory system to encourage and facilitate portfolio investment.

The banking system is considered generally sound. Total assets of the Peruvian banking system reached US$62.78 billion at the end of November 2010, according to the Peruvian Banking Superintendency (SBS). Assets of the three largest commercial banks combined were US$46.47 billion at the end of November 2010. The 2008-2009 global financial crisis has not affected local operating banks. One can attribute this stability to sound bank policies aimed at strengthening their position after the lessons learned during the 1997-1998 Asian crisis, sound and able bank supervision, and strong GDP growth in the last few years through 2008.

Economic opening since the 1990s coupled with competition, has led to banking sector consolidation. Fifteen commercial banks comprise the system, although three banks account for 75 percent of loans and deposits among traditional banks. Banks have revamped operations, increased capitalization, and reduced costs in recent years. As of November 2010, foreigners had significant shares in twelve banks, of which they were majority owners of ten (including two of the country's large ones, and operator of one large commercial bank). Under the SBS's conservative criteria, 1.6% of total loans were assessed as non-performing as of November 2010, down from a high of 11% in early 2001. Peru’s banking system has 10 specialized institutions ("financieras"), 34 thriving micro-lenders and savings banks, two state-owned banks, and one state-owned development bank. In 2010, the Economist Intelligence Unit ranked Peru number one worldwide for microfinance.

Peruvian law and regulations do not authorize or encourage private firms to adopt articles of incorporation or association to limit or restrict foreign participation. There are no private or public sector efforts to restrict foreign participation in industry standards-setting organizations. However, larger private firms often use "cross-shareholding" and "stable shareholder" arrangements to restrict investment by outsiders -- not necessarily foreigners -- in their firms. As close families or associates generally control ownership of Peruvian corporations, hostile takeovers are practically non-existent.

Competition from State-Owned Enterprises (SOEs)

In 1991, the Peruvian government began an extensive privatization program, encouraging foreign investors to participate. From 1991 through September 2005, privatization revenues totaled US$9.4 billion. Foreign investors were responsible for the vast majority of those revenues. Over three-quarters of these transactions took place from 1994 to 1997. The government has since shifted to a strategy of promoting multi-year concessions as a means of attracting investment into major projects. In 2000, the government granted a concession to a private group (Lima Airport Partners) to operate the Lima airport and in June 2006, the government granted a 30 year concession to Dubai Ports to build and operate a new container terminal within the Port of Callao. The facility’s first phase became operational in May 2010. In August 2006, the Swiss-Spanish-Peruvian consortium Swissport received a 25 year concession to manage nine of Peru's northern airports. In 2007 the Michiquillay copper deposit concession was sold for $403 million to the British firm Anglo American. Recently, the Peruvian Government awarded multi-year concessions for various energy, natural gas, hydro-energy and irrigation, telecommunications, ports, sanitation, land transport, trains, and tourism projects. In January 2011, the Peruvian Government awarded the Argentine-Peruvian consortium Aeropuertos Andinos a 25 year concession to manage six of Peru’s southern airports in January 2011. Several electricity, water, sewage, bank, and oil (PetroPeru) companies remain state-owned and operated.

In June 2004, the Congress passed a law to exclude state-owned oil company PetroPeru from privatization and authorized PetroPeru to conduct exploration and production activities. This modified the government's policy since the early 1990s when it sold all of PetroPeru's exploration and production units and a major oil refinery. Under the 2004 law, the government had the option of granting concessions on remaining PetroPeru assets, including one pipeline and several refineries. In July 2006, Congress defeated an executive veto of a bill to "strengthen and modernize" PetroPeru. Under the 2006 law, the government authorized PetroPeru to resume exploration, production and related activities, including petrochemicals. The law also freed PetroPeru from needing to obtain contracting approval by CONSUCODE, the state procurement supervision agency. Furthermore, the law exempted PetroPeru from the approval of its investment projects by the Government Projects Office (SNIP).

However, this changed in 2008 when PetroPeru took center stage in a corruption scandal related to oil and gas concessions. The scandal led to the resignation of the Minister of Energy and Mines and the PetroPeru President. The scandal forced the Peruvian Government to revise the 2006 law and implement a number of changes in PetroPeru’s management. PetroPeru will return to the control of the National Fund for Financing Government Companies (FONAFE), a government oversight entity. This will require its compliance with set regulations and norms, such as tight budget controls, contracting approval by OSCE (formerly CONSUCODE), and approval of its investment projects by SNIP.

The Peruvian Government still wants to put PetroPeru shares on the stock market in order to achieve transparency of its operations, but it is not clear when this will happen. The then-Economics and Finance Minister said in June 2010, “This isn’t privatization, it’s a capitalization process. This is the best way to raise funds to develop the company.” PetroPeru has a “strategic alliance” in Peru with Brazil's Petrobras for oil and gas exploration-production and petrochemicals.

Corporate Social Responsibility

Peruvian businesses participate in Corporate Social Responsibility programs on primarily a voluntary level. For the energy and mining sector, certain regulations do exist to promote social responsibility. Supreme Decree No. 042-2003-EM, promotes social responsibility within the mining sector, including encouraging dialogue with the local communities, local employment, development activities, and purchase of local goods and services. The norm requires the mining companies to provide an annual report on sustainable development activities. The Peruvian Ministry of Energy and Mining offers the public a guidebook for community relations, as well as public information on social measures related to the mining and energy sectors. Additionally, Peru is taking steps to join the Extractive Industries Transparency Initiative (EITI), under which the GOP and extractive industries agree to openly publish all company payments and government revenues from oil, gas and mining. One of 28 EITI candidate countries, Peru is the only participant from Latin America. Peru recently was characterized as “close to compliant” by the EITI Board.

Political Violence

Although political violence against investors is not a common practice, a series of protests, some violent, have taken place in or near communities with extractive industry operations. Although environmental concerns were often the cited pretext, in many cases protestors sought social infrastructure investments not provided by the government. Ideological opposition to foreign mining firms, not opposition to mining itself, often leads to protest in communities where informal mining by Peruvians covers the landscape. Occasionally, well-organized groups, such as the Ronderos (local self-defense groups that were instrumental in combating the Shining Path terrorists in the 1980s and 1990s) or NGOs, exaggerate a local community's concerns, bringing in protestors from outside the local community to foment protests against the companies. In several incidents in recent years, local authorities led strikes against large foreign mining companies in an effort to secure additional funds or development promises from the companies.

During 2010, groups blocked roads in protest of extractive industry operations, hydroelectric projects, restrictions on informal gold mining, gas exports, and the Government's coca eradication policies. In several of these protests, police and civilians were killed. In 2009, a two-month-long protest of indigenous communities in the Amazon against a series of legislative decrees culminated in a violent clash on June 5, which left 24 police and 10 civilians dead. Protesters believed the decrees were legislated without proper prior consultation with indigenous communities. Some protesters also complained of the content of the decrees, and said the decrees favored private investors and extractive industries over indigenous communities.

In September 2007, municipal authorities of three northern Piura department towns managed to hold a legally-disputed “referendum,” where some citizens voted overwhelmingly to reject a large copper mining project in their region, stalling its development. In that same area, thousands of small illegal miners began to carry out mining activities some months after said “referendum,” causing severe environmental pollution without any corresponding protests from NGOs or municipal authorities.

In 2009, several NGOs instigated opposition to a large copper mine development in Arequipa department, under the argument that the mine would deprive their farms of water and poison it. When the company offered not to use river water but to build desalination facilities to use sea water, the farmers still opposed the project, and the project’s fate is undetermined. Concerns over the titling of indigenous lands and subsoil concessions continue to be potential sources of conflict, particularly in the Amazon region.

Since the beginning of the Garcia Administration, Cabinet ministers and often the Prime Minister have become personally involved in negotiating a resolution to protests. The government established a commission in late 2006, with a representative from each ministry, to prevent and resolve social conflicts. In 2009, the Prime Minister mandated each ministry to form its own conflict prevention unit, and in 2010 the Prime Minister elevated the Council of Ministers’ own unit to become the Office of Social Conflict Management, which, with USG assistance, now coordinates the inter-ministerial commission. In addition, various NGOs have become involved in conflict resolution activities. At the same time, the National Society of Mining and Petroleum (SNMPE), as well as the government, have become involved in assisting local communities to access the extractive industry canons (funding for social projects) as a way to both stimulate local development and head off social conflicts. Although these efforts have been effective in some mining regions, in others, social conflicts have continued or expanded.

Violence remains a concern in the coca-growing regions. The Sendero Luminoso (Shining Path) terrorist organization continues to operate in these areas, financing its activities with drug trafficking proceeds. Sendero Luminoso is presumed to have killed at least than 9 civilians, 2 police officers, and 4 members of the military, and committed more than 120 acts of violence in coca-growing areas during 2010. Sendero killed 26 civilians, 3 police officers, and 19 military members in 2009, and was responsible for around 100 incidents that year. President Garcia reauthorized 60-day states of emergency in parts of Peru's four departments where the Shining Path operates, suspending some civil liberties. In the Apurimac and Ene River Valley (VRAE), the state of emergency gives the armed forces additional authority to maintain public order.

There is little government presence in the remote coca-growing zones of the Upper Huallaga Valley and the Apurimac-Ene River Valleys. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and remaining columns of the Shining Path. Information about insecure areas and recommended personal security practices can be found at http://www.osac.gov or http://travel.state.gov.

Corruption

It is illegal in Peru for a public official or employee to accept any type of outside remuneration for the performance of his or her official duties. Peru has ratified both the UN Convention Against Corruption and the Organization of American States' Inter-American Convention Against Corruption. Peru is not a member of the Organization of Economic Cooperation and Development (OECD), and has not signed the OECD Convention on Combating Bribery.

Peru is one of four nations worldwide participating as a pilot country in the G8 anti-corruption and transparency initiative. The U.S., other G8 partners and NGOs helped the Peruvian government develop an action plan that includes activities in six areas: a) citizen information/internet connectivity; b) improving central government fiscal transparency; c) development of Peruvian Government procurement systems; d) improving regional/local government transparency and management; e) improvement of transparency of extractive industry revenues; and f) development of asset forfeiture systems and legislation.

The G8 initiative has already shown some positive results. A hemisphere-wide state procurement organization – the Inter-American Organization of Government Procurement Institutions – was created under the leadership of Peru's State Procurement Council OSCE (formerly CONSUCODE). Also, efforts are underway to provide Internet connections to approximately 90 municipal governments located in areas most affected by terrorism and poverty. The rural connectivity project will allow these governments access to national systems, part of the Peruvian Government's E-government initiatives, aimed at creating greater transparency and citizen access to public information.

U.S. firms have reported problems directly resulting from corruption, usually in government procurement processes and in the judicial sector. Transparency International ranked Peru number 78 (out of 178 countries) in its 2010 Corruption Perceptions Index, which marks worsening corruption from Peru’s rank of 75 in 2009. While anti-corruption efforts have been a stated priority of both the Toledo and Garcia Governments, in practice most resources are directed at investigating Fujimori-era corruption. In 2001, President Toledo appointed an anti-corruption "czar" to lead government efforts, but this official resigned in 2002. Judge Carolina Lizarraga was appointed in October 2007 as the head of the newly created National Office for Anti-Corruption, but she resigned in July 2008—with no replacement. Private sector groups have increased efforts to combat corruption through an NGO called "ProEtica," which represents Transparency International in Peru. In October 2008, a kickback scandal involving a member of the ruling party and a foreign oil company led to the replacement of President Garcia’s Prime Minister and the changing of five other cabinet members, although investigators have not established that the Prime Minister was involved in the scandal. Other scandals in 2010 have emerged, leading other officials to resign.

Since 2008, Peru has been implementing an Anti-Corruption Program as part of its Millennium Challenge Corporation (MCC) Threshold Program. The effort helps Peru combat corruption by working with the judicial branch, law enforcement, the ombudsman and controller’s offices and civil society organizations to improve internal controls, as well as analyze and simplify administrative processes to reduce opportunities for corruption. While there have been important advances in strengthening these institutions, the majority of Peruvians remain highly skeptical of the GOP’s commitment to combating corruption, especially at high levels. A recent survey by Vanderbilt University (the America’s Barometer) ranked Peru third in the region (out of 24) in its citizens having been victims of corruption in the last year and in believing that most public officials are corrupt.

Bilateral Investment Agreements

The U.S.-Peru Trade Promotion Agreement (PTPA), signed by President Bush on December 14, 2007 and entered into force on February 1, 2009, eliminates the need for a bilateral investment agreement. Peru has free trade agreements with fourteen countries. More agreements have been signed and are awaiting implementation. Additionally, negotiations have concluded with other nations and are awaiting signature. See chart below.

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In Force

Signed – Not in Force

Negotiations Concluded

Under Negotiation (Date Negotiations Began)

Free Trade Agreements

1. Andean Community (1969)

2. Peru - Chile (2009)

3. Peru - Mexico EPA (1987)

4. Peru - Cuba EPA (2001)

5. Peru - MERCOSUR EPA (2006)

6. Peru-US TPA (2009)

7. Peru – Singapore FTA (2009)

8. Peru – Canada FTA (2009)

9. Peru – China FTA (2010)

10. Peru - Thailand FTA (2009)

11. Peru – EFTA FTA (2010)

12. Andean Community - European Union (2010)

13. Peru – Japan EPA (2009)

14. Peru – Korea FTA (2009)

15. Transpacific Partnership Agreement (2010)

16 .Mexico EPA´s Extension

17. Peru – Central America (Panama, Costa Rica, El Salvador, Honduras, Guatemala) FTA (2010).

Peru's Current Bilateral Investment Agreements:

Peru has signed bilateral investment agreements with the following 32 other countries.

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Argentina (1994)

Ecuador (1999)

Paraguay (1994)

Australia (1995)

El Salvador (1997)

Portugal (1994)

Belgium-Luxembourg E.U. (2005)

Finland (1995)

Romania (1994)

Bolivia (1993)

France (1993)

Singapore (2003)

Canada (2006)

Germany (1995)

Spain (1994)

Chile (2000)

Italy (1994)

Sweden (1994)

China (2010)

Japan (2009)

Switzerland (1991)

Colombia (1994)

Korea (1993)

Thailand (1991)

Cuba (2000)

Malaysia (1995)

United Kingdom (1993)

Czech Rep (1994)

Netherlands (1994)

Venezuela (1996)

Denmark (1994)

Norway (1995)

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC), an independent U.S. Government agency, offers medium-to-long-term financing and political risk insurance to Peruvian firms. OPIC signed two agreements with Peru in December 1992, and in July 1994, OPIC approved requests for political risk insurance (including for inconvertibility of currency). In 2008, OPIC announced that its Board of Directors approved $350 million in financing for three new private equity investment funds that will provide capital to a host of sectors in Central and South American economies. OPIC designated Peru as a beneficiary for all three funds. The following sectors will be targeted: telecommunications, finance, microfinance, agribusiness, tourism, real estate, natural resources, energy, water and waste management, transportation, infrastructure, medical devices, and services.

Because of the free convertibility of currency, the U.S. Embassy purchases Peruvian currency for expenses on an as-needed basis at the market exchange rate. The U.S. dollar averaged 2.83 Nuevo Soles to the U.S. dollar in 2010 after 3.01 Nuevo Soles to the U.S. dollar in 2009. Peru is a member of the Multilateral Investment Guarantee Agency.

Given the current Peruvian Constitution, it is unlikely that the Peruvian Government would either devalue or revalue the Nuevo Sol. The foreign exchange market mostly operates freely. However, in the last few years— and for the foreseeable future into 2011 — the Peruvian Central Bank intervenes from time to time to prevent significant exchange rate variations. To many observers, this regime has succeeding in avoiding traumatic foreign exchange adjustments to the economy. For the future, most economists, local and abroad, estimate the Nuevo Sol, along with other regional currencies, will tend to appreciate in 2011 to 2.78 and in 2012 to 2.72 Nuevo Sol per U.S. dollar.

Labor

Labor is abundant and trainable, although there are shortages of highly skilled workers in some fields. Whereas more than 72 percent of the 10.5 million-member labor force worked in the informal sector in 2007 (according to the Peruvian National Statistics Agency, INEI), the Instituto Peruano de Economia think-tank claims that in 2010 the percentage of the labor force working in the informal sector decreased to below 50 percent.

The statutory monthly minimum wage increased to 600 soles in January 2011 (US$214), which did not provide a decent standard of living for many families. The Ministry of Labor and Promotion of Employment (MOL) enforces the minimum wage only in the formal sector, which employed approximately 30 percent of the labor force, and many workers in the unregulated informal sector, most of whom were self-employed, received less. Wages are sometimes higher than U.S. wages in the mining sector for positions in the managerial and consulting fields. Some workers, like miners, are highly paid and also (per statute) receive a share of company profits. On July 1, 2008, mining workers began an unsuccessful indefinite national strike to force lawmakers to pass a law that would remove the cap mining workers receive on their share of company profits.

Current labor law provides for a 48-hour workweek and one day of rest and requires companies to pay overtime for more than eight hours of work per day and additional compensation for work at night. The law also requires strikers to notify the labor ministry in advance before carrying out a job action. According to the labor ministry, eight legal strikes and 91 illegal strikes took place in 2010. According to labor leaders, permission to strike was difficult to obtain, in part because the labor ministry feared harming the economy. The Ministry of Labor justified its decisions by citing unions' failure to fulfill the legal requirements necessary to strike. The labor code also sets 24 hours rest per week and 30 days paid annual vacation for all workers. In 2008, a new law reduced severance pay and bonuses by 50% and paid annual vacation to 15 days for small business workers. Workers readily sacrifice these and other benefits in exchange for regular employment. In 2008, a new law gave micro-business workers social security and pensions. However, strikes continue to occur particularly in the extractive industries.

On January 15, 2010, Congress adopted a new labor procedure law (No. 29497) to improve the efficiency of resolving labor disputes. Law 29497 entered into force on July 15. The law requires that labor conflicts be resolved in less than six months, allows unions or their representatives to appear in court on behalf of workers, requires proceedings to be conducted orally and video-recorded, and relieves the employee from the burden of proving an employee/employer relationship.

Only 7.06 percent of the labor force was organized as of 2007 (the latest figure currently available). Unemployment in Lima officially stood at 8.6% during the fourth quarter of 2008, compared with 8.4% a year earlier. Surveys show that 48.9% of Lima's economically active population was underemployed in 2008 (51.7% in 2007 and 52.4% in 2006), mostly working as self-employed in the informal sector for below subsistence wages.

With Peru's return to democracy in 2000, Peruvian organized labor regained some, but not all, of the protections enjoyed in the pre-Fujimori era. A decision by the Constitutional Tribunal in 2004, for example, legitimized collective industry-wide bargaining in the civil construction industry. Labor leaders saw this as a potential precedent to be applied to other activities, but that has not yet happened. Furthermore, new laws added to labor inflexibility because the restrictions for termination and downsizing have made businesses reluctant to hire new employees and have created incentives to outsource. A new law passed in 2008 created more restrictions on outsourcing and subcontracting, made the contracting company more responsible for the actions of their subcontracted company, and created a national registry of contracting companies. The PTPA requires Peru to respect the ILO-defined core labor rights of its workers, and in January 2010, the Peruvian Government and U.S. Government established the bilateral Labor Affairs Council as mandated in Article 17.5 of the PTPA.

According to labor leaders, the current labor law has weakened unions because companies create competing unions that are seen as more favorable to management. 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. 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. Labor leaders argue that labor laws erode labor protections and encourage outsourcing in a way that undercuts union activity.

Either unions or management can request binding arbitration in contract negotiations. Strikes can be called only after approval by a majority of all workers (union and non-union) voting by secret ballot and only in defense of labor rights. Unions in essential public services, as determined by the government, must provide a sufficient number of workers during a strike to maintain operations.

The Peruvian Congress continues to debate a comprehensive labor law reform, which may result in a return to inflexibility of permissible conditions for dismissal of employees. Labor law reform may rise to a vote in the next session of the Peruvian Congress to reconvene in March 2011.

There are no known special laws or exemptions from regular labor laws in export processing zones (EPZs), although in actuality businesses in the four EPZs had more legal flexibility in hiring temporary labor. According to the MOL, there is one recognized public-sector union in one EPZ. All labor in the EPZs was subcontracted.

Under current law, foreign employees may not comprise more than 20 percent of the total number of employees of a local company (whether owned by foreign or Peruvian persons) or more than 30 percent of the total company payroll. Under the PTPA, Peru agreed not to apply most of its nationality-based hiring requirements to U.S. professionals and specialty personnel.

Technology use in Peru remains low in part because of low levels of technical competence among some Peruvian workers. According to the Global Competitiveness Report 2010-2011, the quality of math and science education in Peru ranks 133 (out of 139 countries). In capacity for innovation, Peru ranks 95. In business expenditure on research and development, Peru ranks 113. In availability of scientists and engineers, Peru ranks 101.

Foreign-Trade Zones/Free Ports

Peruvian law currently covers two types of free trade zones: export, transformation, industry, trade and services zones (CETICOS), and a free trade zone (ZOFRATACNA) in Tacna. The rules and tax benefits applying to these zones are the same for foreign and national investors. These zones have failed to attract any sizeable investment and their importance for Peru’s economy is negligible.

Companies established at the CETICOS and ZOFRATACNA, which export no less than 92 percent of their output (more than 80 percent of production for the Loreto CETICOS and more than 50 percent for ZOFRATACNA), are exempted until 2012 from all taxes, dues and contributions to the central government and municipalities, particularly income, sales (IGV), Municipal Promotion (IPM) and excise (ISC) taxes. CETICOS exist at Ilo, Matarani and Paita. There is a CETICO authorized but not operating in Loreto department. There is a concern that the Peruvian Government does not have the proper WTO waivers to validate the CETICOS export requirement. The U.S. automotive industry has expressed a specific concern that U.S. brands are unable to compete with used Japanese vehicles that enter the Peruvian market duty-free through the CETICOS. The Ministry of Transportation and Communications plans to ban the importation of used vehicles in January 2011, citing environmental and security concerns.

Foreign Direct Investment Statistics

The stock of foreign direct investment in Peru was US$42.7 billion in September 2010, according to the Peruvian Central Bank, versus US$36.7 billion at the end of 2009. ProInversion figures of registered investment for legal stability contract purposes show that at the end of 2009, Spanish investors held the largest share (23 percent) of foreign direct investment, with US$4.3 billion invested. The United Kingdom was the second largest investor, with US$3.8 billion, and the United States third, with US$2.8 billion. By sector, the mining industry received 21.0 percent of foreign direct investment, followed by the communication industry (19.5 percent), finance (15.3 percent), manufacturing (15.1 percent), and energy (13.8 percent). Peru’s retail sector is also attracting substantial foreign investment.

U.S. foreign direct investment in Peru amounted to US$4.772 billion in 2008, the latest statistical period compiled by the U.S. Department of Commerce Bureau of Economic Analysis. Of that sum, US$2.231 billion was invested in mining, US$547 million in manufacturing, US$454 in wholesale trade, US$108 million in finance, US$76 in professional/scientific/technical services, and US$61 million in information industries.

Foreign investors and companies can sign legal stability contracts with the Government of Peru through ProInversion. Legal stability contracts commit the government not to apply any future changes in the income tax, labor and other laws governing a specific investment in exchange for commitments to invest a given amount. Those contracts offer legal stability for ten years, or for the duration of the concession in the case of concession contracts. In addition to these contracts, the Government of Peru has signed numerous tax, foreign exchange and administrative stability contracts through several ministries, mainly the Ministry of Energy and Mines. Investors may subscribe to a legal stability contract with a minimum investment of US$10 million in the mining and oil industries and US$5 million in other sectors.

Major foreign direct investments included Xstrata (Switzerland), Hunt Oil (U.S.), Cencosud Internacional Limitada (Chile), Endesa Latinoamericana (Spain), Freeport-McMoRan (U.S.), Golds Field Corona (United Kingdom), SN Power Peru (Singapore), Compania Minera Latino-Americana (Chile), Sempra Energy (U.S.), Citibank (U.S.), Southern Peru Copper (Mexico), Pluspetrol (Argentina), Scotiabank (Canada), Telefonica (Spain), Perenco (France), Gerdau (Brazil), Anglo American (United Kingdom), Invercale (Chile), Asa Iberoamerica (Spain), Aeropuertos Andinos del Peru (Argentina), and the Falabella Group (Chile). The multi-year Xstrata project ranks as Peru’s largest foreign direct investment ever, costing US$4.2 billion to develop a copper mine in Apurimac department. The multi-year Hunt Oil investment is part of a consortium that invested US$3.8 billion to develop a liquefaction plant, maritime terminal, pipeline, and natural gas extraction facilities in southern Peru.

As of January 2011, there are no available measures of Peru’s direct investment abroad. Peruvian investment in the Chilean cement industry and the Bolivian food industry comprised a significant portion of Peru’s direct investment abroad.

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