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FY 1998 Country Commercial Guide: Peru

Report prepared by U.S. Embassy Lima, released August 1997*.

I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Peru's commercial environment, using economic, political and market analysis. The CCG's were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several U.S. government agencies.

Peru continues on the road to economic recovery and integration with world markets. More and more U.S. companies are discovering the market opportunities Peru has to offer and are establishing corporate presence in Lima. Although the market can be characterized as medium-term payback, it is important for U.S. companies to investigate and line-up strategic alliances with Peruvian companies now. Opportunities exist for investors in the privatizations still on track and for traders for the retooling of export industries. The agromarket for U.S. farm exports and processed foods is promising.

Confidence in the Peruvian market stems from the disciplined economic program undertaken by President Fujimori since 1990 and greatly diminished terrorist activity. World attention did, however, focus on Lima last December when the Japanese Ambassador's residence was taken over by the MRTA terrorist group with hundreds of diplomats, government officials and businessmen held hostage. The hostage crisis ended dramatically after four months, with President Fujimori demonstrating his zero tolerance policy for terrorists. Although there was little impact on business activity, perceptions caused a slowdown in international business visitors. The President's prospect for reelection to a third term in the year 2000, the role of the military, human rights, freedom of the press, the independence of the judiciary and the possibility of another border war with Ecuador are among the subjects generating significant public debate and a degree of political uncertainty.

After a slump in GDP growth in 1996, growth in 1997 is expected at 5% before reaching 6% in 1998, with inflation dipping below 10%. Certainly not the world leading growth of 13% in 1994 or 7% of 1995, but 5 to 6% is a more sustainable pace under tight monetary policies and the watchful eye of the IMF. Restarting full payments to the Peruvian government's commercial bank creditors under the just completed Brady Plan rescheduling will tighten government coffers even more, although the recent Paris Club rescheduling should help keep debt service payments manageable.

In a move to align Peru with a more aggressive trading bloc in South America, President Fujimori announced in April 1997, Peru's intentions to leave the Andean Pact. Negotiations are underway to finalize this withdrawal. Shortly thereafter, Peru lowered tariff rates from an average of 16% to 13%.

The U.S. remains Peru's leading supplier with about a 20% market share. The U.S. will export $2.0 billion in products and services to Peru this year. Spain is the leading investor nation with the U.S. and the U.K. following.

Best prospect sectors include mining, oil and gas, construction and telecommunications equipment following privatization investments in these sectors. Sectors involved in tourism such as hotel and restaurant equipment, franchising and food processing and packaging equipment are also considered best prospects. The market for U.S. animal genetics and live animals will grow, with the import of bulk and processed foods showing the most promise.

U.S. products are well-regarded in this market and U.S. companies should appoint local representatives to investigate market opportunities. Use the services of the Commercial Section of the Embassy to help you locate an agent or distributor or arrange appointments during a business trip to Peru. Take advantage of an Embassy briefing to give you the latest information on this up and coming market in Latin America. Peru - the time is now!

II. ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

Peru's economy in 1997 picked up speed again in the first quarter after coming back to earth in 1996. The economy had grown by nearly one third in real terms during the 1993-1995 period. After soaring imports pushed Peru's current account deficit to 7.2% of GDP in 1995 (up from 5.1% in 1994), the Government of Peru applied the fiscal and monetary brakes at the urging of the IMF and the World Bank. As a result, the economy grew by only 2.8% in 1996, down from 7.0% in 1995 and 13.1% in 1994.

Economic growth was uneven during 1996 as the GOP attempted to revitalize the economy while keeping the external accounts position under control. Following a lackluster first quarter (zero growth compared with the first quarter of 1995), the economy picked up strongly in the second quarter, growing by 3.8% on a seasonally adjusted basis over the first quarter. Early in the third quarter, the GOP took steps to cool down the economy, including reducing interest paid on dollar reserves held with the Central Bank and further tightening monetary policy on soles. Combined with a slump in the fisheries production, these measures slowed Peru's economy significantly during the third quarter. Boosted by a record fish catch in November and December, the economy picked up again in the fourth quarter, growing by 0.9% on a seasonally adjusted basis over the previous quarter.

The stronger economic outlook continued into the new year. Growth for the first quarter of 1997 came in at 5.2%, compared with the same period of the year before. The recovery spread to all sectors with the exception of fisheries and government. Agricultural production led the way, with growth of 14.3%, followed by construction(up 9.8%) and retail(up 4.9%). The mining industry, where most foreign investment is concentrated, turned in growth of 4.6% for the period. Fisheries production fell by 12.1% compared with the same period one year earlier, largely because Peru imposed the annual February-March fishing ban on sardines and anchovy two weeks early after the November and December catches brought the harvest up to the maximum sustainable biological yield. Peru's economy is projected to grow by 4-5% in 1997, led by the agriculture, mining and retail sectors.

Inflation was slowing again during the first four months of 1997, coming in at 0.48% for January and 0.09% for February. As a result, inflation for the twelve month period ending in February 1997 dropped into the single digits for the first time in 20 years. By May the rate of increase had slowed to 8.8%. If the trend continues, the GOP would be well on its way to its CY-1997 inflation target of 8.0%.

After falling from US$ 2,111 million in 1995 to US$ 1,907 million in 1996, Peru's merchandise trade deficit is expected to increase slightly to US$ 1,974 million in 1997. Export revenues are expected to jump by about two % to US$ 6,046 million in 1997 while import revenues increase about 2% to US$ 8,020 million. The country's total 1997 capital inflows (including estimated illicit narcotics earnings) are forecast at US$ 5,130 million, more than enough to cover the country's projected 1997 US$ 3,351 million current account deficit (equal to about 5.3% of GDP, down from 5.7% of GDP in 1996). The GOP estimates that it will increase international reserves by roughly US$ 1,831 million during the year. With the July 1996 Paris Club rescheduling and the March 7, 1997 Brady Plan debt restructuring, Peru is now fully reintegrated into the international financial system.

Peru is currently in the second year of a three year Extended Fund Facility (EFF) with the International Monetary Fund. The program calls for Peru's economy to expand by 5% during 1997 and to achieve an inflation rate of 8.0%. In accordance with its EFF, the Government had initially planned to run a primary fiscal surplus (all revenues except privatization receipts minus all outlays except interest payments) equal to 1.5% of GDP. Economy and Finance Minister Jorge Camet publicly stated at the March annual meetings of the Interamerican Development Bank (IDB) in Barcelona that Peru would target a primary surplus of only 1.3% for 1997. According to some reports, the Fund has agreed to the lower fiscal surplus number to compensate for the eventual lowering of GOP tariffs. The GOP remains committed to achieving a balanced budget in 1998, based on a primary surplus equal to 2.0% of GDP as called for in the country's IMF program. The national savings rate is projected to rise from 17.0% in 1995 to 19.0% in 1997.

Principal Growth Sectors

The structure of the Peruvian economy continues to adapt to the competitive pressures of the international market which the Peruvian government has promoted since 1990. Some industries are adapting well, while others are struggling to keep their heads above water.

In 1996, the agricultural and fisheries sectors led the Peruvian economy. Good weather and increased plantings pushed agricultural production up by 5.6% for the year, while fisheries production expanded by 5.2%. Other sectors showing growth include mining (up 3.1%), manufacturing (up 2.6%), government (up 0.4%) and trade (up 3.0%). After several years of strong growth, the construction sector took it on the chin in 1996, shrinking by 4.6% Reduced government road-building and other construction expenditures accounted for most of the decline. Tourism was up as the number of international visitors topped 600,000. The GOP hopes to attract one million tourists by the year 2000.

If 1996 is any indication, Peru's agricultural sector offers great promise. Nevertheless, the sector is burdened with uncertainty stemming from land titling, credit unavailability, and inefficiency which makes competition on a world scale difficult. The GOP hopes to pass new land and water legislation during 1997 to remedy some of the problems, but the bills remain locked in the Congress, where they have been for several years facing considerable opposition. Although one of the bright spots for the economy last year, fisheries production is unlikely to expand significantly in the years ahead. Since the 1970's, the fishing fleet has had significant overcapacity.

Local demand for consumer durables and other goods will probably remain sluggish for the immediate future, as the GOP attempts to reactivate the economy while keeping external imbalances under control.

In the long run, the mining and petroleum sectors offer the best prospects for growth as the country is believed to have large undiscovered resources. The base is being laid for sustained growth over the medium term. Several new major investments in this sector are planned in 1997 and into the next century. Nevertheless, it will be several more years before the 200 mining and petroleum projects currently on the drawing boards make this sector the engine of the economy. The infrastructure needed for such projects plus other demands of the private sector will stimulate growth of construction and related industries.

Government Role in the Economy

Since coming to power in July 1990, the Fujimori administration has eliminated nearly all trade, investment and foreign exchange controls. The administration's economic restructuring program reduced domestic deficit financing through tax reform and elimination of subsidies. President Fujimori promised to continue the economic restructuring program throughout his second five-year term, which began in July 1995. The government attained major successes in the pursuit of its goal of privatizing all state-owned enterprises. Privatization receipts in 1996 (some of which will be collected over several years) came in at US$ 2,637.1 million, up from US$ 1,138.9 million in 1995. The higher 1996 revenues were largely the result of the sale of government shares in Telefonica, originally privatized in 1994. The introduction of private capital and drive into sectors as diverse as telecommunications, electricity generation, air and urban transportation, hydrocarbon development, mining, mail delivery, and banking has been a key factor in the revitalization of the economy. Political pressures caused the pace of new privatizations in 1995 and 1996 to slow significantly, but there are recent signs that the government is determined to get back on track. Current official plans are to complete the privatization program by the end of 1998.

The 1997 government budget in dollar terms totals US$ 9,185 million, nearly unchanged from the 1996 level, and just under 15% of projected 1996 GDP. Over 40% of the budget is earmarked for social expenditures, slightly more than in 1996.

External Accounts

Peru's balance of payments improved significantly in 1996 as net private capital inflows soared to US$ 4,870 million, up from US$ 3,821 million in 1995, according to preliminary GOP statistics. Meanwhile, the country's current account deficit dropped sharply to US$ 3,469 million from US$ 4,245 million in 1995. In relative terms, the current account deficit fell from 7.2% of GDP to just 5.7% of GDP. A reduction in the country's trade deficit (from US$ 2,111 million to US$ 1,907 million) accounted for much of the decrease. Peru's external accounts position is expected to improve further in 1997, with the current account deficit falling to US$ 3,351 million (equivalent to about 5.3% of GDP).

Merchandise imports totaled US$ 7,825 million in 1996 against exports of US$ 5,918 million. The resulting trade deficit of US$ 1,907 million was down by nearly ten 10% from the 1995 level. In 1996, Peruvian exports grew by 6.1% over the 1995 level of US$ 5,576 million. Although international copper prices fell in 1996, metals and minerals still accounted for the largest share (45.0%) of total exports. Other important exports included fish products (15.4%), agricultural products (11%) and petroleum products (6.0%). Nearly all export categories showed growth in 1996 despite what many have long claimed to be an overvalued currency. (Note: The sol is widely believed to be overvalued. In 1996, the sol depreciated 12.3% nominally against the dollar, marginally higher than inflation of 11.8%. The sol had previously not see real depreciation for 6 years.) Export growth was especially robust for petroleum exports (46.5%), chemical products (26.5%) and non-metallic minerals (25.6%). If copper prices rebound in 1997, as some expect, exports could rise above the GOP's estimate of US$ 6,048 million.

After jumping by nearly 40% in 1995, imports leveled off at US$ 7,825 million during 1996, an increase of only 1.8%. The slowdown came as Peru's terms of trade deteriorated, with foodgrains and petroleum prices moving sharply higher. Raw materials and semi-finished inputs comprised 41% of total imports, followed by capital goods (30.7%), consumer goods (23.4%), and other imports such as luxury goods (4.9%). Fuel imports rose sharply after international petroleum prices increased. As in the previous year, the 1995 breakdown of imports reflected a reasonable course for a developing economy requiring a large volume of raw and semi-processed industrial inputs, as well as capital goods for revival of the petroleum, mining and telecommunications sectors. Products imported at duty-free zones amounted to almost US$ 138 million, slightly below the year-earlier level due to a temporary ban on the importation of used cars that has since been lifted. For CY 1997, Peru's total merchandise imports are projected to increase around 1% to US$ 8,020 million, or US$ 1,974 million above projected 1996 exports. (Note: GOP plans call for the country's exports to equal imports early in the next century.)

Recovering from the fallout over the Mexican peso crisis in 1995, private capital inflows into Peru jumped to US$ 4,870 million in 1996, up from US$ 3,821 in 1995. Direct investment flows also increased as has portfolio investment. Foreign earnings from privatizations at US$ 1,464 million were more than double the level reported in 1995 (US$ 636 million). Three transactions accounted for most of the increase: (1) sale of remaining government shares in the telephone company - US$ 918 million; (2) sale of the state electric power generation company for northern Peru Egenor - US$ 228 million; and sale of the La Pampilla refinery - US$ 145 million. Aside from these transactions, GOP privatization efforts lagged during 1996.

A projected modest reduction of Peru's current account deficit, coupled with continued increases in capital inflows, has improved prospects markedly for the 1997 balance of payments. The merchandise trade deficit is projected to rise slightly.

Nearly one and a half years after reaching a preliminary agreement with its commercial creditors, Peru closed out a $10.5 billion Brady Plan commercial debt restructuring on March 7. The GOP estimates annual obligations under the deal at about US$ 300 million. With the Brady closing and a Paris Club debt rescheduling completed July 20, 1996, Peru is now current with nearly all its international creditors. Under the Paris Club rescheduling, the Club creditors countries agreed to reschedule approximately one billion dollars in "official debt" payments coming due during the period 1996-1999. In an unprecedented step, the Paris Club also agreed to again reschedule debt service payments originally rescheduled in 1991 in order to smooth out Peru's debt service profile in recognition of the country's strong macroeconomic performance since 1990. Peru has indicated that it hopes no further Paris Club reschedulings will be necessary.

Infrastructure Situation

The distribution of goods and services outside Peru's capital city of Lima is a major problem for the economy and development of certain sectors, especially agribusiness. Until recently, the transport sector was in poor shape due to long neglect, but efforts are well underway to remedy the situation. During 1996-2000, the government has targeted US$ 2,828 million for investment in the transport sector (primarily roads and airports). For the same period, the government plans to invest 6,000 million soles (US$ 2,500 million at he 1996 exchange rate) for drinking water systems; 1,500 million soles (US$ 625 million) for electrification; and 1,500 million soles (US$ 625 million) for irrigation systems. The five-year plan also calls for 3,000 million soles (US$ 1,250 million) of government financing for housing, and the construction of 20,000 apartments.

Air transport is the only means to convey goods to many areas not served by the Pan American and Central Highways. The airline industry has been liberalized in recent years and domestic air fares are set by market forces. A number of small airlines have been making passenger and cargo flights throughout the country since 1991.

Telephone density, at 6.4 lines per 100 inhabitants in 1996 (up from 2.9 per 100 inhabitants in 1993), is one of the lowest in South America, but modernization is progressing rapidly following the privatization of the phone system. Telefonica of Spain acquired a controlling share in the formerly state-owned telecommunications companies CPT and Entel in May 1994, with a commitment to invest US$ 1.5 billion over five years to expand and improve service. The two companies were formally merged in December 1994, allowing Telefonica to reduce overhead and improve efficiency. The first digital lines were installed in August 1994. By 1998, Telefonica plans to have installed or replaced 1.9 million lines, of which 96% will be digital. The company is also installing a fiber-optic network.

Peru suffers from a shortage of electrical generating capacity and an over reliance on hydropower, which in the past led to sporadic power outages in times of drought. The power utilities are being privatized and the government is encouraging foreign investment in new electrical-generating plants. In October 1995, a consortium led by the U.S. firm Entergen bought the Lima power company Edegel, committing to build a 100 megawatt power plant. In June 1996, a U.S. firm Dominion Energy acquired the Northern Peru power company Egenor with a commitment to expand generating capacity by 100 megawatts within three years. In May 1996, the Peruvian government signed a contract with Shell and Mobil that will involve the construction of a 600 megawatt gas-fired generating plant within two years.

Water-supply infrastructure in Lima and throughout Peru is decrepit and unreliable. The World Bank, the International Finance Corporation and the Japanese Government have provided a total of US$ 375 million in financing to upgrade the water and sewage utility for greater Lima (Sedapal).

Peru's railroads remain in bad condition and while the ports (managed by Enapu) have seen some improvements, both remain in state-hands. The large investments necessary to refurbish these operations, the uncertain future of the railroads, and concern by the GOP about monopolistic practices at the ports once their managements are privatized, has raised doubts about how quickly privatization of these key sectors can proceed.

III. POLITICAL ENVIRONMENT

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

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

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

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

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

The security situation has improved considerably since the September 1992 capture of terrorist leader Abimael Guzman. However, Peru's two terrorist groups, Shining Path (SL) and the Tupac Amaru Revolutionary Movement (MRTA), although seriously debilitated by the capture of their top leaders, have not been defeated. Both groups continue to carry out terrorist activities, including attacks on foreign businesses and diplomatic missions. On December 17, 1996, MRTA militants seized the Japanese Ambassador's residence in Lima.

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

IV. MARKETING U.S. PRODUCTS AND SERVICES

Distribution and Sales Channels

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

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

An alternative approach in distribution is to establish a local subsidiary or branch office. This method creates effective service and aggressive promotion of your product. Expenses for commercial and industrial space are rapidly rising in the Lima area, making this an expensive option.

Use of Agents and Distributors - Finding a Partner

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

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

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

Franchising

Since 1993, franchises have expanded in Peru, although the country still presents fresh and challenging grounds when compared to other Latin American countries such as Mexico, Brazil, and Argentina, where franchising has already matured.

Peru's economic situation, open market mentality, credit access, and receptivity to foreign investment offers an excellent opportunity for franchising companies. Economic growth is leading to a faster-paced society, creating a growing market for fast food and other services. In fact, most franchises started in Lima are in the fast food sector, including Burger King, Kentucky Fried Chicken, Domino's Pizza, Pizza Hut, Taco Bell and Tony Roma's.

There is no special legislation for franchising. So far, franchise companies operating in Peru are subject to regular trade laws. There is a withholding tax on royalties (30%) and other off-shore charges, value added tax of 18% and import tariffs of 12%.

Unaddressed markets for franchising are in the areas of automotive, cosmetics, repair and rental services, cleaning (home and industrial), hotels/motels, clothing store, fitness centers, real estate business, pharmacies, supermarkets, etc.

Direct Marketing

Direct marketing is fairly well-established in Peru in the service sector, especially among financial institutions and seminar organizers. One common practice is to hire personnel for telemarketing and mailing campaigns or to contract these services from specialized firms. Data bases for direct marketing are zealously guarded and thus are not readily available.

Nevertheless, commercial information can be obtained through the chambers of commerce and trade associations (See Section X, Appendix E: U.S. Country Contacts).

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

Joint Ventures/Licensing

Peruvian law allows for joint ventures and licensing agreements with a legally established local partner who will be accountable for all legal matters. Peru is just beginning to integrate itself into the global commercial network, making it attractive to potential joint ventures and licensing agreements. This is especially true in activities where there is local manufacturing or finishing assembly capacity and the product's market prices are strongly affected by shipping costs.

The textile manufacturing industry in Peru is rapidly becoming an attractive center for licensing and joint ventures. Productivity has increased through modern technology which has resulted in significant production in exports for very well-known clothing brands. Peru offers qualified labor and competitive production costs which makes it extremely attractive for local production.

Steps to Establish an Office

Foreign corporations interested in doing business in Peru on a permanent basis must be formally incorporated and registered in the Peruvian Mercantile Registry. This same registration is necessary for acquiring real estate in Peru.

There are two main forms of business organization that can be used for these purposes: to incorporate a subsidiary or to establish a branch office.

Incorporating a Subsidiary

A minimum of three shareholders is required.

To comply with the incorporation of a subsidiary, the following documents will be required:

If participating shareholders are foreign individuals they would only need their valid ID (passport), but for corporations participating as shareholders the following documents must be filed:

• Certificate of Goodstanding.
• Copy of the minutes of the board of directors' meeting where the resolution to participate in the incorporation of a Peruvian company appears. This resolution should indicate the name of the person appointed as representative to act on behalf of the shareholders in all the incorporation procedures.

Establishing a Branch

To establish a branch the following documents will be required:

• Copy of the articles of incorporation of the parent company.

• Certificate of due incorporation and goodstanding of the corporation or other official document certifying the existence and continuous operation of the parent company.
• Copy of the minutes of the board of directors' meeting where the resolution to establish a branch in Peru appears. This resolution should specify:
• The domicile in Peru.
• Duration of the branch (may be indefinite) and the commencement of operations.
• The purpose of the branch, clearly specifying the business and operations that will be conducted in Peru.

Name of person(s) authorized to act in the registration of the branch and its representation and powers vested in him, which must include powers to resolve any issue related to the branch activities, hold the corporation liable for its operations, appear in court and respond to suits brought against it.

The affiliate is directed by the holder of the parent corporation power of attorney, duly registered. Such power can be revoked anytime by the parent corporation. There is no regulation that requires the parent company to submit its financial statements to Peruvian authorities.

All documents granted abroad must be legalized by a Notary Public or appropriate government official in the country of incorporation. The signatures of the Notary or the government official must be authenticated by a local Peruvian consul. The documents should be in Spanish, but if not, they must be translated by a Peruvian official translator.

Upon receipt, the signature of the Peruvian consul must be legalized in the Ministry of Foreign Affairs.

Fees payable upon registration are as follows:

• Registry fee: aprox. 3/1000 of the assigned capital.
• Translation fees: between US $10 and US $12 per page
• Notary and legal fees: variable rates.
• Expenses.

It is advisable that all companies that wish to operate in Peru seek legal assistance from reputable lawyers to ensure that their operations are within the framework of the legal system. They should be aware of matters concerning taxes on corporate and branch income, which have an identical regime, corporate residence, value added taxes, income determination, capital gains, intercompany dividends, stock dividends, depreciation and depletion, net operating losses (tax losses) and payments to foreign affiliates. Other significant points such as workers participation, withholding taxes, municipal operating permits, vacation and general labor laws that will affect the business as it starts operating must be considered.

Limited Liability Companies (Sociedad Comercial de Responsabilidad Limitada) is a form of business organization that is a legal entity different from its owners, whom can be either individuals or corporations. The liability of the partners is limited to the amount of their contribution. The minimum number of partners is two and the maximum is twenty. The name of the company must include the abbreviation "S.R. Ltda.".

Once a residence or a domicile can be demonstrated, the foreign company must obtain the Registro Unico del Contribuyente (RUC) number and officially initiate their corresponding activities. The taxpayer will use his RUC number in all commercial transactions. This is similar to the IRS number in the U.S. A list of local lawyers can be provided by the Embassy's Commercial Section.

Selling Factors/Techniques

The one most important selling factor in Peru is price. Price competitive products from Asian countries such as Taiwan and Korea far outsell more expensive European or North American products in the consumer product categories such as consumer electronics, appliances and automobiles. With investment in sales promotion and service infrastructure, U.S. goods can be competitive.

Dependability becomes more influential in purchases of advanced electronics and construction machinery. The customer will often prefer more expensive North American or European products based on the decision factors of quality, durability, technology, good customer support, and a strong regional service structure where applicable.

Many of the larger representatives have small regional offices in two or three additional cities outside of Lima. The rest of the country is largely underpopulated, underdeveloped and does not offer an attractive market for technical equipment.

Payment for major purchases is generally on a net 30 days basis. Over the counter purchases are done in cash, check or credit card. Most retailers use credit terms as a sale technique and major department stores are starting to issue their own credit cards. When dealing with new customers it is advisable to work on a letter of credit basis.

Advertising and Trade Promotion

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

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

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

GESTION
Director: Manuel Romero Caro
Calle General Salaverry 156, Miraflores
Lima - 18, Peru
Tel: (51-1) 447-6919/6634 Fax: (51-1) 447-6569/6763

SINTESIS
Director: Luis Gonzales del Valle
Av. Las Camelias 491, San Isidro
Lima - 27, Peru
Tel; (51-1) 421-8048, 221-0098/0218 Fax: (51-1) 442-3489

EL PERUANO
Director: Luis Arista Montoya
Av. Alfonso Ugarte 873
Lima - 1, Peru
Tel: (51-1) 428-3460 Fax: (51-1) 424-9507

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

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

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

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

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

Peruvian advertising spending is growing 20% a year and last year advertisers invested $200 million in publicity.

US COMPANIES IN PERU

J. Walter Thompson Peruana
General Manager: Fernando Otero
Admn.& Finance Director: German Guidino
Address: Paseo de la Republica 5883, Lima 18
Phone: (51-1) 445-3415
Fax: (51-1) 447-8810

2. McCann-Erickson Corporation Publicidad S.A.
General Manager: Francisco Garcia-Huidrobo
Finance & Administration Director: Santiago J. Borja
Address: Tripoli 102, Miraflores, Lima 18
Phone: (51-1) 447-0425
Fax: (51-1) 447-8035

3. Grey Peru S.A.
General Manager: Jose Luis Leon Touzard
Account and Public Relations Director: Carolina D'Angelo de Barclay
Address: Las Camelias 891, San Isidro
Phone: (51-1) 440-9889
Fax: (51-1) 441-3118

4. Momentum/Ogilvy & Mather
Executive President: Oscar Vidaurreta Yzaga
Manager: Martin Carneiro
Address: Av. El Bosque 128, San Isidro
Phone: (51-1)440-6285/440-9692

Pricing the Product

In general, Peru enjoys a very open market with, trade restrictions held to a minimum. Revised tariff rates are 12 % ad-valorem. Distributor mark up varies according to type of product, but usually ranges between 12 and 25 %. All imports are subject to a 18 % value-added local sales tax. Imports of US$ 5,000 or more into Peru are also subject to pre-shipment inspection, which must be performed by one of the three selected supervision service companies. There are some exceptions: government entities do not pay these fees; decentralized industrial entities as classified by the General Industrial Law; industrial entities that have signed tax-stability or tax-exemption contracts with the government of Peru; enterprises established in the industrial free zones and special treatment zones; and companies that have their operations in the jungle regions of Loreto, Ucayali, Madre de Dios, Amazonas, and San Martin in accordance with the Peruano-Colombiano treaty. Some luxury items have higher tariffs and some specific goods such as cigarettes, beer, wine, liquors, automobiles, etc., pay an excise tax according to the lists and rates included in Appendixes III and IV of Legislative Decree No. 821. Imports from countries with which Peru has bilateral agreements are covered by different, preferential tariff schedules.

Sales Service/Customer Support

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

Selling to the Government
To sell to the government you need to register as a supplier with the appropriate ministry. The second step is to provide credentials indicating that the firm is a legitimate representative of the company. This can be done by a letter, legalized by the Peruvian Consulate and then registered with the Foreign Affairs Ministry. If using an agent, it need not be a national, but must be a resident of Peru.

Peruvian law excludes all government officials on active duty from negotiating contracts with the government. This is to ensure conflict of interest do not occur. Former government officials are not affected by this law.

Payment of commissions or fees to third parties in connection with sales to the government can be done under Peruvian law by a distributor working independently. For example, a company in Peru can purchase certain products from a company in the United States and then resell them to the Peruvian government.

There are no controls in place on commissions or mark-ups on sales to the government by either agents or distributors. Neither are there common nor customary rates in regard to this matter.

Government agencies usually publish tender notices in the main newspapers. The Fujimori government, in order to ensure transparency for all government tenders, is currently using the United Nations Development Program (UNDP) to notify potentially interested suppliers. Peru is not a signatory to the WTO plurilateral agreement on government procurement.

Protecting Your Product and IPR Infringemen

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

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

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

Decision 344 contains compulsory licensing provisions, but they are not likely to be applied in Peru, because of the onerous conditions that must be met. There is no pipeline protection for pharmaceutical patents. Patents may not be taken out on animal species, materials derived from the human body, nuclear and other fissible materials, or inventions deemed to be contrary to the public order or to the sustainable development of the environment.

Peruvian law does not protect semiconductor chip layout designs, but the Embassy is not aware of any infringements in this area. Private freebooting of broadcast satellite signals may exist, but the commercialization of the captured signals without a license appears to have ended.

Need for a Local Lawyer

Obtaining legal counsel is highly recommended for doing business in Peru. Potential investors should contact an able attorney to understand the legal framework for investments found in the Foreign Investment Promotion Law, the Framework Law for Private Investment, the Law for the Promotion of Private Investment in State-Owned Companies, and the Law for the promotion of Private Investment in Public Utility Facilities.

In the event of a dispute, national or international arbitration is followed with national or international conformity

.

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

A. Rank: 1

B. Name of Sector: Mining Industry Equipment

C. Industry Code: MIN

	1996	1997	1998
D. Total Market Size	346.0	432.5	540.63
E. Total Local Production	0.0	0.0	0.0
F. Total Exports	0.0	0.0	0.0
G. Total Imports	346.0	432.50	540.63
H. Total Imports from U.S.	134.0	186.3	258.90
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: Due to the size and importance of the mining industry in Peru, investments in mining equipment should continue to increase tremendously. U.S. exports in mining equipment have an excellent reputation in comparison to their main competitors from Australia, Canada, Germany and Japan. The appreciation of the yen and deutsche mark will also contribute positively to U.S. exports of mining equipment and parts, making them even more attractive to mining companies. The Ministry of Energy and Mines (MEM) expects continued large foreign investments in the mining sector for exploration, expansion, and new projects, in the range of approximately US$ 6.5. billion from 1995 to the year 2000. For these reasons, the U.S. mining industry equipment sector is well positioned to benefit from the continued growth of the mining sector in Peru well into future. Best prospect subsectors would be heavy earth moving equipment, exploration technology, drilling machinery, purification plants, pollution control equipment, conveyors, transportation equipment, and parts.

A. Rank: 2

B. Name of Sector: Telecommunications Equipment

C. Industry Code: TEL

	1996	1997	1998
D. Total Market Size	556.40	600.91	648.75
E. Total Local Production	2.00	2.00	2.00
F. Total Exports	0.60	0.60	0.60
G. Total Imports	555.00	599.40	647.35
H. Total Imports from U.S.	110.80	119.66	129.24
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: Peruvian telephone density is 6.4 telephone lines per 100 inhabitants as opposed to the 9.28 per 100 average throughout South America. Approximately 40 % of the population has no access to telephone service, however, about 1 million new lines have been installed since 1994. Private owner, Telefonica del Peru projects it will invest about US$2.03 million between 1995-1998. Currently, Telefonica del Peru imports mainly through Spain. Traditionally, direct or representative sales have been difficult in Peru, but with the expiration of Telefonica del Peru's monopoly in June of 1999, there will be a clear opportunity for the U.S. and other foreign companies to enter the market. Best sales prospects will be concentrated in digital and electronic switches, fiber optic cables, cellular infrastructure equipment and telephones, trunking, PCS, and paging.

A. Rank: 3

B. Name of Sector: Oil/Gas Equipment

C. Industry Code: OGM

	1996	1997	1998
D. Total Market Size	132.33	158.80	190.56
E. Total Local Production	0.00	0.00	0.00
F. Total Exports	0.00	0.00	0.00
G. Total Imports	132.33	158.80	190.56
H. Total Imports from U.S.	50.50	60.60	72.72
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: The oil/gas sector in Peru is well positioned to take advantage of investment opportunities. Currently, the exploration of oil and gas is highly attractive. Existing geological factors are favorable for the development of this industry. The Peruvian government has established a series of regulations in order to oversee the exploration of new oil reserves.

Upcoming projects in the oil and gas industry look promising to US exports of oil/gas exploration, transportation, and storage equipment. It is estimated that about 96 new oil wells will be drilled in the next seven years. Much attention has been focused on the development of gas fields in Aguatia (1997) and Camisea (2000). Leaders of the gas industry, SOLGAS and LIMA GAS, are building a storage factory with a 10 thousand metric ton capacity and plan to invest US$47 million in the next 5 years in order to develop the natural gas market.

A. Rank: 4

B. Name of Sector: Pollution Control Equipment

C. Industry Code: POL

	1996	1997	1998
D. Total Market Size	260.0	299.0	344.0
E. Total Local Production	4.8	4.8	4.8
F. Total Exports	3.8	3.8	3.8
G. Total Imports	259.0	298.0	343.0
H. Total Imports from U.S.	28.4	32.6	37.5
I. Exchange Rate	2.45	2.70	2.95

The above unofficial statistics are based on estimates by industry and government sources.

Comments: There will be a demand for pollution control equipment in the mining, energy and fishing sectors in the coming years. Companies from these sectors started their voluntary pollution control program in 1997 according to the environmental plans called Programa de Adecuacion de Manejo Ambiental (PAMA). The legislation for the industry, however, will be ready sometime in 1997. Until this law is translated into compliance enforcement, demand for equipment will be limited.

There is a large demand for different water supply, water treatment and wastewater treatment systems in Peru. Under Lima's water and sewage company, SEDAPAL, the wastewater management and coastal pollution control project in metropolitan Lima called, Proyecto "Manejo de las Aguas Residuales en Lima Metropolitana-PROMAR", and the government project for the national management of water and sewage systems, have extensive plans (US$1,100 million) for investment in new projects during 1997-2002. However, the bulk of the investment will be implemented in the expansion and rehabilitation of the water pipelines network and the sewage network in the Lima area.

A. Rank: 5

B. Name of Sector: Building Products

C. Industry Code: BLD

	1996	1997	1998
D. Total Market Size	130.44	150.01	172.51
E. Total Local Production	34.91	40.15	46.17
F. Total Exports	27.93	32.12	36.94
G. Total Imports	123.46	141.98	163.28
H. Total Imports from U.S.	31.84	36.82	42.11
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: Due to the growth prospects in the construction sector, local companies are expected to increase purchases of building products. The construction industry, which is expected to grow 8.5% in 1997, allows for the development of collateral industries. It is estimated that for every $100 spent another $71 is generated in related industries. The import of building products has been highly dynamic due to the increase in construction activity. US products are particularly successful, profiting from a widely recognized image of high quality. Large local construction companies have partnerships with foreign companies for large projects such as power plants, mining facilities, and airports. Such has been the case of Bechtel and Fluor, among others which have found partners in Peru. Private investment is expected to reach about 10-20% growth to the year 2000. Main investments will be in real state, shopping malls, and hotels.

A. Rank: 6

B. Name of Sector: Computer Software

C. Industry Code: CSF

	1996	1997		1998
D. Total Market Size	80.0	112.0		156.8
E. Total Local Production	56.0	73.92		103.48
F. Total Exports	0.24	na		na
G. Total Imports	18.08	29.12		42.22
H. Total Imports from U.S.	10.91	21.57		29.33
I. Exchange Rate	2.45		2.70	2.95

The above statistics are unofficial estimates.

Comments: The Peruvian market for the total computer industry -hardware, services, and software, is considered small compared to other countries in the region. In 1996, this industry sold some US$330-350 million, which represents 0.6% of the national gross product. Nevertheless, the fastest growing subsector is computer software, particularly, the database tools. According to a representative of Informix, the database market will sell US$30m in 1997. Peruvian software production is based on applications, due to little research infrastructure available for development of new software technology.

A recent survey by Price Waterhouse indicates expected growth rate for the software industry in Peru in 1998 at a respectable 40%. Furthermore, a steady 35% growth rate is estimated until the year 2000.

Although piracy continues to damage the software industry, efforts of the government and the private sector have decreased the %age of piracy from a 94% level to a current 74% rate. Piracy activity is expected to decrease another 20% by the year 2000.

A. Rank: 7

B. Name of Sector: Auto Parts & Accessories

C. Industry Code: APS

	1996	1997	1998
D. Total Market Size	209.82	241.29	277.49
E. Total Local Production	76.50	87.98	101.17
F. Total Exports	13.63	15.67	18.03
G. Total Imports	146.95	168.99	194.34
H. Total Imports from U.S.	43.06	49.52	56.95
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: In the past few years, the auto import sector has become highly competitive. More than 40 different brands shared the local market of 40,000 vehicles and $600 million in 1996. However, the four Asian leading brands-Toyota, Daewoo, Nissan and Hyundai, hold 70% of the market. For 1997, industry experts forcast little increase in the total market size. Representatives from Ford and General Motors recently reported that their sales estimates for the Peruvian market in 1997 are $45 million and $11 million, respectively.

The supply of auto parts features a wide range of accessories and tools. Local production is limited mainly to tires and batteries. The tire market is estimated to be $100 million, with Goodyear accounting for half of that value and BFGoodrich for another 30%. Imports of new tires totaled $48 million in 1996. The $28 million market for batteries is led by a local brand with a 43% share. Price is definitely the most important factor when purchasing, but warranty service and quality are also starting to play a key role.

A. Rank: 8

B. Name of Sector: Medical Equipment

C. Industry Code: MED

	1996	1997	1998
D. Total Market Size	63.0	69.3	76.2
E. Total Local Production	4.2	4.6	5.0
F. Total Exports	2.1	2.3	2.5
G. Total Imports	60.9	67.0	73.7
H. Total Imports from U.S.	22.6	24.8	27.3
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: In Peru, health care is provided by both the public sector through the hospitals and centers of the Ministry of Health (MOH), the Instituto Peruano de Seguridad Social (IPSS), the Armed Forces, and by the private sectors. Abouth 75% of existing patients are cared for by public institutions. By 1994, 40% of the equipment in the centers and hospitals of the MOH, IPSS and even in the private sector hospitals, had not been replaced for two decades. The main objective of the government health policy is to insure that 100% of the population has access to health care services. Policies in the health sector have begun to change. The GOP launched 4 projects with resources mainly coming from international donors intended to improve quantity and quality of services provided by the MOH. The Inter-American Development Bank-IDB provided a US$98 million loan for the Program for Stregthening Health Services that will run until 1997. However, there is a second stage of this project being negotiated at the moment which will be financed by the IDB and the World Bank together for some US$100-US$150 million. This second stage will run from 1998 to the year 2000. Purchases will be made in the first two years. The demand of hospital equipment and supplies is expected to grow by 10% in 1998. Best sales prospects will be concentrated in equipment for cancer control and treatment, X-ray apparatus, surgical, exploratory examination apparatus, hemodialysis and electro-medical equipment.

A. Rank: 9

B. Name of Sector: Food Processing/Packaging Equipment

C. Industry Code: FPP

	1996	1997	1998
D. Total Market Size	23.20	48.00	50.15
E. Total Local Production	1.30	2.80	2.91
F. Total Exports	0.20	0.40	0.41
G. Total Imports	22.10	45.60	47.65
H. Total Imports from U.S.	4.40	9.00	9.45
I Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: The food processing industry represents one of the largest industries in Peru. However, the local food processing industry has been limited to small and medium sized equipment for sorting food, filling and closing bags, bottles, and cans. Peru posesses a number of food products that would benefit from imported food processing and packaging equipment, as well as technical assistance to increase the industry's productivity. Best sales prospects may come from small to medium size private companies wishing to expand their local business and/or who are interested in exporting their finished food product to foreign markets. Price plays a major role in selling as does quality, durability, technology, and availability of customer service.

A. Rank: 10

B. Name of Sector: Hotel and Restaurant Equipment

C. Industry Code: HTL

	1996	1997	1998
D. Total Market Size	50.50	55.50	61.50
E. Total Local Production	5.00	5.50	6.00
F. Total Exports	0.00	0.00	0.00
G. Total Imports	45.50	50.00	55.50
H. Total Imports from U.S.	13.60	15.00	16.50
I. Exchange Rate	2.45	2.70	2.95

The above statistics are unofficial estimates.

Comments: The hotel and restaurant equipment market in Peru has great potential. Encouraged by the Peruvian government declaration of 1996 as the year of 600,000 tourists, the hotel and restaurant equipment market is expected to grow over 10 % annually through the year 2000. The construction of new hotels, expansion projects, and the privatization of 33 tourist hotels previously owned by the government will demand investment in this sector. The projection is to expand the availability to 15,000 rooms in Peru to satisfy the demand of one million tourists by 2000. As the industry evolves according to international standards, efforts to satisfy quality-oriented customers will result in more investment in facilities and equipment. There are only a few specialized producers of hotel and restaurant equipment. Most of the production is limited to custom-made furniture and in small-scale dinner sets, tableware, linens and bedding, and cleaning and maintenance products.

	1996	1997	1998
A. Total Market Size	1,189	1,240	1,300
B. Total local production	139	140	150
C. Total exports		0	0
D. Total imports	1,050	1,100	1,150
E. Total imports from U.S.	660	550	550

Comments: Peru produces about 130,000 MT of soft wheat unsuitable for milling and used for purees and soups. Wheat imports from the U.S. have increased greatly over the past two years, due to availability of USDA GSM Credit in Peru, and the reduced supplies from competing suppliers. Due to the U.S. crop situation, however, U.S. exports in this sector may decrease slightly in the coming year.

PS&D Code: Yellow Corn (1000 MT)

	1996	1997	1998
A. Total Market Size	1,651	1,802	1,900
B. Total local production	751	852	900
C. Total exports	0	0	0
D. Total imports	900	950	1,000
E. Total imports from U.S.	480	550	600

Comments: Consumption of yellow corn is related mainly to consumption of poultry meat, which has become the most popular source of animal protein. Although this sector has experienced problems due to a drop in consumer income this past year, U.S. exports of corn increased dramatically over the past year, and should remain strong in the coming year, due to the availability of USDA GSM Credit.

	1996	1997	1998
A. Total Market Size	1,155	1,270	1,350
B. Total local production	725	890	950
C. Total exports	0	0	0
D. Total imports	430	380	400
E. Total imports from U.S.	105	110	120

Comments: Peru imports lower quality Asian rice to satisfy demand, but also imports high quality rice for the higher income consumers. Increasingly, this comes from the United States. For 1997, imports from the U.S. should again exceed US$ 25 million.

Comments: Lentils, whole and split green peas are the most common pulses imported from the U.S. Peru is the third largest U.S. market for these products, and Peruvian consumers demand a high quality product.

Other Prospects/Comments:
The market for U.S. animal genetics, including live animals, promises to be very inviting over the next several years. Livestock and meat products show great potential, even though prices for U.S. meat and offal are higher than those of other countries, mainly Argentina. Peru has not had any major livestock imports for the past ten years. Imports in this area should rise to approximately US$ 5 million dollars in 1998, mainly of dairy cattle due to new credit alternatives and the growth of the milk market. U.S. cotton fiber is another area of interest.

One of the fastest growing markets for imports in Peru is the processed food market. New products are catching the interest of the Peruvian consumer. Imports of U.S. processed products such as snacks, beverages, cereals, nuts, processed fruits and dairy products (cheese) have risen from US$ 8.5 million in 1990 to over US$ 25 million in 1996. Food ingredients is another rapidly developing market. Imports in this sector are over 23 million dollars with a growth rate estimated at 10 % per year for the next four years. As Peruvian economy improves, the market will demand more and better quality products.

Significant Investment Opportunities
Major Peruvian Companies to be Privatized in 1997

Source: COPRI

The Government of the United States acknowledges the contribution that outward foreign direct investment makes to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. For example, roughly 60 % of U.S. exports are sold by American firms that have operations abroad. Recognizing the benefits that U.S. outward investment brings to U.S. economy, the government of the United States undertakes initiatives, such as Overseas Private Investment Corporation (OPIC) programs, investment treaty negotiations and business facilitation programs, that support U.S. investors.

VI. TRADE REGULATIONS AND STANDARDS

Trade Barriers
Peru imposes 12-% duties on 95 % of the items on its tariff schedule and 20-% on the rest (primarily textiles and footwear). The weighted-average tariff is approximately 13 %, down from 80 % in mid-1990.

Most imports are also subject to an 18 % value added tax, as are domestically produced goods. In addition, selective consumption taxes are applied to certain products such as automobiles. There are no quantitative import restrictions.

In March 1991, Peru introduced "temporary" import surcharges on six basic agricultural commodities: wheat, wheat flour, rice, corn, sugar and milk products. The government argued that the surcharges were necessary to offset subsidies by exporting countries. The surcharges are calculated on a weekly basis, according to prevailing international prices for each commodity. As a condition for disbursement of a trade-sector loan from the InterAmerican Development Bank, the government agreed to phase out the surcharges over a three-year period ending in 1997. The government began reducing the surcharges in increments in April 1994. In any case, the surcharges have been practically non-existent over the last year because of high prevailing international prices.

In early 1996, some U.S. exporters of agricultural products encountered difficulties selling their products in Peru because of strict application of what they considered to be unreasonable phytosanitary standards. For example, phytosanitary authorities were requiring some U.S. farm products to be treated for pests that do not exist in North America. The U.S. Embassy has been working with Peruvian authorities to resolve these problems. With the opening of an APHIS office in the Embassy this year more support can be provided to U.S. farm exporters/importers.

Customs Valuation
The Peruvian Customs Authority has been reformed and modernized over the last five years, with help from the InterAmerican Development Bank and the UN Development Program. Collections have more than tripled since 1991, despite dramatically lower tariff rates, and Customs officials claim contraband has been reduced 65 % to US$ 350 million, from more than US$ 1 billion in 1990. A new Customs Law was promulgated in April 1996 to consolidate these reforms. However, some U.S. exporters continue to encounter problems with Peruvian Customs. For example, one of the reforms, designed to combat chronic under-invoicing, was the implementation of a pre-inspection system. The Customs service employs private firms, called supervisors, to evaluate all shipments worth more than US$ 5,000. The importer pays up to 1 % of the FOB value of the goods to cover the cost of the valuation. Importers complain that this system creates excessive delays and forces them to meet dual sets of requirements -- one set by the Customs officials and one by the supervisor. Also, importers have complained that customs inspectors frequently disregard the valuations of the supervisors. Valuation of software has been another problem. Peru plans to implement the GATT customs valuation code by the year 2000.

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

Export Controls
Export licenses are required for cultural relics and items of antiquity. In addition, end-user certificates are required for the export or re-export of items on the international munitions list, the international chemical/biological warfare (CBW) list and the missile technology control regime (MTCR) list. Such licenses cover an extremely small portion of total Peruvian exports -- less than 1%.

Import/Export Documentation
For imports, the government requires an invoice, bill of lading, a packing list, proof of insurance and a certificate of customs inspection for items worth more than US$ 5,000 prior to shipment. If the product is imported from the Andean Pact (Colombia, Venezuela, Ecuador and Bolivia), a certificate of origin is required to qualify for tariff preferences. A certificate of quality is required for pharmaceutical products.

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

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

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

Prohibited Imports
Very few items have been prohibited from import in the last three years. The importation of used clothing and shoes is prohibited, although imports of donated used clothing and shoes are exempt from the prohibition. Import of some insecticides, fireworks, and toxic waste is also restricted. Imports of used cars more than five years old and used trucks more than eight years old are prohibited. Used tires are also prohibited.

Standards
The government has no specific standards required for imports. Some industry standards are developing in the private electronics and construction industries. Peru's consumer watchdog agency, INDECOPI, has a small standards office to develop and enforce Peruvian product standards.

Free Trade Zones
In 1996, Peru passed a law creating a free trade zone in the southern cities of Ilo, Matarani, and Tacna. The free trade zone is designed to develop new industries in this underdeveloped area of the country. The area was previously subject to a substantial contraband trade. Eligible items enter the free trade zones free of duty, but when they enter the rest of Peru they are subject to normal duties. The number of products eligible for duty-free treatment under this regime was reduced substantially in early 1996.

Membership in Free Trade Arrangements
Peru is a member of the Andean Pact but does not participate fully in the Pact's free-trade area or customs union, because of disagreements over the Pact's common external tariff and what Peru considers to be trade-distorting policies maintained by other Pact members. In addition, Peru formally announced its intention to withdraw from the pact in April 1997. However, Peru maintains bilateral trade agreements with each of the other four members of the Pact, granting duty-free treatment to a wide range of products. The agreement with Bolivia is essentially a full-fledged free-trade agreement. In addition, as of January 1, 1995, Peru allows in duty-free those products from other Pact members to which the 0, 5 and 10-% bands of the common external tariff apply (in practice, this policy is applied only to goods from Colombia and Venezuela). As a result, about 80 % of imports from other pact members currently enter Peru with zero duties. Peru's Andean Pact partners have become increasingly disenchanted with Peru's anomalous position within the Pact. In mid-March, Peru presented a proposal to reintegrate fully into the Pact's free trade area over a period of eight years. Peru did not plan to join the common external tariff. On April 11, 1997, President Fujimori announced Peru's intentions to withdraw from the Andean Pact. Negotiations on exit procedures and timing are on-going.

Peru is in the process of negotiating a free-trade agreement with Chile and recently initiated free-trade talks with Mexico. As part of the Andean Pact, Peru is participating in talks with Mercosur over establishing afree trade areabetween the two blocs. Officials from both blocs hope to sign a free trade accord by the end of 1997.

VII. INVESTMENT CLIMATE

Openness to Foreign Investment
The Peruvian government actively seeks to attract both foreign and domestic investment in all sectors of the economy. Until recently, macroeconomic instability, a hostile political climate, and terrorism discouraged significant investment in Peru. However, President Alberto Fujimori--who assumed office in 1990 and was reelected to a second five-year term in 1995--has steadfastly promoted an economic stabilization/liberalization program which has lowered trade barriers, lifted restrictions on capital flows, and opened the economy to foreign investors. The Fujimori administration also has been successful in reducing terrorism significantly. The marked growth in foreign investment since 1993 has, in large part, stemmed from the economic policies of the Fujimori administration.

Peru's new constitution (enacted January 1, 1994), Legislative Decree 662 (DL 662) of September 2, 1991, the Foreign Investment Promotion Law (DL 757) of November 13, 1991, and the Framework Law for Private Investment Growth are the basic legal frameworks for foreign investors in Peru. Supreme Decree 162 (DS 162) of October 12, 1992, provides the implementing regulations for these legislative decrees. Under these laws, Peru has one of the world's most open investment regimes.

Although the Peruvian government has taken a pro-competitive stance regarding foreign investment in the telecommunications sector, a prohibition is still on the books against foreign ownership of radio and television stations. Nevertheless, at least two foreign companies have controlling interests in local television stations.

The Peruvian government has spoken out against monopolies. However, the government has granted Telefonica, Peru's Spanish controlled national telephone company, a monopoly as the sole supplier of fixed telephone service and as national and international long distance carrier until the end of June 1999. The GOP committed during WTO telecom negotiations in 1996 to to end Telefonica's monopoly after that year.

In Peru, foreign investment receives national treatment and is permitted in all economic sectors. Foreign investment needs no prior government approval. Article 63 of the new constitution states: "national and foreign investment are subject to the same terms." Foreign investors are required to register with the National Commission on Foreign Investment and Technology (CONITE) if they intend to repatriate capital, profits, and royalties. All investors need prior approval to invest in industries that manufacture weapons. Foreigners can obtain concessions and rights within 50 kilometers of Peru's borders with the authorization of a supreme resolution. Otherwise, no screening, authorization or prior registry is required for foreign investment. In 1991, the Peruvian government began an extensive privatization program, encouraging foreign investors to participate. During 1991-1996, privatization sales totaled nearly $7 billion of which foreign investors had purchased the vast majority.

Foreign investors have the same rights as national investors to benefit from any investment incentives such as tax exonerations. All investors (i.e., both foreign and national) are entitled to tax stability and juridical stability contracts. Such contracts are currently offered for all investments, with special benefits for petroleum and mining concessions. Foreign investors also have international arbitration rights to settle investment contract disputes. Industries established in free-trade zones are allowed to import manufacturing components free of all duties and fees. Users of these zones are exempt from all taxes for a period of 15 years. There are no performance requirements, nor discriminatory and/or excessively onerous residence or work-permit requirements which inhibit foreign investment.

Foreign investors have, on occasion, found that contracts are difficult to enforce in Peru, given the inefficient court system. Companies seeking partners in Peru should consider carefully before picking joint venture companions.

Conversion and Transfer Policies
As set forth in the constitution, there are no exchange controls in Peru. All restrictions on remittances of profits, dividends, royalties, and capital have been eliminated, although foreign investors are required to register their investments (an automatic process) to ensure these guarantees. Exporters and importers are not required to channel their foreign exchange transactions through the central bank and can conduct transactions freely on the open market. Residents and non-residents may open and maintain accounts in foreign currency in Peruvian financial institutions. American firms have experienced no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments, since Peru's economic reforms came into effect in the early 1990's.

The 1993 Peruvian constitution guarantees free convertibility of currency. The Central Bank is an independent institution, free to manage monetary policy to maintain financial stability. Inflation reduction currently is the bank's main goal. Embassy Lima purchases local currency at the free-market rate. In 1995, the sol depreciated nominally against the dollar by only 2.3 %. (Note that 1995 inflation was 10.2 %, meaning that the sol actually appreciated vis-a-vis the dollar in real terms.) In the first four months of 1996, the sol's value has remained steady at about 2.35 soles per dollar.

Expropriation and Compensation
The government's power to expropriate private property is limited by the constitution to those instances where it is required by the public interest or national security. Such expropriation requires a specific act of congress. Public interest reasons are defined as those necessary to carry out public works. The Constitution forbids the government to engage in entrepreneurial activities with the exception of ancillary undertakings. The Peruvian government has made clear its intention to comply with international standards concerning expropriations. However, by virtue of the fact that no expropriations yet have been carried out by the Fujimori administration, it is impossible to judge whether there actually would be due process and prompt, adequate and effective compensation. The government is currently in the initial stages of plans to expand Lima's international airport, which will require expropriation of land in a mixed agricultural/industrial zone. We are unaware of any foreign investors in that zone. As the first case of expropriation under the new policy, the expansion will be watched closely to see what mechanisms will be applied to ensure that compensation reflects fair market value.

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

Peru accepts binding international arbitration of investment disputes between foreign investors and the state, in accordance with national legislation or international treaties signed by the government. A law permitting international arbitration of disputes between foreign investors and the government or state-controlled firms was issued by decree in December 1992.

Peru is a party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitration awards, and to the International Center for Settlement of Investment Disputes (Washington Convention). These have improved the GOP's ability to attain investment agreements with European countries. Disputes between foreign investors and the state regarding pre-existing contracts must still be submitted to national courts. However, investors who conclude a juridical stability agreement for additional investments are permitted to submit contract disputes with the government to national or international arbitration by mutual agreement.

Peru has written commercial and bankruptcy laws. Bankruptcy law is administered by Indecopi (the National Institute for the Defense of Free Competition and the Protection of Intellectual Property). The creditor hierarchy is similar to U.S. bankruptcy law and monetary judgments are usually made in local currency. In principle, secured interests in property, both chattel and real, are recognized. Even in times of great instability in terms of real property, the government is still working to complete the retitling of agricultural land expropriated under the agricultural reform of 1968. A system of home mortgages secured by property did not exist for several years, but beginning in 1994, local commercial banks began mortgage lending again.

Political Violence
The level of political violence has declined dramatically since 1992, in large part due to the government's counterinsurgency efforts. The Sendero Luminoso (SL) and The Tupac Amaru Revolutionary Movement (MRTA) have specifically targeted foreign companies as well as local businesses in an effort to create an uncertain business climate and embarrass the government. Over the past 16 years, bank offices, utility companies and their facilities, and embassies have been frequent targets of bomb attacks. The number of terrorist attacks carried out by SL and the MRTA terrorist groups was slightly lower in 1996 as compared to the previous year. The number of deaths and disappearances attributed to political violence also continued to decline.

In Lima, MRTA attacked the Japanese Ambassador's residence on December 17, 1996, and took several hundred persons hostage. On April 22, 1997, Peruvian government troops stormed the residence freeing the hostages and killing all of the MRTA terrorists. One hostage and two commandos died in the operation. Sendero Luminoso carried out several political assassinations and bombings in the Peruvian capital in 1996.

Most violence occurred in the Upper Huallaga Valley, especially northern Huanuco Department, southern San Martin Department, and northwestern Ucayali Department; the eastern jungle areas of Junin Department; the mountain provinces of La Libertad Department; and rural Ayacucho Department (particularly the northeastern provinces). Approximately half of the country's population lives in emergency zones--areas under control of the military where some constitutional guarantees are suspended.

Due to the general terrorist threat against foreign businesses, it is recommended that potential investors contact the American Embassy's Regional Security Office before traveling to remote areas of the country.

Performance Requirements/Incentives
Peru offers foreign and national investors juridical stability agreements to stimulate private investment. These agreements guarantee that current statutes on income taxes, foreign exchange, trade, drawback, administrative procedures and labor hiring will remain unchanged for that investment for 10 years. To qualify, an investment must exceed $2 million within two

years or exceed $500,000 within the two years provided that it generates more than 20 permanent jobs or generates more than $2 million in exports during the first three years of the agreement. There are no additional performance requirements exclusively for foreign investors.

Companies receiving new investment may also enjoy legal stability with regard to income tax, provided the new funds amount to more than 50 % of the equity capital and retained earnings, and will enhance productivity or technology. Juridical stability agreements are subject to Peruvian civil law, which means they cannot be altered unilaterally by the government. Investors are also offered protection from liability for acquiring state-owned enterprises. Individual industry laws also provide assurances to investors. Industries covered by these laws include petroleum and mining.

Parties may freely negotiate contractual conditions related to licensing arrangements and other aspects of technology transfer without prior authorization. Registry of a technology transfer agreement is required for a payment of royalties to be counted against taxes. Such registration is automatic upon submission to the appropriate government authority.

Rules regarding hiring of foreigners have been liberalized. Legislation still limits foreigners to no more than 20 % of the total employees in a local company (whether owned by foreign or national interests) and their combined salaries to no more than 30 % of the total company payroll. However, legislative decree 689 of November 4, 1991 provided a variety of exceptions to these limits which effectively negate their impact in most cases. For example, a foreigner will not be counted against his company's total if he holds an immigrant visa, has a certain amount invested in the company (currently about USD5,000), or if his country has a reciprocal labor or double nationality agreement with Peru. Foreign banks and service companies and international transportation companies are exempt from these hiring limits, as are all firms located in free trade zones. Furthermore, companies may apply for exemption from the limitations for managerial or technical personnel.

Right to Private Ownership and Establishment
Foreign and domestic entities are permitted to invest in any legal economic activity and to freely establish, acquire and dispose of their interests. This includes direct foreign investment, portfolio investments and investment in real property. Capital contributions may include goods and technology. The Fujimori government has dismantled virtually all previously existing monopolies in all sectors of the economy, including in the provision of public services. Foreign investors participate in the privatization of state firms on an equal footing with national investors. The Fujimori government has undertaken widespread and deep structural reforms to improve the efficiency of markets and capital allocation decisions and to foster competition. Bureaucratic procedures have been streamlined, price controls and import license requirements terminated, government monopolies eliminated, the tax system simplified and labor laws liberalized. The government intends to finish privatizing or liquidate all state-owned firms by 1999, although this date has been slipping backward due to policy delays and investor requests for more time.

The government created the Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI) in 1992 to protect free competition and intellectual property rights, centralizing functions previously carried out by various government entities. INDECOPI is responsible for anti-trust enforcement, anti-dumping and subsidy actions, consumer protection, intellectual property protection and implementation of other policies to ensure fair competition. The few remaining public sector prices, such as fuels from the refineries that have yet to be privatized, have been increased to conform with market forces. A complex tax reform resulted in occasional changes in the revenue regime. Due to heavy indirect taxes, fuel and electricity prices are significantly higher than in the United States.

Property Rights
Enforcement of property and contractual rights has generally been effective, although the Peruvian legal system remains slow and inefficient. Improving the efficiency of the judicial system is a high priority of the Fujimori government. Government interference in the court system in commercial cases has rarely been a problem in recent years

Regulatory System:Laws and Procedures
The GOP has adopted a transparent policy and effective laws to promote competition, backed by the establishment of INDECOPI. Bureaucratic procedures (e.g., the registration of security licensing) are sufficiently streamlined and transparent, although difficulties have been encountered in obtaining licenses for casino operations. High import duties (averaging 13 % ad valorem) as well as the (universal) 18 % value added tax on goods, large payroll taxes and onerous labor laws (e.g., the requirement to provide severance pay for fired employees) which increase investment costs significantly, all represent possible impediments to the efficient mobilization and allocation of investment capital.

Bilateral Investment Agreements
As of May 1996, Peru had negotiated investment agreements with the following 24 countries (date of agreement in brackets): Switzerland (1991), Thailand (1991), Republic of Korea (1993), Bolivia (1993), United Kingdom (1993), France (1993), Paraguay (1994), Czech Republic (1994), Colombia (1994), Sweden (1994), Italy (1994), Rumania (1994), China (1994), Argentina (1994), Spain (1994), Portugal (1994), Denmark (1994), Netherlands (1994), Germany (1995), Norway (1995), Finland (1995), Malaysia (1995), Australia (1995), and Venezuela (1996). Moreover, the Ministry of Foreign Affairs has informed the Embassy that Peru was in the processs of negotiating investment agreements with 26 other countries.

OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) signed agreements with Peru in December 1992, and a year and a half later (i.e., in July 1994), OPIC began approving requests for political risk investment insurance. As of March 31, 1996, OPIC coverage in Peru totaled $576 million. Peru is an member of the Mulitlateral Investment Guarantee Agency.

Labor
Labor is abundant and trainable, although there is a shortage of highly skilled workers. The presence of organized labor in the Peruvian economy continues to decline. Probably less than 6 % of the labor force is organized. As much as 50 % of the economically active population works in the informal sector, with many working at low wage levels (below what the government considers a subsistence wage). Since April 1994, the legal minimum wage for workers has been 132 soles per month (about $55 at the May 1996 exchange rate) which is far below that necessary to meet minimum living requirements. Only a few new employees outside Lima (where living costs are substantially lower than in the capital) are paid the minimum wage.

A comprehensive labor law was promulgated in 1992, allowing for multiple forms of unions across company or occupational lines, thus permitting multiple unions in the same company. Workers in probation status or on short-term contracts are not eligible for union membership. Bargaining agreements are considered contractual agreements, valid only for the life of the contract. The concept of "acquired rights" carrying over from previous contracts has been abolished. Productivity provisions must be included in any collective bargaining agreement. The number of officials and the amount of time union officials may devote to union work with pay is limited to 30 days per year. Unless there is a pre-existing labor contract covering an occupation or industry as a whole, unions must negotiate with each company individually. A labor law passed in July 1995 has further liberalized hiring.

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

The 1993 constitution provides for a maximum work day of 8 hours, with 48 hours as the maximum week. The labor code also sets a 45-hour work week for women, including 24 hours rest per week and 30 days paid annual vacation for all workers. These and other benefits are readily sacrificed in exchange for regular employment. Strike activity has declined markedly over the past four years.

Foreign Trade Zones/Free Ports

Decree Law 704 of November 1991 governs the four types of free trade zones in Peru -- export processing zones, special commercial treatment zones, special development zones, and tourist zones. The rules and benefits applying to these zones are the same for foreign and national investors.

Activities in export processing zones are exempt for 15 years from customs duties and any taxes except social security. In addition, companies may hire workers under temporary contracts and keep their accounting in foreign currency. Export processing zones exist at Ilo, Chimbote, Matarani, Paita and Trujillo. Tourist zones receive the same benefits as export

processing zones to promote national or foreign tourist development. The only tourist zone created thus far is at Ilo. Companies locating in special commercial treatment zones in frontier and jungle areas pay only 8 percent customs duties (normal rates are 12 or 20 percent), are exempt from sales taxes, and can keep their accounts in foreign currency. However, the aforementioned sales tax exemption was effectively erased recently when a special 16 percent local government tax (the same level as the 16 percent central government sales tax or VAT) was imposed in jungle areas. Tacna and Tumbes are the only special commercial treatment zones at the moment. Special development zones may be established by the government to encourage investment in designated areas. The benefits and locations of these zones are to be established by presidential decree.

Capital Outflow Policy

As mentioned previously, Peru has no restrictions on capital inflows and outflows. The GOP does not offer Peruvian citizens any special incentives (e.g., subsidies, tax rebates) to invest in foreign countries.

Foreign Direct Investment Statistics

In 1995, foreign direct investment registered with the GOP's National Commission for Foreign Investment and Technology (CONITE) increased $1,004 million (or about 22 percent) to $5,466 million. The increase was equal to around 2 percent of Peru's estimated 1995 GDP (roughly $49 billion). Spain occupied first place among foreign investors with $2,191 million, followed by the United Kingdom ($965 million) and the United States ($793 million). It is important to note that these data only include investment registered with CONITE. Although there are no reliable data on unregistered flows, some reports indicate that total direct investment could be 30 percent higher than CONITE registrations. Also, CONITE determines the origin of investments on the basis of where investing companies are incorporated. Thus, investment by a company incorporated in the Cayman islands would be considered British by CONITE.

In 1995, communications continued to be the sector with the highest amount of foreign investment because of the privatization of Peru's telephone company in 1994. This sector accounts for 37 percent of registered investment in CONITE. Other major sectors include mining (18 percent), energy (16 percent), and finance (9 percent). Of the $1,004 million investment growth in 1995, the energy and financial sectors accounted for 49 percent and 26 percent respectively. (For further information see Appendix D. Investment Statistics).

Major Foreign Investors

At the end of 1995, revenue in Peru's top 1,000 companies totaled 60,692 million soles ($27,095 million). The 1,000 companies included over a hundred whose major shareholders were foreign.

Major Foreign Companies in Peru, Millions of U.S. dollars

1/Assets on December 31, 1995.
2/Ranking within Peru's top 1,000 companies in 1995 (by revenue).

VIII. TRADE AND PROJECT FINANCING

Banking System

Peru's financial system consists of 23 commercial banks, the Central Bank, the Peruvian government's Banco de la Nacion, the quasi governmental financing company Cofide, and four private financing companies. Four of the commercial banks (Citibank, Banco de Credito, Extebandes and Bank of Boston) have offices in the United States. At the end of March 1996, total liquidity of the banking system amounted to about US$ 10,442 million of which US$ 3,825 was denominated in local currency and US$ 6,617 million or 63 percent in dollars. In 1995, commercial bank loans increased around 36 percent, from US$ 5,434 million to US$ 7,417 million. Also in 1995, share capital and reserves of commercial banks increased 22 percent and 29 percent respectively. The Banking Superintendency (SBS) reported that at the end of 1995, only about 4.8 percent of the lending portfolios was non-performing. The SBS also estimated that around 5.5 percent of the portfolios comprised high-risk loans.

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

Financing Available

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

Peruvian firms import through letters of credit confirmed by correspondent banks in the United States or other supplying countries. All Peruvian commercial banks have correspondent relationships with banks in the U.S., Europe and Asia, although until recently only smaller, regional U.S. banks have been interested in establishing these relationships. Given Peru's improving track record, larger banks have begun to show interest in short-term trade financing and correspondent relationships.

The U.S. Export Import Bank recently re-entered Peru and is providing short, medium and long term financing to government institutions and private companies.

The World Bank Group

The World Bank Group is a multilateral lending agency consisting of four closely related institutions: the International Bank for Reconstruction (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The World Bank provides loans to developing countries to help reduce poverty and to finance investments that contribute to economic growth.

The International Bank for Reconstruction and Development (IBRD), frequently called the "World Bank", was conceived in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The World Bank opened for business in June, 1946 and its first focus was the reconstruction of war-torn Europe. Today the World Bank lends to the developing countries of Africa, Asia, Latin America and the Caribbean, and the Middle East and Europe. The World Bank and its affiliates are headquartered in Washington, D.C. A brief description of each group member follows.

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

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

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

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

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

The following table shows membership information for the Andean Region countries:

Correspondent Banks: The following is a list of banks based in Peru which have correspondent relations with U.S. banks:

Banco Continental
Banco de Comercio
Banco de Credito
Banco de la Nacion
Banco de Lima
Banco del Nuevo Mundo
Banco del Progreso
Banco del Sur
Banco del Trabajo
Banco Exterior de los Andes y de Espana

EXTEBANDES

Banco Financiero
Banco Interamericano
Banco Latino
Banco Regional del Norte
Banco Republica
Banco Santander
Banco Solventa
Banco Sudamericano
Banco Wiese
Bank of Boston
Citibank
Interbanc

IX. BUSINESS TRAVEL

Business Customs

Business is conducted in Spanish. There are a great number of executives in the Peruvian business community who speak English, however, it is advisable to have all promotional literature translated into Spanish. Peruvians are formal when engaged in business relations and suits and ties are the norm. Business hours in Peru are generally from 9:00 a.m. to 5:30 p.m. Breakfast meetings are not common, but, business lunches are normally scheduled between the hours of 1:00 to 3:30 p.m. Shops and some businesses operate 10:00 a.m. to 1:00 p.m. and from 4:00 p.m. to 8:00 p.m. Business offices are closed on Saturdays. In the provinces, business hours are usually from 9:00 a.m. to 1:00 p.m. and from 4:00 p.m. to 7:00 p.m.

Lima is situated directly south of New York and is in the Eastern Standard time zone, but does not follow daylight savings time. Dates are written starting the day of the month, the month and finishing with the year. The currency is the Nuevo Sol, which replaced the Inti. As of June 1997, the exchange rate was 2.69 soles to one U.S. dollar. The metric system is used for weights, measures, and mathematical expression.

Travel Advisory and Visas

The Department of State issues Consular Information Sheets for all foreign countries, including Peru. This document may be obtained via the Internet, at Website "travel.state.gov," from the Consular Affairs Bureau, Office of Overseas Citizen Services, Department of State, Room 4817, Department of State, 2201 C. Street, N.W., Washington, D.C., 20520, or from the U.S. Embassy at the address listed below. Travel information in general is also available at the telephone number (202) 647-5225, or fax (202) 647-3000. Useful information on guarding valuables and protecting personal security while travelling abroad is provided in the Department of State pamphlet "A Safe Trip Abroad." This publication, as well as others such as "Tips for Travelers to Central and South America," are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C., 20402.

A valid U.S. passport is required to enter into Peru. Persons travelling for tourism and staying less than 90 days do not require visas. It is recommended that business travelers to Peru travel on a tourist visa provided they are not reimbursed for their services while in Peru. However, if any compensation is earned and paid while in the country, a business visa is required and a tax declaration must be processed before departing the country. This process takes approximately 3 days. Travelers should contact the Embassy of Peru, 1700 Massachusetts Avenue, N.W., Washington, D.C., 20036, telephone number (202) 833-9860, or the nearest Peruvian consulate for visa information. There are Peruvian consulates in California, Florida, Illinois, New York, New Jersey, and Texas.

In general, the Department of State recommends that all U.S. citizens travelling overseas register with the American Citizen Services Unit, Consular Section, of the U.S. Embassy upon arrival. The U.S. Embassy in Peru is located on Avenida La Encalada, Block 17, Monterrico, Lima. The American Citizen Services Unit is open from 8:00am to 12 noon on weekdays, except U.S. and Peruvian holidays. Registrants should bring their U.S. passport plus one photo and there is no fee for this service. Prior registration will facilitate the replacement of a lost or stolen U.S. passport. The loss or theft of a U.S. passport overseas should be reported immediately to the local police and the nearest U.S. Embassy or Consulate. The Embassy telephone number is 51-1-434-3000. In case of an emergency after working hours, U.S. citizens should contact the Embassy at 434-3032.

The is a consular agent, Dra. Olga Villagarcia, in Cusco to assist US citizens travelling in that area, including to Macchu Picchu. Her office is located at Anda Tullumayu 125, Cusco, telephone number (51-84) 24-5102, fax number 23-3541, Internet address usconagt@qenqo.rcp.net.pe.

Holidays

The Peruvian official holidays are:

Business Infrastructure

The transportation sector is still in poor shape due to long neglect, but efforts are underway to remedy the situation. During 1996-2000, the government has targeted US$ 2,828 million for investment in the transport sector (primarily roads and airports.) The state-run railroad system is underdeveloped, but as privatization proceeds, it is expected that the new investors will improve the rail system.

There are a number of Peruvian airlines serving routes within the country, but on-time performance and safety procedures are not up to U.S. standards. Peru has two international airlines--Faucett and AeroPeru. Lima is also served by three U.S. airlines--American Airlines, Continental Airlines and United Airlines. International flights are available to most major cities in South America. Currently, the only direct flights to the United States are to Miami, Newark, Dallas, Houston and Los Angeles. Flights between Peru and the United States have increased significantly since early 1995. There are also regular cargo flights to Miami on both U.S. and Peruvian carriers.

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

Hotel infrastructure deteriorated during the crisis period from 1988 to 1992, and there is currently a shortage of business-class hotel rooms. We suggest you make reservations at least two weeks in advance. However, a number of new hotel projects are in the works, and existing hotels are being renovated and expanded.

Cost and availability of rented residential space, apartments, or offices is surprisingly high, driven by increased demand from returning businessmen. Construction in these areas has been expanding rapidly to meet growing demand.

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

Peruvian medical facilities do not generally meet U.S. standards, however, if visitors take certain precautions about food and drink, the level of risk will be reduced. Cholera and other infectious diseases such as hepatitis are present in Peru. Travelers in Peru should always substitute bottled beverages for potentially contaminated water. Fish, shellfish and vegetables should not be eaten unless well cooked, and all food should be eaten while still hot. Peeled fruits are safe. Travelers to the jungle areas of Peru should have up-to-date yellow fever vaccine and malaria prophylaxis. There are several clinics in the Lima area which have U.S. trained personnel and up to date medical equipment. Since U.S. medical insurance is not always valid outside the United States, supplemental insurance could prove use