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Peru

Executive Summary

The Government of Peru’s (GOP’s) focus on sound fiscal management and macroeconomic fundamentals contributed to the country’s region-leading economic growth since 2002. The COVID-19 pandemic caused a severe economic contraction of over 11 percent in 2020, but Peru recovered with 13.3 percent GDP growth in 2021. Recent political instability (Peru has had four presidents since 2020) is restricting near-term growth, with consensus forecasts calling for approximately 3.0 percent GDP growth in 2022, and 2.9 percent in 2023. COVID-19 health costs and an economic stimulus package strained Peru’s fiscal accounts somewhat, but the deficit stabilized to 2.6 percent of GDP in 2021. The surge in spending, however, continues to impact Peru’s debt, which increased from 26.8 percent of GDP in 2019 to 36.1 percent in 2021. Net international reserves remain strong at $78.4 billion. Global price pressures moved inflation higher, to 4.0 percent in 2021, a significant spike from the 1.8 percent in 2020. Inflation continued in 2022, with Peru’s 12-month rate through March reaching 6.8 percent.

Along with recent political instability, corruption, and social conflict negatively impact Peru’s investment climate. As of April 1, 2022, President Castillo had appointed four cabinets since taking office in July 2021. Allegations of corruption plague the current and previous administrations. Transparency International ranked Peru 105th out of 180 countries in its 2021 Corruption Perceptions Index. Peru’s Ombudsman office reported 157 active social conflicts in the country as of February 2022. More than half of them (86) occurred in the mining sector, which represents 10 percent of Peru’s economic output. Citing political instability, including contentious relations between the administration and congress, and governance challenges, the three major credit rating agencies (Fitch, Moody’s, and S&P) downgraded Peru’s sovereign credit ratings since Castillo’s inauguration. All three, however, maintained Peru at investment grade.

Peru fosters an open investment environment, which includes strong protections for contract and property rights. Peru is well integrated in the global economy including with the United States through the United States-Peru Trade Promotion Agreement (PTPA), which entered into force in 2009. Peru’s investment promotion agency ProInversion seeks foreign investment in nearly all areas of the economy, particularly to support infrastructure. Prospective investors would benefit from seeking local legal counsel to navigate Peru’s complex bureaucracy. Private sector investment made up more than two-thirds of Peru’s total investment in 2021.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank/Amount Website Address
TI Corruption Perceptions Index 2021 105 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 70 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 7,394 https://apps.bea.gov/international/factsheet/  
World Bank GNI per capita 2020 USD 6,030 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD   

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Peru wholly owns 35 state-owned enterprises (SOEs), 34 of which are under the parastatal conglomerate FONAFE. The list of SOEs under FONAFE can be found here: https://www.fonafe.gob.pe/empresasdelacorporacion . FONAFE appoints an independent board of directors for each SOE using a transparent selection process. There is no notable third-party analysis on SOEs’ ties to the government. SOE ownership practices are generally consistent with OECD guidelines.

The largest SOE is PetroPeru which refines oil, operates Peru’s main oil pipeline, and maintains a stake in select concessions. In March 2022, S&P Ratings downgraded PetroPeru’s global foreign currency rating to “junk” status, citing PricewaterhouseCoopers’ refusal to sign the firm’s 2021 financial audit.

8. Responsible Business Conduct

Peru has legal and regulatory frameworks to support responsible business conduct (RBC) standards. However, Peru does not have a holistic action plan or national standards for RBC, and there are still challenges of enforcement – particularly in remote regions of the country and with respect to informal workers, indigenous people, and other vulnerable groups. Many Peruvian and multinational companies already adhere to high standards for RBC. Several independent NGOs freely monitor and promote RBC. Standards for conduct on environmental, social, and governance issues are implemented through sector-specific regulation. The UN Working Group on Business & Human Rights is pressing Peru to join the Voluntary Principles on Human Rights and Security Initiative as part of its work towards implementing the UN Principles.

Given its importance to the Peruvian economy, the extractives sector has been a GOP priority for promoting RBC. Supreme Decree No. 042-2003-EM promotes social responsibility in the mining sector, encouraging local employment opportunities, community investment, and purchase of local goods and services. The decree requires mining companies publish an annual report on sustainable development activities. In 2012, Peru joined the Extractive Industries Transparency Initiative (EITI) as a compliant country, requiring the GOP and extractive industries to regularly and openly publish government revenues and private firm financials related to oil, gas, and mining. The EITI Board found that Peru had made meaningful progress in meeting the EITI Standard in its first EITI validation in 2017. However, Peru failed to submit its National EITI report due March 2022. Given the reporting lapse, the EITI Board is reviewing Peru’s EITI revalidation.

ProInversion serves as the National Point of Contact (NCP) for the OECD Guidelines for Multinational Enterprises (MNE), to which Peru is an adherent. The NCP participates in activities with the NCP OECD Network located in 50 countries and is in permanent coordination with the OECD Responsible Business Conduct working group.

9. Corruption

Corruption in Peru is widespread and systematic, affecting all levels of government and the whole of society, which, until recently, had developed a high tolerance to corruption. Embezzlement, collusion, bribery, extortion, and fraud in the justice system, politics, and public works by high-level authorities and key public officers is common. Corruption in public procurement is relatively common due to weak control and risk management systems, lack of ethical or integrity values among some public officials, lack of transparency and accountability in procurement processes, social tolerance of corruption, and minimal enforcement. This embedded dynamic has eroded trust in public entities and the private sector.

In 2021, Peru fell to 105 (from 94 in 2020) among 180 countries in Transparency International’s annual Corruption Perceptions Index, below Chile (27), Colombia (87), and Argentina (96), and tied with Ecuador. According to Transparency International, this backsliding reflected, in part, continued problems with structural corruption, impunity, and political instability. National surveys on corruption by Proética, Transparency International’s National Chapter in Peru, identified corruption as one of the leading public issues in the country. The OECD’s January 2022 decision to open accession discussions with Peru may provide momentum for anti-corruption efforts.

It is illegal in Peru for a public official or an employee to accept any type of outside remuneration for the performance of his or her official duties. The law extends to family members of officials and to political parties. In 2019, Peru made the irregular financing of political campaigns a crime, carrying penalties up to eight-years jail time. Peru has ratified both the UN Convention against Corruption and the OAS’ Inter-American Convention against Corruption. Peru has signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has adopted OECD public sector integrity standards through its National Integrity and Anticorruption Plan.

The Public Auditor (Contraloria) oversees public administration. In January 2017, Peru passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if subsidiaries acted with authorization.  Penalties include an indefinite exclusion from government contracting and substantially increased fines. The Public Auditor also began auditing construction projects in real time, rather than after project implementation, in an effort to improve transparency. It is also auditing the government’s response to the COVID-19 pandemic.

10. Political and Security Environment

President Pedro Castillo is Peru’s fifth president in five years (and fourth president since 2020), a reflection of both deep polarization and continued power struggles between the legislative and executive branches over multiple administrations.  Allegations of corruption and incompetence among cabinet ministers spurred Castillo to designate four cabinets in seven months.  There are also ongoing investigations of persons close to the president for alleged high-level corruption. Castillo’s Peru Libre party holds the largest congressional voting bloc, 34 of 130 seats, in an opposition-led congress that took office July 28.  Eleven political parties in the legislature divide the congress in thirds among left, right, and center.  Pedro Castillo has been subject to two failed impeachment motions since his July 2021 inauguration, one in December and the second in March. According to a March 2022 IPSOS poll, Castillo held just a 26 percent approval rating, while President of Congress Maricarmen Alva held just 20 percent approval.

According to the Ombudsman, there were 157 active social conflicts in Peru as of March 2022. Although political violence against investors is rare, protests are common. In many cases, protestors sought public services not provided by the government. Widespread protests in late 2020 across several agricultural producing regions resulted in the repeal and rewriting of the nation’s agricultural law. Protests throughout 2021 and 2022 across several mining producing regions also resulted in temporary suspension of activities at several mining operations, including an intermittent suspension at Peru’s second largest copper mine, Las Bambas, for several months in 2021 and 2022.

Violence remains a concern in coca-growing regions. The Shining Path (Sendero Luminoso, “SL”) narco-terrorist organization continued to conduct a limited number of attacks in its base of operations in the Valley of the Apurimac, Ene, and Mantaro Rivers (VRAEM) emergency zone, which includes parts of Ayacucho, Cusco, Huancavelica, Huanuco, and Junin regions. Estimates vary, but most experts and Peruvian security services assess SL membership numbers between 250 and 300, including 60 to 150 armed fighters. SL collects “revolutionary taxes” from those involved in the drug trade and, for a price, provides security and transportation services for drug trafficking organizations to support its terrorist activities.

At present, there is little government presence in the remote coca-growing zones of the VRAEM. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and columns of the Shining Path. Information about insecure areas and recommended personal security practices can be found at http://www.osac.gov  or http://travel.state.gov.

11. Labor Policies and Practices

Labor is abundant, although several large investment projects in recent years led to localized shortages of highly skilled workers in some fields. According to the National Bureau for Statistics (INEI), 76.8 percent of the labor force was informal as of December 2021, following an uptick in informal labor caused by the COVID-19 pandemic’s economic impact. Unemployment was 7.4 percent in 2020. Unemployment is most prevalent among 14-24 year olds (14.7 percent in 2020). Additionally, 96 percent of unemployed people reside in urban areas.

Workers in Peru are usually paid monthly. Some workers, like formal miners, are relatively highly paid and, per statute, receive a share of company profits up to a maximum total annual amount of 18 times their base monthly salary. The statutory monthly minimum wage is PEN 930/month ($266 USD). INEI estimated the poverty line to be PEN 344/month ($99) per person, although it varied by region due to different living costs. Many workers in the unregulated informal sector, most of them self-employed, make less than minimum wage. Peru’s labor law provides for a 48-hour workweek and one day of rest and requires companies to pay overtime for more than eight hours of work per day and additional compensation for work at night.

Peru does not have a specific unemployment insurance program, however the “Compensation for Time of Service” (CTS) requirement mandates an employer pay one month’s salary of an employee per year of work into the employee’s CTS Account set for that purpose. When employees stop working for the employer (willingly or not), they can access the CTS Account. In addition, a fired employee receives one month’s salary per year worked, up to a maximum of twelve months.

In December 2020, in response to agricultural worker protests, Congress repealed a 2019 Executive Order (Urgency Decree 043-2019) that had extended policies originally designed to support investment in the agriculture sector. With Congress’s repeal, businesses in the non-traditional exports (NTE) sector, which includes textiles and certain agricultural products, became subject to the same labor rules as other sectors, such as a five-year limit on consecutive short-term contracts.

Labor unions are independent of the government and employers. Approximately six percent of Peru’s private sector labor force was unionized in 2017 (latest date available), with unionization highest in the electricity, water, construction, and mining sectors (ranging from 22 to 39 percent unionization in each sector). Union membership is more common in the public sector (16 percent). The labor procedure law (No. 29497) requires the resolution of labor conflicts in less than six months, allows unions or their representatives to appear in court on behalf of workers, requires proceedings to be conducted orally and video-recorded, and relieves the employee from the burden of proving an employer-employee relationship.

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

According to the U.S. Department of Labor’s (USDOL’s) Worst Forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/peru ), some children in Peru have been subjected to the worst forms of child labor, including in mining and in commercial sexual exploitation, sometimes as a result of human trafficking.  However, in 2020 (the last available report), USDOL reported that Peru made significant advancement in efforts to eliminate the worst forms of child labor.

While the government has made improvements in recent years, it often does not dedicate sufficient personnel and resources to labor law enforcement. The Ministry of Labor created the National Labor Inspectorate Superintendent (SUNAFIL) in 2014 and oversees regional offices to represent the labor inspectorate nationally. In 2021, SUNAFIL employed 822 labor inspectors. SUNAFIL labor inspectors also help identify and investigate cases of forced and child labor. Additional information on forced labor in Peru can be found in the 2020 Trafficking in Persons Report: https://www.state.gov/reports/2020-trafficking-in-persons-report/peru/.

14. Contact for More Information

Michael Gunzburger
Economic Officer
U.S. Embassy Peru
+51 1-618-2414
gunzburgerml@state.gov

Esteban Sandoval
Senior Economic Specialist
U.S. Embassy Peru
+51 1-618-2672
sandovalej@state.gov

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