1. This statement provides an update of information that has become available since the release of the staff report (EBS/01/25, 2/26/01) and additional details regarding the status of the safeguards assessment for Peru. This information does not change the thrust of the staff appraisal.
2. The main developments were as follow:
The latest central bank data on macroeconomic variables for 2000 confirm the preliminary data presented in the staff report. Real GDP grew by 3.6 percent, the external current account deficit was 3 percent of GDP, and the overall fiscal deficit was equivalent to 3 percent of GDP. The slowdown in economic activity that started in the second half of 2000 continued in 2001, with output falling by 1.6 percent (year-on-year) in January. Inflation through February was in line with program projections. Tax revenues were slightly above programmed levels in the first two months of the year, owing to the higher than envisaged one-time payment required under the tax amnesty program. Other tax collections were somewhat below program.
In recent discussions with staff, the authorities noted that congress’ ongoing investigation of government spending carried out under secret norms during the 1990s (noted in the staff report) focuses on irregularities related to the purchase of defense equipment, but it does not have implications for the fiscal statistics. They were of the view that while the outcome of this investigation may call into question the quality of the expenditure, it will not affect data on the level of expenditure, as all spending (including that authorized under secret norms) is fully recorded in the official statistics. Based on these discussions, the staff does not anticipate that fiscal data related to the expenditure under investigation would require revision. Staff plans to remain in contact with the authorities on this issue.
The Ministry of Economy and Finance (MEF) has launched a website that should substantially increase the transparency of government operations. The site contains information on official three-year macroeconomic projections, strategic plans of the MEF, operations of public institutions, and budget execution, including on defense and national security.
In recent discussions with the authorities, the staff was informed that additional external financing for 2001 has been secured from multilateral and bilateral sources. This leaves identified sources of external financing above the program projection, which under the program would increase the target on the accumulation of net international reserves.
Consistent with the need to improve public debt management and facilitate the development of domestic capital markets, the MEF approved regulations for the placement of domestic-currency denominated Treasury bonds in the local market (for up to 0.25 percent of GDP).
A decree was issued on February 5 that establishes a new formula for the biannual adjustments in 2001 of the minimum prices used for setting the variable-rate surcharge on certain agricultural imports. The new formula has reduced the protection to these products, but the adjustments to the minimum prices will not be automatic, as they will continue to require the approval of the Ministry of Agriculture and the MEF, a feature that had delayed adjustments in the past. The authorities indicated that Peru’s legal framework does not allow for changes in minimum prices without intervention of those ministries, but stressed their commitment to avoid delays in the future.
On March 1, 2001, revised data for 1999 on public debt was submitted for publication in the Government Finance Statistics Yearbook, thus addressing the pending matter noted in the Statistical Issues appendix of the staff report.
3. The details regarding the status of the safeguards assessment for Peru are as follows:
Under its last arrangement (EFF), Peru was subject to the transitional procedures governing safeguards assessments. These procedures require the Central Reserve Bank of Peru to publish annual financial statements that are independently audited in accordance with internationally accepted standards (the “external audit”). In November 2000, as part of the safeguards assessments process, the authorities sought staff assistance in the procurement process for the appointment of external auditors. On January 23, 2001, they informed the staff, through the Executive Director’s Office, that the audit firm Caipo y Asociados Sociedad Civil, a member company of KPMG International, had officially been appointed to undertake an external audit of the Central Reserve Bank of Peru for the first time. The KPMG audit is expected to be completed by March 15, 2001 and publication of the financial statements will follow shortly thereafter. Pursuant to the safeguards framework and Peru’s request for anew stand-by arrangement, staff is undertaking a full Stage One safeguards assessment of the Central Reserve Bank of Peru, which includes an assessment of the quality and effectiveness of the external audit to ascertain that it meets internationally accepted standards.