This Selected Issues paper analyzes the developments in the labor market of Peru during the 1990s. The study assesses the relationship between the orientation of economic policy and export performance, in particular, export diversification over the last four decades. The paper describes the two-tier pension system and evaluates the long-term fiscal burden of this system. The study also reviews the design and implementation of monetary policy in Peru over the last decade.


This Selected Issues paper analyzes the developments in the labor market of Peru during the 1990s. The study assesses the relationship between the orientation of economic policy and export performance, in particular, export diversification over the last four decades. The paper describes the two-tier pension system and evaluates the long-term fiscal burden of this system. The study also reviews the design and implementation of monetary policy in Peru over the last decade.

II. Export Performance and Economic Policy in Peru28

25. This chapter discusses the relationship between the orientations of economic policy and the performance of Peru’s exports, looking in particular at the effect on export diversification. Peru’s exports exhibit a considerable concentration in primary and semi-processed primary products, mainly from mining and fishing activities, which leaves the country exposed to significant variability both in terms of export volume (especially of fish) and export prices. A recent example of Peru’s exposure to exogenous shocks was the 1998 decline of total export earnings by 16 percent, due to a sharp decline in some metals prices (especially copper and gold) and the effects of the El Niño climatic disturbance on the volume of agriculture- and fish-related exports.

26. Peru’s dependence on traditional exports has long been of concern to Peruvian policymakers, and a variety of measures aimed at reducing this dependence have been implemented over the last four decades. Traditional products still play a key role in the economy (despite efforts in the 1970s and 1980s to diversify the export base through protectionist policies), reflecting Peru’s rich endowment of natural resources. Peru’s experience, similar to that of many other countries, has shown that exports have generally performed better under conditions of liberal economic policies that grant exporters access to needed capital and intermediate goods, than when restrictive trade and industrial policies attempted to promote particular sectors or industries. Moreover, in order to support the growth of nontraditional exports, improving the labor skills base through better education and training is necessary to raise productivity and thus improve competitiveness.

27. The structure of this chapter is as follows: Section A examines the relationship between the policy framework and export performance from the early 1960s to the late 1980s, including policies promoting export diversification. Section B provides a similar analysis for the 1990s, while Section C considers the evolution of export diversification over the last four decades. Section D looks at the experience of other countries in using policies to promote exports, with a view to finding relevant policy implications for Peru. It also considers the question of whether a strong natural resource endowment represents a limit to export diversification. Section E summarizes the paper’s conclusions.

A. Policy Framework and Export Performance During the 1960s to 1980s

28. The policy framework,29 Until the late 1950s, Peru pursued export-led growth, based on its rich endowment of natural resources including fish, oil, gold, copper, and other metals. In the 1960s, however, Peru began to move towards an increasingly protectionist trade regime with the goal of supporting import-substitution industrialization. The level of protection in Peru for manufacturing activities during this period was very high.30 Initially the new strategy coincided with high rates of industrial and economic growth, including for nontraditional exports. Nevertheless, increasingly protectionist measures in the late 1960s and early 1970s led to an overprotected industrial sector and introduced severe anti-export and anti-agricultural biases into the economy. These policy-induced distortions were compounded by macroeconomic mismanagement, which led to a progressive real appreciation of the Peruvian currency.

29. Export performance. Peru’s exports grew slowly for much of the 1960s and 1970s (Figure 1). For the 1962-78 period, total export growth in volume terms averaged only 1.8 percent per year. According to Paredes (1992), nontraditional exports, which started the period representing less than 5 percent of total exports, benefited somewhat from the protectionist policies of this period. They grew considerably faster than traditional exports, averaging 13.3 percent annual real growth over this period. After the bumper years of 1979 and 1980, when the total volume of exports rose 40 percent (primarily due to favorable climatic conditions affecting fishing and agriculture, as well as the boom in commodity prices which stimulated mining production), exports contracted over the following decade, at an average annual rate of 1.1 percent, both in traditional and nontraditional exports. This coincided with the period of most intensive government intervention.

Figure 1.
Figure 1.

Peru: Exports, 1962-2000

Citation: IMF Staff Country Reports 2001, 051; 10.5089/9781451831009.002.A002

Sources: UN Trade Database, Central Reserve Bank of Peru, and staff estimates. The definition of nontraditional exports mirrors the definition used by CBRP, and includes metal extraction products, gold, petroleum products, fish meal, cotton, sugar, and coffee.

B. Policy Framework and Export Performance During the 1990s

30. The policy framework.31 By 1990, the Peruvian economy was marked by large macroeconomic imbalances. The stabilization program initiated in August 1990 had the eradication of hyperinflation as its central objective. The program included the lifting of price controls, the unification and stabilization of the exchange rate, sound monetary policy, and tight fiscal policy. Wide-ranging structural reforms were introduced, including a sweeping privatization program, trade reform, and the lifting of restrictions on outward capital transfers.

31. Trade liberalization simplified the tariff system, which currently entails a two-level ad-valorem tariff (12 and 20 percent) applied on the c.i.f. value of imports. The average MFN tariff rate was 13.0 percent in 2000, only slightly lower than in 1994.32 At least 84 percent of all tariff lines are subject to the 12 percent duty rate. Peru’s membership in the Andean Community entails a progressive schedule of intra-pact tariff reductions, so that by 2003 tariffs will be reduced to zero. Although Peru retains the right to maintain its own external tariff, it will be under pressure to reduce its external rates further in coming years, given that trade diversion through other Andean Community nations would allow goods to be imported at lower rates in any event.

32. One area in which Peru has maintained protection during the 1990s is agriculture. Variable specific duties have been applied since 1991 to imports of several agricultural products. The recent fall in international commodity prices have reactivated the tax-collection aspect of the variable specific duty mechanism, and have afforded considerable protection to Peruvian producers through relatively high tariffs.33 In early 2001, these reference prices were updated and protection levels reduced, and an automatic six-month adjustment mechanism is due to be introduced in early 2001. In 1997, an additional 5 percent tariff surcharge was introduced for 350 agricultural products, and in August 1999, two more lines were added and the surcharge was increased to 10 percent for selected meat products (56 items).34 Although this protection may have helped domestic producers in the short term, by reducing competition from abroad, over the medium and long term this higher rate of protection has had deleterious effects on the competitiveness of the Peruvian agricultural sector (see below).

33. Fiscal incentives constitute an important instrument of Peru’s regional, sectoral, and social policies. Established through a multitude of laws and regulations, numerous partial or complete exemptions apply to specific activities in many sectors.35 In order to attract foreign investment, the government has offered stability agreements to investors, which entail a pledge by the government that the investment covered will not be affected by changes to national treatment; the tax regime in force on the date when the agreement is signed; or to the regime of free availability of foreign currency and of unrestricted remittance of profits, dividends, capital or other income received by the investor. These stability pacts were modified in mid-2000 and are now granted in exchange for a 2 percent surcharge on the general income tax rate.

34. There are no state programs in force for export finance, insurance, or guarantees. These services are currently supplied by the private sector at prevailing market conditions. Export promotion activities are shared between public and private institutions. Since 1996, government activities for export promotion have been centralized within PROMPEX and aim at expanding export markets through participation in international shows and commercial events.

35. Export performance. Export growth picked up considerably in the 1990s, averaging 9.2 percent per year in volume terms (Figure 2), but with large fluctuations (ranging from a high of 17.5 percent in 1994, to a low of 3.1 percent in 1998 resulting from the effects of El Nino on fish stocks and agriculture). With highly variable export prices (Figure 3), the value of exports has fluctuated even more significantly.36 The 7.9 percent average growth rate of Peru’s exports in dollar terms during 1990-2000 was considerably higher than the average growth rate of 5.1 percent for the major Latin American economies (Argentina, Brazil, Colombia, and Venezuela) during this period. However, it was significantly below the 12.3 percent average rate attained by Mexico, which reflected Mexico’s accession to NAFTA in 1994.

Figure 2.
Figure 2.

Peru: Annual Export Growth, 1991-2000

Citation: IMF Staff Country Reports 2001, 051; 10.5089/9781451831009.002.A002

Sources: BCRP, and Fund staff estimates.
Figure 3
Figure 3

Peru: Export Price Index, 1990-2000

Citation: IMF Staff Country Reports 2001, 051; 10.5089/9781451831009.002.A002

Sources: BCRP, and Fund staff estimates.

36. Performance has varied considerably across Peru’s export categories, although on average the volume of traditional exports grew significantly faster (10.6 percent) than did the volume of nontraditional exports (5.1 percent) during 1990-2000.37 Among traditional products, mining exports expanded significantly, with the best performer being gold exports, which increased nearly 170 times over the decade to become the single-largest export category by 2000. Other mining products expanded rapidly as well (Table 1). Fishing also had healthy (albeit very variable) growth (10.9 percent annually), while agricultural and petroleum-related exports stagnated over the 1990s.

Table 1.

Peru: Growth Rates of Exports, 1991–2000

(In percent)

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Sources: Central Reserve Bank of Peru, and Fund staff estimates.

Estimated by using the trade-weighted external consumer price index of Peru’s trade partners as the deflator.

37. In the 1990s, mining regained its leading role in the economy, and the sector now generates nearly half of Peru’s merchandise exports. Mining resurgence can be explained to a considerable degree by the restoration of internal security, which made mining areas safe for business. In addition, institutional reforms aimed at promoting private activity succeeded in attracting substantial investment to the sector (privatization in the mining sector has reached 90 percent). The General Mining Law of 1992 established a set of clear and predictable fiscal and administrative rules. In addition, the law provided for a variety of incentives that may have increased investment in this sector at the margin, but were unlikely to have been the main reason for the surge in investment. More important explanatory factors are likely to have been the unrestricted availability of foreign currency; the free remittance of profits, dividends, and other funds; the simplification of administrative procedures; and the nondiscriminatory treatment with respect to other sectors. In addition, the provision of “stability contracts” for mining activities (for 10-15 years) guaranteed across-the-board tax stability.

38. Peru has developed an important fishing industry based on the exploitation of its rich fishing grounds in the Pacific Ocean. Peru is the world’s largest producer and exporter of fish meal and fish oil. The privatization of Pesca Peru, the main state-owned conglomerate, which began in 1994, generated substantial investment that was directed mainly towards the replacement of run-down boats, and the construction of new fishmeal processing plants. Fish-farming activities have also been developed, in particular to produce a variety of seafood such as oyster, scallop, and shrimp. New investment has also spurred exports of canned fish.

39. Due to the El Niño weather pattern, the sector’s output is highly variable. The most recent downturn, in 1998, resulted in a substantial drop in catches, which in turn reduced fishing export earnings by some 60 percent. Such downturns are often followed by bountiful years, and fish exports reached a record level of US$976 million in 2000. To preserve Peru’s fishing resources, the Ministry of Fisheries imposes control measures such as total allowable fishing limits; closed-end fishing seasons; fish-size limitations; and prohibited or protected zones. However, over-fishing is recognized as a serious threat to the industry, in particular for anchovy and sardines, the staple species. Fishing licenses are not based on individual catch quotas. As a result, once a license is granted, the incentive is to build capacity to catch as much fish as possible within the overall limits of the open fishing period.

40. Peru’s agricultural sector is characterized by a dual structure: a relatively small modern sector producing high-value crops largely for export markets and a large number of subsistence farmers. Half of the area under cultivation is devoted to products mostly grown in small plots by farmers, such as coffee, cotton, maize, potatoes, rice, and sugar. There has been slow movement to date to implement structural reforms, including land titling and an adequate regulation of water usage and pricing, that would increase private sector activity in the sector.38

41. Moreover, the sector has retained higher tariff barriers than those applied to industrial goods. Additional protection is granted to a limited set of staple crops—maize, rice, sorghum, and sugars—as well as dairy products through the aforementioned variable specific duties. The producer subsidy equivalent (PSE) of support provided by the government for cotton, maize, sugar, wheat, and dairy products was positive over the whole period of 1991-97. Despite this protection, between 1990 and 2000, export volumes for some of these products fell dramatically: for cotton, from 17 to less than 1 thousand tons; and for sugar, from 88 to 21 thousand tons. On the other hand, coffee, Peru’s principal recorded agricultural export, was not afforded protection through trade policy; nevertheless, the volume of coffee exports rose from 64 thousand tons in 1990 to 134 thousand tons in 2000. Similarly, other agricultural exports that have performed well, for example asparagus, have done so despite not having received special protection through policies.

42. Nontraditional exports have also exhibited a variable growth pattern during the 1990s. This is partly because some goods in this category are semi-processed versions of Peru’s traditional exports. Food-related exports, for example, were the best performing subsector in the 1990s, with an average annual growth rate of 15.2 percent in value terms. However, during the El Nino year of 1998, exports in this category fell 11 percent. The same was true for fish-related nontraditional exports, which collapsed by over 30 percent during 1998-99. A more stable nontraditional export subsector is textiles (especially clothing), with an average growth of 7 percent in export value over the decade; this sector performed particularly well in 2000, with growth of 16.5 percent.

43. Since the early 1990s and the abandonment of trade measures as instruments of industrial policy, the Peruvian manufacturing sector has been largely open to international competition. Peru applies only a few nontariff barriers to manufacturing imports, although several trade measures (such as antidumping and countervailing duty investigations) have

44. recently been taken against products competing with domestic manufactures of foodstuffs, textiles, clothing, and footwear; iron and steel; and electrical goods. Specific measures affecting industrial activities include a fiscal regime for small and medium enterprises, and incentives directed to specific zones aimed at employment creation. According to Boloña and Illescas (1997), the average effective rate of tariff protection (ERP) fell from 85 percent in 1990 to just below 15 percent in 1997. Subsectors for which estimated ERPs were above average included dairy products (38 percent), footwear (26 percent), other food products (24 percent), textiles (21 percent), and clothing (20 percent).

45. The increased exposure of Peruvian industry to import competition has induced important restructuring in manufacturing since the early 1990s. Industries such as radio and television equipment, electrical appliances and housewares, and paper and paperboard have contracted severely over the decade; in contrast, others such as pottery and china, soft drinks and mineral waters, cordage and rope, knitted and crocheted fabrics, and basic industrial chemicals grew at annual average rates of over 10 percent in volume terms.

46. Manufacturing sector export growth may have been hampered by poor competitiveness. According to a recent study by Tokman and Martinez (1999), Peru’s competitiveness in the manufacturing sector has weakened during the 1990s, as the increase in the average cost of labor has exceeded the growth in productivity. As shown in Table 2, Peru’s labor costs in manufacturing rose at an average annual rate of roughly 10 percent, whereas productivity only grew by 3.4 percent. This resulted in an average loss in competitiveness of 5.9 percent per year. Other major Latin American economies have fared better during the 1990s. Argentina and Chile, for example, enjoyed an average annual increase in competitiveness of 3 percent. Nevertheless, unit labor costs in Peru were still the lowest of the large Latin American economies.

Table 2.

Selected Latin American Countries: Changes in Manufacturing Sector Competitiveness

(Average annual percentage change)

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Source: ILO.

This refers to the actual growth in competitiveness.

This estimates what competitiveness growth would have been if the sectoral structure of the not changed between the beginning and the end of the observation period.

C. How Diversified Have Peru’s Exports Become Since the 1960s?

47. As mentioned in the introduction, the diversification of exports has been considered a key goal of economic development in Peru. As can be seen in Table 3, which shows the composition of Peru’s exports at SITC two- or three-digit levels for the period 1962-99, export concentration has indeed declined over the last four decades, although not by a significant degree. Whereas in the 1960s the top ten export items accounted for over 90 percent of export earnings, by the 1990s this share had fallen to roughly 75 percent. Although there has been some increase in the number of products whose share in total exports is more than 0.5 percent (from fewer than 20 in the 1960s and 1970s to around 25 during the 1990s), the top three export items still represented over 40 percent of export earnings in the 1990s.

Table 3.

Peru: Composition of Exports, 1962–1999

(In percent of total)

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Source: UN Trade Statistics (TARS). Calculations based on current dollar prices.

48. Table 4 shows which of Peru’s exports have had the most dynamic growth (been the least “traditional”) in recent years, by ranking them according to their traditionality index.39 According to this indicator, gold has been Peru’s least traditional export, and cotton its most traditional. In the case of the former, the export share has shot up from roughly 1 percent in 1985, to 20 percent in 1999. In Table 5, a few additional measures of export diversification are shown. The Hirschman-Lorenz Index (HLX), for example, measures the concentration of exports.40 As a higher value of HLX implies a more concentrated export structure, the HLX for Peru shows that although there have been years when the HLX has fallen considerably, on the whole it was not much lower in the late 1990s than in the early 1960s.

Table 4.

Peru: Exports Ranked by Traditionality Index, 1962–99

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Source: UN Trade Statistics (TARS).
Table 5.

Peru: Additional Indicators of Export Diversification, 1962–99

(SITC3 digit level)

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Source: U.N. trade data (TARS), Central Reserve Bank of Peru, and staff calculations and estimates.

This series is relatively unchanged if SITC2 level data are used.

49. An interesting example of diversification within an export category is presented by the experience of textile-related exports, which comprise exports of raw cotton, textiles and clothing (Figure 4). In the upper panel the dramatic reduction in raw cotton’s share in total exports is shown, from roughly 17 percent in 1962 to less than 1 percent in 1999. Beginning in the early 1970s, the share of textile products and in particular clothing increased significantly. The lower panel of Figure 4 shows how concentrated the growth in clothing’s export share has been in total exports during the 1990s, when more market-oriented policies were pursued.

Figure 4
Figure 4

Peru: Exports of Textile Sector Products, 1962-98

Citation: IMF Staff Country Reports 2001, 051; 10.5089/9781451831009.002.A002

Sources: TARS, and staff calculations.

50. The analysis presented in this section indicates that although Peru’s exports underwent some structural change between the 1960s and the 1990s, considering broader classifications of export goods shows that the composition of Peru’s merchandise exports has remained remarkably stable during the 1990s (Table 6). Although there is considerable variation from year to year, reflecting in particular the biological variations of the fish stock, traditional products still account for roughly two-thirds of Peru’s total exports. The share of mining has crept up to nearly half of total exports, while petroleum and agricultural exports have fallen in weight. Given the continued importance of traditional goods for Peru’s exports, the fact that the prices of its major export commodities (agricultural, mineral, and fishing products) have not exhibited perfect positive correlation provides some natural hedging for its export earnings.

Table 6.

Peru: Composition of Exports, 1990–2000

(In percent)

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Source: Central Reserve Bank of Peru; Fund staff calculations.

51. Peru’s experience with export diversification has been fairly similar to that of other resource-rich Latin American economies. Gutiérrez de Piñeres and Ferrantino (2000) find that the Latin American experience has been characterized more by a diversification among primary-products exports than an increase in manufacturing exports, reflecting the rich endowment of natural resources of Latin American economies. Moreover they find that this has occurred regardless of whether import substitution or more liberal, nonprotectionist economic policies have been followed, which implies that the potential gains from policies deliberately aimed at bringing about diversification may be limited, as such policies would only accelerate trends which are taking place anyway, and would likely be less efficient in selecting new export sectors than an undirected market mechanism.

D. Can Other Policies be Effectively Used for Promoting Export Growth and Export Diversification?

52. Given the historic predominance of primary products in Peru’s exports, the promotion of manufactured exports has never been far from the policy debate. The objective of export diversification has been a common one for resource-rich developing countries, given their generalized belief that economic growth has been held back by excess specialization in primary products. This has increased their exposure to price and income volatility, with attendant effects on economic growth. There had also been earlier concerns that the terms-of-trade of primary exporters would decline over time (e.g. Prebisch, 1950). Another major reason for the policy focus on promoting manufactured exports is the role they are seen to play in stimulating overall economic growth, especially based on the East Asian experience.

53. However, the success of the East Asian economies in attaining export-led growth provides lessons regarding the importance of policies that enhance the economic environment in which enterprises operate, rather than in policies aimed at promoting particular industries.41 The Asian experience shows that low tariff rates, in particular for capital goods and intermediate inputs, the absence of trade quotas, and easy entrance for firms into export-related activities were important factors in supporting competitiveness of exporters in international markets. Open economies had greater access to new technologies and were less likely to misallocate labor and capital to inefficient industries.

54. The policy conclusions that emerge from the East Asian experience suggest that an open trade regime is the key element to successful export promotion. Having an open trade regime that facilitates the transfer of technology, for example through foreign direct investment, may be an important tool for diversification into activities which are based on technology that can both be easily transferred internationally and absorbed by the domestic labor force. However, as argued by Mayer (1997), appropriate trade policies are not the only necessary condition for a country to export manufactures. It is also necessary that the resource endowments of the country concerned should give it the comparative advantage in manufacturing. In practice, this resource condition may be the far more important of the two.42

55. Even if technology could be easily transferred internationally, many developing countries would not be able to use it effectively because of the relatively low level of skills of the labor force, i.e. insufficient absorptive capacity. Thus, an optimal diversification policy would strengthen efforts to raise the level of formal education and training of the labor force to obtain a blend of skills that is best suited to a country’s endowment of natural resources. This means that natural-resource rich developing countries may wish to give greater importance to indigenous research and development activities in their agricultural sector with a view to developing commercially applicable techniques, however without striving for technological autarky.

E. Concluding Remarks

56. If diversification across major export sectors alone had been the goal of policymakers in Peru, the continuing large weight of traditional products such as fish and minerals in the export base of the 1990s would lead to the conclusion that they had failed in their endeavors. But if one considers the diversification that has occurred within traditional exports, a picture of dependence on the country’s endowment of natural resources remains, but with some natural hedging due to the nonperfect correlation of international price movements for agricultural, mineral, and fishing products.

57. The ability to diversify the export base depends crucially on the level of human capital. Without a well-educated labor force that can absorb new technologies and can increase productivity growth, a further attempt at diversification (for example by increasing manufacturing exports) through fiscal incentives and distortionary protectionist policies, will prove to be quite expensive and extremely inefficient. In order to attain greater export diversification, Peru would need to strengthen education and training on a sustained basis, which in time would provide the conditions for an expanded economic and export base with an internationally competitive industrial sector.

58. Finally, the institutional environment in which business is conducted, and its effects on the competitiveness of the Peruvian economy, should not be forgotten. Although Peru’s relatively open trade regime helps foster a fairly competitive environment, the state of domestic institutions that affect market conditions—weak regulatory agencies, tax system instability, a weak judiciary, and poor protection of property rights—all contribute to raising the costs of doing business in Peru both directly (in terms of time and effort in taking care of administrative aspects of business) as well as indirectly, in the form of increased uncertainty surrounding business ventures.

List of References

  • Boloña, Carlos and J. Illescas (1997), “Políticas Arancelarias en el Perú, 1980–1997,Instituto de Economía de Libre Mercado, Lima.

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  • Guttiérrez de Pinieres, Sheila Amin and M. Ferrnatino (2000), “Export Dynamics and Economic Growth in Latin America: A Comparative Perspective”, Brookfield: Ashgate Publishing Company.

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  • Mayer, Jörg (March 1997), “Is having a Natural-Resource Rich Endowment Detrimental to Export Diversification?,UNCTAD Discussion Paper No. 124.

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  • Paredes, Carlos (1992), “Trade policy, industrialization and productivity growth: The case of Peru,Brookings Discussion Papers in International Economics, No. 94.

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  • Prebisch, Raul (1950), “The Economic Development of Latin America and Its Principal Problems,New York: United Nations.

  • Radelet, Steven, J. Sachs and J. Lee (November 1997), “Economic Growth in Asia,Development Discussion Paper No. 609, Harvard Institute for International Development.

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Prepared by Andrea Richter Hume. The provision of data and insightful comments on earlier drafts of this paper by Ms. Gladys Choy Chong and Ms. Teresa Lamas of the Central Reserve Bank of Peru are gratefully acknowledged, as is the provision of research papers by Mr. Daniel Martinez of the ILO (Lima).


This section is based on Paredes (1992).


Peru had an average tariff rate of over 60 percent for most of this period. In the short liberalization episode of the early 1980s, the average tariff rate dropped to below 40 percent still much higher than the rates prevailing in the 1950s, but rose from 1981 onwards to peak at roughly 70 percent in 1988.


Information on the recent policy framework in Peru draws heavily on the WTO’s recent Trade Policy Review of Peru (2000).


This falls to 12.6 percent when surcharges and variable specific duties are excluded.


Based on August 1999 prices, the WTO has estimated that ad valorem equivalents for 1999 were 6 percent for rice, 12 percent for maize, 27 percent for milk and 54 percent for sugar.


In January 2001, the surcharge for selected meat products was rolled back to 5 percent.


Income tax benefits have included the reduction of taxable income for mining activities, in particular for reinvested profits (only recently withdrawn for future projects), as well as the reduction of the tax rate from 30 percent to 10, 5 or zero percent for enterprises in selected industries located in various departments of the Amazon region.


Peru’s export price index declined by nearly 5 percent during the 1990s. Except in the case of fishmeal, which represented roughly 13 percent of Peru’s exports during the period 1990s—2000, Peru lacks market power in its major exports.


The volume of nontraditional exports is estimated by deflating the U.S. dollar value of nontraditional exports by a trade-weighted index of the consumer prices in Peru’s major trading partners.


Delays in the adoption of a law on water pricing have maintained incentives, in the form of underpriced water, for the cultivation of irrigation-intensive crops, such as rice, in the noncoastal regions, so that downstream coastal areas receive less water; thus, resources are allocated away from more efficiently grown crops on the coast.


Using a methodology presented in Guttiérez de Piñeres and Ferrantino (2000), a “traditionality index” Ti is calculated for Peru’s exports. The value of Ti is the mean of the cumulative export function Cit for each commodity between the beginning-of-period year t0 and the end-of-period year t1: Ti=i,t=t0t1Citt1t01, where Cit=i,t=t0teiti,t=t0t1eit and eit is the export value of good i in year t.

Commodities for which exports were concentrated earlier in the time period have a higher value of T.


The Hirschman-Lorenz index (HLX) equals the sum of the squares of each export product’s share in total exports.


This section is based on Radelet et al. (1997).


As argued by Wood and Berge (1994), too much of the advice that has been given to Latin America and to Africa, and too much of the disappointment about the poor results of implementing this advice, has been based on the false premise that East Asian trade policies will yield East Asian trade outcomes, regardless of resource endowments.

Peru: Selected Issues
Author: International Monetary Fund