Front Matter Page

© 2009 International Monetary Fund

February 2009

IMF Country Report No. 09/41

Peru: Selected Issues

This Selected Issues paper for Peru was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 14, 2009. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Peru or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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Front Matter Page

INTERNATIONAL MONETARY FUND

PERU

Selected Issues

Prepared by Luis Breuer, Mercedes García-Escribano, María González, and Juan Alonso Peschiera (all WHD), Daniel Leigh (FAD), and Giancarlo Gasha (MCM)

Approved by the Western Hemisphere Department

January 14, 2009

Contents

• I. Macroeconomic Stability and the Role of Fiscal Policy

• Figures

• I. 1. Government Revenue, Expenditure, and Fiscal Impulse, 2004–08

  • 2. Raw-Materials Demand Shock and Fiscal Policy Cyclicality

• II. Disentangling the Motives for Foreign Exchange Intervention in Peru

  • A. A Look at the Motives for Intervention Over the Broader Horizon

  • B. Recent Evolution of the Foreign Exchange Intervention Function

  • C. Conclusion

• Technical Appendix

• Tables

• II. 1. Variable and Data Description

• Figures

• II. 1. Foreign Exchange Intervention and Nominal Exchange Rate

  • 2. Intervention Response Due to Smoothing and Precautionary Motives

  • 3. Foreign Exchange Intervention and Precautionary Motive

  • 4. Autonomy and Persistence of Intervention

  • 5. Impact of Inflation Surprises

  • 6. Intervention Response Due to Smoothing Motive

  • 7. Precautionary: NIR Deviations from Benchmark

• III. Credit Growth: Anatomy and Policy Responses

  • A. Anatomy of the Recent Credit Expansion

  • B. Is There a Credit Boom?

  • C. The Policy Responses to Address Rapid Credit Growth

• Tables

• III. 1. Macroeconomic Policy Response

  • 2. Prudential and Supervisory Policy Response

• Figures

• III. 1. Financial Sector Indicators

  • 2. Is There a Credit Boom in Peru? Total Credit

  • 3. Credit Cycles in Domestic Currency by Type of Institution

  • 4. Credit Cycle in Foreign Currency by Type of Institution

• IV. Regional Disparities and Public Transfers

  • A. Poverty Alleviation, Regional Disparities and the Decentralization Process

  • B. The Equalization Role of Intergovernmental Transfers in Peru

  • C. Some Further Reforms for Consideration

  • D. Conclusion

• Annex 1. Peru: Distribution of Equalization and Shared-Transfers

• Annex 2. Regression Results

• Tables

• IV. 1. Evolution of Poverty Rates, 2005–07

  • 2. Current Revenue Sources of Subnational Governments, 2007

  • A1. Regression of Change in Poverty Rate on Central Government Transfers—Full Sample

  • A2. Impact of Poverty Rates on the Effective Use of Transfers—Full Sample

  • A3. Regression of Change in Poverty Rate on Central Government Transfers—Reduced Sample

  • A4. Impact of Poverty Rates on the Effective Use of Transfers—Reduced Sample

• Figures

• IV. 1. Peru: Allocation by Department of Intergovernmental Transfers, 2007

• V. Balance Sheet Vulnerabilities in a Dollarized Economy

  • A. Public Sector

  • B. Banking Sector

  • C. Corporate Sector

  • D. Household Sector

• Tables

• V. 1. Bank Loans and Dollarization Coeffecient per Economic Sector

  • 2. Banking Sector Stress Test to Currency-Related Risks

  • 3. Consumer and Mortgage Loans