2012 Investment Climate Statement - Peru

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to Foreign Investment

The Peruvian government seeks to attract investment -- both foreign and domestic -- in nearly all sectors of the economy. The Peruvian Minister of Economy and Finance announced at a January 2012 international investment fair that Peru seeks $50 billion in foreign investment within the next three years. Peruvians and Americans benefit from the U.S.-Peru Trade Promotion Agreement (PTPA) which entered into force on February 1, 2009. The PTPA establishes a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors will enjoy in almost all circumstances the right to establish, acquire and operate investments in Peru on an equal footing with local investors.

The 1993 Constitution guarantees national treatment for foreign investors and permits foreign investment in almost all economic sectors. Under the Constitution, foreign investors have the same rights as national investors to benefit from any investment incentives, such as tax exemptions. Supreme Decree No. 162-92-EF Article 6 authorizes private investors to carry out any economic activity, provided investors comply with all constitutional precepts, laws and treaties. However, a few exceptions exist. For example, the law excludes investment activities in natural protected areas and manufacturing of war weapons, pursuant to Article 6 of Legislative Decree No. 757. Some laws require that Peruvians own a majority share in companies operating in certain sectors: media, air and land transportation, and private security surveillance services. Foreigners are legally forbidden from owning a majority interest in radio and television stations in Peru; nevertheless, at times foreigners have in practice owned controlling interests in such companies. Prior approval is required for domestic or foreign investment in banking and defense-related sectors. Under the Constitution, foreign interests cannot "acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources" within 50 kilometers of Peru's international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.

In addition to the 1993 Constitution, major laws regarding foreign direct investment (FDI) include the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) and the Framework Law for Private Investment Growth (DL 757 of November 1991). Other important laws include the Private Investment in State-Owned Enterprises Promotion Law (DL 674), the Private Investment in Public Services Infrastructure Promotion Law (DL 758), and specific laws related to agriculture, fisheries and aquaculture, forestry, mining, oil and gas, and electricity.

The Peruvian Government has modified laws to encourage more foreign investment, such as issuing two important decrees in December 2008. The first decree contains the regulations for the Law on Public-Private Partnership. The second decree presents a priority list of projects for the public-private partnerships. Among these public-private partnerships are major ports (Paita, San Martin, Pisco, Salaverry, Pucallpa, Iquitos, Yurimaguas) as well as regional airport projects, a South American Integrated Regional Infrastructure Project (IIRSA), water treatment and agricultural projects (Majes-Siguas and Chavimochic). As of January 2011, the Peruvian government has awarded a number of these projects, such as the port in San Martin, six airports in southern Peru, and the Majes-Siguas water project. More concessions may become available to foreign investors in electricity transmission lines, power plants, natural gas supply system for Peru’s domestic market, ports, privately-constructed prisons, highways, and irrigation projects.

Although Peru’s Constitution guarantees economic freedom under Article 63, from time to time the Peruvian Government has passed measures that contravene free market principles. For example, in January 2011, under the stated reason of consumer protection, the Peruvian Government tried to prevent the exportation of a sugar shipment. In May 2011, the Peruvian Government stopped a Canadian silver mining project in Puno in response to violent protests that resisted the project; the Canadian company is appealing the Government’s project cancellation under the terms of the Canada-Peru Free Trade Agreement. Furthermore, the Peruvian President signed a bill on December 9, 2011, to declare a 10-year moratorium on the entry of genetically-modified organisms (GMOs) to Peru.

The Peruvian Government created Peru’s Private Investment Promotion Agency, ProInversion, in April 2002. ProInversion has successfully completed both concessions and privatizations of state-owned enterprises and natural resource-based industries. Major recent concession areas include ports, electrical transmission lines, oil and gas distribution, mining, and telecommunications.

The Government of Peru has undertaken a decentralization of government responsibilities. The Base Law for Decentralization (DL 27783 issued in 2002), the Organic Law on Regional Governments (DL 27867), and the Organic Law of Municipalities (DL 27972) facilitate and promote direct private investment with regional and local governments. The Framework Law for the Promotion of Decentralized Investment (Law no. 28059, and regulations in Supreme Decree No. 015-2004-PCM), establishes the regulatory framework so that Peru may promote decentralized investment at its three government levels (national, regional and local). The Peruvian Government provides a link to these laws, the 1993 Constitution, and a Basic Rights of Foreign Investors list on the ProInversion website, www.proinversion.gob.pe.

Peru completed reforms in five of the ten areas measured in The World Bank Doing Business 2012 report, including reformed business start-up, dealing with construction permits, property registration, international trade, and closing a business. Peru’s efforts to reform business start-up procedures made significant advances in 2011 but declined by one place in the World Bank’s

business start-up ranking from 54 in 2011 to 55 in 2012. At the same time, Peru lowered the average amount of time it takes to start a business from 41 days (in 2010) to 27 days (in 2011) to 26 days (in 2012). Additionally, the 2012 World Bank report notes Peru has eliminated one step for starting a business. In the last year, Peru has fallen in ethical governance rankings.

Below follows a chart indicating Peru’s rankings in international studies.

Transparency International Corruption Perceptions Index, 2011:


Heritage Index of Economic Freedom, 2011:


World Bank Doing Business report rank, 2012:


Peru reached upper-middle income country status in 2009, and is now officially ineligible for MCC assistance.

Conversion and Transfer Policies


There are no reported difficulties in obtaining foreign exchange. Under Article 64 of the 1993 Constitution, the Peruvian government guarantees the freedom to hold and dispose of foreign currency. The Peruvian Government has eliminated all restrictions on remittances of profits, dividends, royalties, and capital, although foreign investors are advised to register their investments with ProInversion to ensure these guarantees. Exporters and importers are not required to channel foreign exchange transactions through the Central Reserve Bank of Peru and can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks. U.S. firms have reported no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments since Peru's economic reforms of the early 1990s. Under the PTPA, portfolio managers in the U.S. are able to provide portfolio management services to both mutual funds and pension funds in Peru, including funds that manage Peru’s privatized social security accounts.

The 1993 Constitution guarantees free convertibility of currency. However, there are limited capital controls given the legal limit on the amount that private pension fund managers (AFPs) can invest in foreign securities. Between April 2004 and September 2010, the Central Reserve Bank of Peru (BCR) gradually increased the limit from 9% to its current limit of 50%. In recent years, AFPs have protested this limit on grounds the Peruvian securities market remains small and unable to absorb the incessantly increasing funds the AFPs manage.

The BCR is an independent institution, free to manage monetary policy to maintain financial

stability. The BCR's primary goal is to maintain price stability, via inflation targeting. Inflation at year-end in Peru reached 3.9% in 2007, 6.7% in 2008, 0.3% in 2009, 2.1% in 2010, and 4.7% in 2011.

The Peruvian Government has also implemented policies to de-dollarize the economy. U.S. dollars account for a decreasing share of banking system transactions, according to the Peruvian Banking Superintendency (SBS). In 2001, U.S. dollars accounted for 82 percent of loans and 73 percent of deposits. On November 30, 2011, U.S. dollars accounted for 44.5% of loans and 41.4% of deposits, down from 46% of loans and 41.7% of deposits in 2010.

The foreign exchange market operates mostly freely. However, in the last few years the Central Bank — and for the foreseeable future — will intervene from time to time to quell extreme variations of the exchange rate. This regime has worked well in avoiding traumatic foreign exchange adjustments to the economy.


Expropriation and Compensation


According to the Peruvian Constitution, the Peruvian government can only expropriate private property on public interest grounds (such as for public works projects) or for national security. Any expropriation requires the Congress to pass a specific act. The Government of Peru has expressed its intention to comply with international standards concerning expropriations. In 2010, some land was legally expropriated for port construction in Yurimaguas, Loreto department. The Peruvian Government compensated the prior owners for this minor expropriation. Additionally, on January 12, 2012, Congress approved legislation to expropriate a number of homes and other real estate adjacent to the Lima Airport for an airport expansion project.

Dispute Settlement

The PTPA includes a chapter on dispute settlement. The core obligations of the Agreement, including labor and environment provisions, are subject to the dispute settlement provisions of the agreement. Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes promoting compliance through consultation and trade-enhancing remedies.

Dispute settlement generally remains problematic in Peru, although in late 2004 the Peruvian Government began taking steps to improve the dispute settlement process by establishing commercial courts to rule on investment disputes, including two courts of appeal. Commercial

courts have substantially improved the process for commercial disputes. Prior to the existence of the commercial courts, it took an average of two years to resolve a commercial case through the civil court system. With their specialized judges, these courts have reduced the amount of time to resolve a case to just two months. Additionally, the processing time of court decisions has accelerated. While some decisions are appealed, the appeals level resolves most of these cases. Few appeals cases reach the Supreme Court.

The criminal and civil courts of first instance and appeal are located in the provinces and in Lima. The Supreme Court is located in Lima. In principle, Peruvian law recognizes secured interests in property, both movable and immovable. However, the judicial system is often extremely slow to hear cases and to issue decisions. A large backlog of cases further complicates decision-making.

Court rulings and the degree of enforcement have been difficult to predict. Individual judge capabilities vary, and allegations of corruption and outside interference in the judicial system are common. The Peruvian appeals process also tends to delay final decisions. Consequently, foreign investors have found contracts can be difficult to enforce in Peru.

The 1997 Law of Conciliation (DL 26872) requires disputants in many types of civil and commercial matters to consider conciliation before a judge can accept a dispute for litigation. Private parties often stipulate arbitration to resolve business disputes, avoiding involvement in judicial processes.

Peru's commercial and bankruptcy laws have proven difficult to enforce through the courts. Compounding this difficulty are occasional laws passed to protect specific debtors from bankruptcy. The administrative bankruptcy procedures under INDECOPI (the National Institute for the Defense of Free Competition and the Protection of Intellectual Property) have proven to be slow and subject to judicial intervention. Peru has a creditor hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract.

The 1993 Constitution permits international arbitration of disputes between foreign investors and the government or state-controlled firms. Although Peruvian law stipulates the Peruvian Government must accept binding arbitration, parastatal companies and government ministries sometimes disregard unfavorable judgments. Previously, the Government of Peru turned these arbitration cases over to the judiciary, where they were bureaucratically delayed until the companies conceded the cases. To reinforce Peruvian law, the Supreme Court ruled that effective July 2005, all arbitration findings and awards are final and not subject to appeal.

Peru is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention of 1958) and to the International Center for the Settlement of Investment Disputes (the Washington Convention of 1965). Disputes between foreign investors and the Peruvian Government regarding pre-existing contracts must still enter national courts. However, investors who conclude a juridical stability agreement for additional investments may submit disputes with the government to national or international arbitration if stipulated in the agreement. Several private organizations -- including the American Chamber of Commerce, the Lima Chamber of Commerce, and Universidad Catolica -- operate private arbitration centers. The quality of such centers varies, however, and investors should choose arbitration venues carefully.


Performance Requirements and Incentives

The U.S.-Peru Trade Promotion Agreement (PTPA) has resulted in benefits to U.S. enterprises seeking to invest in Peru. Peru has agreed to exceed its commitments made in the WTO and to dismantle significant services and investment barriers, such as measures that require U.S. firms to hire nationals rather than U.S. professionals and measures requiring the purchase of local goods.

Peru offers both foreign and national investors legal and tax stability agreements to stimulate private investment. These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes (such as drawback), administrative procedures, and labor hiring regimes in effect at the time of the investment contract will remain unchanged for that investment for 10 years. To qualify, an investment must exceed US$10 million in the mining and hydrocarbons sectors or US$5 million in other sectors within two years. An agreement to acquire more than 50 percent of a company's shares in the privatization process may also qualify an investor for a juridical stability agreement, provided that the infusion will expand the installed capacity of the company or enhance its technological development.

There are no performance requirements that apply exclusively to foreign investors. Peruvian civil law applies to legal stability agreements, which means the Peruvian Government cannot unilaterally alter agreements. Peruvian law offers protection to investors, which are also offered protection from liability for acquiring state-owned enterprises.

Laws specific to the petroleum and mining sectors also provide similar assurances as above to investors. Notably, in 2000, the government modified the General Mining Law, substantially reducing benefits to investors in that sector. Among the changes was a reduction in the term concessionaires are granted to achieve the minimum annual production, an increase in fees for holding non-productive concessions, an increase in fines for not achieving minimum production within the allotted time, a reduction in the maximum allowable annual accelerated depreciation, and revocation of the income tax exemption for reinvested profits. In 2004, Congress approved a bill charging a one to three percent royalty on mining companies' sales. The changes do not affect those investors who have signed legal stability agreements with the government during the lifetime of the agreement.

After more and more communities demanded a share of mining profits, in December 2006 the Garcia Administration and mining companies (except one) agreed to a "voluntary contribution" system whereby mining companies agreed to invest in community infrastructure projects. This agreement averted adoption of a more restrictive mining law. The agreement allowed mining companies to control where they invest their contributions and ceases to apply if the prices of metals or minerals drop below certain levels, and was to last until the end of 2011. The current Humala Administration and mining companies agreed to replace the “voluntary contribution” scheme with a new contribution scheme in August 2011 as a way to share the companies’ windfall profits. The contribution is expected to total about $1.1 billion annually.

Parties may freely negotiate contractual conditions related to licensing arrangements and other aspects of technology transfer without prior authorization. A registry of a technology transfer agreement with INDECOPI is required for a payment of royalties to be counted against taxes.

Current laws limit foreign employees to no more than 20 percent of the total number of employees in a local company (whether owned by foreign or national interests). Current law restricts their combined salaries to no more than 30 percent of the total company payroll. However, DL 689 from November 1991 provides a variety of exceptions to these limits. For example, a foreigner is not counted against a company's total if he or she holds an immigrant visa, has a certain amount invested in the company (currently about US$4,000), or is a national of a country that has a reciprocal labor or dual nationality agreement with Peru. The United States and Peru tolerate dual nationality. Furthermore, the law exempts foreign banks, foreign service companies, and international transportation companies from these hiring limits, as well as all firms located in free trade zones. Companies may apply for exemption from the limitations for managerial or technical personnel.

The Peruvian government does not maintain any measures that are inconsistent with Trade-Related Investment Measure (TRIM) requirements, according to a WTO Committee on Trade-Related Investment Measure notification dated August 19, 2010.

There are no known discriminatory or onerous visa, residence, or work permit requirements that inhibit foreign investors' mobility.

Right to Private Ownership and Establishment

Peruvian law generally grants foreign and domestic entities the right to establish and own business enterprises and to engage in most forms of remunerative activity. Subject to the restrictions listed earlier in this document, both foreign and domestic entities may invest in any legal economic activity -- including foreign direct investment, portfolio investment, and investment in immovable property. Private entities may generally freely establish, acquire, and dispose of interests in business enterprises. In the case of some privatized companies deemed important by the government, the privatization agency ProInversion has included a so-called "golden share" clause in the sales contract, which allows the government to veto a potential future purchaser of the privatized assets.


Protection of Property Rights

The Peruvian Government recognizes and enforces secured interests in property, both movable and immovable. The Peruvian Government is working on improving the registry of those rights which will further enable the government’s enforcement capabilities.

While the legal framework for protection of intellectual property (IP) in Peru has improved over the past decade, enforcement mechanisms remain weak. Peru has stayed on USTR's Section 301 "Watch List" since 2001 because of continued high piracy rates and inadequate enforcement of IP laws. Weak or unenforced penalties for IP violators contributed to the Watch List determination.

Under the PTPA, Peruvian law should treat U.S. companies at least as well as Peruvian companies in all IP categories. On paper, the PTPA provides for improved IP protection on a broad range of intellectual property rights. Such improvements include protections for digital products such as U.S. software, music, text, and video; protection for U.S. patents, trademarks and pharmaceutical and agrochemical test data; and legal penalties to deter piracy; and an electronic system to register and maintain trademarks.

Despite PTPA implementation and recent legal code amendments creating stricter penalties for some types of IP theft, the judicial branch has failed to impose sentences that adequately deter future IP theft. Prosecutors have not increased the number of piracy cases they pursue through the entire process to final judgment. Furthermore, the Peruvian public lacks motivation to change perceptions regarding IP theft. The public continues to purchase pirated software, CDs, DVDs, pharmaceutical products, and books from vendors in public, without fearing punishment. The purchases continue openly since most Peruvians realize their government will not prosecute this theft.

Some Peruvian Government institutions, sometimes with the support of the U.S. Embassy in Lima, sponsor public awareness campaigns to raise awareness about the damage that IP theft causes the Peruvian economy. Peruvian newspapers complain about piracy, including pirated versions of Peru’s Nobel Laureate Mario Vargas Llosa’s books. While the Peruvian government occasionally has carried out raids against vendors of pirated goods, piracy remains a significant problem for legitimate owners of copyrights in Peru.

The International Intellectual Property Alliance (IIPA) estimated in February 2010 the piracy level in Peru for recorded music is at 98 percent, with trade losses estimated at US$57.2 million in 2008. The Business Software Alliance estimates that software piracy levels decreased from 71% in 2009 to 68% in 2010, with a loss of $176 million in 2010. All observers would agree the majority of individually-owned motion pictures in Peru are pirated.

The U.S. pharmaceutical industry claims that the Peruvian Government fails to provide data exclusivity protection for all pharmaceutical products, and does not provide patent linkage or “second use” medical patents. The pharmaceutical industry also claims the Peruvian Government does not offer any extension of the patent term for pharmaceutical products to compensate for delays at the patent office.

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, www.indecopi.gob.pe ), established in 1992. Peru belongs to the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). It is also a signatory to the Paris Convention on Industrial Property, Geneva Convention for the Protection of Sound Recordings, Bern Convention for the Protection of Literary and Artistic Works, Brussels Convention on the Distribution of Satellite Signals, Phonograms Convention, Satellites Convention, Universal Copyright Convention, the World Copyright Treaty, and the World Performances and Phonographs Treaty and the Film Register Treaty. In December 1994, the Peruvian Congress ratified the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (TRIPs).

Under the PTPA, Peru shall ratify or accede to the following agreements: the Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite; the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure; the WIPO Copyright Treaty; the WIPO Performances and Phonograms Treaty; the Patent Cooperation Treaty; the Trademark Law Treaty; and, the International Convention for the Protection of New Varieties of Plants (UPOV Convention). Under the PTPA, each party shall make all reasonable efforts to ratify or accede to the following agreements: the Patent Law Treaty; the Hague Agreement Concerning the International Registration of Industrial Designs; and, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. The Patent Cooperation Treaty (PCT) and the Trademark Law Treaty (TLT) have been in force since June 6, 2009 and February 1st, 2009, respectively. The Peruvian President signed the UPOV Convention into law on July 12, 2010.

Peru’s legal framework provides for easy registration of trademarks, and inventors have been able to patent their inventions since 1994. Peru’s 1996 Industrial Property Rights Law provides an effective term of protection for patents and prohibits devices that decode encrypted satellite signals, along with other improvements. Peruvian law does not provide pipeline protection for patents or protection from parallel imports. Peru’s Copyright Law is generally consistent with the TRIPS Agreement.


Transparency of Regulatory System

Regulatory transparency and independence have become central issues for foreign investors in Peru. Many of the central government regulators related to foreign investment have relatively transparent and predictable procedures. The Securities Market Superintendency (SMV) maintains the company registry and supervises the securities market, ProInversion handles privatization and investment issues, and INDECOPI handles competition policy and intellectual property matters. The Superintendency of Banking and Insurance (SBS) regulates banks, insurance companies, and private pension funds. The SBS determines the qualifications of potential market entrants and regulates firms once they have begun operations.

When the Peruvian Government privatized state-owned monopolies in the areas of telecommunications, energy, and the hydrocarbons sector in the late 1990s, it also established regulatory institutions to oversee the new private sectors. Delays and the lack of predictability in the rulings of these institutions, including OSIPTEL (telecom) and OSINERGMIN (energy, mining, and hydrocarbons), have been impediments to doing business in Peru.

Peru’s telecommunications regulator (OSIPTEL) established in August 2010 a “glide path” plan to continuously lower the mobile termination rates for all carriers by October 2013. This created a more favorable competitive environment for the smaller carriers. While a company may be pleased that its final rate in 2013 will be competitive with the other carriers, concerns remain that the planned 2013 rates are based on the cost structure from 2010. Historically, telecommunication companies have experienced a downward trend in cost per call. Therefore, the telecommunications sector may face an outdated cost structure in 2013.

U.S. firms and investors have also complained about the reinterpretation of rules and the imposition of disproportionate fines by the Peruvian tax agency, SUNAT. U.S. firms and other investors allege SUNAT's aggressive behavior and reinterpretation of tax law are often contrary to the spirit of the law and intent of government policies, complicating normal business operations. The remuneration of SUNAT employees is determined, in part, by the theoretical tax liability they uncover in audits, leading to overzealous tax collection practices.

Businesses point out that SUNAT's retroactive reinterpretation of regulations and laws, its levying of disproportionate fines, and initiation of full company audits when companies request a refund or legal revaluation of assets for depreciation purposes, create additional investment and trade barriers. In one case, a U.S. firm requested, by clerical mistake, an improper drawback of US$1,345, only to face SUNAT fines of US$645,000. Although the case was resolved, new legislation was needed to correct the problem. To correct such problems, independent tax tribunals act to check any abuses by SUNAT. However, SUNAT normally appeals tax tribunals’ rulings, thereby extending indefinitely both the resolution of disputed assessments and liabilities on companies’ balance sheets. As a balance to this tendency, a tax ombudsman must approve SUNAT's request to appeal adverse tax tribunal decisions. At times, the ombudsman has also acted to end unwarranted litigation of disputed assessments. For example, in 2005, a U.S. company won long-standing tax cases against SUNAT as a result of these improvements.

Businesses have complained about the 18 percent value added tax on goods, high social security tax rates, and certain labor laws. Businesses state these tax and labor policies increase investment and production costs and hinder investment capital flows. Businesses can apply for VAT reimbursement.

Efficient Capital Markets and Portfolio Investment

Credit is allocated on market terms and the banking industry in Peru is generally considered to be competitive in offering services to business customers. Private pension funds have competed in recent years with financial companies for bonds issued locally by companies and the Peruvian Government. These entities compete because the supply of securities is insufficient given the small size of the market. Foreign investors are increasingly making use of the local market conditions by obtaining credit and floating bonds. Under the U.S. - Peru Trade Promotion Agreement, U.S. financial service suppliers have full rights to establish subsidiaries or branches for banks and insurance companies.

The private sector has access to a variety of credit instruments. From January through November 2011, firms placed US$1.28 billion on the local bond market, 11.6% above the same period a year earlier. Mutual funds managed US$4.96 billion in November 2011, a 9.1% drop from the November 2010 level and still below the earlier record level of US$5.2 billion in July 2008. By October 2011, private pension funds managed a total of US$30.5 billion.

The Securities Market Superintendency (SMV) is the Peruvian Government entity charged with regulating the securities and commodities markets. Following the IMF’s recommendations, then-President Garcia signed a bill into law on July 27, 2011, for SMV to replace its predecessor, CONASEV (the National Commission for the Supervision of Companies, Securities and Exchanges). SMV’s mandate includes controlling securities market participants, maintaining a transparent and orderly market, setting accounting standards, and publishing financial information about covered companies. SMV requires stock issuers to report events that may affect the stock, the company, or any public offerings. This requirement promotes market transparency, seeks to prevent monopolies, and aims to prevent fraud. Trading on insider information is technically a crime, and there have been few cases in past years. One case at the end of 2010 involved three ESSALUD employees, a stockbrokerage firm and an employee of the stockbrokerage firm. CONASEV fined these individuals and the stockbrokerage firm, and their cases are moving through the Peruvian court system. SMV must vet all firms listed on the Lima Stock Exchange (Bolsa de Valores de Lima) or the Public Registry of Securities. SMV also maintains the Public Registry of Securities and Stock Brokers. SMV is studying ways to improve the regulatory system to encourage and facilitate portfolio investment.

The banking system is considered generally sound. Total assets of the Peruvian banking system reached US$70.4 billion at the end of November 2011, according to the Peruvian Banking Superintendency (SBS). Assets of the three largest commercial banks amounted to US$51.4 billion at the end of November 2011. The 2008-2009 global financial crisis did not affect local operating banks. One can attribute this stability to sound bank policies aimed at strengthening their position after the lessons learned during the 1997-1998 Asian crisis, sound and able bank supervision, and strong GDP growth over the last decade through 2011.

Economic opening since the 1990s, coupled with competition, has led to banking sector consolidation. Fifteen commercial banks comprise the system, although three banks account for 73 percent of loans and deposits among traditional banks. Banks have revamped operations, increased capitalization, and reduced costs in recent years. As of December 2011, foreigners had significant shares in twelve banks, of which they were majority owners of ten (including two of the country's largest ones, and operator of one large commercial bank). Under the SBS's conservative criteria, 1.5% of total loans were assessed as non-performing as of September 2011, down from a high of 11% in early 2001. Peru’s financial system has 10 specialized institutions ("financieras"), 33 thriving micro-lenders and savings banks, two leasing institutions, two state-owned banks, and one state-owned development bank. In 2011, the Economist Intelligence Unit again ranked Peru number one worldwide for microfinance.

Peruvian law and regulations do not authorize or encourage private firms to adopt articles of incorporation or association to limit or restrict foreign participation. There are no private or public sector efforts to restrict foreign participation in industry standards-setting organizations. However, larger private firms often use "cross-shareholding" and "stable shareholder" arrangements to restrict investment by outsiders -- not necessarily foreigners -- in their firms. As close families or associates generally control ownership of Peruvian corporations, hostile takeovers are practically non-existent.

Competition from State-Owned Enterprises (SOEs)

The Peruvian government initiated an extensive privatization program in 1991 which included encouraging foreign investors to participate. In recent years, the Peruvian government has promoted multi-year concessions as a means of attracting investment into major projects. In 2000, the government granted a concession to a private group (Lima Airport Partners) to operate the Lima airport. In June 2006, the government granted a 30-year concession to Dubai Ports to build and operate a new container terminal within the Port of Callao. The terminal’s first phase became operational in May 2010. In August 2006, the Swiss-Spanish-Peruvian consortium Swissport received a 25-year concession to manage nine of Peru's northern airports. In 2007, the Michiquillay copper deposit concession was sold for $403 million to the British firm Anglo American. Recently, the Peruvian Government awarded multi-year concessions for various energy, natural gas, hydro-energy and irrigation, telecommunications, ports, sanitation, land transport, trains, and tourism projects. In January 2011, the Peruvian Government awarded the Argentine-Peruvian consortium Aeropuertos Andinos a 25-year concession to manage six of Peru’s southern airports in January 2011. In April 2011, the government granted a 30-year concession to a Danish-Peruvian consortium led by the Danish-based A.P. Moller-Maersk Group to operate and modernize the multipurpose northern terminal at the Port of Callao.

Several electricity, water, sewage, bank, and oil companies remain state-owned and state-operated.

The most notable area for SOE activity pertains to the petroleum sector, especially Peru’s state-owned petroleum company PetroPeru. Congress passed three laws in 2004, 2006 and 2007 that strengthened and allowed PetroPeru to enter into all stages of the petroleum and petrochemical sectors. In 2008, PetroPeru took center stage in a corruption scandal related to oil and gas concessions. The scandal led to the resignation of the Minister of Energy and Mines and the PetroPeru President. The scandal forced the Peruvian Government to implement a number of changes in PetroPeru’s management. With varying authorities over the last decade, PetroPeru has experienced significant attrition of its expertise. Its limited financial resources and lack of expertise make it uncertain if it soon can expand and upgrade its old Talara refinery. Nevertheless, repeated announcements from its leadership regarding upstream expansion, participation in a proposed gas pipeline and petrochemical complex in southern Peru as well as a Memorandum of Understanding in January 2012 with Venezuelan state-owned oil company PDVSA, could lead to some transformation of the company in the medium-term. Furthermore, on January 12, 2011, the head of Peru’s oil and gas licensing agency, Perupetro, stated that if state-owned PetroPeru or PDVSA should bid for future lots, they would be treated the same as other bidders.

Corporate Social Responsibility

Peruvian businesses participate in Corporate Social Responsibility programs, primarily on a voluntary level. For the energy and mining sector, certain regulations do exist to promote social responsibility. Supreme Decree No. 042-2003-EM promotes social responsibility within the mining sector, and includes encouraging dialogue with the local communities, local employment, development activities, and purchase of local goods and services. The norm requires the mining companies to provide an annual report on sustainable development activities. The Peruvian Ministry of Energy and Mining offers the public a guidebook for community relations, as well as public information on social measures related to the mining and energy sectors. In February 2011, the Peruvian National Institute of Competitiveness and the Defense of Intellectual Property (INDECOPI) adopted the Peruvian Technical Regulation of Social Responsibility ISO 26000 that serves as a voluntary guide to orient CSR activities.

Additionally, Peru is taking steps to join the Extractive Industries Transparency Initiative (EITI), under which the GOP and extractive industries agree to openly publish all company payments and government revenues from oil, gas and mining. Peru is the only participant from Latin America out of 28 EITI candidate countries. Peru recently was characterized as “close to compliant” by the EITI Board.

Political Violence

Although political violence against investors is rare, a series of protests, some violent, have taken place in or near communities with extractive industry operations. Environmental concerns were often the cited pretext, with protestors often objecting to the fact that environmental impact assessments are reviewed by the Ministry of Energy and Mines, rather than the Ministry of Environment, when in fact, the Ministry of Environment along with other national agencies may participate in its review. In many cases, protestors sought public services not provided by the government. Ideological opposition to foreign mining firms, not opposition to mining itself, often leads to protest in communities incited and maneuvered by NGOs, bringing in protestors from outside the local community to foment protests against the companies. In several recent incidents, local authorities led strikes against large foreign mining companies in an effort to secure additional funds or development promises from the companies.

During 2010 and 2011, groups blocked roads in protest of extractive industry operations, hydroelectric projects, restrictions on informal gold mining, gas exports, and the Government's coca eradication policies. In several of these protests, police and civilians were killed. In 2009, a two-month-long protest of indigenous communities in the Amazon against a series of legislative decrees culminated in a violent clash on June 5, which left 24 police and 10 civilians dead. Protestors believed the decrees became law without proper prior consultation with indigenous communities. Some protestors also complained of the content of the decrees, and said the decrees favored private investors and extractive industries over indigenous communities.

Politically-motivated movements at times have opposed large natural resource developments. In some cases, these movements have been successful in delaying large foreign investments, such as currently is the case with the $4.8 billion Conga mine project in Cajamarca in January 2012, or stopping such investments entirely. In 2009, several groups instigated opposition to a large copper mine development in Arequipa Region, arguing that the mine would deprive their farms of water and poison what water remains. When the company offered not to use river water but to build desalination facilities to use sea water, the farmers still opposed the project. The Peruvian Government suspended the project in 2011. Concerns over the titling of indigenous lands and subsoil concessions remain potential sources of conflict, particularly in the Amazon region.

The previous Garcia Administration established a multi-Ministry commission in late 2006 to prevent and resolve conflicts with communities. In 2009, the Prime Minister mandated that each ministry form its own conflict prevention unit, and in 2010 the Prime Minister elevated the Council of Ministers’ own unit to become the Office of Social Conflict Management which coordinates the inter-ministerial commission. In addition, NGOs have become involved in conflict resolution activities. At the same time, the National Society of Mining and Petroleum (SNMPE), as well as the government, have become involved in assisting local communities to access the extractive industry “canons” (funding for public works projects) as a way to both stimulate local development and prevent conflicts. Although these efforts have been effective in some mining regions, in others, conflicts have continued or expanded. In August 2011, the Government of Peru adopted a “prior consultation” law requiring the government to consult with indigenous communities before enacting any legislation, administrative measures, or development projects that could affect communities’ rights. The implementing regulations of the “prior consultation” law are not yet promulgated, as the government is consulting with indigenous communities to ensure an effective methodology.

Violence remains a concern in the coca-growing regions. The Sendero Luminoso (Shining Path) terrorist organization continues to operate in these areas, financing its activities with drug trafficking proceeds. Sendero Luminoso is presumed to have killed at least 4 civilians and 13 members of the military, and committed more than 70 acts of violence in coca-growing areas during 2011. Sendero killed 9 civilians, 2 police officers, and 4 military members in 2010, and was responsible for approximately 100 incidents that year. Both the former government and President Humala continue to authorize separate 60-day states of emergency in two areas where the Shining Path operates—the Apurimac and Ene River Valley (VRAE) area and the Upper Huallaga Valley area. The state of emergency authorization suspends some civil liberties and gives the armed forces additional authority to maintain public order.

There is little government presence in the remote coca-growing zones of the Upper Huallaga Valley and the Apurimac-Ene River Valleys. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and remaining 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.


It is illegal in Peru for a public official or employee to accept any type of outside remuneration for the performance of his or her official duties. Peru has ratified both the UN Convention Against Corruption and the Organization of American States' Inter-American Convention Against Corruption. Peru is not a member of the Organization of Economic Cooperation and Development (OECD), and has not signed the OECD Convention on Combating Bribery.

Peru is one of four nations worldwide participating as a pilot country in the G8 anti-corruption and transparency initiative. The United States, other G8 partners and NGOs helped the Peruvian government develop an action plan that includes activities in six areas: a) citizen information/internet connectivity; b) improving central government fiscal transparency; c) development of Peruvian Government procurement systems; d) improving regional/local government transparency and management; e) improvement of transparency of extractive industry revenues; and f) development of asset forfeiture systems and legislation.

The G8 initiative has already shown some positive results. A hemisphere-wide state procurement organization – the Inter-American Organization of Government Procurement Institutions – was created under the leadership of Peru's State Procurement Agency OSCE (formerly CONSUCODE). Also, efforts are underway to provide Internet connections to approximately 90 municipal governments located in areas most affected by terrorism and poverty. The rural connectivity project will grant access for these municipalities to national systems, part of the Peruvian Government's E-government initiatives, aimed at creating greater transparency and citizen access to public information.

U.S. firms have reported problems directly resulting from corruption, usually in government procurement processes and in the judicial sector. Transparency International ranked Peru 80th (out of 183 countries) in its 2011 Corruption Perceptions Index, while it ranked 78th out of 178 countries in 2010. While anti-corruption efforts have been a stated priority of both the Garcia and Humala governments, in practice most resources have to date been directed at investigating extensive corruption during the Fujimori era (1990-2000). In October 2008, a kickback scandal involving a member of the ruling party and a foreign oil company led to the replacement of then-President Garcia’s Prime Minister and the changing of five other cabinet members, although investigators have not established that the Prime Minister was involved in the scandal.

Bilateral Investment Agreements

The PTPA eliminated the need for a bilateral investment agreement. Peru has free trade agreements with fourteen countries. More agreements have been signed and are awaiting implementation. Additionally, negotiations have concluded with other nations and are awaiting signature. See chart below.


In Force

Signed – Not in Force

Negotiations Concluded

Under Negotiation

Trade Agreements

1. Andean Community (1969)

2. Peru - Chile (2009)

3. Peru - Cuba EPA (2000)

4. Peru - MERCOSUR EPA (2006)

5. Peru-US TPA (2009)

6. Peru – Singapore FTA (2009)

7. Peru – Canada FTA (2009)

8. Peru – China FTA (2010)

9. Peru – Korea FTA (2011)

10. Peru – EFTA FTA (2011)

11. Peru-Mexico FTA (2011)

12. Peru – Central America (Panama, Costa Rica, Guatemala) FTA (2010).

13. Mexico EPA´s Extension (2011)

14. Peru - Thailand FTA (2010)

15. Peru and Colombia - European Union (2010)

16. Peru – Japan EPA (2009)

17. Transpacific Partnership Agreement

18. Guatemala, El Salvador and Honduras FTA

Peru's Current Bilateral Investment Agreements:

Peru has signed bilateral investment agreements in force with the following 32 other countries.

Argentina (1994)

Ecuador (1999)

Paraguay (1994)

Australia (1995)

El Salvador (1997)

Portugal (1994)

Belgium-Luxembourg E.U. (2005)

Finland (1995)

Romania (1994)

Bolivia (1993)

France (1993)

Singapore (2003)

Canada (2006)

Germany (1995)

Spain (1994)

Chile (2000)

Italy (1994)

Sweden (1994)

China (2010)

Japan (2009)

Switzerland (1991)

Colombia (1994)

Korea (1993)

Thailand (1991)

Cuba (2000)

Malaysia (1995)

United Kingdom (1993)

Czech Rep (1994)

Netherlands (1994)

Venezuela (1996)

Denmark (1994)

Norway (1995)



OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC), an independent U.S. Government agency, offers medium-to-long-term financing and political risk insurance. OPIC signed two agreements with Peru in December 1992. In July 1994, OPIC approved requests for political risk insurance (including for inconvertibility of currency). In 2008, OPIC announced that its Board of Directors approved $350 million in financing for three new private equity investment funds that will provide capital to a host of sectors in Central and South American economies. OPIC designated Peru as a beneficiary for all three funds. The following sectors were targeted: telecommunications, finance, microfinance, agribusiness, tourism, real estate, natural resources, energy, water and waste management, transportation, infrastructure, medical devices, and services.

Because of the free convertibility of currency, the U.S. Embassy purchases Peruvian currency for expenses on an as-needed basis at the market exchange rate. The U.S dollar averaged 2.75 Nuevos Soles per dollar in 2011, after averaging 2.83 Nuevos Soles in 2010. Peru is a member of the Multilateral Investment Guarantee Agency.

Given the current Peruvian Constitution, it is unlikely that the Peruvian Government would either devalue or revalue the Nuevo Sol. The foreign exchange market mostly operates freely. However, in the last few years— and for the foreseeable future — the Peruvian Central Bank intervenes from time to time to prevent significant exchange rate variations. To many observers, this regime has succeeded in avoiding traumatic foreign exchange adjustments to the economy. The Economist Intelligence Unit estimates the Nuevo Sol will appreciate in 2012 to 2.72 and in 2013 to 2.68.


Labor is abundant and trainable, although there are shortages of highly skilled workers in some fields. There is a high percentage of informality as 63.2 percent of the 10.5 million-member labor force worked in the informal sector in 2009 (according to CEDLAS and the World Bank.)

The Peruvian Government increased the statutory monthly minimum wage in August 2011, from 600 soles (approximately $215) to 675 soles ($250). The government estimated the poverty line to be approximately 257 soles ($92) a month per person, although it varied by region. The Ministry of Labor and Promotion of Employment (MOL) enforces the minimum wage only in the formal sector, and many workers in the unregulated informal sector, most of whom were self-employed, make less than minimum wage. Wages are sometimes higher than U.S. wages in the mining sector for positions in the managerial and consulting fields. Professional workers in Peru are paid by the month, not by the year. Some workers, like miners, are highly paid and also (per statute) receive a share of company profits up to a maximum total annual amount of 18 times the base monthly salary, with the excess going to regional governments. Current labor law provides for a 48-hour work week 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. Noncompliance with the law is a punishable infraction. There is no prohibition on excessive compulsory overtime.

Peruvian labor law requires employees to notify the labor ministry in advance before holding a strike. According to the MOL, 83 strikes took place in 2010. According to labor leaders, permission to strike was difficult to obtain, in part because the MOL feared harming the economy. The MOL justified its decisions by citing unions' failure to fulfill the legal requirements necessary to strike. In 2008, a law reduced severance pay and bonuses by 50% and paid annual vacation to 15 days for small business workers. Workers readily sacrifice these and other benefits in exchange for regular employment. In 2008, a law gave micro-business workers social security and pensions. However, strikes continue to occur, particularly in the extractive industries.

On January 15, 2010, Congress adopted a new labor procedure law (No. 29497) to improve the efficiency of resolving labor disputes. The law requires that labor conflicts be resolved 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 employee/employer relationship.

Four percent of the labor force was organized in 2010, with unionization higher in the electricity, gas and water (33.3%); mining (18.2%), and construction (15.2%) industries. Unemployment in Lima officially stood at 7.7% during 2011. Surveys show that 39.2% of Lima's economically active population was underemployed in 2011 (versus 42.5% in 2010 and 51.7% in 2007), mostly working as self-employed in the informal sector for below subsistence income.

A law passed in 2008 created more restrictions on outsourcing and subcontracting, made the contracting company more responsible for the actions of their subcontracted company, and created a national registry of contracting companies. The PTPA requires Peru to respect the ILO-defined core labor rights of its workers, and in January 2010, the Peruvian Government and U.S. Government established the bilateral Labor Affairs Council as mandated in Article 17.5 of the PTPA.

According to labor leaders, the current labor law has weakened unions because companies create competing unions that are seen as more favorable to management. 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. Productivity provisions must be included in any collective bargaining agreement. 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. Labor leaders argue that labor laws erode labor protections and encourage outsourcing in ways that undercut union activity.

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.

The National Work Council (Consejo Nacional del Trabajo) presented a draft bill of a General Labor Law to the Peruvian Congress in September 2011, and the new Labor Minister was optimistic in January 2012 that it would be adopted. It is a comprehensive labor law reform which would unify the myriad labor regimes that exist in Peru. Peruvian workers could learn their rights and investors could find a clear set of rules for doing business in Peru. The Labor Minister plans to reform Peru’s poorly managed labor inspection system so that inspectors help employers conform to the law rather than simply meting out fines. A General Labor Law would help Peru meet its PTPA labor commitments.

There are no known special laws or exemptions from regular labor laws in export processing zones (EPZs), although in actuality businesses in the four EPZs have more legal flexibility in hiring temporary labor. According to the MOL, there is one recognized public-sector union in one EPZ.

All labor in the EPZs is subcontracted.

Under current law, foreign employees may not comprise more than 20 percent of the total number of employees of a local company (whether owned by foreign or Peruvian persons) or more than 30 percent of the total company payroll. International agreements make exception to these laws. Under the PTPA, Peru agreed not to apply most of its nationality-based hiring requirements to U.S. professionals and specialty personnel. Peru also has bilateral agreements with Spain and Argentina, for example, in a way that Spaniards and Argentines working in Peru do not count as foreigners and vice versa.

Technology use in Peru remains low in part because of low levels of technical competence among some Peruvian workers. According to the Global Competitiveness Report 2010-2011, the quality of math and science education in Peru ranks 133 out of 139 countries. In capacity for innovation, Peru ranks 95. In business expenditure on research and development, Peru ranks 113. In availability of scientists and engineers, Peru ranks 101. There are, however, a number of companies that employ state-of-the-art technologies and equipment in their production processes.


Foreign-Trade Zones/Free Ports

Peruvian law currently covers two types of trade zones: export, transformation, industry, trade and services zones (CETICOS), and a free trade zone (ZOFRATACNA) in Tacna. The rules and tax benefits applying to these zones are the same for foreign and national investors. These zones have failed to attract any sizeable investment and their importance for Peru’s economy is negligible.

CETICOS exist at Ilo, Matarani and Paita. One CETICO is authorized in Loreto department, but is not operational. There is a concern that the Peruvian Government does not have the proper WTO waivers to validate the CETICOS export requirement. The U.S. automotive industry has expressed a specific concern that U.S. brands are unable to compete with used Japanese vehicles that enter the Peruvian market duty-free through the CETICOS. The Ministry of Transportation and Communications plans to ban the importation of right-hand drive vehicles in January 2013, citing environmental and security concerns. Imports of used cars more than five years old and used buses and trucks more than two years old are prohibited.


Foreign Direct Investment Statistics

The stock of foreign direct investment in Peru stood at US$47.8 billion in September 2011, according to the Peruvian Central Bank, versus US$41.8 billion at the end of 2010. According to the most recent data from the Peruvian Central Bank, the main investors in Peru in 2009 included the U.S. ($9.1 billion), Canada ($4.0 billion), Spain ($3.1 billion), and Chile ($2.5 billion). By industry, the main investment destinations in 2009 were mining (29%), services (24%), oil and gas (17%), manufacturing (10%), finance (13%), and energy (6%), of a total FDI of $34.5 billion.

U.S. foreign direct investment in Peru amounted to $7.9 billion in 2010, a 41.3% increase from 2009, according to the U.S. Department of Commerce Bureau of Economic Analysis. Of that sum, $5.2 billion was invested in extractive industries (mining, oil, and gas), $609 million in manufacturing, $596 million in depository institutions, $458 million in wholesale trade, $200 million in finance, $169 million in information industries, $74 million in professional/scientific/technical services, and the $590 million balance in other sectors.

Foreign investors and companies can sign legal stability contracts with the Government of Peru through ProInversion. Legal stability contracts commit the government not to apply any future changes in the income tax, labor and other laws governing a specific investment in exchange for commitments to invest a given amount. Those contracts offer legal stability for ten years, or for the duration of the concession in the case of concession contracts. In addition to these contracts, the Government of Peru has signed numerous tax, foreign exchange and administrative stability contracts through several ministries, mainly the Ministry of Energy and Mines.

Major foreign direct investments included Xstrata (Switzerland), Hunt Oil (U.S.), Newmont Mining Corporation (U.S.), BHP Billiton (Australia), Cencosud Internacional Limitada (Chile), Endesa Latinoamericana (Spain), Freeport-McMoRan (U.S.), Golds Fields Corona (South Africa), SN Power Peru (Norway), Compania Minera Latino-Americana (Chile), Sempra Energy (U.S.), Citibank (U.S.), Southern Peru Copper (Mexico), Pluspetrol (Argentina), Scotiabank (Canada), Telefonica (Spain), Repsol (Spain), Gerdau (Brazil), Anglo American (United Kingdom), Invercale (Chile), Asa Iberoamerica (Spain), Fraport AG Frankfurt Airport Services Worldwide (Germany), Aeropuertos Andinos del Peru (Argentina), and the Falabella Group (Chile). The multi-year Xstrata Las Bambas project ranks as Peru’s largest foreign direct investment ever, costing US$4.2 billion to develop a copper mine in Apurimac department. The multi-year Hunt Oil-led investment is part of a consortium that invested US$3.8 billion to develop a natural gas liquefaction plant, maritime terminal, and pipeline in southern Peru. Chilean firms invested slightly over $2 billion in new investment in 2011, according to the Chilean Embassy in Lima, formed by investments in services (52%), energy (30%), and industry (16%). Brazilian investment stock in Peru reached $3.560 billion in the latest figures from 2010 provided by the Brazilian Embassy in Lima.

As of December 2009, Peru’s direct investment abroad amounted to $1.291 billion, according to Peru’s Central Bank. Peruvian investment in Chile, Brazil, the U.S., and Bolivia comprised a significant portion of Peru’s direct investment abroad. The Peruvian media did not miss a small yet symbolic $5.5 million investment in November 2011 when the Peruvian firm Inversiones La Macha opened La Mar Cebicheria Peruana restaurant in New York, which billed itself as Peru’s culinary embassy in New York. Inversiones La Macha plans more overseas culinary investments in Spain, the United States, Panama, Colombia, Singapore, and Chile.