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Factba.se: Australia DFAT Country Briefs - Peru
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COUNTRY BRIEFS


INTRODUCTION

Relations continue to expand between Australia and Peru, both bilaterally and through cooperation in a number of regional and multilateral forums. Building upon the presence of a Consulate-General, Australia re-opened its Embassy in Lima (http://www.foreignminister.gov.au/releases/2010/kr_mr_101008.html) in September 2010, reflecting its commitment to enhancing engagement with Peru and with Latin America more generally. Australia and Peru work together in the United Nations, the WTO, the Cairns Group and in the Asia-Pacific Economic Cooperation forum (APEC) (http://www.apec.org/) to promote greater liberalisation of trade and investment and to enhance regional integration. Australia hosted APEC in 2007, Peru in 2008. Both countries are part of the group of nine APEC members who are negotiating the Trans Pacific Partnership Agreement. Australia and Peru are also members of the Forum for East Asia Latin America Cooperation (FEALAC) (http://www.fealac.org/).

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POLITICAL OVERVIEW

Background

Peru is a republic headed by a president directly elected for a five-year term. Under Peru’s Constitution, the President cannot stand for re-election for a consecutive term, but can do so at a later time.

The President appoints a Prime Minister and members of a Council of Ministers, the country’s principal executive body. The legislature consists of a single 130-member chamber and can be dissolved once during a presidential term. Peru is divided into 25 administrative regions and 24 geographical departments plus the constitutional province of Callao. Regions hold political, economic and administrative autonomy. The metropolitan area of Lima, the capital city, is however treated separately. It is governed by a mayor and is separate from the surrounding region which has the same name. Regions and Departments are divided into provinces, which are in turn sub-divided into districts. Provincial and district-level officials are popularly elected. The judicial hierarchy includes provincial and departmental courts and is headed by the Supreme Court in Lima. There is a separate Constitutional Court which supervises the Constitution of the country.

Political outlook

President Ollanta Humala was sworn into office on 28 July 2011, following his defeat of centre-right nationalist Keiko Fujimori (daughter of jailed former President Alberto Fujimori) in the second round of presidential elections in June 2011. President Humala, who ran on a centre-left platform, is a former army officer who ran unsuccessfully for President in 2006. The appointments he made to his first Cabinet indicated that he wanted in the most part to ensure a continuation of the economic policies that helped Peru sustain its impressive growth rates over the last decade. He also put greater emphasis on policies to increase social inclusion. Humala’s Gana Perú party holds the greatest number of seats in the parliament (47 out of 130), followed by Fujimori’s Fuerza 2011 (37 seats). Outgoing President Garcia’s American Popular Revolutionary Alliance (APRA) has four seats, down from 36 in the 2006 Parliament.

On 11 December 2011, President Humala announced a major cabinet reshuffle five months after coming into office following the resignation of Prime Minister Salomon Lerner Ghitis. Lerner offered his resignation as a consequence of the eruption of significant social conflict around the controversial USD 4.8 billion Conga mining project. Lerner was replaced by then-Interior Minister Valdez. The Peruvian Constitution requires that following the Prime Minister’s resignation, all Ministers submit their resignations and this resulted in President Humala replacing 11 ministers in Agriculture, Environment, Energy and Mining, Women’s Affairs and Social Development, Justice and Human Rights, Interior, Production, Labour, Defence and Culture. The reshuffle ended Humala’s Gana Perú party’s legislative alliance with Peru Posible. While it resulted in an increase in the approval rating for the President and reconfirmed his commitment to liberal economic policies, it also drew criticism from left wing members of Gana Perú .

Humala succeeded Alan Garcia, who replaced Alejandro Toledo in 2006. Toledo had been elected President in 2001 in an election held following the fleeing to Japan of former President Alberto Fujimori after being charged with human rights and corruption offences. Fujimori was subsequently extradited to Peru from Chile in 2007 and remains in gaol in Lima. Macroeconomic reform, market liberalisation and the implementation of policies designed to attract foreign investment marked the administrations of both Toledo and Garcia during the period 2001-2011.

Peru has an active and dynamic political scene with fluctuating coalitions, no dominant individual parties and sharp social divisions. The economic recovery since 2001 has had a strong positive impact in reducing poverty, currently estimated at around 31 per cent, and this is likely to continue so long as sound macroeconomic measures are maintained, although large regional disparities persist. The Shining Path terrorist movement, which was responsible for a violent uprising throughout Peru reached its peak in the late 1980s and early 1990s. It still operates in remote areas, although the small number of adherents to the organisation are now more involved in drug trafficking and other criminal activities.

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ECONOMIC OVERVIEW

Peru economic fact sheet [PDF] (http://www.dfat.gov.au/geo/fs/peru.pdf)

Economic and trade policy directions

Since the 1990s, successive governments have sought to restructure Peru's economy, dramatically improving the government's fiscal position. Peru is currently enjoying its longest expansion on record, with low inflation, a solid external position and declining indebtedness ratios. Public expenditure has been reduced through the abolition of subsidies and the privatisation of state-owned companies. Trade barriers have been cut, direct subsidies to exporters and domestic producers have been eliminated and equal treatment has been granted to foreign and domestic investors. The tariff system on imports comprises three rates: zero per cent, 9 per cent and 16 percent, with a weighted average tariff of around 3.2 per cent.

Over the last decade, Peru has been very active in engaging with the global economy through regional integration and a commitment to pursuing bilateral free trade agreements (FTAs). Peru has concluded negotiations on FTAs with Chile, the United States, Singapore, China, Korea, Japan, Mexico, Panama, Costa Rica and Canada. It also has a protocol on acceleration of the liberalisation of trade in goods and trade facilitation with Thailand. Peru is a member of the Andean Community Customs Union and has signed partial preferential trade agreements with Cuba, Argentina and Brazil. Negotiations on an FTA with the EU concluded in May 2010. Peru, along with Australia, New Zealand, Brunei, Chile, Singapore, Malaysia, Vietnam and the United States, is negotiating an expanded Trans-Pacific Strategic Economic Partnership (TPP) agreement. The agreement is seen as a potential pathway to advancing broader Asia-Pacific regional economic integration.

Economic outlook

Peru has experienced impressive economic growth in recent years, and bounced back from a low of 0.9 percent GDP growth at the height of the financial crisis in 2009 to 8.8 percent in 2010 falling to 6.7 percent in 2011. Higher economic growth has been largely supported by mining and construction activity. Diversification into non-traditional exports, investment growth, strong consumer confidence and rising employment rates has also supported this trend. President Humala’s government is pursuing similar economic policies to those that have facilitated impressive economic growth over the last decade, including fiscal discipline, inflation targeting, a managed exchange rate for the currency and investment in infrastructure, albeit with more emphasis on social inclusion expenditure.

The United States, China and Switzerland are Peru’s largest export markets, and its economy will continue to be affected by economic conditions in these markets. Minerals account for 63 per cent of total merchandise exports, exposing the economy to global commodity price fluctuations. While a slowdown in the US economy may constrain exports, this may be offset by rising strong demand from Asia, which is now the destination for around 30 per cent of Peru’s exports.

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BILATERAL RELATIONSHIP

The re-opening of the Australian embassy in Lima in September 2010 demonstrated Australia’s increasing engagement with Peru. Peru maintains an embassy in Canberra and a Consulate-General in Sydney. Australia and Peru share significant interests and cooperate internationally in areas such as the environment, fisheries management and international law enforcement.

A number of Australian ministers and senior officials visited Peru for APEC meetings in 2008, including then-Prime Minister Rudd, then-Foreign Minister Smith, then-Trade Minister Crean and former Parliamentary Secretary for Early Childhood Education and Childcare McKew. Former President Garcia, accompanied by former Peruvian Foreign Minister Belaunde and then-Trade Minister Araoz, visited Sydney in 2007 for the APEC Summit and Ministerial meetings. Former Trade Minister Ferreyros visited Australia in 2010 in his capacity at that time as Vice Minister for Trade.

In November 2011 Foreign Minister Rudd and Peruvian Foreign Minister Roncagliolo signed an MOU on The Establishment of a Framework Mechanism to promote Bilateral Consultations and Cooperation between Australia and Peru during the APEC summit in Honolulu.

The Australian Bureau of Meteorology has signed an MOU with its Peruvian counterpart, the National Meteorology Service, to facilitate, inter alia , cooperation on research into the El Niño climatic phenomenon.

A bilateral Investment Promotion and Protection Agreement entered into force in 1997.

In 2006 Australia and Peru signed an MOU on cooperation in education, and educational ties are growing. More than 1,976 Peruvians enrolled for study in Australia in 2011. Peru is the third largest source of foreign students from Latin America. next to Brazil and Colombia. There are agreements between Edith Cowan, Griffith, Canberra, Tasmania, Queensland, Adelaide, Macquarie and La Trobe universities and their Peruvian counterparts.

Australia’s Peruvian community consists of around 6,300 Peru-born persons (2006 Census). In 2011, around 30,000 Australians travelled to Peru (the great majority of these visits were for tourism), a 40 percent increase over the previous four years. The figures also reflect the growing business and tourism ties between Australia and Peru.

Peru is emerging as a significant partner in Australia’s new development cooperation program with Latin America. AusAID’s first project, a micro-finance training program for women entrepreneurs is being undertaken in Peru with Mibanco and the Inter-American Development Bank. Peruvian students were awarded nine postgraduate scholarships for study in Australia under the new Australian Development Awards program for Latin America. Two human rights projects and several Public Sector Linkages programs are also being undertaken in Peru.

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Australian investment is the most important feature in Australia's commercial ties with Peru. Australia’s commercial presence in Peru has increased significantly with 45 Australian companies now claiming an office in Peru or investment in a project in Peru. Trade is modest but continues to grow steadily. The relationship is enhanced by Peru's attractiveness as a destination for mining investment and exports of mining services and equipment.

In the 2011 calendar year (CY) merchandise trade between Australia and Peru totalled approximately A$216 million, down from A$253 million in 2010 CY. Major Australian merchandise exports to Peru ($112 million in 2011 CY) included machinery and parts, milk and cream, goods vehicles, and, soap and cleaners. Major merchandise imports from Peru to Australia (A$104 million in 2011 CY, down from $153 million in 2010 CY) included zinc and lead ores and concentrates, animal feed and animal oils and fats. Trade in services has improved significantly, totalling $119 million in 2010 CY (including education exports of $69 million), up from $62 million in 2007 CY.

Peru’s open investment regime, stable government and abundance of natural resources make it an attractive investment destination, particularly in the extractive sectors. The majority of the Australian companies with offices in Peru are involved in the mining sector. The list of Australian companies in Peru includes ALS Chemex, Rio Tinto, Ausenco, BHP Billiton, Metminco, Amcor Packaging, Sinclair Knight Mertz, Worley Parsons, Orica, Downing Teal, Karoon Gas and Woodside. Australian investment is estimated at at least A$1.7 billion (with more than A$5 billion in new projects pending), placing Australia among Peru’s top 10 investors.

Export opportunities

Australia’s Trade Commissioner in Lima is responsible for Austrade’s activities in Peru, Ecuador and Venezuela. In addition to assisting Australian companies successfully invest and expand in Peru, Austrade helps companies take advantage of opportunities to export goods and services to Peru with a particular focus on education. Opportunities exist in selling goods and services to the extractive industries, infrastructure (energy, airports and traffic systems), agribusiness and the food sector (sugar, dairy and gourmet foods, agricultural equipment, genetics and veterinary products), environmental management, medicaments, education, tourism, fashion, sporting and surfing goods, gaming equipment and other services.

Mining

Mining is a vital to Peru's development and is a significant contributor to its GDP. It is in the top 5 rankings globally for production of important minerals and metals including lead, silver, zinc, tin, gold and copper. It holds fourth place in global mining exploration investment and the Ministry of Mines and Energy claims over US$50 billion of announced investments over the next 5 years. While a high proportion of Peru's mineral exports derive from the largely multinational-owned open cut operations, the majority of Peru's mines are locally-owned and are underground operations.

Australian companies are playing important roles in the provision of goods and services and increasingly as investors. While larger miners such as BHP Billiton and Xstrata Copper have been involved in Peru for many years, Australian 'juniors' are establishing project offices in Peru. Examples of companies developing significant projects in Peru include Latin Resources, Metminco and Mundo Minerals. Australian global engineering firms such as Worley Parsons, Ausenco and SKM have also recently established offices in Peru. In addition numerous Australian technology companies have recently established a presence to target the mining industry. Educational institutions such as University of Queensland's Sustainable Mining Institute are actively developing relationships with Peruvian counterparts and there are many opportunities for bilateral cooperation to assist Peru's mining industry develop along a sustainable mining path.

Education

Enrolments of Peruvian students in Australian institutions continue to grow strongly. Peru is Australia’s third largest source of international students from Latin America, after Brazil and Colombia with 1,976 students enrolled to study in Australian institutions during 2011. Australia and Peru signed a memorandum of understanding on cooperation in education in 2006. Visits by education institutions have highlighted the opportunity for Australian education services, both for studies in Australia and courses delivered in Peru, as well as research and collaboration between institutions.

Agribusiness

Australian companies can now export both refrigerated and frozen beef to Peru following the 2004 decision by the Peruvian quarantine agency, SENASA, to approve the import of Australian beef to Peru. A protocol between Peru and Australia on kangaroo meat has also been agreed; as has an agreement on beef serosa. Ovine genetics can also be exported to Peru from Australia as well as mango buds.

Oasis Olives is an investor in Peru’s booming agriculture market and has developed a large scale olive farm in the south of Peru. Austrade assists Australian agribusiness companies in their efforts in highly prospective countries such as Peru.

Trade successes

Surf fashion

Billabong exported over A$5 million worth of surf fashion to Peru in 2006 and continues to enjoy success in this field in Peru. Given the cheap cost of textiles and competition in the Peru market, this is an impressive result and for Billabong, an identifiably Australian company.

Alpaca fleece

While only exported in very small quantities Australia's high-quality alpaca fleece is being sold to Peru where it is transformed into garments and sold to Asia.

Australian dairy exports allowed into Peru

Following a visit to Australia by Peruvian quarantine officials in February 2000, Peru agreed to the export of Australian dairy products to Peru. Since then, the level of Australian dairy exports to Peru has increased significantly.

Australian supplier to mining industry wins multimillion dollar contract

Austin Engineering Ltd of Brisbane has signed a strategically important contract with Xstrata-Peru for the supply of trays for all new trucks for its Las Bambas and Antapacay mines. Austin will establish a plant in Peru as part of the contract to supply the customer.

Major Events

Extemin

Extemin is a mining exhibition held biennially in the Peruvian provincial city of Arequipa. In 2011, 26 Australian companies exhibited their mining equipment, software and services at the Austrade-managed Australian Pavilion

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Last Updated: February 2012

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