Peru: Latin America's star set to shine again.

Author:Dube, Ryan

For years, Peru has stood out as Latin America's star economy its business-friendly environment attracted private investors that turned the vast Andean nation into South America's fastest growing economy Successive governments kept inflation under control with fiscally conservative management applauded by rating agencies that awarded it an investment grade. Millions of people escaped poverty and moved into the middle class, buying new homes, vehicles and other consumer goods in its modern capital of Lima and other cities.

But like other Latin American nations, Peru hasn't been immune to the decline in demand for its natural resources, which signaled the end to the global commodities boom that spurred the previous decade's growth. Peru's gross domestic product expanded 2.35% in 2014, down from 5.8% the previous year according to government figures. In the first quarter of 2015, the economy grew just 1.7% compared to the same period in 2014. The weakening growth, coupled with government missteps and political scandals, has sent business and consumer confidence tumbling.

Looking forward, Peru still has a lot going for it, and many business executives and economists are optimistic that it will recover from its current slump. Despite the sharp decline in exports, sectors linked to domestic demand still remain robust. Its financial system is solid, with one of the lowest delinquency rates in the region. And even though Peru improved its competitiveness during the boom years, there is still a lot to be done by investing in education and infrastructure. In May, the Central Reserve Bank of Peru said the economy would likely expand by 3.9% in 2015 and 5.3% the following year.


Peru's economic growth during the past decade was accompanied by large investments in infrastructure. In Lima the first line of an urban metro was completed, an initial step in helping to improve public transportation in the city that is home to some 9 million people. In the south, the Inter-Oceanic highway was built a 1,500-mile road that traverses the Andean mountains connecting Peru's Pacific coast to the Brazilian Amazon. Maritime ports were expanded to meet growing cargo needs and transmission lines were built to provide electricity for the first time to isolated rural communities.

However; experts say billions of dollars in investments are still needed. The Latin American Development Bank, or CAF, estimates that about US$80 billion needs to be invested to close Peru's infrastructure gap, requiring the country to boost spending on new projects while working closely with the private sector

"Reducing this infrastructure gap of US$80 billion is a priority and permanent job as much for the public sector as for the private one to guarantee sustainable growth based on improved productivity and increased competitiveness," said Eleonora Silva CAF's representative in Peru.

"The private sector can provide substantial support in management technology efficiency and financing," added Silva, whose organization has worked closely with Peru in providing advice and financial structuring for public private partnerships that have been used to advance the Olmos irrigation project and Inter-Oceanic highway.

President Ollanta Humala's government currently has several infrastructure projects on the drawing board.

Last year the government signed a US$7.33 billion contract with an international consortium that includes Brazil's Odebrecht and...

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