2017 Investment Climate Statements: Peru

Policies Towards Foreign Direct Investment

The GOP seeks to attract investment —both foreign and domestic — in nearly all sectors of the economy. ProInversion prioritized USD 16 billion in public-private partnership projects in transportation infrastructure, electricity, mining, broadband expansion, gas distribution, health and sanitation, and industrial parks. The agency regularly organizes international roadshow events, including in the United States to attract investors. The Ministry of Energy and Mines aims to spur exploration and investment in the mining sector, increase oil and gas exploration, and modernize the northern oil pipeline and Talara refinery. Peruvian and U.S. investors benefit from the United States-Peru Trade Promotion Agreement (PTPA) which entered into force on February 1, 2009. The PTPA established a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors 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 grants 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 investment incentives, such as tax exemptions. In addition to the 1993 Constitution, Peru has several laws governing foreign direct investment (FDI) including 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. Article 6 of Supreme Decree No. 162-92-EF (the implementing regulations of DLs 662 and 757) authorizes private investors to enter all industries except investments in natural protected areas and manufacturing of weapons.

In 2002 the GOP created ProInversion based on an existing, similar agency. ProInversion has completed both privatizations and concessions of state-owned enterprises and natural resource-based industries. Major recent concession areas include ports, power generation facilities, electrical transmission lines, oil and gas distribution, and telecommunications. Project opportunities are available on ProInversion’s Project Portfolio page at: ProInversion Projects .

The GOP passed legislative decrees from November to December 2016 to attract and facilitate investment. These include measures to reform the public-private partnership (PPP) process. The reforms encompass structural changes at ProInversion and the inclusion of private sector members on its board, development of the investment portal (investinperu.pe ) to streamline government project approval and execution processes, and decentralization of investment to 14 regional ProInversion offices. While ProInversion does not maintain an ongoing dialogue with investors, it has authority to oversee PPP investments throughout their lifecycles.

To spur project financing, the GOP loosened banking regulations to enable an entity to operate more than one tier-one financial institution in the country. A new Tourism Entrepreneurship Fund will provide grants to finance or co-finance business ventures which incorporate conservation, sustainable use, and economic development in the tourism industry.

Although all Peruvian administrations since the 1990s have vowed to support private investment and abide by Peruvian laws, the GOP occasionally passes measures that some observers regard as a contravention of Peru’s open investment laws. The Garcia Administration in 2011 rescinded a Canadian company’s rights to operate a silver mining project in Puno after violent protests opposed the project. The Canadian company delivered to the Peruvian Minister of Economy and Finance a Notice of Intent to submit a claim to arbitration under the terms of the Canada-Peru Free Trade Agreement in February 2014. Furthermore, the GOP signed into law a 10-year moratorium on the entry into Peru of live genetically modified organisms (GMOs) to be used for cultivation in December 2011. Peru also implemented two sets of rules for importing pesticides, one for commercial importers, which requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws, and treaties. Exceptions exist, including exclusion of foreign investment activities in natural protected reserves and manufacturing of military weapons, pursuant to Article 6 of Legislative Decree No. 757. While long-term concessions are granted, the law states Peruvians must maintain majority ownership in certain strategic sectors: media; air, land and maritime transportation infrastructure; and private security surveillance services.

Prior approval is required in the banking and defense-related sectors. Foreigners are legally prohibited from owning a majority interest in radio and television stations in Peru; nevertheless, foreigners have in practice owned controlling interests in such companies. 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.

The GOP does not screen, review, or approve foreign direct investment outside of those sectors that require a governmental waiver.

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review on Peru in 2013. The WTO commented that foreign investors receive the same legal treatment as local investors in general, although foreign investment on maritime services, air transport, and broadcasting is restricted. The report also noted that the Peruvian government promotes public-private partnerships to build infrastructure and spur economic growth, with tax exemptions and low-cost financing available for domestic and foreign investors alike.

Peru aspires to become a member of the Organization for Economic Cooperation and Development (OECD). Peru launched an OECD Country Program on December 8, 2014, comprising policy reviews and capacity building projects, and allowing Peru to participate in substantive work of OECD’s specialized committees. An 18-month OECD review identified economic, social, and political obstacles that could hamper Peru’s OECD membership aspirations. The government noted that the study would act as a “roadmap” for Peru’s goal to achieve membership by 2021. The OECD published the Initial Assessment of its Multi-Dimensional Review of Peru in October 2015, finding that in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.”

Reports are available on the WTO  and OECD  websites.

Business Facilitation

The GOP does not have a regulatory system to facilitate business operations but the Competition and Intellectual Property Protection Agency (INDECOPI) regulates the enactment of new regulations by government entities that can place burdens on business operations. INDECOPI’s authority allows it to block any new business regulations can limit restrictions of businesses. In addition, the GOP has passed in 2016 a new “sunset law” requiring existing regulations by government agencies be reviewed by 2018.

Peru permits foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident. The process takes an average of 43 days and involves 11 procedures. An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe ), and prepare a deed of incorporation through Portal de Servicios al Ciudadano y a las Empresas (http://www.serviciosalciudadano.gob.pe/ ). The deed is then signed and filed with a Public Notary, with notary fees of up to one percent of a company’s capital, before submission to the Public Registry. The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority. Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located.

All foreign investments must be registered with ProInversion. The agency helps potential investors navigate investment regulations and provides sector-specific information on the investment process.

Outward Investment

The GOP promotes outward investment by Peruvian entities through the Ministry of Foreign Trade and Tourism (MINCETUR). Trade Commission Offices of Peru (OCEX’s), under the supervision of Peru’s export promotion agency (PromPeru) are located in numerous countries and promote the export of Peruvian goods and services and inward foreign investment. The GOP does not restrict domestic investors from investing abroad.

The United States-Peru Trade Promotion Agreement (PTPA) includes investment provisions between the United States and Peru. Peru also has free trade agreements with Canada, Chile, China, Colombia, Costa Rica, the European Free Trade Association (which includes Iceland, Liechtenstein, Norway, and Switzerland), Honduras, Japan, Mexico, Panama, Singapore, South Korea, and Thailand. It has Framework Agreements with MERCOSUR countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela). It has a partial preferential agreement with Cuba. More agreements have been signed and await full implementation, including with Guatemala, and the Pacific Alliance (Mexico, Colombia, Chile, and Costa Rica).

Peru has bilateral investment agreements in force with Argentina, Australia, Belgium-Luxembourg, Bolivia, Canada, Chile, China, Colombia, Cuba, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France, Germany, Italy, Japan, Malaysia, Netherlands, Norway, Paraguay, Portugal, Romania, Spain, Sweden, Switzerland, Thailand, United Kingdom, and Venezuela. In total, Peru is a party to 30 bilateral investment agreements.

Peru does not have a bilateral taxation treaty with the United States. Peru has signed tax treaties with the Andean Community (Bolivia, Colombia, Ecuador), Chile, Brazil, Canada, Mexico, Switzerland, South Korea, and Portugal. After taking office in July 2016, President Kuczynski initiated a series of reforms, among them alterations to the tax regime. Beginning on January 1, 2017, real estate income tax for foreigners decreased from 30 percent to five percent and taxes on dividends and other forms of distribution decreased from 6.8 percent to 5 percent. Corporate income taxes increased from 28 percent to 29.5 percent. A reduction on sales tax will enter into force on July 1, 2017 if accumulated sales tax collection reaches 7.2 percent of GDP by May 31, 2017.

Transparency of the Regulatory System

Regulation that is most relevant to foreign investors exists at the national level. Draft bills and regulations are generally made available for public comment. Regulations at the national, regional, and municipal level are published in El Peruano, the state’s official gazette. Ministries generally maintain current regulations on their websites. Rule-making and regulatory authority also exists through executive agencies specific to different sectors. The Supervisory Agency for Forest Resources and Wildlife (OSINFOR), the Supervisory Agency for Energy and Mining (OSINERGMIN), and the Supervisory Agency for Telecommunications can enact new regulations that affect investments in the economic sectors they manage. These agencies also have the remit to enforce regulations with penalties varying by sector, with information on enforcement published. Enforcement actions can be appealed through administrative processes. Regulation is reviewed on the basis of scientific and data-driven assessments, but public comments are not always received or made public.

Accounting, legal and regulatory standards are consistent with international norms. Peru’s Accounting Standards Council endorses the use of IFRS standards by private entities.

International Regulatory Considerations

Peru is a member of regional economic blocs. The Andean Community issues supranational regulations – based on consensus of its members – which supersede domestic provisions. Under the Pacific Alliance, Peru looks to harmonize regulations and reduce barriers to trade with other members: Chile, Colombia, and Mexico.

Legal System and Judicial Independence

Peru has an independent judiciary. The executive branch does not interfere with the judiciary as a matter of policy; however, corruption exists at all levels of government including the judiciary. Peru is in the process of transitioning to an accusatory legal system. The new system is already in place in the regions outside Lima. Regulations and enforcement actions are appealable through administrative process and the court system.

Laws and Regulations on Foreign Direct Investment

Peru’s legal system is available to investors. All laws relevant to foreign investment along with pertinent explanations and forms can be found on the ProInversion website .

Competition and Anti-Trust Laws

INDECOPI is the GOP agency responsible for reviewing competition-related concerns of a domestic nature. In 2016, INDECOPI levied sanctions against a U.S. company and its Chilean counterpart for fixing the price of toilet paper in Peru.

Expropriation and Compensation

Congress passed a law streamlining expropriation procedures in August 2015. The GOP announced in January 2017 that it would create a body within ProInversion to focus on acquiring land for infrastructure projects. The Peruvian Constitution states that the GOP can only expropriate private property on the basis of public interest, such as public works projects or for national security. In order to expropriate, Congress is required to pass a legislative decree. The Government of Peru has expressed its intention to comply with international standards concerning expropriations. Compensation for expropriation is based on fair market value. Concessionaires have complained that the government has been slow in implementing expropriations, causing delays to their investment commitments.

Illegal expropriation of foreign investment has been alleged in the extractive industry. A U.S. company alleged indirect expropriation due to changes in regulatory standards. Landowners have also alleged indirect expropriation due to government inaction and corruption in ‘land-grab’ cases that have at times been linked to local government endorsed projects.

Dispute Settlement

ICSID Convention and New York Convention

Peru is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and to the International Center for the Settlement of Investment Disputes (ICSID convention). Disputes between foreign investors and the GOP regarding pre-existing contracts must still enter national courts, unless otherwise permitted, such as through provisions found in the PTPA. In addition, investors who enter into a juridical stability agreement 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 and investors should choose arbitration venues carefully.

The PTPA includes a chapter on dispute settlement, which applies to implementation of the Agreement’s core obligations, including labor and environment provisions. Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, admission of special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes compliance through consultation and trade-enhancing remedies. The Agreement also encourages arbitration and other alternative dispute resolution measures for disputes between private parties.

Investor-State Dispute Settlement

The PTPA provides investor-state claim mechanisms. It does not require that an investor

exhaust local judicial or administrative remedies before a claim may be filed. The investor may submit a claim under various arbitral mechanisms, including the ICSID Convention and ICSID Rules of Procedure, the ICSID Additional Facility Rules, the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or, if the disputants agree, any other arbitration institution or rules. Peru has paid previous arbitral awards; however, a U.S. court found in one case that Peru altered its tax code prior to payment thus reducing interest payments.

In 2011, a claimant filed an arbitral challenge against Peru stemming from the alleged failure by the State to undertake agreed-upon environmental remediation at a mining facility. The arbitration was dismissed in 2016 on grounds of jurisdiction.

In February 2016, a U.S. investor filed a Notice of Intent to pursue international arbitration against the GOP for violation of the PTPA. The investor holds agrarian land reform bonds it argues the GOP has undervalued.

There is no recent history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The 1993 Constitution allows disputes among foreign investors and the government or state-controlled enterprises to be submitted to international arbitration. The Supreme Court ruled in 2005 that all arbitration awards are final and are not subject to appeal.

Bankruptcy Regulations

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract. However, administrative bankruptcy procedures under INDECOPI have proven to be slow and subject to judicial intervention. Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one to two years, pending approval by INDECOPI. Peru does not criminalize bankruptcy.

Investment Incentives

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 drawbacks, or refunds of duties), 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 USD 10 million in the mining and hydrocarbons sectors or USD 5 million within two years in other sectors. An agreement to acquire more than 50 percent of a company’s shares in the privatization process may also qualify an investor for a legal or tax stability agreement, provided that the added investment will expand the installed capacity of the company or enhance its technological development.

Foreign Trade Zones/Free Ports/Trade Facilitation

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 sizeable investment.

CETICOS exist at Ilo, Matarani and Paita. One CETICO is authorized in Loreto department, but is not operational. There is concern that the GOP 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 banned the importation of right-hand drive vehicles in 2013, citing environmental, and safety concerns. Imports of used cars more than five years old and used buses and trucks more than two years old are prohibited.

Performance and Data Localization Requirements

The PTPA resulted in benefits to U.S. enterprises seeking to invest in Peru. Under the PTPA, Peru made concessions beyond its commitments to the World Trade Organization (WTO), eliminating investment barriers such as the requirement for U.S. firms to hire nationals rather than U.S. professionals, and measures requiring the purchase of local goods.

The GOP 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.

Current law limits foreign employees to 20 percent of the total number of employees in a local company (whether owned by foreign or national interests). The combined salaries of foreign employees are limited 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 (approximately USD 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 recognize dual nationality, but do not have a formal agreement. Furthermore, the law exempts foreign banks, and international transportation companies from these hiring limits, as well as all firms located in free trade zones. Companies may apply for exemptions from the limitations for managerial or technical personnel. Sector-specific regulating bodies enforce performance requirements.

Although there are no discriminatory or onerous visa requirements, residence, or works permit requirements that inhibit foreign investors’ mobility, the application and approval process can be cumbersome and lengthy.

There are no performance requirements that apply exclusively to foreign investors. Peruvian civil law applies to legal stability agreements, which means the GOP cannot unilaterally alter agreements. Notwithstanding these protections, investors should be aware that government officials have delivered negative remarks to the press regarding companies exercising their contractual rights and obligations.

Peru does not follow a policy in which foreign investors must use domestic content in goods or technology.

Data Storage

A data controller who processes personal data must notify the National Authority for Personal Data Protection (ANPDP), which keeps a public register of data processors and the type of data they collect. Personal data is defined by the Law as any information on an individual which identifies or makes him/her identifiable through means that may be reasonably used. Sensitive personal data means any of the following: biometric data, data concerning the racial and ethnic origin; political, religious, philosophical or moral opinions or convictions, personal habits, union membership and information related to health or sexual life. Unless otherwise exempted by statute, data controllers are generally required to obtain the consent of data subjects for the processing of their personal data. Consent must be prior, informed, expressed, and unequivocal. In the case of sensitive personal data, consent must also be given in writing, which may be done digitally. Even without the consent of the subject, sensitive data may be processed when authorized by law, provided it is in the public interest.

Data controllers may process personal data without consent:

• When the personal data are compiled or transferred for public entities in control of the personal data and in the performance of its duties;
• When personal data is accessible to the public or is intended to be accessible to the public;
• To comply with other laws related to financial solvency and credit;
• In the case of a law for the promotion of competition in regulated markets under certain circumstances;
• When necessary to perform a contract to which the data subject is a party;
• For personal data related to health, under certain circumstances;
• When processing is carried out by non-profit organizations with political, religious or union purposes, under certain circumstances; or
• In an anonymization or disassociation procedure.

A data controller may transfer personal data to places outside of Peru only if the recipients have adequate protection measures. The ANPDP supervises compliance with this requirement. That provision does not apply in the following cases:

• When the data subject has given his/her prior, informed, express and unequivocal consent;
• Agreements under international treaties to which Peru is a party;
• International judicial cooperation;
• International cooperation between intelligence agencies for the fight against terrorism, illegal drug trafficking, money laundering, corruption, human trafficking and other forms of organized crime;
• When necessary to implement a contract to which the data subject is a party;
• To comply with laws concerning the transfer of bank or stock exchanges; or
• When the transfer is for the prevention, diagnosis or medical or surgical treatment of the data subject; or when necessary to carry out epidemiological or similar studies (provided that adequate disassociation procedures are applied).

Data controllers must adopt technical, organizational, and legal measures to guarantee the security of personal data and avoid their alteration, loss, unauthorized processing or access. Peru’s law does not require any notifications to any data subject or any other entity upon a breach. Peru does not mandate special regulations be enacted for the processing of personal data of minors. The ANPDP is responsible for enforcement and can issue the following administrative sanctions/fines based upon whether the violation is mild, serious or very serious. The law provides a “principle for availability of recourse for the data subject” stating that any data subject must have the administrative and/or jurisdictional channel necessary to claim and enforce his rights when they are violated by the processing of his personal data. There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

Peru adopted the Personal Data Protection Law (N° 29733) in July 2011 and went into effect on March 22, 2013. The Law is available online  in English.

The implementing regulations are available online  in Spanish.

Real Property

The GOP recognizes and generally enforces secured interests in property, both movable and immovable. The GOP is working on improving the registry of those rights, which will further enable the government’s enforcement capabilities. The only regulation regarding foreign-ownership of land is the Constitution-decreed prohibition within 50 kilometers of international borders, but this prohibition can be waived. Mortgages are available in the local market.

Intellectual Property Rights

Peru is listed on the Watch List under the U.S. Trade Representative’s (USTR) Special 301 Report.

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.

While the legal framework for protection of intellectual property (IP) in Peru has improved over the past decade, including a law enacted in 2011 to criminalize the sale of counterfeit medicines, enforcement remains weak. Peru published implementing regulations for biologic and biosimilar pharmaceutical products in 2016. Peru has remained on USTR’s Section 301 “Watch List” since 1992 because of continued high piracy rates, inadequate enforcement of IP laws, and weak or unenforced penalties for IP violators.

Peruvian law provides the same protections for U.S. companies as Peruvian companies in all intellectual property rights (IPR) categories under the U.S.-Peru Trade Promotion Agreement (PTPA) and other international commitments such as the World Intellectual Property Organization (WIPO) and the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

Peru joined two new Patent Prosecution Highways (PPH) in 2017, the Prosur PPH and the Pacific Alliance PPH.

INDECOPI has jurisdiction over the implementation of the geographical indications. Andean decision 486, which governs Peru’s IP system, provides grounds for refusing protection of a GI based on genericness, and as modified via the bilateral agreement with the U.S., protection for prior trademarks against subsequent geographical indications that are likely to cause confusion with the earlier trademark. However, the Consortium of Common Food Names notes that Peru has granted protection to terms that were considered the generic names for products in Peru and thus claims that Peru has violated WTO rules and impaired the value of the U.S. concessions flowing from the earlier PTPA.

Challenges include establishing clear conditions for U.S. exporters and enforcing intellectual property rights. Counterfeiting and piracy remain prevalent in Peru. Senior GOP officials recognize that the country will not achieve its full economic potential if IPR laws are not enforced more robustly to protect legitimate owners of trademarks, copyrights, and patents. As they become more aware of the threat of counterfeiting and piracy, Peruvian businesses are joining U.S. and foreign companies to engage the GOP on the economic costs of IPR violations; however, continued private sector engagement has yielded only modest results. The World Economic Forum ranked Peru as 67 out of 138 countries in its Global Competitiveness Index 2016-2017. While this is a significant improvement (it was ranked 119 out of 144 in 2014-2015), it is still behind fellow South American countries Colombia (61), Chile (33) and Mexico (51).

Peru is not listed in the 2016 notorious market report. However, INDECOPI continues to report that hundreds of millions of dollars-worth of pirated goods are sold with impunity in notorious markets like “Polvos Azules,” “El Hueco,” and “Fronteras Unidas” in Lima and border regions. Piracy is so common that specialized markets operate for different sectors. For instance, Lima’s “Capon Center Mall” specializes in counterfeit medicines. In spite of this flagrant IPR violation and periodic enforcement raids, the mall remains in operation. Counterfeit medicines are sold nationally in markets and pharmacies. DIGEMID, the Ministry of Health, and the police, on August 27, 2016, seized four tons of illegal medication from 34 stands at the “El Canchon” market in Lima. Gamarra, a district in Lima, is home to large notorious markets (“Galeria Azul,” “Galeria Santa Lucia,” “Galeria San Miguel,” “Galeria Markata,” and “Galeria Senor de Chacos”) that specialize in counterfeit clothing and textiles.

The International Intellectual Property Alliance (IIPA) is concerned about web piracy in Peru — it notes that, in the last 2 years, several illegal websites launched operations from Peru, offering thousands of music tracks for users in and out of the country for both downloads and streaming. IIPA points out that the online piracy website market doubled in the past year, impacting not only Peru but other countries in the region. This trend has extended to the online distribution and sale of counterfeit medicines.

Peru has pervasive piracy in software, music, video, and TV content. The IIPA also notes that Peru is one of the largest sources of unauthorized camcorders in the world. In 2015, the Business Software Alliance estimated that the piracy level for software is 65 percent , ten percent higher than the Latin America average, with a commercial value of USD 210 million annually. Pay-TV signal piracy constitutes an estimated 35 percent of the market. The market is so saturated with pirated movies that there is no legitimate rental market for movies and few legitimate venues to buy legal music and movie DVDs. Pirated movies sell for only USD 1.00-1.65 per DVD while pirated books sell for less than a third of the price of licensed editions.

For the Lima region, INDECOPI reported a total of USD 286.6 million in seizures of counterfeit and pirated goods from January through September 2016 (most recent data available), from over 4,300 operations. The breakdown of operations is as follows:

• USD 88.5 million seized by SUNAT from over 3100 operations
• USD 187.9 million seized by the national police in nearly 600 operations
• USD 9.3 million seized by INDECOPI in over 600 operations.

INDECOPI reports that 35 interventions were carried out with cable operators in order to verify compliance with the copyright law. INDECOPI has developed The Manual of Inspections for Cable Operators in order to have a protocol of action and avoid procedural defects.

Contrary to the obligations of the PTPA, the GOP has yet to implement internet service provider (ISP) limited liability provisions and statutory damages for civil copyright and trademark infringement. Stakeholders are concerned that penalties are low and not deterrent.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The GOP enables foreign portfolio investment. Neither the GOP nor its Central Bank place restrictions on international transactions.

The Securities Market Superintendence (SMV) is the GOP entity charged with regulating the securities and commodities markets. Following the IMF’s recommendations, the GOP passed a law reforming the SMV’s 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, and aims to prevent fraud. Trading on insider information is a crime, with some reported prosecutions in past years. One case at the end of 2010 involved three (government-owned health care provider) ESSALUD employees, a stock brokerage firm and an employee of the stock brokerage firm. CONASEV fined these individuals and the stock brokerage 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.

Morgan Stanley Capital International (MSCI) maintained the Emerging Market status of the Lima Stock Exchange (BVL), which was under review for reclassification to Frontier status as it included only three securities meeting the size and liquidity requirements for emerging-market equities.

The private sector has access to a variety of credit instruments. Mutual funds managed USD 7.8 billion in December 2016. Private pension funds managed a total of USD 42 billion in February 2017.

Money and Banking System

The banking system is considered generally sound, thanks to lessons learned during the 1997-1998 Asian crises, and continues to revamp operations, increase capitalization, and reduce costs. Non-performing bank loans rose to 4.3 percent of gross loans as of September 2015, down from a high of 11 percent in early 2001. Capable bank supervision and strong GDP growth over the last decade also helped banks weather the 2008-2009 global financial crises with little trouble.

Economic opening since the 1990s, coupled with competition, has led to banking sector consolidation. Sixteen commercial banks comprise the system, with assets accounting for 84.6 percent of Peru’s financial system. In 2014, three banks accounted for 73 percent of local loans and deposits among commercial banks. Of USD 105.1 billion in total banking assets at the end of January 2016, assets of the three largest commercial banks amounted to USD 74.36 billion.

The Central Reserve Bank of Peru (BCRP) serves as the country’s central bank. The BCRP is an independent institution, free to manage monetary policy to maintain financial stability. The BCRP’s primary goal is to maintain price stability, via inflation targeting. Inflation at year-end in Peru reached 3.2 percent in 2014, 4.4 percent in 2015, and 3.2 percent in 2016. Peru’s target inflation range is 1-3 percent.

Under the PTPA, U.S. financial service suppliers have full rights to establish subsidiaries or branches for banks and insurance companies. As of December 2013, foreigners had significant shares in thirteen banks, of which they were majority owners of 11 (including one of the country’s largest banks) and operator of one of the largest commercial banks. Notably, two of the four banks that are majority-owned by residents account for 45.1 percent of commercial banks’ assets.

Peru’s financial system has 11 specialized institutions (“financieras”), 31 thriving micro-lenders and savings banks (although several large banks also lend to small enterprises), two leasing institutions, two state-owned banks, and one state-owned development bank. In 2015, the Economist Intelligence Unit ranked Peru number one worldwide on microfinance business environment for the eighth consecutive year because of its sophisticated legal and regulatory framework and competitive microfinance sector. Nevertheless, Peru’s over 150 savings and loan cooperatives operate in an environment almost devoid of government oversight.

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. In the past few years, several companies from the region, China, North America, and Europe have begun actively buying local companies in power transmission, retail trade, fishmeal production, and other industries. While foreign banks are allowed to freely establish banks in the country, they are subject to the supervision of Peru’s Superintendent of Banks and Securities (SBS).

Foreign Exchange and Remittances

Foreign Exchange

There are no reported difficulties in obtaining foreign exchange. Under Article 64 of the 1993 Constitution, the GOP guarantees the freedom to hold and dispose of foreign currency. The GOP 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 BCRP 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 United States 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, limited capital controls still exist as private pension fund managers (AFPs) are constrained by how much of their portfolio can be invested in foreign securities. The maximum limit is set by law (currently 50 percent since July 2011), but the BCRP sets the operating limit AFPs can invest abroad. Over the years, the BCRP has gradually increased the operating limit, which reached 42 percent in January 2015.

A combination of GOP policies and market forces has led to gradual de-dollarization of the economy. U.S. dollars account for a decreasing share of banking system transactions, according to SBS. In 2001, U.S. dollars accounted for 82 percent of loans and 73 percent of deposits. The amount of credit issued in USD fell by 4% for commercial loans and 3% for personal loans in July 2016 compared to the same period in 2015. Dollar-denominated loans in these sectors now stand at 45 percent and 24 percent of total credit, respectively, as of October 2016. Funds associated with any form of investment can be freely converted into any world currency.

The foreign exchange market operates freely, for the most part. To quell “extreme variations” of the exchange rate, the BCRP intervenes through purchases and sales in the open market without imposing controls on exchange rates or transactions. Since 2014, the BCRP has pursued de-dollarization to reduce dollar denominated loans in the market and purchased U.S. dollars to mitigate the risk that spillover from expansionary U.S. monetary policy might result in over-valuation of the Peruvian Sol relative to the U.S. dollar. As the U.S. economic recovery begins to tighten credit conditions and stronger terms of trade support a more stable currency, this policy may shift.

Remittance Policies

Peruvian law grants foreign investors the following rights: freedom to buy shares from national investors; free remittance of earnings and dividends; free capital repatriation; unrestricted access to local credits; freedom to hire technology and to pay back royalties; freedom to hire investment insurance abroad; possibility to sign juridical stability agreements for their investments in Peru with the Peruvian State.

Article 7 of the Legislative Decree N° 662 provides that foreign investors may send, in freely convertible currencies, without a prior authorization from any national government department or decentralized public entities, Regional or Municipal Governments, after having paid all the applicable taxes, remittances of the entirety of their capital derived from investments, including the sale of shares, stocks or rights, capital reduction or partial or total liquidation of companies, the entirety of their dividends or proven net profit derived from their investments, and any considerations for the use or enjoyment of assets that are physically located in Peru, as registered with the competent national entity.

Sovereign Wealth Funds

Peru’s Ministry of Economy and Finance (MEF) manages the Fiscal Stabilization Fund. The fund had a balance of USD 7.9 billion at the end of 2015 and consists of treasury surplus, concessional fees, and privatization proceeds, with a cap of four percent of GDP. The MEF released investment guidelines for the Fiscal Stabilization Fund in December 2015. The guidelines permit investment in demand deposits, variable and fixed interest rate time deposits, and seven currencies including the USD. The Fund is not a party to the IMF International Working Group or a signatory to the Santiago Principles. The fund serves as a buffer for the GOP’s fiscal accounts in the event of adverse economic conditions. The MEF authorized USD 1.3 billion in 2013 as the country was experiencing a fiscal deficit.

Several electricity, water and sewage, bank, and oil companies remain state-owned and state-operated. The GOP wholly owns 36 SOE’s, 34 of which are under the parastatal conglomerate FONFAFE. The conglomerate had assets of approximately USD 7 billion at the end of 2015. The state oil company PetroPeru and the state health system Essalud fall outside FONFAFE’s supervision. The list of SOE’s under FONAFE can be found here: http://www.fonafe.gob.pe/portal?accion=empresas&t=1&o=01&m=3 .

The most notable area of SOE activity pertains to the petroleum sector, where the state-owned petroleum company PetroPeru is an oil refiner and operator of an oil pipeline. Congress and the executive passed several laws since which purport to strengthen PetroPeru and free it from bureaucratic controls, so that it can enter into all stages of the petroleum and petrochemical sectors, especially upstream. PetroPeru took center stage in a 2008 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 and forced the GOP to implement a number of changes in PetroPeru’s management.

Over the last two decades, PetroPeru has experienced significant attrition in managerial and technical expertise. This, coupled with limited financial resources, cast into doubt the company’s ability to implement its long-held plans to expand and upgrade its aging Talara refinery – which continues to produce dirty gasoline and diesel fuel, a situation the government permits by not enforcing regulatory standards. Limited resources and expertise also downplay expectations following repeated announcements from its leadership regarding entrance to upstream, and participation in a proposed gas pipeline and petrochemical complex in southern Peru. In November 2015, Peru’s Congress overrode a Presidential veto, adopting a law that allowed Peru’s oil and gas promotion agency, PeruPetro, to sign a contract directly with PetroPeru to operate Lot 192, Peru’s largest oil concession, following a failed bidding process for the claim. Critics note the prescriptive nature of the legislation runs afoul of Peru’s competition and concession laws and that PetroPeru lacks the financial and technical resources to serve as an operator. In November 2016, the GOP issued a legislative decree to reform PetroPeru, move it under FONAFE, and modernize the northern oil pipeline that as of March 2017 remains closed due to leaks. In February 2017, Congress rejected the move to FONAFE stating that the change would prevent PetroPeru from taking part in oil concessions.

Peru is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

The GOP’s role as an enterprise owner is specified through several publically available laws and regulations. Ownership practices are generally consistent with OECD guidelines, although not all guideline subsections are specifically addressed. Central entity FONAFE (http://www.fonafe.gob.pe/ ) exercises ownership of SOEs with the exception of those considered intangible under the Peruvian constitution (including public university services). FONAFE appoints an independent board of directors for each SOE using a transparent selection process. There is no notable third party analysis on SOEs’ ties to the government.

Privatization Program

The GOP initiated an extensive, but not yet complete, privatization program in 1991, in which foreign investors were encouraged to participate. Since 2000, the GOP has promoted multi-year concessions as a means of attracting investment in major projects. In 2000, the government granted a 30-year concession to a private group (Lima Airport Partners) to operate the Lima airport. In 2006, the government granted a 30-year concession to Dubai Ports World to build and operate a new container terminal in the Port of Callao. The terminal’s first phase became operational in May 2010. In 2006, the Swiss-Spanish-Peruvian consortium Swissport received a 25-year concession to manage nine of Peru’s northern airports. In 2011, the GOP awarded the Argentine-Peruvian consortium Aeropuertos Andinos a 25-year concession to manage six of Peru’s southern airports. Also in 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. On June 2 2015, the GOP awarded Spanish construction company Sacyr a 25-year concession to maintain 875 kilometers of the Andean Longitudinal Highway. The concession for Line Three of Lima’s metro, expected to be awarded in late 2016, is delayed due to corruption allegations in the Line Two project.

The concessions process is challenging for U.S. and other international companies interested in bidding on projects. ProInversion, which is responsible for drawing up and completing PPP concession projects, has come under considerable criticism over the years for its bidding process, deadlines, and ambitious timetables. As a result, U.S. and other international companies have shown limited interest in Peruvian PPP projects. However, the GOP hopes its investment reform agenda, including an overhaul of ProInversion, can attract higher quality investment.

The GOP does not have a holistic action plan or national standards for responsible business conduct (RBC). Many multinational companies already adhere to high standards for RBC. Standards for conduct on environmental, social, and governance issues are implemented through sector-specific regulation. Supreme Decree No. 042-2003-EM promotes social responsibility in the mining sector, encouraging local employment opportunities, support to communities’ projects, development activities, and purchase of local goods and services. The decree requires mining companies to publish an annual report on sustainable development activities. The Ministry of Energy and Mines has a guidebook for community relations, as well as public information on social measures related to the mining and energy sectors. In February 2011, INDECOPI adopted the Peruvian Technical Regulation of Social Responsibility ISO 26000 that serves as a voluntary guide to CSR activities.

Peru continues to implement its 2013-2017 National Strategy to Combat Forced Labor, which emphasizes the state’s role to protect and promote labor rights. The plan simultaneously prioritizes building capacity and empowering vulnerable groups to transform their environment and enforce their rights. The plan addresses both medium and long-term multi-sector plans to eliminate or reduce conditions that enable forced labor. Despite these efforts, the government did not effectively enforce labor laws in all cases. Child labor, particularly in informal sectors, forced labor, and employers engaging in antiunion practices remain significant problems

In some regions, lack of capacity hinders the government’s ability to effectively enforce regulations.

In February 2013, the superintendent of the Lima Stock Exchange published the Code on Good Corporate Governance for Peruvian Societies, developed in conjunction with thirteen public and private entities including the Ministry of Economy and Finance. The document outlines shareholder protections.

Several independent NGOs monitor and promote RBC, notably Peru 2021. These organizations are able to work freely.

ProInversion serves as the National Point of Contact (NCP) for the OECD Guidelines for Multinational Enterprises (MNE), to which Peru is an adherent. The NCP held a workshop to promote MNE guidelines in Arequipa in April 2014, attended by representatives from 30 companies and the regional government. The same year, the NCP was asked to facilitate an out-of-court settlement with a multinational Swiss mining company in a labor rights dispute.

On February 15, 2012, Peru was listed as a compliant country under the Extractive Industries Transparency Initiative (EITI), as the GOP and extractive industries openly publish all company payments and government revenues from oil, gas, and mining. Peru is one of two EITI-compliant countries in Latin America.

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. The law extends to family members of officials and to political parties. Regulations published in March 2017 aim to limit conflicts of interest.

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 OECD, but it signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Contraloría General is the responsible government agency for overseeing proper procedures in public administration. In January 2017, the GOP passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if its subsidiaries acted under authorization. Penalties include an indefinite exclusion from government contracting and substantially increased fines.

U.S. firms have reported problems resulting from corruption, usually in government procurement processes and in the judicial sector, with defense and police procurement generally considered among the most problematic in spite of PTPA’s stipulations and of Peru’s Government Procurement Law (Legislative Decree No. 1017, DL 1017, one of several laws passed with the specific intention to implement PTPA). Transparency International ranked Peru 101th out of 176 countries in its 2016 Corruption Perceptions Index, a setback from their rank of 88 out of 175 in 2015.

As of March 2017, six of the 25 regional governors were under preliminary investigation and three more have been convicted of corruption-related charges. Six others face allegations of corrupt activities. A study published in May of 2014 by the office of the anti-corruption solicitor reported that 92 percent of the over 1,800 district-level mayors in office between 2011 and 2014 had been investigated for criminal activity.

In December 2016, Brazilian company Odebrecht admitted in a settlement with the United States, Brazil, and Switzerland that it had paid USD 29 million in bribes in Peru between 2004 and 2015. Peru issued an arrest warrant for former President Alejandro Toledo on February 9, 2016. Prosecutors allege Toledo received USD 20 million in bribes from Odebrecht in exchange for facilitating Odebrecht’s winning bid to build the Inter-Oceanic Highway.

The Peruvian armed forces and national police historically have preferred to execute government-to-government procurements (i.e., purchases by a GOP agency from a foreign government agency or government-owned company). This practice has impeded the participation of U.S. companies in GOP procurement, mainly with the Ministries of Defense and Interior. In July 2012, the Government Procurement Supervisory Agency ruled that government-to-government procurements do not fall under the government procurement law (DL 1017). An article in the 2013 Budget Law also specified that procurements by the GOP from another state are not under the scope of DL 1017. Since then, there have been a number of local media reports of overvalued prices in several government-to-government purchases of goods or services for the police or the armed forces. Cases include purchases of a satellite, planes, helicopters, and technical assistance training. Open tenders have been subject to overvaluation, as in the notorious 2013 case of the purchase of binoculars by the Interior Ministry for the National Police. El Comercio, Peru’s paper-of-record, published a report in January 2014 alleging the Interior Ministry bought 591 binoculars at a price more than ten times the market rate. Local media reported in March 2014 that the Public Prosecutor’s Office would investigate a technical assistance-training procurement made in 2009 by the Armed Forces Joint Command. This probe came after the Comptroller General found irregularities and circumstantial evidence of collusion, embezzlement and other crimes. The press also reported in 2014 that Peruvian Air Force officers had accepted kickbacks for illegally selling fuel on the open market. The U.S. Embassy signed a December 2015 Memorandum of Understanding with the Ministry of Interior in support of their Police Equipment Modernization Program allowing U.S. firms to compete in a series of tenders.

Resources to Report Corruption

Rosmary Cornejo Valdivia
General Coordinator
High Commission to Fight Corruption (CAN)
Jr. Carabaya Cdra. 1 S/N – Lima,
(51) (1) 219-7000, ext. 7118
rcornejo@pcm.gob.pe

General Comptroller’s Office
Jr. Camilo Carrillo 114, Jesus Maria, Lima
(51) (1) 330-3000
contraloria@contraloria.gob.pe

Contact at “watchdog” organization that monitors corruption:

Samuel Rotta
a.i Deputy Executive Director
ProEtica, the Peruvian chapter of Transparency International
Calle Manco Capac 816, Miraflores, Lima
(51) (1) 446-8581, 446-8941, 446-8943
srotta@proetica.org.pe

Although political violence against investors is rare, protests, sometimes violent, have taken place in or near communities with extractive industry operations. Environmental concerns were often the cited cause. Protestors often objected to the fact that environmental impact assessments were reviewed by the Ministry of Energy and Mines, rather than the Ministry of Environment. In January 2016, the Ministry of Environment’s National Service for Environmental Assessments (SENACE) assumed responsibility for evaluating and approving environmental impact assessments and monitoring related to mining and hydrocarbons, eliminating the previous conflict of interest with the Ministry of Energy and Mines responsible for oversight. 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 allegedly incited by NGOs. In some cases, it is alleged organizers from outside the local community are brought in to foment protests against the companies. Groups blocked roads and an airport in 2014 to protest 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 injured or killed. As of February 2017, the Human Rights Ombudsperson’s Office reported 212 conflicts in Peru – 155 are considered active and 57 are dormant. Of the 155 cases, 68 percent involve socio-environmental grounds related to the extractive sector. In 83 of the active cases, there is ongoing dialogue and negotiation. The regions with most conflicts are Ancash, Apurimac, and Puno.

Politically motivated movements at times have opposed large extractive projects. In some cases, these movements have been successful in delaying large investments, as occurred in the USD 4.8 billion Conga mine project in Cajamarca in August 2012. In 2015, protestors in Arequipa delayed Mexican-owned Southern Copper’s planned USD 1.4 billion Tia Maria greenfield copper mine. In other cases, protests have stopped such investments entirely.

The National Office of Dialogue in Sustainability and the Office of Social Conflicts within the Prime Minister’s office (created January 2017) are actively engaged in mitigating social conflict connected to the extractive industry in Peru. The offices are responsible for addressing conflict in a broader community development context, rather than only responding to social conflicts after they have already erupted. To this end, using the Social Progress Fund, the government plans to provide education, infrastructure, and health care services in areas where extractive industry projects are planned or under development. The goal is to increase government presence and reduce potential for conflict in areas that are historically underserved and often remote.

Peru issued the Prior Consultation Law in 2011, approving implementing regulations in 2012. The law requires the GOP to consult with indigenous communities before enacting any legislation, administrative measures, or development projects that could affect communities’ rights of territorial demarcation. There have been several successful prior consultation processes related to the extractive industry, but the law remains controversial. Critics believe it creates burdensome processes and results in delays. The industry association Peruvian Society of Hydrocarbons alleges that work on 30 oil exploration blocks is paralyzed due to lengthy permit processing. The National Society of Mining, Electricity and Petroleum (SNMPE) and the government have become involved in assisting local governments to access the extractive industry “canon” (tax revenue-sharing scheme with 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.

Violence remains a concern in coca-growing regions. In 2016, the narco-terrorist organization, the Shining Path, continued to conduct a limited number of attacks in its base of operations in the Valley of the Apurimac, Ene, and Mantaro Rivers (VRAEM) emergency zone, which includes parts of Ayacucho, Cusco, Huancavelica, Huanuco, and Junin regions. It staged its most significant attack during the first round of Peru’s 2016 elections, an ambush that resulted in 10 deaths. The Kuczynski government continues the longstanding practice of authorizing 60-day states of emergency in the area where the Shining Path operates – the Apurimac, Ene, and Mantaro River Valleys (VRAEM). In November 2016, the Department of State designated Victor Quispe Palomino, Jorge Quispe Palomino, and Tarcela Loya Vilchez as Specially Designated Global Terrorists (SDGTs) under Executive Order (E.O.) 13224, which imposes sanctions on foreign persons and groups determined to have committed, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States.

There is little government presence in the remote coca-growing zones of the VRAEM, although significant ramp-up of government presence and programs is likely underway. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and 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.

Labor is abundant, although several large investment projects in recent years led to localized shortages of highly skilled workers in some fields. While the legal framework to uphold international labor standards is well-defined, the government does not effectively enforce the law in all cases.

Mining sector contacts praise the technical knowledge and professional dedication of Peruvian engineering graduates. Since the 1960s, the number of jobs created by the Peruvian economy was consistently below the number of new entrants to the labor market. The situation meant underemployment or seeking work in the informal economy. According to the National Bureau for Statistics (INEI), 73.2 percent of the labor force is informal.

The statutory monthly minimum wage is PEN 850/month (approximately USD 259). INEI estimated the poverty line to be PEN 315/month (USD 96) per person, although it varied by region due to different living costs. The Ministry of Labor (MOL) enforces the minimum wage only in the formal sector. Many workers in the unregulated informal sector, most of them self-employed, make less than the minimum wage. Wages are sometimes higher than U.S. wages in the mining sector for management positions and consulting services. Workers in Peru are paid by the month, not by the year. Some workers, like formal miners, are highly paid and also (per statute) receive a share of company profits up to a maximum total annual amount of 18 times their base monthly salary. Peru’s 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. Micro-enterprise workers are entitled to social security and pensions.

Unemployment was 6.71 percent in 2016. Urban unemployment is most prevalent among 14-24 year olds (11.2 percent unemployment in 2015). Additionally, 95 percent of unemployed people reside in urban areas. The average nominal monthly salary increased 5.3 percent from 2014 to 2015, INEI reported. The ILO’s Global Wage Report 2016/2017 stated that average real wages in Peru grew at over 0.4 percent in 2013 and 2.5 percent in 2014.

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. However, under the PTPA, Peru has 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, so that Spaniards and Argentines working in Peru do not count as foreigners and vice versa.

Employers are not obligated to pay severance if the reason for dismissing an employee is covered by law. If the dismissal is found to be arbitrary, severance pay is required. Unemployed workers are eligible for benefits through the Compensation for Time of Service program.

Peru does not have a specific unemployment insurance program. The country does, however, have the “Compensation for Time of Service” (CTS) requirement that mandates an employer pay one month’s salary of an employee per year worked into the employee’s CTS Account. When the employee stops working for the employer (willingly or not), she/he can access the CTS Account. The amount will vary according to how much the employee earned and how long she/he worked for the employer. In addition, a fired employee receives one month’s salary per year worked, up to a maximum of twelve months.

Peru’s Decree Law 22342 relaxed labor laws for the non-traditional exports (NTE) sector, which includes textiles and certain agricultural products. Law 27360, published in 2000, also gave such exceptions in the agricultural sector. The laws allow businesses in the NTE and agricultural sectors to employ workers indefinitely on consecutive short-term contracts, in contrast to the five-year limit on consecutive short-term contracts in place for other sectors. Peru used the exceptions to boost these industries. On March 18, 2016, the U.S. Department of Labor identified serious concerns regarding that the provision may violate the U.S.-Peru Trade Promotion Agreement by infringing on workers’ freedom of association. As of March 2017, two proposed bills seek to end the exceptions, which would stop the indefinite use of short-term contracts and provide a path for contract workers to become full time employees.

Labor unions are independent of the government and employers. Approximately six percent of Peru’s private sector labor force was organized in 2016, with unionization highest in electricity, water, construction, and mining (from 39 percent to 22 percent) and generally low in the rest of the economy. The labor procedure law (No.29497) requires the resolution of labor conflicts 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 employer-employee relationship. The labor procedure law was in effect in 30 of Peru’s 31 judicial districts in 2016.

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.

Foreign-owned extractive projects are frequently the source of social unrest (see section 11, Political and Security Environment). In May 2015, workers in Arequipa organized a 72-hour strike against Mexican company Southern Copper’s planned USD 1.4 billion copper mine, resulting in dozens of injuries of protestors and police. The government negotiated a 60-day suspension with Southern Copper to address social concerns while taking legal action against protest leaders. Protestors in the Apurimac region led strikes against Chinese mining company MMG’s USD 7.4 billion Las Bambas mining project in September 2015, leading to a regional state of emergency. The GOP reached an agreement with local leaders in October 2015 and the mine became operational in 2016. In March 2017, union workers at the Freeport McMoran’s Cerro Verde mine initiated a strike over pay and working conditions.

The government often does not dedicate sufficient personnel and resources to labor law enforcement. It created the National Labor Superintendence (SUNAFIL) in April 2014 and opened nine regional offices to represent the labor inspectorate nationally. As of November 2015, SUNAFIL had 333 inspectors, 167 of which were located in Lima. SUNAFIL investigates cases of forced and child labor. Additional information on forced labor in Peru can be found in the 2015 Trafficking in Persons Report: http://www.state.gov/j/tip/rls/tiprpt/countries/2015/243513.htm

The Overseas Private Investment Corporation (OPIC), an independent U.S. Government agency, offers medium-to-long-term financing and political risk insurance. There is an OPIC agreement between Peru and the United States. From 2010 thru 2014, OPIC supported solar power plants, consumer lending, operation and expansion of retail stores, microfinance, installation/operation of stereotactic radiosurgery equipment, consulting services, export services, import-export logistical services, and portfolio expansion of SME, micro-credit and consumer loans, in the form of commitments totaling more than USD 21 million.

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 USD averaged PEN 3.38/USD in 2016. Peru is a member of the Multilateral Investment Guarantee Agency.

It is unlikely that the GOP would either devalue or revalue the Sol. The foreign exchange market mostly operates freely. However, the BCRP intervenes in the foreign exchange market to prevent significant exchange rate variations – at times day after day. To many observers, this regime has succeeded in avoiding strenuous foreign exchange adjustments to the economy.

The stock of foreign direct investment in Peru stood at USD 91.5 billion in December 2016 according to the BCRP, up from USD 84.6 billion at the end of 2014. According to the most recent data from ProInversion, the largest investors in Peru are Spain, the United Kingdom, the United States, and Chile. In 2016, the main investment destinations were mining (23 percent), communications (20 percent), finance (17 percent), energy (14 percent), and manufacturing (13 percent).

U.S. foreign direct investment (stock) in Peru amounted to USD 6.9 billion in 2015, a 21.4 percent increase from 2011, according to the U.S. Department of Commerce Bureau of Economic Analysis.

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), Odebrecht (Brazil), and the Falabella Group (Chile).

Peru’s direct investment abroad amounts to USD 2.1 billion, according to the BCRP. Peruvian investment in Chile, Brazil, the United States, and Bolivia comprised the vast majority of Peru’s direct investment abroad.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Host Country Data Sources: BCRPP; ProInversion.

Table 3: Sources and Destination of FDI

IMF CDIS Data is not available for Peru

Table 4: Sources of Portfolio Investment

IMF Coordinated Portfolio Investment Survey data is not available for Peru.

Ben Yates
Economic Officer, U.S. Embassy
Av. La Encalada Cdra. 17 s/n, Monterrico, Lima 33, Peru
51-1) 618-2410
econlima@state.gov