III! 'ii¥ H#' ttl .I UJ . II " i:q; III 6IiI i Ii I It :, I I, I :i;, fi11!S ; II;;. IHfL4t4 I . : RESTRICTED No. E-18Za IThis report is restricted to use within the Bank. I Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized THE ECONOMY OF PERU Public Disclosure Authorized October 12, 1951 Public Disclosure Authorized Economic Department Prepared by: Harold Larsen PERU BASIC STATIST1CS Area 482, 300 square~ lIliles Population 1940 6.7 .mill ion . 195q, 8.1 million Currency No official parity; rate fluctuates around 15 soles to the U.S o dollar 1 sol ~ 6.67 cents 1 million soles • uS$ 66.667 National Income 1~47 5,450 million soles (US$ 838 million) ($112 per head.) ~ 1950 (Million US$) Exoorts f.o.b. 156.8 151.6 194.1 Imports c.i.f. 167.7 167.1 187.1 Gold and. Foreign Exchan Gross all banks I.F.S~ 58.6 56.8 68.9 80.4 Net! Central Bank 12.8 10.2 24.6 45.4 (Million soles) Government Revenue 1021 1433 ExQenditure 1051 1390 Money Supply 1163 1901 2219 2880 (1931 a: 100) Wholesale Erica s. all goods 396 553 645 753 Cost of livinG index 337 387 433 472 PERU POPULATION AND NATIONAL INCOME PER CAPITA (SOLES PER PERSON (MILLIONS OF PERSONS) AT 1949 PRICES) 10~--~--~--~--~--~--~--,---,---,---,---,---~--,1200 YEARLY PER CAPITA NATIONAL INCOME~ " .... -- __ ,.",.~ ~ ... 8 --...... '."",-- 1000 ........ - -- 'POPULATION 6 800 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 WHEAT AVAILABILITY (THOUSANDS OF METRIC TONS) 500~--~--~~--~--~--~--~--~~--~--~--~--.---~500 YEARL.Y IMPORTS OF 400 WHEAT AND WHEAT FLOUR 400 300 300 200 200 100 100 WHEAT PRODUCTION o 0 1939 1940 1941 19421943 1944 1945 1946 1947 1948 1949 1950 1951 1952 CEMENT PRODUCTION: VOLUME l THOUSANDS OF METRIC TONS) 400~~--~~~~--~~--~~--~--~~--~~--~--~~400 YEARLY 300 300 200 200 100 100 o 0 '35 ·36 '37 '38 '39 '40 t~1 '42 '43 '44 '45 '46 '47 '48 '49 '50 '51 MONEY SUPPLY AND COST OF LIVING (INDEX, 1937 =100) 1500 ~~~~~~~~~~~~~~~~~~~~~~~~~1500 END OF PERIOD MONEY SUPPLY 1000 1000 500 ---...... .----­ 500 o ~~LLLU~~LLLUUU~~LU~~LLLU~~~~WWUO '38 '46 '48 '50 '52 J 0 J 0 J 0 J 0 1949 1950 1951 1952 a/31/SI No.580 I.B.R.D. - Economic Dept. PERU REVENUES AND EXPENDITURES (BILLIONS OF SOLES) 3.---,---~---.---.----.---.----.---.----.---.----.---.---.3 YEARLY PUBLIC DEBT ~ 2 (END OF PERIOO: 2 - 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 *Special account data for 1940-44 not available. (8udget) PETROLEUM EXPORTS SUGAR, COTTON, AND COPPER EXPORTS (MILLIONS OF METRIC TONS) (THOUSANDS OF METRIC TONS) 2 ....----,,...--, ~~~~~~~~~~400 ., YEARLY ,f\\ r""\ YEARLY " ,/"1\ " f- .-- - ," I \.; ""'- 300 \,' , SUGAR 200 If- '- .. _- 100 '0 o 1935-39 ~ '42 '44 '46 '48 '50 '52 1935-39 '40 '42 '44 '46 '48 '50 '5P AVERAGE AVERAGE TOTAL EXPORTS: VOLUME PER CAPITA ( KILOGRAMS) 500 .--.--.--.--~--~-.--~--~~--.-~---.--~~--~~500 YEARLY 400 400 300 300 200 200 100 100 1935 '36 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 1951 DISTRIBUTION OF EXTERNAL TRADE (MILLIONS OF U.S. DOLLARS) 200.---~~--------~ ,----------------,200 TOTAL WESTERN HEMISPHERE EUROPE AND REST OF WORLD OTHER 150 WESTERN 150 HEMISPHERE 100 50 1948 1949 1950 1951 1948 1949 1950 1951 1948 1949 1950 1951 8/31/51 No.581 1.8.R.D. - Economic Dept. PERU BALANCE OF PAYMENTS (MILLIONS OF U.S.DOLLARS) 0 50 100 150 200 250 1938 RECEIPTS PAYMENTS NONMONETARY GOLD EXPORTS 1947 RECEIPTS PAYMENTS 1948 RECEIPTS PAYMENTS 1949* RECEIPTS· PAYMENTS 1950 RECEIPTS PAYMENTS 1951 RECEIPTS PAYMENTS * Published data for 1949 balance of payments and foreign exchange holdings do not ogree. GOLD AND FOREIGN EXCHANGE ASSETS (MILLIONS OF U. S. DOLLARS) 100 ~~~~~~~~~~~~~~~~~~~~IOO END OF PERIOD ..........' ' 50 <ntiflNdi ~:t, .... (,.:~.::~::it!,!t; II1t~tf~ 50 J.i~~i[(·fJ~;~ .?;:;:;Vo~tiHN:~~ic~A'N·GE····.k~·gE¥~·\~·:)t·t50CX'X ~~)~;~j~t~}it~*~)~)'~:::~'~~::~~~:~:~~/~~0~~~'~~~~~:::i'~~~"~:'~:~~~~~~~~~~GOLD o l 0 '38 '46 '48 '50 '52 J 0 J 0 J 0 J 0 1949 1950 1951 1952 S/31/51 No. 582 I.B. R.D. - Economic Dept. <€l = ) 512,401 ,lot,11....... I = 45-4.2n dJ 6-1J,1:15 @ 610)50 292, ••5 Huancaveliea Hlolanuco 301.095 Huanuco Ie. 140,17] le. Ii Jun:" .20.US Huanuyo 5 Lt libort.d 446,751 Trufilto 3 Lambayeque In,'''' Chiel.yo 7 Lima '''',512 lima 23 Loreto 340,527 IquitM 22 M.d,. d. 0;.. %S,18! Pto. M.ldonado 10 Moquegu. i.,SiO MoqU8glJa 15 '.ICO t2'1.l'6 Cerro de Pasco ~ 2 Piur. 4n,114 Piurl1 21 Pvno 101.4049 Puno ~~ I] S.n M.. rtfn 111,103 Moyobamo. II T.... ,ft,'" Tacna I T.... boo 29,011 Tumbes ~~ CONTENTS Page ~ AlID CONCLUSlm~S • • • • • • • • • • • • • • • •• i I. BESGURCES Aim INCOME . .. .. .. .. Agr' 1cu.l t 1l.I"e • • • • • • • • • .. ., • • • • it .. • • • • 2 Vlinef'al s .......................... 4 Petroleum • • • • • • • • • • • ~ • • • • • • • • •• 7 liianuiacturing • • • • • • • • • • • • • • • • • • • • 8 Transport •••.••••••••.•••• . .. • .., 9 III. nW'.l1JBNAL Fn!ANCE Government Finance • , • , • • • • • • • • • ., 9 Honey Supply and Prices • • • • • • • • • • • • • •• 13 IV. EXTERNAL TRADE AND FlNMTCE Foreign Trade • • • • • • • • • • • • • • •• 14 Exchange Rates and Policies • • • • • • • • • • • •• 19 External Debt .......,............ 20 Credi tworthiness • • • • • • • • • • • • • • • • • •• 22 StJM1.1ARY AND CONCLUSIONS Peru has a basically agricultural econorncr; agriculture employs almost tvJo-thirds of the working population. Food crops are planted on 85% of the total aree under cultivation and the balance is given over to sugar a~d cotton. Next in importance to the economy are the mineral re­ sources, particularly lead, copper and petrole~~. Manufacturing, which has traditionally played a small part in Peru's economic life, has expanded fairly rapidly in the postHar period. Ey 1949 domestic production supplied 66% of durable goods purchased by consumers compared with h3% in 1942.- Approximately one-half of the steadily growing population (which in­ creased 20% betvleen 1940 and 195D) lives in very primitive conditions. The economy suffers in all sectors from lack of equipment, especially transport and communications facilities, and other forms of basic investment. There is little immediate prospect of very substantially increased investment from Peruvian sources because of the low national income and the consequent lack of savings. The Peruvian budget has traditionally shovn a deficit which has been covered by internal credit operations, chtefly vlith the Central Bank and earlier by overseas borrowings which have stopped since the depression of the thirties. Recen tly tax yields have increased remarkably, reaulting in aD overall budget surplus in 1949 and 1950. Budget receipts for 1950 ex­ pressed in 1939 soles Here 56% higher than those of 1939. Government revenues are now estimated at about 15% of national in­ come. If properly utilized, these funds could adequatelY support signifi­ ca.nt development activities. A high proportion of current budgetary ex­ pend~tures is devoted to payment of civil and military personnel and to the purchase of consumption goods. Expenditures have been relatively low on factors important to economic development such as transport and irrigation. In Peru's foreign trade, exports are primarily sugar and cotton (al­ most 50% of postwar exports by val ue), and minerals (3)% by val. ue) of which petroleum, copper and lead are the most important. Her chief imports are food products, machinery, heavy durable goods and some textiles and chemi­ cals. Perut s overs.U trade has tended to be in balance , with deficits ,dth the Uestern Hemisphere and sU!'pluses in Europe tmose currencies are, of course, inconvertible. This pattern will probably continue; the problem is that roost of Per~rs .present debt service is in dollars. However, Peru has shovm in the past an ability to restrain imports to match her availabili­ ties of foreign exchange. Perufs credit?Jorthiness depends more upon the possible effects of future investment than upon the present balsnce of payments position. On the basis of present trends in her economy,., Peru should be able to assume addi­ tional dollar debt service of about $2 million an.nuall.y~ provided that (a) internal financial policies can control possible inflation" and (b) the development. program wUl promote production of export goods and of import re­ placements.' These measures would prevent the deterioration of Peru's present balance of p~ent s position. Developmental policies should encourage private investment in mining (including petroleum) and in industry, while Government investment should be directed primarily towards agriculture and transport •. With a few exceptions, electric power supplies are adequate for the time being.' but the private utility compsny serv~ng the ~ima-Callao area should be encouraged to continue expanding l. ts capacity. While Peru might be able to absorb advantageously a somewhat higher leve). of borrowing than suggested by a. service of $2 mUlion annually, at pre­ sent this would be justifiable only if repayment Vlere in non... dollar curren­ cies. I, BESOURCES AND INCOME Peru. is divided geographically into three distinct regions: the desert coastal plain; the Sierra or Andean mountains; and the Mc:~tana or Amazonian jungle, Each presents different problc;:ms. The coast depends en­ tirely upon irrigation. and is in reality an archipelago of islands separated by desert instead of sea, The Sierra is similarly a region of' discontinuous settlement, this time in mountain valleys. The extensive ~Iontana, almost . two .... thirds of the land area of Peru. is still a region of superficial trop!.... cal e~loitation. Population is steadily growing. Between 1940 and 1950 the total in­ crease was 2Cf}, from6.7 million in 1940 to 8.1 million in 1950. Perhaps half of the Peruvian people are of full Indian blood. while another 40% are of various blood mixtures in "'hich the mesti zo (",hi te-Indj.an) predominate. Only about 10;h of the population is of pure European descent.