Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 66187-PE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY Public Disclosure Authorized COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF PERU FOR THE PERIOD FY12-FY16 Public Disclosure Authorized February 1, 2012 Bolivia, Chile, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean Region The International Finance Corporation Public Disclosure Authorized Latin America and the Caribbean Region Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official Duties. Its contents may not otherwise be disclosed without World Bank authorization. The date of the last Country Partnership Strategy Progress Report was February 12, 2009 CURRENCY EQUIVALENTS (as of January 5, 2012) 2.69 Nuevo Sol = US$ 1 FISCAL YEAR January 1 – December 31 IBRD IFC Vice President: Hasan A. Tuluy Vice President: Thierry Tanoh Director: Susan G. Goldmark Director: Paolo Martelli Task Team Leader: Livia Benavides Task Manager: Marc Tristant ABBREVIATIONS AND ACRONYMS AAA Analytic and Advisory Activities TB Tuberculosis AFP Administradora de Fondo de Pensiones LAC Latin America and the Caribbean (Pension Fund Administrator) ALEGRAs Asistencia Legal Gratuita (Free Legal Aid LPIS Listado Priorizado de Intervenciones en Centers) Salud (List of Priority Interventions) APL Adaptable Program Lending MEF Ministerio de Economia y Finanzas (Ministry of Economy and Finance) AUS Aseguramiento Universal de Salud MFI Microfinance Institutions (Universal Health Insurance) BCRP Banco Central de Reserva del Perú (Central MIC Middle-Income Country Reserve Bank of Peru) BRT Bus Rapid Transit MIDIS Ministerio de Desarrollo e Inclusión Social (Ministry of Development and Social Inclusion) CAF Corporación Andina de Fomento MIGA Multilateral Investment Guarantee Agency CAPRA Central American Probabilistic Risk MIM Mejorando la Inversión Municipal Assessment (Improving Municipal Investment) CAT DDO Catastrophes Deferred Drawdown Options MIMDES Ministerio de la Mujer y Desarrollo Social (Ministry of Women and Social Development) CCT Conditional Cash Transfers MMR Maternal Mortality Rate CDD Community Driven Development MSMEs Micro, Small and Medium Enterprises CEA Commodity Exchange Authoroty MyPE Mediana y Pequeña Empresa (Micro and Small Companies) CIDA Canadian International Development Agency NCDs Non Communicable Diseases CNC Consejo Nacional de la Competitividad NGO Non-Governmental Organization (National Council for Competitiveness) COFIDE Corporación Financiera de Desarrollo NLTA Non-Lending Technical Assistance (Development Finance Corporation) CPC Criminal Procedure Code OECD Organisation for Economic Co-operation and Development CPI Consumer Price Index OEFA Organismo de Evaluación y Fiscalización Ambiental (Office of Evaluation and Environmental Enforcement) CPPR Country Portfolio Performance Review OSCE Organismo Supervisor de Contrataciones del Estado(Peruvian National Procurement Authority) CPS Country Partnership Strategy PAN Programa Articulado Nutricional (Articulated Nutrition Program) CPS PR Country Partnership Strategy Progress PARSALUD Programa de Apoyo a la Reforma del Report Sector Salud (Improve Health Care for Poor Rural Populations) CR Completion Report PCG Partial Credit Guarantee CSO Civil Society Organization PEFA Public Expenditure & Financial Accountability DB Doing Business PFM Public Financial Management DBR Doing Business Rankings PISA Programme for International Student Assessment DDO Deferred Drawdown Option PPP Private Public Partnership DFID Department for International Development PROINVERSION Agencia de Promoción de Inversión Privada DPL Development Policy Loan PRONASAR Programa Nacional de Agua y Saneamiento Rural (National Rural Water Supply and Sanitation) EFTA European Free Trade Association PSIA Poverty and Social Impact Analysis EITI Extractive Industries Transparency Initiative PSM Public Sector Management ENDES Encuesta Demográfica y de Salud Familiar RAAP Rapid Assessment and Action Plans (Demographic and Familiar Health Survey) EPS Empresas Prestadoras de Servicios de RBB Results Based Budgeting Saneamiento (Sanitation Services Providers) ESMAP Energy Sector Management Assistance SEIA Sistema de Evaluación de Impacto Program Ambiental (Environmental Impact Assessment National System) ESMID Efficient Securities Markets Institutional REACT Results and Accountability in the Social Development Sectors ESSALUD Seguro Social del Perú (Social Security) RECURSO Rendición de Cuentas para la Reforma Social (Bringing Accountability to Social Reform) ESW Economic and Sector Work SEACE Sistema Electrónico de Contrataciones del Estado (Electronic System for Government Procurement) EU European Union REDI Recent Economic Developments in Infrastructure FBS Fee-Based-Service SBS Superintendencia de Banca y Seguros (Superintendence of Banks and Insurances) FDI Foreign Direct Investment SERNANP Servicio Nacional de Areas Naturales Protegidas por el Estado (National Service for Protected Areas) FEF Fondo de Estabilización Fiscal (Fiscal SFLAC Spanish Fund for Latin America and the Stabilization Fund) Caribbean FIDECOM Fondo de Investigación y Desarrollo para la SIAF Sistema Integrado de Administración Competitividad (Competitiveness Research Financiera (Integrated Financial and Development Fund) Administration System ) FINCYT Financiamiento para la Innovación, la SIL Specific Investment Loan Ciencia y la Tecnologia (Fund for Innovation, Science and Technology) FIP Forest Investment Program SINADIS Sistema Integrado de Desarrollo Infantil (National Development and Social Inclusion System) FITEL Fondo de Inversión de Telecomunicaciones SINEACE Sistema Nacional de Evaluación, (Telecommunications Investment Fund) Acreditación y Certificación de la Calidad Educativa (National System for Evaluation, Accreditation and Certification of Education) FM&C Fiscal Management and Competitiveness SIS Seguro Integral de Salud (Health Insurance System) FTA Fee Trade Agreement SME Small and Micro Enterprise FY Fiscal Year SNG Sub-national Government GAC Governance and Anticorruption SNIP Sistema Nacional de Inversión Pública (National System of Public Investment) GDFR Global Debt Management and Fiscal Risk SUNAT Superintendencia Nacional de Administración Tributaria (National Superintendence of Tax Administration) GDP Gross Domestic Product SWAP Sector Wide Approach Project GEF Global Environment Facility TA Technical Assistance GOP Government of Peru TAL Technical Assistance Loan GPF Governance Partnership Facility TF Trust Fund IADB Inter-American Development Bank UN United Nations IB Institutional Births US United States IBRD International Bank for Reconstruction and USAID United States Agency for International Development Development ICT Information and Communication Technology WB World Bank IDF Institutional Development Fund WBG World Bank Group IEG Independent Evaluation Group WBI World Bank Institute IFC International Finance Corporation WDR World Development Report IIRSA Iniciativa para la Integración de la WHO World Health Organization Infraestructura Regional Suramericana (Initiative for the Integration of Regional Infrastructure in South America) IMF International Monetary Fund WSP Water and Sanitation Program IMR Infant Mortality Rate IT Information Technology JSDF Japan Social Development Fund TABLE OF CONTENTS COUNTRY PARTNERSHIP STRATEGY FOR PERU EXECUTIVE SUMMARY ……………………………………………………………………..…………….. i I. INTRODUCTION ……………………………………………………..………………………...…... 1 II. COUNTRY CONTEXT ………………………………………………….….........……………...….. 1 A. Political Context ……………………………………………………………………..…………………….. 1 B. Recent Economic Developments……………….………………………………………..…………………. 2 C. Poverty Profile and Gender ……………………………………………………………..…………………. 4 D. Governance ……………..………………………………………………………………..……................... 6 E. Economic Outlook …………………………………………………………………………………………. 7 III. DEVELOPMENT CHALLENGES AND GOVERNMENT PROGRAM ………...…………….. 9 IV. WORLD BANK GROUP PARTNERSHIP STRATEGY …………………………..….................. 17 A. Lessons Learned from previous CPS and Stakeholder Feedback …………………………..……………... 17 B. The Country Partnership Strategy …………………………………….…………………………………… 19 Strategic Objective 1: Increased access and quality of social services for the poor…………...……… 20 Strategic Objective 2: Connecting the poor to services and markets …………………………….….... 22 Strategic Objective 3: Sustainable growth and productivity …………………………………….…… 24 Strategic Objective 4: Improved public sector performance for greater inclusion…..…………..…… 26 V. RISKS …………………………………………………………………………………………...……. 32 Tables Table 1: Key Economic Indicators ……………………………………………………………………………... 2 Table 2: Poverty rates in Peru ……………………………………………………………………………….…. 5 Table 3: Peru Economics Prospects ……………………………………………………………………………. 8 Table 4: Indicative World Bank Program (FY12-16) ………………………………………………………….. 31 Figures Figure 1: Peru Country Partnership Strategy (FY12-FY16): Strategic Objectives and Results Areas ………… 19 Figure 2: Strategic Objective 1: Increased Access and Quality of Social Services for the Poor …………….…. 20 Figure 3: Strategic Objective 2: Connecting the Poor to Services and Markets …………………………….….. 22 Figure 4: Strategic Objective 3: Sustainable Growth and Productivity ………………………………………... 24 Figure 5: Strategic Objective 4: Improved Public