Following the election of President Fujimori in 1990, the government implemented a range of reforms to stabilize and liberalize the economy, including trade and price liberalization, reduction of subsidies, privatization in key sectors, and a reduction in barriers to private investment. An aggressive response to the Maoist movement, although raising human rights concerns, resulted in a sharp reduction in violent activity that significantly improved safety and the environment for doing business in the country. The government also embarked on programs to improve basic infrastructure and social service delivery. Despite a series of adverse exogenous shocks between 1997–2001 (including El Niño, the financial crisis in the region, and lower mineral prices) as well as a period of political instability in 2000–2002, the economic reforms stimulated a strong supply response. Gross domestic product (GDP) grew 4.6 percent a year between 1993 and 2002 (figure 1.1). By 2002, GNI per capita had risen to US$2,060 and the proportion of poor had declined to 50 percent. Social indicators had also improved with, for example, net primary school enrollment rising from 87 percent in 1991 to 90 percent in 2002, and infant mortality declining from 58/1,000 live births to 27/1,000.
In 2003, Peru continued to face a range of challenges to sustain progress in economic and social development and further reduce poverty. Progress notwithstanding, in 2003, Peru’s situation was still fragile and half of the population remained in poverty. In 2003, Peru continued to face a range of challenges to sustain progress in economic and social development and further reduce poverty. In rural areas, large segments of the population remained engaged in basic subsistence activities and had seen little improvement in their lives. Sixty percent of the rural population remained poor, in-
FIGURE 1.1
GDP Growth in Peru Since 2002
12 10 GDP growth (annual %)
In the early 1990s, Peru’s economy was characterized by dominant state-owned agencies in the productive sectors, hyperinflation, an inward-looking protectionist regime, large fiscal deficits, a distorted financial system.
8 6 4 2 0
–2
2002
2003
2004 Peru
2005
2006
MICs
2007
2008
LAC
Source: World Bank database. Note: GDP = gross domestic product; LAC = Latin America and Caribbean Region; MIC = middle-income countries.
cluding 37 percent below the extreme poverty line. While access to basic health and education services had improved, high levels of inequality existed between income groups and between the rural and urban population. Increased concerns existed as to the quality of social services being delivered. An agenda of “second-generation” reforms existed to consolidate market reforms and further enhance the role of the private sector. The slow down resulting from the series of external shocks in the late 1990s underlined the continued vulnerability of Peru’s economy. Continued weaknesses existed in fiscal management, particularly in revenue generation. The quality of public sector management had also not improved outside of a few islands of institutional development. Toward the end of the Fujimori government, moreover, increased concerns had arisen as to the degree of centralization of authority, limited development of local and regional governments, the undermining of the rule of law, and increased perceptions of high levels of corruption. From 2003–09, Peru experienced sustained high growth, and is now classified as an upper-middle-income country. Under President Toledo (2002–06) and continuing
Country Background and Developments since 2003
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