1. PERU
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 41 Regional Rank: 5 68.6
P eru’s economic freedom score is 68.6, making its econ-
omy the 41st freest in the 2011 Index. Its score is 1 point
better than last year, reflecting improvements that include a
Country’s Score Over Time
80
notable gain in business freedom. Peru is ranked 5th out of
29 countries in the South and Central America/Caribbean 70
region, and its overall score is above the world and regional
60
averages.
50
Despite the challenging global economic environment, Peru
has achieved average growth of close to 7 percent over the 40
past five years. Business formation has been streamlined,
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
and labor regulations have become more flexible. The gov-
ernment has entered into trade pacts with Canada, Chile, Country Comparisons
China, Singapore, and the United States since early 2009.
Peru also signed trade agreements with the European Free 100
Trade Association in mid-2009 and the European Union in
84.1
May 2010.
80
Institutional weaknesses include inadequate protection of 68.6
property rights, an inefficient judicial system, and a lack of 59.7 60.2
60
political will to tackle corruption. Freedom from corruption
and property rights are the only economic freedom compo-
nents in which Peru scores considerably below the world 40
average.
20
Background: Peru has emerged from its political instabil-
ity of the late 20th century. Former President Alberto Fuji-
mori (1990–2000) has been convicted and jailed for offenses 0
Country World Regional Free
during a decade of autocratic rule that included a successful average average economies
campaign against the Shining Path and other insurgents.
President Alan Garcia, who served one term in the 1980s Quick Facts
and was re-elected in 2006, has earned a reputation as the Population: 29.1 million
market-friendly regional alternative to Venezuela’s Hugo gdP (PPP): $251.4 billion
Chávez by maintaining the trend toward economic liberal- 0.9% growth in 2009
ism, trade liberalization, and fiscal and monetary stability. 6.8% 5-year compound annual growth
Significant natural resources include gold, copper, and sil- $8,638 per capita
ver. More than 40 percent of Peru’s people live below the unemployment: 8.1%
poverty line, but economic growth is well above the Latin Inflation (cPI): 2.9%
American average. FdI Inflow: $4.8 billion
How Do We Measure Economic Freedom?
See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
331

2. PERU (continued)
THE TEN EcoNomic FREEdoms
BUsiNEss FREEdom: 71.9 + 6.1 coUNTRy’s WoRLd RaNkiNGs
Despite notable progress in enhancing the overall regula-
tory environment, government inefficiency stemming from Business Freedom No. 65 Investment Freedom No. 38
Trade Freedom No. 41 Financial Freedom No. 38
bureaucratic red tape persists. Recently legislated reforms Fiscal Freedom No. 81 Property Rights No. 73
have dismantled some barriers to launching private enter- Government Spending No. 10 Freedom from Corruption No. 75
prises, but the formation and operation of private busi- Monetary Freedom No. 14 Labor Freedom No. 66
nesses can still be cumbersome and costly, with problems
exacerbated by petty corruption. able and weak enforcement of contracts, non-transparent
TRadE FREEdom: 86 + 1.0 and burdensome bureaucracy, some restrictive labor regu-
lations, and corruption. Residents and non-residents may
Peru’s weighted average tariff rate was 2 percent in 2009.
Some import restrictions, services market access restric- hold foreign exchange accounts. There are no restrictions
tions, export taxes, price bands for sensitive agricultural or controls on payments, transfers, or repatriation of prof-
products, restrictive labeling, sanitary and phytosanitary its. Capital transactions face minimal restrictions. Foreign
regulations, domestic preference in government procure- investors generally may not acquire property within 50
ment, and improving but still weak enforcement of intel- kilometers of Peru’s borders.
lectual property rights add to the cost of trade. Ten points
FiNaNciaL FREEdom: 60 no change
were deducted from Peru’s trade freedom score to account
Peru’s evolving financial sector provides a wide range
for non-tariff barriers.
of financial services. The banking sector has been trans-
FiscaL FREEdom: 79.4 – 0.1 formed through consolidation. Four of the country’s large
commercial banks account for over 80 percent of total
Peru has moderate income tax rates. Both the flat income
tax rate and the top corporate tax rate are 30 percent. Other loans. Foreign ownership is substantial, and two of the
taxes include a value-added tax (VAT), a property transfer largest commercial banks are majority foreign-owned.
tax, and a financial transactions tax. Fuel subsidies have Credit to the private sector has increased steadily. The
been eliminated, but excise taxes on selected domestic fuel government has strengthened prudential standards and
prices have been increased. In the most recent year, overall disclosure requirements. There is a small stock market.
tax revenue as a percentage of GDP was 16 percent. The impact of the global financial crisis on the banking
sector has been limited. Banks remain well capitalized, and
GoVERNmENT sPENdiNG: 91 – 1.3 non-performing loans are around 3 percent of total loans.
In the most recent year, total government expenditures,
including consumption and transfer payments, increased PRoPERTy RiGHTs: 40 no change
slightly to 17.3 percent of GDP. A fiscal stimulus measur- The judicial system is slow to hear cases and issue deci-
ing 2.5 percent of GDP provided support for employment, sions. Allegations of corruption and outside interference
infrastructure, investment, and poverty-reduction spend- are common. Copyright piracy is extensive, and enforce-
ing. Authorities are pursuing fiscal consolidation under the ment of intellectual property rights laws is inadequate.
Fiscal Responsibility and Transparency Law. The govern- Peruvian law does not provide for protection of patents or
ment has restructured the privatization agency to focus on protection from parallel imports.
large enterprises.
FREEdom FRom coRRUPTioN: 37 + 1.0
moNETaRy FREEdom: 83.1 + 1.5 Corruption is perceived as significant. Peru ranks 75th out
of 180 countries in Transparency International’s Corrup-
Inflation has been relatively low, averaging 3.5 percent
between 2007 and 2009. With the economy growing by an tion Perceptions Index for 2009. Government corruption is
annual rate of 8 percent in the first six months of 2010, the viewed as widespread. In October 2008, a kickback scan-
government has been challenged to prevent inflationary dal involving a member of the ruling party and a foreign
pressures from erupting. Most prices are set in the market, oil company led to the replacement of the prime minister,
but the government influences prices through regulation, although investigators have not established that he was
state-owned enterprises, and utilities, and a special gov- involved in the scandal.
+ 1.6
ernment fund is used to stabilize changes in fuel prices.
Five points were deducted from Peru’s monetary freedom LaBoR FREEdom: 67.7
score to account for measures that distort domestic prices. Peru’s labor regulations continue to evolve, with more flex-
ibility gradually being introduced into the labor market.
iNVEsTmENT FREEdom: 70 no change The non-salary cost of employing a worker has become less
Peru provides national treatment to foreign investors. For burdensome as mandatory paid annual leave and sever-
most sectors of the economy, Peru does not screen new ance payments have been reduced. Regulations on work
investments. Deterrents to investment include unpredict- hours remain relatively inflexible.
332 2011 Index of Economic Freedom