Peru ranks amongst the world's great centres of ancient civilization. Their remains fascinate travellers and archaeologists alike. Peru is located in the west central part of South America and is a country of geographical and cultural contrast. Peru is the 19th largest country in the world and is bordered north by Ecuador, to the south by Chile and Bolivia, to the east by Columbia and Brazil and to the west by the Pacific Ocean. Peru is a diverse country due to the climatic, natural and cultural variation of its regions, which include coast, sierra and jungle.

Peru is populated by over 23 million people, largely descendents of Spanish settlers and native Inca and pre-Inca cultures. Today there are three national languages: Spanish, and the native Quechua and Aymara, reflecting the native Indian and Spanish roots that cultivate modern Peruvian society.

Peru is the world's third-largest producer of copper, zinc and tin, the number one producer of silver and fishmeal and fifth largest producer of gold.

As a consequence of strong economic policy and a favorable external environment, Peru's economy has ranked among the best performers in Latin America. GDP growth jumped from 7.7 percent in 2006 to a remarkable 8.9 and 9.8 percent in 2007 and 2008. The impact of such strong growth on employment and incomes has expanded beyond Lima and resulted in significant reductions in poverty rates.

The national poverty rate fell 12.4 percent points between 2004 and 2008, from 48.6 to 36.2 percent. Over the same period, extreme poverty dropped 4.5 percent points, from 17.1 percent to 12.6 percent. Despite such significant progress, poverty rates are still high for a country with income levels like Peru's.

Between 2006 and 2008, Peru's fiscal indicators remained robust. The non-financial government bottom line recorded a surplus between 2.1 and 3.1% of GDP over that period, comparing favorably with 2.5% GDP government deficit recorded at the beginning of such decade. Such improved governments accounts are accomplished by the raise of revenues resulting from a boom in mining exports and overall strong growth, as well as from prudent expenditure management. Public debt has fallen quickly from 46% of GDP in 2001 to approximately 24 percent of GDP in 2008. Simultaneously with improved internal indicators, the strong fiscal position explained that in 2008, Peru was awarded investment grade by several international rating agencies.

Now, Peru faces the global financial melt-down armed with strong macro-economic indicators and sound economic and social policy management. The country enjoys enviably high foreign currency reserves (over 20 months' worth of imports), a healthy financial industry, a manageable foreign currency account and a strong portfolio of foreign investment commitment.

Despite Peru's relatively strong position, the global financial crisis has already started hurting key sectors of the economy. Since the third quarter of last year, a drop in mineral quotations and overall foreign demand resulted in a slower economy. Falling export product prices and a degrading international environment are also hurting government revenues, external accounts and the stock market.

The international decline is casting shadows on Peru's short-term outlook. Growth forecasts for 2009 point to a significant slowdown. Lower commodity prices and slower global demand will hurt government revenues, as one third of tax revenues are levied on commodities.

Peru is strongly positioned to resume the path of growth once the global economy stabilizes. However, the current administration is aware of the risks involved in the global financial crisis and is responding through an economic stimulus package to prevent losing whatever progress was accomplished in recent years in reducing poverty, including the Juntos conditional cash transfers program in Peru's poorest districts and infrastructure investments in rural areas. To meet potential future financing needs, the government of Peru has asked the World Bank and other financing sources to provide certain contingency loans.

Peru: Economic Indicators

• Sustained GDP growth, at rates exceeding 5% in 2002 and 2005; 8% in 2006, 9% in 2007 and 9.8% in 2008.
• Diversified and growing exports (24% annual average growth from 2002 to 2007).
• Sovereign risk below Latin American average (EMBI Global + 273 base points in 2008 compared the 426 base points regional average).
• Strong public debt management (Debt was 29.6% of GDP in 2007, and 24.0% in 2008).
• Debt repayment (% of goods and services’ exports: 26% average in 2000-06, 19% average in 2007-08).
• High market liquidity (25.2% higher bank system liquidity in 2008).
• Stronger tax collection (from 12.2% of GDP in 2000 to 15.6% of GDP in 2008); fiscal surplus of 3.1% of GDP in 2007 and 2.1% in 2008.