424B4 1 d890012d424b4.htm 424B4 424B4
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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-196690

 

PROSPECTUS SUPPLEMENT

(To prospectus dated October 30, 2014)

 

LOGO

Republic of Peru

U.S.$545,000,000 5.625% U.S. Dollar-Denominated

Global Bonds Due 2050

 

 

The U.S.$545,000,000 5.625% U.S. Dollar-Denominated Global Bonds due 2050, or the new bonds, will be a further issuance of, and will be consolidated and form a single series with, Peru’s outstanding 5.625% U.S. Dollar-Denominated Global Bonds due 2050 issued in an aggregate principal amount of U.S.$1,000,000,000 on November 18, 2010 and subsequent issuances by way of a reopening of U.S.$500,000,000 issued on February 1, 2012 and U.S.$500,000,000 issued on November 7, 2014, or collectively the initial bonds. Upon the consummation of this offering, the aggregate principal amount of the bonds will be U.S.$2,545,000,000. The new bonds will have terms and conditions identical to the initial bonds, other than the issue date and the issue price, and will constitute part of the same series as, and vote together as a single class with, the initial bonds. The initial bonds and the new bonds will share the same CUSIP and ISIN numbers and be fungible. Reference to the “bonds” refer to the new bonds and the initial bonds, collectively, unless the context otherwise requires. The new bonds will bear interest at the rate of 5.625% per year. Interest on the new bonds is payable on May 18 and November 18 of each year, beginning on May 18, 2015. The final maturity of the bonds will be November 18, 2050. The bonds are not redeemable prior to maturity.

The bonds will be direct, general, unconditional, unsubordinated and unsecured obligations of Peru. The bonds will rank equally with all of Peru’s other existing and future unsecured and unsubordinated obligations relating to external indebtedness of Peru, as described in “Description of the Securities — Debt Securities — Defined Terms” in the accompanying prospectus.

 

 

Investing in the bonds involves risks. See “Risk Factors” beginning on page S-4.

The bonds will contain provisions regarding acceleration and future modifications to their terms. Under these provisions, which are described in the sections entitled “Description of the Securities — Debt Securities — Collective Action Clauses; Default; Acceleration of Maturity” and “— Amendments and Waivers” in the accompanying prospectus, Peru may amend the payment provisions and certain other terms of a series of bonds with the consent of the holders of 75% of the aggregate principal amount of the outstanding bonds of that series.

We will apply to admit the new bonds for listing on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market.

 

     Per Bond     Total  

Public offering price(1)

     115.378   U.S.$ 628,810,100  

Underwriting fee(2)

     0.150   U.S.$ 817,500  

Proceeds to Peru (before expenses but after the underwriting fee)(3)

     115.228   U.S.$ 627,992,600  

 

(1) Plus accrued and unpaid interest totaling U.S.$10,985,156.25 or U.S.$20.16 per U.S.$1,000 in principal amount of the bonds, from (and including) November 18, 2014 to (but excluding) March 27, 2015, the date Peru expects to deliver the new bonds offered by this prospectus supplement, plus additional interest from March 27, 2015, if any.
(2) See “Underwriting”.
(3) See “Use of Proceeds”.

The underwriters are offering the new bonds subject to various conditions. The underwriters expect to deliver the new bonds to purchasers on or about March 27, 2015, through the book-entry facilities of The Depository Trust Company, or DTC, and its direct or indirect participants including Euroclear S.A./N.V., or Euroclear, and Clearstream Banking, société anonyme, or Clearstream.

Global Coordinators and Bookrunners

 

 

 

BBVA   Deutsche Bank Securities   Morgan Stanley

March 19, 2015


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You should rely only on the information contained in this prospectus supplement and the accompanying prospectus , including the information incorporated by reference. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing or incorporated by reference in this prospectus supplement and the accompanying prospectus is accurate only as of its date. Our financial condition and prospects may have changed since that date.

TABLE OF CONTENTS

Prospectus Supplement

 

About this Prospectus Supplement and the Accompanying Prospectus

  S-ii   

Forward-Looking Statements

  S-iv   

Sovereign Immunity

  S-v   

Certain Legal Restrictions

  S-vi   

Summary

  S-1   

The Offering

  S-2   

Risk Factors

  S-4   

Recent Developments

  S-6   

Use of Proceeds

  S-37   

Description of the Bonds

  S-38   

United States Federal Income Tax Considerations for United States Persons

  S-42   

Peru Taxation

  S-45   

European Union Directive on the Taxation of Savings Income

  S-46   

Underwriting

  S-47   

Validity of the Bonds

  S-50   

General Information

  S-51   

Annex A Republic of Peru: Global Public Sector External Debt

  A-1   

Prospectus

About this Prospectus

  i   

Defined Terms and Conventions

  ii   

Forward-Looking Statements

  iii   

Data Dissemination

  iv   

Summary

  1   

Use of Proceeds

  6   

The Republic of Peru

  7   

The Economy

  24   

Balance of Payments and Foreign Trade

  58   

The Monetary System

  70   

Public Sector Finances

  91   

Public Sector Debt

  104   

Description of the Securities

  122   

Taxation

  137   

Plan of Distribution

  143   

Official Statements

  145   

Validity of the Securities

  145   

Authorized Representative

  145   

Where You Can Find More Information

  145   

Annex A Republic of Peru: Global Public Sector External Debt

  A-1   

 

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ABOUT THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS

This prospectus supplement and the accompanying prospectus contain or incorporate by reference information you should consider when making your investment decision. You should rely only on the information provided or incorporated by reference in this prospectus supplement and the accompanying prospectus, which should be read together. References in this prospectus supplement to “we,” “us,” “our”, and “Peru” are to the Republic of Peru. All references in this offering memorandum to the “Government” are to the central government of Peru and its authorized representatives.

We are furnishing this prospectus supplement and the accompanying prospectus solely for use by prospective investors in connection with their consideration of a purchase of new bonds. After having made all reasonable queries, we confirm that:

 

    the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus is true and correct in all material respects and is not misleading as of the date of this prospectus supplement or the accompanying prospectus;

 

    changes may occur in our affairs after the date of this prospectus supplement and the accompanying prospectus;

 

    certain statistical information included in this prospectus supplement and the accompanying prospectus reflects the most recent reliable data readily available to us as of the date hereof;

 

    we hold the opinions and intentions expressed in the accompanying prospectus, this prospectus supplement and any document incorporated by reference in this prospectus supplement and the accompanying prospectus, as superseded in this prospectus supplement;

 

    to the best of our knowledge and belief, we have not omitted other facts, the omission of which makes this prospectus supplement and the accompanying prospectus, as a whole, misleading; and

 

    we accept responsibility for the information we have provided or incorporated by reference in this prospectus supplement and the accompanying prospectus.

Prospective investors should rely on the information provided in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. No person is authorized to make any representation or give any information not contained in this prospectus supplement, the accompanying prospectus or the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. Any such representation or information not contained in this prospectus supplement, the accompanying prospectus or the documents incorporated by reference in this prospectus supplement and the accompanying prospectus must not be relied upon as having been authorized by us or the underwriters. Please see “General Information — Where You Can Find More Information” for information on the documents that are incorporated by reference in this prospectus supplement and the accompanying prospectus.

We are not offering to sell any securities other than the new bonds offered under this prospectus supplement. We are not offering to sell the new bonds in places where such offers are not permitted by applicable law. You should not assume that the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus is accurate as of any date other than their respective dates. Our economic, fiscal or political circumstances may have changed since such dates.

The bonds described in this prospectus supplement are debt securities of Peru being offered under registration statement no. 333-196690, filed with the SEC under the U.S. Securities Act of 1933, as amended, or the Securities Act. The accompanying prospectus is part of that registration statement. The accompanying prospectus provides you with a general description of the securities that we may offer, and this prospectus supplement contains specific information about the terms of the offering and the bonds. This prospectus supplement together with the accompanying prospectus may only be used for the purpose for which they have been published. Before you invest, you should read this prospectus supplement and the accompanying prospectus, together with additional information described under “Where You Can Find More Information” in the accompanying prospectus.

 

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As used in this prospectus supplement, the term “business day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City or Lima, Peru.

 

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FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this prospectus supplement. Forward-looking statements are statements that are not historical facts. These statements are based on our current plans, estimates, assumptions and projections. Therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them in light of new information or future events.

Forward-looking statements involve inherent risks. We caution you that many factors could affect the future performance of the Peruvian economy. These factors include, but are not limited to:

 

    external factors, such as:

 

    interest rates in financial markets outside Peru;

 

    changes in Peru’s credit ratings;

 

    changes in import tariffs and exchange rates;

 

    changes in international commodity prices;

 

    recession, low economic growth or economic contraction affecting Peru’s trading partners;

 

    deterioration in the economic condition of Peru’s neighboring countries;

 

    contraction of liquidity in the international financial markets and equity, debt and foreign exchange market volatility, which could lead to volatility in Peru, declines in foreign direct and portfolio investment and potentially lower international reserves;

 

    international hostilities; and

 

    the decisions of international financial institutions, such as the International Monetary Fund, or IMF, the Inter-American Development Bank, or IADB, the International Bank for Reconstruction and Development, IBRD, the World Bank, and the Andean Development Corporation, or CAF, regarding the terms of their lending or financial assistance to Peru; and

 

    internal factors, such as:

 

    deterioration in general economic and business conditions in Peru;

 

    social, political or military events in Peru;

 

    increase in crime rates;

 

    natural events, such as climate changes, earthquakes and floods;

 

    reduction in foreign currency reserves;

 

    reduction in fiscal revenue;

 

    reduced levels of foreign direct investment;

 

    the ability of the Government to enact key economic reforms;

 

    higher domestic debt;

 

    increased rates of domestic inflation;

 

    the level of foreign direct and portfolio investment in Peru; and

 

    prevailing Peruvian domestic interest rates.

 

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SOVEREIGN IMMUNITY

Peru is a sovereign state. Consequently, it may be difficult for you to obtain or realize upon judgments of courts in the United States against Peru. Among other requirements, the execution by a Peruvian court of a judgment ordering payment by Peru of any principal or interest arising from the bonds will be subject to availability of funds according to the statute passed by the Peruvian Congress setting forth the budget corresponding to the fiscal year in which such payment is due.

Limitations Imposed by Budget Laws to Satisfy Payments on the Bonds

A final judgment against Peru ordering payment on the bonds is subject to Peruvian budget regulations. Pursuant to the Budget National System General Law (Ley General del Sistema Nacional de Presupuesto) and the Public Sector Budget Law for Fiscal Year 2015 (Ley de Presupuesto del Sector Público para el Año Fiscal 2015), payments of judgments, arbitral awards, conciliation minutes or direct treatment agreements are subject to the following process:

 

    up to 5% of the budget corresponding to the Ministry of Economy and Finance may be allocated towards judgement payments;

 

    judgement payments must be made by each governmental entity (in our case, the Ministry of Economy and Finance) from its respective bank account, taking into account all mandatory priorities;

 

    in case the judgment payment orders exceed the 5% threshold, the Ministry of Economy and Finance would pay its creditors on a pro rata basis; and

 

    judgement payments in excess of the 5% threshold must be included in the budgets approved for each of the following five fiscal years.

Enforceability of Judgments

If the payment of any judicial order is not honored by the Ministry of Economy and Finance, a proceeding for the execution of judicial resolutions may be initiated as provided for in article 688 et. seq. of the Peruvian Civil Procedure Code. Notwithstanding the foregoing, in accordance with section 73 of the Peruvian Political Constitution, public domain assets destined for the public service and use are inalienable and are not subject to any interest due to possession (prescripción adquisitiva). Public domain assets are a special form of property that can only be set aside for the public use, a service to the community or national interest. As such, those assets as well as (i) property used by a diplomatic or consular mission of Peru; (ii) property of a military character and under the control of a military authority or defense agency of Peru; (iii) public property; (iv) shares of Peruvian public sector entities or shares of Peruvian private sector entities owned or controlled by Peru or by a Peruvian public sector entity, or revenues collected from the sale of such shares, to the extent such shares or revenues are exempt by Peruvian law from attachment or execution; or (v) funds deposited in Peru’s accounts held in the Peruvian financial system that constitute public domain property, are neither subject to liens or encumbrances nor to a judicial attachment. Conversely, assets not set aside for the public domain are subject to the private domain of the Peruvian government (which includes, among others, the cash deposits of the Peruvian government abroad) and as such may be encumbered or attached.

For more information, see “Description of the Securities — Jurisdiction, Consent to Service and Enforceability” in the accompanying prospectus.

 

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CERTAIN LEGAL RESTRICTIONS

The distribution of materials relating to the offering and the transactions contemplated by the offering may be restricted by law in certain jurisdictions. If materials relating to the offering come into your possession, you must inform yourself and observe all of these restrictions. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted. If a jurisdiction requires that the offering be made by a licensed broker or dealer and either the underwriters or any affiliate of the underwriters is a licensed broker or dealer in such jurisdiction, the offering shall be deemed to be made by such underwriter or such affiliate on behalf of Peru in such jurisdiction. For more information, see “Underwriting”.

 

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SUMMARY

This summary highlights information presented in greater detail elsewhere in this prospectus supplement and the accompanying prospectus and in the documents incorporated by reference. This summary is not complete and does not contain all the information you should consider before investing in the bonds. You should carefully read this entire prospectus supplement and the accompanying prospectus and the documents incorporated by reference herein before investing.

Selected Economic Information

(in millions of U.S. dollars, except as otherwise indicated)

 

     As of or for the Years ended December 31,  
     2010(1)     2011(1)     2012(1)     2013(1)     2014(1)  

Domestic economy

          

GDP (at current prices)

     148,666        170,759        192,982        202,335        202,984   

Real GDP (in millions of S/. at constant 1994 prices)

   S/.  382,380      S/. 407,052      S/. 431,273      S/. 456,223      S/. 466,895   

Real GDP growth rate (in %)

     8.5     6.5     6.0     5.8     2.4   

CPI (change for the period in %)

     2.1     4.7     2.6     2.9     3.2   

Unemployment rate (in %)(2),(11)

     5.7     5.6     5.0     4.7     N/A   

Underemployment rate (in %)(3),(11)

     29.3     25.3     20.9     19.8     N/A   

Unemployment rate (in %)(2),(12)

     7.9     7.7     6.8     5.9     5.9

Underemployment rate (in %)(3),(12)

     46.2     42.4     40.7     38.1     35.5

Balance of payments

          

Total current account

     (3,545     (3,177     (5,237     (8,829     (8,234

Of which:

          

Trade balance

     6,988        9,224        6,276        257        (1,480

Total capital account

     13,638        8,716        19,812        11,407        6,391   

Of which:

          

Foreign direct investment

     8,189        7,518        11,840        9,161        7,523   

Errors and omissions(4)

     1,079        (886     213        324        (345

Overall balance of payments(5)

     11,173        4,653        14,788        2,902        (2,188

Change in Central Bank net international reserves (period end in %)

     33.1     10.7     31.1     2.6     (5.1 )% 

Central Bank net international reserves (period end)

     44,105        48,816        63,991        65,663        62,308   

Public sector balance

          

Central government revenue(6)

     26,441        32,034        36,870        38,240        38,600   

As a % of GDP

     17.8     18.8     19.1     18.9     19.0

Central government expenditure(7)

     26,571        30,451        34,555        37,410        39,613   

As a % of GDP

     17.9     17.8     17.9     18.6     19.6

Central government fiscal balance

     146        1,690        2,445        1,168        (757

As a % of GDP

     0.1     1.0     1.3     0.5     (0.4 )% 

Overall non-financial public sector fiscal balance(8)

     (354     3,410        4,197        2,061        (93

As a % of GDP

     (0.2 )%      2.0     2.3     0.9     (0.1 )% 

Public sector debt

          

Public sector external debt

     19,905        20,204        20,402        18,778        19,764   

As a % of GDP

     13.4     11.8     10.6     9.3     9.7

Public sector domestic debt(9)

     16,113        18,073        20,488        20,022        20,843   

As a % of GDP

     10.8     10.6     10.6     9.9     10.3

Total public sector debt

     36,018        38,276        40,564        38,800        40,607   

As a % of GDP

     24.2     22.4     21.0     19.2     20.0

Public sector external debt service:

          

Amortizations(9)

     4,916        839        1,198        2,614        1,104   

Interest payments(9)

     1,093        1,036        1,062        1,158        1,582   

Total external debt service

     6,009        1,875        2,260        3,773        2,686   

As a % of exports of goods and services(10)

     14.8     3.6     4.2     7.6     5.8

Exchange rate (end of period, S/. per U.S.$)

   S/. 2.81      S/. 2.70      S/. 2.55      S/. 2.80      S/. 2.99   

Exchange rate (average, S/. per U.S.$)

   S/. 2.83      S/. 2.75      S/. 2.64      S/. 2.70      S/. 2.84   

 

(1) Preliminary data, revised each trimester
(2) In Metropolitan Lima. Percentage of the working-age population (14 years old or older) that, in the week the employment survey was conducted, was seeking remunerated employment.
(3) In Metropolitan Lima. Percentage of the working-age population (14 years old or older) working part time which would prefer to work more hours, plus the percentage of the working-age population that usually works full-time but which, in the week the employment survey was conducted, worked less than 35 hours per week as a result of economic constraints.
(4) Represents errors and omissions in compiling balance of payments accounts based on double-entry accounting resulting from incomplete or overlapping coverage, different prices and incomplete times of recording and conversion practices.
(5) Includes current account balance, financial account and errors and omissions.
(6) Excludes privatization receipts.
(7) Includes interest payments.
(8) Includes the non-financial public sector and the Central Bank.
(9) Excludes Central Bank debt.
(10) Includes exports of goods and services and investment income.
(11) Source: Ministry of Labor.
(12) Source: National Institute of Statistics.

N/A = Not Available

Source: Central Bank, unless otherwise indicated.

 

 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus supplement and the accompanying prospectus. This summary is not complete and does not contain all the information you should consider before investing in the new bonds. You should carefully read this entire prospectus supplement and the accompanying prospectus before investing.

 

Issuer The Republic of Peru.
Securities The U.S.$545,000,000 5.625% U.S. Dollar-Denominated Global Bonds due 2050. The new bonds will be a further issuance of, and will be consolidated and form a single series with, Peru’s outstanding 5.625% U.S. Dollar Denominated Global Bonds due 2050 issued in an aggregate principal amount of U.S.$1,000,000,000 on November 18, 2010 and subsequent issuances by way of a reopening of U.S.$500,000,000 issued on February 1, 2012 and U.S.$500,000,000 issued on November 7, 2014. The new bonds will have terms and conditions identical to the initial bonds, other than the issue date and the issue price, and will constitute part of the same series as, and vote together as a single class with, the initial bonds. The initial bonds and the new bonds will share the same CUSIP and ISIN numbers and be fungible.
Issue Amount U.S.$545,000,000 aggregate principal amount.
Issue Price 115.378%, plus accrued and unpaid interest, from (and including) November 18, 2014 to (but excluding), March 27, 2015, the date Peru expects to deliver the new bonds offered by this prospectus supplement, and any additional interest from March 27, 2015.
Final Maturity Date November 18, 2050.
Interest Rate 5.625% per year, computed on the basis of a 360-day year of twelve 30-day months.
Interest Payment Dates May 18 and November 18 of each year, commencing on May 18, 2015.
Redemption or Sinking Fund The new bonds will not benefit from any sinking fund. We may not redeem the new bonds before maturity. We will redeem the new bonds at par at maturity.
Use of Proceeds The proceeds from the sale of the new bonds will be U.S.$628,810,100, plus accrued and unpaid interest from (and including) November 18, 2014 to (but excluding) March 27, 2015, of U.S.$10,985,156.25. The underwriting fee of U.S.$817,500 will be paid by us, as described in “Underwriting”. We intend to use the proceeds of this offering to prefinance a portion of our general financial requirements for 2016.
Collective Action Clauses The new bonds will contain provisions regarding acceleration and future modifications to their terms. These provisions, which are commonly referred to as “collective action clauses,” are described in the sections entitled “Description of the Securities — Debt Securities — Collective Action Clauses; Default; Acceleration of Maturity” and “— Amendments and Waivers” in the accompanying prospectus.
Negative Pledge The new bonds will contain certain covenants, including restrictions on the incurrence of liens. These covenants are subject to many exceptions.
Denominations We will issue the new bonds only in denominations of U.S.$1,000 and integral multiples of U.S.$1,000 in excess thereof.
Ranking The new bonds and the initial bonds will constitute a single class of securities for all purposes, including, without limitation, for voting purposes under the fiscal agency agreement pursuant to which they will be issued. The new bonds will be direct, general, unconditional, unsubordinated and unsecured obligations of Peru. The new bonds will rank at least equally, without any preference among themselves, with all of our other existing and future unsecured and unsubordinated obligations relating to our external indebtedness as described in “Description of the Securities — Debt Securities — Defined Terms” in the accompanying prospectus.

 

 

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Additional Amounts We will make payments of principal and interest in respect of the new bonds without withholding or deduction for or on account of any present or future Peruvian taxes, duties, assessments or governmental charges of whatever nature except as required by law. If we are required by law to make any such withholding or deduction, we will pay such additional amounts as may be necessary to ensure the net amount received by holders after such withholding or deduction equals the amount such holders would have received in the absence of such withholding or deduction, subject to certain exceptions set forth under “Description of the Bonds — Additional Amounts”.
Further Issues Without the consent of holders of the bonds, we may issue additional debt securities with the same terms and conditions as the outstanding bonds, except for the issue date, issue price and amount of first interest payment, and we may consolidate the additional bonds to form a single series with the outstanding bonds issued hereunder.
Form of Securities We will issue the new bonds in the form of one or more registered global bonds without coupons. No new bonds will be issued in bearer form.
You will be required to make initial settlement for the new bonds issued pursuant to the offering in immediately available funds.
As an owner of a beneficial interest in the global notes, you will generally not be entitled to have your bonds registered in your name, will not be entitled to receive certificates in your name evidencing the bonds and will not be considered the holder of any bonds under the fiscal agency agreement for the bonds.
Record Dates The record date with respect to any interest and/or principal payment date will be the 15th day prior to that interest and/or principal payment date, whether or not that record date is also a business day.
Governing Law The new bonds issued hereunder will be governed by the laws of the State of New York.
Fiscal Agent, Paying Agent, Registrar and Transfer Agent The Bank of New York Mellon.
Luxembourg Paying Agent and Luxembourg Transfer Agent The Bank of New York Mellon (Luxembourg) S.A.
Listing We will apply to admit the new bonds for listing on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market.
Concurrent Bonos Soberanos offering Concurrently with this offering of new bonds, we separately offered and sold, only to qualified institutional buyers in the United States in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended, and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act, S/.4,391,817,000 aggregate principal amount of additional 6.95% Nuevo Sol-Denominated Bonos Soberanos due 2031. The Bonos Soberanos offering was made exclusively by a separate offering memorandum. The Bonos Soberanos offering was not registered under the Securities Act or any other securities laws.

 

 

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RISK FACTORS

This section describes certain risks associated with investing in the bonds. You should consult your financial and legal advisors about the risk of investing in the new bonds. Peru disclaims any responsibility for advising you on these matters.

Risk Factors Relating to Peru

Peru may experience political, economic or social problems that may interfere with Peru’s ability to service its indebtedness.

In the past, Peru has experienced economic and political instability and terrorist insurgency. At present, Peru is a stable democracy having completed a peaceful transition from the administration of President Alan García to President Ollanta Humala in July 2011, in addition to the prior transition to President García by President Toledo. Peru’s GDP growth rates, low inflation, and both fiscal and external surpluses reflect, in part, the strength of Peru’s economic fundamentals. However, a deterioration of the global economy or a sharp decrease in commodity prices may adversely affect Peru’s economy. In addition, an economic contraction or weak economic growth in Peru’s trading partners may have an adverse effect on Peru. Despite Peru’s ongoing economic growth and stabilization, the social and political tensions and high levels of poverty and unemployment continue. Future government policies to pre-empt or respond to social unrest could include, among other things, the suspension of the enforcement of creditor’s rights and new taxation policies. The government cannot assure you that Peru will not face political, economic or social problems in the future or that these problems will not interfere with Peru’s ability to service its indebtedness, including the bonds.

In addition, economic and political developments in other emerging countries in Latin America, such as Argentina, Bolivia, Brazil, Ecuador, Colombia and Venezuela may have an adverse effect on other countries in the region, including Peru. In addition, Peru is expected to hold Presidential elections in July 2016 and there is no certainty that the new President pursues the same economic plans as the current President.

Peru is a foreign sovereign state and accordingly it may be difficult to obtain or enforce judgments against it.

Peru is a foreign sovereign state. The bonds are subject to Peru’s law and jurisdiction and, as such, investors may not be able to effect service of process within their own jurisdiction upon Peru or to enforce against Peru judgments related to the bonds obtained in their own jurisdictions.

Risk Factors Relating to the Bonds

The price at which the bonds will trade in the secondary market is uncertain.

Peru has been advised by the underwriters that they intend to make a market in the bonds but are not obligated to do so and may discontinue market making at any time without notice. Application will be made to list the bonds on the official list of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of the Luxembourg Stock Exchange. No assurance can be given as to the liquidity of the trading market for the bonds. The price at which the bonds will trade in the secondary market is uncertain.

The bonds will contain provisions that permit Peru to amend the payment terms without the consent of all holders.

The bonds will contain provisions regarding acceleration and voting on amendments, modifications and waivers which are commonly referred to as “collective action clauses.” Under these provisions, certain key terms of the bonds may be amended, including the maturity date, interest rate and other payment terms, without your consent.

The bonds will not have any restrictive covenants which may adversely affect the ranking of your Bonds.

The bonds will have no covenants and Peru may grant liens to third parties, which may adversely affect the ranking of your bonds.

The bonds may be subject to withholding and capital gain taxes.

Under Peruvian income tax law, payments of interest made by Peru to a foreign holder of the bonds will not be subject to any withholding tax and capital gains realized by a foreign holder on the sale or other disposition of the bonds will not be subject to any Peruvian income tax.

 

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If Peruvian tax law changes, payment of interest you receive on the bonds may be subject to withholding and any capital gains realized on the sale or other disposition of the bonds may be subject to Peruvian income tax.

 

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RECENT DEVELOPMENTS

Territory and Population

The Republic of Peru is located in western South America. It borders Ecuador and Colombia to the north, Brazil and Bolivia to the east and Chile to the south. Its territory covers an area of approximately 496,222 square miles, including a 1,500 mile-long Pacific Ocean coastline and a 200 mile-wide maritime zone. Peru’s major cities are Lima, the nation’s capital, Arequipa, Trujillo, Chiclayo, Iquitos, Piura, Chimbote and Cuzco.

Peru is divided by the Andes Mountains into three geographic regions: a narrow strip of desert along the western coast; a central region of high mountains that form part of the Andes; and a large, heavily forested area leading to the Amazonian plains in the east. Peru’s climate varies significantly by region, from tropical rain forests in the east and a dry desert in the west, to temperate and frigid regions in the mountainous central part of the country. The Andes rise over 20,000 feet and contain large plateaus and extensive valleys. Lima and other major cities, such as Trujillo and Chiclayo, are located along the coast. The map below shows Peru and its territorial subdivisions.

 

LOGO

Peru’s central coast is occasionally affected by an atmospheric phenomenon known as El Niño, which raises the temperature of the superficial coastal waters, causing an increase in air temperature, a decrease in atmospheric pressure along the coast and an increase in the sea level along the Peruvian coastline. These conditions produce increased rainfall in the northern coast, which may result in severe flooding and mudslides. In 1998, the warm waters caused by El Niño disrupted Peru’s fishing and agricultural industries as marine life migrated to deeper, colder waters, crops were destroyed by flooding and elevated temperatures along the coast gave rise to new crop pests and plagues. The flooding caused approximately U.S.$1.2 billion in damage to Peru’s infrastructure. El Niño recurs on average every six years; however, the timing of each recurrence, its length and its severity cannot be predicted. As of March 5, 2015, predictions indicate that normal conditions are expected to be restored, according to the February 2015 Peruvian National Study of the “El Niño” Phenomenon (Estudio Nacional del Fenómeno “El Niño”).

 

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Peru’s southern region is located on seismic faults, which make the area susceptible to earthquakes. In June and July 2001, two earthquakes of 8.4 and 7.6 magnitude on the Richter scale, respectively, struck along the coast of south-central Peru, causing an estimated U.S.$300 million in damage. The same area was hit with an 8.0 magnitude on the Richter scale earthquake in August 2007, which killed approximately 600 people, injured approximately 1,800 people, destroyed approximately 76,000 homes and caused damages estimated at over U.S.$230 million. Since the 2007 event, no other earthquakes have been registered.

Peru’s population, estimated to be approximately 30.8 million in 2014 and expected to reach 31.2 million 2015, is multi-racial and multi-cultural. Approximately 45% of the population is native; 37% is Mestizo, or mixed native and Caucasian; 15.0% is Caucasian; 2.0% is of African descent; and 1% is of Asian descent. Spanish, Quechua and Aymara are Peru’s official languages. As of December 31, 2014, approximately 86.7% of Peru’s population speaks Spanish. As of December 31, 2013, approximately 24.1% of Peru’s population resides in rural areas. The population grew at an estimated average rate of approximately 1.5% per year in the period from 1993 to 2007.

In 2010, Peru’s adult literacy rate was approximately 92.6%. As of December 31, 2010, approximately 87.7% of Peru’s adult women are literate and approximately 96.0% of Peruvian adult men are literate. In 2011, approximately 90.7% of children aged 6 to 11 attended school, while approximately 79.3% of children ages 12 to 16 attended school. In the same year, 28.3% of the population had achieved some level of higher education. As of 2010, there were approximately 782,970 students in Peru’s 100 universities, of which 35.0% are public and the remainder private. There were 32 private universities and eight national universities in Lima in 2010, including the Universidad Nacional Mayor de San Marcos, or National University of San Marcos, which was founded in 1551 and is the oldest university in South America.

The World Bank classifies Peru as an upper-middle-income developing country. The following table provides comparative per capita GDP figures and other selected comparative statistics as of the years indicated.

 

     Bolivia     Ecuador     Peru     Colombia     Brazil     Venezuela     Argentina     Chile     United
States
 

Per capita GDP(1)

   U.S.$ 4,499      U.S.$ 7,443      U.S.$ 9,049      U.S.$ 8,861      U.S.$ 10,278      U.S.$ 11,258      U.S.$ 15,501      U.S.$ 15,272      U.S.$ 42,486   

United Nations index of human development (world ranking)(2)

     108        89        77        91        85        71        45        40        3   

Life expectancy at birth (in years)(2)

     66.9        75.8        74.2        73.9        73.8        74.6        76.1        79.3        78.7   

Infant mortality (per 1,000 live births)(2)

     33        20        14        15        13        13        13        8        6   

Adult illiteracy rate(3)

     8.8     8.1     10.4     6.6     9.7     4.5     2.2     1.4     N.A   

Population below the poverty line(4)

     60.1     32.8     31.3     37.2     21.4     N.A.        N.A.        N.A.        N.A.   

 

(1) 2011 data. Adjusted for purchasing power parity.
(2) 2012 data, the most recent date for which information is available.
(3) Data refer to most recent year between 2005 and 2010, when available. Adults are aged 15 years and older.
(4) 2002-2012 data. The poverty line is defined as the population living on a daily per capita income of U.S.$2.00 or less, adjusted for purchasing power parity.

N.A. = Not Available.

Source: World Bank, United Nations Development Program, and 2013 Human Development Report.

History, Government and Political Parties

On June 5, 2011, Ollanta Humala, the leader of the political party Gana Perú, was elected president to a five-year term after winning a run-off election against Keiko Fujimori. While the election of President Humala initially generated political and economic uncertainty, President Humala took decisive steps to demonstrate continuity with the prior administrations’ economic policies. Shortly after his inauguration, President Humala ratified Julio Velarde as president of the Central Bank of Peru and appointed Luis Miguel Castilla as minister of economy and finance, both of whom served as senior members in the prior administration and were strong proponents of open market policies. In September 14, 2014, President Humala appointed Alonso Segura Vasi as the new minister of economy and finance, who has been working since 2013 with former minister of economy and finance, Luis Miguel Castilla, as the Head of the Cabinet of Advisors.

 

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Since taking office on July 28, 2011, President Humala’s administration has continued to implement policies that promote macroeconomic stability, fiscal discipline and domestic and foreign investment. In addition, President Humala’s administration has not made any significant shift in trade policy and has not experienced any adverse changes with its major trading partners, relative to the prior administration.

On October 31, 2013, César Villanueva, was sworn in as premier of the cabinet’s council and announced that crime would be the principal priority under his term as premier. President Humala also replaced the minister of education. In February 2014, César Villanueva resigned after being rebuffed by first lady Nadine Heredia and later by Finance Minister Luis Miguel Castilla over his comments regarding an increase in the minimum wage.

On February 24, 2014, René Cornejo Diaz, was sworn in as premier of the cabinet’s council. As was the case in December 2011 when Mr. Salomón Lerner resigned as premier, President Humala also replaced the ministers of labor, development and social inclusion, women and vulnerable populations, construction and sanitation, energy and mines, and production. These changes in cabinet-level personnel have not resulted in significant modifications to President Humala’s key agenda items, including expanding social inclusion.

On July 22, 2014, Ana Jara was sworn in as premier of the cabinet’s council, following René Cornejo Diaz resignation as the premier of the cabinet’s council after local media revealed that his adviser Luis Zegarra Filinich was behind a campaign to discredit Congressman Victor Andres Garcia Belaunde. Additionally, President Humala recently replaced the minister of labor and appointed Fredy Otalora as the new minister of labor.

On February 17, 2015, President Humala replaced the ministers of labor, justice and human rights, women and vulnerable populations, energy and mines, and the interior. These changes in cabinet-level personnel have not resulted in significant modifications to President Humala’s key agenda items.

The Economy

Gross Domestic Product and the Structure of the Economy

In the five-year period ended December 31, 2014, Peru’s economy grew at an annual compound rate of 5.8% in real terms. The economic expansion during this period has been based on solid economic fundamentals resulting from strong private investment, price stability, improvement in public finances and lower external public debt.

During 2014, Peru’s economy expanded 2.4% in real terms based on GDP growth and domestic demand increased by 2.0% as compared to 2013, due to public and private consumption.

In 2014, private consumption experienced an annual average increase of 4.1% in real terms as compared to 2013. Gross public investment decreased 3.6% in 2014 due mainly to investments made by the regional government and to a lesser extent, investments made by municipal governments, while gross private investment decreased 1.6% during the year, due principally to a slowdown in several sectors of the economy, which was reflected in a decreased capital goods imports and a slowdown in the growth rate of the construction sector, among others, in each case as compared to 2013. Total gross investments decreased 3.9% during 2014 as compared to 2013.

The following tables set forth GDP by expenditure for the periods presented.

Gross Domestic Product by Expenditure(1)

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Government consumption

     15,778         17,505         20,929         22,568         23,948   

Private consumption

     90,830         102,348         117,639         124,396         127,993   

Gross investment:

              

Public sector

     8,781         8,276         10,483         11,676         11,158   

Private sector

     28,506         32,711         39,374         42,120         41,254   

Change in inventories

     151         2,968         728         3,131         1,938   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     For the year ended December 31,  
     2010      2011      2012      2013     2014  

Total gross investment

     37,438         43,955         50,585         56,927        54,350   

Exports of goods and services

     39,495         50,632         52,330         48,295        45,200   

Imports of goods and services

     34,875         43,681         48,501         49,851        48,506   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net (exports)

  4,620      6,951      3,829      (1,556   (3,306

GDP

  148,666      170,759      192,983      202,335      202,984   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Preliminary data.

Source: Central Bank, information as of February 15, 2015 Nota Semanal No. 7-2015 (Feb. 20, 2015).

Gross Domestic Product by Expenditure(1)

(as a percentage of total GDP, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013     2014  

Government consumption

     10.6         10.2         10.8         11.2        11.8   

Private consumption

     61.1         60.0         61.0         61.4        63.0   

Gross investment:

             

Public sector

     5.9         4.8         5.4         5.8        5.5   

Private sector

     19.2         19.2         20.4         20.8        20.3   

Change in inventories

     0.1         1.8         0.9         1.7        1.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total gross investment

  25.2      25.7      26.7      28.3      26.8   

Exports of goods and services

  26.6      29.7      26.6      23.7      22.3   

Imports of goods and services

  23.5      25.6      25.1      24.6      23.9   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net (exports)

  3.1      4.1      2.0      (0.8   (1.6

GDP

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Preliminary data.

Source: Central Bank, information as of February 15, 2015 in Nota Semanal No. 7-2015 (Feb. 20, 2015).

In 2014 and 2013, public savings reached 6.1% and 7.0% of GDP, respectively, primarily due to a larger increase in public expenditures compared to tax revenue collection, resulting in a lower percentage of public savings compared to GDP in 2014.

In 2014, domestic savings decreased to 22.7% of GDP from 23.8% of GDP in 2013, due to a decrease in public and private consumption of 0.1% and 0.9%, respectively.

External savings, as a percentage of GDP, decreased to 4.1% of GDP in 2014 from 4.4% of GDP in 2013.

Domestic investment as a percentage of GDP decreased to 26.8% in 2014 from 28.2% in 2013, primarily due to a decrease in public investment.

Investment and Savings(1)

(as a percentage of current GDP)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Domestic savings:

              

Public savings

     6.3         7.4         8.1         7.0         6.1   

Private savings

     16.5         16.4         15.4         16.8         16.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic savings

  22.8      23.9      23.5      23.8      22.7   

External savings

  2.4      1.9      2.7      4.4      4.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total savings

  25.2      25.7      26.2      28.2      26.8   

Domestic investment

  25.2      25.7      26.2      28.2      26.8   

 

(1) Preliminary data.

Source: Central Bank, information as of February 15, 2015 in Nota Semanal No. 7-2015 (Feb. 20, 2015).

 

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As indicated in the table below, the standard of living of the Peruvian population as measured by GDP per capita increased an average of 9.7% per year from 2010 to 2013 and decreased 0.8% from 2013 to 2014.

Per Capita GDP(1)(2)

(in U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Per capita GDP

     5,046         5,731         6,402         6,639         6,587   

 

(1) Without adjustment to reflect changes in purchasing power.
(2) Preliminary data.

Source: Central Bank.

Principal Sectors of the Economy

The principal economic activities in Peru are services (including wholesale and retail trade, transportation and tourism), manufacturing, agriculture and livestock, and mining and hydrocarbons.

Gross Domestic Product by Sector(1)

(in millions of nuevos soles, at constant 2007 prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Primary production:

              

Agriculture and livestock(2)

     21,766         22,658         23,991         24,367         24,698   

Fishing

     1,891         2,892         1,960         2,432         1,754   

Mining and hydrocarbons(3)

     50,714         51,043         52,473         55,035         54,605   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total primary production

  74,371      76,593      78,424      81,833      81,057   

Secondary production:

Manufacturing

  59,255      64,330      65,265      68,509      66,265   

Construction

  23,993      24,848      28,779      31,353      31,874   

Electricity and water

  6,501      6,994      7,401      7,811      8,193   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secondary production

  89,749      96,172      101,445      107,673      106,333   

Services:

Wholesale and retail trade

  40,420      44,034      47,218      49,984      52,193   

Other services(4):

Transportation and communications

  34,726      37,859      40,616      40,700      42,348   

Financial services and insurance

  14,404      15,687      17,331      17,367      19,698   

Services rendered to private enterprise

  18,886      20,487      21,721      21,766      23,184   

Restaurants and hotels

  12,265      13,554      14,423      14,453      15,107   

Government services

  19,678      20,803      21,889      21,934      22,793   

Other services

  54,524      57,550      60,565      60,392      63,781   

Taxes

  33,847      35,770      38,246      40,069      40,403   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other services

  177,840      190,253      204,186      216,682      227,313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total services

  218,260      234,287      251,404      266,666      279,506   

Total GDP

  382,380      407,052      431,273      456,172      466,895   

 

(1) Preliminary data.
(2) Includes forestry.
(3) Includes non-metallic mining.
(4) Includes taxes on products and import duties.

Source: Central Bank, information as of February 15, 2015 in Nota Semanal No. 7-2015 (Feb. 20, 2015).

The following tables set forth the distribution of GDP in the Peruvian economy, indicating the percentage contribution to GDP and the growth rate for the years shown for each sector, in each case as compared to the previous year.

 

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Gross Domestic Product by Sector(1)

(as a percentage of GDP, at constant 2007 prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Primary production:

        

Agriculture and livestock(2)

     5.7         5.6         5.6         5.3         5.3   

Fishing

     0.5         0.7         0.5         0.5         0.4   

Mining and hydrocarbons(3)

     13.3         12.5         12.2         12.1         11.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total primary production

  19.4      18.8      18.2      17.9      17.4   

Secondary production:

Manufacturing

  15.5      15.8      15.1      15.1      14.2   

Construction

  6.3      6.1      6.7      6.9      6.8   

Electricity and water

  1.7      1.7      1.7      1.7      1.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secondary production

  23.5      23.6      23.5      23.7      22.8   

Services:

Wholesale and retail trade

  10.8      10.9      11.0      11.0      11.2   

Other services(4):

Transportation and communications

  8.1      8.5      8.8      8.9      9.1   

Financial services and insurance

  3.4      3.5      3.6      3.8      4.2   

Services rendered to private enterprise

  4.5      4.6      4.8      4.8      5.0   

Restaurants and hotels

  2.9      3.0      3.1      3.2      3.2   

Government services

  4.9      4.8      4.8      4.8      4.9   

Other services

  13.8      13.4      13.3      13.2      13.7   

Taxes

  8.9      8.8      8.9      8.8      8.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other services

  46.5      46.7      47.3      47.5      48.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total services

  57.1      57.6      58.3      58.4      59.9   

Total GDP

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Preliminary data.
(2) Includes forestry.
(3) Includes non-metallic mining.
(4) Includes taxes on products and import duties.

Source: Central Bank, information as of February 15, 2015 in Nota Semanal No. 7-2015 (Feb. 20, 2015).

During 2014, GDP increased 2.4% as compared to 2013. This increase was primarily driven by growth in the commerce, financial services, business services, communications and utility services (including electricity, water and gas), which grew by 4.4%, 13.4%, 6.5%, 6.4% and 4.9%, respectively.

Primary Production

During 2014, primary production decreased by 0.9% and contributed 17.4% to GDP, a decline of 0.5 percentage points compared to 2013, due to decreased production in fishing and mining and hydrocarbons. In terms of contribution to GDP, fishing accounted for 0.4% in 2014 and mining and hydrocarbons accounted for 11.7%.

Agriculture and Livestock

The Peruvian agriculture and livestock sector is dominated by small-scale producers. The sector contributed 5.3% to GDP in each of 2014 and 2013.

Peru’s main agricultural products are potatoes, corn, rice, coffee, fruits and vegetables, which together accounted for approximately 53.3% and 54.6% of agricultural production 2014 and 2013, respectively.

Peru’s main agricultural export products are coffee, cotton and sugar, which together accounted for approximately 9.3% and 10.2% of agricultural production in 2014 and 2013, respectively.

 

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Fishing

Fishing is a small part of the Peruvian economy, contributing 0.5% and 0.4% to GDP in 2014 and 2013, respectively. Traditional fish products, however, are Peru’s third largest single export after mining and petroleum and natural gas, accounting for 6.4% and 7.3% of exports in 2014 and 2013, respectively, considering both traditional (fish meal and fish oil) and non-traditional exports (frozen crustaceans and mollusks, frozen fish, and prepared and canned food).

In 2014, the fishing sector decreased by 27.9% as compared to 2013, mainly due to a 52.7% decrease in fishing for indirect human consumption which was primarily due to a decrease in the availability of anchovies, which decreased to 2.3 million tons in 2014 from 4.8 million tons in 2013, resulting from unusual variations in ocean temperatures. During 2014, fishing for direct human consumption increased 0.8% as compared to 2013.

Mining and Hydrocarbons

The mining and hydrocarbons sector decreased slightly in 2014 by 0.8% as compared to 2013 due to a 2.1% decrease in metal mining production, mainly due to the low level of production of gold, molybdenum, zinc and tin. This decrease was partially offset by a 4.0% increase in the hydrocarbons sector, mainly due to the increased use of crude oil and natural gas.

Mining

Peru is a leading producer of gold, silver, tin, copper, lead and zinc in Latin America. Although mining constitutes a small part of the country’s GDP, contributing on average 11.7% to GDP in 2014, mineral products are Peru’s main export and they accounted for 51.9% and 55.5% of total exports by value in 2014 and 2013, respectively. Gold and copper accounted for 17.1% (U.S.$6.7 billion) and 22.4% (U.S.$8.8 billion) of total exports by value, respectively, during 2014 and 19.7% (U.S.$8.4 billion) and 23.1% (U.S.$9.8 billion) of total exports by value, respectively, during 2013. In addition, copper accounted for 43.2% of total mining exports in 2014 and 41.7% in 2013.

Hydrocarbons

The hydrocarbons sub-sector, which encompasses petroleum and natural gas production, currently constitutes a minor part of the Peruvian economy. Petroleum companies operating in Peru are oriented towards the exploration and development of oil fields located mainly in the Amazon jungle. A major part of Peruvian production consists of heavy crude oil that is primarily exported and light crude oil that is used in local refineries. Petroleum products for industrial and residential use are supplemented with imports. Between 2010 and 2014, petroleum production increased due to increased capital investments by new petroleum companies entering the Peruvian petroleum market, leading to the drilling, evaluation and exploration of 111 new wells in Peru during this period.

In 2014, the hydrocarbon sector grew 4.0% as compared to 2013, mainly due to higher levels of production of liquid hydrocarbons and natural gas.

However, a recent decrease in oil prices has caused a decrease in exploration projects in Peru, mainly because decreased profits eliminate any cushion for risks associated with exploration. For this reason, the president of Petróleos del Perú S.A., or Perú-Petro, has recommended that Perú-Petro postpone its bids for exploration concessions in seven lots in the Peruvian jungle or revise its concessions to allow for such onerous conditions.

Secondary Production

Manufacturing

In 2014, the manufacturing sector decreased by 3.3% as compared to 2013, primarily due to primary manufacturing activity, which decreased by 10.0%, and non-primary manufacturing activity, which decreased by 1.0%.

 

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Primary manufacturing

In 2014, the primary manufacturing sector decreased by 10.0% as compared to 2013, mainly due to (1) a 37.9% decrease in the production volume of processed and preserved fish, crustaceans and mollusks due to the decreased availability of anchovies; and (2) a 5.2% decrease in the production volume of precious metals and other non-ferrous metals due in part to a decrease in demand for rough gold in the United States, Switzerland, Italy, Canada and India, alloyed and unalloyed silver in the United States and refined copper in Brazil and China. This decrease was partially offset by (1) a 3.0% increase in the production volume of refined petroleum products due to increased demand of heavy oil (Residual 6) in the United States, Costa Rica, El Salvador and Guatemala, liquid propane gas in Japan and kerosene in the Virgin Islands, Puerto Rico and Argentina; (2) a 3.9% increase in the production volume of processed and preserved meats due to the increase demand for animal meat, hides and skins in Vietnam; and (3) a 2.5% increase in the production volume of processed sugar due to higher yields achieved by the La Libertad and Lima sugar companies.

Non-primary manufacturing

In 2014, non-primary manufacturing decreased by 1.0% as compared to 2013, mainly due to a 2.6% decrease in the production volume of capital goods and a 2.4% decrease in the production volume of consumer goods, which was partially offset by a 1.5% increase in the production volume of intermediate goods.

Construction

The construction sector increased by 1.7% in 2014 and contributed 6.8% to GDP, a decline of 0.1 percentage points compared to 2013. This growth was mainly due to a 2.4% increase in domestic cement consumption and a 0.1% increase in investment in the physical advancement of public works.

Electricity, Gas and Water

From 2010 to 2014, the electricity, gas and water sector contributed 1.7% on average to GDP. In 2014, the electricity and water sector increased by 4.9%, mainly due to a 13.8% increase in the gas subsector, a 5.3% increase in the electricity subsector and a 1.5% increase in the water subsector.

Electricity

In 2014, the electricity sub-sector grew 5.3% due to an increase in the production of electricity.

Gas

In 2014, the gas sub-sector grew 13.8% due to (1) a 19.9% increase in demand for grade E (industrial) gas, (2) a 14.7% increase in demand for gas to be used in generators, and (3) an 8.6% increase in distribution of natural gas for vehicles.

Water

In 2014, water production grew 1.5% due to a 1.5% increase in the production of drinking water due to higher production volumes of Seda Chimbote (15.3%), Sedalib (7.5%), Sedapar (5.2%), Sedapal (0 4%) and EPS Grau (0.4%), partially due to a 2.5% increase in the activity of the Lima and Callao wells. This increase was partially offset by lower production volume of Epsel-Lambayeque (0.25%). The volume processed in water treatment plants remained relatively the same as 2013.

Services

Wholesale and Retail Trade

In 2014, wholesale and retail trade increased by 4.4% due primarily to (1) a 5.4% increase in wholesale commerce, including an increase in the sale of household goods, audio and video equipment, paper and other office supplies, machinery, medical, electrical and occupational safety equipment, food, beverages, tobacco, agricultural raw materials, computers and computer equipment and programs, and (2) a 5.0% increase in retail commerce, including an increase in the sale of hardware, paint, glass, agrochemicals, optics, veterinary products, jewelry, computers, peripheral units, software, telecommunications equipment and automotive fuel and increased sales in non-specialized stores such as supermarkets, which was partially offset by a 5.3% decrease in the maintenance and repair of automobiles.

 

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Other Services

The private sector in Peru offers a variety of services constituting the “Other Services” sector of Peru’s GDP that in aggregate is an important part of the Peruvian economy. The Other Services sector includes services to companies, government services, transportation and communication, healthcare and education services, tourism and financial services.

As a result, the “Other Services” sector accounted for 48.7% of GDP in 2014, an increase of 1.2 percentage points from 2013.

Concessions and Private Initiatives

In 2014, concessions and private initiatives reached U.S.$10.0 billion and U.S.$344.4 million, respectively, in projected investments. Investments related to concessions were made in hydrocarbons, energy and transportation. Of special importance was the U.S.$5.1 billion Line 2 of Lima’s subway concession and the U.S.$3.6 billion South Peruvian Pipeline (Gaseoducto Sur Peruano).

Investments related to private initiatives were made in agriculture, hydrocarbons, property and ports. Of special importance was the U.S.$150.0 million mega housing project “Ciudad Sol de Collique” and the U.S.$101.1 million port terminal project of Callao, the main port of Peru.

Employment and Labor

Employment

Formal Employment

A significant portion of the Peruvian population lacks regular full-time employment. Despite periods of economic expansion in recent years, unemployment and underemployment remain one of Peru’s most entrenched problems. The Government discontinued nationwide employment surveys after 2001. However, these statistics can be calculated using the National Household Survey.

In 2014, there were 95 strikes in which approximately 40,700 workers participated, resulting in the loss of approximately 3.2 million man-hours.

The following table provides employment statistics in Metropolitan Lima from 2010 to 2013, the most recent date for which data is available.

Employment and Labor in Metropolitan Lima

(in percentages)

 

     For the year ended December 31,  
     2010      2011      2012      2013  

Participation rate(1)

     70.8         70.6         70.8         69.2   

Underemployment rate(2)

     29.3         25.3         20.9         19.8   

Unemployment rate(3)

     5.7         5.6         5.0         4.7   

 

(1) Percentage of the working-age population (14 years old or older) that is in the labor force.
(2) Percentage of the working-age population (14 years old or older) working part-time who would prefer to work more hours, plus the percentage of the working-age population that usually works full-time but who, in the week the employment survey was conducted, worked less than 35 hours per week as a result of economic constraints.
(3) Percentage of the working-age population (14 years old or older) that, in the week the employment survey was taken, was seeking remunerated employment.

 

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Source: Ministry of Labor. Figures for 2010 to 2013 are based on the Household Survey on Labor. Both the Ministry of Labor and the National Institute of Statistics publish their data based on polls of the workforce. The Ministry of Labor undertakes its poll in the third quarter of each year while the National Institute of Statistics has an on-going poll that is updated on a consistent basis. Consequently, the results obtained by the two institutions diverge due to timing differences, even though they use the same measurement methodology.

The following table provides information on employment by sector, as a percentage of total employment, in Metropolitan Lima from 2010 to 2013. This information includes data regarding informal employment in Metropolitan Lima.

Employment in Metropolitan Lima

(percentage by economic sector)

 

     For the year ended December 31,  
     2010      2011      2012      2013  

Extractive(1)

     1.5         1.2         1.4         1.4   

Manufacturing

     15.8         15.5         17.3         15.1   

Construction

     7.6         7.3         7.2         7.2   

Transportation and telecommunications

     10.4         10.3         9.8         9.9   

Wholesale and retail trade

     21.6         20.5         21.2         23.2   

Services

     37.2         40.3         38.7         38.9   

Other(2)

     5.8         4.7         4.4         4.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  100.0      100.0      100.0      100.0   

 

(1) Includes agriculture, livestock, fishing, forestry and mining.
(2) Includes domestic workers.

Source: Ministry of Labor. Figures are based on the Household Survey on Labor.

Informal Employment

The Peruvian economy has a significant “informal sector” that provides employment to the majority of the labor force, including a significant number of women. The term “informal sector” refers to economic activities that take place outside of the formal norms for economic transactions established by the state or developed through formal business practices. It generally involves production and exchange of legal goods and services without the appropriate business permits, without the payment of taxes, without complying with labor regulations and without legal guarantees for suppliers and end users. Because of the nature of this sector, it is difficult to obtain reliable statistics measuring its contribution to the Peruvian economy.

Consistent with recent trends in underemployment, employment in the informal sector has also shown slight reductions in the four-year period ended December 31, 2013.

Metropolitan Lima: Distribution of formal and informal employment

(in percentages)

 

     For the year ended December 31,  
     2010      2011      2012      2013  

Formal Sector

           

Public sector workers

     7.5         8.9         8.0         8.1   

Private sector workers

     32.0         32.7         34.9         34.3   

Small enterprises

     15.6         15.5         15.8         17.2   

Medium and large enterprises

     13.8         15.1         16.8         17.1   

Professional self-employed

     2.6         2.0         2.3         2.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  39.5      41.6      42.9      44.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Informal Sector

Micro enterprises

  24.1      23.6      23.5      23.8   

Non-professional self-employed

  25.4      24.5      23.7      23.0   

Unpaid family worker

  4.1      4.4      4.3      3.7   

Other

  6.6      6.0      5.6      4.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  60.2      57.8      56.3      55.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Source: Ministry of Labor. Figures are based on the Household Survey on Labor.

Public Administration

Based on an audit undertaken of the public sector, the total amount of public employees as of December 31, 2014 was 1.7 million, of which 46.8% are active workers, 38.8% are pensioners and 14.4% are non-personal service workers. Most public employees are placed in regional governments, economy and finance and education ministries.

Balance of Payments and Foreign Trade

Balance of Payments

The balance of payments accounts are used to record the value of the transactions carried out between a country’s residents and the rest of the world. The balance of payments is composed of:

 

    the current account, which comprises:

 

    net exports of goods and services;

 

    net financial and investment income; and

 

    net transfers; and

 

    the capital account, which is the difference between financial capital inflows and financial capital outflows.

The following table provides information, based on period-end exchange rates, regarding Peru’s balance of payments for the periods presented.

Balance of Payments

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Current account:

          

Trade balance:

          

Exports (FOB)(1)

     35,803        46,376        47,411        42,474        39,326   

Imports (FOB)(1)

     (28,815     (37,152     (41,135     (42,217     (40,807
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trade balance

  6,988      9,224      6,276      (257   (1,480

Services, net

  (2,353   (2,244   (2,420   (1,801   (1,800

Of which:

Net income from tourism(2)

  732      906      1,004      1,408      1,417   

Net income from transportation(3)

  (1,599   (1,531   (1,628   (1,367   (1,440

Financial and investment income, net(4)

  (11,205   (13,357   (12,399   (10,631   (9,328

Current transfers, net

  3,026      3,201      3,307      3,346      4,374   

Of which:

Workers’ remittances

  2,534      2,697      2,788      2,707      2,639   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current account balance

  (3,545   (3,177   (5,237   (8,829   (8,234

Capital account:

Foreign direct investment

  8,189      7,518      11,840      9,161      7,523   

Portfolio investment

  87      147      (142   585      (79

Other medium and long-term capital(5)

  5,621      2,268      5,542      3,786      (1,448

Of which:

Disbursements to the public sector

  7,735      1,802      3,119      1,155      2,133   

Other capital, including short-term capital

  (258   (1,217   2,572      (2,125   395   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital account balance

  13,638      8,716      19,812      11,407      6,391   

Errors and omissions(6)

  1,079      (886   213      324      (345
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Balance of payments

     11,173        4,653        14,788        2,902        2,188   

Financing:

          

Change in gross Central Bank reserves(7)

     (11,192     (4,686     (14,806     (2,907     (2,178

Exceptional financing, net

     19        33        19        5        10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing

  (11,173   (4,653   (14,788   (2,902   (2,188

Memorandum item:

Current account balance (deficit)(as a % of GDP)

  (2.4   (1.9   (3.3   (4.5   (4.1

 

(1) Based on customs declarations, records of temporary admissions, free-trade zone imports, grants and other adjustments.
(2) Based on a survey of tourists. Income from tourism represents the total expenditure by a tourist multiplied by the total number of tourists.
(3) Includes freight services, passenger transportation and port expenses of ships and airplanes.
(4) Includes interest payments.
(5) Includes debt amortization payments.
(6) Represents errors and omissions from double-entry accounting resulting from incomplete or overlapping coverage, different prices and incomplete times of recording and conversion practices.
(7) Refers to changes in reserve used to finance balance of payments and corresponds to net international reserves excluding the use of IMF resources.

Source: Central Bank.

Current Account

One of the most important aspects of the current account is the trade balance. The four primary factors that impact the trade balance are the following:

 

    The relative rate of economic growth of a country compared to that of its trading partners. Generally, if a country’s economy grows faster than that of its trading partners, its relative level of consumption of goods and services will tend to rise and its level of imports will tend to increase more rapidly than its level of exports.

 

    The relative level of domestic prices against foreign prices, as reflected by the real exchange rate. Generally, if a country’s domestic prices rise relative to those of its trading partners, there is a tendency for the country’s exports to decrease and for its level of imports to increase.

 

    Changes in production costs, technology and worker skills. More efficient production will tend to lower production costs, which in turn will tend to lower prices. As prices fall, there is a tendency for the country’s exports to increase.

 

    Changes in consumer tastes, which may affect the demand for a country’s goods and services abroad and the demand for foreign products in the domestic market.

Peru’s current account registered a deficit of U.S.$8.2 billion, or 4.1% of GDP, primarily due to a decrease in the trade balance to U.S.$1.5 billion in 2014 as compared to the same period in 2013.

Trade Balance

In 2014, exports decreased by 7.4% as compared to 2013 to U.S.$39.3 billion, primarily due to (1) a decrease in the volume and average price of traditional mining exports (except zinc and molybdenum) and natural gas; (2) a decrease in the export retail price of agricultural and fishery products, including flour, fish oil and cotton, which was offset by increased export volume; and (3) a 23.8% decrease in the volume of exported coffee, which was offset by a 37.4% increase in its average price. Imports decreased by 3.3% in 2014 as compared to 2013, principally as a result of a decrease in the imported volume of intermediate goods, including petroleum products, lubricant raw materials for manufacturing, capital goods (such as construction and transportation materials).

 

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In 2014 and 2013, Peru’s exports consisted primarily of exports of:

 

    traditional mineral exports, such as gold, silver, copper, zinc and lead, valued at U.S.$20.4 billion during 2014, representing 51.9% of total exports in such period, and valued at U.S.$23.6 billion in 2013, representing 55.5% of total exports for such period;

 

    petroleum and derivative products valued at U.S.$4.6 billion during 2014, representing 11.6% of total exports in such period, and valued at U.S.$5.2 billion in 2013, representing 12.3% of total exports for such period;

 

    traditional fishing exports, such as fishmeal and fish oil, valued at U.S.$1.7 billion during 2014, representing 4.4% of total exports in such period, and valued at U.S.$1.7 billion in 2013, representing 4.0% of total exports for such period;

 

    non-traditional agriculture and livestock exports valued at U.S.$4.2 billion during 2014, representing 10.7% of total exports in such period, and valued at U.S.$3.4 billion in 2013, representing 8.1% of total exports for such period; and

 

    non-traditional textile exports, such as textile fibers and cloth, valued at U.S.$1.8 billion during 2014, representing 4.6% of total exports in such period, and valued at U.S.$1.9 billion in 2013, representing 4.5% of total exports for such period.

The following tables provide further information on exports for the periods presented.

Exports

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Traditional:

              

Fishing

     1,884         2,114         2,312         1,707         1,726   

Agricultural

     975         1,689         1,095         785         843   

Mineral

     21,903         27,526         27,467         23,554         20,410   

Petroleum and derivatives

     3,088         4,568         4,996         5,205         4,559   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total traditional

  27,850      35,896      35,869      31,251      27,538   

Non-traditional:

Agriculture and livestock

  2,203      2,836      3,083      3,434      4,205   

Fishing

  644      1,049      1,017      1,028      1,151   

Textiles

  1,561      1,990      2,177      1,926      1,795   

Timbers and papers, and manufactures

  359      402      438      426      415   

Chemical

  1,228      1,655      1,636      1,503      1,509   

Non-metallic minerals

  252      492      722      720      663   

Basic metal industries and jewelry

  949      1,130      1,301      1,258      1,145   

Fabricated metal products and machinery

  393      476      545      534      572   

Other products(1)

  110      147      277      156      163   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-traditional

  7,699      10,176      11,197      10,985      11,618   

Other products(2)

  254      304      345      238      170   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total exports

  35,803      46,376      47,411      42,474      39,326   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes leather and handcrafts.
(2) Includes the sale of fuel and food to foreign vessels and the repair of foreign vessels.

Source: Central Bank.

 

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Exports

(as a percentage of total exports, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Traditional:

              

Fishing

     5.3         4.6         4.9         4.0         4.4   

Agricultural

     2.7         3.6         2.3         1.8         2.1   

Mineral

     61.2         59.4         57.9         55.5         51.9   

Petroleum and derivatives

     8.6         9.8         10.5         12.3         11.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total traditional

  77.8      77.4      75.7      73.6      70.0   

Non-traditional:

Agriculture and livestock

  6.2      6.1      6.5      8.1      10.7   

Fishing

  1.8      2.3      2.1      2.4      2.9   

Textiles

  4.4      4.3      4.6      4.5      4.6   

Timbers and papers, and manufactures

  1.0      0.9      0.9      1.0      1.1   

Chemical

  3.4      3.6      3.5      3.5      3.8   

Non-metallic minerals

  0.7      1.1      1.5      1.7      1.7   

Basic metal industries and jewelry

  2.7      2.4      2.7      3.0      2.9   

Fabricated metal products and machinery

  1.1      1.0      1.2      1.3      1.5   

Other products(1)

  0.3      0.3      0.6      0.4      0.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-traditional

  21.5      21.9      23.6      25.9      29.5   

Other products(2)

  0.7      0.7      0.7      0.6      0.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total exports

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes leather and handcrafts.
(2) Includes the sale of fuel and food to foreign vessels and the repair of foreign vessels.

Source: Central Bank.

In 2014 and 2013, Peru’s imports consisted primarily of imports of:

 

    intermediate goods, such as fuels and raw materials for agricultural and industrial production, valued at U.S.$18.8 billion in 2014, representing 46.1% of total imports for such period, and valued at U.S.$19.5 billion in 2013, representing 46.2% of total imports for such period;

 

    capital goods, such as transportation and building equipment, valued at U.S.$12.9 billion in 2014, representing 31.6% of total imports for such period, and valued at U.S.$13.7 billion in 2013, representing 32.3% of total imports for such period; and

 

    consumer goods valued at U.S.$8.9 billion in 2014, representing 21.8% of total imports for such period, and valued at U.S.$8.8 billion in 2013, representing 20.9% of total imports for such period.

The following tables provide further information regarding imports for the periods presented.

Imports

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Consumer goods:

              

Durable goods

     2,680         3,245         4,170         4,338         4.239   

Non-durable goods

     2,809         3,489         4,082         4,499         4.652   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer goods

  5,489      6,734      8,252      8,837      8,891   

Intermediate goods:

Petroleum products, lubricants

  4,063      5,752      5,885      6,453      5,766   

Raw materials for agriculture

  868      1,092      1,292      1,244      1,339   

Raw materials for manufacturing

  9,093      11,488      12,096      11,815      11,714   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intermediate goods

  14,023      18,332      19,273      19,512      18,819   

 

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     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Capital goods:

              

Construction materials

     1,087         1,449         1,488         1,443         1,423   

For agriculture

     80         111         137         130         141   

For manufacturing

     5,539         7,345         8,168         8,319         8,689   

Transportation equipment

     2,369         2,825         3,554         3,762         2,659   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total capital goods

  9,074      11,730      13,347      13,654      12,911   

Other(1)

  229      356      262      213      185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total imports

  28,815      37,152      41,135      42,217      40,807   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Memorandum items:

Temporal admission imports(2)

  420      698      734      648      326   

Imports into free trade zone(3)

  131      136      140      238      217   

 

(1) Includes the donation of goods, the purchase of fuels and Peruvian foodstuffs and the repair of capital goods in the exterior such as other goods not falling into any one of the classifications used.
(2) Imports that must be processed and exported within a definite period of time and are not subject to tariffs.
(3) Imports through the Special Zone of Tacna, which is primarily dedicated to the assembly of motor vehicles. Peru has five free trade zones, but only the Tacna zone is economically active.

Source: Central Bank.

Imports

(as a percentage of total imports, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

Consumer goods:

              

Durable goods

     9.3         8.7         10.1         10.3         10.4   

Non-durable goods

     9.7         9.4         9.9         10.7         11.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer goods

  19.0      18.1      20.1      20.9      21.8   

Intermediate goods:

Petroleum products, lubricants

  14.1      15.5      14.3      15.3      14.1   

Raw materials for agriculture

  3.0      2.9      3.1      2.9      3.3   

Raw materials for manufacturing

  31.6      30.9      29.4      28.0      28.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intermediate goods

  48.7      49.3      46.9      46.2      46.1   

Capital goods:

Construction materials

  3.8      3.9      3.6      3.4      3.5   

For agriculture

  0.3      0.3      0.3      0.3      0.3   

For manufacturing

  19.2      19.8      19.9      19.7      21.3   

Transportation equipment

  8.2      7.6      8.6      8.9      6.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total capital goods

  31.5      31.6      32.4      32.3      31.6   

Other(1)

  0.8      1.0      0.6      0.5      0.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total imports

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Memorandum items:

Temporal admission imports(2)

  1.5      1.9      1.8      1.5      0.6   

Imports into free trade zone(3)

  0.5      0.4      0.3      0.6      0.5   

 

(1) Includes the donation of goods, the purchase of fuels and Peruvian foodstuffs and the repair of capital goods in the exterior such as other goods not falling into any one of the classifications used.
(2) Imports that must be processed and exported within a definite period of time and are not subject to tariffs.
(3) Imports through the Special Zone of Tacna, which is primarily dedicated to the assembly of motor vehicles. Peru has five free trade zones, but only the Tacna zone is economically active.

Source: Central Bank.

Capital Account

The capital account reflects foreign direct investment and monetary flows into and out of a nation’s financial markets.

 

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During 2014, the capital account balance decreased by 44.0% to U.S.$6.4 billion as compared to U.S.$11.4 billion in 2013. This decrease in 2014 was due primarily to a U.S.$5.6 billion decrease in cash flows from abroad, mainly due to decreased foreign direct investment and portfolio investment of non-residents. This decrease was partially offset by a U.S.$3.3 billion increase in portfolio investment abroad by residents.

Geographic Distribution of Exports

(as a percentage of total exports, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

United States

     17.0         13.0         13.3         17.4         15.5   

Canada

     9.3         9.1         7.3         6.4         6.5   

Mexico

     0.8         1.0         0.9         1.2         1.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total North America

  27.8      23.9      22.4      26.0      25.2   

Brazil

  2.7      2.8      3.0      4.0      4.1   

Colombia

  2.2      2.3      1.9      2.0      3.1   

Chile

  3.8      4.2      4.3      3.9      3.9   

Venezuela

  1.4      2.0      2.6      1.9      1.3   

Other

  5.0      4.8      7.7      6.4      8.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Latin America and the Caribbean

  15.2      16.0      19.4      18.2      21.2   

United Kingdom

  0.8      0.9      1.3      1.3      1.3   

Switzerland

  10.7      12.8      10.7      7.1      6.8   

Germany

  4.2      4.1      3.9      2.8      3.1   

Spain

  3.3      3.7      3.9      3.7      3.5   

Other

  10.2      10.2      8.3      8.8      8.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Europe

  29.4      31.8      28.2      23.8      23.5   

Japan

  5.0      4.7      5.4      5.2      4.0   

China

  15.2      15.0      16.5      17.3      17.7   

Other

  5.4      6.6      6.3      7.3      6.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Asia

  25.6      26.3      28.2      29.8      28.6   

Africa and others

  2.0      2.0      1.8      2.2      1.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total exports

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Source: Central Bank.

Geographic Distribution of Imports

(as a percentage of total imports, at current prices)

 

     For the year ended December 31,  
     2010      2011      2012      2013      2014  

United States

     18.9         18.9         18.4         19.8         20.6   

Canada

     1.7         1.5         1.4         1.4         1.9   

Mexico

     3.7         3.8         4.2         4.7         4.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total North America

  24.6      24.5      24.4      26.3      27.7   

Brazil

  7.2      6.3      6.0      5.3      4.7   

Colombia

  4.4      3.8      3.7      3.3      2.9   

Chile

  3.8      3.7      3.1      3.1      3.1   

Venezuela

  0.3      0.5      0.5      0.2      0.1   

Other

  12.3      13.5      12.3      11.0      11.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Latin America and the Caribbean

  28.1      27.8      25.5      22.9      22.1   

United Kingdom

  0.6      0.7      0.7      0.8      0.8   

Switzerland

  0.4      0.4      0.4      0.4      0.5   

Germany

  2.9      2.9      3.2      3.1      3.5   

Spain

  1.3      1.4      1.8      2.0      1.8   

Other

  6.2      6.9      6.8      6.7      6.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Europe

  11.5      12.4      12.9      12.9      12.9   

Japan

  4.4      3.3      3.4      3.2      2.5   

China

  16.3      16.1      18.0      19.1      20.9   

Other

  9.5      10.4      10.4      10.6      11.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Asia

  30.1      29.8      31.7      32.9      34.6   

Africa and others

  5.7      5.5      5.4      5.0      2.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total imports

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Source: Central Bank.

Foreign Direct Investment

Peru has an open investment regime and a legal framework that generally promotes and protects foreign investment. The basis of this open investment regime was established in 1991 through the Foreign Investment Promotion Law and the Private Investment Growth Framework Law, as amended. This framework allows both foreign and domestic investors to enter into legal stability agreements with the Government.

Peru attracted more than U.S.$44.2 billion in foreign direct investment between 2010 and 2014. In 2014, foreign direct investment decreased 17.9% to U.S.$7.5 billion as compared to 2013 primarily due to decreased equity capital and net liabilities to capitalize enterprises.

For the 2015-2016 period and based on Peru’s privatization and concession initiatives, the Government has announced a portfolio of 207 projects for U.S.$31.7 billion to promote private investments. The projects include initiatives in mining, hydrocarbons, energy, industry and infrastructure.

The Monetary System

Monetary Policy

The inflation rate during 2014 was 3.2% (above the Central Bank’s target annual inflation rate for the period, which was set between 1% and 3%). The Central Bank continues to pursue monetary policies aimed at ensuring that actual inflation remains within the target range. Because of the reduction in inflationary pressure resulting from this more stable price environment, the Government believes that the inflation rate will converge to the target rate set by the Central Bank.

During 2014, the nuevo sol depreciated 7.0% against the U.S. dollar, which was consistent with global trends. The Central Bank participates in the market (buying or selling nuevos soles) in order to avoid large exchange rate fluctuations and their adverse effects on the Peruvian economy, which remains partially dollarized. In 2014, the Central Bank exercised limited intervention pursuant to its policy to only intervene when exchange rate fluctuations are influenced by speculation.

During 2014, the Central Bank decreased the reference rate to 3.5% as of December 31, 2014.

In December 2014, the Central Bank continued to lower the reserve requirements for financial institutions as of December 2014 to 9.5% and 44.3% on deposits for nuevos soles and U.S. Dollars, respectively.

The following table provides information on interest rates applicable to commercial bank loans on the dates shown.

Interest Rates on Commercial Bank Loans(1)

(annual percentage rates)

 

     2012      2013      2014  
     Mar      Jun      Sep      Dec      Mar      Jun      Sep      Dec      Mar      Jun      Sep      Dec  

Domestic Currency:

                                   

Interbank

     4.3         4.2         4.2         4.2         4.2         4.3         4.3         4.1         4.0         4.0         3.7         3.8   

Prime(2)

     5.3         5.2         5.1         5.0         4.7         4.5         4.7         4.5         4.9         5.0         4.5         4.7   

Average loan rate

     19.0         19.6         19.3         19.1         19.1         18.8         17.6         15.9         15.6         16.0         15.7         15.7   

 

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     2012      2013      2014  
     Mar      Jun      Sep      Dec      Mar      Jun      Sep      Dec      Mar      Jun      Sep      Dec  

Foreign currency:

                                   

Interbank

     2.3         1.8         1.2         1.2         2.0         0.3         0.2         0.2         0.1         0.1         0.2         0.2   

Prime(2)

     3.1         3.7         2.7         4.0         5.6         2.5         1.5         1.0         0.7         0.6         0.8         0.7   

Average loan rate

     7.9         8.0         8.2         8.2         8.7         8.6         8.3         8.0         7.8         7.3         7.5         7.5   

 

(1) Weighted average interest rates of commercial banks for each period based on the total outstanding balance of loans and deposits.
(2) Average interest rates at which major banks are willing to offer 90-day loans to its lower risk corporate customers in the form of advances on current accounts.

Source: Central Bank / Nota Semanal No. 9-2015 (Mar. 6, 2015).

Liquidity and Credit Aggregates

The following table presents the composition of the monetary base and international reserves as of the dates shown.

Monetary Base and Central Bank’s International Reserves

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2012      2013      2014  

Currency in circulation and cash in vaults at banks

     14,833         15,189         15,954   

Commercial bank deposits at the Central Bank

     5,847         3,359         2,121   

Monetary base

     20,680         18,549         18,075   

Gross international reserves

     64,049         65,710         62,353   

Net international reserves

     63,991         65,663         62,308   

 

Source: Central Bank.

Net international reserves decreased to approximately U.S.$62.3 billion as of December 31, 2014, from approximately U.S.$65.7 billion as of December 31, 2013.

The following tables present liquidity and credit aggregates, and changes in selected monetary indicators as of the dates shown.

Liquidity and Credit

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2012      2013      2014  

Monetary aggregates

        

Currency in circulation

     12,645         12,552         13,145   

M1

     22,544         22,068         22,844   

M2

     48,030         48,506         50,086   

M3

     69,304         72,446         74,000   

Credit by sector(1)

        

Public sector (Net)(2)

     (26,927      (25,911      (24,860

Private sector

     65,721         70,841         75,548   
  

 

 

    

 

 

    

 

 

 

Total credit aggregates

  38,794      44,930      50,688   

Deposits

Local currency(3)

  34,609      34,964      35,895   

Foreign currency(4)

  21,253      23,877      23,823   
  

 

 

    

 

 

    

 

 

 

Total deposits

  55,862      58,841      59,718   
  

 

 

    

 

 

    

 

 

 

 

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(1) Includes securities offerings and cash advances from checking accounts of depository corporations.
(2) Net claims on public sector of depository corporations.
(3) Includes sight deposits, saving deposits, time deposits and other certificates in domestic currency of depository corporations.
(4) Includes demand deposits, savings deposits and time deposits in foreign currency of depository corporations.

Source: Central Bank.

The 2015 Budget

The 2015 budget was submitted to the Congress of the Republic of Peru in August 2014 and was approved on November 30, 2014. The following table summarizes the principal assumptions on which the 2015 budget is based.

Principal Budgetary Assumptions for 2015

 

Projected real GDP growth

  6.0

Projected (cumulative)inflation

  2.0

Projected average exchange rate

  S/2.90 per dollar   

 

Source: Ministry of Economy and Finance.

Based on these assumptions, the 2015 budget proposal projects the following:

 

    fiscal revenues of S/.92 billion, or approximately U.S.$31.7 billion;

 

    public expenditures of S/.103.4 billion, or approximately U.S.$35.6 billion; and

 

    an overall non-financial public sector deficit of U.S.$2.3 billion, or 0.4% of the projected GDP.

Public Sector Finances

Non-Financial Public Sector

Peru’s non-financial public sector consists of:

 

    the Government;

 

    the Government’s various decentralized administrative and regulatory agencies, such as:

 

    the National institute for Healthcare Social Security, or EsSalud; and

 

    the National Superintendency for Tax Administration, or SUNAT;

 

    the municipal governments; and

 

    non-financial state-owned enterprises, such as Perú-Petro and Empresa de Electricidad del Perú S.A., or Electroperu.

In 2014, the non-financial public sector deficit was U.S.$92.7 million, or 0.1% of GDP, as compared to the surplus in 2013 which was 0.9% of GDP. This deficit was largely attributable to a 1.1 percentage point increase in non-financial public sector spending to 18.6% of GDP in 2014 from 17.5% of GDP in 2013, mainly due to the increase in current expenditure to 13.8% of GDP in 2014 from 12.8% of GDP in 2013.

 

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The following tables provide information on the non-financial public sector accounts for the periods presented.

Consolidated Accounts of the Non-Financial Public Sector (NFPS)(1)(2)

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Primary balance

          

Central government

     1,832        3,520        4,427        3,295        1,278   

Decentralized agencies

     312        677        1,097        863        654   

Municipal governments

     (493     1,137        359        (143     208   

State-owned enterprises

     (206     88        423        309        (48
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary NFPS

  1,445      5,422      6,305      4,324      2,092   

Interest payments:

External debt

  1,036      964      1,044      1,143      1,818   

Domestic debt

  763      1,047      1,064      1,125      1,171   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest payments

  1,799      2,012      2,109      2,262      2,185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Overall NFPS

  (354   3,410      4,197      2,061      (93

Financing:

External

  (733   276      (528   (1,663   (612

Domestic

  938      (3,734   (3,678   (663   699   

Privatization

  149      49      10      265      6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing

  354      (3,410   (4,197   2,061      93   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.
(2) Preliminary data.

Sources: Central Bank / Nota Semanal No. 7-2015 (Feb. 20, 2015).

Consolidated Accounts of the Non-Financial Public Sector (NFPS)(1)(2)

(as a percentage of GDP, at current prices)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Primary balance

          

Central government

     1.3        2.1        2.4        1.5        0.6   

Decentralized agencies

     0.2        0.4        0.6        0.4        0.3   

Municipal governments

     (0.3     0.7        0.2        (0.1     0.1   

State-owned enterprises

     (0.1     0.1        0.2        0.2        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary NFPS

  1.0      3.2      3.3      2.0      0.9   

Interest payments:

External debt

  0.7      0.6      0.5      0.6      0.5   

Domestic debt

  0.5      0.6      0.6      0.6      0.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest payments

  1.2      1.2      1.1      1.1      1.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Overall NFPS

  (0.2   2.0      2.3      0.9      (0.1

Financing:

External

  (0.5   0.2      (0.3   (0.8   (0.3

Domestic

  0.6      (2.2   (2.0   (0.2   0.4   

Privatization

  0.1      —        —        0.1      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing

  0.2      (2.0   (2.3   (0.9   0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.
(2) Preliminary data.

Source: Central Bank / Nota Semanal No. 7-2015 (Feb. 20, 2015).

 

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Central Government

The Government comprises the executive branch, including its ministries and other centralized agencies.

The Government derives its revenues primarily from:

 

    tax collections;

 

    import tariffs;

 

    non-tax revenues, such as fees, interest income and royalties from mining and hydrocarbon production; and

 

    dividends from state-owned companies.

In 2014, total Government revenues were U.S.$38.9 billion, or 19.0% of GDP, compared to U.S.$38.6 billion, or 18.9% of GDP, in 2013.

Government expenditures consist primarily of:

 

    wages of public sector employees;

 

    transfers to public sector entities;

 

    interest payments on debt;

 

    public investments in infrastructure; and

 

    pension expenditures.

In 2014, total Government expenditures were U.S.$37.6 billion, or 18.5% of GDP, compared to U.S.$35.3 billion, or 17.4% of GDP, in 2013.

In 2014, the primary surplus was U.S.$1.3 billion, or 0.6% of GDP, compared to U.S.$3.3 billion, or 1.6% of GDP, in 2013.

 

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The following tables provide information regarding Government accounts for the periods presented.

Central Government Accounts(1)(2)

(in millions of U.S. dollars, at current prices)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Fiscal revenue:

          

Current revenue:

          

Tax revenue:

          

Income tax

     9,124        12,201        14,111        13,569        14,159   

Capital gains tax

     —          —          —          —          —     

General sales tax

     12,581        14,687        16,703        17,698        17,743   

Excise taxes

     1,652        1,713        1,865        2,032        1,810   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Import tariffs

  639      502      579      630      630   

Other taxes

  (1,185   (1,673   (1,388   (844   (758
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total tax revenue

  22,811      27,431      31,869      33,084      33,583   

Non-tax revenue(3)

  3,631      4,604      5,001      5,156      5,017   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current revenue

  26,441      32,034      36,870      38,240      38,600   

Capital revenue

  275      108      130      339      256   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fiscal revenue

  26,717      32,142      37,000      38,579      38,856   

Expenditures:

Current non-financial expenditures:

Wages and salaries

  5,600      6,415      7,549      8,591      9,657   

Goods and services

  5,496      6,203      7,550      8,110      8,569   

Current transfers

  7,084      8,576      8,937      9,147      9,655   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current non-financial expenditures

  18,180      21,193      24,035      25,847      27,881   

Capital expenditures:

Fixed investment

  4,753      5,044      5,610      5,968      6,033   

Other

  1,951      2,384      2,928      3,468      3,664   

Of which:

Capital transfers

  1,326      1,967      2,516      2,859      3,018   

Total capital expenditures

  6,704      7,428      8,538      9,437      9,697   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenditures

  24,884      28,621      32,573      35,284      37,578   

Fiscal balance:

Primary fiscal balance

  1,832      3,520      4,427      3,295      1,278   

Interest

  1,687      1,830      1,982      2,126      2,036   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Overall fiscal balance

  146      1,690      2,445      1,168      (757

Financing:

Foreign financing

  (1,079   218      (176   (1,966   (601

Domestic financing

  785      (1,957   (2,279   533      1,353   

Privatization

  149      49      10      265      6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing

  (146   (1,690   (2,445   (1,168   757   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.
(2) Preliminary data.
(3) Includes transfers from state-owned enterprises and royalties from petroleum companies.

Sources: Central Bank / Nota Semanal No. 7-2015 (Feb. 20, 2015).

 

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Central Government Accounts(1)(2)

(as a percentage of GDP, at current prices)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Fiscal revenue:

          

Current revenue:

          

Tax revenue:

          

Income tax

     6.1        7.2        7.3        6.7        7.0   

Capital gains tax

     —          —          —          —          —     

Taxes on goods and services

     9.6        9.6        9.6        9.7        9.6   

General sales tax

     8.5        8.6        8.7        8.7        8.7   

Excise taxes

     1.1        1.0        1.0        1.0        0.9   

Import tariffs

     0.4        0.3        0.3        0.3        0.3   

Other taxes

     (0.8     (1.0     (0.7     (0.4     (0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total tax revenue

  15.4      16.1      16.5      16.3      16.5   

Non-tax revenue(3)

  2.4      2.7      2.6      2.5      2.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current revenue

  17.8      18.8      19.1      18.9      19.0   

Capital revenue

  0.2      0.1      0.1      0.2      0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fiscal revenue

  18.0      18.8      19.2      19.0      19.1   

Expenditures:

Current non-financial expenditures:

Wages and salaries

  3.8      3.8      3.9      4.2      4.8   

Goods and services

  3.7      3.6      3.9      4.0      4.2   

Current transfers

  4.8      5.0      4.6      4.5      4.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current non-financial expenditures

  12.2      12.4      12.4      12.8      13.8   

Capital expenditures:

Fixed investment

  3.2      2.9      2.9      3.0      3.0   

Other

  1.3      1.4      1.5      1.7      1.8   

Of which:

Capital transfers

  0.9      1.2      1.3      1.4      1.5   

Total capital expenditures

  4.5      4.3      4.4      4.7      4.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenditures

  16.7      16.8      16.9      17.5      18.6   

Fiscal balance:

Primary fiscal balance

  1.3      2.1      2.4      1.5      0.6   

Interest

  1.1      1.1      1.0      1.0      1.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Overall fiscal balance

  0.1      1.0      1.3      0.5      (0.4

Financing:

Foreign financing

  (0.7   0.1      (0.1   (0.9   (0.3

Domestic financing

  0.5      (1.2   (1.2   0.4      0.7   

Privatization

  0.1      —        —        0.1      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing

  (0.1   (1.0   (1.3   (0.5   0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the operations of the Government and non-financial public institutions, but excludes the operations of financial public institutions.
(2) Preliminary data.
(3) Includes transfers from state-owned enterprises and royalties from petroleum companies.

Sources: Central Bank / Nota Semanal No. 7-2015 (Feb. 20, 2015).

Tax Regime

All Government taxes in Peru are collected by the Superintendencia Nacional de Administración Tributaria, or SUNAT. SUNAT’s budget is determined primarily through a percentage-based funding mechanism that provides the agency with 1.6% of its domestic tax collections and with 1.5% of import tariffs.

 

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The following table presents the composition of Peru’s tax revenues for the periods presented.

Tax Revenue of Peru (Central Government)(1)

(as a percentage of total tax revenue)

 

     For the year ended December 31,  
     2010     2011     2012     2013     2014  

Income Tax

          

Individual

     9.7        10.5        10.8        11.4        11.4   

Corporate

     25.5        28.4        27.9        25.7        26.3   

Clearing

     4.8        5.6        5.7        3.9        4.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income tax

  40.0      44.5      44.3      40.9      42.1   

Taxes on goods and services

Value-added tax

  55.1      53.5      52.4      53.5      52.8   

Excise tax

Fuel tax

  3.7      3.0      2.6      2.8      2.1   

Other

  3.5      3.3      3.3      3.3      3.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total excise tax

  7.2      6.2      5.8      6.1      5.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total taxes on goods and services

  62.4      59.8      58.2      59.7      58.2   

Import tariffs

  2.8      1.8      1.8      1.9      1.9   

Other taxes

  7.1      6.7      8.2      10.2      9.0   

Tax refund

  (12.3   (12.9   (12.6   (12.6   (11.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total tax revenue

  100.0      100.0      100.0      100.0      100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Reflects adjustments to reconcile estimated income tax withheld with actual income tax liabilities.

Sources: Central Bank / Nota Semanal No. 7-2015 (Feb. 20, 2015).

Public Sector Debt

Peru’s total public sector debt consists of foreign currency-denominated debt and nuevo sol-denominated debt. Peru’s total public external debt consists of loans from foreign creditors to the Government, the Central Bank and public sector entities.

External Debt

As of December 31, 2014, taking into account swap agreements, 49.7% of public external debt was denominated in nuevos soles. As of December 31, 2014, public external debt totaled U.S.$19.8 billion, or 9.7% of GDP, compared to U.S.$18.8 billion, or 9.3% of GDP, as of December 31, 2013.

The following tables provide further information on public sector external debt as of the dates presented.

Public Sector External Debt

(in millions of U.S. dollars, except for percentages)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Official non-reserves liabilities:

              

Public sector

     19,905         20,204         20,402         18,778         19,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total official non-reserves liabilities

  19,905      20,204      20,402      18,778      19,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total official liabilities

  19,905      20,204      20,402      18,778      19,764   

Total public sector external debt as % of GDP(1)

  13.4      11.8      10.6      9.3      9.7   

Total public sector external debt as % of total exports(1)

  55.6      43.6      44.0      44.2      50.3   

 

(1) Peru does not include IMF credit use in reports of total public sector external debt. Debt ratios are calculated on the basis of Peru’s total official non-reserve liabilities.

Source: Central Bank.

 

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Public Sector External Debt, Net of Reserves

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2010     2011     2012     2013     2014  

Public sector external debt(1)

     19,905        20,204        20,402        18,778        19,764   

Gross international reserves of the Central Bank

     (44,150     (48,859     (64,049     (65,710     (62,353
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Public sector external debt, net of reserves

  (24,245   (28,655   (43,647   (46,933   (42,588

 

(1) Peru does not include IMF credit use in reports of total public sector external debt.

Source: Central Bank.

Peru’s credit ratings are as follows as of March 18, 2015:

 

    Fitch: long-term issuer default rating of BBB+ (Outlook Stable);

 

    Standard & Poor’s: long-term foreign currency credit rating of BBB+ (Outlook Stable);

 

    Moody’s: long-term foreign currency bonds rating of A3 (Outlook Stable); and

 

    DBRS: long-term foreign currency issuer rating of BBB (Outlook Positive).

The following table provides information on capital flows from multilateral lenders for the periods presented.

Capital Flows from Multilateral Lenders

(in millions of U.S. dollars)

 

     As of December 31,  
     2010     2011     2012     2013     2014  

World Bank:

          

Disbursements minus principal amortizations

     118.9        (232.7     (297.4     (611.1     14.0   

Disbursements minus principal, interests and commissions

     56.8        (293.6     (355.5     (692.0     (11.5

IADB:

          

Disbursements minus principal amortizations

     (762.7     (46.8     (71.2     (1,186.1     103.9   

Disbursements minus principal, interests and commissions

     (908.1     (166.0     (181.4     (1,373.7     65.0   

 

Source: Ministry of Economy and Finance (Dirección Nacional del Endeudamiento Público, or General Bureau of Public Debt and Treasury).

The following is a brief overview of the principal debt incurrences by Peru:

 

    On March 31, 2014, Peru entered into a contingent agreement with JICA, in an aggregate amount of ¥10,000 million.

 

    On April 15, 2014, Peru entered into a loan agreement with IRDB, in an aggregate amount of U.S.$40.0 million, to fund National Agricultural Innovation.

 

    On April 16, 2014, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$40.0 million, to fund National Agricultural Innovation.

 

    On April 9, 2014, Peru entered into a loan agreement with CAF, in an aggregate amount of U.S.$150.0 million, to fund infrastructure projects.

 

    On July 24, 2014, Peru entered into a loan agreement with IRBD, in an aggregate amount of U.S.$120.0 million, to fund a project to improve the transportation system in the city of Cusco.

 

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    On July 24, 2014, Peru entered into a loan agreement with IRBD, in an aggregate amount of U.S.$35.0 million, to fund the Cusco Tourism Project.

 

    On August 29, 2014, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$15.0 million, to fund projects to consolidate the management of taxes and customs.

 

    On November 7, 2014, Peru entered into a loan agreement with IADB, in an aggregate amount of U.S.$25.0 million, to fund the Program to Reduce the State’s Vulnerability to Disasters III.

 

    On November 7, 2014, Peru entered into a loan agreement with JICA, in an aggregate amount of ¥6,944 million, to fund the Moquegua Central Hydroelectric Installation Projects 1 and 3.

 

    On November 7, 2014, Peru entered into a loan agreement with JICA, in an aggregate amount of ¥2,480 million, to fund Program for the Flood Protection Program for Valleys and Vulnerable Rural populations.

 

    On December 4, 2014, Peru entered into two loan agreements with IADB, in an aggregate amount of U.S.$25.0 million, to fund each of the Sanitation Sector Second Generation Reforms Program III and the Program to Improve Productivity and Competitiveness III.

During 2014, disbursements included U.S.$334.0 million for projects primarily in the economy and U.S.$623.9 million for general support of the balance of payments.

The following tables summarize public sector external debt by creditor for the periods indicated.

Public Sector External Debt by Creditor(1)

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Official creditors:

              

Multilateral debt:

              

IADB

     3,315         3,277         3,221         2,011         2,098   

World Bank

     2,965         2,732         2,435         1,824         1,838   

IFAD(2)

     31         30         32         32         30   

IMF

     —           —           —           —           —     

OPEC(3)

     4         2         2         1         —     

CAF

     1,470         1,849         1,925         1,854         1,704   

Other(4)

     25         22         20         14         8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multilateral debt

  7,810      7,913      7,634      5,736      5,679   

Bilateral debt:

Paris Club

  2,548      639      635      620      550   

United States

  —        64      64      46      39   

Latin America

  9      7      5      4      2   

East Europe countries and China

  10      10      9      4      4   

Japan (Paris Club)

  —        1,946      1,742      1,294      1,039   

Other countries

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bilateral debt

  2,567      2,665      2,444      1,967      1,629   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total official debt

  10,377      10,579      10,078      7,703      7,308   

Private creditors:

Banking

  181      296      289      532      1,147   

Suppliers

  40      30      26      23      19   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total private sector debt

  220      326      316      554      1,166   

Bonds:

Brady + Global Bonds

  9,308      9,299      10,008      10,521      10,522   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds

  9,308      9,299      10,008      10,521      11,290   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total public sector external debt

  19,905      20,204      20,402      18,778      19,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Medium- and long-term debt, excluding IMF financing.

 

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(2) Refers to the International Fund for Agricultural Development.
(3) Refers to the Organization of Petroleum Exporting Countries.
(4) Includes European Investment Bank (EIB) and Nordic Investment Bank (NIB).

Source: Ministry of Economy (Office of Public Credit).

Public Sector External Debt by Creditor(1)

(as a percentage of total public sector external debt)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Official creditors:

              

Multilateral debt:

              

IADB

     16.7         16.2         15.8         10.7         10.6   

World Bank

     14.9         13.5         11.9         9.7         9.3   

IFAD(2)

     0.2         0.1         0.2         0.2         0.2   

IMF

     —           —           —           —           —     

OPEC(3)

     —           —           —           —           —     

CAF

     7.4         9.2         9.4         9.9         8.6   

Other

     0.1         0.1         0.1         0.1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multilateral debt

  39.2      39.2      37.4      30.5      28.7   

Bilateral debt:

Paris Club

  12.8      3.2      3.1      3.3      2.8   

United States

  —        0.3      0.3      0.2      0.2   

Latin America

  —        —        —        —        —     

East Europe countries and China

  0.1      —        —        —        —     

Japan

  —        9.6      8.5      6.9      5.3   

Other countries

  —        —        —        —        —     

Total bilateral debt

  12.9      13.2      12.0      10.5      8.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total official debt

  52.1      52.4      49.4      41.0      37.0   

Private creditors:

Banking

  0.9      1.5      1.4      2.8      5.8   

Suppliers

  0.2      0.1      0.1      0.1      0.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total private sector debt

  1.1      1.6      1.5      3.0      5.9   

Bonds:

Brady + Global Bonds

  46.8      46.0      49.1      56.0      53.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds

  46.8      46.0      49.1      56.0      57.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total public sector external debt

  100.0      100.0      100.0      100.0      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Medium- and long-term debt, excluding IMF financing.
(2) Refers to the International Fund for Agricultural Development.
(3) Refers to the Organization of Petroleum Exporting Countries.

Source: Ministry of Economy (Office of Public Credit).

Public Sector External Debt Structure by Maturity Term

(in millions of U.S. dollars and as a percentage of total public sector external debt)(1)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Short-term debt

     45         43         57         47         45   

Medium- and long-term debt

     19,905         20,204         20,402         18,778         19,764   

Total

     19,950         20,247         20,459         18,778         19,809   

Short-term debt (as a % of total public sector external debt)

     0.2         0.2         0.3         0.3         0.2   

Medium- and long-term debt (as a % of total public sector external debt)

     99.8         99.8         99.7         99.7         99.8   

 

(1) Includes Central Bank debt.

Source: Central Bank.

 

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The following table provides public sector external debt by currency as of December 31, 2013 and 2014.

Summary of Public Sector External Debt by Currency(1)(2)

(in millions of U.S. dollars, except for percentages)

 

     As of December 31, 2013  
     2013      2014  
     U.S.$      %      U.S.$      %  

Currency

           

U.S. Dollar

     16,102.5         85.8         17,594         89.0   

Japanese yen

     1,380.6         7.4         1,114         5.6   

Special Drawing Rights (SDR)(3)

     32.2         0.2         30         0.2   

Euro

     963.3         5.1         480         2.4   

Swiss Franc

     —           —           265         1.3   

Nuevo sol(4)

     299.2         1.6         280         1.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  18,777.8      100.0      19,764      100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Exchange rate as of December 31, 2014.
(2) Includes outstanding Cofide loans not guaranteed by Peru.
(3) World Bank unit of account, based on a basket of national currencies.
(4) IADB loans converted to nuevos soles.

Source: Ministry of Economy (Office of Public Credit).

The following table provides information regarding Peru’s public sector external debt service as of the dates presented.

Public Sector External Debt Service(1)

(in millions of U.S. dollars, except for percentages)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Interest payments

     1,093         1,036         1,062         1,158         1,104   

Amortization

     4,916         4,839         1,198         2,614         1,582   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total public sector external debt service

  6,009      1,875      2,260      3,773      2,686   

As % of total exports(2)

  14.9      3.6      4.3      7.6      5.8   

As % of total exports and workers’ remittances

  13.9      3.4      4.1      7.2      5.5   

As % of GDP

  4.0      1.1      1.2      1.9      1.3   

As % of total fiscal revenue

  22.5      5.8      6.1      9.8      6.9   

 

(1) Medium-and long-term debt service; excludes Central Bank debt and excludes extraordinary financing and refinancing.
(2) Includes exports of goods and services and investment income.

Source: Central Bank.

In 2014, interest payments on public sector external debt were U.S.$1,104 million, or 0.5% of GDP, which was comprised of U.S.$100 million to international organizations, U.S.$44 million to Paris Club creditors, U.S.$893 million to holders of sovereign bonds, U.S.$2 million to holders of Brady bonds, and U.S.$65 million to other creditors.

 

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The following table provides estimated medium- and long-term public sector external debt service through 2019.

Estimated Public Sector Debt Service by Debtor(1)(2)

2015 to 2019 (in millions of U.S. dollars)

 

    For the year ended December 31,  
    2015     2016     2017     2018     2019  
    Principal     Interest     Total     Principal     Interest     Total     Principal     Interest     Total     Principal     Interest     Total     Principal     Interest     Total  

Non-financial public sector

    845        812        1,657        1,114        809        1,923        822        805        1,627        646        794        1,440        1,571        742        2,313   

Central government

    807        788        1,595        991        777        1,767        611        774        1,385        434        770        1,204        1,443        729        2,173   

Public enterprises

    38        24        63        123        32        155        211        31        243        212        24        235        127        13        140   

Financial public sector

    30        105        135        311        104        415        350        91        441        297        85        382        620        76        696   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total public sector

  875      917      1,792      1,425      913      2,338      1,173      896      2,069      942      879      1,821      2,190      818      3,009   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Disbursements include preliminary estimates as of December 31, 2014.
(2) Includes Loans to COFIDE, Banco Agropecuario, Fondo MIVIVIENDA and PETROPERU, not guaranteed by Peru.

Source: Ministry of Economy (Office of Public Credit).

Peru issued public sector external bonds in connection with the Brady restructuring. As of December 31, 2014 approximately U.S.$53.7 million in principal remained outstanding on the Brady Bonds.

 

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Domestic Debt

The following table provides total public sector domestic debt, excluding intra-governmental debt, as of the dates presented.

Total Public Sector Domestic Debt

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Long-term debt:

              

Banco de la Nación

     374         623         718         787         836   

Treasury bonds

     13,801         14,51         16,352         16,107         17,671   

Other

     35         19         2.0         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

  14,211      15,158      17,072      16,895      18,507   

Short-term debt

  1,902      2,915      3,415      3,127      2,336   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  16,113      18,073      20,488      20,022      20,843   

Total public sector domestic debt, as % of GDP

  10.8      10.6      10.6      9.9      10.3   

 

Source: Central Bank.

The following table provides a list of the principal amount outstanding of Peru’s domestic public sector bonds as of the dates presented.

Public Sector Domestic Bonds(1)

(in millions of U.S. dollars, at current prices)

 

     As of December 31,  
     2010      2011      2012      2013      2014  

Central Bank capitalization bonds

     —           —           —           —           69   

Financial system support bonds

     122         122         122         122         122   

Debt exchange bonds

     694         701         685         552         460   

Pension recognition bonds

     2,835         2,847         2,903         2,607         2,335   

Sovereign bonds

     10,150         10,845         12,642         12,827         14,684   

Other bonds

     35         19         2         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  13,836      14,535      16,354      16,107      17,671   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes intra-governmental debt issued in the form of bonds.

Source: Central Bank.

Debt Record

For further information regarding Peru’s indebtedness outstanding as of the date of this prospectus supplement, see Annex A – Republic of Peru: Global Public Sector External Debt.

Recent International Legal Developments

Recent federal court decisions in New York create uncertainty regarding the meaning of ranking provisions and could potentially reduce or hinder the ability of sovereign issuers, including Peru, to restructure their debt.

In ongoing litigation in United States federal courts in New York captioned NML Capital, Ltd. v. Republic of Argentina, the U.S. Court of Appeals for the Second Circuit has ruled that the ranking clause in bonds issued by Argentina prevents Argentina from making payments in respect of certain performing bonds issued in a restructuring of Argentina’s debt unless it makes pro rata payments on defaulted debt that ranks pari passu with the performing bonds and has upheld the use of equitable remedies in the form of injunctions to enforce that decision. The U.S. Supreme Court has declined to hear the case, and proceedings concerning the scope of the injunctions that have been issued continue.

 

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Peru believes and has always intended that the equal ranking clause described in “Description of the Bonds—Terms of the Bonds” in this prospectus supplement and appearing in other securities previously issued by Peru would permit it to redeem or to make principal and interest payments in respect of some of its external debt without making ratable payments in respect of other external debt. However, the decision of the Second Circuit could affect that interpretation, which in turn could potentially hinder or impede future sovereign debt restructurings and distressed debt management transactions by affecting the voting decisions of bondholders, under, for example, the collective action clause contained in the global bonds. See “Description of the Securities — Debt Securities — Collective Action Clauses; Default; Acceleration of Maturity” and “— Amendments and Waivers” in the accompanying prospectus. Peru cannot predict whether or in what manner the courts will resolve this dispute or how any such judgment will be applied or implemented. Further, Peru cannot predict whether this litigation will affect the liquidity of the trading market for the global bonds or the price at which the global bonds will trade in the secondary market.

 

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USE OF PROCEEDS

The proceeds from the sale of the new bonds will be U.S.$628,810,100, plus accrued and unpaid interest from November 18, 2014 to (but excluding) March 27, 2015, of U.S.$10,985,156.25. The underwriting fee of U.S.$817,500 will be paid by us, as described in “Underwriting”. We intend to use the proceeds of this offering to prefinance a portion of our general financial requirements for 2016.

This offering is not conditioned on the completion of our Bonos Soberanos offering. There can be no assurance that the offering of our Bonos Soberanos will be completed.

 

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DESCRIPTION OF THE BONDS

We will issue the bonds under Supreme Decree No. 053-2015-EF, or the Supreme Decree, issued in compliance with the requirements set forth in Law No. 28563, as amended (Ley General del Sistema Nacional de Endeudamiento) and in Law No.30283 (Ley de Endeudamiento del Sector Público para el Año Fiscal 2015). The Spanish version of the Supreme Decree and its amendment can be obtained on the Ministry of Economy and Finance’s website at www.mef.gob.pe and an English translation thereof can be requested from such ministry using the contact information on the back cover of this prospectus supplement. The information contained in this section summarizes the material terms of the new bonds and the Supreme Decree. Because this is a summary, it does not contain all of the information that may be important to you as a potential investor in the bonds. Therefore, you should refer to the Supreme Decree for a complete description of Peru’s obligations and your rights as a holder of the bonds in making your investment decision.

General

We will issue the new bonds under a fiscal agency agreement, dated as of February 6, 2003, as amended as of November 21, 2003 and as of October 14, 2004, between us and The Bank of New York Mellon (initially with J.P. Morgan Chase Bank, N.A.), as fiscal agent, principal paying agent and registrar. The bonds will be a further issuance of, and will be consolidated and form a simple series with, the 5.625% U.S. Dollar Denominated Global Bonds due 2050, issued in an aggregate principal amount of U.S.$1,000,000,000 on November 18, 2010 and subsequent issuances by way of a reopening of U.S.$500,000,000 issued on February 1, 2012 and U.S.500,000,000 issued on November 7, 2014. The initial bonds issued on November 18, 2010, February 1, 2012 and November 7, 2014, as well as the bonds we are offering hereby, will constitute a single class of securities for all purposes, including, without limitation, for voting purposes under the fiscal agency agreement pursuant to which they will be issued.

References in this section to the “bonds” mean the U.S.$545,000,000 bonds we are offering hereby, or if the context suggests otherwise, to the bonds offered hereby and the U.S.$500,000,000 issued on November 7, 2014, the U.S.$500,000,000 issued on February 1, 2012 and the U.S.$1,000,000,000 issued on November 18, 2010. The information contained in this section and in the accompanying prospectus summarizes the material terms of the bonds and the fiscal agency agreement. Because this is a summary, it does not contain all of the information that may be important to you as a potential investor in the bonds. Therefore, you should read the fiscal agency agreement and the form of the bonds before making your investment decision. We have filed copies of these documents with the SEC and at the office of the fiscal agent in New York City. Copies of the fiscal agency agreement and the form of the bonds will also be available from the Luxembourg paying agent at its address included on the inside back cover page.

Terms of the Bonds

The bonds will:

 

    be a further issuance of, and will be consolidated and form a single series with, Peru’s outstanding U.S.$2,000,000,000 5.625% U.S. Dollar Denominated Global Bonds due 2050 (CUSIP No. 715638BM3, ISIN US715638BM30 and Common Code 055999333);

 

    mature at par on November 18, 2050;

 

    bear interest at 5.625% per year, computed on the basis of a 360-day year of twelve 30-day months;

 

    pay interest semiannually in arrears in equal installments on May 18, and November 18 of each year, commencing on May 18, 2015;

 

    not be redeemable before maturity and not be entitled to the benefit of any sinking fund;

 

    be issued in fully registered form, without coupons, registered in the names of investors or their nominees in denominations of U.S.$1,000 and integral multiples of U.S.$1,000 in excess thereof;

 

    be our direct, general, unconditional, unsubordinated and unsecured external indebtedness and rank equal in right of payment with all of our other existing and future unsecured and unsubordinated external indebtedness;

 

    be represented by one or more global notes in fully registered form only, without coupons, registered in the name of a nominee of DTC. Beneficial ownership interests will be recorded only on, and transferred only through, the records maintained by DTC and its direct and indirect participants, including the depositaries for Euroclear and Clearstream; and

 

    be available in definitive form only under certain limited circumstances.

 

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The bonds will contain provisions regarding acceleration and voting on amendments, modifications, changes and waivers that differ from those applicable to much of our outstanding public external indebtedness. Under these provisions, which are commonly referred to as “collective action clauses,” we may, among other things, amend certain key terms of a series of the bonds, including the maturity date, interest rate and other payment terms, with the consent of the holders of not less than 75% of the aggregate principal amount of the outstanding bonds of that series. Additionally, if an event of default has occurred and is continuing with respect to a series of bonds, the bonds of that series may be declared to be due and payable immediately by holders of not less than 25% of the aggregate principal amount of the outstanding bonds of that series. Those provisions are described in the sections entitled “Description of the Securities — Debt Securities — Collective Action Clauses; Default; Acceleration of Maturity” and “— Amendments and Waivers” in the accompanying prospectus.

Payments of Principal and Interest

We will pay on each bond:

 

    principal and interest payable on any maturity date in U.S. dollars in immediately available funds to the person in whose name each bond is registered on its maturity date, upon presentation and surrender of the bond at the corporate trust office of the fiscal agent or, subject to applicable laws and regulations, at the office of any paying agent; and

 

    interest (other than interest payable on any maturity date), to the person in whose name the bond is registered at the close of business on the record date for the relevant interest payment date.

Because each bond will be represented by one or more global notes and beneficial interests in the bonds may not be exchanged for bonds in physically-certificated form except in limited circumstances, we will make payments of principal and interest on each bond by directing the fiscal agent to make a wire transfer of U.S. dollars to DTC or its nominee as the registered owner of the bonds, which will receive the funds for distribution to the beneficial owners. Upon receipt of any payment of principal of or interest on the bonds, DTC will credit the appropriate DTC participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such bonds as shown on the records of DTC. Payments by DTC participants to owners of beneficial interests in bonds held through such participants will be the responsibility of such participants. Each beneficial owner should contact the institution through which it intends to hold its beneficial interest in the bonds to determine how payments of principal or interest on those bonds will be credited to its account.

None of us, the fiscal agent or any paying agent will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

If we do not pay interest by wire transfer for any reason, we will, subject to applicable laws and regulations, mail, or direct the fiscal agent to mail, a check to the holder of the affected bonds, on or before the due date for the payment at the address that appears on the security register maintained by the fiscal agent on the applicable record date.

The record date with respect to any interest payment date will be the 15th day prior to that interest payment date, whether or not that record date is also a business day.

Any payment of principal or interest required to be made on a payment date that is not a business day may be made on the next business day with the same force and effect as if made on that payment date, and no interest will accrue with respect to the payment for the period from and after that payment date.

Pending payment of principal or interest on the bonds that becomes due, the fiscal agent shall hold in trust, for the benefit of the beneficial owners of the bonds, the amounts transferred by us to the fiscal agent for such purpose. Any moneys held by the fiscal agent in respect of the bonds, and remaining unclaimed for two years after such amounts shall have become due and payable must be returned by the fiscal agent to us, and the holders of such bonds, shall thereafter look only to us for any payment to which such holders may be entitled.

 

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We may acquire any of the bonds, in any manner and at any price, and may hold them, resell them, or surrender them to the fiscal agent for cancellation. The bonds we acquire may be re-issued or resold only in compliance with the Securities Act and other applicable laws.

Paying Agent and Transfer Agent

Until the bonds are paid, we will maintain a paying agent, a registrar and a transfer agent in New York City. The Bank of New York Mellon will act as our paying agent.

We will apply to admit the bonds for listing on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market. In addition, we will maintain a paying agent and a transfer agent in Luxembourg so long as the bonds are admitted to trading on the Euro MTF Market, and the rules of the Luxembourg Stock Exchange so require. We have initially appointed The Bank of New York Mellon (Luxembourg) S.A. to serve as our Luxembourg paying agent and Luxembourg transfer agent.

We may at any time appoint additional or replacement paying agents, transfer agents and registrars. We will promptly provide notice, as described under “Description of the Bonds — Notices” below, of the termination or appointment of, or of any change in the office of, any paying agent or transfer agent.

You may contact the paying agents or the transfer agents at the addresses listed on the inside back cover page of this prospectus supplement.

Additional Amounts

We will pay all principal and interest on the bonds without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed by Peru, or by any political subdivision of or any taxing authority in Peru, except as required by law. If we are required by law to make any such withholding or deduction, we will pay such additional amounts as may be necessary to ensure that the net amounts you receive after such withholding or deduction shall equal the amount that you would have received in the absence of such withholding or deduction. We will not, however, pay any additional amounts if you are subject to such withholding or deduction due to one of the following reasons:

 

    you have some connection with Peru other than merely holding bonds or receiving principal or interest on the bonds;

 

    you have not complied with any reasonable certification, identification or other reporting requirements concerning your nationality, residence, identity or connection with us, or any political subdivision of or taxing authority in Peru, if compliance is required by Peru, or any political subdivision of or taxing authority in Peru, under applicable law or any international treaty in effect, as a precondition to exemption from the deduction or withholding; or

 

    you have not presented your bonds for payment within 30 days after we first made a principal or interest payment available on that bond, except to the extent that you would have been entitled to such additional amounts on presenting such bond for payment on the last day of such period of 30 days.

Further Issues

Without your consent, we may issue additional debt securities with the same terms and conditions as the outstanding bonds, except for the issue date, issue price and amount of first interest payment, and we may consolidate the additional debt securities to form a single series with the outstanding bonds.

Notices

Notices will be mailed to holders at their registered addresses and will be deemed to have been given on the date of mailing. All notices to holders will be published, if and so long as the bonds are admitted for listing on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market of the Luxembourg Stock Exchange, and the rules of the Luxembourg Stock Exchange so require, in a daily newspaper of general circulation in Luxembourg or on the website of the Luxembourg Stock Exchange (www.bourse.lu). We expect that we will initially make such publication in the Luxemburger Wort. If publication is not practicable, notices will be validly given if in accordance with the rules of the Luxembourg Stock Exchange.

 

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Book-Entry, Delivery and Form

The certificates representing the bonds will be issued in the form of one or more global notes, which we refer to in this prospectus supplement as the “global notes”. Each global note will be deposited with or on behalf of DTC and registered in the name of DTC or its nominee. Except as described below, a global note may be transferred in whole and not in part and only to DTC or its other nominees.

Ownership of beneficial interests in the global notes will be limited to “participants” who have accounts with DTC or persons who hold interests through participants. Ownership of beneficial interests in the global notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee with respect to interests of participants and the records of participants with respect to interests of persons other than participants.

So long as DTC, or its nominee, is the registered owner or holder of the global notes, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the bonds represented by the global notes for all purposes under the fiscal agency agreement and the bonds. No beneficial owner of an interest in any global note may transfer that interest except in accordance with DTC’s applicable procedures, in addition to those provided for under the fiscal agency agreement and, if applicable, those of Euroclear and Clearstream. Payments of the principal of, and interest on, the global notes will be made to DTC or its nominee, as the case may be, as the registered owner of the global notes.

Definitive Securities

We will issue bonds in definitive form in exchange for global notes only if:

 

    we notify the depositary that it will no longer be the depositary for the bonds, the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary or is ineligible to act as depositary, and, if the depositary is located in the United States, we do not appoint a successor depositary within 90 days;

 

    the depositary is located outside the United States and such depositary closes for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so; or

 

    we determine not to have any of the bonds represented by a global note.

If we issue definitive securities, they will have the same terms and authorized denominations as the global note. You may present definitive securities for transfer or exchange at the corporate trust office of the fiscal agent in New York City, or at the office of any paying agent, according to the procedures in the fiscal agency agreement. When you surrender a definitive security for transfer or exchange, the fiscal agent will authenticate and deliver to you a security or securities of the appropriate form and denomination and of the same aggregate principal amount as the security you are surrendering.

If any definitive security becomes mutilated, destroyed, lost or stolen you can have it replaced by delivering the security or the evidence of its loss, theft or destruction to the fiscal agent or the Luxembourg paying and transfer agent. You will be required to indemnify the fiscal agent and us before any replacement definitive security will be issued. All expenses, including our and the fiscal agent’s reasonable legal fees and expenses, associated with obtaining such indemnity and in issuing the new definitive security will be borne by the owner of the mutilated, destroyed, lost or stolen, definitive security. Upon satisfaction of the foregoing conditions, you will receive from the fiscal agent or the Luxembourg transfer agent a replacement definitive security.

The fiscal agent may require you to pay a fee sufficient to cover any stamp or other tax or governmental charge required to be paid with any transfer, exchange or negotiation.

 

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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR UNITED STATES PERSONS

The following is a summary of certain United States federal income tax consequences of the purchase, ownership and disposition of the new bonds as of the date hereof. Except where noted, this summary deals only with new bonds that are held as capital assets (generally, held for investment) by a U.S. Holder (as defined below) who acquired the new bonds pursuant to this prospectus supplement.

A “U.S. Holder” means a beneficial owner of the new bonds that is for United States federal income tax purposes any of the following:

 

    an individual citizen or resident of the United States;

 

    a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate the income of which is subject to United States federal income taxation regardless of its source; or

 

    a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary is based upon provisions of the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions all as in effect on the date hereof. Those authorities may be changed, perhaps retroactively, or subject to different interpretation, so as to result in United States federal income tax consequences different from those summarized below. This summary does not address all aspects of United States federal income taxes and does not deal with the effects of the Medicare contribution tax on net investment income or foreign, state, or local or other tax considerations that may be relevant to U.S. Holders in light of their personal circumstances. In addition, it does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws. For example, this summary does not address:

 

    tax consequences to U.S. Holders who may be subject to special tax treatment, such as dealers in securities or currencies, traders in securities that elect to use the mark-to-market method of accounting for their securities, financial institutions, regulated investment companies, real estate investment trusts, partnerships or other pass-through entities for United States federal income tax purposes, tax-exempt entities or insurance companies;

 

    tax consequences to U.S. Holders holding the new bonds as part of a hedging, integrated, constructive sale or conversion transaction or a straddle;

 

    tax consequences to U.S. Holders of the new bonds whose “functional currency” is not the United States dollar; or

 

    alternative minimum, estate or gift tax consequences, if any.

If a partnership (or other entity or arrangement treated as a partnership for United States federal income tax purposes) holds the new bonds, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the bonds, you should consult your own independent tax advisors.

If you are considering the purchase of the new bonds, you should consult your own independent tax advisors concerning the particular United States federal tax consequences to you of the ownership of the new bonds, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

Qualified Reopening

The new bonds should be treated, and we intend to treat them, as issued in a qualified reopening of the initial bonds for United States federal income tax purposes. Accordingly, the new bonds will have the same “issue price” and “issue date” as the initial bonds. The initial bonds had an issue price of 96.164% and an issue date of November 18, 2010.

 

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Pre-issuance Accrued Interest

A portion of the purchase price of the new bonds being offered is attributable to interest accrued prior to the date such new bonds are issued (“pre-issuance accrued interest”). We intend to take the position that a portion of the first interest payment on the new bonds equal to the pre-issuance accrued interest will be treated as a return of the pre-issuance accrued interest rather than as an amount payable on the new bonds. The portion of the first stated interest payment equal to the pre-issuance accrued interest should be excluded from income and should instead reduce your initial tax basis in a new bond. You are urged to consult your own tax advisors regarding pre-issuance accrued interest.

Payments of Interest

Interest (including additional amounts, if any, but excluding any pre-issuance accrued interest as described above under “—Pre-issuance Accrued Interest”) on a new bond will generally be taxable to you as ordinary income at the time it is paid or accrued in accordance with your method of accounting for United States federal income tax purposes. Interest income on a new bond (including any additional amounts) generally will constitute foreign source income and for purposes of the United States foreign tax credit, generally will be considered “passive category income.” You may be entitled to deduct or credit any foreign income taxes withheld from the interest payments you receive, subject to certain limitations (including that the election to deduct or credit foreign income taxes applies to all of your foreign income taxes for a particular tax year). You will generally be denied a foreign tax credit for any foreign income taxes imposed with respect to the new bonds where you do not meet a minimum holding period requirement during which you are not protected from risk of loss. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

Amortizable Bond Premium

If, immediately after purchasing a new bond, your tax basis in the new bond (taking into account any reduction in basis equal to the pre-issuance accrued interest) exceeds the stated principal amount of the new bond, the new bond will be treated as having been acquired with “bond premium.” You may elect to amortize such bond premium on a constant yield method, in which case the amount required to be included in your income each year with respect to interest on the new bond will be reduced by the amount of amortizable bond premium allocable (based on the new bond’s yield to maturity) to that year. If you do not make this election, the bond premium will decrease the gain or increase the loss that you would otherwise recognize on a sale, exchange, retirement, redemption or other taxable disposition of a new bond. However, because the new bonds may be redeemed prior to maturity at a premium, special rules apply that may reduce or eliminate the amount of bond premium that you may amortize with respect to a new bond. Any election to amortize bond premium shall apply to all bonds (other than bonds the interest on which is excludable from gross income for United States federal income tax purposes) held by you at the beginning of the first taxable year to which the election applies or thereafter acquired by you, and is irrevocable without the consent of the Internal Revenue Service.

Sale, Exchange, Retirement or other Taxable Disposition of Bonds

Upon the sale, exchange, retirement or other taxable disposition of a new bond, you will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange, retirement or other taxable disposition of the new bond (less an amount equal to any accrued and unpaid interest, which will be taxable as interest income to the extent not previously included in income) and your tax basis in the new bond. Your tax basis in a new bond will, in general, be your United States dollar cost for that new bond (less any amount attributable to pre-issuance accrued interest, as described above under “—Pre-issuance Accrued Interest”), reduced by any amortized bond premium. Your gain or loss will be capital gain or loss and will be long-term capital gain or loss if at the time of sale, exchange, retirement or other taxable disposition, you have held the new bond for more than one year. Capital gains of individuals and certain other non-corporate U.S. Holders derived in respect of capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Gain or loss realized by you on the sale, exchange, retirement or other taxable disposition of a new bond would generally be treated as United States source gain or loss for purposes of the United States foreign tax credit limitations.

 

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Backup Withholding and Information Reporting

Generally, information reporting requirements will apply to all payments we make to you and the proceeds from a sale of a new bond paid to you, unless you are an exempt recipient. Additionally, if you fail to provide your taxpayer identification number, or in the case of interest payments, fail either to report in full dividend and interest income or to make certain certifications, you may be subject to backup withholding.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

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PERU TAXATION

The following is a general summary of the material consequences under Peruvian tax law, as currently in effect, of an investment by a “foreign holder” in debt securities issued by Peru. For this purpose, “foreign holder” means either: (i) an individual who is neither a resident nor domiciled in Peru or (ii) a legal entity that is not incorporated under the laws of Peru, unless the debt securities are assigned to a branch, agent, representative or permanent establishment of an entity in Peru. For purposes of Peruvian taxation, an individual holder is deemed a resident of Peru if such individual has remained in Peru for more than 183 days within any 12-month period, obtaining the status of resident on January 1 of the following year.

Peruvian income tax law establishes that a foreign holder is subject to income tax only on income from Peruvian sources. For this purpose, income from a Peruvian source means, among others: (i) earnings from capital, interest, commissions, bonuses and other additional sums to the agreed interest for loans, credits or other financial operations, when capital is located or economically used in Peru, or when the payer is domiciled in Peru; (ii) earnings obtained by the sale, redemption or recovery of bonds, when the issuing entity is organized or established in Peru; and (iii) interest from debentures, when the issuing entity is organized in Peru, regardless of the location of the issuance or the security for such debentures. A foreign holder of debt securities generally will not be liable for estate, gift, inheritance or similar taxes with respect to such debt securities.

According to Peruvian income tax law, interest and capital gains originating from the following instruments are not subject to withholding or income taxes: (i) notes of the Peruvian Public Treasury (Tesoro Público); (ii) debt securities issued by the Republic of Peru (a) under the Market Makers Program (Programa de Creadores de Mercado) or any substitute or (b) in the international capital markets since 2003; (iii) obligations of the Central Bank, except those originating from reserve deposits of financial institutions; (iv) securities traded by Exchange-Traded Funds that replicate Peruvian-based indexes, when such trades are in connection with (a) the formation of the Exchange-Traded Funds, (b) the dissolution of Exchange-Traded Funds, or (c) the portfolio management of Exchange-Traded Funds.

According to the paragraph above, under Peruvian income tax law, interest and capital gains from the bonds will not be subject to any withholding tax or income tax.

 

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EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME

Under Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments, each European Union (“EU”) member state (each an “EU Member State”) is required to provide to the tax or other relevant authorities of another EU Member State details of payments of interest or other similar income made by a person within its jurisdiction to an individual or certain other types of person resident in that other EU Member State; however, for a transitional period, Austria and Luxembourg have instead opted to apply a withholding system in relation to such payments, deducting tax at the rate of 35%, unless during that period they elect otherwise. The transitional period is to terminate following agreement by certain non-EU countries to the exchange of information relating to such payments. A number of non-EU countries, and certain dependent or associated territories of certain EU Member States, have agreed to adopt similar measures (either provision of information or transitional withholding). Luxembourg has announced that it will no longer apply the withholding system as from January 1, 2015 and will provide details of payments of interest and other similar income as from that date.

On March 24, 2014, the Council of the European Union adopted a directive amending Council Directive 2003/48/EC, which, when implemented, will amend and broaden the scope of the requirements above. EU Member States have until January 1, 2016 to adopt the national legislation necessary to comply with this amending directive.

 

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UNDERWRITING

BBVA Securities Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC are acting as underwriters of the offering.

Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the principal amount of new bonds set forth opposite the underwriter’s name.

 

Underwriter

   Principal Amount of New Bonds  

BBVA Securities Inc.

   U.S.$ 181,666,000   

Deutsche Bank Securities Inc.

   U.S.$ 181,666,000   

Morgan Stanley & Co. LLC

   U.S.$ 181,668,000   
  

 

 

 

Total

U.S.$ 545,000,000   
  

 

 

 

The underwriting agreement provides that the obligations of the underwriters to purchase the new bonds included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the new bonds if they purchase any of the new bonds.

The underwriters have advised Peru that they propose to first offer the new bonds to the public at the public offering price set forth on the cover page of this prospectus supplement. After this first public offering, the public offering price may be changed.

The following table shows the underwriting fee that we will pay to the underwriters in connection with this offering (expressed as a percentage of the principal amount of the new bonds).

 

     Paid by Peru  

Per new bond

     0.150

In connection with the offering, BBVA Securities Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC may purchase and sell new bonds in the open market. These transactions may include over-allotment, syndicate covering transactions and stabilizing transactions. Over-allotment involves syndicate sales of bonds in excess of the principal amount of new bonds to be purchased by the underwriters in the offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of the bonds in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or purchases of new bonds made for the purpose of preventing or retarding a decline in the market price of the bonds while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when BBVA Securities Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC, in covering syndicate short positions or making stabilizing purchases, repurchase new bonds originally sold by that syndicate member.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the new bonds. They may also cause the price of the new bonds to be higher than the price that otherwise would exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

In the underwriting agreement we have agreed to reimburse the underwriters for certain of their out-of-pocket expenses incurred on our behalf in connection with the offering, if any. We estimate that our share of the total expenses of the offering, excluding underwriting fee, will be approximately U.S.$300,000.

In the underwriting agreement we have also agreed, from the date of this prospectus supplement through the period ending 15 days after the settlement date, to ensure that none of our dollar-denominated debt securities (other than debt securities with a maturity of one year or less) are placed or sold in the international capital markets, directly or indirectly on our behalf, in any manner which might, in the reasonable opinion of the underwriters, have a detrimental effect on the successful offering and distribution of the new bonds offered hereby, unless the underwriters otherwise agree in writing.

The underwriters and their affiliates have performed investment banking and advisory services for us from time to time for which they have received customary fees and expenses. The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business.

 

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In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities, as further described in the underwriting agreement.

European Economic Area

This prospectus supplement has been prepared on the basis that all offers of bonds will be made pursuant to an exemption under the Prospectus Directive, as implemented in Member States of the European Economic Area (“EEA”), from the requirement to produce a prospectus for offers of securities. Accordingly any person making or intending to make any offer within the EEA of bonds which are the subject of the placement contemplated in this prospectus supplement should only do so in circumstances in which no obligation arises for Peru or any of the underwriters to produce a prospectus for such offer. Neither Peru nor the underwriters have authorized, nor do they authorize, the making of any offer of bonds through any financial intermediary, other than offers made by underwriters which constitute the final placement of bonds contemplated in this prospectus supplement.

In relation to each Member State of the EEA which has