Peru is a country located on the western side of the South America continent; it is bordering the South Pacific Ocean between the republic of Chile and Ecuador. Peru is a country with a population of about twenty-nine million people. According to the World Bank about twelve million people in Peru live on less than two dollars a day while about three million people live in absolute poverty (World Bank, 2011). But despite this economic downfall that the country faces, it s been able to turn around its economy and is now ranked as one of the world’s fastest-growing economies owing to the economic boom experienced during the 2000s. The economy of Peru has been influenced by some policies introduced by the government which includes; macroeconomic stability, prudent fiscal spending, high international reserve accumulation, external debt reduction, achievement of investment grade status and fiscal surpluses. The Peruvian economy has been growing by an average of 6.4% per year since 2002 (CIA, 2011). Despite this economic growth, Peru‘s dependence on minerals and metal export which are the major foreign exchange earner subject the country’s economy to fluctuations in world prices. Like most of the developing countries which rely on agriculture where their products fetch low prices and agriculture are affected by climate changes Peru’s economy is thriving with assistance from the international monetary fund organization and the World Bank (Mark. 120)
Peru’s Annual Growth rate (Economic Survey of Latin America and the Caribbean • 2005-2008)
Gross National Product
Gross domestic product
Investment and saving
Balance of payment
Key problems facing the economy of Peru
Peru as like many other developing countries faces economic problems which may range from eminent poverty levels among most of the citizens in the country, political instability, relying mostly on agriculture, bad leadership as a result of political problems. The poverty level may be contributed by poor education; skills and technology which make the country lag behind in terms of economic development. Poor health among citizens can be tackled by better policy formulation by the government as it emphasizes in providing better health care to its citizens. The government should invest on creating better infrastructure mostly in the rural areas so as to improve on social amenities that expose people to better living standards. Political stability is another contributor of economic growth, better policy formulation as a result of good governance will bear good fruits for the citizens and a good indicator in the improvement index on economic matters. The government can provide cheap affordable education for the citizens and thus they gain skills to carry out development changes in their locality and are able to provide for their families (CIA factbook).
The other problem facing Peru is lack of proper and modern transportation facilities. The Government fails to implement reliable infrastructure mostly to rural areas, this leads to poor road network from the rich agricultural land where crops are grown and they need better road and railway network to reach in the city and other major towns in time. It is as a result of poor policy making by the authority to tackle the problem of poor infrastructure (Morales, 15).
Peru’s economic policies
Fiscal policy is the use of government revenue collection and expenditure to influence the economy. The government collects revenue mainly from taxation and issuing of trade licenses. It spends money mainly through providing services like education, health and security by paying the military or the police. The government can fund its expenditure from borrowing which may either be internal or external. Mostly internal borrowing helps the country to check on the level of inflation by lowering the money volume in circulation. The government of Peru uses fiscal policy to control its spending and thus as a result (World Bank, 2011)
Monetary and exchange rate policy- monetary policy can be defined as the action of the central bank and other regulatory committee of a country to determine and control the supply of money often targeting the interest rates for the purpose of economic growth and stability. Monetary policy is controlled through actions like increasing or decreasing the interest rate from central bank to commercial banks. This has direct effect on the supply and demand of money on the current markets. Money supply is maintained when the level of interest rate is lowered or increased to suit the current economic trend in a country. It can also be maintained by changing the amount of money banks need to keep in the bank reserves. Since 2007 the inflation of Peru has high mostly due to rising international prices and low demand of the major foreign exchange earner of Peru like minerals and thus the government had to device ways to deal with this rising inflation for economy of the country to stabilize. In Peru, the effect of the international crisis was felt first in the financial markets lately in 2008 as the stock market indicators deteriorated sharply but the authority adopted measures to curb the crisis. The interest rates were lowered to favor the local market and thus the economy stabilized (CIA, fact book).
Trade policy- Peru has continually been involved in international trade mostly for its minerals and agricultural Products; which it exports to the neighboring countries like Chile, Argentina and Brazil. By February 2009, Peru had entered into a free trade agreement with the United States and the European Union. been of great help to the countries private sector which continues to grow steadily over the years and thus leading to economic growth and stability of the currency. International trade has been vital to the country’s economy as it’s able to repay its debt and in turn lower the large deficit in its budget. Peru has been able to utilize most of its rich agricultural land to grow and expand its national capacity to feed the nation and export the surplus to the neighboring countries. Its main agricultural export is coca which fetches a lot of money on the international market and thus a major foreign earner for the country. Farmers have been educated on modern methods of farming so as to produce the highest output from their farms (Morales. p 15). Modern animal husbandry is practiced in the rural areas and thus a viable economic activity which ensures the country has food through out the year. Industries are being set on the capital to process the already harvested food stuffs and thus create jobs for the citizen. Multinational firms are setting up in Peru to take advantage of the increase in market for their processed products (Mark, 112).
Like many other developing countries around the world, Peru has its share of economic problem and political instability. Peru’s economy is improving given the government role to implement better economic policies for the benefit of the country. The policies range from monetary policy to fiscal policy where the money supply and demand is controlled and thus maintaining a better economic growth thus enriching the citizens. Better spending by the government has helped to ensure the citizens are able to access better health care and education. The level of literacy in Peru has been on the rise and people are able to gain the required skills to carry out their tasks in the best way, may it be in agriculture on in the industry. The poverty level in the country is on the decrease as affordable health care is available and the number of hospitals in the country is growing. This has in turn led to better living standard and lowering mortality rate among children.