Political, Legal, and Regulatory Environments

Constitution and Political Institutions
The president is popularly elected for a five-year term. A constitutional amendment passed in 2000 prevents reelection. The first and second vice presidents also are popularly elected but have no constitutional functions unless the president is unable to discharge his duties. The Constitution allows the president to decree laws as long as he first informs the Congress of his intent to do so. If the president dissolves congress, the Constitution gives him the power to simply rule by decree.
The principal executive body is the Council of Ministers, comprised of 15 members and headed by a prime minister. The president appoints its members, who must be ratified by the Congress. All executive laws sent to Congress must be approved by the Council of Ministers.
The legislative branch consists of a unicameral Congress of 120 members. In addition to passing laws, Congress ratifies treaties, authorizes government loans, and approves the government budget.
The judicial branch of government is headed by a 16-member Supreme Court. The Constitutional Tribunal interprets the constitution on matters of individual rights. Superior courts in departmental capitals review appeals from decisions by lower courts. Courts of first instance are located in provincial capitals and are divided into civil, penal, and special chambers. The judiciary has created several temporary specialized courts in an attempt to reduce the large backlog of cases pending final court action. In 1996 a human rights ombudsman's office was created.
Peru is divided into 25 regions. The regions are subdivided into provinces, which are composed of districts. High authorities at the regional and local levels are elected. The country's latest decentralization program is in hiatus after the proposal to merge departments was defeated in a national referendum in October 2005.
Peruvian foreign relations have been dominated by border conflicts with neighboring countries, most of which were settled during the 20th century. There is still an ongoing dispute with Chile over maritime limits in the Pacific Ocean. Peru is an active member of several regional blocs and one of the founders of the Andean Community of Nations. It is also a participant in international organizations such as the Organization of American States and the United Nations. The Peruvian military is composed of an army, a navy and an air force; its primary mission is to safeguard the independence, sovereignty and territorial integrity of the country. The armed forces are subordinate to the Ministry of Defense and to the President as Commander-in-Chief. Conscription was abolished in 1999 and replaced by voluntary military service.

Legal regime
Peru's legal framework has a key role in spurring Merger and Acquisition growth. It is clear, emphasizes transparency, and favors facilitating investments rather than overburdening them with regulation.
All public and private companies are governed generally by Peru's General Law of Companies (Ley General de Sociedades). As expected, public companies are subject to special regulation under specific statutes, including the Securities Market Law (Ley del Mercado de Valores) and the Law on Investment Funds and Investment Fund Managers (Ley de Fondos de Inversión y sus Sociedades Administradoras). They also adhere to other regulations governing initial public offerings, tender offers, trading of securities, securitization, clearing houses, enforcement and the preparation and issuance of financial statements.
Peru's financial regulator (Comisión Nacional Supervisora de Empresas y Valores or CONASEV) is charged with enforcing Peru's securities laws. Most investors resort to CONASEV in the event of a complaint or dispute. While civil courts have jurisdiction to decide corporate controversies, few cases reach them in due course.
Regulation of corporate activity in Peru is far from excessive. In comparison with the laws of other Latin American jurisdictions, Peruvian regulations are brief and to the point. They emphasize transparency in order to provide investors with as much information as possible so that they can make informed decisions. They do not, however, protect investors who make wrong or inappropriate decisions, so long as the relevant information was timely made available to them. This emphasis on transparency makes shareholder lawsuits a rare event in Peruvian courts.

Tax advantages
Peru's tax laws also stimulate M&A activity in a very significant way. Peru has two main taxes: income tax and general sales tax (or IGV). As a matter of national policy, the Peruvian Congress has enacted a statute exempting all capital gains derived from the sale of shares of Peruvian companies carried out through the Lima Stock Exchange (Bolsa de Valores de Lima or BVL) from Income Tax until December 31, 2011. In addition, Peru's General Sales Tax Law exempts all share transactions carried out through the BVL from IGV. Furthermore, qualified foreign investors may negotiate Legal Stability Agreements (LSAs) with the Agency for the Promotion of Private Investment (ProInversion). This can guarantee the stability of the legal framework existing at the time the investment is made, including tax, foreign exchange, and labor laws. This favorable treatment undoubtedly has a very positive impact on important investment decisions.

Merger control
Economic freedoms that facilitate M&A activity also include the absence of merger controls. At this time, Peru does not have merger control regulations similar to those in force in other jurisdictions, and no prior merger approvals are required from the government. This freedom fosters M&A activity, lowers transactional costs, and speeds up the merger process. But this freedom may be curtailed in the near future.
Recently, a boom in Peruvian agriculture led major companies to seek to acquire large tracts of agricultural land. While economically sound, this corporate impetus was immediately criticized as an excess of laissez-faire politics seemingly oblivious to the country's painful experience with agricultural reform in the 1970s. This caused the government to propose the enactment of merger control regulations in order to prevent concentration in the ownership of lands. While public debate over this merger control proposal continues, however, mergers are not subject to prior approvals or controls of any kind.

Constitutional guarantees
Peru's Constitution provides two very important freedoms to foreign investors: equal treatment vis-à-vis national investors and the absence of foreign exchange controls. With the exception of a constitutional provision reserving to Peruvian nationals the ownership of land, water, and energy resources within 50 kilometers of the border, and a restriction to foreign ownership of radio and television stations, all areas of Peru' economic activity are open to foreign investment. And everyone has the absolute freedom to use and possess any foreign currency.

Accounting standards
Finally, Peru has made great strides towards converging local accounting standards to International Financial Reporting Standards (IFRS). CONASEV has issued specific Financial Information Regulations requiring Peruvian companies to prepare their financial information using Gaap and eliminating any prior provisions conflicting with IFRS. As a result, prospective foreign investors are able to examine with relative ease the financial information provided to them in the process of due diligence.

Social and Cultural Environment

The culture of Peru is by far one of the most diverse in South America. Owing thanks to the natural isolation of the region (the Andes mountains to the West of Peru and the Amazon River Basin both discourage travel by foot into Peru), Peruvians have been successful at preserving the culture of Peru for thousands of years. Even after the invasion by the Spanish conquistadors, the ancient culture of Peru is still evident today.
Over half of Peru's population lives on the coastal areas of Peru, whereas the rest mainly live in the mountain areas. Less than 5% of the natives live in the jungle areas of Peru. Approximately 45% of the people of Peru are indigenous, and about 37% is mestizo (a combination of both indigenous and of Latin descent). The rest of the population of Peru is Indian, African, Chinese, or of some other descent.

LANGUAGE
The two official languages of Peru are Spanish and Quechua. Quechua is the language of the Incas. Still widely spoken throughout the Andes, it was made an official language by the military government that controlled the country from 1968 to 1975. The dominant language in urban areas, however, is Spanish. The primary difference between the Spanish spoken in Spain and in Peru is the accent.
RELIGION

Peruvians are fervent Catholics. Catholics comprise 90 percent of the population. No Peruvian town, no matter how small or remote, is without a church. Religious practices carefully intertwine modern and traditional beliefs. The Peruvian version of Catholicism, for example, has incorporated some of the traditional gods and spirits by referring to them as saints or lords. When the Spanish converted the Amerindians to Christianity, they moved many of the Christian holidays to coincide with existing traditional festivals. In so doing, many traditional festivals continue to be practiced, with minor modifications, within the Christian framework.
FAMILY LIFE
In countries without a welfare system or social security system, the family bonds together not only as a social unit, but as an economic one as well. The basic household unit includes parents, children, and, in many cases, grandparents or aunts and uncles. In middle-class households, it may also include a live-in servant or nanny to look after young children. Financial difficulties mean that children live at home until they get married as young adults. Compadrazgo (godparenthood) is an important tie between friends and forges bonds of obligation between two families. Godparents are expected not only to contribute a modest amount of financial support for the godchild, but to provide emotional support and guidance to the family. These interfamily social arrangements expand a family's support network. Machismo, an attitude of male superiority and sexism, is widespread ( marianismo , an attitude of female passivity and coyness, is the counterpart of machismo). However, Peruvian women participate actively in important family decisions. Women play an active role both in family and community life. They also make significant contributions to family income.
RELATIONSHIPS
It is poor manners to arrive on time if invited to a dinner or a party. Tardiness of an hour or more is expected. If hosts expect the guests to arrive more promptly, they will ask them to observe hora inglesa (English time). When being introduced to a woman at a social occasion, the proper greeting is a kiss on the cheek. Men, when introduced to each other, shake hands. At an informal gathering, when a group of friends are drinking together, it is a sign of friendship to share the same glass. When a large bottle of beer or pisco (a Peruvian alcoholic beverage) is opened, the bottle and glass are passed around in a circle. One is expected to serve oneself a small serving, drink it quickly, then pass both the bottle and glass to the next person. To ask for a separate glass would give offense.
LIVING CONDITIONS
Approximately one-third of the entire Peruvian population lives in the capital city, Lima. Over half live in urban squatter settlements (occupied without lease or rent). These are known as pueblos jóvenes (young towns). Migration to Lima from the Andean region fuels the development of pueblos jóvenes. Uninhabited land is selected and invaded by a group of settlers overnight. The initial housing is usually made out of light reed matting. More-permanent structures are built gradually, bit by bit, as the family can afford to buy bricks and mortar. In addition to poor housing, residents of the pueblos jóvenes suffer from a lack of basic services. While the majority now have electricity in their houses, water is scarce. Unsanitary conditions create serious health hazards.
The residents of the modern suburbs of Lima have living standards comparable to those found in the United States. Suburban houses range from high-rise apartments to grand colonial houses. In periods of drought, however, even these sectors have their water and electricity rationed by the municipality.
CUISINE

Peru has one of the most developed cuisines of Latin America. Many dishes are a delicate combination of South American Indian, Spanish, and African ingredients and cooking traditions. Seafood is the dominant ingredient on the coast, yucca and plantains in the jungle, and potatoes in the Andes. The national dish of Peru is ceviche, a spicy dish of onions and seafood. In ceviche, the fish is cooked not by applying heat but by soaking it for a few hours in lime juice. The acid in the lime juice has the effect of breaking down the protein, thus "cooking" the fish. Sliced onion, hot peppers, and chopped coriander are then added. Corn-on-the-cob cut into small sections called choclo are commonly served as a garnish or addition to different kinds of dishes
BUSINESS IN PERU

Peru is the third-largest country in South America; Business centers on the capital, Lima.
Schedule business meetings well in advance and never drop in unexpectedly on a client in Peru; this is not appreciated. Peruvians run on what is called "la hora peruana," or "Peruvian time." This means that your hosts may be as much as an hour late for a scheduled appointment. Peruvians conduct business in a brisk, efficient manner. Negotiators are tenacious and competitive. When presenting information, be direct and to the point. Decisions are typically made at the highest level only, so try to meet with the top executives when possible. Be patient; negotiations will often end without a decision having been made.
Most business is conducted in Spanish, the official language of Peru. Though many Peruvians understand English to a degree, it will be expected that you communicate in their language.
Dress should be formal, with suits and ties the norm. Titles and surnames are usually used upon greeting, and handshakes are standard for men and women. Peruvians typically have three names: first name, father's surname, and then mother's surname. For instance, if you were meeting Peruvian writer Eduardo González Viaña, you would address him as Señor González.
Business cards are usually exchanged and it is useful to have them printed in Spanish on one side.
Lunch in Peru is served later than it is in the United States. Typical lunch meetings will begin between 1:00 pm and 2:00 pm. Peruvians are very proud of their national alcoholic drink, the Pisco Sour, so be prepared for your hosts to offer one during a lunch meeting.

PERU'S ECONOMY

The economy of Peru is the 47th largest in the world. Peru is an emerging, market-oriented economy characterized by a high level of foreign trade. Historically, the country's economic performance has been tied to exports, which provide hard currency to finance imports and external debt payments. Peru's main exports are copper, gold, zinc, textiles, and fish meal; its major trade partners are the United States, China, Brazil, and Chile. Although exports have provided substantial revenue, self-sustained growth and a more egalitarian distribution of income have proven elusive.

Peru's economy has shown strong growth over the past seven years, averaging 6.8% a year, helped by market-oriented economic reforms and privatizations in the 1990s, and measures taken since 2001 to promote trade and attract investment. GDP grew 9.8% in 2008, 8.9% in 2007, 7.7% in 2006, and 6.8% in 2005. President Alan García and his economic team have continued these policies. Recent economic expansion has been driven by construction, mining, private investment, exports, and domestic consumption. Inflation (annual average) jumped to 5.8% in 2008, due mostly to substantial global foods and oil prices increases, and the fiscal surplus (third year in a row) was 2.1% of GDP. Thanks to pre-payments, public external debt in 2008 dropped to $19.2 billion, and foreign reserves were a record $31.2 billion.

Peru's economy is well managed, and better tax collection and growth are increasing revenues, with expenditures keeping pace. Private investment is rising and becoming more broad-based. Peru obtained investment grade status in 2008. The García administration is pursuing decentralization initiatives, and is focused on bringing more small businesses into the formal economy. However, the 2008 global financial crisis will make a dent in the Peruvian economy in 2009, with GDP growth expected to drop to 3.5%.

External Statistics

Exports

$32 billion (2008 est.)

Export goods

copper, gold, zinc, crude petroleum and petroleum products, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, machinery, cement, textiles, coffee, potatoes, asparagus, guinea pigs

Main export partners

United States 31.1%, China 10.8%, Chile 6.6%, Canada 5.9%, Switzerland 4.6% (2005)

Imports

$15.38 billion f.o.b. (2006 est.)

Import goods

petroleum and petroleum products, plastics, machinery, vehicles, iron and steel, wheat, paper

Main import partners

United States 18.2%, China 8.5%, Brazil 8%, Ecuador 7.4%, Colombia 6.1%, Argentina 5.1%, Chile 5.1%, Venezuela 4.1% (2005)

Industry and services

Fishing, Peru is an international leader in fishing, producing nearly 10 percent of the world's fish catch. Mining, Peru ranks eighth worldwide in gold production (first in Latin America), second in copper, and among the top 5 producers of lead and zinc. Manufacturing. Because of its long dependence on raw material exports, Peru has never developed a strong manufacturing sector. The sector represents 15 percent of GDP and is tied heavily to mining, fishing, agriculture, and textiles. Manufacturing is mainly devoted to processing a percentage of the raw materials to gain a value-added advantage. The most promising sector is textiles. Tourism has represented a new growth industry in Peru since the early 1990s, with the government and private sector dedicating considerable energies to boosting the country's tourist destinations both to Peruvians and foreigners.

Services: Financial services, with the exception of Banco de Credito—Peru's largest financial institution (US$8.5 billion in assets)—nearly all the financial sector has fallen into foreign hands

[edit] Natural resources

Peru's natural resources are copper, silver, gold, petroleum, timber, fish, iron ore, coal, phosphate, potash, and natural gas.

Foreign Trade and Balance of Payments

Peru and the U.S. signed the U.S.-Peru Trade Promotion Agreement (PTPA) in April 2006 in Washington, DC. The PTPA was ratified by the Peruvian Congress in June 2006 and by the U.S. Congress in December 2007. The Peruvian Government passed several changes to its environmental and intellectual property laws in order to allow the PTPA to enter into force. The PTPA entered into force on February 1, 2009.

Peru’s exports reached $31.2 billion in 2008, partially as a result of high mineral prices. Peru's major trading partners are the U.S., China, EU, Switzerland, Canada, and Japan. According to U.S. Government statistics, after nine years of surpluses Peru registered a deficit in its trade with the United States of $0.33 billion in 2008, exporting $5.86 billion and importing $6.18 billion. Peru’s exports include petroleum, gold, copper, apparel, tin, coffee, non-ferrous ores, asparagus, fishmeal, zinc, and textiles. Imports include machinery, petroleum products, electrical machinery, plastics, vehicles, steel, and cereals. Peru belongs to the Andean Community, the Asia-Pacific Economic Cooperation (APEC) forum, and the World Trade Organization (WTO). Peru has limited trade agreements with Chile and Mexico; it signed more robust agreements with Canada and Singapore in 2008, recently concluded a trade agreement with China, and is negotiating one with the European Union.

Foreign Investment

The Peruvian Government actively seeks to attract both foreign and domestic investment in all sectors of the economy. The registered stock of foreign direct investment (FDI) at end-2008 was $18 billion, though Peru’s Central Bank estimates FDI was $30 billion. The U.S., Spain, and the United Kingdom are the leading investors. FDI is concentrated in telecommunications, mining, manufacturing, finance, and electricity.

Mining and Energy

Peru is a source of both natural gas and petroleum. In August 2004, Peru inaugurated operations of the Camisea natural gas project. Camisea gas has transformed Peru’s energy matrix, reducing the country’s dependence on imported diesel. The $3.8 billion Peru LNG project, currently under construction, will liquefy natural gas for export to Mexico and possibly the west coast of the United States, converting Peru into a net energy exporter in 2010.

Peru is the world's top producer of silver, second in zinc, third in copper and tin, fourth in lead, and sixth in gold. Mineral exports have consistently accounted for the most significant portion of Peru's export revenue, comprising 63% in 2008.