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.