PERU: CURRENT ECONOMIC SITUATION AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000010020-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: September 6, 2000
• Sequence Number: 20
• Publication Date: November 25, 1974
• Content Type: MF

 Approved For Rel
Mai * ~-/ CIA-RD QP8 T00875R0020000010020-3
25 November 1974
MEKORANDVM FOR: Chief,
SUBJECT : Peru: Current Economic Situation
and Prospects
In response to your request, we are transmitting
the attached briefing paper which was prepared for use
by the in briefing certain Peruvian
25X1A
officials on the state of the economy. Questions may
be directed to the author, x1516 Red.
25X1A
Chief ,
Latin America Branch
Office of Economic Research
Attachment:
? As stated
Distribution: (S-6638)
Orig. & 1 - Addressee
1 - D/OER
1 - D/D
1-st/P
1 - NIO/LA
1 - D/LA
OER/D/LA: :mm/5541 (25 Nov 74)
MICRO
ONLY
-:.2,3..`~ OLT CL -11.015319'
FZe1ease-2M-fl g/'29-''- fi= PttTOO Fk6o2000010020-
 Peru: Current Economic Situation and Prospects
I. Peru's economic situation has worsened slightly in 1974
compared with a year earlier.
A. Real GDP growth has slipped to 5.0% from 5.8% in
1973.
8. Indus trial''prodnion has dipped a little.
C. Mining output and exports have stagnated.
D. Agricultural production remains low, contributing
to sporadic shortages of basic foodstuffs; peasant
opposition to cooperativization and other agrarian
reform problems continue to hold back farm output.
E. Private domestic investment continues to be
discouraged by social reforms.
F. The inflation rate probably will reach about 25%,
up from 14% last year; rising import prices and
an increased government deficit are the responsible
factors.
G. Rising import costs for food and oil may put the
1974 trade balance in the red despite increased
fishmeal exports and greater earnings from copper
exports because of high prices.
H. Despite increased private capital inflows for oil and
copper development, the 1974 balance-of-payments surplus
accordingly will be a little smaller than last year.
015319
.>:..IMrDUT C4 II V ..............
Approved For Release 2001/09/28 : CIA-RDP85T00875ROO2000010020-3
 W~~ EIS r ~I ,?'? ,,'`` ---
Approved For Release Ib~RhP85TO0875RO02000010020-3
II. Increased availability of anchovies has brought
improvement in the fishmeal industry compared with
last year.
A. As a conservation measure, the government has
limited the anchovy catch to 5 million tons,
up from 1.8 million in 1973.,.-
B. Fishmeal production will reach about 1.1 million
tons, with an estimated amount available for
export of 900,000 tons,. compared with 350,000
tons last year.
C. Weak demand for fishmeal forced Peru to reduce the
price.from $400 per ton to $270 per ton at mid-year.
Earnings in 1974 will total about $250 million, up
from about $140 million .in 1973.
D. Earnings are likely to grow steadily as production
increases over the next several years; barring a
return of El Nino, they :hould reach about $400
million by 1976.
III. Per capita food production of basic foodstuffs continues
to decline while large tracts of expropriated land lie
idle as the government ponders how best to implement
its agrarian reform program.
r l
Approved For Release 2001/09/28 CIA-RDP85T00875R002000010020-3~,
 Approved For Release 20(MMUt$lJidAi 85TOO875ROO2000010020-3
A. In the 1974-75 crop year, Peru will be forced to
import about 900,000 tons of wheat, 375,000 tons
- of corn, 100,000 tons of sorghum and about 75,000
tons of rice.
Be The government's 1975-78 National Development
Plan is aimed at expanding--food production and
curtailing dependence on imports. Emphasis will
continue on agrarian reform and expansion of
irrigation, credit, and research facilities.
To spur production, the Agricultural Bank has
established a 3-year, $37 million rural credit
program with financing from the World Bank and
IDB.
IV. Peru's already large government deficit will increase
substantially this year.
A. Consumer subsidies for food, power, and oil will
rise to an estimated $320 million, or 9 percent of
the budget.
Be Growing pressure from organized labor will.force
the goveriunent to grant public sector employees a
moderate salary increase before year end.
C. Despite probable tax increases and other measures,
the deficit will continue to grow as the government
is forced to assume increasing responsibility for
financing economic development.
-3- PuI :'T'"'1IT, l ~1
JII)et~?11.:i.1:1
"`"'"~"""'~'""~`~"~'ApproveTForl~elease~20'D`17Q'S1ZS": ~fA=RDP85TUQ875ROQZOQOQ1n02II=3";"~'~?"M"`"~"
 Approved For Release
flp85T00875R002000010020-3
2001E ifffi"V
V. Foreign and domestic investment in industry continues
to be discouraged by the regime's social reforms.
A. Recent legislation such as the Industrial
Communities Law and the Social Property Law,
which require businessmen to turn over substantial
equity shares to their workers, has made industrial
investment extremely unattractive.
B. Both foreign and domestic investors have been
further discouraged by President: Velasco's
National Day speech in July, which left little
doubt that the military government intends to
nationalize most sectors of the :--onomy.
C. The low level of private investment will force the
government to assume responsibility for industrial
investment, in time contributing heavily to
budgetary problems.
VI. Despite the dismal investment climate, foreign capital
probably will still be forthcoming for oil and copper
expansion.
A. Thus far, about $456 million has been committed for
the construction of the $500 million Transandean
pipeline.
B. Principal commitments include a much-publicized
$230 million loan from Japan, a $100 million
,.... hrs.
Approved For Release 2001/09/28 : CIA-RDP85T00875R002000010020-3
 Approved For Release 2001/09/260fflB 8758002000010020-3
Iranian loan, a $44 million loan from Argentina,
and $43 million from West Germany.
C. Recent government actions, however, are jeopardizing
the financing for the $650 million Cuajone copper
mining project, more than 60 percent of which had
been assumed to be-certain. The state mining
agency, Mineroperu, has now proposed a variety of
changes in advance sales contracts that had been
scheduled to be signed in late September. The
signing of these contracts is a prerequisite for a
$200 million loan package being supplied by a
32-bank cony tium headed by Chase Manhattan.
VII. Copper exports in 1974 remain at last year's level,
tons
about 200,300/but earnings are well above last year.
A. At this year's probable average price of 93 cents
per pound, copper earnings will amount to about
$410 million, up from $285 million in 1973.
B... Earnings are likely to drop to about $240 million
next year as weakened copper demand in the developed
countries makes a price range of 550-600 per pound
likely. Export volume probably will not increase
before 1976 when three. new mines -- Cuajone, Cerro
Verde, and Santa Rosa -- are scheduled to start
producing.
s-
~t~ ~,~1~ `,1iIG1
--v- -----Aprproved .For Rtlesse -20,OT/U9r/28-: ~CM--RDF857UD875F 602000010020-3
 Approved For Release?2001 'I !J l 5T00875R002000010020-3
VIII. Peru will remain dependent on oil imports at least
through mid-1977
A. Total consumption, now about 110,000 bpd, exceeds
production by about 35,000 !ppd.
B. Jungle exploration thus far has resulted in
establishment of about 22 producing wells with a
capacity of 50,000 bpd.
C. Pending the completion of the Transandean pipeline,
lack of transportation to the coastal areas hinders
use of jungle crude. The government insists that
the pipeline will be completed in 1976 but a
more realistic expectation would be late 1977 or
even early 1978.
IX. The 1974 balance-of-payments surptrs will be much
smaller than originally anticipated.
A. Growing imports of more costly wheat, feedgrains,
vegetable oils and petroleum may produce a small
trade deficit this year, as opposed to a $90
million surplus in 1973. Food and petroleum alone
will cost an estimated $315 million.
B. Expected capital inflows for the Cuajone mining
project and the Transandean pipeline probably will
exceed $500 million this year and will offset the
-6-
Approved For Release 2001/09%2i4=RC51~8500875R0020000100Z0-3 " `"?-"
 Approved For Release 2001A M 16 PT00875R002000010020-3
trade deficit and rising external debt payments.
Because of the dismal foreign investnent climate,
other foreign investment seems unlikely.
C. Since oil exports are unlikely by mid-1976 as
previously scheduled, the period of coverage of
the government's development..mlans by external
borrowing is correspondingly extended. Thus the
burden of debt repayments, already at 23% of
export earnings,will continue to mount.
-7-
?
"ApprovecTFor F~e~ease 2DUl-M972Y -1A=KDPS5TU0875R002Q00010020-3