REPUBLIC OF PERU

• Area: 1.3 million km2

• Third country in extension in South

America (five times the size of the UK)

• Population: 27 million inhabitants

• Capital : Lima (8 million inhabitants)

• Currency : Nuevo Sol

• 3 Natural Regions: Coast, Highlands y

Jungle Forest

• GDP 2001: US$ 54 billions

• GDP per capita: US$ 2,500

REPUBLIC OF PERU

1. Economic fundamentals

• Peru’s estimated 2002 growth is poised to outpace the US, Europe and most of Latin America

• Strong economic fundamentals have allowed Peru to weather the regional crisis well

• Peru is undertaking measures to sustain economic growth by promoting private investment, and fostering regional and sectoral diversification

• Tax reform and the strengthening of the collection system are already boosting fiscal revenues

• The renewal of the Andean Trade Preference and Drug Eradication Act (ATPDEA) by the US will further enhance Peru’s export base

REPUBLIC OF PERU

Objectives of the economic program

• To achieve high and sustained economic growth

• To reduce unemployment and poverty

• To maintain low inflation rates

• To maintain high level of international reserves that provides

a safeguard against external shocks

REPUBLIC OF PERU

-1.3-2.5 -3.1

0.1

-0.3

-2.2

-0.2

2.7 2.82.1

4.2 3.9 3.4

1.6

7.6

4.3 3.6 3.8 3.8

7.3

1.4

-4-202468

10

J F M A M J J A S O N D J F M A M J J A S

Peru’s economy has been growing consistently for the past 14 months…

Monthly GDP Growth(%, yoy)

0.3

1.5

0.3 0.2

2.5

0.7

-1.2

3.7

-2

-1

0

1

2

3

4

USA Europe Latin America Peru

2001 2002E

Despite persistent volatility in the region, Peru’s growth is recovering fast (%, yoy)

Toledo AdministrationTransition Government

Source: INEI (above) and Consensus Economics Inc. (below)

REPUBLIC OF PERU

…and the recovery is no longer being driven by mining alone

Source: MEF

GDP Growth by Sector (%, yoy) 2001 2002Q1 2002Q2 2002Q3

GDP 0.2 3.0 5.3 4.9

Agriculture -0.6 7.4 5.6 1.4

Fishing -13.3 -22.1 2.2 4.4

Mining and Hydrocarbons 11.2 23.7 18.3 3.8

Manufacturing -1.1 -0.8 4.3 5.6

Primary -2.9 -3.6 -2.3 -1.7

Non-Primary -0.6 0.0 6.4 7.6

Construction -6.0 10.3 7.4 11.5

Retail 0.0 -0.1 4.0 3.0

Other Services 0.4 1.6 4.3 4.1

Primary Sectors 1.9 9.4 7.2 1.8

Non-Primary Sectors -0.2 1.6 4.7 5.6

REPUBLIC OF PERU

The economic recovery is helping to reduce unemployment

Unemployment Rate(%)

Source: MEF

9.1

9.5

8.9

10.0

9.7

9.49.2

7.9

10.8

11.1

9.9

11.0

9.7

9.0

8.2

9.0

8.4

8.1

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

Lima Unemployment Rate

Three Month Moving Average

REPUBLIC OF PERU

Private investment is no longer falling and is expected to recover in the upcoming quarters

• Private investment grew 4.5% year on year in the third quarter, after falling for 8 consecutive quarters on the same basis; correspondingly, credit to the private sector is also recovering

• The incentives in place are expected to increase private investment by 1% in the whole of 2002 and 4.5% in 2003

-15.3

-2.0-5.6

1.04.5

6.7

-3.1 -4.6

4.1 4.5

-20

-15

-10

-5

0

5

10

1999 2000 2001 2002E 2003P

Private Investment Credit to Private Sector

Private Investment and Credit to the Private Sector(%, yoy)

Source: Banco Central de Reserva

REPUBLIC OF PERU

Higher mining and non-traditional exports are pushing the trade balance into surplus…

Source: Banco Central de Reserva5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

1997 1998 1999 2000 2001 2002E

Exports Imports

Imports and Exports Evolution(US$ BN)

REPUBLIC OF PERUP

ub

lic S

ec

tor-

Co

ns

olid

ate

d E

co

no

mic

R

es

ult

s o

f(A

s a

% o

f G

DP

)

Fiscal policy is aimed at reducing fiscal deficit

Source: Central Reserve Bank (2002)

-3,0-3,2

-2,3 -2,3-1,9

-4,0

-3,0

-2,0

-1,0

0,0

1,0

1999 2000 2001 2002 2003

REPUBLIC OF PERU

… the ongoing efforts to boost tax collection are yielding impressive results

• The tax measures implemented earlier this year seek to widen the tax base, and curb evasion by strengthening the tax collection agency (SUNAT)

• As a result of tax reform, revenues are expected to increase by 1% of GDP on an annual basis

12.2

-3.4

14.4

3.57.1

24.2

-19.3

-13

-1-4.4

9.8

-5.6

14.412.4

14.5

-20

-15-10

-50

510

15

Jul-01

Aug-0

1

Sep-0

1

Oct-

01

Nov-0

1

Dec-0

1

Jan-0

2

Feb-0

2

Mar-

02

Apr-

02

May-0

2

Jun-0

2

Jul-02

Aug-0

2

Sep-0

2

Oct-

02

Internal Tax Collection (% change, yoy)

Source: MEF

REPUBLIC OF PERU

Long-term flows cover all of the current account deficit

0

500

1000

1500

2000

2500

3000

3500

4000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E

CA Deficit

FDI* + Long-Term Loans

Current Account Deficit and Long-Term Flows(US$ MM)

*FDI figures include privatization revenuesSource: Banco Central de Reserva del Peru

REPUBLIC OF PERU

-1012

3456

Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02

Inflation has declined drastically in recent years and will end 2002 below the 2.5% target

Inflation Evolution(%, yoy)

Source: Banco Central de Reserva (above) and Government Official Data (Below)

1.5 2.5 2.65.0 6.0

7.6 8.0

15.7

0

5

10

15

20

Panama(Ba1/BB)

Peru(Ba3/BB-)

Chile(Baa1/A-)

Mexico(Baa2/BBB-)

Colombia(Ba2/BB)

Jamaica(Ba3/B+)

Dom Rep(Ba2/BB-)

Russia(Ba3/B+)

Inflation - Comparative Analysis (% yoy, 2002E)

REPUBLIC OF PERU

The Nuevo Sol has retained its value best amongst its regional peers

90

100

110

120

130

140

150

160

170

180

D-01 J-02 F-02 M-02 A-02 M-02 J-02 J-02 A-02 S-02 O-02

Brazil Colombia Chile Peru Mexico

Latin Currencies(Jan 1st =100)

Source: Bloomberg

REPUBLIC OF PERU

Prudent monetary policy has managed to reduce interest rates while keeping prices and FX stable

0

5

10

15

20

25

J-99 A-99 J-99 O-99 J-00 A-00 J-00 O-00 J-01 A-01 J-01 O-01 J-02 A-02 J-02 O-02

Nuevos Soles Interbank Lending Rate

(%)

Source: Banco Central de Reserva

REPUBLIC OF PERU

7

8

9

10

11

Peru’s external liquidity position continues to strengthen, while FX reserves are growing

Net International Reserves(US$ BN)

16.3

10.7 10.18.6

4.82.5 1.6 1.1

0

4

8

12

16

20

Peru*(Ba3/BB-)

Chile(Baa1/A-)

Colombia(Ba2/BB)

Russia(Ba3/B+)

Jamaica(Ba3/B+)

Mexico(Baa2/BBB-)

Panama(Ba1/BB)

Dom Rep(Ba2/BB-)

Months of Import Coverage - Comparative Analysis (Months, 2002E)

*as of Oct. 31Source: Banco Central de Reserva (above) and JPMorgan (Below)

REPUBLIC OF PERU

Financial sector indicators continue to strengthen

Source: Superintendencia de Banca y Seguros

80

100

120

140

Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 3Q02

2

4

6

8

10

Asset Quality(%) % of Past-Due Loans

Reserve Coverage

0.00

0.35

0.70

1.05

1.40

1997 1998 1999 2000 2001 Jan-Sep 02

30

40

50

60

70

Banking Sector Profitability(%) Net Interest Income / Interest Income

Return on Assets

(%)

(%)

REPUBLIC OF PERU

Emerging Markets Country Risk (EMBI)

25/11/2002Source: Reuters

(in basic points)

500

7 000

6 500

6 000

1 000

México

2 000

1 000

6 498

617

1 614

962

322

686

1 658

1 063

Argentina

Perú

Brazil

Venezuela

Colombia

EcuadorLatin America

REPUBLIC OF PERU

The decentralization process underway seeks to develop the manufacturing base outside of Lima

Lima54%

Rest of

Peru46%

• Lima currently concentrates

– 54% of GDP generation

– 62% of registered companies

– 46% of the labor force

• Decentralization Law put limits on the size of the deficit and indebtedness of regions

• Legislation in place ensures that decentralization will not thwart fiscal discipline of the central government

Regional Contribution to GDP% of GDP

Source: INEI

REPUBLIC OF PERU

Succesful Sovereign Bonds Issue(Nov 2002)

• Amount issued : US$ 500m

• Maturity : 5 years

• Maturity date : Jan. 2008

• Coupon rate : 9.125%

• Rate of return : 9.35%

• Price : 99.073%

REPUBLIC OF PERU

Peru has a flexible and manageable financing plan for 2003

Source: MEF

Millions of US Dollars 2002E 2003PUses 2340 2525

Amortizations 1060 1450

Fiscal Deficit 1280 1075

Sources 2340 2525

External 2045 1800

Multilateral and bonds 1670 1350

Projects 375 450

Internal 295 725

Local Market Bonds 270 385

Other* 25 340

* Includes use of privatization proceeds

REPUBLIC OF PERU

Peru’s public external debt to GDP ratio has been cut by nearly half since 1993

30

40

50

60

70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E

Public External Debt to GDP(%)

Source: Central Reserve Bank of Peru250

300

350

400

450

500

1995 1996 1997 1998 1999 2000 2001 2002E

External Debt to Exports (%)

REPUBLIC OF PERU

Peru’s dependence on market financing is relatively low

Multilateral27%

Bilateral2%

Bank Loans17%

US$ Bonds34%

Multilateral22%

Bilateral9%

Other8%

Eurobonds53%

Bilateral40%

Multilateral33%

MexicoUS$BN

ColombiaUS$BN US$BN

Peru

Bilateral6%

Other17% Multilateral

23%

BrazilUS$BN

Total = $23.1 Total = $19.8

Total = $97.7 Total = $77.9

Other Bonds16%

Export Credits4%

Brady Bonds14%

Global Bonds7%

CommercialBank Loans 1%Supplier 5%

Brady Bonds8%

Brady Bonds15%

Global Bonds39%

Source: JPMorgan

REPUBLIC OF PERU

The macroeconomic framework 2002-2005 points to a consolidation of the economic recovery

Source: MEF

Macroeconomic Framework 2002E 2003P 2004P 2005P

GDP growth rate 3.7 4.0 5.0 5.5

Investment (% of GDP)

Public 3.0 3.1 3.3 3.3

Private 14.7 15.0 16.4 16.9

Inflation Target 2.5 2.5 2.5 2.5

Exports of Goods and Services (%-change, yoy) 5.6 6.4 6.8 9.0

Consolidated Fiscal Deficit (% of GDP) -2.3 -1.9 -1.4 -1.0

REPUBLIC OF PERU

The countries of

MERCOSUR, specially

Brasil and Argentina

2. Strategic regional

positionPERU holds the key so that

Asian partners of APEC can

trade with:

REPUBLIC OF PERU

.. And the Andean Community

of Nations that include

Venezuela, Colombia,

Ecuador and Bolivia...

PERU is the only country in

the Andean Community that

belongs to APEC; the Andean

Community is a market of

more than 100 million

inhabitants with a combined

GDP of US$ 250 billions.

REPUBLIC OF PERU

3. Clear framework for foreign investment

Stable and predictable investment environment

Basic principle

Same treatment for domestic and foreign

investors

Restricted activities

None

Performance requisites None

REPUBLIC OF PERU

Legal framework for investment

Constitutional principles Equal treatment for domestic and foreign investors Expropiations are prohibited, unless it is for national interest or national

security

Foreign Investment Law Access to the best exchange rate for profit remission Free remissión of profits and royalties

Stability contracts For concessions and investments spannning more than 10 years Protects the investors in case of policy changes

REPUBLIC OF PERU

Legal stability

• For foreign investors:

– Equal treatment as with domestic investors

– Free disposal of foreign exchange

• For companies

– Hiring policies mechanisns

– Export promotion mechanisms

– Corporate income tax

REPUBLIC OF PERU

• Argentina• Germany• Australia• Bolivia• China• Korea• Canada• Chile• Colombia• Denmark• Ecuador

• El Salvador • Spain• Finland• Netherlands• Great Britain• Italy• Malaysia • Norway• Paraguay• Portugal

• Rumania• Sweden• Switzerland• Thailand• Venezuela

• MIGA• OPIC• ICSID

Perú is member of the following institutions:

Bilateral Investment treaties with:

REPUBLIC OF PERU

• BHP • Firth Ind.• NZ Dairy Products• Mount Isa Mines• Newcrest

• Noranda • Teck Corp.• Cominco• Hydro Quebec• Quebecor• Barrick• Newmont• Cyprus Minerals• Bell South• Nextel• Citibank• Bank Boston

• Duke Energy• PSEG• Entergy• Aguaytia Energy• Cargill• Nabisco• Procter & Gamble• Kimberly Clark• Group Mexico• Group Portales• Group Bimbo• Zeta Gas

• Luchetti• Falabella• Ripley• Mantos Blancos• Empresas Pizarreño• Empresas IANSA• Costa S.A.

• Telefónica de España• Banco Bilbao Vizcaya• Endesa Desarrollo S.A.• Grupo Santander• Repsol - YPF

• Orient Express• Royal and Sun Alliance• CDC Partners• Exotic Farm Fruits

• Shougang Corp.• Marubeni• Matsushita• Mitsui• Honda Motor• Daewoo Corp.• Mitsubishi• SK

• Nestle.• Asea Brown Boveri• Aventis• Saint Gobain• Sodexho• Schneider Electric• Pechyney• Degrémont• Holbah II Ltd.• Shell• Stet Mobile• Adrien

Many companies are now investing in Peru