Peru - Current economic position and prospects

r-RETURN T0,. RESTRICTED IREPORTS DlEbmK I RI.....* 1 Report No.WH 89a ONE WEEK I FIECP W1"1- - This report was prepared for use within the Bank. In making it availaUI LU o I IVothe , the BOnk assUmes eU ress.Q iily U tLhM -fU the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CURRENT ECONOMIC POSITION AND PROSPECTS OF PERU November 4, 1959 Department of Operations Western Hemisphere CURRENCY EQUIVALENTS 1 U.S. $ - approximately 28 soles I sol - approximately 3.6 cents 1 million soles - approximately $36,000 TABLE OF CONTENTS Page No BASIC DATA SUlI1ARY AND CONCLUSEONS CHAPTER 1. ECONOMIC GROWTH 1 The Country 1 The Pattern of Development 2 The Climate for Development 3 The Prospects for Development 5 CHAPTER 2. TIE PUBLIC FINANCES 7 CHAPTER 3. MONETARY DEVELOP14ENTS 9 CHAPTER 4. THE EXPORT SECTOR 13 Major Agricultural Exports 13 Major Minerals Exports 17 CHAPTER 5. THE BALANCE OF PAYMENTS AND CREDITWORTHINESS 21 APPENDIX A. NON-FERROUS METALS EXPORT VALUES 24 APPENDIX B. THE ETROLEUM INDUSTRY 26 STATISTICAL APPENDIX BASIC DATA Area 482,300 square miles Population,1959 10.1 million Average annual rate of increase, 1940-59 2.2% Gross national product, 1958 36 billion soles Average annual increase in real terms 1948-56 4.3% 1956-58 0-3% % originating in agriculture, 1957 23% Cost of living Average annual increase 1955-June, 1959 9% Balance of Payments Millions of U.S. dollars 1957 1958 1959 (est.) Exports -333 290 -310 Imports (fob) e397 -332 -285 Balance of trade - 64 - 43 25 Services - 93 - 85 - 81 Balance on current account -157 -128 - 56 Merchandise Exports, 1958 % of total exports Major agricultural products 5V- Major minerals 39% Other exports 7% Gold & Foreign Exchange Reserves Net liability of $1 million of the Central Bank, Sept. 1939 Government Finances, 1958 Revenues 5.5 billion soles Expenditures 6.1 billion soles Revenues as % of G.N.P. 15% External Public Debt Outstanding, Dec. 31, 1958 $215.2 million Total service payments, 1959 $ 32 i SUMTARY AND CONCLUSIONS 1. In its last reports, the Bank's appraisal of the Peruvian economy has been that long-term economic growth prospects are favorable and that creditworthiness is substantial, but that potentials for growth and for borrowing depend on the Government's determination and ability to solve critical internal financial problems and to maintain financial stability. This appraisal is still valid. 2. Financial developments during the past three years point clearly to the importance of appropriate financial policies to continued growth. Increasing budget deficit financing through the Central Bank and excessive credit by the banking system led during 1957 to the loss of all exchange reserves in an unsuccessful attempt to maintain the going exchange rates. During most of 1958 and the first half of 1959, financial pressures contin- ued in the face of falling export prices and export earnings and led to an almost 50% increase in the price of foreign currencies. The increased cost of foreign exchange and the additional import duties that were imposed during this period have by now reduced import demand to levels consistent with export earnings; and there are reasonable prospects that the Govern- ment and the monetary authorities together will maintain the stability that has been restored during the past few months. But the balance of foreign exchange receipts and payments is still precarious. Were excessive credit creation to recur and cause the exchange rate to begin to slide again, it would probably not take much, in view of the depreciation since early 1958, to upset the recently restored climate of confidence and provoke large capital flight abroad. Either of the alternatives that would follow - a progressively depreciating exchange rate or the introduction of controls.- would make growth prospects worse. 3. The maintenance of financial stability is in the short term a problem of preventing credit granted by the banking system to the public and private sectors from increasing the money supply excessively. But over the longer period, the money supply is likely to be kept within tolerable limits only if fiscal balance can be obtained and if allowable increases in credit can be shared reasonably between the private and public sector. Pressures on the monetary system may not only arise from the budget, the rebuilding of foreign exchange holdings and increasing demands for credit by the agricul- tural and industrial credit banks, but also from increasing demands for credit from the private sector as business volume expands and as recent monetary expansion, wage increases and the exchange devaluation are absorbed in a higher domestic price level. 4. There is also a related problem of expenditure allocation within the budget. Until now, efforts to balance the budget have tended to reduce the amount of funds available for financing investment expenditures. But budget balancing at the continued expense of investment cannot be practiced for long. Were there to be a continuod shortage of budgotary - j - funds for investment, the Government would almost certainly seek to borrow more, probably abroad. Substantial foreign borrowing for local currency expenditures could, in Peru, create new inflationary pressures and would, of course, use up creditworthiness in the process. Enlarging the budgetary margin for financing investment expenditures indispensable to continued economic growth is thus another important element in any sustainable effort to preserve financial stability in Peru. 5. With a favorable financial environment, Peru's growth potentials are good. Export earnings were lower in 1958 and 1959 than in the two pre- ceding years because of fall4ng export prices, but they are on the uptrend again, and are expected to resume expanding as in the past two decades. The further growth of the ccmmnercial sector of the economy - mining, the commercial agriculture of the coast, and industry - seems well assured. The economy is flexible, and the climate for its development is good, It remains largely free from controls, and efforts are being made to eliminate some of the few distorting elements still remaining. Improvement in the heavily-po)-pulated agricultural areas in the Andes will at best be slow, and the very large and traditional regional discrepancies in income and growth will therefore continue. But overall, there is no reason to expect that increases :Dathe national product will not be perceptibly higher than the rate of population growth. These elements could provide a satisfactory basis for Peru safely to incur new long term foreign debt for high priority projects. The extent to which they will do so will depend on the Govern- ment's ability to bring its fiscal situation into balance and to prevent further deterioration in the countryts financial position. CHAPTER 1 ECONOMIC GROWTH The Country 1. Peru is a country whose physical geography makes development difficult and expensive. The Andes divide the country into four distinct regions. The coastal region on the Pacific is a narrow strip of desert 1,400 miles long, broken only by cultivated areas wherever rivers flowing down the western slopes of the Andes to the sea provide water for irrigation. This is the economically most important portion of the country. Its agriculture is on the whole efficient. Most industrial activity is located on the coast and concentrated in Lima. The high slopes and valleys of the Andes (the Sierra) are predominantly Indian and agricultural, with production almost entirely for subsistence and local markets. On the whole, the Sierra is over-populated and impoverished, and characterized by poor use of land, low productivity and low income. It has changed little in generations. The area east of the Andes is sparsely populated and virtually undeveloped. The poten- tial of the intermediate eastern slopes of the Andes (the Montala) is considered good, and they are gradually being settled. But the lower jungle area (the Selva) is still by and largo unknown. It contains only tribes of forest Indians and widely separated settled communities producing forest products and some cattle. 2. The Andes are an obstacle to transportation between these areas. Except for the eastern jungle river networks, there are no natural communication arteries. The rivers of the Sierra and the coast are obstacles rather than aids to transportation. Many communities in the Sierra and the Montafia are still without adequate means of communication to other parts of the country and to markets. Rail transportation has been available to some sections for over three-quarters of a century, but the development of road and air transportation is more recent. The only land connection between Lixna and the river networks east of the Andes was opened less than twenty years ago. 3. In this difficult geography, where opening new frontiers requires expensive investment either in irrigation or in transportation, population has been growing at an increasing rate. Peru's population is currently estimated to be 10 million and to be growing by some 2.2% per annum. Most of it is concentrated in the Sierra. Population, 199 (millions) Sierra 5.9 Costa 2.9 Selva 1.3 Total 10.1 - 2- The Pattern of Development 4. Since colonial days, economic expansion has largely followed the development of primary products for export. Before the wars of inde- pendence, precious metals mining was predominant. During the 19th century, guano, i/sugar, cotton, petroleum and copper became important items on the export list. Productive facilities gradually expanded and improved, with exports remaining permanently at higher levels and increasingly diversified. The guano boom, which dominated the mid-19th century, ultimately collapsed after having provoked decades of neglect of the domestic economy and its finances, but it, too, contributed to the longer term development of Peru by helping to finance the building of the Peruvian railroads and the further expansion of Lima and its environs. 5. The principal developing sectors of the 20th century Peru have continued to be mining, both in the Sierra and on the coast, coastal agricultural production for export, and the industrial, commercial, financial and service activities that arc largely centered in Lima. The major minerals properties continue to be foreign-owned and to provide the principal field of investment for foreign private capital, while agri- culture continues to be largely Peruvian-owned and financed. 6. The record of development has been impressive. Merchandise exports, the prime mover of the commercial sectors of the economy, have with interruptions been increasing in dollar value by over 5% each year since the turn of the century. Though stagnant between the two world wars, exports have been more than doubling in dollar value during each of the past two decades. The gross national product, for which estimates begin in 1942, has been increasing by some 4% to 5% a year in real terms since that year, significantly faster than the population. 7. As in the past, the large domestically-oriented agricultural sectors of Peru in the Sierra have not participated much in this growth. Whereas production for export, both agricultural and mineral, has since the second world war been increasing even more rapidly than in earlier years and industry has been increasing in pace with the total product, agricultural production for home consumption, which is the main source of income for a majority of Peruvians, appears to have been retrogressing. Since 1945, the rate of increase in production of sugar and cotton, the major agri- cultural export crops which are produced in the coastal region, has been much higher than during the interwar period. But in the Sierra, 1/ Guano is the dung of the birds which inhabit the rain-free islands off the coast of Peru. It is an excellent natural fertilizer. - 3 - agricultural production has in recent years been increasing more slowly than in the past. The two-thirds of Peru's actively-employed population that is employed in agriculture continues to receive less than one-third of the national income, and according to official data may even have been experiencing some decline in real per capita incomes during the past decade. 8. On the coast, income per head is three times that of the Sierra and much of this is concentrated in Lima-Callao, the capital-city. Greater Lima has less than ono-fifth (17%) of the total popu- lation but accounts for almost half (144%) of the national income. Except for the natural resource-based activities of agriculture and mining, Lima predominates in all classes of economic activity. Activity % of 1956 national income originating in Lima-Callao Agriculture 11 4ining 4 Industry 70 Service 70 Commerce 56 Finance 86 Government 73 Total 44 Source: Central Bank The Climate for Development 9. There is a growing preoccupation with the longer-term implications of this pattern of development. With few prospects for immediate improve- ment in the Sierra as a whole and with the impact of the 1956-58 drought years in the heavily populated Southern Sierra still being felt, migration to the coastal cities has been accelerating and pressures for more government expenditures have been increasing. The traditional political struggle about who should control the power of government is tending more and more to be colored by differences as to how this power should be used to further the development of the economy and as to the directions that this develop- ment should take. 10. As may be expected, there are substantial differences in emphasis as to what a development policy for Peru should consist of. Some, shocked by the knowledge that Peru has only about one-fifth of a hectare per personi under cultivation, feel that the most urgent task is to increase the area of cultivated land. (Some would add, whatever the cost.) One way is to build more roads to the eastern slopes of the Andes and to help and finance the movement and settlement of persons on these new lands. Another is to develop more irrigation projects to open new land in the more accessible coastal regions to which people have been moving in increasing degree in recent years. A committee has been established by the Government to consider how land reform could ensure a better utilization of lands not now efficiently cultivated. These approaches, which are complementary rather than conflicting, reflect considerable concern about pressing social and political problems. The advocates of raising the land-man ratio for Peru are, to a large extent, seeking to provide new outlets for the growing population of the Sierra and the coastal cities. Fortunately there is still much potential for increasing agricultural production just by raising the productivity of agriculture. A principal recommendation of the joint IBRD-FAO Agricultural Survey Mission report of August 1959, is that improvement of efficiency (at relatively little cost) rather than the (expensive) extension of scale should be the immediate goal for Peruvian agriculture. 11. But other groups, mainly urban, feel that agricultural development cannot provide opportunities for Peru's growing population and that primary emphasis must therefore be placed on accelerating the rate of industrialize- tion in Peru. This view is due in part to the vigorous development that has already taken place in Peruvian industry since the war and confidence in the new opportunities that this expansion has opened up. It has been encouraged by the recently published report of the United Nations Economic Commission for Latin America "The Industrial Development of Peru", which urges increased emphasis on industrialization. Several steps to this end have already been initiated. Congress is now debating an industrial development law that would, mainly by tax incentives, seek to encourage the establishment of new, and the expansion of existing, industries, particularly outside Lima. The management of the Banco Industrial, in consultation with the IBRD, is preparing to reorganize and recapitalize the Banco so as to make it a more effective instrument for promoting industrial development. 12. Fortunately, these points of view reflect primarily differences in emphasis. There is general agreement that industrial development should remain private. With some exceptions such as the Santa Corporation's steel mill and hydroelectric power complex, the Government's participation in the Banco Industrial, the Government's guano monopoly, and power development in the Cuzco region, Peruvian industry continues to develop primarily on the basis of private finance and initiative and does not compete for public funds and credit needed to further agricultural development. Differences may arise, however, over the direction and content of programs for agricultural development and over the relationship that they should bear to the increasing demands for public funds for improved roads and for educational and other social service facilities throughout the country. 13. These views are all developing within an economy that has for a decade been largely free from controls over capital movements, exchange rates, trade and prices and has recently been eliminating some of the few distorting elements still remaining. In the past few months price controls on meat were eliminated and petroleum-product prices were raised to levels in line with international prices so that production could increase further. But rate making in the utility field still presents probleris. While the electric power companies have been allowed to adjust their prices to rising costs, the railroad and telephone companies have not. 14. As in most countries, there are, of course, some groups which would widen the area of government control over economic activity, and particu- larly over foreign trade and exchange transactions. But the predominant view has been and continues to be in favor of free responses in the economy. On the whole, the climate for development is good. 15. Effort to confront the special problems of the provinces is also beginning, even though Peru's geographical distribution of population and natural resources provide little basis for rapid change in the traditional regional discrepancies in incomes and growth. In 1956, a National Economic Development Fund was established to channel a portion of the public revenues to a large number of small public works projects throughout the provinces. It receives money from the budget, and allocates these funds to projects developed by it throughout the country, the distribution of funds by provinces being based on population. The initiative and direction of the Fund are in Lima. There are also the reconstruction and development committees of Arequipa and Cuzco, the second and third largest cities of Peru. Initially established and endowed with assigned portions of national tax revenues to help these communities recover from earthquakes, they have since moved into local development activities. Some aspects of their programs may be open to question, but in contrast to the National Economic Development Fund whose initiative and direction are in Lima, they are providing a new focus for local development initiatives in these regions, still lacking elsewhere in Peru. The Prospects for Development 16. The further growth of the Lima area seems well assured. There are no indications that it will be stifled by shortages of initiative, savings, power, materials or labor. The same may be said on the whole of the large - 6 - scale commercial agriculture of the coast and of mining. Even without further inflation, costs will probably rise. Labor in each of these areas is becoming increasingly organized and will press for steadily rising wages and related benefits. The cost of irrigated land, and of imported materials and equipment, may also increase. But the prospects for these already well-developed areas of the economy remain fairly good. With improved transportation the prospects for development of agriculture in the are also promising, Improvement of agriculture in the Sierra will at best be slow. To raise incomes there will require altering centuries-old practices on the farm through supervised credit and exton- sion, and enlarging markets by improving communications and marketing. According to the Joint IIRD-FAO Agricultural Survey Mission, the scale of effort made thus far in this direction has been inadequate. 17. According to the published national accounts, national savings have been averaging about one-fifth of the gross national product. Because of large foreign capital inflows, especially during the past few years, investment as a proportion of available resources has been even higher - close to one-fourth. The exact fiEures are open to some question, but there is no doubt that the investment effort has been substantial. Central Government investment has been accounting for about one-fifth of total investment expenditures. 18. There is little doubt that private investment from domestic and foreign sources will continue at an adequate level, provided that the general economic environment remains favorable and that there is financial stability. All present indications point in this direction. Were capi- tal market institutions to be developed, it may even increase. The pros- pects for government investments are less certain. Rising administrative expenditures of government have reduced the resources available for financing public investments. 19. The role of government expenditures in furthering development is, of course, as much a matter of quality as of amount. The budgetary situation makes the careful husbanding of funds even more pressing than before. Steps are now being taken to prepare for a reorganization of the machinery of budgetary expenditure planning and control. 20. Peru has the natural resources and the human potential for continued economic growth. Export prospects, which are outlined in Chapter 4 below, provide a firm base for the continued expansion of mining and commercial agriculture and of industry. In the past few years, unfavorable export markets and droughts have contributed to a temporary cessation of the high rate of economic expanston of recent years and to some decline in average per capita incomes in this period. Bad financial management during this period stripped Peru of its foreign exchange reserves and led to a heavy depreciation of the sol. But the economy remains flexible and can readily resume its economic expansion. Though the rate of growth may be lower than in years past, there is no reason to expect that it will not be perceptibly higher than the rate of population growth. However, these Drospects are all subject to the Government's ability to contain more firmly than in the past the mounting pressures for higher wages and for increased expenditures in amounts greater than it can pay for out of revenues. A failure to accomplish this would result either in a progres- sively depreciating exchange rate or lead to the introduction of controls. Either of these alternatives would make growth prospects worse. CHAPTER 2 THE PUBLIC FINANCES 21. Perhaps the single most important financial question in Peru today is how fast and by what mans the Central Government's budget can be balanced. Public revenue has been increasing faster than the gross national product over the past decade as a whole, and as fast as the national product in the past few years. But expenditure has also been growing, and more rapidly than revenue at that. 22. Peru's most recent budgetary problems began to appear in 1955, after some years of fiscal balance. 1955 was a pre-election year, in which spending for public works and military equipment purchases, financed largely by foreign suppliers, increased sharply to almost twice its 1952-54 level. Several months before the mid-1956 elections, a 30% increase in wages was decreed without provision being made for its financing. The difficult financial situation that was thus inherited by the present Government continued to deteriorate, largely because of still further subsequent increases in the Government's wage bill. 23. The impact of wage policy on the cost of public administration is illustrated by developments in Lhe "ordinary" budget, which currently accounts for 60% of total expenditure, most administrative expenditure, and most of the overall deficit. Though total revenue has consistently exceeded total current administrative expenditure, most of the overall deficit has originated in this part of the budget because of the assignment of a large proportion of revenues to special acounts for other purposes. Up to 1955, wages and salaries had been a fairly constant proportion of "ordinary" expenditure: 52% in 1951, 53% in 1955. Just a little more then half (56%) of the 1951-55 increase in expenditures went for personnel. Since 1955, however, more than three-fourths (77%) of all additional ex:pen- diture was for personnel, raising wages and salaries as a proportion of expenditure from 5% in 1955 to 62% in 1958. The draft budget for 1960 reflects a further, if slower, increase in the proportion of personnel to total expenditure. Seventy per cent of the increases in "ordinary" - 8 - expenditure planned for 1960 over those made in 1958 are for wages and salaries. Despite transfers of funds during these years from special accounts, originally intended for investment, to the "ordinary" budget for general administrative purposes, the rate at which expenditure increased forced the Government more and more into the Central Bank. Government indebtedness to the Central Bank increased by 366 million soles in 1956, 411 million soles in 1957, and 530 million soles in 1958. During the first seven months of 1959 it increased by another 873 million soles, or by more than one-third of the December 1958 figure. The resulting pressures on the monetary system and on the external finances have been substantial. 24. There are grounds for expecting that the tendencies of recent years may be in the process of reversal. The present Minister of Finance, who is also Prime Minister, took office in July 1959 with virtually a new cabinet. He has set as his primary goal the restoration of financial stability and the ordering of the public finances which this policy implies. Steps have already been taken to this end, although they were politically difficult. In July, 1959, prices of the major petroleum products were increased by very substantial proportions. Gasoline prices were almost doubled, and the prices of some fuel oils more than trebled. (Appendix B). This measure will add substantially to the Governrmient's revenue from income taxes. Subsidies on meat and rice have been eliminated. Measures have also been taken to accelerate tax collections and to limit further increases in expenditure. 25. On present estimates, the cash deficit will be lower in 1959 than in 1958, and will virtually disappear in 1960. The Government may still have to increase its domestic indebtedness during 1960, but the monetary impact of the budget as a whole will be virtually neutral because of offsetting not repayments of external debt. 26. But this does not mean that the problems of the public finances will have been resolved. Even if the Government succeeds in resisting all pressures for additional expenditure and actual budgetary performance develops as now estimated, it will have restored balance, not by cutting expenditure nor by keeping it level, but by restricting its increase to a lesser amount than the extraordinary increase in revenues during 1959 and 1960. Largely because of the additional taxes payable by the petroleum companies, the continued special taxes on imports, and taxes forthcoming from new minerals operations at Toquepala (copper) and Acari (iron), total revenue in 1960 is expected to be 30% higher than in 1958. There is little reason to expect revenue to increase subseqently at this rate unless tax rates are increased or new taxes introduced. If the Government retains its present determination to avoid all further recourse to the banking system, it wil. have to screen expenditures much more closely than it has been able to do in - 9 - the short period that the new cabinet has been in office and to give serious thought to further increases in taxes. Total revenue is equiva- lent to 15% of the gross national product, but in view of the fact that a significant proportion of revenue is derived from taxes on the income of foreign companies, the revenue burden does not at first glance appear excessive. It may be regressive, and perhaps excessive in particular directions, but important areas of the economy are still lightly taxed. 27. Notwithstanding increased borrowing, Government investment in health. education, sanitation, agriculture and transportation has in total been declining in real terms since 1956. There is no basis for appraising the extent to which the distribution of presently planned expenditures will continue, or reverse, the recent tendency for administrative expenditures tc absorb steadily increasing amounts of revenue and thereby reduce the availa. bility of funds for financing investments. But were there to be further declines in budgetary funds for investment expenditures in these fields, the Government would almost certainly seek to borrow more. In view of the inability of the Government to tap private savings, it would have to turn to the banking system, or abroad. Substantial foreign borrowing for local currency expenditures could, in Peru, create new inflationary pressures and would, of course, use up creditworthiness in the process. 28. In sum, the Government faces two distinct but related problems. The first, to which it is addressing itself at the moment, is the problem of overall balance. Recourse to the banking system should be limited to amounts that would not contribute to an excessive expansion of the money supply. The second is to enlarge the margins for financing from domestic savings investment expenditures indispensable to continued economic growth. Budget balancing at the continued expense of investment cannot be sustain- able as a policy for long. Meaningful solutions of these problems, and particularly the second, will require among other things substantial improvement in the organization and procedures for the planning and control of revenues and expenditures, and for the provision of information reqpired for policy decisions on a more complete and current basis than is now available. CHAPTER 3 MONETARY DEVELOPMENTS 29. The money supply has been increasing by 121 each year on the average since 1950, substantially faster than the growth in the economy has required, and has pushed prices up steadily. Domestic prices, as measured by the index of wholesale prices for Lima and Callao, rose by - 10 - an average 9% each year during this period. Though the increases in the money supply were somewhat less rapid in the last few years, they were still excessive, particularly in view of the price declines in some of Peru's major exports. They were the principal cause of the recent deterioration in Peru's financial position. 30. During the early part of this period the increase in the money supply was due principally to commercial bank credit expansion to the private sector. More recently, credit expansion to the Government was added to a still rapidly expanding private credit. The sharp restraint in private credit expansion during 1958 reflected readjustments concentra- ted entirely in the second half of 1958. The Money Supply, 1951-1958 (Average annual rates of increase during the periods shown) 1951-1958 1951-1958 1951-55 1956-58 1956 1957 1958 Currency and private sight deposits 12% 13% 10% 17% V% 8% Loans and investments made by the banking system to: The private sector 16% 20% 10% 13% 17% 3% The Government 16% 11% 23% 17% 30% 25% The whole economy 16% 17% 1ho 14% 19% 8% Source: Table 13. 31. Throughout these years, the proportion of the money supply held as currency outside the banking system remained constant and thus did not affect the extent to which new cash coming to the banking system made possible secondary credit expansion. The willingness of the community to hold money was also stable. The money supply as a proportion of the gross national product fluctuated only slightly about a constant norm. Thus, monetary developments do not reflect any changes in underlying monetary behavior of the Peruvian economy. They reflect problems of financial management. 32. Efforts have been made to keep total monetary expansion within reasonable limits. But, at least up to the most recent (July 1959) change of Cabinet, these efforts had not been successful. After the Central Bank lost $34 million of exchange reserves in 1957 in a vain attempt to - 11 - maintain the exchange rate at S/19 to the dollar, the rate was freed in January 1958, and credit limits were agreed to with the International Monetary Fund when Peruts stand-by arrangement was extended early in 1958. But these limits had to be revised later in the year; and though the revised stabilization targets were, by and large, adhered to during the second part of 1958, the improvement proved temporary. During the first half of 1959, currency and private sight deposits increased by 26%, Central Bank loans to the Government rose by 35% and commercial bank loans, by 10%. In May 1959, access to the International Monetary Fund's stabilization credit was informally suspended, and was reopened only in mid-October. 1Y Since the beginning of 1958, the sol price of the dollar increased from S/19.1 per dollar to a mid-1959 rate of over S/28 per dollar, i.e., by almost 50%, and the exchange holdings of the Central Bank declined from a net asset position of $15 million to a July, 1959 net liability position of `15 million. They have since improved to a net liability of $1 million at the end of September. 33. Two recurrent problems have made the credit adjustment process difficult. The first, and most important, has been Government budget financing through the banking system. The nature and dimension of this problem have already been discussed above. The second is that, while attempts have bcen made to offset the credit expansion to the public sector by limiting commercial bank credit to the private sector, the mechanics of controlling private bank credit have not been consistently effective. 34. For several years now the commercial banks have let their reserves against deposits fall below the required limits during the middle months of the year, thereby effectively expanding the credit base. Actual reserves have been as much as 20o below required levels during their lows in the past three years. A measure of the significance of this expansion is the extent to which Bank credit would have had to contract to eliminate the reserve deficiencies. At the end of June 1959, the cash reserves of the commercial banks were 276 million soles below their required level. With the present required reserve ratio of 24% and in the absence of new cash coming to the banks, the elimination of this deficit would have required a reduction by 1,150 million soles, or 20%, in the end of June deposits, and thereby loans, of the banks. 1/ The present stabilization agreement, which expires in February 1960, gives Peru access, urder specified conditions, to '1O0 million as follows: Export-Import Bank, 'h0 million; International Monetary Fund, 125 million; U.S. Treasury, 17.5 million; a group of commer- cial banks, 17.5 million. By the end of September, 1959, `15.5 million had been drawn from the Export-Import Bank and 314.5 million from the IF. - 12 - 35. Until recently, these deficits reflected primarily the desire of the banks to expand profitable portfolios. The penalty for reserve deficits, though nominally 18%, was until January 1959 actually only 12% because charges were levied only during working days. It was not effective. Since January 1959, the 18l penalty has been made effective. But it was to all practical purposes eliminated for about three months during and after the April-June bank employees' strike, which was the longest on record. Because of the interruption in the normal facilities for making payments through the banking system, short term claims which would ordinarily have been liquidated during the strike period became frozen, forcing many businesses to seek new credit to keep operating. In large degree, the peak reserve deficits at the end of June 1959, and 1958 as well, reflected the impact of the spring bank strikes in those years. 36. For the future, the serious problems of monetary management are less likely to be caused by defective mechanics of credit control than by pressures on the monetary system arising from the budget, the rebuilding of foreign exchange reserve holdings, increasing demands for credit by the agricultural and industrial credit banks, and also demand for increasing private bank credit as business volume expands and as recent monetary expansion, wage increases and the exchange devaluation are absorbed in a higher domestic price level. Even assuming that there could be full agree- ment about what would be an appropriate rate of credit expansion in any situation, there will be continuing problems in allocating any given increase in allowable credit between the private and the public sector. 37. Until recently, with export markets buoyant, foreign capital inflow substantial, and available resources and real incomes increasing, at least in the more commercialized sectors of the economy, serious financial stress, while always possible, appeared somewhat remote. Since 1949 the economy has been open, by and large free from restrictions, and has made its adapta- tions without undue strain. The sol price of the dollar in 1956 was only 20% above that of 1950, equivalent to a continual gradual depreciation of only 3% per year during this period. 38. More recently, however, the adjustments have been more intense. To date, the economy has continued to allow the price mechanism to effect the major required adjustments. After exhausting the possibilities of absorbing excessive credit expansion by selling exchange reserves, the monetary authorities have since January 1958 allowed the exchange rate to depreciate. With the subsequent increase in the price of foreign curren- cies - by 47% in eighteen months - most of the excees demand for foreign currencies was eliminated. But the strains which accompanied the adjustmen suggest that the pressures of excess money, if continued, could provoke severe political and social reactions and perhaps lead to widespread contrcl. - 13 - CHAPIER 4 THE EXPORT SECTOR 39. Peruvian exports increased substantially during the past decade. Their current level of approximately 300 million a year is almost twice that of 197-49 level. These increases were not spread evenly over the years. But taking the postwar decade as a whole, they were equivalent to export earnings growing by some 6% each year with agricultural products and minerals contributing fairly equally to this growth. Though there were sharp changes in export prices during these years, this composite picture by and large reflects volume increases in each of Peru's major export lines. 4O. These increases in exports are expected to continue. Notwith- standing the prolonged pause since 1956 in export growth, total exports will rise substantially again in 1960, and by 1961 should reach the '400 million level. They should pass the $L50 million mark by the mid- 1960's, equivalent to an average annual increase of some 7% each year during this period. 41. Unlike past years, however, agricultural exports are expected to contribute only negligibly to export growth. Virtually the entire increase will reflect new minerals facilities coming into production, and the rise in metals export values through expanded lead and zinc refining facilities. Minerals are expected to account for close to 55% of total exports by the mid-1960's in contrast to a fairly constant 40% in recent years. These proportions could, of course, change again later if large new irrigation projects, nou only under preliminary study, are built. 42. These export projections are based on an appraisal of the production and market prospects for each of Peru's major exports. The judgments on which these appraisals have been based are set forth in the paragraphs which follow. Further detail appears in Tables 15, 16 and 17 and in Appendices A and B . Major Agricultural Exports 43. Cotton, sugar, coffee, fish and wool comprise the bulk of Peru's agricultural exports. Export values and volumes for the past decade and expected for 1961 and 1965 for each of these commodities are shown in Table 16. 44. Two things stand out in this table. First, exports of these products are expected to increase in value by only 1% to 2% each year instead of the postwar annual average of 6%. Second, agricultural - 14 - exports are steadily becoming more diversified. With even a modest continuation of the very rapid recent growth in exports of coffee and fish products, Peru's traditionally important cotton and sugar exports will, by 1965, account for less than two-thirds of all agricultural exports compared to the more than four-fifths of the postwar decade. Cotton 45. Cotton export potential continues, as in the past, to reflect primarily the rate at which new land is brought under cotton. Improve- ments in pest and disease control could increase yields somewhat, but not enough to change the basic outlines of Peru's cotton economy. Cotton yields, which have not changed substantially in over 20 years, are already among the highest in the world. 46. The fairly rapid postwar increase in cotton production, from a 68,000 metric ton annual average for 1945-1950 to the present 110,000 ton (505,000 bale) average, represented in large part a recovery of prewar area and production peaks under the stimulus of high export prices. Cotton exporters, who had received on average less than 20 cents for each pound cf cotton in the early postwar years, received some 40 cents per pound during 1948-1950, and over 60 cents in 1951. Except for one year, Peruvian cotton continued to bring 35-38 cents per pound from 1951 through 1957. At these prices the area under cotton increased steadily. After declining by almost 25% during the war, it increased from 130,000 hectares in 1945-48 by an average ; to 6% each year to its present 230,000 hectares. Though cotton prices have been less inviting since 1957, exporters have been more than compensated during this period by the increase in the rate at which they could convert their export proceeds into soles. 47. In coming years, cotton acreage is not expected to increase quite as rapidly as in the past. Export prices, currently expected to be no more than 30 cents per pound for Tanguis and 33 cents for Pima for the next few years, are not considered sufficiently attractive to induce any further shifting from other crops into cotton, though these prices should still be remunerative for most cotton groers. The stimulus of a high exchange rate will subside as costs catch up. The recent increases in the price of fuel oils (Appendix B) have already raised costs for those coastal growers who use pumps for irrigation. After allowing for some lands to go out of production because of disease and the need for crop rotation, increases in cctton area are expected to be less than 10%, i.e. to be limited to about 20,000 hectares of land suitable for cotton (mostly Pima) which newly completed irrigation works will gradually bring into production in the next few years. At the current average yield of 0.5 metric tons per hectare, cotton fibre production may reach 125,000 tons by 1965. - 15 - 48. But domestic cotton consumption will also increase, probably close to the average postwar annual rate of 2.6%. Domestic consumption should thus approach 19,000 metric tons in 1965, leaving a cotton export potential of some 106,000 metric tons of which 25% would be Pima. At an average value of 31 cents per pound, these cotton exports would be valued at 572 million. Sugar 49. Unlike cotton, past increases in sugar production have reflected not only expansion in area but also increases in yields. In fact, up to 1950 increases in sugar production were almost entirely the result of increasing yields. Though the 51,000 hectares planted on average to sugar cane during 1946-1950 were within 5% of the area under sugar twenty- five years earlier, cane production was over 35% higher. Yields have continued to increase to a level double that of the early 1920's and are now among the highest in the world. This increase in productivity, and a 20% expansion in sugar area since 1950, enabled the production of sugar cane to increase by 50% in less than a decade. 50. The pace and pattern of past expansion is not expected to continue. Sugar prices received by Peruvian exporters have been fluctuating about a declining postwar trend. With steadily rising yields and a depreciating Sol since 1957, sugar production has remained profitable. It can still compete in export markets, even at the price of 3.5 cents or slightly less per pound of raw sugar expected for the next few years. But the margins are now smaller, and are more likely to shrink than to increase with further increases in domestic costs and only limited potential for still further increases in yields. In the face of these prospects and the uncertainties in the world sugar market, production of raw and refined sugar may not exceed in the next few years its 1956 peak of 718,000 metric tons. 51. However, domestic sugar consumption should continue to increase by at least % each year. The average for 1941-1956 was 4.8%. From its 1955-1957 level of 226,000 metric tons, sugar consumption should thus increase to 320,000 tons by 1965, leaving only 400,000 metric tons available for export. At an assumed average unit price of 3.6 cents per pound, 1965 sugar exports will approximate $32 million. The price of 3.6 cents implies that 15% of total exports will continue to be in the form of refined sugar at a 15% premium over raw. Coffee 52. Coffee is one of Peru's new and rising exports. Barely noticeable on the export list in the early postwar years, coffee exports have increased seventeenfold in volume during the past decade, and in 1958 accounted for 10% of Peru's agricultural exports. With Peruts coffee area still - 16 - expanding and trees recently planted just beginning to come into produc- tion, market rather than supply problems are likely to be the limiting factor on coffee exports. In view of the world coffee situation and the recently concluded agreement among producers to restrict exports, it has been assumed that future increases in exports will be limited to an average 5% (about 1,000 metric tons or 16,600 bags) each year. They have been increasing recently at a much more rapid 5,000 tons per year. At an average 35 cents per pound, coffee exports would on this basis approximate $19 million in 1965. Fish 53. Despite the length of Peru's coastline and the known richness of its fish resources, fish products have only recently begun to be an export of importance. Canned and frozen fish for food consumption used to account for the bulk of Peru's exports of fish products. They should continue to increase gradually, remaining within the $10 to $15 million range. Since 1958, however, fish meal, the newest of Peru's major exports, has surpassed edible fish in importance as an export. Doubling in volume each year for several years past, they accounted for 8% of all agricultural exports in 1958 and should continue to increase faster than the other items on this export list. 5h. How long and how rapidly the phenomenal recent growth in fish meal exports may be expected to continue is difficult to tell. Peru's rapidly growing importance as an exporter of fish meal - in a few short years it has come to supply half the world market - has largely represented a substitution of Peruvian for Scandinavian supplies. The industry is expected to continue to expand, however. It is new and low in cost. Large investments are currently underway to improve and expand existing facilities, and the fish meal market is expanding. Fish meal exports have accordingly been assumed to increase each year until 1961 by an amount equal to the 1956 to 1958 average of 20,000 metric tons, and by 10,000 tons annually thereafter. At recent market values, fish meal exports would thus approximate $20 mi;lion by 1965, 75% above their 1958 level. Total Agricultural Exports 55. With wool exports continuing at the rather constant levels of recent years, major agricultural exports may thus reach $170 millions by 1965. This estimate would be equivalent to an increase of 1.5% each year over the i956-1958 levels. 56. Peru's longer term agricultural export potential is greater than the above projections would indicate. New products such as cacao could become important exchange earners in the same way that coffee has become one in the recent past. Continued road development to open up the lands of the Montap. - 17 - and the Selva, the fuller utilization of irrigation works already on the ground, and new irrigation projects at present only under preliminary study all promise to add substantially to the export potential of Peruvian agriculture. But this potential is not likely to be realized before the late 1960's, at best. Major Minerals Exports 57. Peru's incrcasingly diversified minerals exports have been growing rapidly in volume. Each of the major non-ferrous metals -- copper, lead, zinc and silver -- which has been accounting for between one-tenth and one- fourth of total m1inerals exports, has more than doubled in volume during the past decade. Iron, which began to be exported in 1953, accounts for another one-sixth of minerals exports. Petroleum is the only minerals export which has not been increasing. It total, minerals exports have increased in value by the equivalent of some 9% each year since the war, from an average of $57 million in 1947-49 to a 1956-58 average of $127 million, notwithstanding the fact that non-ferrous metals prices declined during 1957 and 1958 to levels roughly equal to or less than their levels in the early postwar years. 58. This group of exports should continue to expand. As is explained below (and summarized in Table 17), annual minerals exports are expected to increase at a rate about equal to that of the past decade, to pass the $250 million level by 1965, almost double their recent peaks. Copper 59. Production from existing mines is not expected to continue to increase at the average 8% per year of the past decade. Through most of the postwar years, copper prices fluctuated about a rising trend, reaching a peak of over 40 cents per pound in 1956, twice that of the early postwar years. Prices fell sharply in 1958, however, to a level 40% below the 1956 peak. Though a higher price level is expected to prevail in the future -- 27 to 29 cents per pound up to the mid-1960's -- the earlier strong incentives to rapid expansion of mines already in existence will be lacking. Increases over present levels from these sources are not expected to exceed the equivalent of 2% per year. The copper mines which increased exports from an early postwar 24,000 metric tons per year to their current 55,000 tons are not likely to exceed an annual 63,000 metric tons export level by 1965. 60. However, a new source of copper is about to appear. Early in 1960 the Southern Peru Copper Corporationts open-pit copper mine at Toquepala will begin to export blister copper at the rate of about 130,000 metric tons per year. This property has been under developmet for some years. Total copper exports will thus more than double in volume in 1960, and should by 1965 exceed 190,000 metric tons a year. - 18 - They will be mostly blister. Exports of refined metal are expected to remain at their present 30,000 ton level. 61. Assuming that copper prices move about the 26 to 28 cents per pound level (U.S. export refinery price) during the next fe-r years, these copper exports would amount to some `105 million by 1965, more than four times their currant level. Lead, zinc and silver 62. Lead, zinc and silver are generally mined together in Peru, and have accordingly had similar patterns of expansion in recent years. Over the postwar decade as a whole, exports of these three metals have increased in volume by the equivalent of 10% to 11% each year. Lead is currently being shipped abroad at an annual rate of 135,000 metric tons; zinc at 140,000 tons; and silver at 750 tons. 63. With present cost and market prospects, exports of these metals are at best expected to increase further in volume only haltingly in the next few years, until consumption catches up with current world surplus capacity. To estimate future exports, 1957-58 volumes have been assumed to increase by the equivalent of 2% each year through the mid-1960's, with year to year changes reflecting those changes in metals price relation- ships that may develop from time to time. Mlost properties permit their owners to respond to changes in relative metals prices by altering some- what the proportion of each of these metals that is mined. In response to the recent low prices for lead and zinc, for example, mine owners shifted mining wherever possible to the higher silver content portions of their ore bodies. 1any mines would have been forced into a net loss position at recent lead and zinc metal prices had this shifting not been possible. With improving lead and zinc prices, the reverse will probably occur. 64. In volume, lead, zinc and silver are thus unlikely to add more than about 15% to minerals exports by 1965. But in value they will increase by one-third, from a 1916-58 level of $60 million to `80 million by 1965. 65. This greater value increase is due to the improvement expected in lead and zinc prices, and to the fact that Cerro de Pasco's lead and zinc refinery expansion program will increase further the proportion of these metals exported as refined metals instead of much lower-valued concentrates. In 1952, exports of refined lead amounted to 40,000 tons and refined zine, to 1,500 tons. Refined lead exports are currently about 60,000 tons and zinc, 30,000 tons. By 1962, Peru's refined lead exports will have risen to some 100,000 metric tons each year, and refined zinc exports, to some 50,000 metric tons each year. The proportion of refined metal in - 19 - total lead exports will thus increase from its current (1958) 47% to about 75%, and for zinc from its current 21% to about 30%. These proportions are expected minima. Considerable attention is being given to the possibilities of developing still further smelting and refining facilities. If the various technical, locational and financial problems can be suitably resolved and new projects shown to be economic, the proportions of refined metals in Peru's metals exports could be even greater. 66. The United States import quotas on lead and zinc, which were imposed in September 1958, have been assumed to remain in force through- out the period under review. Under these quotas, Peru's commercial exports of lead and zinc to the United States will be limited to the following annual amounts, with most other exports being sold through the London metal market. Exports to the United States could be greater if there are sales under the Commodity Credit Corporation barter program and for the U.S. stockpile to which the quotas do not apply, or if the present quotas are liberalized, which is a possibility in the mid-1960's. However, for estimating purposes, Peru's exports to the United States have been assumed to be limited to the present quota figures shown below. (1000 metric tons of fine metal content) Lead Zinc Metal 23.4 6.8 Ore 29.3 63.7 Total 52.7 70.5 Source- IBRD Report EC-72, P.20 67. The U.S. quotas could be replaced by a tariff that would have the effect of permitting Peruvian lead and zinc exports to the United States to be somewhat higher than the present quota limits. But any substantial increase in total U.S. imports of lead and zinc would probably have the effect of shifting pressure on prices from London to Ne, York. Thus, as long as the basic world market situation now envisaged for these metals does not change, the order of magnitude of the export values projected for lead and zinc should remain substantially unchanged. - 20 - Iron 68. Though iron is a very recent (1953) addition to Peru's metals export list, it has become an export of rapidly increasing importance. Marcona, the major iron mining company, is now shipping each year some 2.8 million tons of ore of 60% iron content, and the Acari property, which began exporting in August 1959, is pointing toward annual exports of 1.5 million tons of 65% ore. Iron exports will thus approach the 4.5 million ton level by the early 1960's. This export volume will probably increase even further by the mid-1960's to about 6.5 million tons: good results are expected from exploration activities at Acari, and Marcona's shipments will rise toward the 4 million ton level after its beneficiation plant (2 million ton capacity) comes into operation about 1961. 69. At these volumes, annual iron exports will reach the " 0 million level by 1965, more than double their present level; and still further increases are likely in the more distant future. This estimate reflects the expectation that 60Z ore iwill continue to be priced at its current fob Peru price of about '6.50 per ton (011 per delivered ton less $h.50 per ton for freight and tolls) and that Acari's richer ore and Marcona's processed ore will command a premium of about `2 per ton. Petroleum 70. Petroleum developments and prospects are reviewed in Appendix B. Annual exports of petroleum products are not expected to exceed $j15 million in the coming years, which is some $5 to .)10 million lower than the levels of the past decade. Total Minerals Exports 71. All together, annual minerals exports should thus increase sharply from their ',127 million average for 1956-58 to about $210 million by 1961, and to a j 250 million level by 1965. These increases will come in several steps; but averaged over the period, Peru's probable 1965 minerals exports would represent the equivalent of an increase over 1956-58 levels of 90 each year, the same as that of the past decade. 72. Like the export projections for agriculture, these estimates do not reflect the full development potential for Peruvian minerals. More favorable price developments than those envisaged could provoke fairly rapid increases in metals exports from existing properties, and perhaps also accelerate the opening up of proved but still undeveloped ore bodies. Idith the realization of the Government's plan to make the first complete geological survey of the country, Peru's presently known minerals potential could be enlarged even further. - 21 - 73. The metals prospects outlined above also do not take into account other developments which suggest further variety in Peruvian minerals development. With the planned introduction of mechanical ore loading facilities in the port of Callao, loading costs for low cost bulk ores are expected to fall from their present 13 to Gk per ton to between 51 and $1.50 per ton. This reduction by two-thirds in loading charges could open up export markets for such products as clinker, barytes, chalk and gypsum. Exports of these four products alone are expected by some to approach Z5 million a year once the new ore loading facilities come into use. Less immediate possibilities include manganese, phosphates in the northern Sechura desert, and petroleum in the jungle areas where explora- tions are still continuing. With the recent increase in the price of petroleum products, coal development should also be accelerated. Most of this would be for the domestic market, but some increase in coal exports could take place. However, all of these developments are at best likely to be of limited quantitative importance during the years immediately ahead. CHAPTER 5 THE BALANCE OF PAYMENTS AND CREDITWORTHINESS 74. The last three years were years of severe strain on Peru's external finances. In part, the causes were beyond Peru's control. Because of falling prices, export earnings were some 10% lower in 1958 and 1959 than in the two preceding years. But in large part the strains were of domestic origin. As described in earlier chapters, the period of reduced foreign exchange earnings coincided with increasing budget deficits and excessive credit creation, and, as a result, with declining exchange reserves and depreciating exchange rates. 75. The worst of the strains may now be passing. Export earnings are rising and expected to increase further. With a much reduced import level, Peruts trade balance is expected to be in surplus in 1959 for the first time in several years. Imports (cif) in 1958 were 17% lower than their 1957 peak of 550 million, and in 1959 they are expected to be some 30% lower than in 197. Much of this decline in imports reflects a decline in minerals investments. Roughly one-fifth of 1957 imports consisted of capital goods for new minerals investments, mostly for Toquepala. Now completed for the most part, the externally-financed imports for these projects have largely disappeared. But with the depreciation of the exchange rate that has occurred since the beginning of 1958 and with the additional import duties that were imposed during this period, contraction in imports also reflects a reduction of Peru's normal imports to levels consistent with export earnings. As the experience of the past three year has demonstrated, Peru's import demand is flexible, and able, under appro- priate policies, to adjust quickly even to severe short-run declines in export earnings. Foods and fuels together still account for only about one-fifth of total imports. - 22 - 76. Up to 1956, Peru's official reserves remained fairly level, but low, equivalent to 10% to 15% of imports, cif. But since 1956 they declined, and during 1959 they were at times in a net liability position. Recently they have been rising. Until February, 1960, Peru will still have access to drawing rights under the present stabilization agreement (page 11) if it adheres to the policy targets agreed upon in October, 1959, with the International Monetary Fund. Under a continued free exchange system and with continued financial stability, similar accommoda- tion should be able to be arranged without serious difficulty thereafter. But substantial additional drawings would increase significantly Peru's external public debt service obligations. On the stabilization sums already drawn, including the sums drawn from the International Monetary Fund, Peru will have to repay $11 million in 1961 and another $9 million in 1962. The 1961 payment coincides with the final year of large payments on suppliers' and bank credits and raises total external public debt service payments, including repayments to the IMF, to a sharp peak of $41.5 million, eqivalent to almost 11% of gross export earnings estimated for that year. 77. Apart from the $30 million drawn down on the stabilization credits since November 1958, and the termination in September 1959 of the IBRD loan to the Peruvian Corporation, there have been no important recent changes in Peru's external public debt. As a result, service obligations on existing external public debt remain at their present $30 million level until 1962, except for the peak payments scheduled in 1961, but decline fairly quickly thereafter. 78. Debt service on private contractual foreign debt and remittances on foreign private investments in Peru are large, and will increase. They are currently running at the $40 million level: some $10 million for the service of Export-Import Bank loans to mining companies and some $30 millio: for remittances of earnings and depreciation funds on private foreign invest ments in Peru. After 1961, the service of minerals loans will increase to the p20 million level when full service of the large loan for Toquepala begins, and remittances will approach the $80 million level, also largely because of the coming into full operation of the Toquepala property. This category of exchange payments will thus approximate $100 million (gross) by the mid-1960's, more than twice their current level. 79. There are reasonable prospects that the stability that has been restored during the past few months will not be upset again by excessive credit created by the banking system to finance new public or private expenditures. While the balance of foreign exchange receipts and payments is still precarious, the expanding export sector should, with good management, enable Peru to keep its international accounts in balance. 80. Given a favorable financial environment, the growth potentials of the economy are good. The further growth of the commercial sector of the - 23 - economy - mining, the commercial agriculture of the coast, and industry - seems well assured. The economy is flexible, and the climate for its development is good. It remains largely free from controls, and efforts are being made to eliminate some of the few distorting elements still remaining. improvement in the heavily-populated agricultural areas in the Andes will at best be slow, and the very large and traditional regional discrepancies in income and growth will therefore continue. But overall, there is no reason to expect that increases in the national product will not be perceptibly higher than the rate of population growth. On balance, these are important elements which could provide a satisfactory basis for Peru safely to incur new long term foreign debt for high priority projects. The extent to which they will do so will depend on the Government's ability to bring its fiscal situation into balance and to prevent further deteriora- tion in the country's financial position. APPEEDIX A NON-FERROUS IETALS EXRRT VALUES 1. The price expectations for copper, lead and zinc are those which have been outlined in detail in IBRD reports EC-72 of June 11, 1959, "Lead and Zinc", "Post-War Problems and Future Prospects", and EC-76 of July 31, 1959, "Short Term Outlook for Copper". The following refined metals prices indicated in thes- papers have been used for the export projections of this report. (U.S. cents per pound) June 1959 actual 1961 1965 Copper (U.S*export refinery 28.8 26.5 27.5 price 1/) Lead - U.S. 12.0 14.5 14.5 U.K. 8.8 10.5 12.5 Zinc - U.S. 11.5 13.5 13.5 U.K. 9.8 9.5 11.5 2. Freight, handling, insurance, brokerage, and import duties where applicable, have been deducted from the expected export market prices of refined metals to obtain the fob Peru prices shown below. These deduc- tions have been calculated on the basis of information obtained from minerals exporters in Peru. 1/ Based on an expected 2.5 cent differential between the U.S. domestic price and the export price. The U.S. export refinery price usually moves with the London price. Appendix A, page 2 (U.S. cents per pound) Deduction from Expected export export market prices,fob,Peru price 1961 1965 Copper metal 1 25.5 26.5 blister 2.5 24 25 ores, etc. 7.5 19 20 Lead metal USA 2 12.5 12.5 UK 1 9.5 11.5 ores, etc. USA 6 8.5 8.5 UK 7 3.5 5.5 Zinc metal USA 1.5 12 12 UK 1 8.5 1C.5 ores, etc. USA 7.5 6 6 UK 7 2.5 4.5 3. The deductions for metals shipped as ores and concentrates have been calculated as follows: Copper: $30 per short ton of ore, etc. for freight, handling and smelting, equivalent to 6 cents per pound of metal in ores and concen- trates averaging about 25% recoverable metal content. Additional deductions are made for refining charges. Lead: $35 per short ton of ore, etc. for freight, handling and smelting, equivalent to 3.5 cents per pound of metal shipped to the United States in ores and concentrates averaging about 50% recoverable metal content. Additional deductions are made for refining charges and duties. For shipments to Europe, a flat $70 per short ton for all fixed charges, equivalent to 7 cents per pound of metal. Zinc: $70 per short ton of ore, etc. for all fixed charges, equivalent to 7 cents per pound of metal in ores and concentrates averaging 50% recoverable metal content. Additional deductions are made for U.S. duties. AFFENDIX B THE PETROLEUM INDUSTRY 1. On July 27, 1959, the Government decreed that prices be raised for all petroleum products sold in the domestic market. Product Official Prices (1) % Before 27/7/59 After 27/7/59 Increase Gasoline - Extra 2.64 5.24 98% Regular 2.23 3.99 79% Kerosene - Domestic .95 1.21 27% Industrial .95 3.30 24Z7% Diesel 1.05 3.25 210% Residual (2) - No.5 .80 2.21 176% No.6 .80 1.86 133% (1) Prices in the Lima-Callao area.which accounts for about 2/3 of the country's consumption. (2) These prices are for national production only. Since residual oils are imported at a higher price, the actual price to the consumer is a (higher) average of the prices of domestic and imported oils. 2. Under the former price schedules, which had remained unchanged for a number of years, the earnings situation of Peru's major producers had been deteriorating. Domestic consumption of petroleum production has been increasing nuch faster than production. Export sales, which have been profitable for the oil companies, have not been able to keep pace with rapidly rising domestic sales at reported losses. Because of the result- ing squeeze on earnings, the principal oil companies decided in 1958 to stop all developmental expenditures. The International Petroleum Company (IPC), Peru's major producer and refiner, and Lobitos Oil Fields Limited, an English company with which IPC has a joint operating agreement for the development of a part of the concessions in the northern part of Peru, reduced their drilling programs by almost half in mid-1958, and discon- tinued all drilling in December of the same year. 3. If prolonged, this cessation of drilling would have resulted in a rapid decline of total petroleum production in Peru. IPC's main producing field (La Brea - Pariias) in the northern coastal region of the country is old, has been producing at declining yields per well, and Appendix B, Page 2 requires increasingly heavy expenditures for drilling and secondary recovery processes to maintain production levels; but it accounts for more than half of Peru's total production of crude. Together with the concessions operated jointly with Lobitos, IPC accounts for over 90% of all crude production. Though small new fields have come into production elsewhere in recent years and exploration activities are continuing, there would have been no immediate prospect for replacing declining IPC output with oil from other fields. A declining petroleum industry would have resulted in substantial losses of tax revenues for the Government and in imports of price-controlled petroleum products increasing rapidly to an estimated annual *050 million level by the mid-1960's. 4. With the increase in prices, drilling and exploration activities have been resumed. Production and domestic sales are now expected to increase sufficiently to alter the pre-July 27 prospects for the petroleum industry and the budgetary and exchange implications of these prospects. 5. About half of the increase in the gross value of domestic sales will accrue to tne Government as new income tax revenue. With the additional import duties, stamp taxes and other miscellaneous revenues to be produced by an expanded operating and investment program of the oil companies and the additional income that will now be received by the Government-owned Empresa Petrolera Fiscal, the new price schedules will add some S/600 millions of new revenue annually to the Governmentfs budget, equivalent to an almost 10% increase over the Governmentfs consolidated budget revenues for 1959. The offsetting increase in the annaal cost of petroleum products to the Government will be less than S/35 million. 6. As for the balance of payments, the increased production now in prospect is expected to keep annual imports of petroleum products well below the :l0 million level and still allow for about `15 million of exports annually. For the entire six year period 1960-1965, net exchange payments abroad on petroleum account are expected to be -120 million lower than they would have been under the pre-July 27 price schedules, even after allowing for exchange payments for imports of equipment for the resumed development program and for remittances out of increased earnings that would not have been made at the old prices. STATISTICAL APPENIXI Table No. External Public Debt 1. Summary of External Public Debt Outstanding Plus Undisbursed as of December 31, 1958 with Major Reported Changes Through September 30, 1959 2. Summary of Interest and Amortization Payments on External Public Debt: Estimated Actual Payments 1954-1998 and Estimated Contractual Payments 1959-1973 on Debt Outstanding Plus Undisbursed as of December 31, 1958 writh Major Reported Changes January 1 - September 30, 1959 National Accounts 3. Gross Available Resources and Their Use, 1943-1957 4. Origin of the Gross National Product at Factor Cost, 1943-1957 Production 5. Agricultural Production Indices, 1953-1958 6. Industrial Production Indices, 196-1956 Government Finances 7. Central Government Cash Budget, 1948-1958 81 Consolidated Central Government Revenues, by Source, 1955 and 1956 9. Central Government Expenditures, by purpose, 1949-1957 10 Central Government Expenditures, by Ministry, 1951-1960 11. Central Government "Ordinary Budget" Expenditures, 1951-1960 12. Central Government Investment Expenditures and their Financing, 1950-1958. Banking 13. Monetary Assets, 1950-1958 Table No. Balance of Payments 16. The Balance of International Payments, 1947-1959 15. Merchandise Exports, 1947-1965 16. Major Agricultural Exports, 1947-1965 17. Major Minerals Exports, 1947-1965 18. Merchandise Imports, by Value, 1949-1958 19. Merchandise Imports, by Volume, 1949-1958 20. Official Gold and Foreign Exchange Reserves, 1949-1959 TABLE 1 PERU; &Ui,!RY OF EXTLRN,L 1UBLIC DEBT OUT TANDING FLUS UNDICBUR3ED _3 OF DLC BER 31, 1958 A ITH 1,AJOR REPORT7,D CHAMG 3! T 3ROUGH SEFTEi2ER 30, 1959 /1 (In thousands of U.S. dollar equivalents) . . . ..... .Pr ge_1 Debt out- Major standing reported Item plus un- dhanges disbursed January 1 - December 31, 1958 Sept. 30, 19% TOTAL EXTERNAL PUBLIC DEBT 21L208 + I zo Outstanding 187,722 Undisbursed 27,486 U.S. DOLLAR DEBT 179,114 + 1,700 Outstanding 151,628 Undisbursed 27,486 Publicly-issued bonds 56,743 Suppliers' and bank credits 54,312 + 1,2 Outstanding 51,122 Undisbursed 3,190 IBRD loans 51,790 - 15,000 Held or guaranteed by IBRD 48,695 - 14,600 Outstanding 25,194 Undis'oursed 23,501 - 14,600 Non-guaranteed sales and participation - ...40 Outstanding 2,300 Undisbursed 795 - 400 U.S. Government loans 16,262 + 15500 ChUADIPN DOLLAR DEBT (IBRD loans) 611 POUND STERLING DEBT 24,492 Publicly-issued bonds lo,632 Suppliers' credits 12,317 IBRD loans 1,543 ACENTIE PESO DEBT (Government loan) 6L241 SIS3 FRANC DEBT 2,33 Suppliers' credits 151 IBRD loans 2,182 LANISH i(RONE DEBT (Suppliers' credits) 204 PEUTJCHL hARk. DEBT (IBRD loans) 1,948 DEET IN OTHER CURENCIES (IBRD loans) 265 See Cootnotes at end of table. TABLE 1 (Continued) PBEU: SUIMARY OF EXWTRI7IL 1_UBLIC LEBT OUTDT.NDING FLUS UNDI3BUR2ED AS OF DECELBER 31, 19'8 .ilH LPJOR REPORTED CH,A3E- TEROUGH SEPTEwBER 30, 1959 /1 Page /1 loes not include the following stand-by credits for currency stabilization. a. $17,500,000 from the U.S. Treasury (not yet drawn) b. $17,500,000 from private U.S. banks (not yet drawn) c. $40,000,000 from the Export-Import Bank (As of December 31, 1958 no drawings had taken place. The subsequent drawings of $15,5Co,000 appear on this table under "Major reported changes January 1 - Leptember 30, 1959.") d. $25,000,000 stand-by credit from the International M4onetary Fund (As of December 31, 1958 $10,000,000 had been drawn. Afn additional $4,500,000 was drawn during January 1 - September 30, 1959.) Also does not include $18.1 million of U.S. Government loans repayable in local currency. IBRD - Econoxic Staff T,BLE 2 FLPRU: SU.l,RY OF L\TT1E1T -ND T TION YENTS ON LXTE1LL 1UB. IC DEBT; ESTINAT:D 6CTUAT, PiYIENT!B 1954-1958 I'D ETINiTED COhTRACTU,L PAYNiUTS 1959-1973 /1 ON DEBT DUTThNDING !LU-' UNDISBURSED AS OF DECEBER 31, 1958 UITH iAJO? R-PORTED CHANGES J,NURY 1 - SEPT. 30, 1959 (In thousands of U.S. dollar equivalents) Total Supplierst and bank credits Other /2 Debt out- Debt out- Debt out- standing Payments during year standing payments during year standing i-ayments during year plus un- Amorti- In- plus un- Amorti- In- plus un- Amorti- In- disbursed zation terest Total disbursed zation terest Total disbursed zation terest Total Januarv 1 January 1 January 1 195k 115,035 6,644 2,707 9,351 21,932 2,769 873 3,642 93,103 3,075 1,834 5,?09 1955 120,920 12,333 3,323 15,656 20,313 9,511 933 10,444 100,607 2,822 2,390 5,212 1956 231,004 25,014 4,600 29,614 92,318 21,149 1,965 23,114 138,686 3,865 2,635 6,500 1957 215,363 22,400 5,125 27.525 81,539 16,747 2,178 18,925 133,824 5,653 2,947 8,600 1958 205,286 21,519 5,358 26,877 72,412 16,627 2,282 18,909 132,874 4,892 3,076 7,968 FROJECTED 1959 215,208 25,011 6,502 31,513 66,984 18,230 2,200 20,430 148,224 6,781 4,302 11,083 1960 190,419 23,052 6,744 29,796 49,954 16,465 1,942 18,407 140,465 6,587 4,802 11,389 1961 165,813 24,906 5,981 30,887 33,489 13,857 1,386 15,243 132,324 11,049 4,595 15,644 1962 139,273 21,034 4,862 25,896 19,632 6,980 657 7,637 119,641 14,054 4,205 18,259 1963 116,774 18,475 4,163 22,638 12,652 4,444 471 4,915 104,122 14,031 3,692 17,723 1964 96,766 12,811 3,557 16,368 8,208 3,515 350 3,865 88,558 9,296 3,207 12,503 1965 82,350 9,584 3,047 12,631 4,693 2,345 235 2,580 77,657 7,239 2,812 10,05). 1966 71,085 8,946 2,588 11,534 2,348 2,348 115 2,463 68,737 6,598 2,473 9,071 1967 60,378 3,560 2,182 5,742 60,378 3,560 2,182 5,74k 1968 54,973 3,403 2,008 5,411 54,973 3,L403 2,008 5,411 1969 49,845 3,560 1,832 5,392 49,845 3,560 1,832 5,392 1970 44,483 3,617 1,642 5,259 44,483 3,617 1,642 5,259 1971 38,964 3,676 1,450 5,126 38,964 3,676 1,450 5,226 1972 33,281 3,873 1,253 5,126 33,281 3,873 1,253 9,126 1973 28,507 4,045 1,081 5,126 28,507 4,045 1,081 5,12o 11 Incladeb ull the debts on Table 1. P2 Pssumed that the bonds would be retired by the sinking fund through pilr1hases I ii ,he open market at prices below par at approxinatel present yields. TABLE 3 CROBS AVAILABLE RESOURCES AND THTR USE, 1943-1957 (millions of soles, current prices) 1943 1946 1949 1952 1955 1956 1957 Gross national product .3,241 5,291 12,190 20,964 28,540 31,626 33,711 Net imports -24 122 -29 733 725 1,784 2,708 Gross available resources 3,217 5,413 12,161 21,697 29,265 33,410 36,419 USE Consum-)tion 2,747 L.32 975 16,147 21,633 2 264 - rrivate 2,505 3,922 8,870 14,488 19,327 21,229 22,901 - government 242 405 925 1,659 2,306 3,456 3,547 Fixed investment.gross 504 1,098 1.-i 5 5,044 6296 8,170 9,149 - private 504 1,098 1,367 4,090 5,204 6,547 7,411 - government - - 278 954 1,764 1,623 1,738 Inventories -34 -12 721 506 664 555 822 Source: Ministry of Finance ORIGIN OF GROSS NA.TIOH'¶L PRODUCT AT FA!CTOR COST, 1943-1957 (percentages) 1943 1946 1949 1952 1955 1957 Agriculture 34 29 35 35 29 23 Mining 12 8 11 12 14 13 Manufacturirt 15 22 17 14 15 18 Services 14 7 6 6 5 6 Commerce 12 20 16 14 14 15 Finarce 3 3 2 2 3 3 Government 5 8 10 13 15 17 Other 6 4 5 5 100 100 100 100 100 100 Source: Ministrj of Finance. TABLE 5 AGRICULTURAL P2LTUTHOTION INIC7S, 1953-1958 (1954-0oo) 1953 195h 1955 1956 1957 1958Y Total 97 100 103 92 96 98 Food crops Food grainsl/ 107 100 95 83 86 90 Beans 85 100 1o 105 116 16 Roots and tubers 97 100 98 77 79 t8 Industrial crops Sugar 94 100 104 101 10 107 Cotton 85 100 96 99 92 92 Oil seeds 122 100 98 117 130 135 Dermanent crops!! 93 100 110 122 1)43 154 1-/ Provisional. 2 / Rice, quinua,. barley, corn, wheat. ly Coffee, cacao, tea, coca, olives, barbasco. The marked increase in this index reflects the doubling of coffee production in this neriod. Source: Ministry of Finance. TABLE 6 INDUSTRIAL PRODUCTION TNDTCES, 1946-1956 (195141o) 1946 1948 1950 1952 1954 1956 Total 56 60 70 83 100 126 Food products 55 70 80 85 100 108 Beverages 45 46 56 91 100 105 Tobacco 62 71 89 86 100 99 Textiles 64 74 70 80 100 105 Shoes and clothing 39 43 55 75 100 131 ':ood 30 36 59 94 100 116 Paper 29 39 38 54 100 128 Printing 66 41 61 77 100 132 Leather 67 70 89 101 100 133 Rubber 39 54 51 68 100 94 Chemicals 45 50 60 84 100 12 Petroleum Products 76 82 84 94 100 107 Non-metallic nineral products 61 75 72 72 100 107 lechanical and metallurgical 60 51 69 85 100 162 products Source: Ministry of Finance TABLE 7 CEN TRAL GOVERINENT CASH BUDGET, 1948-1958 (millions of soles, calendar years) Estimate 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 PEVTENUES Ordinary budget 1,696 2,148 2,205 2,119 2P454 2,84. 2,951 3,329 3,301 4,149 4,644 Special accounts 387 452 669 844 1,091 1,285 1,525 1,954 2,031 2,220 2,497 Administrative accounts - 31 150 113 107 101 290 48 40 45 50 Other revenues 17 65 14 74 - - - 32 137 78 - 2,100 2,696 3,038 3,150 3,652 4,227 4,766 5,363 5,509 6,492 7,191 EXPENDITURES Qrdinary budget 1,600 2,029 2,188 2,369 2,590 2,750 3,366 3,774 4364 4,695 5,194 S pecial accounts 373 425 659 815 911 1,069 1,365 1,746 2,006 2,205 2,497 Administrative accounts - - 119 100 95 89 273 34 - 49 50 50 Other expenditures 211 398 443 330 446 1,526 1,109 1,125 1,161 943 400 2,184 2,852 3,409 3,614 4,042 5,434 6,113 6,679 7,580 7,893 8141 Les6 amortization of debt iricluded above - 255 - 225 - 225 - 158 - 207 - S04 -1,023 - 621 - 1,453 - 953 - 878 1,929 2,627 3,184 3,456 3,835 4,930 5,090 6,058 6,127 6,940 7,263 Budg-t s2iplus, or deficit (-) 171 69 - 146 - 306 - 183 - 703 - 324 - 695 - 618 - 448 - 72 (conTinued) TABLE 7 (continued) CENTRAL GOVERNMPENT CASH BUDGET, 1948-1958 (millions of soles, calendar years) 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 FINANCED BY: Drawing down cash balances -38 -41 36 -96 - 5 -70 -23 -67 92 25 Increasing indebtedness -133 -28 110 402 177377 3[7 762 526 h23 12 Domestic indebtedness -75 20 131 293 133 19 321 570 512 775 350 New borrowing 5 143 248 374 257 287 963 765 1,4h9 1,026 550 less amortization -80 -123 -117 - 81 -124 -268 -642 -195 - 937 - 251 -200 External indebtedness -58 - h8 -21 109 55 754 26 192 14 - 352 -278 New borrowing 117 54 87 186 138 990 407 618 531 350 LOO less amortization -175 -102 -108 - 77 - 83 -236 -381 -426 -517 - 702 678 Notet The Government of Peru does not publish consolidated budget accounts in detail. This table has therefore been built up from elements of the public accounts. Except for "other expenditures", all the figures in this table are as published in the Balance y Cuenta General. "Other expenditures" is a balancing item, representing expenditures of funds borrowed, transferred from special accounts, and all other expenditures not included in the other categories listed above, "Ordinary budget" figures represent all revenues and expenditures during the calendar year, including revenues and expenditures during the first quarter of each year in liquidation of the preceding year's budget "Special accounts' revenues represent total actual receipts, including revenues of the Fondo Nacional de Desarrollo Eco- nomico since 1957: no adjustment has been made for revenues transferred to the ordinary blidget. "Spe!ial A co,:nts" e:pondit-reo do not inclu'e sums transferred to the crci-nary budget. Sou-roc*. Ministry of Financ,e 1L..'7 " 8 CONSOLIDATED CENTrAL GOVFRNMENT REVENUES EY SOURCE 1955 ANID 1956 (millions of soles) 1955 1956 Taxes on Income and Wealth Interest 22.1 .6 22.6 .5 Real estate 96.1 2.4 105.6 2.3 Business profits 348.2 8.8 4ol.4 8.9 Liberal professions 2.5 .1 2.6 .1 Wages and salaries 230.5 5.8 278,6 6.2 Tax on foreigners 2.9 0.1 3.1 0.1 Complementary income tax 245.0 6.6 239.6 5.3 Total taxes on income 947.2 23.8 1,0535 23.3 Euccession taxes 27.1 0.7 35.0 0.8 Total 97.3 77* 1,088.5 2.1 &axes on ETxports and Imports Ecport taxes 516.5 13.0 567.6 12.6 Import duties 876.2 22.0 980.9 21.8 Totali1 1,392.8 35.0T. 3T- Consumption Taxes 444.8 11.2 521.8 11.6 Transactions Taxes 289.3 7.3 316.1 7.0 Commodity Taxes 45.8 1.2 44.2 1.0 Other Taxes 338.5 8.6 426.8 9.5 Fil-es 6.1 0.2 7.0 0.2 TOTAL TAX REVENUES 2.96.9 87.9 3,957.1 87.6 Go,iernment monopolies 168.8 4.2 197.1 4.4 Fees, etc. 314.7 7.9 362.1 8.0 TOTAL 0OVERNH!FNT REVENUE 3,980.4 100.0 4,516.3 100.0 Fource: United Nations Special Tax Mission. This breakdown of total revenuAes was the result of a special study, and is not available on a current basis. TABLE 9 CENT-RAL GOVERME1T EXPErDITUES, BY PUICPOSEL 1949-1957 (millions of soles, fiscal years) 1949 1950 1951 1952 1953 1954 1955 1956 1957 Current expenditures General administration 465 731 783 971 1,069 1,367 1,324 1,575 1,880 Defense 316 384 333 424 562 551 618 1,066 1,08 Education 125 152 205 221 251 268 293 434 461 Health 18 26 36 43 55 52 71 381 121 925 1,293 1,3567 i7~ 1,937 2,238 2,306 -3776 3,7W7 Transfers National debt 45 128 163 171 183 206 174 257 231 Pensions 141 216 249 356 279 31 397 506 729 Subsidies 86 12 0 38 176 49 41 539 7075777 7-71 73 99 Investments Agriculture 52 41 127 184 157 119 258 351 231 Industrial development 52 61 92 108 87 104 143 164 196 Transportation 58 79 165 322 305 217 419 303 371 HyLgiene 2 20 9 9 27 17 59 38 88 Public buildings 109 94 238 229 324 247 577 419 361 Others 4 38 73 102 181 178 308 349 490 7b 33 2 7 03 9-5 1,052 88 1,7G 1,623 -17-37 TOTAL 12388 2,05 2,47 3 150 3j525 3,666 4 542 682 Note: Includes expenditures of ordinary revenues, all special accounts, etc. Souce: Central Bank r, 3rj 10 CENTAL GOVERNMLNT EXPLN DITURES J BY MINIST[, 1951-1960 (millions of soles, fiscal years) Draft 1960 1951 1952 1953 1954 1955 1956 1957 12!8 budget Leislature 24 29 33 40 45 50 50 60 56 President's Office 4 6 7 8 11 10 7 7 7 Judiciary 22 26 28 32 35 45 52 56 74 Government and Police 351 389 l25 488 533 639 678 807 970 External Relations 43 47 54 60 61 64 70 87 98 Justice and Culture 39 49 54 58 64 77 95 104 110 .ducation 339 376 118 471 520 779 898 1,121 1,397 Finance and Commerce 499 555 562 690 709 897 993 1,171 1,235 Labor 6 7 8 9 11 15 18 23 30 Army 339 329 j08 414 457 578 611 662 804 Navy 75 86 96 10 116 144 239 312 330 Air Force 89 112 120 138 191 209 358 448 398 Public Works 312 437 506 524 658 695 675 750 881 Public Health 198 311 356 383 436 632 664 634 1,060 / A.riculture 37 39 43 47 48 56 66 82 241 2,378 2,798 3,116 3,465 3,900 I,894 5,477 6,324 7,692 21 1/ Except for 1960, these represent only actual expenditures made through the ordinary budget and special accounts. Expenditures financed in other ways are not included here; these figures are thus less than those shown in table 9. 2/ I-is figure is not comparableto those of earlier years as it includes contributions to pension funds which were not formerly in the budget. Snu-ce: Ministry of Finance. T I j T, -11 CENTRAL GOVERNMINT "0RDINARY BUDGET' EPS1DITU ES -1/ 1991-1960 (millions of soles, fiscal years) ..... . .Draft 1951 1952 1953 1954 1955 1956 1957 1958 1960 . bud,,-et Personnel 1,019 1,124 1,230 1,404 1,516 1,940 2,111 2,608 3,265 Supplies 287 328 324 356 366 383 395 397 417 Transfers 305 267 305 349 373 487 607 634 884 Investments 39 117 106 83 165 238 55 50 1 Various 303 303 336 362 411 471 564 564 628 1,953 2,139 2,301 2 554 2,830 3,518 3,731 4,252 5,195 1/ Actual expenditures for 1951-58. 2/ Including debt service. Source: Ministry of Finance. TABLE 12 CENTRAL GOVZH MLNT INVSTMNT EXEDTqAND TH I FIN CING, 19,0-1958 (millions of soaes, fiscal years) 1950 1951 1952 1953 1954 1955 1956 1957 1958 INWSTI7N T SXP 7lDITU-RES T Fi1ture 18 126 18 157 98 248 351 231 401 Irrigation 1 8 101 116 113 51 199 294 178 246 Other - 25 70 44 47 49 57 53 155 Industry and Mining 81 87 105 84 102 148 164 196 188 Transportation 79 142 322 305 208 303 372 18 Railroads 29 .27 TF 1b 2 6 37 - 1 Roads and bridges 48 117 278 282 180 340 256 299 150 Ports 2 2 18 5 14 73 41 36 33 Munici,al works ./ - - -- - 15 63 37 88 95 Public buiIdings 108 180 195 278 210 412 398 361 227 Vehicles and equipment 24 30 27 29 57 203 62 102 64 Others 22 138 121 229 192 271 308 388 303 TOTAL 332 703 95 1,082 882 1,764 1,623 1,738 1L62 (continued) TABLE 12 (continued) CENTRAL GOVEAIMLNT INV.LSTMIIT EXPTNDITU LES AND THELIiR FINANCING,1950-1958 (millions of soles, fiscal years) 1950 1951 1952 1953 1954 1955 1956 1957 1958 FINANCING Budgetary funds 332 703 954 919 853 1,291 991 .1,120 865 -ordinary budget 127 25 29d 194 173 294 359 251 125 =other accounts 205 418 656 725 680 997 632 869 740 Borrowing - - - 163 29 473 632 618 597 TOTAL 33.2 703 954 jjP82 882 1,764 1,623 1,738 1,462 1/ Water, sewage, lighting Note: These figures,which are as published in the Balance y Cuenta General de :]a iepublica, include finaicial transactions such as provision of Govenment funds to the development banks and the Santa Corporation, and some expenditures which might more properly be classified as administrative rather than investment. They also include purchases of military equipment, and may therefore overestimate government investments by as much as 25% in some years. At the same time, thoY may understate total public investments because investment expenditures of public corporations are included here only to the extent that they are financed with govenment funds. Source: Ministry of Finance MONET ,RY .11S 91, 1950-1958 (millions of soles at end of year) 1950 1951 1952 1953 1954 1955 1956 1957 1958 MONET.RY A9SETSl/ Mone 2,276 2,718 3,168 3,498 3,780 4,093 4,803 5,075 5,361 Currency: private sector 955 1,082 1,215 1,404 1,557 1,656 1,930 2,085 2,384 -7ight deposits: private sector 1,030 1,350 1,583 682 1, 1,93 2,237 2,287 2,352 public institutions 7 16 13 44 27 43 59 110 72 government 284 270 357 368 380 456 527 593 553 Near Money 1,313 1,435 1,792 2,013 2,293 2,851 3,332 3,856 4,161 priv-te sector 1,262 1,342 1,662 1,957 2,244 2,787 3,237 3,749 4,025 oublic institutions 38 55 56 23 16 15 18 17 35 government 13 38 74 33 33 49 77 90 101 Total monetary assets 3,589 4,153 4,960 5,511 6,073 6,944 8,135 8,931 9,522 private sector 3,247 3,774 4,460 5,043 5,617 6,381 7,454 8,121 8,761 oublic institutions 45 '71 69 67 43 58 77 127 107 government 297 308 431 401 413 505 604 683 654 OIGIN OF FONETARY A&SEIS Gold and foreign exchange held by the banking system 784 837 794 752 991 1,051 1,284 790 886 Loans and investments made by the bankin- system: 3,30 3,353 4,736 5,398 6,094 6,973 7,972 9,506 10,292 private sector 2,133 2,777 3,524 4,023 4,345 5,287 5,962 6,956 7,144 public institutions 20 23 19 19 28 34 75 43 67 government 977 1,053 1,241 1,356 1,721 1,657 1,935 2,507 3.081 _,914 4,690 5,5P0 6,150 7,085 3,029 9,256 10,296 11,178 (continued) TABLE 12 (continued) MONETRY~ ASSETS1, 1950-1958 (millions of soles at end of year) 1950 1951 1952 1953 1954 1955 1956 1957 1958 Less capital and reserves 373 566 711 845 920 1,011 1,094 1,278 1,348 other obligations (net) -48 -29 -91 -206 92 74 27 87 308 325 537 620 639 1,012 1,085 1,121 1,365 1,656 3,589 4,153 4,960 5,511 6,073 6,944 8,135 3,931 9,522 1 Currency and debt created by the banking system, which includes the Central Yank, commercial and savings banks, the develonment banks and the mortgage bank. 2J Time and savings deposits, foreign exchange deposits, mortgage bonds. Source: Central Bank. TABLE 14 THE BALANCE OF INTERNATICNAL PAYMETIS, 1947-1959 (millions of U.S. dollars) Annual Averages 1959 1947-49 1950-52 1953-55 1956 1957 1958 (Estimate) Merchandise Exports 167.5 234.9 255.9 321.0 332.8 289.7 310 Merchandise Imports (fob) -142.3 -203.9 -244.2 -341.1 -397.2 -332.3 -285 Trade Balance 25.2 31.0 - 20.1 - 64.4 - 42.6 25 Transport & Insurance - 25.9 - 38.0 - 33.1 - 46.3 - 55.2 - 45.3 - 38 Investment Income - 12.3 - 17.2 - 21.9 - 32.1 - 33.1 - 35.4 - 38 Other Sources 1.1 - 9.5 - 1.5 - 3.5 - 4.4 :_ L-i2- 5 - 37.1 - 64.7 - 56.5 - 81.9 -_92.7 - 85.2 - 81 Current Account Balance - 11.9 -33.7 - 44.8 -102.0 -157.1 -127.8 - 56 FINANCED BY: Donations 3.5 5.5 6.9 9.4 15.1 13.9 10 Direct Investments (net) 10.4 24.1 29.9 39.9 48.3 45.0 ) Long-term Capital: ) 52 Export-Import Bank and I.B.R.D. --- 2.1 14.2 20.9 45.9 53.0 ) OthersL _,6 - 1.0 3M3 40.3 32.9 1-4.2 ) 5.6 1.1 17.5 61.2 78.8 67.2 ) Amortization 2.7 - 2.8 - 7.5 24.2 - 24.9 -25.0 -26 2.9 - 1.7 100 37.0 53.9 42.2 Short--te--n Capital (net): Private 2.9 7.1 - 2.8 34.8 12.0 10.7 Official - 4.5 - 2.1 2.3 -15.4 32.8 13.2 20 - 1.6 5.0 - 0.5 19.4 _4. 23.9 Errors & Omissions - 3.4 0.9 - 1.8 - 3.5 - 5.0 2.8 41 Including non-monetary gold. L2 Gro3s inflow less subs'ription- to I.B.R.D rod IDF in 194-7 and 2912, Source: Central Bank MERCHANDISE EXPCRTS, 1- 1 9 Tmillions of U.S. dollars) Annual averanes_ Estimate 1947-49 1950-52 1953-55 1956 1957 1958 1961 1965 Major agricultural exports 1/ 83 128 126 151 159 151 155 171 ,Major minerals exports 2/ 57 79 97 136 137 109 212 250 Other exports 3/ 22 23 26 31 24 21 30 30 Total 162 230 249 318 322 281 397 451 I/ Details in Table 16. 2/ Deltails in Table 17. 3/ Largely hides and skins, cotton seed cake, rose oil, non-monetary gold. Source of historical data: Ministry of Finance TABLE 16 .YAJCR AGRICULTURAL EXPORTS, i947 - 1965 Annual averages Estimate 1/ 1947-49 1950-52 1953-55 1956 1957 1958 1961 1965 Volume ('000 metric tons) Cotton 55 73 86 109 82 108 103 106 Sugar 316 292 460 439 516 438 h3 396 Coffee 1 2 6 7 11 17 20 24 Fish - edible 7 19 24 32 32 30 33 37 Fish - meal 1 6 14 28 62 106 166 196 Wool 3 6 5 5 7 5 6 6 Unit Value (U.S. dollars per metric ton) Cotton 755 1,078 766 786 832 701 680 680 Sugar 114 112 76 75 97 78 79 79 Coffee 533 1,OU6 1,232 1,256 1,164 910 770 770 Fish - edible 463 320 363 355 345 253 300 300 Fish - meal 140 160 115 110 110 110 Wool 770 1,693 1,581 1,475 1,485 1,220 1,220 1,220 Total Value (Millions of U.S. dollars) Cotton 41.2 77.6 66.1 85.7 68.1 75.4 70 72 Sugar 35.6 32.4 34.9 32.9 50.1 34.3 35 32 Coffee 0.5 2.1 6.9 9.0 13.2 15.8 15 19 Fish - edible 2.9 6.0 8.7 11.2 11.1 7.6 10 11 Fish - meal 1.9 4.4 7.1 11.6 18 20 Wool 2;5 9.8 7.7 8.0 9.8 6.1 7 7 Total 82.7 127.9 126.2 151.2 159.4 150.8 15 171 1 These estimates are developed in detail in Chapter. Source of historical data: Ministry of Fiiiaace TABL2 17 1AJOR MINERAL EXPORTS, 1947-1965 Annua- averages 1947-49 1950-52 1953-55 1956 1957 1958 196L 1905 Volume ('000 metric tons of metal content) Gonper 2 31 37 44 51 54 190 193 Lear 46 77 107 121 120 136 135 145 inc 56 96 119 144 147 137 155 170 Silver 2/ 250 437 572 661 657 759 760 820 Iron 3F 1.2 2.7 3.7 2.5 4.56 Petroleum 6/ 1 1 .8 1 .7 .5 .5 1/ Unit Valuj- (U.S. dollars.per metric ton) Copper 374 441 595 764 484 410 521 545 Lead 280 253 226 259 245 179 193 230 Zinc 117 142 84 98 103 83 117 153 Silver / 22 23 25 27 27 25 25 25 Iron 3f-- 6 6 6 7 8 8 Petroleum 23 21 22 23 26 23 28 28 Total Value (millions of U.S. dollars) Copper 9 14 22 34 25 22 99 105 Leade 13 20 24 31 29 24 27 33 Zinc 7 14 10 14 15 11 18 26 Silver 5 10 14 18 18 19 19 21 Ircr± - - 9 15 23 16 3 5 51 Petroleum 23 21 18 2h 27 17 14 14 Total 57 79 97 136 137 109 212 20 1/ Average of U.S. and other prices for refined metals, ores and concentrates. 2/ '000 kilograms. 3 Millions of metric tons of iron ore, averaging 60% metal content. Dollars per kilogram. These estimates are developed in detail in Chapter 4. Millions of metric tons. Source of hist6rical data: Ministry of Finance TABLE 18 MERCHANIESE IN)RTS, BY VALUE, 1949-1958 (millions of dollars) 1949-51 1952-54 1955 1956 1957 1958 Foods, drinks and tobacco 32 2 56 Live animals 1 3 3 3 5 Meat 3 4 3 3 4 3 Dairy products 3 4 6 7 7 6 Cereals - grain 18 20 21 20 25 28 - manufactured 3 4 4 4 5 5 Others 4 7 8 7 10 10 Edible fats 4 5 6 8 9 8 Chemical products and nharmaceuticals 18 23 29 30 35 35 Rubber, wood, leather 5 6 7 8 9 7 P-.per 6 7 8 9 10 8 Textiles and clothing 19 25 23 23 26 18 Fuels and lubricants 5 6 11 13 17 13 Non-metallic minerals and products 4 7 8 8 8 6 Metals and products 97 136 141 188 202 163 Iron and steel T7 19 29 -2 1T iron and steel products 12 15 18 22 21 16 Machinery and equipment - electrical 12 18 16 25 28 25 - non-electrical 31 49 52 67 72 61 Vehicles and transport equipment 28 33 32 42 52 41 Other 2 2 2 2 5 2 Various 20 18 21 29 27 21 TOTAL 211 277 300 361 o 335 Source: Ministry of Finance TABTF 1.9 TERCHANTISE IMPORTS, BY VOLUME, 1949-1958 (thousands of metric tons) Annual averages_ 1955 1956 1957 1958 FoDds, drinks and tobacco 283 16 16 381 434 450 Live animals 5 10 9 10 20 20 Meat 10 8 6 5 8 7 Dairy products 7 10 16 16 17 15 Cereals - grain 230 248 299 303 329 347 - manufactured 18 24 26 25 30 35 Others 13 17 20 22 30 26 Edible fats 11 18 20 28 27 25 Chemical products and pharmaceuticals 54 75 108 103 138 152 Rubber, wood and leather 48 51 49 54 58 35 Paper 22 27 37 36 39 33 Textiles and clothing 12 18 21 22 28 18 Fuels and lubricants 56 55 252 307 359 224 Non-metallic minerals and products 19 84 51 83 74 44 Iletals and products 155 202 210 272 251 188 Iron and steel 73 101 109 179 16 T7 Iron and teel products 16 21 26 29 24 19 Machinery and equipment - electrical 7 11 11 13 14 12 - non-electrical 27 37 37 45 47 38 Vehicle and transport equipment 29 31 25 34 37 30 Other 2 1 2 2 13 2 Various 12 18 18 24 19 15 M_ 17_3 _2 1 _31Cr7 T7777 Source: siistry of Finance TABLE 20 OFFICIAL GOLD AND FOREIGN EXCHVANGE RESERVES,. 1919,-1959 (millions of U.S. dollars) End Freely Fbreign ExchanEe of Disposable Assets Liabilities Net Total Cold 1949 9.6 22.3 - 22.3 31.9 1950 12.6 22.6 - 22.6 35.2 1951 27.3 14.4 - 14.4 41.7 1952 27.3 9.7 - 9.7 37.0 1953 17.9 12.4 - 12.4 30.3 1954 16.5 20.9 - 20.9 37.4 1955 16.5 16.9 - 16.9 33.4 1956 16.7 31.8 - 31.8 48.5 1957 9.4 5.6 - 5.6 15.0 1958 0.7 12.0 11.0 1.0 1.7 Sept. 1958 1.7 7.5 1.0 6.5 8.2 July 1959 0.9 10.8 27.0 -16.2 -15.3 Sept. 1959 0.9 28.0 30.0 - 2.0 - 1.1 Oct. 23, 1959 0.9 36.2 30.0 6.2 7.1 1/ These figures refer only to freely available reserves and thus do not include '18.4 million of "untouchable" gold. 2/ Drpwings on IMF and Export-Import Bank Stabilization Loan. Source: International Monetary Fund 他 NOV〔MBER 1959 E C A D 0 R . ........................ .......................... putumø, N5 Turribes Iquitos RIO -V s On Piura Yuri uos 0 PERU SOUTH Larffintiayequ hi AMERICA d. Pacasmayo Trujill -dk Saloverry Chimbote c, Huac o (D C0I100 Puerto Moldonado 0 lig Pisco M L ake PERU iticaca Pan-American Highway Q, Other highways ALTrrUDES 11ý METER: Roads under construetion 0 - 500 ................. Dirt roads 0 - 2000 - - Railways 50 Mollendo over 2000 0 100 200 300 K in flo NOVEMBER1959 IBRD-633