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Cablegate: Peru Trade & Investment Briefs

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RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
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DE RUEHPE #1616/01 2772212
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R 032212Z OCT 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 9400
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 LIMA 001616

SIPDIS

COMMERCE FOR 4331/MAC/WH/JLAO
TREASURY FOR MEWENS
USTR FOR BHARMAN AND MCARRILLO

E.O. 12958: N/A
TAGS: ETRD ECON EFIN USTR PE

SUBJECT: PERU TRADE & INVESTMENT BRIEFS

SUMMARY
-------
1. This is an update on the following trade and investment news
from Peru:

--Record Imports & Exports
--Peru Joins OECD Declaration on Investment
--IMF's Valdivieso Named Minister of Economy & Finance
--Chinese Trade Negotiations & Investment Accelerating
--Central Bank Fights Inflation
--Japanese Business Interest
--Chilean Investors Love Peru
--Investment Agreement with Belgium & Luxembourg
--Argentines Hope to Use PTPA
--Grape Exports Double
End Summary.

Record Increases in Imports
---------------------------
2. Peru imported $2.89 billion of goods in June, $2.87 billion in
July, and $2.61 billion in August -- all record monthly highs. The
huge increases included capital goods, construction materials, goods
for consumption, and primary and intermediate goods. Capital goods
and construction materials accounted for almost a third of imports,
and primary agricultural material imports were over 150% higher than
in the same months in 2007. Much of these goods are destined for
production, reflecting booming investment in Peru. Peru imported
over $17 billion in goods during the first seven months of the year,
a 60% increase relative to the first seven months of 2007. The
United States continues to be the top source country. While Peru
still has a positive trade balance, imports are growing at a much
faster rate than exports.

And Continued Export Records
----------------------------
3. Exports totaled $2.994 billion in July, 12.4% higher than in
July 2007. Traditional exports amounted to $2.334 billion (11.1%
increase), while non-traditional goods were at $660 million (17.2%
increase). For the first seven months of 2007, total exports were
$18.958 billion, a 25.7% increase with respect to the same period in
2007. So far this year, Peru has exported to 168 markets, with 90
importing over $1 million. The US leads importation of Peruvian
goods at 18.8%, with China following (11.7%). The Peruvian
Exporters' Association (ADEX) noted that 60% of Peru's exports were
through either Jorge Chavez airport or the Port of Callao (both in
Lima area), indicating a need to create more shipping hubs.

Peru Joins OECD Declaration on Investment
-----------------------------------------
4. Peru became the 41st country to join the OECD's Declaration on
International Investment and Multinational Enterprises. This is in
recognition of the GOP's attempts and policies to promote business
and investment. Subsequently, Peru was accepted as a member of the
investment committee of the OECD, a move that Trade Minister Araoz
believes reflects Peru's recently earned investment grade rating
(from both Fitch and Standard & Poor's).

New Minister of Economy & Finance
---------------------------------
5. Luis Valdivieso, fresh from 28 years at the IMF, has replaced
Luis Carranza as Minister of Economy and Finance. Valdivieso has a
PhD and MA in Economics from Boston University and hopes to spread
the benefits of Peru's current economic boom to all Peruvians.
However, rising inflation and the global financial crisis have
forced the MEF to look for ways to cut spending. Carranza steps
down after two years as Minister. He leaves a legacy of foreign
debt reduction and business-friendly policies. Valdivieso named
Eduardo Moron, from the Economic Department of Peru's respected
Catholic University and a PhD from UCLA, as Vice Minister of
Economy.

Chinese Trade Negotiations
& Investment Accelerating
--------------------------
6. The Peruvian Trade Ministry continues to move forward on its
partial trade agreement with China, and is working hard to reduce
the number of Chinese products excluded from the deal. It now
appears the agreement may not be ready in time for the APEC leaders'
summit in November. The Peru-China Chamber of Commerce (Capechi)
believes that the increasing partnership between the two countries

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may lead to Chinese investment of nearly $1 billion next year.
Chinese companies have begun investing in mining and minerals, and
through APEC there is room to grow. Peru will have a delegation
present at next year's China-Latin America Business Summit (in
China).

Central Bank Tries to Tame Inflation
------------------------------------
7. The Central Bank (BCRP) continues to raise its benchmark
interest rate to fight inflation. Ending 2007 at 5.0%, the
gradually climbing rate reached 6.5% on September 11. While Peru's
GDP grew by 9% in 2007 with only 2% inflation, global oil and food
prices, booming internal demand and increased spending by regional
and local governments have led to a projected inflation rate of
above 6% in 2008, with GDP growth above 9%.

Japanese Could Invest $800 million
----------------------------------
8. Yoshinori Takase, President of the Peruvian-Japanese Chamber of
Commerce and Industry, believes that Peru's economic growth, low
inflation and natural resources continue to make it a good place for
Japanese business and estimates that they will invest up to $800
million in Peru this year. Japanese stakes in Peruvian mining have
increased recently, and Takase said that Japanese businesses
strongly support the free trade agreement that Peru and Japan hope
to conclude in 2009. Peru hopes to finalize investment agreements
with Japan and Korea in September in hopes of announcements at the
APEC leaders' meeting in November 2008.

Peru Is Top Recipient of Chilean Investment
-------------------------------------------
9. Over the first half of the year, new Chilean investment in Peru
totaled $502 million or 27% of total Chile's total foreign
investment. This represents an 89% increase over the same period in
2007. Peru receives 38% of Chilean retail investments and 78% of
real estate and construction investments. During the past year,
total Chilean business investments increased 41%, reaching $1.87
billion.

Investment Agreement with Belgium & Luxembourg
--------------------------------------------- -
10. On Augut 12, Peru, Belgium and Luxembourg ratified an
Agreement for the Promotion and Reciprocal Protection of
Investments, signed in October of 2005. The agreement had been
approved in Peru in 2006, Belgium in 2007, and Luxembourg in 2008.

Argentina Sees PTPA Opportunities
---------------------------------
11. During a recent visit to Peru, Argentine Secretary of External
Relations Victorio Taccetti noted the potential for economic
partnerships between Argentina and Peru. Argentina hopes that
through investments in Peru, Argentine businesses can gain entry
into the U.S. market. There are currently at least 60 Argentine
businesses located in Peru, including the large presence of gas and
oil company Pluspetrol.

Grape Exports Double
--------------------
12. Over the first half of 2008, Peruvian grape exports increased
by 99.3% with respect to the same period in 2007, amounting to
$42.64 million. PromPeru, the Peruvian trade and tourism promotion
agency, believes that Peru has gained a comparative advantage over
other grape exporters by launching its export campaigns earlier,
taking advantage of the fall and winter holidays and increased
international prices. PromPeru estimates that the growth rate will
continue to rise over the second half of the year.
MCKINLEY

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