CONTACT Magazine, July-September 2015

C e n t r a l r e p o r t

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Peru offers good conditions for investment, but more efforts are necessary in order to assure the arrival of caPital and take advantage of activities

with more comPetitive Potential.

ready for landing

MAGAZINE OF THE AMERICAN CHAMBER OF COMERCE OF PERU

www.amcham.org.pe

investment

investment

AMCHAM PERUECONOMIC FORUMWhat presidential candidates, CEOs and Governmet officials expect for 2016.

4 IDEAS FOR REINFORCING INVESTMENT The re-activating power of tax policy adjustments.

6 14 THE FORTHCOMING PRESIDENTIAL CAMPAIGNInterview with political analyst Carlos Basombrío.

Central Report – The development of Forestry as a national policyErik Fischer, institutional relations director of Maderera Bozovich.

12Central Report – Export of contact center services, paragon of diversificationAntonio Iyo, CEO of Atento.

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c o n t e n t s

cÁmara de comercio americana del PerÚ(amcham PerÚ) Avenida Víctor Andrés Belaúnde 177, Piso 1, San Isidro, Lima 27, Perú / T. (51-1) 705 8000 / F. (51-1) 705 8026 / www.amchamperu.org.pe / [email protected]

board of directors

honorary President Brian A. Nichols, Embajador de los Estados Unidos en el Perúhonorary director, Luis Miguel Castilla, Embajador del Perú en los EE.UU.President Federico Cúneo, Amrop Perú1st vicePresident Mariela García, Ferreyros S.A.2nd vicePresident Ricardo Fernández, IBM del Perú S.A.C.treasurer Esteban Chong, PricewaterhouseCooperssecretary Raúl Barrios, Barrios & Fuentes Abogados

eXecutive director Aldo R. Defilippi

directors Alejandro Desmaison, Delosi S.A., Bárbara Bruce, Hunt Oil Company of Peru L.L.C. Suc. del Perú, Darío Lareu, 3M Peru S.A., David Cahen, Kimberly - Clark Perú, Felix Antelo, Lan Perú S.A., Fernando Zavala, U.C.P Backus y Johnston S.A.A., Guillermo Browne, Merck Sharp & Dohme Peru S.R.L., Lieneke Schol, Microsoft Perú S.R.L., Luis Rivera, MMG, Las Bambas Mining Company S.A., Luis Felipe Castellanos, Banco Interbank, Norberto Rossi, Grupo Ripley, Rafael Venegas, Rímac Seguros, Renzo Ricci, Prima AFP

eX oficio members Mark Cullinane, United States Embassy, Economic Counselor, Ricardo Pelaez, United States Embassy, Commercial Counselor, Adolfo Heeren, President at Peru 2021

editor Rodrigo Acha coordinator Carla Colonia subscriPtions and Publicity [email protected] design and layout Antonio Revilla Pre-Press and Printing Comunica 2, Los Negocios 219, Surquillo, T. (511) 610 4242 - F. (511) 610 4250

amcham Peru stipulates that signed articles contained in this magazine are their author’s responsibility

Legal Deposit Nº2008-11949

Year 20Volume 3July – September 2015

A M E R I C A N C H A M B E R O F C O M M E R C E O F P E R U

C E N T R A L R E P O R T

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PERU OFFERS GOOD CONDITIONS FOR INVESTMENT, BUT MORE EFFORTS ARE NECESSARY IN ORDER TO ASSURE THE ARRIVAL OF CAPITAL AND TAKE ADVANTAGE OF ACTIVITIES

WITH MORE COMPETITIVE POTENTIAL.

READY FOR LANDING

MAGAZINE OF THE AMERICAN CHAMBER OF COMERCE OF PERU

www.amcham.org.pe

INVESTMENT

INVESTMENT

CLEAR AND TRANSPARENT RULES STABILITY

PRO

BITY

SAFETYAMCHAM PERUECONOMIC FORUMWhat do presidential candidates, CEOs and Governmet oficial expect for 2016?

4 IDEAS FOR REINFORCING INVESTMENT The re-activating power of tax policy adjustments.

6 14 THE FORTHCOMING PRESIDENTIAL CAMPAIGNInterview with political analyst Carlos Basombrío.

Editorial

Economic AnalysisSummary of Amcham Peru’s Economic Forum.

Central Report How to encourage the economical recovery with tax policyOrlando Marchesi, socio líder de tax & legal de PwC. Central Report The risks taken by the Government when the grant of a Project is canceledAndrés Calderón, director of Contribuyentes por Respeto.

InterviewPolitical analyst Carlos Basombrío explains the Outlook for the next presidential elections.

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InterviewGeneral director of Thunderbird School of Global Management, Allen Morrison, gives ideas to the executives to avoid failure as a consequence of mistakes.

Economic AnalysisAugust’s Entrepreneurial Overview Survey

Economic AnalysisThe most relevant statistics for understanding Peruvian economy.

Legislative AnalysisLegislative bills review.

Institutional AgendaThe most relevant issues among AmCham Peru’s activity.


www.amcham.org.pe 3

The best response to the question of what to do for enhancing growth in Peruvian economy is to incentivize private investment in order to create employment and, consequently, maintain the pace. It is true that the boom in mining commodities brought unprecedented benefits to the whole country, but the challenge is to maintain the formerly mentioned pace that permits reducing poverty and improving life quality.

Regarding the perennial weakening of external demand as a driver of growth due to the expectancy of not recovering the price levels of gold and copper observed in the last years, there are two alternatives at hand: diversifying products and exports destinations, and incentivizing domestic demand.

Non-traditional exports and the diversification of destinations bring significant benefits in terms of labor creation and offer more stability. Nevertheless, these don’t have in any way the capacity for replacing mining exports as the cornerstone of the country’s economy, given that they generate two thirds of the whole Peruvian exports.

However, investment in infrastructure reaches amounts that have the capacity to replace the big mining projects in pecuniary terms (i.e., over US$1 billion), and at the same time leaves a permanent effect in productivity and in the start of new entrepreneurships. In fact, the improvements brought by the shortening of the duration of journeys resulting from the new transport infrastructure, the decrease in the cost of energy, the development of petrochemical industry (in case it results feasible and interesting for private investors) and the exports of gas, have the potential to generate incomes that compensate the losses generated by the reduction on the prices of commodities.

Fortunately, Peru offers stable conditions for the development of businesses and the situation is far from being critical. This is what the speakers of AmCham Peru’s Economic Forum led to believe (among whom were the former Prime Minister Pedro Pablo Kuczynski; Renzo Rossini, CEO of the Central Bank of Reserve; Walter Bayly, CEO of Credicorp, Peru’s biggest financial institution; and Eduardo Torres Llosa, CEO of BBVA Banco Continental, the second biggest financial institution. The main statements given along the event have been summarized in the article presented on page 6 of this magazine, after which there is room for making specific proposals for maintaining the optimism that is shown for the mid-term.

Precisely, in this edition of Contact we have focused on gathering proposals for recovering the investment flows, as well as on remarking productive sectors that are still not fully exploited, but in which Peru can be competitive. The article written by

EDITORIALIvnestment: the right path De-Ciphering

U.S. economic recovery:

Orlando Marchesi, lead partner of Tax & Legal at PwC, analyzes the measures that can be taken for making the taxation framework and its regulation a tool for incentivizing the execution of new private projects or private-public partnerships, and at the same time allow to rise more taxes, even in spite of the reduction on the rates.

On the other hand, the reputation of the Government as a facilitator of investments is fundamental. A few pages further, Andrés Calderón, director of Contribuyentes por Respeto, revises the cases of recent concession processes that have been cancelled as a consequence of actions taken by the Government, and reflects on their impact even beyond the resources that were not invested and the jobs that have not been created. The most recent and noted case is the controversial decision of the Congress to give the concession of lot 192 to the State-owned Petroperú, after formerly granting it to the Canadian Pacific Stratus.

Back to the positive side, we include a couple articles with sector-development proposals. First, Erik Fischer, inter institutional relations manager of Maderera Bozovich, remarks the importance and the development potential of the Forestry, regarding which the minister of Production, Piero Ghezzi, showed particular interest during his presentation in our previous Institutional Lunch. After that, José Antonio Iyo, CEO of Atento, explains the advantages that Peru has for exporting contact center services, and remarks some points in which work is needed in order to exploit them. Both are industries that materialize the goal of national policy to diversify the output.

To achieve the goal of developing new businesses, it is necessary that entrepreneurial leaders are capable of adapting to changes. The interview with Allen Morrison, CEO and general director of Thunderbird School of Global Management, one of the most important business schools in the south of U.S., gives clear ideas to avoid failure against the challenges brought by technological change and all the mistakes that every manager may make.

Finally, and not less important, this magazine includes a revision of the political and economic perspectives, as well as the legal framework. In addition to our Entrepreneurial Overview Survey and or legislative bills analysis, this time we include an interview with the political analyst Carlos Basombrío in order to evaluate the forthcoming presidential elections campaign.

We hope that the proposals done in this magazine and the reforms to the political system will be materialized for the welfare of all Peruvians, who are eagerly waiting to see the result of this presidential campaign.

M AG A Z I N E O F T H E A M E R I C A N C H A M B E R O F CO M M E R C E O F P E R U

• 3.7%wastheannualGDPgrowthofUnited States in 2Q15, according to the Bureau of Economic Analysis (BEA). These results exceeded all expectancies from the economists surveyed by Bloomberg,andthe3.2%expectedbythose consulted by Thomson Reuters. According to Bloomberg the main cause of this raise was due to the greater investment in businesses, especially by the construction sector, research and development activities and the increase in inventories.

• 2.4%wastheGDPgrowthrateoftheUnited States during 2014, the highest one since 2010. During the 1T15 growth wasonly0.6%,sotheIMFisexpectinga2.5%amountforthethisyear’s12months. For next year, the IMF expects thisratewillbe3%,thegreatestforecastamong advanced economies (this year´s isonlylessthanthatofSpain,with3.1%).

• Bloombergwarnsthattheincreaseininventories in US$121,100 million, that representeda0.2%increaseintheGDPmeasurement at 12 months from 2Q15 in comparison to 2T14, could lead to a manufacturing reduction in 3Q15 in order to balance the supply.

• 6.1%oftheAmericanEAPwasunemployed by August 2014, amount thatwasreducedto5.1%thisyear.

• 215,000jobswerecreatedduringJuly2015 (the monthly average during the last three months is 235,000). Health, Trading and Services were the sectors contributing the most, while Manufacturing had its greatest hiring increase since 2014 (15,000).

• US$6,486millionwasthedirectforeigninvestment of the United States to Peru in2014,a20.9%annualgrowth.

• AccordingtotheBEA,lastyearexportswere worth US$2,300 trillion and imports increased to US$2,800 trillion, while in 2008 these amounts were US$1,800 trillion and US$2,500 trillion respectively.

www.amcham.org.pe4

E o n o m i c a n a ly s i s

The forum Economic and Financial Situa-tion facing 2016 organized by the Ameri-can Chamber of Commerce of Peru (Am-Cham Peru) last Friday 21st, left a central message: although it is evident that the following months will be complex for Pe-ruvian economy and counter winds are to be faced, there are grounds for resuming a 4% growth rate in the medium term.However, all depends on whatever is done to face the storm and on the political noise elimination.

Aldo Defilippi, AmCham Peru’s Executive Director, held during the forum´s opening: “In the past several years Peru has grown regardless of the different governments and ideologies it went through, it turned into South America’s star. After those di-sastrous years we have gone through, it has cost too much reaching where we are nowadays and I believe it is important that the will to find solutions through dia-logue and tolerance should rule above all and this should be transferred in political good will. Obviously, things are not as they should be, but we all have to be a part of the solution and try to convince those who still do not understand, that we can even go afar and change into real the dream of progress if we make our approach through

dialogue instead than by confrontation. We all want economic development in de-mocracy and freedom”.

But the change of attitude by the Gover-nment and the need of empathy among citizens to focus toward a common de-velopment target should be initiated as soon as possible, although current pro-blems in the State’s management are not the only cause and its solution could not be immediate.

Is there a recovery?

During the event’s first lecture, Pedro Pablo Kuczynski (PPK), former Prime Minister and Economy Minister, insisted that growth re-duction in Peruvian GDP is due to China’s economic slowdown and in the subse-quent prices and exports reduction, and not on what is happening in other coun-tries, such as in Brazil’s case, or due to po-litical reasons.

PPK outlined that the difficulty in the short-term condition entails mitigating the effect of the international situation. In fact, as the Economy Vice-Minister Enzo Defilippi well noted, exports prices fall recently experien-ced is the greatest one in the last 65 years.

This external collision has strongly impac-ted on Peruvian economy, but has not plunged it into an appalling situation. Wal-ter Bayly, General Manager of BCP (Peru’s biggest bank), considered that the eco-nomy bears grey clouds that will last until May, and that we should be prudent and prevent these turning into a storm. “Enter-prises must focus on the management of their day-to-day activity and not wait being affected by the environment. Further on, the great driver will not be growth but the quality of businesses core execution”, he re-commended.

Hence, this is how efficiency can be for-ced and risks minimized, that as already mentioned, are far away from a catastro-phic situation although being substantial. Eduardo Torres LLosa, General Manager of BBVA Banco Continental (Peru’s second biggest bank), stated that although default payment in the financial system has increa-sed, this starts at very low levels and the Peruvian bank system situation (moreover, highly capitalized and with a secure pay-ments chain) causes envy in the Region. Nevertheless, he states that the customers’ risk profile has increased and consequently measures have been adopted in consump-tion credits via credit cards. In consequen-

AmCham Peru’s main event on economic affairs reaffirmed a cautiously optimistic perception at long term.

AMCHAM PERUECONOMIC FORUM: AN ECONOMIC STORM IS APPROACHING; MEASURES SHOULD bE TAkEN TO MINIMIzE ITS IMPACTRODRIGO ACHA, Head of Economic Analysis at AmCham Peru

www.amcham.org.pe 5


ce,onlyan8%growthisexpectedintermsof a constant exchange rate, while last year itgrew12%.

Both Torres Llosa and Bayly considered the-re is growth potential in mortgage loans due to the high demand from the middle segments,andthesecouldgrowata14%pace. Likewise, the most volatile segment would be corporative or commercial cre-dits (among other reasons, due to lesser credit needs as a consequence of greater stocks existence). However, Bayly remarked that many microenterprises have grown to small enterprises category, and these will generate growth in this segment´s credit, in contrast to microcredit slowdown, and he added that due to existing surpluses, a good performance from the affluent ban-king (from those high net worth clients) is expected. The State´s Role

Regarding the Public Sector, the lecturers’ analysis was centered in hastening the implementation of rules and regulations that would promote efficiency and entice investment, and in strengthening human capital. Renzo Rossini, General Manager of the Central Reserve Bank of Peru (BCR), remarked that not only shocks were pro-duced but also public expenditure did not happen at the expected level. “There are problems such as regulations excesses. In 2004 mining activity was regulated by 12 norms, today these are over 200. On the other hand, many areas in the public sec-tor are not motivated by achieving results, but by complying with procedures, thus the leadership efforts get clouded by the middle managers”, he criticized.

The key for Peruvian economy’s recovery is found in investment, which according totheBCRwillfall5.5%thisyear(ChristianLaub, President of Lima´s Stock Exchan-ge –BVL—, considered that Peru needs to execute five or six mega projects in order to keep its economy at a good pace). Ku-czynski recommended working on secu-rity intensification, going further beyond stimuli measures and even resorting to im-perative legislative decrees, arranging in-come tax deductions to those enterprises that invest their profits and to encourage micro, small and medium sized enterprises

to formalize by charging them fewer taxes. Likewise, he stated that in the current cir-cumstances, it would be a bad idea to re-duce the drawback (refund of taxes paid on imported inputs) to exporters.

The Chamber’s position regarding the role of the State in the economic activity was exposed in Aldo Defilippi’s lecture. “We all coincide that the State does not generates wealth. This should be a facilitator for priva-te management, because the enterprises are the ones that produce employments, pay taxes and register their collaborators in the social security, the ones that reduce informal work, and that allows us to count with more social programs, more hospitals, schools, decent housing, and economic development. In order to distribute wealth, first you have to create it and the private sector is the one that creates wealth, un-doubtedly. We all know that in order to promote investments, we need to comply with the game rules, have a genuine rule of law, respect to private property, count with legal security and fairness in justice appli-cation and to strengthen State institutions, among other things”, he stated.

The Stock market’s challenge

One of the most outstanding themes in the forum was the announcement of a pro-bable reclassification of the BVL by Morgan Stanley Capital International (MSCI), from emerging to frontier market. Christian Laub warned that the consequent capital with-drawal from US$1,000 million to US$5,000 million turns the reclassification into a national issue that would also affect the country’s reputation.

What was suggested by BVL in order to keep its classification? MSCI was asked to increase the assessment term up to three years, since the reduction in liquidity in BVL is a consequence of the situation and not of structural matters, and its recovery will take up from 12 to 18 months.

Among the short-term amendments su-ggested by the stock exchange, Laub pro-posed to boost market making, including short sales, stock brokerage firms and in-vestments banks reinforcement, and mu-tual funds development. Likewise, he su-ggested promoting public stock offerings

from State-owned enterprises, a competi-tive fiscal framework, resolving regulations frictions, and to develop the sovereign debt market. For the medium term, the President of BVL considered the need to develop the derivatives market, alternative distribution channels and to further market education.

Balance

As it has already been mentioned, this event’s general balance showed that the situation is far away from being conside-red as a crisis. Rossini remarked that the impression perceived is not that of reces-sion but of a slowdown, and he pointed out the capacity for facing a countercycli-cal policy. He outstands that the fiscal de-ficitcalculatedin2.5%forthisyearcanbecovered by the country’s high indebted-ness capacity, which has been demons-trated during the recent US$1,250 million bonds issuing.

Finally, the analysis on monetary policy measures must be mentioned, in view of the evident rise of the interest rate of reference from the USA Federal Reserve. Rossini explained that any changes in the benchmark interest rate from the BCR de-pend on inflation expectations for 2016, since for this year these were already cal-culatedin3.2%.Moreover,hepointedoutthat the markets have already anticipated to these changes and that the rise in the currency exchange rate is due to derivati-ves movement caused by a strong bet by the investors against the region, including Peruvian currency, thus being covered with forwards (contracts with a fixed rate to future), especially with the Central Bank. Among his recommendations, is not to overreact to the noise and to learn to dis-tinguish it from those signals to be taken into account.

The lecturers coincided that the conti-nuous slowdown of China’s economy, the difficulty in recovering European markets, and the excessive political noise affect all the productive sectors in a transverse way. Nothing may be done to avoid suffering the impact of those external factors, but it would help much to generate confidence for reactivating private investment, that ge-nerates one fifth of our GDP.


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The slowing growth of our economy gives us the opportunity to think about some domestic factors that may prevent us from developing according to our potential. At this time of lower dynamism, we need to identify our weaknesses and take seriously the task of solving the difficulties that hinder or impede the growth of our economy.

A way of bringing the market to its dynamism of recent years is by giving more money to taxpayers to invest or spend; and this is something that has already started with the income tax rate (IR) reduction. This year, there are two percentage points less to be paid as IR, which entrepreneurs may reuse to invest in their companies. This is a big incentive per se.

Taxation changes

While continuing to reduce taxes might be considered convenient, this is not currently advisable because of the2.7%fiscaldeficitprojectedforthisyear, which is no small thing. Then, from a tax perspective, in what other way would it be possible to contribu-te to revive the national economy? Getting more resources to invest, via broadening the tax base, could be the answer.

As we all know, informality in Peru exceeds 50% of the economy, and a

country cannot sustain its economy with such a high rate. Usually, SMEs work formally with large companies, but informally with individuals, as in the case of small businesses or inde-pendent professionals. Reduction of in-formality in these transactions involves a serious fiscal policy, as well as creati-vity, to find mechanisms to encourage the citizenship cooperation in this task.

Over the past 20 years we have seen various initiatives from different gover-nments to establish simpler regimes that allow small business to be forma-lized. As an example, we have the Spe-cial Income Tax Regime (RER) and the Single Simplified Regime (RUS). The first, which was repealed in the late 90s and reactivated during President Ale-jandro Toledo’s government, has had changes over time.

However, in general terms, neither RER nor RUS have been efficient tools to in-tegrate the informal world into the for-mal world. I think that in the past, the analysts’ premise was that the tax regi-me was very complicated and therefo-re its simplification would attract for-malization. However, time has proven that such premise was not correct. The problem seems to be that we do not have a culture of compliance as there are no incentives for people to request vouchers for the services provided by small business or individuals.

In my opinion, the solution to the problem of informality and tax eva-sion at small contributors’ level passes through a cultural change. Then, the answer to the question about how to change a culture of compliance is: first, the introduction of mechanisms to encourage citizens to ask their coun-terparts for vouchers, and second, the strengthening of the Tax Administra-tion control actions including criminal actions, if any, and the cooperation of the Public Ministry and the Judiciary in tax law enforcement, something that is missing in Peru.

In this regard, it should be noted that the vouchers raffle is the classical mea-sure of the tax administration to en-courage taxpayers to request payment vouchers. However this incentive be-comes ineffective if the benefit recei-ved by the individual is not relevant; the amounts are relatively low compa-red to a lottery and there is very little publicity.

It is urgent then to implement a thoughtful solution to both consumers and service providers. For example, a good alternative could be to establish a system allowing individuals registe-red in payrolls to deduct certain ex-penses from their income taxes. After finding out the amount withheld by the employers at year end, it would be ideal that taxpayers could file an affida-

Revert the economic slowdown requires “Efforts on several fronts are required to revert the economic slowdown”.

ORLANDO MARCHESI, lead

partner of tax & legal services at

PwC

HOw TO CONTRIbUTE TO THE ECONOMY RECOVERY FROM A TAx PERSPECTIVE?


www.amcham.org.pe 7

state co-financing proved to be unvia-ble, among other reasons. I understand that what the new standard seeks is to prioritize the projects according to the urgent needs.

In a few months we will be able to see if this amendment to the regulations had the expected results. The importance that the development of private inves-tment projects through PPP has for the country is undeniable. In general, the advantage of strengthening the PPP is that private companies may offer to the country the technical capabilities needed to develop the large projects as required by the regional and local governments. Obviously, the more investment projects in the year, the better for the economy. Private inves-tment projects, whether PPPs or works for taxes, create jobs and invigorate the Construction sector, currently one of the worst hit.

Likewise, the effort to reduce bureaucra-tic obstacles that paralyze private enter-prises projects should be continued. The fact that the approval of an EIA of a mi-ning company takes two years and the process for obtaining permits four or five years before beginning operations has a major impact on the country’s economy. If this time is reduced, new projects can go into production and generate millions of dollars in revenue. My perception is that at the beginning of this govern-ment, perhaps with good intentions, some economic activities were over-regulated, but for some time now this situation is being corrected by simpli-fying some procedures.

Today, the process of simplifying and listening to the employer has to be continued, because the private enter-prise is the one who is out there facing the problems. Even though we cannot change the external economic con-ditions, we certainly can make some adjustments in our regulation that will allow reviving the economy through private investment and expansion of the tax base. These two objectives re-quire a great effort from all the actors involved, but may have a major impact on the country’s performance.

vit in March deducting certain expen-ses such as medical fees, property ren-tals or other recurring costs for families. This will allow them to receive a refund from the Peruvian Tax Agency (Sunat) after verifying the information provided in the affidavit.

For example, if a person states that has paid rentals to another, Sunat might be able to cross the information in order to see if such other person has paid the respective taxes. This will also apply for physicians or other independent pro-fessionals. When individual benefits are materialized, citizens will be more likely to get actively involved.

Private investment

In parallel to the work related to tax le-gislation, facilities needed to accelerate the development of private investment projects must be given. In this line, a new law on public-private partnerships (PPP) aiming to simplify procedures was recently published. This new law provi-des that the Ministry of Economy and Finance (MEF) review the project prior to its beginning in order to ensure its feasibility and financing.

Formerly, projects were reviewed in its final stages and could be dismissed by the MEF at the end of the process if the

GRAPH 1

Expansions

Environmental Impact Assessment (EIA) approved

CON AUTORIZACIÓN PARA CONSTRUCCIÓN

EIA under evaluation

Exploration

Cerro VerdeFreeport Mac

Moran Cooper (USA)

Fundición de IloGrupo México

(México)

MarconaShougang Corp.

(China)

Refineria de IloGrupo México

(México)

BayovarCompañia Vale

Do Rio Doce (Brasil)

ToquepalaGrupo México

(México)

Las BambasMMG Limited (China)

Minas CongaNewmont, Buenaventura (Perú)

Quellaveco Anglo American Quellaveco S.A. (UK)

Proy. FosfatosCementos Pacasmayo

(Perú)

Pampa de PongoNanjinzhao Group Co

(China)

TambomayoBuenaventura

(Perú)

TrapicheGrupo Buenaventura

(Perú)

AnamaGrupo G. Castillo

(Perú)

OllacheaMineria IRL

Limited (Australia)

PukaqaqaVotorantim Metals

(Brasil)

CoraniBear Creek Mining

(US)

Santa AnaBear Creek Mining (US)

AcchaZincore Metals

(Canadá)

Marcobre - Mina JustaGrupo Bresia. Korea Resources,

LS-Nikko Copper(Perú-Corea-Japón))

AcchaZincore Metals Inc.

(Canadá)

La GranjaRio Tinto (UK-Australia)

GalenoJiangxi Copper (China)

Explotación RelavesBofedal II

Grupo Bresia(Perú)

HaquiraFirst Quantum Minerals

Ltd. (Canadá)

CercanaJunefield group S.A.

(China)

RondoniGrupo Volcan

(Perú)

ChucapacaCanteras del

Hallazgo (Perú)

CañariacoCandente Resources

(Canadá)

Cerro Ccopane-HuillqueCuervo Resources Inc

(Canadá)

Salmueras deSechura

GrowMax Agri Corp.(Canadá)

ZafranalAQM Cooper

(Canadá)

Fosfatos MantaroFocus Venture (Canadá)

Hierro ApurimacStrike Resources Peru S.A.C.

(Australia)

Quicay IICorp. Mra. Centauro (Perú)

MichiquillayProinversión (Perú)

Rio BlancoZijin Mining Group

(China)

Los Chancas Grupo México (México)

QuechuaMitsui Mining (Japón)

Los CalatosMin. Hampton Perú

(Australia)

MagistralGrupo Milpo

(Perú)

HilariónGrupo Milpo

(Perú)

AnubiaGrupo G. Castillo

(Perú)

Tia MariaGrupo Mexico

(Mexico)

San LuisSilver Standard

(Canadá)

ShahuindoSulliden Gold Corp.

Ltd. (Canadá)

Amp. Mina El PorvenirVotorantim Metals

(Brasil)

Amp. Proy. ToromochoChinalco-Aluminium

Corp. of China

Toromocho*Chinalco-Aluminium

Corp. of China

ConstanciaHudbay Peru S.A.C.

(Canadá)

CrespoGrupo Hochschild

(Perú)

Inmaculada HochschildMining Pic (USA)

Shouxin Explotac. de Relaves Shouxin (China)

Amp. UchucchacuaBuenaventura

(Perú)

MUCH TO BE DONE

* Mining commissioning stage- Projects have been randomly ordered MINISTRY OF ENERGY AND MINING

As of May 2015, the estimated mining investment portfolio comprises 51 main mining projects totaling US$63.1 billion all together, from which US$22 billion are paralyzed.

C e n t r a l r e p o r tC e n t r a l r e p o r t

www.amcham.org.pe8


The recent decision by the Peruvian State to press the pause button on the awarding of the lot 192 concession to Canadian Pacific Stratus for the extrac-tion of petroleum, shortly before the signing of the respective contract, could have numerous harmful effects on the international level.

We’re not only talking about the risks of entrusting a highly complex job such as oil exploitation —which (in the words of the president of Petroperú, Germán Ve-lásquez) is not viable and would affect the cash flow for the project to moder-nize the Talara refinery—to a state-ow-ned company such as PetroPerú; we’re referring to the legal and economic risk the State would assume.

Eventually, the Canadian company could sue the Peruvian State for changing the previously agreed contract conditions at the last minute, when the only thing left to do was to sign the agreement. Such a lawsuit could cost millions and, worse yet, it could send a very pessimis-tic signal to the international investor community: concessions in Peru are not safe until a contract has been signed and, in some cases (as past experience shows), not even with a signed contract.

Recent experiences

When we talk about project cancella-tions, the names of the mining projects

Conga and Tía María usually come to mind. However, these are projects for which the operating permits given to the companies in charge have not yet been formally cancelled. That is, legally, Conga and Tía María are “still a go.” This is not the case, however, of the Santa Ana silver mining project in Puno.

During the last year of former pre-sident Alan Garcia’s term, executive order DS 032-2011-EM was issued, thereby cancelling the authorization granted to Canadian Bear Creek Mining Corporation to acquire the rights to se-ven mining concessions in the region of Puno. The executive order alleged “the disappearance of the conditions required by law for the issuance of said authorization [which granted the rights].” This prompted the Canadian mining company to initiate internatio-nal arbitration before the ICSID arbitral tribunal, given the breach of the free trade agreement between Canada and Peru (2009), which protects foreign in-vestments.

Another case of cancellation of a tem-porary concession already granted was that of the Inambari hydroelectric power plant project in Cusco. This concession had been granted to Generación Amazo-nas Sur SAC. However, this project, invol-ving the same company, must still be on the government’s agenda, due to which it is not a closed chapter.

Cases in which an operating permit al-ready exists (such as mining rights or a concession contract) and is subse-quently canceled are the most extreme cases. The recent Pacific Stratus case, in-volving lot 192, is similar to other cases in which the Peruvian State backtracked just before signing the contract.

This occurred with the concession pro-cess for a correctional facility in the province of Huaral. In March 2011, the contract was awarded to La Merced, a Spanish consortium which subse-quently signed a concession contract. However, President Humala’s incoming administration decided not to sign the contract, alleging irregularities in the process conducted during García’s term. In addition, it was argued that the terms and conditions of the tender allowed for cancellation of the process any time prior to the signing of the concession contract without liability on the part of the Peruvian State.

The case of the Amazonas River waterway concession, also during this governmental term, is a bit different, since the cancellation of the conces-sion occurred before the contract was awarded. The cancellation of the project aimed at improving navigability in the Huallaga, Ucayali, Marañón and Amazo-nas river basins took place in February 2015, shortly before the project was to be awarded. It could predictably have

The risks the State assumes when it cancels a concession.

ANDRÉS CALDERÓN, director of

Contribuyentes por Respeto

JUST PRESS RESET?

C e n t r a l r e p o r tC e n t r a l r e p o r t

www.amcham.org.pe 9


ended up in the hands of China Com-munications Construction Co. Ltd., the only company to present a bid. The rea-son for the cancellation was the omis-sion of a prior consultation, which finally took place and should wrap up in the coming weeks.

However, recent cancellations of pro-jects following the signing of a con-cession contract —or very close to this stage— have not only occurred at the national level, but also at the regional government level. In March of this year, Lima City Hall rescinded the concession contract for the construction of the Lima Aerial Tramway, a project presen-ted in 2008 that will also likely be sub-mitted to arbitration.

Different levels of risk

The cancellation or repudiation of a concession contract entails more risks that the cancellation of a call for tenders or refusal to sign a contract that has al-ready been awarded. In the majority of cases, the rules of calls for tenders at the national level allow the organizer (the Peruvian State) to cancel them before a contract is signed, without incurring any liability. However, this does not mean that a certain level of risk is not assumed as a result of such cancellations.

Even when a concession contract has not been signed, and even when the terms and conditions of the call for ten-ders permit cancellation prior to the sig-ning of the contract, there also tend to be risks and responsibilities associated with refusal to sign a contract. That is, neither the State nor the concessionaire can opt not to sign the contract without good cause, and a delay alone can lead to liability on both parts for the delay in the start-up of work on a project.

In addition, if the affected party is a fo-reign investor, discriminatory treatment may be alleged. In order to protect fo-reign investment, such treatment is pro-hibited by investment treaties and free trade agreements between States. The context and the reason for a cancella-tion could support this argument when,

for example, a contract awarded to a fo-reign company is repudiated and then granted to a domestic company for no apparent reason.

Direct and indirect effects

In every bilateral trade agreement Peru has signed, there are specific clauses on the protection of foreign investors and their right to be compensated in the event of expropriation. These agree-ments impede a State from abusing its sovereign power and from attempting to impose its laws without regard for the recognized rights of companies and individuals that invest in the country.

Even in the absence of treaties, the Constitution itself (article 62) prohibits repudiating the validity of contracts through laws (or any other form of state intervention). That is, the fact that Con-gress has approved the direct awarding of lot 192 to PetroPerú by law does not grant the State any protection from a potential claim for compensation in na-tional or foreign tribunals.

In addition, expropriation not only oc-curs when property or a right is taken away (as in the case of a concession), but also when its economic value is affected significantly. For example, this happens with regulatory takings. The change in legal conditions that affect the value of property or an investment may be a form of expropriation.

Typical examples of regulatory takings are changes in zoning regulations or the prohibition of activities in certain geo-

graphical areas, impeding an economic project in progress or the potential for one to be executed.

In fact, at the internal level, Indecopi (the competition and intellectual property regulation agency) has acknowledged the concept of regulatory or indirect ex-propriation in a precedent established by the Tribunal for the Defense of Com-petition in 2010. This precedent obliges public entities to initiate formal revoca-tion proceedings and to compensate business owners when their intention is to revoke a legally granted authoriza-tion or license.

The latest signal

The case of lot 192 and Congress’ at-tempt to have a state-owned company involved in oil production once again (as of the closing deadline for this article, a plenary session of Congress had not yet approved persisting with the law that awarded lot 192 to PetroPerú, to which the Executive branch has objected) may leave some lessons and a large debt.

To investors, and before any national or international tribunal, the State is a sin-gle entity. It doesn’t matter whether a mayor, the president or Congress fails to recognize an investor’s rights. Nor does it matter whether the previous admi-nistration awarded a contract and the current administration was the one that repudiated it. There is only one respon-sible party.

As we warned at the beginning of this article, there is a concrete material con-sequence, which may be a matter of compensating a company whose in-vestment plans and expectations were cut short. However, there is an intangi-ble repercussion that may be stronger and longer lasting: the perception of a State that does not honor its internatio-nal commitments or the rights of those who invest in the country.

Even in the absence of treaties, the

Constitution itself (article 62) prohibits

repudiating the validity of contracts through laws (or any other form of state

intervention)


www.amcham.org.pe10

The Peruvian territory has an 85% offorest suitability, with significant dry fo-rests in the coast, temperate forests in the Andes and one of the largest and most important tropical forests in the world: the Amazon rainforest that co-versabout61%ofthenationalterritory.

The Amazon tropical forest, which ex-tendsover70millionsofhectares (ha),is the second largest forest in Latin America, behind the Brazilian forest. By far, this major ecosystem strengthens the mega diverse nature of our country. Well-managed, this mega diversity is an inexhaustible source of renewable re-sources, an incomparable heritage with natural attributes that are a source of wealth for both us Peruvians and the entire world.

However, the contribution to Peruvian GDPofthis61%ofourterritoryisbelow4%, and also below 1% of the US$40billion of Peruvian annual exports in the last few years. Throughout our Re-publican history, this valuable Amazon forest heritage reached its highest ex-ports of timber products in 2008, with US$219 million. That same year Chile exported US$5 billion and Brazil nearly US$8 billion.

As reference, last year Peruvian forest exports reachedonlyUS$171.5million,whereas Chile exports exceeded US$6 billion.

Included in the same agenda

It should be noted that the rainforests of the Andes or the coast do not sig-nificantly contribute to national de-velopment. This being said, is forest development important for national development? How to solve the pro-blems of this industry? This industry is indeed essential to solve a large part of the national agenda. The priority is-sues in this national agenda are public insecurity, social conflicts, economic slowdown, institutional crisis and cli-mate change.

If this violence crisis is allegedly not this government’s fault, but a structural is-sue, where does this problem underlie? It mainly underlies in extreme poverty and social exclusion. Therefore, the vast and abandoned Amazon lands are bree-ding grounds reached by migrant po-pulations in extreme poverty in search of any means of subsistence. These populations get engaged in illicit acti-vities such as illegal mining, coca leaf

cultivation, drug trafficking or terrorism, among other criminal activities.

In a desperate territorial occupation process, these migrant groups, basically Andean, burn forest areas to generate spaces for survival crops. These crops are not sustainable in Amazon soils as the poor content of nutrients makes them not suitable for agriculture.

This dramatic and illicit activity has led to the deforestation of more than 8 mi-llion ha of Amazon forest and to a social crisis that ends up disengaging these hu-man groups from the concept of nation. Nowadays, a violence model strengthens in the Amazon territory, generated by drug trafficking and illegal gold mining, which act together in the formation of an illicit economy of billions of dollars that has jeopardized institutional health and national development.

It is quite evident that drug trafficking has filtered into political organizations, economic activities, and even into law enforcement and justice organizations.

Violence outbreak

Drug trafficking has brought along con-

The forest industry does not only concern rainforest producers and population. It has a huge beneficial potential for all Peruvians and not only in economic terms.

ERIk FISCHER, Director of Inter-

Institutional Relations at

Maderera Bozovich

FOREST DEVELOPMENT OR NATIONAL DEVELOPMENT?


www.amcham.org.pe 11

tract killings, which same as in Colombia or Mexico spread from the protection of drug trafficking operations to other types of crime such as the formation of extortion gangs, theft gangs, etc.

It must be commented that contract ki-llings find fertile ground in poverty and social exclusion. We should remember that the child entrapped in the addic-tion of sniffing chemical glue 10 or 12 years ago, who did not receive any help from the society, may now be a mem-ber of a hit man gang.

Drug trafficking has generated bonds with terrorism, which is ultimately for-med by armed groups at its service, who are a threat to the nation and an open gateway to the strengthening of violence models within radical political groups.

Moreover, the increased drug con-sumption is emphasizing the actions of more violent and irrational criminal forms, and increasing its level of dan-ger and field of action. Crime does not respect anyone or anything and equally affects all social groups, disregarding their economic power.

Based on the present social conflict process, this agenda includes issues such as territorial occupation, property rights, use of natural resources, pover-ty, social exclusion and lack of a sense of belonging to the nation, all of which are tasks that we, all Peruvians, should help to solve. What can we do?

Getting down to work

By optimizing our natural resources in a sustainable manner and with social inclu-sion, these tasks are likely to be gradually accomplished. The water dispute between farming communities of the highlands and large scale mining would have settled if through a suitable policy, the govern-ment had developed large forests in these communities’ territories, for instance with native trees suitable for water harvesting or commercial plantations.

These species could have both increa-sed the water resource and allowed the optimization of the communities’ terri-tories, thus improving life conditions. This could have helped to close social gaps and lower the high level of con-flict generated in quite poor territorial spaces, in contrast with large capital in-vestments, which also intend to coexist in areas that the communities consider their exclusive property.

Likewise, if the Amazon native commu-nities had received government sup-port to build capacities to optimize the nearly 12 million ha of their community territories, mainly of forest suitability, their quality of life would have been infinitely better. If this had happened, their sense of belonging to the nation would have been greater. However, this nation which has not given them much, seems to intend to take possession of the little they have.

The present situation demands the ur-gent task of reactivating the economy, developing new production engines in the framework of the diversification policy undertaken by this government.

Forest advantages

By far, the forest industry is one of the-se engines. The optimization of the more than 10 million ha of permanent production Amazon forests assigned to the development of sustainable fo-rest management may represent the increase of timber product exports by some billions of dollars, and the ge-neration of hundreds of thousands of direct jobs.

This would be part of a low-impact sustainable production activity of a re-newable resource,usingonlya10%ofthe available timber. Besides, only the twentieth part of these forests would be disturbed yearly, as just this percen-tage is used as annual harvest plot.

We should remember that the forest is more than just timber. Therefore, cacao,

coffee, aquaculture, ecotourism or medicine plants are great opportuni-ties to keep growing and face the de-crease of foreign currency generation, mainly resulting from the internatio-nal fall in prices of metals exported by Peru.

The Peruvian highlands, which have 5 million ha available for forest plan-tations, is certainly another source of wealth generation to exploit. These lands can help recover what has been lost in degraded Amazon areas or may be used to develop forest plantations such as those in Chile, whose availa-ble area is half of ours.

Everybody’s business

Forest development will allow us to diversify our production, strengthen the national territory and fight drug trafficking and illegal mining, among other crimes. But forest development can also align our development with the agenda suggested by climate change as water care, biodiversity and low-carbon growth will not be pos-sible without the care and develop-ment of our forests.

Without forests there is no water. In view of the loss of glaciers in the highlands, forests allow for water har-vest, protect soil from degradation and improve the climate. There is no other path.

Just as Cairo, Lima is a desert city, home to 30% of the Peruvian popu-lation. Without the implementation of a suitable reforestation policy to protect basins and aquifers, its fresh water supply is endangered. The same happens with the Ica region, whose water supply will also remain endan-gered if the aquifers of Huancavelica are not consolidated.

For all of the above reasons, we are certain that forest development and national development are part of the same agenda.

www.amcham.org.pe12


Independently from whether the so-called “Pulpin Act” (a bill that purposed incentivi-zing recruitment of young workers by offe-ring less social benefits to those who were being incorporated to a payroll for the first time in their professional life) was or not the vehicle for fomenting formal jobs for young people, what was crucial in this discussion is drawing attention on a critical issue for our country: to generate jobs in a massive way for this segment, and that this would imply improving future hiring of our youth.

However, a few months after this law’s deba-te, it seems that this topic has cooled down and we have lost sensitivity on this concern. It should be remembered that unemploy-ment rate in the youth segment is still over 20% (three times the total unemploymentrate), that investment levels in vocational training are almost non-existing, average wages are stagnant and the future outlook is increasingly somber in the light of our economy’s slowdown. In this context, we must try to develop those industries in which we can be com-petitive and also to increase supply, de-manding more labor. Amongst the Servi-ces Sector, I will recall the qualities of the segment in which I am involved: contact center companies. These companies ge-nerate over 50,000 jobs to date; they grow ata10%annualrate,arepermanentlyin-vesting in training and development, and provide the first job option.

Productive diversification must be performed in those sectors offering competitive conditions. Next, I would like to suggest some measures for expanding contact centers, for increasing their exports and double its labor demand in three years.

Another great pro of contact centers is that there are no age restrictions for working, thus allowing older people’s reinsertion in the labor market. This group is even more committed, as its members feel that their years of experience are still valued.

Hence, we consider that contact centers are a clear example of an industry kind that arises as an alternative for the country’s pro-ductive diversification. From this tribune, we would like to propose several ideas that (in a conservative scenario) could generate about 50,000 new jobs in the following three years and that could also be helpful for other sort of businesses:

Being much more competitive at Interna-tional level Almost 45% of this industry’s activity con-sists in services export. Due to exportation significance for the country´s development and its high exposure to commodities pri-ce variations, it is clear that any effort done in boosting nontraditional exportation, in clean industries (services), with low entry barriers and with an intensive young emplo-yment generation is a good idea.

In fact, several countries in the Region “have foreseen this” before us, whom with similar capacities to Peru’s and with a good quality/price relation of their services, they learned how to potentiate this sector to-gether with the Government’s firm deci-

JOSE ANTONIO IYO, CEO AT Atento A SERVICE wITH AN

ExPORT POTENTIAL

sions in becoming leaders in certain indus-tries in which they can succeed easier. It is very difficult to give priority to some acti-vities above others, but Peru’s strategy, as well as that of several enterprises, should be oriented toward differentiating based on its competitive advantages.

Colombia is an example of competitive ad-vantages development. Its contact center market is of approximately US$1.5 billion, three times the size of the Peruvian market while its nominal GDP is only 70% biggerthan ours. The reason is, precisely, the prio-rity given by the Colombian government for creating conditions that will allow this indus-try development and its competitiveness worldwide (free trade zones, promoting first employment training, flexible labor legisla-tion, etc.).

Our country, beyond low operational costs, holds two significant factors that make it more attractive than the rest of the Region, and many enterprises are getting aware of this great difference. Our first great advan-tage is our speaking accent’s neutrality, and the second one is services quality because Peruvians are friendly, close and warm in communicating, very essential qualities in this business.

To improve citizens services

In our country, two-thirds of public inves-tment liability falls on municipalities and



regional governments, being well known its low implementation rate, perhaps due to bureaucratic machinery in forwarding a project or to the lack of technical skills. In this sense, citizens’ services improve-ment (subject in which we are ranked in the last positions in the Region) through simple, efficient and quick processes, supported by the contact centers’ execu-tion capacities, are undoubtedly a way for conducting improvement projects that will additionally generate youth emplo-yment.

This type of services can be implemented in their own regions for improving services processes and transactions with citizens, assisted by their own young personnel. Furthermore, at Central Government level, citizens’ services that centralize all of the Government’s paperwork in one place while turning it into a friendly and agile institution can be implemented.

If for this reason processes must be chan-ged and policies redefined, this is well justified by massive youth employment creation. Moreover, public-private asso-ciations, usually focused in closing in-frastructure gaps (which is correct and absolutely necessary), could also easily apply to joint projects with enterprises in the contact center sector aimed at citizen services improvement.

Incentives to the sector

In 2005, this sector’s exportation was zero be-cause commercial proposals from this indus-try were taxed with VAT, resulting in a direct cost overrun and turning it very little compe-titive. From that date, VAT was gradually wai-ved from contact center services export, and nowadays this industry contributes about US$230 million per year in exportation, with the subsequent income taxes higher than the potential VAT revenue loss.

This means we all won. There are more reve-nues, more formal youth employment, more exportation, more country competitiveness, and in the medium term, more young peo-ple better-trained, with experience and grea-ter productivity for continuing their careers in other industries that might need them. If the benefit is so clear, why is this not further incentivized? What else is needed to double exports rates?

This is simple, but political decision and consensus among all players are needed to: encourage more investment in the initial training (remember this is a first job type); adapt to this sector’s reality part of the la-bor legislation, as is done in other industries (intermediate contracts between full time and part time, adapting law requirements on safety and health during work, use of di-gital signature, employment should count

as pre-professional practices, etc.); to create other tax-exemption zones for export as in Colombia; and to facilitate the outsourcing process to other countries (double taxation agreements, strengthen agreements with the Andean Community), among others.

To create other key capacities

If we want to compete in the great leagues, we need to reinforce our youth’s English language ability. The United States is a huge outsourcing market, and at Latin American level, markets such as Central America and Colombia are preferred to Peru, basically because English language dominion level is higher in these areas.

In these countries, formal programs have been assembled in order to encourage the development of this ability for its com-mercial use, there is a connection bet-ween private enterprises and educational and training institutions, they count with government backing, etc. That is, there is a direct policy and structured processes for creating this capacity. Currently, North American companies are transferring ser-vices offshore, such as from India, to nears-hore locations, but Peru is not in the pictu-re, except for a few sales services with the United States, but these are isolated and do not represent a significant demand.

Additionally to all that mentioned, Peru offers those conditions sought by all inves-tors: legal security, investments incentives, reasonable returns, growth potential, ade-quate infrastructure (in this case commu-nication technologies are very relevant), among other general features.

In short, we are facing a great opportunity for creating thousands of formal jobs that will benefit thousands of Peruvian young people (they already constitute one-fourth of the EAPandonly10%are formallyemployed).We need to take the decision to perform this. Why can’t we turn soon into worldwide leaders in this industry? By the way, we could have a solid exportable offer that will help to balance the productive matrix of the coun-try, with greater employability opportunities and with more competitive young people that would become the sourcing bases for other industries, as to generate a virtuous cir-cle in our economy; Why not?

450

155.1

207.9

253.3

310.6

357.7371.8

409.4

2014201320122011201020092008

400

350

300

US$

MM

250

200

150

100

Local Exports

GRAPHIC 01

39.7%

39.7%

45.3%

54.7%

40.5%

59.5%

45.3%

54.7%

41.9%

41.7%

58.3%58.1%

60.3%60.3%

AN OUTSIDE GLIMPSE

Atento’s sales have grown signi�cantly thanks to contact center services export..

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I N T E R V I E w

Presidential campaign is maturing. Is the scenario still the one with three great can-didates fighting for the 60% or 70% of the voters and the possible apparition of an outsider to capture the votes from those not wishing to back the former ones?

Regarding population’s disagreement with the politicians, the situation is kept alike. This does not necessarily means that these people will vote for someone else. Then, the possibility of an additional person appearing and convin-cing the voters is still open.

But this will not necessarily happen. At date nobody represents this person, not even in the embryonic state. This is the drama of Pe-ruvian politics: conditions are given for this to occur.

Doesn’t Cesar Acuña fits in the candidate’s profile of someone ascending sponta-neously?

Yes, but conditions are not always given. We must remember that Toledo, and formerly Fujimori, emerged because people were wis-hing for a different alternative to García and Vargas Llosa, they had been frightened with whatever he could execute.

with the current information at hand, what can be expected from the presidential campaign, the country’s future and from President Humala? Following is a deep assessment.

I think that Keiko Fujimori is the one that ap-pears in this way, she is well-consolidated. Shehasasubstantial20-25%nucleusthat Ibelieve will not change their vote, her pos-sibilities into the runoff are extremely high. PPK is positioned in two digits, which is al-ready significant facing the others’ situation, he keeps expectant. But Alan García is slightly lowering,some6%to8%,dependingonthesurveys done.

Despite the allegations of corruption for cases that are transverse to more than one candidate…

This is part of this intense political war we are living nowadays. Furthermore, the Fujimo-ri issue drags, with very good reasons, the dictator’s image and the worst corruption era in Peru. They are not necessarily paying current accountabilities but undoubtedly they are paying for having been probably the most corrupt government in Peru’s recent history.

Politicians are under suspect for very good rea-sons. Of course, this also includes the left, that has two blocks stained with corruption issues: Gregorio Santos is with Yehude Simon’s block, he is imprisoned in Cajamarca and has already

In Acuña´s case, people would have to find some special feature in him. I cannot discard it, but currently there is no sign that this will happen. His advantage is his personal wealth plus important contact networks, and he has achieved a substantial number of local go-vernments. People in provinces are suppor-ting him.

But I dare not to assure anyone or to present anybody due to the current situation’s volati-lity, which has changed with regard to eight months earlier. The political situation is much more deteriorated: there is a higher percep-tion that corruption is harshly entangled with politics especially due to Nadine Heredia’s agendas issue, lava jato (corruption cases in Brazil), narco-indults (drug trafficker’s indults) judgment or Toledo’s trial.

This Presidential election has all the uncer-tainty elements of many others. What is still missing is a specific person.

How much does all this noise affects tho-se strongly consolidated candidates such as Pedro Pablo Kuczynski (PPK), Alan Gar-cía and Keiko Fujimori? In the midst of the storm they seem like rocks heavily rooted that won’t fly whatever happens…

“wHOEVER COMES TO RULE wILL NEED bEING MORE EFFICIENT. IT wILL bE VERY DIFFICULT TO MANAGE THE COUNTRY wITH LESS MONEY”.

CARLOS BASOMBRÍO, Political Analyst


I N T E R V I E w

been expelled, but he belonged to Tierra y Libertad political party, the one that asked for lentils to stop undermining Southern Copper’s Tia Maria project. Then, nobody can say “I am totally guilt-free”.

what chances do you consider Veronika Me-noza and other candidates have for winning the left’s representation?

The left is divided in two great blocks because it only has two electorate registrations. One registration belongs to Yehude Simon with his Partido Humanista political party, which has created Unete, a political front that inclu-des the Communist Party, Patria Roja, Partido Humanista, Susana Villaran and Siomi Lerner followers as well. The other group is Frente Amplio, headed by Arana through Tierra y Li-bertad, and also some other individuals such as Veronika Mendoza.

There are also some leftists coming from Na-tionalist Party that have not yet chosen one or the other, and it is uncertain whether they will do so. Veronika Mendoza has some more ap-peal, we can say.

The additional difficulty they have is their uni-fication, and I believe this is quite difficult be-cause they are confronted.

Their political parties are probably the only ones that have disputed internal elections…

Up till now, yes. I think that Accion Popular and PPC also have. It is rumored that it the last of these two will form an alliance with APRA. Today, the scenery is still a puzzle that is being assembled.

Can we expect a better Congress than that of the last period as a consequence of the favorite candidates’ features during the first round of elections?

I believe that if the electoral system is not mo-dified, the national representation problems will be very much alike to the former occasion and we will have a very dreadful and very co-rrupt Congress.

How transferrable are the votes from the APRA to Fujimori’s political party and vice versa, and Pedro Pablo Kuczynski’s vote, that is more pragmatic?

I think that endorsement capacity in Peru is very low, what people search for is the lesser evil.Therefore,iftheleftinvolvessome15%to

18%ofthepopulationanddoesnotentertherunoff, as is more likely to happen, it will look for its lesser evil. If APRA does not enter the ru-noff, it will seek for the lesser evil. If the people that will vote for PPK do not enter the runoff, they will also seek for the lesser evil. I believe elections have been like This in the past three or four occasions.

Now let us talk about this Government’s end. In terms of Peruvian political history, has Ollanta Humala been a bad President?

I believe that Toledo, Garcia and Humala finally express a same continuity. They had govern-ments that despite all their limitations were democratic, kept market economy policies and reduced poverty, but they did not have the courage to start significant reforms that would have been necessary for progressing the country, and besides, they were deeply touched by corruption. Therefore, I think that there is more continuity than rupture among these three governments, both in pros and cons.

I think that if we would have spent these years in the sense of becoming ourselves institutio-nally better, we would have the better condi-tions for the coming years, now that the “fat cows” are no longer such.

what shall happen with Ollanta Humala’s Nationalist Party and with the Presidential couple?

It doesn’t seem that any candidate will pass the electoral threshold. And legally I think that political winds that will pay have been sown, but they have also committed serious deeds and it is likely that Nadine Heredia, the President’s wife, and even him will end in jail or as fugitives, like Toledo would.

In sight of the lean period, will the entering president have a much greater pressure for executing reforms?

He will have much more pressure and a grea-ter need, I hope he counts with courage and support. Nowadays, the political climate is too scorching, too degraded. These issues are se-rious; we hope that those country and urgent senses needed to face several problems will be present.

Besides, it is not alike to arrive to a lean pe-riod in 1998 than in 2016, with a really de-mocratized system and not with the autho-ritarianism of the 90’s…

Exactly. I think that the lean period at the end of the 90’s is an explanation of Fujimori’s fall. This is not the only reason, but I believe that whoever will govern in the next years will need to be much more capable, more efficient in his ma-nagement because it will be much more diffi-cult to manage Peru with less money. Regional elections are going to be much tougher and socialpressurewillincrease.Itissaidthata6%growth is needed in order to generate 300,000 jobs needed per year, and everything seems topointouta3%growthonly.

which reforms can be performed?

An important reform that should be con-tinued, deepened and improved is that of education. Bases have been somehow rooted throughout these years.

Likewise, there is a certain continuity of our governments: Toledo did not make any reform but he improved teachers’ wages, which is a starting point. Garcia initiated the meritocracy and this government has improved much this issue. I think there is a significant continuity.

Another essential reform is what I would call the great package of the rule of law, that is, we should ensure advancing toward better con-ditions for laws compliance. This has to do with citizen security, public order and corruption, I think that we have a giant deficit there.

To these two reforms, that of the political system can be added. No great reforms will be produced now, I believe, these must be done at the beginning of the next government and domestic consensus for performing these should be sought. There are many issues for discussion on the po-litical system: representation, political par-ties, democracy organizing, and decentra-lizing improvement.

Afterwards, there are other several reforms related to economy boosting.

How relevant is belonging to international blocks in order to ensure our way toward re-forms for pressing upon the Government’s efficiency?

Not only the Pacific Alliance, but also the OECD, to which Peru aims to belong, have requirements of institutional standards as well as several other features that comply to pro-duce those reforms. I think that those blocks to which Peru is aligned are a great thing.

www.amcham.org.pe16

I n t e r v I e w

You came to Amcham to make a pre-sentation on the training executives should have to avoid failure. what are the risks they need to deal with?

I believe there are two types of failure: one is that of the individual due to his or her errors, and the other, which is out of a leader’s control, may be due to failures of the company itself.

Companies fail all the time. Good ones fail due to bad luck, supplier failure or a change in commodity prices, all of which are be-yond the control or rational expectations of a person. However, companies also fail due to a poor strategy or their failure to antici-pate events, and the problem is that if it a company fails, so do its employees. Com-panies that fail dismiss many workers, who become victims of the poor management or poor leadership of those running them.

But I would like to talk about individual failures, which are more frequently the consequence of a lack of learning, hu-mility and adaptation to change. The problem people have is that they move up within a company to a position of leadership, develop certain attribu-

tes and skills to fulfill the role, improve constantly as a result of those skills, and then when the world, the strategy, the customers and the challenges change, they tend not to change.

They tend not to change because changes bring a loss of power with them. Change means that the rules are different and, as they have mastered the old rules, they tend not to be as good under the new ones, and most people don’t like to do things they’re not good at. They may be arrogant and tend to resist change becau-se they think that is what is best for them.

I believe the failure of leaders is the greatest problem we have in organiza-tions today; the majority of their failures occur as a consequence of their actions.

It is for this reason that we, and certainly I as a business leader, professional and educator, spend time and money con-cerning ourselves with how to help peo-ple recognize the need to change.

Is there some procedure or a list of questions that leaders need to follow in order to avoid failing?

I wouldn’t say there is an exact list. I be-lieve there is one, but there are times when it’s more useful than at others, because people have a false sense of security that if they follow that list, everything will be fine.

Managers regularly have to assess their alignment with their emplo-yees and their bosses, as well as their organization’s alignment with external markets. They need to have a very good sense of when things don’t feel right.

It is a manager’s sensitivity, and that is so-mething difficult to train people on. You can talk to them about it, but in the end, they need to have an almost intuitive sen-se of alignment. So I’m very cautious about lists, they give people a false sense of secu-rity. It’s not a mathematical equation, and we often believe that leadership is a scien-ce. It’s more of an art than a science.

How important have technological changes been? Have executives been forced to change faster than before?

Yes. I see globalization and technology as the two major factors of change. The

“wE OFTEN THINk OF LEADERSHIP AS A SCIENCE. IT’S MORE OF AN ART.”

ALLEN MORRISON, CEO and director general of Thunderbird School of Global Management

The director of the business school at Arizona State University discusses the challenges executives face in avoiding failure in dealing with changes, among them, technological change.


COVER STORY / I N F O R M E C E N T R A LI n T E R V I E w

homogenization of markets and custo-mers, the disappearance of borders and the overwhelming nature of competi-tion across them are putting people out of the game. That means that people are no longer sure who their competitors are, and that puts them at risk of being surpassed by companies in other parts of the world they’ve never even heard anything about.

In the majority of industries, what exe-cutives learn will be practically outdated in two years, especially in the case of pa-tents related to new knowledge.

Technological change is a difficult thing to manage because most people think it involves products or systems, but it has a subtler and more difficult aspect: human behavior. Technological changes are changing the way we communicate, the way we motivate and attract people. In very basic terms: how we lead them. The challenge is to learn how to do it, with regard to both people and markets. We have to learn how to understand di-fferently.

It’s a discouraging challenge. How do we deal with so much confusion and complexity? The natural reaction of ma-nagers facing this type of situation is to try a true model of leadership—so-mething their mothers taught them, or five basic steps they learned in college or read in a book—that they believe will be the way to solve every complex problem. I think that when they do that, they are operating under a false sense of security. There are no simple solutions and, actually, what we are increasingly seeking and seeing as a differentiating factor is leaders’ capability for dealing with that complexity, that ambiguity.

Acumen is what becomes more and more important, due to technological change. Again, the differentiating factor is people’s ability to think differently, which is the op-posite of simply learning more.

Is there a difference between how one generation and another are affected by technological change?

Change has been with the human race since the beginning of time, but the pace

of change has accelerated. My concern is that the youngest generation sees interac-tion, relationships and commitments in a more transitory sense. In my father’s days, people found a company, worked there for 40 years, and retired.

Today, employees aren’t able to have a long career with one company, and because of that challenge, companies’ capacity to dis-cipline employees has changed. If I know my employee won’t leave, I can have a very different type of social pact with him or her than I can have with one that will leave the company in one or two years. That difference even changes the way in which one employee relates to another: if I know my co-workers will be around for the next 20 or 30 years, I’ll probably beha-ve differently toward them than I would if I knew I was leaving to take another job in a year or two. In addition, one connects with others through the social networks.

Therefore, the way in which people re-late to companies is changing. Work used to be almost like a family, but now one has social connections in the social networks rather than at work. There are many distractions, and the tools we are accustomed to using as managers be-come outdated very quickly. How peo-ple can be reached and what employees value is changing rapidly.

In light of that, how has being a mana-ger changed in recent years?

Well, one way is that it is becoming more global. I suppose that, historically, ideas in Peruvian companies came from scho-lars, standards or guidelines of Peruvian origin that had been established in this country for, really, thousands of years. However, this is changing. We see more managers that have lived and worked on other continents and absorbed di-fferent styles, approaches and theories about what makes a good manager, ba-sed on their studies in the USA, England, Canada or Switzerland.

So we see new ideas, even among Peru-vian managers. We also see more expa-triates come and go, and multinational companies finding success using diffe-rent ways of organizing people. For that reason, the old ways of managing are at

real risk, and this is putting pressure on Peruvian business schools to teach new and better forms of management. Op-portunities are being created for foreign business schools with those ideas, but I think they are also being created for new leadership paradigms, not the Pe-ruvian way or the foreign way, but rather with new models that will work today and in the future.

In what other ways has education changed?

Here and in other countries, we are be-ginning to see the emergence of ma-nagers educated locally. The quality of local universities is improving very rapi-dly, so critical thinking is improving, and those improvements are taking place faster. I’d say that’s very good news for Peru.

My recommendation for Peruvian aca-demics is to continue along that path and to enhance their own thinking by studying best practices, not only in the USA, but also Europe, Asia and Austra-lia. Peruvian academics need to study abroad in order to adopt the right ideas to create a new model. I think the big mistake to be found in Peruvian univer-sities is that those who have their dou-bts about developing something new are satisfied with copying what they see in other countries.

Better things than copying and pasting can be done. That ambition consists of creating a new model for what works in Peru, which has a bright future.

what do you believe is the main fac-tor behind that great opportunity we have as a country?

You have a large amount of natural re-sources. Your ability to grow six or eight percentage points a year is beyond compare. The market is also small and homogeneous enough to do things that aren’t possible in other markets. The size, the location and being part of a high-growth region put the country on a good footing.

My great concerns are governability, po-liticians and regulation.

www.amcham.org.pe18


MANEUVER AND STORM

Unsurprisingly, August expectations fell to its lowest point in the last two years. The foreign effects threaten to deepen economy cooling off. Survey respondents left uncertainty behind, pessimistic posi-tions increased significantly and excee-ded neutral ones.

The latest financial events such as China’s “black Monday” and the possibility of a re-classification of the Lima Stock Exchange to frontier market by Morgan Salntely Ca-pital International (MSCI) had a negative impact. Added to this, there are domestic factors contributing to unease.

Despite the economic turmoil, there are still conditions to continue businesses or even to make some of them grow. Expor-ters have been impacted by the lower pri-ces of raw materials, however, they have improved their competitiveness due to the depreciation of PEN.

On the other hand, it should be pointed out that the survey was conducted at the same time of the announcement of the possible reclassification of the Lima Stock Exchange from emerging market to fron-tier market due to its poor liquidity. The survey date also coincided with the fall of the Shanghai Stock Exchange, which on Monday, August 24 suffered its biggest fall ineightyears(8.5%),andledtoafallof6.1%intheNewYorkStockExchange’sS&P 500, recording the worst fall since 2011.

what causes concern among members?

Beyond these two issues, the downturn in expectations responds to usual factors.

As happened in the last months, AmCham Peru members are concerned about the

entrepreneurial overview survey - AUGUst 2015

Unsurprisingly, August expectations fell to its lowest point in the last two years. The foreign effects threaten to deepen economy cooling off.

socio-political climate. Respondents cri-ticized the lack of stability and long-term goals, as well as the instability generated by chieftainship at regional and local level. This factor hinders the realization of long-term projects. Also, the government’s con-tradictory signals which have an adverse impact on market were rated.

With regard to the exchange rate, a stronger dollar appreciation is expec-ted if the US Federal Reserve decides to increase the benchmark interest rate, which could generate inflationary pres-sures and capital outflow. However, the Central Reserve Bank of Peru (BCR) holds a large stock of international reserves

GRAPH 01

GRAPH 02

FACTORS INFLUENCING ECONOMIC CLIMATE

EVOLUTION OF THE EXPECTATIONS OVER THE ECONOMIC CLIMATE FOR THE NEXT 6 MONTHS

0%

10%

20%

30%

40%

60%

Better

sep-

14

oct-

14

nov-

14

dec-

14

jan-

15

feb-

15

mar

-15

apr-

15

may

-15

jun-

15

jul-1

5

aug-

15

Worse

Equal

6%

17%

9%11%

9%

31%

17%

9%12%

3%

15%

3%

33%

24%

Cost ofsupplies

Legislation Socio-Political climate

Exchange rate

0%5%

10%

15%

20%

25%

30%

35%

jul-15 aug-15

Foreigndemand

Domesticdemand

Price ofminerals



Fact sheet

Universe: 45 top executives and directors of AmCham

member companies.

Survey period: 08/21/2015 - 08/24/2015

and other mechanisms to mitigate do-llar strengthening, which is unavoidable though.

Regarding domestic demand, the con-cern is lower investment, which has fallen by 7.7% and 3.4% in 1Q15 and2Q15, respectively. On the other hand, even though public investment has in-creased, it is five times less than private investment.

Finally, the fourth relevant factor that explains economic positions is the price of minerals. The quotation of commodi-ty prices has decreased, mainly due to the slowdown of the Chinese demand, which has uncertain growth prospects. Even, general opinion shows that its GDP growthwould be below the 6.8%forecast in the official figures released by the government of the Asian giant.

Perceptions about investment levels also add up to the pessimism of the activity of the economy and the industry.

The few optimistic statements come from the Services industry. A consulting com-pany representative stated that the pre-sent scene is an opportunity to increase his market share. However, the pursuit of savings also affects service providers. “The clients are changing operations to low-cost high productivity ones, which obliges suppliers to adjust to the new management models” said a respondent.

In general, some companies have the op-portunity to grow in the short-term and take up the places that would be left or neglected by their competitors. Even though investment levels are lower com-pared to previous years, as mentioned above, there is not a complete paralysis.

Prepared?

Just like in the last month, employment expectations are not deeply plunged in pessimism and the 83% of respondentsconsidered that they will keep the same number of employees. The optimistic share the view that the political uncer-tainty and economic slowdown will not last longer, and in line with the above mentioned paragraph, it was pointed out that those who are prepared for recovery will take advantage. It is interesting to analyze that a large number of employees could join the in-formal market, so that their consumption level would not be reduced drastically. However, entrepreneurs will have to face a greater unfair competition from emplo-yers who avoid the law.

In general, macroeconomic conditions are good despite the turmoil. Everything suggests that 2016 will be difficult for the force majeure circumstances that we all know, however, everything may be ready foranintenserecoveryin2017.

Industries: similar expectation

At the industry level, the perspectives are similar to those of the economy as a who-le, and economic positions are attributed to the same factors. Furthermore, conser-vatism conceals a short-term pessimism: those who do not expect variations spoke about falls in prices, businesses and goals, and criticized project postponements.

The direct impact of prices affects the last expected industries such as Energy and Services. Also mentioned is the indirect effect resulting from the bad situation of the mining industry and the lower oil pri-ces that affect the hydrocarbon industry.

However, some respondents from the Services industry, specifically from edu-cation and consulting, expressed their optimism.

GRAPH 03

GRAPH 04

EXPECTATIVA A SEIS MESES DE LOS NIVELES DE INVERSIÓN

EXPECTATIONS OVER THE SECTOR ECONOMIC CLIMATE FOR THE NEXT 6 MONTHS

30%

55%48%

26%22%19%

Equal0

10%

20%

30%

40%

50%

60%

jul-15 aug-15

Better Worse

65%71%

30%

16%4%13%

Equal0

20%

40%

80%

60%

jul-15 aug-15

Higher Worse

www.amcham.org.pe20

E CO N O M I C A N A LY S I S - S TAT I S T I C S

PRINCIPALES INDICADORES ECONÓMICOS PARA EL PERú

1. In june, the 12-month GDP had a significant recovery

respect to the same period of 2014, when the lowest fi-

gure of that year was registered. As same as in April, the

good result was mainly driven by the growth of primary

sectors: mining output increased by 14.15% because

new projects kicked off, and agriculture expanded in

8.13%. The ones that decreased their output were Fishery

(-43.47% as a result of lower anchovy harvest), Construc-

tion (-3.15%) and Manufacture (-2.89%).

2. Private investment decreased by 3.42% during 2Q15

towards the same period of 2014, affected by the dete-

rioration of business confidence and the culmination of

investment projects. The forecasts of the Central Reserve

Bank of Peru (BCR) aim to a 5.5% decrease for 2015. A gra-

dual recovery is expected between 2016 and 2017 as a

result of the execution of projects that have already been

granted for a value of US$23.6 billion.

3. Public investment doesn’t recover the pace in spite of the

stimulus plans. Regional and local governments, respon-

sible for 50% of its execution (formerly 60%), have not

recovered their pace after the change of authorities in

October 2014 (in 1Q15, their investments decreased by

50%). This undermines the effectiveness of the counter-

cyclical policies applied by the Government, given that it

hinders the generation of fiscal impulse despite the coun-

try has capacity for incurring in higher deficit.

GRAPH 01

Source: BCRElaboration: AmCham Perú

GRAPH 02

EVOLUTION OF PRIVATE INVESTMENT


GRAPH 03


GRAPH 04

GRAPH 05



GRAPH 06

Jan Feb

GDP Primary sector Non-primary sectors

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Source: BCRElaboration: Amcham Perú

EVOLUTION OF GDP (12m % Var.)

-12.50-10.00

-7.50-5.00-2.500.002.505.007.50

10.00

-9.42

2014 2015

0.35

3.55 4.163.87

3.05

12.5015.0017.50

-15.00

-5.00

5.00

15.00

30.0025.00

20.00

10.00

0.00

-10.00

Yearly evolution (%Var.) Quarterly evolution ( 12 % Var.)

2005 2007 2009 2011 2013 3T13

-1.59

-3.61

1T14 3T14 1T15

-30

-20

-10

0

20

10

40

30

EVOLUTION OF PUBLIC INVESTMENT

2005 2007 2009 2011 2013 3T13 1T14 3T14 1T15


EVOLUTION OF INFLATION RATE

-0.500.00

1.50

2.50

0.16

3.35%3.18%

0.38

3.504.00

3.00

2.00

0.501.00

feb-14

apr-14

jun-14

aug-14oct-1

4dec-14

feb-15

apr-15

Jan-14

mar-14

may-14jul-1

4se

t-14

nov-14

Jan-15

mar-15

may-15

jun-15jul-1

5

aug-15

Monthly in�ation Accumulated in�ation in the year

0

2

4

1.25

6

7

5

3

1

Referernce monetary policy rate (%)

BCR MONETARY POLICY REFERENCE RATE

Jan0

5M

ay05

Sep0

5Ja

n06

May

06Se

p06

Jan0

7M

ay07

Sep0

7Ja

n08

May

08Se

p08

Jan0

9M

ay09

Sep0

9Ja

n10

May

10Se

p10

Jan1

1M

ay11

Sep1

1Ja

n12

May

12Se

p12

Jan1

3M

ay13

Sep1

3Ja

n14

May

14Se

p14

Jan1

5

May

15Se

p15

0

20000

40000

70000

80000

50000

30000

10000

EXCHANGE RATE AND INTERNATIONAL RESERVES

60000

0

0.5

1

1.5

2

2.5

3

3.5

4

Net foreign-exchange reserves (US$ million)Nominal exchange rate (PEN/ US$)

Jan0

5A

pr05

Jul0

5O

ct05

Jan0

6A

pr06

Jul0

6O

ct06

Jan0

7A

pr07

Jul0

7O

ct07

Jan0

8A

pr08

Jul0

8O

ct08

Jan0

9A

pr09

Jul0

9O

ct09

Jan1

0A

pr10

Jul1

0O

ct10

Jan1

1A

pr11

Jul1

1O

ct11

Jan1

2A

pr12

Jul1

2O

ct12

Jan1

3A

pr13

Jul1

3O

ct13

Jan1

4A

pr14

Jul1

4O

ct14

Jan1

5A

pr15

Jul1

5

3.5


E CO N O M I C A N A LY S I S - S TAT I S T I C S

4. Inflation between June and August has been lower than

in the previous quarter, but in added terms, the 3% cei-

ling fixed in the target range stablished by the BCR has

already been exceeded. According the National Institute

of Statistics and Computing (INEI), the increase registered

in August was cause in 90% by the rise of food prices

(0.68%), real estate rentals, fuel and electricity (0.72%), in

part a consequence of the rise in exchange rate. A lower

inflation rate is expected for September (Scotiabank fo-

recasts 0.25%).

5. On Thursday September 10, the BCR rose its reference

interest rate from 3.25% to 3.5% in order to prevent the

inflation to exceed the ceiling of the established target

range of 2% +/-1% in the next year. The entity reiterated

that, if necessary, it would do additional adjustments to

place inflation inside the mentioned range, and specified

that taking an inflation rate around the ceiling (3%) as a

reference, the interest rate would be of only 0.5% in real

terms, so that its policy could still be considered as ex-

pansive.

6. The balance of net foreign-exchange reserves has de-

creased during two consecutive years. Nevertheless, the

level is still high and permits intervention on the currency

market in order to reduce volatility. The ratio of reserves

as a fraction of GDP (30%) is also still high in comparison

to the Pacific Alliance and Brazil (between 15% and 20%),

and the stock is sufficient to afford 18 months of imports.

GRAPH 01


GRAPH 02

EVOLUTION OF PRIVATE INVESTMENT


GRAPH 03


GRAPH 04

GRAPH 05



GRAPH 06

Jan Feb

GDP Primary sector Non-primary sectors

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Source: BCRElaboration: Amcham Perú

EVOLUTION OF GDP (12m % Var.)

-12.50-10.00

-7.50-5.00-2.500.002.505.007.50

10.00

-9.42

2014 2015

0.35

3.55 4.163.87

3.05

12.5015.0017.50

-15.00

-5.00

5.00

15.00

30.0025.00

20.00

10.00

0.00

-10.00


2005 2007 2009 2011 2013 3T13

-1.59

-3.61

1T14 3T14 1T15

-30

-20

-10

0

20

10

40

30

EVOLUTION OF PUBLIC INVESTMENT

2005 2007 2009 2011 2013 3T13 1T14 3T14 1T15


EVOLUTION OF INFLATION RATE

-0.500.00

1.50

2.50

0.16

3.35%3.18%

0.38

3.504.00

3.00

2.00

0.501.00

feb-14

apr-14

jun-14

aug-14oct-1

4dec-14

feb-15

apr-15

Jan-14

mar-14

may-14jul-1

4se

t-14

nov-14

Jan-15

mar-15

may-15

jun-15jul-1

5

aug-15

Monthly in�ation Accumulated in�ation in the year

0

2

4

1.25

6

7

5

3

1

Referernce monetary policy rate (%)

BCR MONETARY POLICY REFERENCE RATE

Jan0

5M

ay05

Sep0

5Ja

n06

May

06Se

p06

Jan0

7M

ay07

Sep0

7Ja

n08

May

08Se

p08

Jan0

9M

ay09

Sep0

9Ja

n10

May

10Se

p10

Jan1

1M

ay11

Sep1

1Ja

n12

May

12Se

p12

Jan1

3M

ay13

Sep1

3Ja

n14

May

14Se

p14

Jan1

5

May

15Se

p15

0

20000

40000

70000

80000

50000

30000

10000

EXCHANGE RATE AND INTERNATIONAL RESERVES

60000

0

0.5

1

1.5

2

2.5

3

3.5

4

Net foreign-exchange reserves (US$ million)Nominal exchange rate (PEN/ US$)

Jan0

5A

pr05

Jul0

5O

ct05

Jan0

6A

pr06

Jul0

6O

ct06

Jan0

7A

pr07

Jul0

7O

ct07

Jan0

8A

pr08

Jul0

8O

ct08

Jan0

9A

pr09

Jul0

9O

ct09

Jan1

0A

pr10

Jul1

0O

ct10

Jan1

1A

pr11

Jul1

1O

ct11

Jan1

2A

pr12

Jul1

2O

ct12

Jan1

3A

pr13

Jul1

3O

ct13

Jan1

4A

pr14

Jul1

4O

ct14

Jan1

5A

pr15

Jul1

5

3.5

www.amcham.org.pe22

L E G I S L AT I V E A N A LY S I S - B I L L S R E V I E w

EFECTOS POTENCIALES

EFECTOS POTENCIALES

The Peruvian government approved the Temporary Services Agreement between Perupetro and Pacific Stratus Energy for the exploitation of Lot 192 with the participation of the Central Bank, through SupremeDecreeNo. 027-2015-EM.According to the Constitution (Article 62), the execution of a contract by the parties is made under the laws in force at the time of contracting and the contractual terms can-not be amended by other laws or provisions of any nature whatsoever. Consequently, such enrolled bill is unconstitu-cional. However, beyond the constitutional analysis, Petro-peru does not have the operating conditions to exploit Lot 192 and could generate a huge government expenditure.

If the aim of this draft opinion is that interest management goes from informal to formal, its over-regulation will be a strong deterrent not only for interest managers but for pu-blic employees to come into contact with public managers.

LEGISLATIVE bILLS REVIEw

ENROLLED bILL INCORPORATING A FOURTH SUPPLEMENTARY FINAL PROVISION TO LAw NO. 30130 RELATED, TO THE TALARA REFINERY.

DRAFT OPINION ON bILLN°1269/2011-CR, PROPOSING THE CREATION OF THE INTEREST MANAGEMENT (LObbY) LAw FOR THE PUbLIC ADMINISTRATION.

Enabling Petroperu to conduct and exploit lot 192 through direct negotiation. According to legislators who passed the bill by majority, it is of national need to bet on the vertical integration of the state-owned oil company, especially regardintg the exploitation of the lots whose contracts have expired or are about to expire.

It proposes the establishment of principles governing interest management (lobby), the creation of the In-terest Management Registry, the extension for 2 years of the term for public employees incompatibility to perform acts of interest management, and the establis-hment of duties for public employees with decision-making capacity and their respective sanctions. It has been established that associations must comply with the legal provisions on duties and obligations applica-ble to professional managers. The performance of acts of interest management without being registered be-fore the Interest Management Registry shall be consi-dered a crime.

Negative effect on economic climate

Ambiguous effect on economic climate

Positive effect on economic climate

App

rove

d by

the

Plen

ary

Ass

embl

y of

Con

gres

sCo

ntro

l and

Aud

it Co

mm

ittee

DESCRIPCIÓN

DESCRIPCIÓN

COVER STORY / I N F O R M E C E N T R A L


L E G I S L AT I V E A N A LY S I S - B I L L S R E V I E w

EFECTOS POTENCIALES

The legislative decree aims to overcome the bottlenecks that currently occur in the execution of infrastructure works. It is expected that this regulatory change could speed up the implementation process of infrastructure projects.

bILL N°04735/ 2015-CR: PROPOSAL TO AMEND ARTICLE 2 OF LD 892 ON wORkERS PROFIT-SHARING.

ExECUTIVE ORDER NO. 1192. APPROVES THE FRAMEwORk LAw FOR PROPERTY ACqUISITION AND ExPROPRIATION, AND ESTAbLIS-HES OTHER MEASURES FOR THE ExECUTION OF INFRASTRUCTURE PROJECTS.

It includes: entities within the scope of application (i.e., all public entities), principles (harmonization of interests, celerity, efficiency and transparency), definitions and common provisions to the acquisition (beneficiary and active subject, taxpayer, goods subject to acquisition, expropriation and appraised value), acquisition, expro-priation, coercive enforcement proceedings, transfer of state-owned properties, release from interference in ar-eas subject to right-of-way or infrastructure works and supplementary provisions.

Exec

utiv

e Po

wer

DESCRIPCIÓN

LAw NO. 30341. PROMOTES LIqUIDITY AND INTEGRATION OF LIMA STOCk ExCHANGE.

EFECTOS POTENCIALES

EFECTOS POTENCIALES

This bill does not have a technical study justifying the leve-lling of profit rate percentage of all industrial and commer-cial sectors. Additionally, by including outsourced workers in profit sharing could be a disadvantage for workers re-gistered in payroll, because the former could receive profits from two companies. Finally, it seems not to be an appro-priate measure in a moment where economic stagnation and unemployment raising is expected.

It evens out Peruvian stock market competitiveness in terms of taxation in comparison to other international mar-kets, especially the Latin American Integrated Market (MILA) and the Pacific Alliance. It is a key issue to attracting greater local investment, especially foreign, to finance businesses and create more jobs. It aims to improve liquidity levels and increase the number of transactions, which would help prevent Peru be considered as a frontier market by Morgan Stanley Capital International (MSCI).

It aims to levelling the workers profit-sharing percen-tage and include other sectors of the public sector productive activity. The amount to be distributed is set at10%ofprofitsbeforetaxesforallworkers(currentlydifferentiatedatratesof10%,8%and5%,accordingtoindustry). Workers of state-owned companies under private regime and employees under different forms of outsourcing, who will receive profits from the contrac-ting company, are also incorporated.

It establishes income tax exemption on capital gains up to 2018, provided they meet certain liquidity criteria andrepresent lessthan10%ofthecompanies’shares.Seeks to develop market makers, who are agents willing to buy and sell securities to maintain market liquidity, by easing the requirements to request suspension of pay-ments on account of income tax.

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www.amcham.org.pe24

AMCHAM NE wS - AGENDA

INSTITUTIONAL AGENDA

MATTERS PRIORITIZED ON THE AGENDA OF AMCHAM PERU FOR THE MONTHS OF JULY THROUGH SEPTEMBER:

DEFENSE OF PRIVATE INVESTMENT AND MEMBERS’ INTERESTS

Laws, bills and regulatory actions analyzed by the chamber.

1. Bill No. 04505/2014-CR. Proposes the inclusion of an appeal mechanism in the arbitration process and holding arbitral institutions liable for the actions of their arbiters.

2. Bill No. 04494/2014-CR. Proposes modification of the Consumer Protection and Defense Law, in order to include certain conditions and characteristics in the labeling of food and food products.

3. Bill No. 04343/2014-CR. Proposes modification of different sections of the Law on the Promotion of Healthy Eating among Children and Adolescents.

4. Bill No. 04629/2014-GL. Proposes modification of paragraph 23.3 of section 23 of Law No. 26979 on the Coercive Enforcement Procedure.

1. Pacific Alliance Summit, on July 1 and 2 in Paracas, Peru.

2. Conversations with the US Chamber of Commerce on the Pan American Health Organization (PAHO).

3. Letter from the Ambassador of the European Union, Irene Horejs.

4. Meeting with Ambassador Luis Miguel Castilla and the US Chamber of Commerce.

5. Meeting of the AACCLA in washington, from September 30 to October 2, and visit with authorities.

6. Annual meeting of the American National Committees of the International Court of Arbitration (ICC), to be held from October 21 to 23, 2015.

7. Meeting with President Ollanta Humala to launch the Observatory for Education and Employment.

8. Meeting with the Minister and Vice Minister from the Ministry of Labor and Promotion of Employment (Mintra) to sign an agreement between AmCham and Mintra.

9. Logistical Mission, October 5 to 9, in Miami.

10. VI Trade Mission to Silicon Valley, October 12 to 25, in San Francisco, United States.

11. Business Mission, November 6 to 14, in Houston.

12. Business Mission, from November 15 to 20, Puerto Rico. Other actiOns

1. Letter to the Tax Regulation Agency (Sunat) requesting a modification of the sanctions imposed on customs warehouses established in the General Customs Law.

2. Letter to the president of the Congressional Commission on Health and Population on Bill No. 4343/2014-CR, which proposes the modification of different sections of Law No.30021, the Law on the Promotion of Healthy Eating among Children and Adolescents.

3. Letters sent to the Economy, Banking, Finance and Financial Intelligence commissions, as well as the Commission on Foreign Trade and Tourism, in relation to Bill No. 4669/2014-CR, which proposes to extend Law No.29624 on the admission of aircraft and aeronautical material.

4. Letter sent to the vice minister of Economy requesting an appointment to discuss matters related to courier companies.

5. Bill No. 04630/2014-IC. Proposes the Capitalization and Integration of Petroperú and guarantees Peru’s energy sovereignty.

6. Enrolled bill that adds a fourth final supplementary provision to Law No.30130 on the modernization of the Talara Refinery, and adopts measures to strengthen Petroperú’s corporate governance.

7. Draft opinion issued on Bill No.1269/2011-CR on the Management of Interests (lobby) in Public Administration.

8. Bill No. 04793/2015-CR. proposes modification of sections 7, 9, 10, 11, 12 and 60 of the Peruvian Constitution, which are related to the right to health care.

9. Bill No. 04735/2015-CR. Proposes modification of section 2 of Legislative Decree DL 892 in order to include workers hired under an outsourcing arrangement in profit sharing.

10. Complaint and request for review submitted by the International Labor Rights Forum (ILRF), Perú Equidad and five labor unions to the Office of Trade and Labor Affairs (OTLA) regarding the Peruvian government’s alleged failure to adhere to the labor standards included in the United States-Peru Trade Promotion Agreement

MATTERS RELATED TO TRADE AND INVESTMENT PROMOTION

Documents

CONTACT Magazine, July-September 2015