Peru: Facts & Stats

ECONOMY

Industry:

The industrial sector has had its problems too, especially in the 1980s. Manufacturing production grew more rapidly than the economy as a whole up to that decade. It increased at a compound annual rate of 3.8 percent between 1965 and 1980. But it grew only 1.6 percent a year from 1980 to 1988, and then plunged 23 percent in the ghastly economic conditions of 1989.

Of dominant importance in the 1980s were food processing, textiles, chemicals, and basic metals; food processing alone accounted for nearly one-third of total manufacturing output. For the period 1980-88, when total manufacturing production increased by only about 5 percent, food processing rose by nearly 23 percent. Production of basic metals went the other way, falling by almost 22 percent. Output of metal products and machinery, closely associated with capital goods and investment, fell by 7 percent from 1980 to 1988, and then fell by one-fourth between 1988 and December 1989.

The modern manufacturing sector has relied on relatively capital-intensive and import-intensive methods of production, failing to provide much help for employment. Manufacturing value increased from 20 to 22 percent of GDP between 1950 and 1990, but its share of total employment fell from 13 to 10 percent. Its dependence on imports of current inputs and capital equipment has probably resulted in large measure from the combination of an overvalued currency with high protection against competing imports. Overvaluation holds down the prices of imported equipment and supplies, making them artificially cheap relative to labor and other domestic inputs.

Protection adds to the problem by allowing those firms that prefer the most modern possible equipment, even when it is more expensive than domestic alternatives, to pass on any extra costs to captive domestic consumers. In addition, protection saddled industrial firms themselves with high-cost inputs from other domestic firms, raising their costs to levels that have made it extremely difficult for even the most efficient to compete in export markets.

Agriculture:

Perhaps the most important fact about the agricultural sector is that its production has not kept up with the growth of population. Total output of agriculture and fishing combined rose 63 percent between 1965 and 1988, but output per capita fell by 11 percent. Output per capita started falling in the early 1950s, climbed back up again to its 1950 level by 1970, then began a more pronounced and prolonged fall through the 1980s. Per capita output of food, as distinct from total agriculture, did better: it increased 1 percent during the period from the early 1980s to the late 1980s.

The downward trend in agricultural production per capita was accompanied by a fall in the share of output going to exports. From 1948 to 1952, Peru exported 23 percent of its agricultural output; by 1976 the export share was down to 8 percent. The trade balance for the agricultural sector remained consistently positive through the 1970s but then turned into an import surplus for the 1980s.

Although agricultural production in the aggregate failed to keep up with population growth, a few important products stood out as exceptions. With favorable support prices, output of rice increased at an annual rate of 7.9 percent in the 1980s. Changes in production techniques helped raise output of chickens and eggs at a rate of 6.5 percent in this period.

The Ministry of Agriculture interpreted these positive results as evidence of what could be accomplished more generally with better incentives and improvement of agricultural techniques. For many crops, extremely wide variations in output per hectare, even in similar conditions of land and water supply, suggest that if effective extension services were implemented average productivity could be raised to levels closer to those achieved by leading producers. Contrary to the experience of many other countries in the region, productivity for most crops other than rice showed little or no improvement from 1979 to 1989.

Tourism:

Lima, with its Spanish colonial architecture, and Cusco, with its impressive stonework of pre-Inca and Inca civilizations, notably at Machupicchu, are the centers of Peru's ailing tourism industry. Lake Titicaca also constitutes a major tourist attraction. However, as a result of terrorism, insurgency, common crime, the 1990-91 cholera epidemic, and the April 1992 coup, tourism has declined drastically since 1988, when Peru received an estimated 320,000 foreign visitors and US$300 million in tourism earnings. One American tourist was murdered in Cusco in early 1990, and several others died in the late 1980s because of sabotage of a train line between Cusco and Machupicchu. Under sharply increased taxes on tourism imposed in 1989 in response to declining numbers of tourists, foreigners have had to pay far more than Peruvians for internal flights and visits to museums and archaeological sites. In 1989 six flights a day shuttled tourists between Cusco and Lima, but by late 1990 there were only two. Tourist arrivals in Peru continued to decline in 1990 and 1991.

According to the National Tourism Board (C?mara Nacional de Turismo--Canatur), tourism in the first half of 1992 was down 30 percent from the first semester of 1991, which, in turn, fell 70 percent from 1988, tourism's record year. A major blow to Lima's hotel business was the SL's car bomb attack in the exclusive Miraflores district on July 16, 1992, in which six major hotels suffered over US$1 million in damages. The number of tourists visiting Cusco and Machupicchu had dropped 76 percent since 1988.

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