Peruvian has a mixed economic system. Currently, most of the economies in the world are part of this economic system, an economic model that uses the market to allocate resources, but in which the State intervenes to regulate its operation. The role of the State in the economy is particularly important and it is carried out through public companies that have strategic or unprofitable sectors and provide social services to less favored sectors. This organizes the market by establishing production quotas by sectors.
• Characteristics of the mixed economic system:
- Most of the means of production are private property. However, in certain sectors there may be public companies.
- There is freedom of choice for economic agents. However, the State may restrict it to correct the deficiencies of the capitalist system.
- The State will guarantee a minimum of general welfare for citizens.
- The objective of this system is the search for the individual interest of consumers and producers, and at the state level, an optimization of the welfare of society in general.
- Prices are mostly set in the market with the laws of supply and demand and a minority by the State.
Peru is an attractive country for investment due to its legal stability that provides security to foreign companies for investing, as well as its economic growth in the region.
The country seeks to attract domestic and foreign investment in all sectors of the economy. For this reason, it has taken the necessary measures to establish a comprehensive investment policy that eliminates the obstacles that foreign investors may face. That is the reason why is considered as a country with one of the most open investment regimes in the world.
It has adopted a legal framework that establishes the necessary norms to protect the economic stability of investors in the legal terms and conditions applicable to their projects and that reduces government interference in economic activities.
• Foreign Direct Investment (FDI) in Figures
After having attained a record level in 2007-2008, the FDI flows into Peru fell in 2009, under the effect of the global recession. Nevertheless, they rebounded in 2010, stimulated by the region’s growth, and they should continue this progress. FDI in Peru comes mainly from Spain (the main investor), the United States and the United Kingdom. The sectors that attract most of FDI are communications (about one third of the total), industry, finances, and the mining industry. Peru’s most appealing points in terms of FDI are the low cost of wages compared to the developed countries and the non-restrictive policy concerning dividends. However, the Peruvian authorities must look into reducing customs barriers, making their tax legislation more flexible, improving the efficiency of public institutions as well as strengthening the rule of law, in order to keep the country attractive to investors.
• FDI Government Measures
The Peruvian government is trying to attract foreign investors in all sectors of the economy. During the 1990s, the Peruvian government encouraged the stabilization of the economy and promoted liberalization policies by dropping customs barriers and opening the economy to foreign investors. In April 2002, the government established Proinversion, the sole representative of current and future investors, which took part in the privatization of public companies and industries based on natural resources. In addition to the 1993 Constitution, there are laws in Peru concerning foreign investment, including the 1991 Promotion of Foreign Investment Law and the Framework Law on the Growth of Private Investment 1991.
Country Strong Points:
For five years Peru has experienced sustained growth, which relies on an external growth environment, on exports and domestic demand, which has benefitted from the combined rise in household consumption and public investment. Dynamic activity, sound economic policy, and the successful management of debt have allowed Peru to show incredibly good results in terms of a strong macro-economic balance, and to regain investor and market confidence. Peru enjoys well directed external demand and the good performance of the raw material prices, from which it is a significant producer.
Country Weak Points:
If the Peruvian economy’s prospects are favorable in the short term, the sustainability of the present growth is conditioned by Peru’s capacity to define a medium-term development strategy. With growth highly concentrated on the primary sector and in the agricultural exporting regions, it has only marginally contributed to redressing a difficult social situation. The main source of vulnerability is a permanently high level of poverty and under-employment, caused by a growth that is too dependent on a strongly capitalist mining sector.
Growth is dependent on an external environment which up to now has been favorable, as domestic demand is not yet able to take over from a possible reduction of external demand or from the prices of raw materials. Peru also suffers from a great lack of infrastructures, and the institutional capacity of the country has not improved significantly over the last few years. Moreover, the progress of employment is too concentrated in the most dynamic areas and in the informal sector. The lack of efficiency and means of public policies is manifest in the permanently high poverty rate.