Peru

Growth remains affected by an uncertain political, social, and climatic context

Economic activity is expected to rebound in 2024 after experiencing anaemic growth in 2023 due to severe political, social disturbances (violent protests suppressed through force), and meteorological events. Household consumption, accounting for 66% of the GDP, is anticipated to drive growth, but is contingent upon continued disinflation, facilitated by the easing of credit conditions since October 2023 (reference interest rate at 7.25%) and the extension of the economic stimulus plan 'Con Punche Perú' (1.2% of the 2023 GDP). The programme focuses on smoothing the consumption of low-income households through cash transfers and subsidies, as well as stimulating public investment by allocating funds to regional authorities. The acceleration (since October 2023) of public-private partnerships for public works projects, especially those conducted in exchange for tax credits, is aligned with the strategy. However, this activism may encounter limited confidence from private investors, concerned about social and political unrest, as well as the limited capacities of regional powers. While social tensions are expected to have less impact on the mining and tourism sectors than in 2023, climatic conditions may still pose challenges in 2024. The occurrence of a strong El Niño phenomenon (35% probability), affecting the fishing and agricultural sectors, combined with a slowdown in the Chinese economy (the main destination for exports), could dampen economic performance. Nevertheless, exports will contribute to growth, given the highly favorable copper prices and the expansion of the Quellaveco copper mine, completed in mid-2023. Construction is expected to positively contribute to growth with the initiation of medium-sized mining projects (Corani and Antamina for zinc and silver, and Toromocho for zinc, lead, and copper).

Mild twin deficits

The current account deficit contracted in 2023, notably due to a resilient trade surplus. Slower domestic demand and the decline in energy and food prices meant that imports increased at a slower pace than exports, driven by an expanding mining sector (13.3% of GDP). The current account deficit is expected to slightly increase in 2024, facing fertilizer shortages, despite increased use of organic fertilizers, including guano-based fertilizers from coastal islands, climate-related challenges (El Niño), and the resumption of domestic demand. Additionally, the primary income deficit widened in 2023 with the increase in profits of foreign companies, while the record level of remittances from Peruvian workers abroad (up 19.2% from 2022) supported the surplus in the secondary income account. The reduction in maritime freight costs and social tensions affecting the tourist region of Cusco will push the services deficit back and converge it towards its pre-pandemic surplus. The gradual recovery of foreign direct investment (fallen to 3% of GDP in 2023), facilitated by a modest resurgence of investor confidence, will broadly cover the current account deficit, while bolstering robust foreign exchange reserves (30% of GDP in 2023, equivalent to 12 months of imports), reinforced by the arrangement with the IMF in May 2022 (a precautionary credit line of 5.4 billion USD). This is ample to withstand potential external headwinds. Total external debt (56% held by the private sector) is expected to continue its downward trend in 2024 (38% of GDP in 2024). On the budgetary front, the deficit widened slightly in 2023 but remained in line with the budgetary rule capping it at 2.4%. It is expected to narrow in 2024. The reduction in public revenues, a consequence of the slowdown in national economic activity, did not offset the growth in expenses, pressured by Con Puche Perú and subsidies aimed at mitigating the economic impact of El Niño. However, the elimination of these fiscal expenditures, high mining prices, and growth in domestic demand should alleviate the public deficit in 2024-2025. Last, the modest weight of public debt (87% in US dollars and 11% in euro) will stabilise. Public debt remains predominantly held by private creditors (84%).

Turmoil in political and social life

Peru is emerging from one of the most severe social and political crises it has faced in decades following the failed self-coup attempt by President Pedro Castillo in December 2022. Even so, Dina Boluarte, his Vice President who ascended to the Presidency after the impeachment and imprisonment of her predecessor, has managed to maintain a certain level of political stability. Despite her record unpopularity (a 12% approval rating in July 2023), the intensity of anti-government protests has diminished compared to those in December 2022-February 2023 due to protester fatigue and the effectiveness of government repression. The President's decision to officially reposition herself politically to the right through her alliance with centrist and right-wing parties in Congress, is intended to shield her from any attempts by the left-wing opposition to impeach her before the end of her term scheduled for April 2026. However, it is not certain that Boluarte will complete her term, especially in the event of a fresh escalation in political and social tensions. Stagnant real wages, unprecedented adverse weather conditions, and popular frustration with political disorder could spark new social unrest. The fragmentation of the political environment, fueled by a multitude of small political parties and a lack of loyalty, weakens the alliance around the president. The confrontation between her, now aligned with the right, and the populist tendencies of Congress could intensify as the 2026 general elections approach. However, in the case of resignation or impeachment, which is not unlikely given that four presidents have been removed from office since 2018, the Presidency would pass to the President of Congress, who would be constitutionally required to call early general elections within 6 months. This may temper the ambitions of lawmakers who are keen on retaining their seats for as long as possible, especially since they cannot run for a second term. On the international front, Peru will maintain its free trade agreements and good relations with the Chinese and U.S. governments. Diplomatic tensions will persist with left-leaning governments in Argentina (unless a political shift occurs), Brazil, Chile, Colombia, and Mexico, which only recognise Castillo as the legitimate President.

Payment

Electronic payment is prefered for both high-value and low-value transactions. Post-dated cheques are commonly issued in?Peru. Credit transfers are used for both high-value and low value payment transactions. The majority of low-value electronic credit transfers in Peru continue to be made between accounts in the same bank, known as intrabank or “on-us” transactions. Bills of exchange are a commonly used payment instrument for debt collections.

Debt Collection

The Peruvian judicial system is structured hierarchically. The Corte Suprema (Supreme Court) is the highest court, followed by courts that specialise in civil law, criminal law, constitutional law and labour law. These sit above the Corte Suprema in each judicial district, which deal with civil and commercial law cases. The Juzgados Especiales (specialised judges) are located in major cities in the country and deal with matters concerning, among others, civil and commercial law. Following this is the professional Juzgados de Paz (peace judges), located in major cities, and in charge of low economic value cases and other minor issues. Finally, Cortes de Paz (peace courts) are located in cities with lower populations, comprised of one judge who may or may not have the status of lawyer.

Amicable phase

The amicable phase in Peru is characterised by phone calls, written reminders, visits, and meetings, with the goal of settling the debt between two parties without triggering legal proceedings.

Legal proceedings

Conciliation Proceedings

Prior to judicial proceedings, Peruvian law requires of a conciliation process in order to reach a debt settlement agreement. The process constitutes two hearings, if an agreement cannot be reached, the proceeding ends, and both parties have to sign a conciliation act, which is then presented at the beginning of the judicial process.

Fast-track proceedings

The below text makes reference to the Unidad de Referencia Procesal (Unit of Procedural Reference), which is a reference value according to Peruvian law: each URP is 10% of the Unidad Impositiva Tributaria (UIT), which can be used in tax regulations to determine tax bases, deductions, limits of affectation and other aspects of taxes that the legislator deems appropriate. It may also be used to apply sanctions and to determine accounting obligations, The UIT is set at the beginning of the year by the Economic Ministry.

Two fast-track proceedings are available in Peruvian law:simplified proceedings (proceso sumarisimo) concern cases which the value is below URP 100. Juzgados de Paz have jurisdiction for amounts between URP 50 and 100. Defendants have five days to file a dispute after they received the notification from the judge. Within 10 days, the judge organises hearing for discovery, conciliation, evidence and judgment;shortened proceedings (proceso Abreviado) concern cases in which the value is between URP 100 and 1,000. Juzgados de Paz have jurisdiction for amounts between URP 100 and 500 and Juzgados Civiles have jurisdiction in cases for amount above URP 500. The defendant has 10 days to file a dispute from the admission of the petition by the judge. Discovery and conciliation will be examined during one hearing. If the conciliation was not successful, the judge mentions the disputed points and evidence to be provided or updated. Within 50 days of the conciliation hearing, the judge sets up an evidence hearing.

Executive proceedings

When creditors are owed an undisputed and certain debt, they can start executive proceedings. The debtor has five days from the notification to submit his defence. The judge will render a judgment, after which each party has up to three days to file an appeal.

Ordinary proceedings

Ordinary proceedings apply to cases with a value of over URP 1,000. The plaintiff sends a written petition to the court. The defendant can file a defence expressing the facts on which he intends to argue, within 30 days from the service of the writ. If the claim is complete (i.e.?includes all the relevant information), the judge sets up a hearing for conciliation. If the parties reach an agreement, it has the same effect as a judgment. If an agreement is not reached, the judge organises a hearing within 50 days of the conciliation hearing. The proceedings end when the judge delivers his or her decision. The length of proceedings depends mainly on the nature of the conflict, the number of parties involved, the complaints that occur, and the caseload of the judge in charge of the process. Based on these criteria, a first-instance judgment in a typical commercial litigation case may take approximately twelve to 18 months.

Enforcement of a Legal Decision

A domestic judgment becomes final and enforceable once all venues for appeal have been exhausted. The first instance judge is in charge of enforcing judgments, and will issue a writ of execution ordering the relevant party to comply with the judgment within five working days. If the order is not complied with during the five-day period, the judge must order the seizure of the debtor’s assets in order to sell them at auction. For foreign awards, creditors located in Peru must file a claim before the Superior Court located in the debtor’s place of domicile. The Court will consider whether the foreign judgment is compatible with Peruvian law and any international treaties between the two countries. If it is found to conform, the judge shall authorize the enforcement of the judgment in the Peruvian Jurisdiction.

Insolvency Proceedings

The Instituto Nacional de Defensa de la Competencia y de la Proteccion de la Propriedad Intelectual (INDECOPI) is the specialized administrative agency that deals with insolvency proceedings.

OUT-OF-COURT PROCEEDINGS: PREVENTIVE PROCEEDING

Preventive proceedings aim to provide a forum for debtors to reach a consensual restructuring agreement with their creditors. It is intended to be a fast track process that only debtors can initiate.

The PARC was created by Indecopi to prevent the insolvency and bankruptcy of those companies that, because of the health emergency caused by the coronavirus pandemic, lack liquidity to meet their obligations. This procedure is regulated in Legislative Decree No. 1511 and its Regulations.

With this bankruptcy procedure, Indecopi offers an alternative that seeks to reschedule the unpaid obligations of the rated entity, avoid its insolvency, the loss of business and sources of employment and, with this, contribute to the recovery of credit and continuity in the chain of payments in the national economy.

Joining the PARC is very simple, fast and safe, since the entire procedure is carried out virtually.

REORGANISATION

If creditors decide to allow their debtors to restructure, they will be asked to approve a reorganisation plan within 60 days from the decision to proceed with reorganization. Both the decision to reorganise and the organisation plan must be approved by more than 66.6% of the allowed creditor claims. During the process, creditors decide whether to allow the debtor’s management, to continue operating the business, or to replace the debtor’s management. Once the reorganisation plan is approved and all the pre-publication claims are paid according to their terms, then INDECOPI grants a decision declaring the formal conclusion of the reorganization proceeding.

LIQUIDATION

If the creditors decide to liquidate, then a liquidator will be appointed at the Creditors’ Meeting from the list registered with INDECOPI or under La Ley General de Sociedades 26887. The will be asked to approve a liquidation plan for the debtor and decide whether the debtor should be authorized to continue its business during the liquidation. Whether voluntary or involuntary, the liquidator must follow a mandatory order in the payment claims. To conclude the liquidation process, the liquidator files a petition before the Public Registry in order to register the extinction of the company. However, if creditors remain unpaid, then the liquidator must file a petition before a civil judge to obtain a judicial bankruptcy declaration.

Last updated: March 2024