Country Report Peru May 2000 Updater

Economic policy outlook: Policy trends

Peru's economic policy direction, and the slow but steady pace of reform, will vary little whether Mr Fujimori stays at the helm or is replaced by Mr Toledo. There is no reason to expect significant changes in Mr Fujimori's economic policies in a third term in office. His loss of a congressional majority might prompt more dialogue, but there is general policy consensus and an understanding of the importance of the IMF's extended fund facility (EFF). Although Mr Toledo has stopped short of outlining specific policy pledges, he has stated his understanding of the importance of fiscal and monetary discipline and of economic stability. Either way, we can expect a tightening of fiscal policy in the second half of 2000 -- to meet the targeted non-financial public-sector (NFPS) deficit of 2% of GDP -- and a steady reduction of the fiscal deficit over the rest of the forecast period. Tax code reforms will continue, including the elimination of remaining payroll taxes (most importantly the solidarity tax). The IMF is likely to press for annual cuts in import tariffs, with a target unified rate of 7% by 2004. Peru will step up the stalled privatisation and concessions programmes and initiate state reforms that favour enterprise by cutting red tape. Property rights will be defined more clearly through new laws on land, water and forestry in order to stimulate investment in agriculture.

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