Historical background

Ancient Peru was the seat of several prominent Andean civilizations, most notably that of the Incas whose empire was captured by the Spanish conquistadors in 1533. Peruvian independence was declared in 1821, and remaining Spanish forces defeated in 1824. After a dozen years of military rule, Peru returned to democratic leadership in 1980, but experienced economic problems and the growth of a violent insurgency. President Alberto FUJIMORI's election in 1990 ushered in a decade that saw a dramatic turnaround in the economy and significant progress in curtailing guerrilla activity. Nevertheless, the president's increasing reliance on authoritarian measures and an economic slump in the late 1990s generated mounting dissatisfaction with his regime, which led to his ouster in 2000. A caretaker government oversaw new elections in the spring of 2001, which ushered in Alejandro TOLEDO Manrique as the new head of government - Peru's first democratically elected president of Native American ethnicity. The presidential election of 2006 saw the return of Alan GARCIA Perez who, after a disappointing presidential term from 1985 to 1990, has overseen a robust macroeconomic performance.

Economic overview

Peru's economy reflects its varied geography - an arid coastal region, the Andes further inland, and tropical lands bordering Colombia and Brazil. Abundant mineral resources are found in the mountainous areas, and Peru's coastal waters provide excellent fishing grounds. The Peruvian economy grew by more than 4% per year during the period 2002-06, with a stable exchange rate and low inflation. Growth jumped to 9% per year in 2007 and 2008, driven by higher world prices for minerals and metals and the government's aggressive trade liberalization strategies. Peru's rapid expansion has helped to reduce the national poverty rate by about 15% since 2002, though underemployment and inflation remain high. Despite Peru's strong macroeconomic performance, overdependence on minerals and metals subjects the economy to fluctuations in world prices, and poor infrastructure precludes the spread of growth to Peru's non-coastal areas. Not all Peruvians therefore have shared in the benefits of growth. President GARCIA's pursuit of sound trade and macroeconomic policies has cost him political support since his election. Nevertheless, he remains committed to Peru's free-trade path. The United States and Peru completed negotiations on the implementation of the US-Peru Trade Promotion Agreement (PTPA), and the agreement entered into force February 1, 2009, opening the way to greater trade and investment between the two economies.