The geographical location of Peru is the South American continent. The country borders the South Pacific Ocean, the Republic of Chile and Ecuador. Peru has a population of approximately 20 million. According to the World Bank, about 12 million citizens are poor, while about three million people live in absolute poverty (The World Factbook, para 1).
Despite this economic status, the country has been rated among the fastest growing economies globally. The economy of Peru has been influenced by some policies introduced by the government. These policies aimed at stabilizing the country’s economy.
In this case, stringent rules were established to enhance the financial capacity of the Peruvian economy. There has been a positive growth in the Peruvian economy. Indeed, the economy has registered an average of over 6% for over a decade now (The World Factbook, para. 1).
Peru’s economy depends on minerals and metal export, which are the main source of foreign exchange (Morales, 15). Therefore, the economy is subject to fluctuations when global prices change. Like most of the developing countries that rely on agriculture, Peru is affected by fluctuations in agricultural prices (Paredes & Sachs, 19).
Peru’s Annual Growth rate:
|Gross National Product||6.8||7.7||8.9||9.8|
|Gross domestic product||5.6||6.5||7.6||8.6|
|Investment and saving||17.9||20.0||22.9||26.6|
|Balance of payment||1148||2854||1220||4180|
Source: The World Factbook
Key problems facing the economy of Peru
Peru faces economic problems like many other developing countries. These problems include high poverty levels among most of the citizens in the country, political instability, relying mostly on agriculture, and political problems. The poverty level may be attributed to poor education, few skills, and technology (Paredes & Sachs, 26). These aspects make the country lag behind in terms of economic development.
Even though the government has established education institutions, not all citizens have the financial capacity to pay for the services. In addition, some citizens cannot access quality health services. This has caused the mortality rate to increase because the poor people cannot access health care services. Poor health among citizens can be solved by initiating a better policy formulation.
The government should invest in a better infrastructure within the rural areas to improve on social amenities. Political steadiness is critical for development in the economy. Therefore, the country should ensure that there is political stability that facilitate economic development (Aswathappa, 19).
The government can provide cheap and affordable education for the citizens. This will assist citizens to gain skills to carry out development activities within their locality (The World Factbook, para. 1).
The other problem facing Peru is the lack of proper and modern transportation facilities. The government has failed to implement reliable infrastructure in rural areas. This has been witnessed through poor road network (The World Bank, para. 1).
Peru’s economic policies
Several policies have been adopted to protect the economy from failure. The government supports financial institutions to ensure that the economy is good. In addition, the government has sought the help of international bodies such as the World Bank and IMF among others.
The international organizations have provided loans to the country. The government has established development projects to improve the economic performance (The World Bank, para. 1). The government collects revenue from taxation and the issue of trade licenses.
It spends money through the provision of services like education, health, and security. The government funds its expenditure from borrowing, which may either be internal or external. Internal borrowing helps the country to check on the level of inflation. The government of Peru uses fiscal policy to control its spending (Morales, 15).
The government also applies monetary and exchange rate policy. Monetary policy can be defined as the action of the central bank and other regulatory committee of a country to determine and control the supply of money. The policies target the interest rates for the purpose of economic growth and stability (Aswathappa, 20).
Monetary policy is controlled through actions such as increasing or decreasing the interest rate of the central bank to commercial banks. This has a direct effect on the supply and demand of money on the current markets (The World Bank, para. 1).
Money supply is maintained when the level of interest rate is lowered or increased to match the current economic trend in a country. Since 2007, the inflation of Peru has been caused by the rising international prices and low demand of the major commodities of Peru such as minerals (Morales, 16).
Therefore, the government had to devise ways of dealing with the rising inflation for the economy of the country to stabilize. The impact of the financial crisis has been experienced in the financial markets.
In 2008, the stock market indicators deteriorated sharply. However, the authority adopted measures to curb the crisis. The interest rates were lowered to favor the local market, and the economy stabilized (The World Factbook, para. 1).
Trade policy has also been implemented in Peru. Peru has continually been involved in international trade with a focus on minerals and agricultural products. The products are exported to the neighboring countries like Chile, Argentina, and Brazil (Paredes & Sachs, 31).
By February 2009, Peru had entered into a free trade agreement with the United States and the European Union This has been of great help to the country’s private sector, which continues to grow steadily over the years. The trade agreements have caused economic growth and stability of the country.
International trade has been vital to the country’s economy because Peru has repaid foreign debts. Peru has utilized most of its agricultural land to grow and expand its national capacity to feed the nation and export the surplus. Its main agricultural export is cocoa.
Farmers have been educated on modern methods of farming to produce the highest output. Modern animal husbandry has practiced in the rural areas. Agriculture has been a viable economic activity that ensures the country has food throughout the year.
Industries process the harvested food stuffs and create jobs. Multinational firms are established in Peru to take advantage of the increase in the market for the processed products (The World Factbook, para 4).
Like many other developing countries around the world, Peru has its share of the economic problems and political instability. Peru’s economy has improved after the government took an initiative to implement good economic policies. The policies include monetary or fiscal policy, where the money supply and demand are controlled.
Controlled spending by the government has ensured that the citizens have good healthcare structure and the education system. The level of literacy in Peru has risen because many schools have been built. The poverty level in the country is declining since affordable health care is available. In addition, there is an increase in the number of hospitals within the country. This has led to enhanced living standards and lower the mortality rate.
Aswathappa, Kelvin. International Business. New Delhi: Tata McGraw Hill Education, 2010. Print.
Morales, Edmundo. White Gold Rush in Peru. Arizona. U.S. The University of Arizona Press, US. 1989. Print.
Paredes, Carlos E. & J. D. Sachs. Peru’s Path to Recovery: A Plan for Economic Stabilization and Growth. Washington: Brookings Institution, 1991. Print.
The World Bank. Peru, 2012. Web. https://data.worldbank.org/country/peru
The World Factbook. South America: Peru, 2012. Web. https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html