Peru has been in a recession since 1997, which has resulted in a tight money supply and declining internal consumption. Domestic demand fell by 0.9 percent in 1998 and by 2.4 percent in 1999. Demand did not increase in 2000, and the first quarter of 2001 showed that Peruvians were still cautious about spending their money. Demand growth for 2001 was estimated to be less than 1 percent, according to the U.S.-based Institute of International Finance.
While external factors like the economic crises in Asia, Russia, and Brazil affected the economy, the most serious effects came from political turbulence within Peru. Former president Alberto Fujimori's decisions to run for a third term in late 1999 and his victory in mid-2000 (in elections widely criticized as fraudulent), kept spending down and scared off foreign investors. The political crisis, which eventually saw Fujimori abandon the presidency and flee to Japan in November 2000, has had a negative effect on tax collection, with tax receipts dropping an average of 10 percent a month between October 2000 and February 2001.
|Exchange rates: Peru|
|nuevo sol (S/.) per US$1|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
The crisis, however, has not affected the exchange rate or inflation, which have fluctuated but not taken off as in earlier times in Peru's history. Inflation has been declining annually since 1990, when it reached 7,600 percent. Inflation has been in low digits since the early 1990s and has been declining steadily since 1994, dropping from 15.4 percent to 3.7 percent in 2000. The currency has also remained stable, moving only from 3.38 nuevos soles to the U.S. dollar in 1999 to 3.5 by year-end 2000. The exchange rate in the first quarter of 2001 remained steady at 3.5 nuevos soles to the U.S. dollar.
The Peruvian government, in agreement with the International Monetary Fund, maintains a floating currency. The government has rejected any possibility of switching currency to the U.S. dollar, as has neighboring Ecuador, or pegging the rate to the dollar, as has Argentina in its "convertibility" plan.
The Lima Stock Market—re-opened in 1971—is relatively small, trading blue chips and local shares. Daily transactions average US$3.5 million.