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A BLEAK PANORAMA FOR PERUVIAN CONSUMERS.

The Toledo regime of Peru has instilled little confidence in the international economic community and it appears now that recovery from the nation's 3-year recession will be a slow process. As a result, public sector consumption is likely to expand more rapidly than that of the private sector through 2002.

Strongest gains in public sector spending will be in the education and health sectors. This should lead to firm demand for products and services linked to construction and operation of schools and hospitals through 2002 and 2003. Increased social spending will be offset by a corresponding decrease in military expenditures. Many purchases of military equipment and supplies scheduled for 2002 will be put on hold indefinitely.

Toledo was elected based on his promise of alleviating Peru's endemic poverty (54 percent of Peru's 26 million people live on US$1.25 a day or less). Toledo and his closest advisors expressed confidence that increased government spending on social programs will put a dent in poverty, but it is unlikely that this strategy will pull Peru out of recession.

Peru's fragile economy is struggling to emerge from nearly 40 months of recession. The decline in economic activity has crippled internal demand over the past two years and left many local companies with a heavy burden of debt. Toledo's economic policies are unlikely to revive the economy during 2002, and as a result, consumer power and household consumption will remain stagnant, if not lose ground.

Decreasing confidence will have a negative impact on both household and industrial expenditures. Weak capital investment will undermine Peru's industrial competitiveness in the medium to long term.

The gross domestic product of Peru rose 2.3 percent year-on-year in September 2001, but the economy shrank 0.8 percent overall during the first nine months of the year. The International Monetary Fund recently projected that Peru's economy would grow 4.0 percent during 2002. However, Toledo's economic measures make it unlikely that GDP will expand more than 3 percent, which is too low to improve the economic plight of the average Peruvian.
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Publication:Market Latin America
Geographic Code:3PERU
Date:Feb 1, 2002
Words:343
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