PERU Preserving Sustained Growth and Macroeconomic Stability Mr. Alfredo Thorne Minister of Economy and Finance May/June 2017 InPerú

1

Two adverse shocks

2

The recovery path in 2017

3

A Growth Strategy for the medium term

4

Debt management

5

Capital markets reform

1 2 3 4 5

The Peruvian economy has been affected by two transitory and unexpected shocks Lava Jato Scandal (pipeline of infrastructure projects equivalent to 4.7% of GDP)

“El Niño” Flooding

Decline in infrastructure investment (13% of private investment)

Fall in business confidence (70% of private investment)

Private Investment (18% of GDP)

GDP

Drop in agricultural production, commerce and services (51% of GDP)

Employment

Property losses for home and business owners

Private Consumption (65% of GDP)

(emergency area is equivalent to 17% of National GDP)

Source: MEF.

3

1

Two adverse shocks

2

The recovery path in 2017

3

A Growth Strategy for the medium term

4

Debt management

5

Capital markets reform

1 2 3 4 5

The Peruvian economy has been resilient to both shocks, growing even more than its regional peers in 2017Q1 Gross Domestic Product (Annual real % change) 10

Peru

Latin American countries (excluding Peru)1

8

6

The lowest growth rate in the 1998 “El Niño” episode was -3.0% in 1998Q2.

4 2.1

2

0.5 0

-2 11Q1

12Q1

13Q1

14Q1

15Q1

16Q1

17Q1

1/ Includes Argentina, Brazil, Chile, Colombia and Mexico. For Argentina and Brazil, the median of the Bloomberg survey for 17Q1 is considered. Source: BCRP, Central Bank of Chile, National Administrative Department of Statistics (Colombia), National Institute of Statistics and Geography (Mexico), Bloomberg.

5

1

Leading indicators suggest that the economy has already started accelerating

2 3 4 5

14

Electricity demand1

CB´s Survey: Purchasing Orders / Inventories Ratio

(Annual real % change)

(Three-month moving average)

Total

1.3

Non primary sector

1.2

10 1.1

6 3.7

1.0

3.2

2

0.9

-2 15Q4

16Q1

1/ As of May 21st, 2017. Source: COES, BCRP.

16Q2

16Q3

16Q4

17Q1 Apr-17 May-17

0.8 Sep-04

Nov-07

Jan-11

Mar-14

May-17

6

1 2 3 4 5

Expansionary fiscal policy will be the main driver of growth this year… The Government has taken measures to accelerate the disbursement of public spending:

Non-Financial Public Sector Overall Balance (% of GDP) 2014

2015

2016

2017

-0.3

o

A fiscal stimulus of 1.3% of GDP, in addition to the 2017 public budget.

o

Prioritization of public investment projects under execution but lacking budget.

o

Quick win: increase in maintenance spending.

o

Transfers to subnational governments earlier in the year (Q1 vs. historical Q3).

o

Simplified procurement scheme for emergency areas that reduces the timeline of procedures up to 120 days.

-2.1 -2.6

-2.5 -3.0

Previous path

Source: BCRP, MEF Forecasts.

0.5

New path

7

1 2 3

…, primarily, in the second half of 2017

4 5

Public Investment1 in 2017Q1

Public Investment and Maintenance of Infrastructure

(Annual real % change) 15

(Annual real % change, 2017)

11.7 50

10

39.0

40 27.6

30

5

19.3

20

0

30.0 24.0

5.0

10 0

-5

-10 -20

-10 -11.9

-15

Actual

Excluding effects from “Lava Jato” scandal and the coastal "El Niño"

-16.0

Maintenance of infrastructure

-30 -40 -50

Public Investment -41.7 17Q1

17Q2

17Q3

17Q4

o

Public investment in emergency areas is equivalent to 60% of total public investment.

o

Public investment in the first quarter reached approximately 14% of total annual public investment (2009-2016 average).

o

In 2017Q1, public investment in emergency areas fell 23.5% in real terms. Excluding the “Lava Jato” scandal and “El Niño”, public investment would have grown 11.7%.

o

Maintenance expenditure in the first quarter represents 17% of total annual maintenance (2009-2016 average).

1/ General government public investment. Source: MEF.

8

1 2 3 4 5

Empirical evidence suggests that the economy should accelerate during the first two quarters after the natural disaster GDP on years of natural disasters (Annual real % change, t = quarter when disaster occurred) Peru - 2017 Japan - 2011 Colombia - 1999 (right axis)

10

5

5

0

0

-5

-5

-10 t-4

Source: Bloomberg, BCRP.

Peru - 1998 Mexico - 2003

t-3

t-2

t-1

t

t+1

t+2

t+3

t+4

9

1

Global conditions are favorable to the Peruvian economy, even with recent volatility

2 3 4 5

Export prices index

Gold and copper prices

(Three-month moving average of annual % change)

(US$/troy oz., US$/lb.)

20

2,000

15 10

Copper exports: 5.2% of GDP Gold exports: 3.8% of GDP

1,800

5 0

400

Gold (left axis) Copper (right axis)

350

1,600

300

1,400

250

1,200

200

-5 -10 -15 -20

-25 Apr-12

Feb-13

Source: WTO, BCRP.

Dec-13

Oct-14

Aug-15

Jun-16

Apr-17

1,000 Apr-12 04/2012

Apr-13 04/2013

Apr-14 04/2014

Apr-15 04/2015

Apr-16 04/2016

150 May-17 04/2017

10

1 2 3 4 5

The expansionary measures taken by the Government and the recent signs of gradual recovery have boosted confidence indicators 12-month ahead economic expectations

3-month ahead economic expectations

(Points)

(Points) 75

65

70

60

66

65 55

54

Optimistic

60 Optimistic

50

55 45 Pessimistic 40 Apr-15 Aug-15

Source: BCRP.

50

Dec-15

Apr-16

Aug-16

Dec-16

Apr-17

Pessimistic 45 Apr-15 Aug-15

Dec-15

Apr-16

Aug-16

Dec-16

Apr-17

11

1 2 3 4 5

In fact, business confidence in Peru surpasses its regional peers Business confidence (Points) 85 Colombia

Peru

Chile

Mexico

Brazil

75 65

Optimistic trench

55 45 35

Pessimistic trench

25 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Source: Bloomberg, BCRP, ICARE, INEGI.

12

1

Two adverse shocks

2

The recovery path in 2017

3

A Growth Strategy for the medium term

4

Debt management

5

Capital markets reform

1

2 3 4 5

Three pillars to consolidate the economic growth in the medium term In a stable macroeconomic framework

3

1

The Reconstruction Plan

Accelerate investment: Infrastructure and mining National Infrastructure Plan Infrastructure Fund

Increase formalization: Competitiveness shock

2

Tax System Reform

SUNAT Transformation

Creation of Invierte.pe

Reform of PPPs and Work for Taxes

Improvement of the Social Security System

Unlock projects already awarded Red tape removal Environmental regulation for mining exploration

14

1

2 3

Implementing structural reforms will increase potential growth…

4 5

Peru: potential growth (Annual real % change) +1.0 p.p.

5.0

+0.5 p.p.

3.5 Higher investment

2016 Source: MEF estimates and forecasts.

Formalization and greater productivity

2021

15

1

2 3

… and diversify the engines of growth

4 5

GDP Peru

Potential GDP growth

(Annual real % change, contribution in percentage points)

(Annual real % change, contributions in percentage points)

Mining Non-mining GDP 4.5

5.0 0.3

5.0 0.3

Capital stock Total factor productivity

5.0 0.3

5,0 1,0

0.5

3.9

3,5

3.3 1.2

1.8

Labor Potential GDP

0,5

0,5

3.0 0.6 4.6

4.6

4.7

2019

2020

2021

3,5

3,0

3.9 2.2

2.1

2.4

2015

2016

2017

Source: BCRP, MEF forecasts.

2018

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

16

1

2 3 4 5

1. Accelerate investment D.L. N° 1251

D.L. N° 1250

Nov.16

Strengthen the Work for Taxes mechanism D.L. N° 1333

Jan. 17

APIP

Regulation of Work for Taxes

Creation of ‘Invierte.pe’ D.L. N° 1341

Creation of “Fondo de Adelanto Social”

The new Procurement law

D.S. N° 027-2017-EF

Creation of the Vice-Ministry of Territorial Governance D.S. N° 036 - 2017-EF

Mar.17

Strengthen of PPPs and projects on assets D.L. N° 1334

D.S. N° 022-2017-PCM

Feb.17

D.L. N° 1252

Regulation of the national system of multi-annual programming and investment management D.S. N° 056 - 2017-EF

D.S. N° 068 - 2017-EF Regulation of PPPs and projects on assets

Portfolio of mining projects accounting for US$ 18,700 million

Regulation of The Procurement law

PPP Project portfolio in 2017-2018: US$ 14,410 million

R. M. N° 169-2017-MEM

May.17

Environmental Protection Regulation for mining exploration activities

17

1

An important pipeline of infrastructure projects will be awarded in the next months under a more modern institutional framework

2 3 4 5

Public-Private Partnership projects1

Works for taxes1

(Number of projects, US$ million)

(US$ million)

Investment in US$ millions (VAT included) Number of projects - PPP

452

11,814 12,000

20

11,729

20

17

21 10,000

GSP ($5,794 MM)

15

12

8,000

12

239

11 10

9

10

5,022

4,322

214

198

6,000

8 4,000

5

5

5

1 220

1,597

1,860 2,049 1,085

3 880

346

828

2 1,350

105

105

2,712

69

5

2,000

528

0

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2011

2012

2013

1/ Red bar indicates forecasts and targets set by ProInversion. PPPs do not include Michiquillay for 2017 neither Colca nor Jalaoca for 2018. Source: ProInversion.

2014

2015

2016

2017

18

1

2 3 4 5

A new cycle of mining investment is expected in the coming years due to higher metal prices, low cash cost and policy measures Main prioritized mining projects over US$ 18 billion portfolio Investment in mining exploration

Michiquillay

(Annual % change)

US$ 1,950 millions

80

As of 2017Q1 Mina Justa: 164% San Gabriel: 4.5%

60 40

Expansion of Toromocho US$ 1,300 millions

20

0

Quellaveco US$ 5,000 millions

-20

Mina Justa US$ 1,300 millions

-40

Pam pa de Pongo

-60 11Q1

Source: MINEM.

12Q1

13Q1

14Q1

15Q1

16Q1

17Q1

US$ 1,500 millions

San Gabriel US$ 520 millions

19

1

2 3 4 5

2. Increase formalization D. L. N° 1269

Dec.16

Creation of the new tax regime for Micro and Small enterprises D. L. N° 1264 Repatriation of capital regime

Jan. 17

D. L. N° 1259 Special regime for VAT recovery D. L. N° 1258

D. L. N° 1257 FRAES

Deductions for personal income tax

R. M. N° 017-2017-EF/10 Call for a Social Protection Committee

Feb.17

D. S. N° 026-2017-EF Regulation of the ”IGV Justo”

Mar.17

Economic Stimulus Plan Flexible credit line for medium and small enterprises conditional to new tax regime

D.S. N° 049-2017-EF Regulation of FRAES

D.S. N° 067-2017-EF Regulation of repatriation of capital

20

1

2 3 4 5

Formalization strategy seeks the reduction of tax distortions faced by micro and small enterprises Peru: Tax on growth1 (Percentage change in net profit due to change in tax regime) 0

Before Before

Actually After

-10

-20 -21

Tax reform strategy includes: •

Increase of the tax base through the formalization of the value chain.

•

Use of invoices and electronic payment vouchers.

• •

More progressive regime.

-30 -40

50% reduction

-50 -60

Reduced compliance costs.

-53 From RER to General Regime

From RMT to General Regime

1/ RER accounts for Special Regime and RMT accounts for the new MSE Tax Regime. Source: Pagés (2010), SUNAT, MEF.

21

1

2 3 4 5

Credit constraints on formal firms will be eased through a “Credit Revolution” that reduces financing cost and boosts credit supply Impact of the “Credit Revolution” over financial costs for MSEs1 27

(Thousands of USD)

The “Credit Revolution” includes: •

Credit lines provided by the Development Bank of Peru (COFIDE) for more than US$ 240 million with lower interest rates to reduce the cost of financing for micro and small enterprises.

•

VAT refund for the acquisition of machinery and equipment.

•

“Bono de Buen Pagador”.

- 33% 18

Interest without credit revolution

Interest with credit revolution

1/ It takes for assumption a credit of USD 30 thousand to be paid in 5 years at an interest rate of 33%. The credit revolution includes the benefits for good payer bonus and VAT refunds. It is assumed only one change over the credit principal. Source: PRODUCE, MEF

22

1

2 3 4 5

Increasing formalization will permanently boost fiscal revenues in the medium term General Government Revenue

Central Government Tax Revenue

(% of GDP)

(% of GDP)

23

17

22

Mining Projects Less VAT refunds Tax Reform 1/ Base scenario

16

21 2000-16 average: 20.4

20

19

15

20 Excl. Mining and hydrocarbons: 18.4

14 13

18 17

12 2005 2007 2009 2011 2013 2015 2017 2019 2021

1/ It Includes revenues from capital repatriation and the deepening of this tax reform. Source: SUNAT, BCRP, MEF Forecasts.

2005

2007

2009

2011

2013

2015

2017

2019

2021

23

1

2 3 4 5

3. The Reconstruction Plan

Feb.17

D.U. Nº 002-2017

More budget flexibility in the case of rains and dangers D. L. N° 1264 D.U. Nº 006-2017

D.U. Nº 004-2017

Mar.17

More resources to FONDES Fiscal stimulus Housing provision bonds D.U. Nº 007-2017

Apr.17

Measures for agricultural and fishing productive recovery

Supplementary credit for health services and support to Regional Governments

SBS Resolution 1515-2017 Measures of financial relief for states in emergency

Attendance to MSEs in emergency areas Reconstruction Plan: PCM unity, exception clause and financing

24

1

2 3 4 5

First, the fiscal deficit will widen by 3.2% of GDP between 20172020 to finance the reconstruction plan… Non-Financial Public Sector Overall Balance

Allocation to FONDES1,2

(% of GDP)

(US$ Millions, % of GDP)

2017

2018

2019

2020

2021

-1.0

Total US$ 6,400 (3.2% of GDP)

-1.5 -2.0 -2.3

-2.5 0.5

0.6

US$ 3,400 (1.7% of GDP)

2019 – 2020

US$ 3,000 (1.5% of GDP)

-2.1

0.9 1.2

-2.9

-3.0

2017 – 2018

Previous Path New Path

-3.5

1/ FONDES: Fondo para Intervenciones ante la Ocurrencia de desastres naturales. It is an intangible fund to finance interventions in case of natural disaster events. 2/ Estimates consider 2017 nominal GDP forecast. Source: MEF.

25

1

2 3 4 5

…without hurting our macro and fiscal stability Overall fiscal balances and its targets1, 2016

Credit Rating Outlook

(% of GDP) 0

S&P

-1

-2

-2.6

-2.8

-3 -4.0 -3.6

-4

-3.1

-3.0

-4.6

-5

Fitch

-2.6 -3.0

-3.2

-4.0

Moody’s

Peru

Stable

Stable

Stable

Chile

Negative

Stable

Negative

Mexico

Negative

Negative

Negative

Colombia

Negative

Stable

Stable

-6 -7

-8

-8.8 Effective

-9

Target

-10 Brazil

Colombia

Uruguay

Chile

Peru

Mexico

1/The fiscal deficits have the following coverage: Central Government (Chile, Colombia), Non-Financial Public Sector (Peru, Brazil), Federal Public Sector (Mexico), and Consolidated Public Sector (Uruguay). Also, the fiscal targets shown are the ones established in 2015 for the formulation of 2016 public budget. Source: MEF, Ministries of Finance of other countries, Bloomberg.

26

1

2 3 4 5

With significant financial assets (17% of GDP) and low debt, the government can finance the reconstruction without surpassing the debt limit of 30% of GDP Financial assets and debt items that could be used quickly to finance the fiscal deficit

Concept

1

Contingent Credit Lines

2.1

2

Savings of non financial public sectors

2.3

3

Fiscal Stabilization Fund (FEF)

4.2

Total (1+2+3)

Source: BCRP, MEF.

% of GDP

8.6

27

1

2 3 4 5

The Reconstruction Plan will be a key driver to accelerate the execution of public spending projects in the coming years With the Plan

Without the Plan

(Reconstruction Law)

Who manages the resources? Who designs and executes the reconstruction?

•

Ministries, Subnational Governments

•

Centralized resources in just one fund

•

Ministries, Subnational Governments

•

One entity decides what, who and through which modality it is executed

•

Which are the costs and benefits?

• • •

Project atomization Low implementation Absence of capacity of monitoring the Executive branch

•

It facilitates the transmission of resources to suppliers. Centralized plan:  In order to make something better than before  Includes territorial planning and prevention

28

1

2 3 4 5

The Reconstruction Plan will reduce the estimated deadlines for the start of reconstruction up to 50% Estimated reconstruction deadlines 4Q2017

Partial rehabilitation1

2Q2017

3Q2018

Public work

Total rehabilitation

1Q2018

Public work Work for taxes

4Q2017

Public work

1Q2020 4Q2018

Public work

Reconstruction

Work for taxes

2017

2Q2018

2018 Without plan

1/ Maintenance of general infrastructure and equipment reposition. Source: Apoyo Consultoría and experts in public investment, MEF.

2019

2020

With plan

29

1

Two adverse shocks

2

The recovery path in 2017

3

A Growth Strategy for the medium term

4

Debt management

5

Capital markets reform

1

2 3 4 5

50

Peru is in a sound fiscal position with a public debt to GDP ratio well below its regional peers and economies with similar credit rating Peru: Public Debt

Public Debt, 2000-2016

(% of GDP)

(% of GDP) 65

48.2 44.5

55

40

45

30

26.9 23.8 20.4

35

20

25 10

15 2000

0 2000

2002

2004

2006

2008

2010

2012

2014

2016

2002

Latin America

2004

2006

2008

2010

Similar credit rating peers 1/

1/ Similar credit rating peers include economies with A3 credit rating by Moody’s and BBB+ by S&P Global Ratings and Fitch Ratings. Source: IMF, BCRP.

2012

2014

2016

Pacific Alliance

Peru

31

1

2 3 4 5

The treasury expects debt levels to remain low and below its regional peers as debt profile and composition remain solid Short-term and Long-term Debt

Debt Average Term to Maturity

(% of GDP)

(Years)

50 14 Long Term

40

Short Term

12 11

12 10

30

8 8

20 10

6

4 2

0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017*

* BCRP March 2017. Source: BCRP.

0 2001

2008

2016

32

1

2 3 4 5

The sources of financing come from asset management and internal and external liabilities Lines of defense to Finance Economic Growth Assets

Liabilities

Fiscal Stabilization Fund

Debt Capital Markets

USD 8,261 million Savings Mechanism

International Market

Local Market

Fund size as of April 30, 2017

Issuance of Soberanos Stock as of April 30, 2017 PEN 65,276 mn; USD 20,123 mn equivalent

National Emergency International Crisis

Issuance of Global Bonds Stock as of April 30, 2017 USD 9,336 mn EUR 2,100 mn

Sources of Funds

Other Non Financial Public Sector financial Assets

Total amount of 12.8% of GDP Of which Secondary Liquid Reserve size as of April 30, 2017 PEN 287mn; USD88 mn equivalent Average 2016: PEN 1,716 mn Source: BCRP, MEF.

Multilateral and Bilateral Loans CAF

BID

BIRF

Others

Contingency loans As of April 30, 2017

USD 4,400 million

33

1

2 3 4 5

“Solarize” debt and develop local debt capital markets Composition of Public Debt by Currency

Liability Management (LM) 2014 – 2016

(% of total debt)

(Millions of dollars) LM 2016

4

14

9

3 500

LM 2014

44

41

2 500

LM 2015 2,115 2 115

2 000

57

1 500

64 50

30

1 250 1,250

1 303 1,303

1,120 1 120

545 545

500 500

500 0

5

BS 24

2009 Soles

* MEF-March 2017. Source: MEF.

11,232 232

1 000

52

2004

33,042 042

3 000

31

2014 Dollars

Other

2017*

BG 50

2014

BG 26

BG 27

BS 31

2015

BG 50

BS 28

BG 30

2016

• No USD paper • No New money

34

1

2 3 4 5

Peru has significantly increased its Soberano (PEN) debt stock by focusing on international format debt issuances (GDNs) Since 2005, Peru has successfully increased its Soberanos (PEN) debt stock by 7.3x compared to a growth of 1.8x for its Global Bond (USD and EUR) debt stock…

Debt Capital Markets

Local Market

Soberanos and Global Bonds (PEN MM, USD/EUR mn, nominal)

Development of the local debt market through sovereign bond issues in soles

Local

65,276

Treasury Bills

Linkers

Soberanos

7.3x

Global Soberanos

GDN’s

44,849

32,961

International Market 26,008

Taking advantage of windows of opportunity to maintain liquidity/efficient yield curves USD Global Bonds

EUR Global Bonds

1.8x 6,513

8,092

Dec 05

Source: BCRP, MEF.

8,571

Dec 10

9,458

Dec 13

11,440

Dec 15

11,548

Apr 17

35

1

2 3

Peruvian Sovereign Bonds in local currency

4 5

Primary Market Activity

Secondary Market Activity

(PEN million)

(PEN million)

12,000

14,000 CNM1

OTC1

10,000

Monthly Average PEN 9,152

10,500 8,000 7,000

6,000 4,000

Monthly Average PEN 4,854

Monthly Average PEN 6,906

3,500

0 0 2001

2003

2005

2007

2009

2011

2013

2015

2017

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

2,000

2015

2016

2017

• In the last 3 years, sovereign bond trading has increased in volume. The monthly average trading in 2015 was PEN 4,853 mn, in 2016 PEN 6,906 mn, while in the first four months of 2017 it was PEN 9,152 mn. • This is in line with the primary market activity which also increased the volume of the annual issuances in that years. 1/ CNM: Centralized Negotiation Mechanism; OTC: Over the counter.

36

1

2 3 4 5

Diversification of non-resident investor base for local bonds Historical Series of Holdings – Soberanos Bonds

Foreign Ownership Holdings – Soberano Bonds

(% by investor class)

(% by investor class)

42%

40.8 %

40%

45%

5.700% Aug 2024s PEN 7,128 MM Issue date; Nov 14

7.840% Aug 2020s PEN 4,196 MM Issue date; Nov 10 6.950% Aug 2031s PEN 4,392 MM Issue date; Mar 15

38% 52%

36%

55% 34%

6.350% Aug 2028s PEN 10,251 MM Issue date; Sep 16

32%

Tender for Cash Aug 2028s

30% May-16

Jun-16

Aug-16

Oct-16 Dec-16 Local Foreign

Feb-17

Apr-17

• PEN-denominated international issuances have further developed the PEN market and significantly increased foreign-ownership of bonds. Source: MEF, Bloomberg.

47%

Foreign

[VAL OR] Local

37

1

2 3 4 5

The government will continue to develop the local market and strengthen its position as one of the leading issuers in the region Action Plan to Enhance Public Debt Market 1

Repurchase Agreement (REPO)

2

Sovereign Debt Fund

3 4

Market Maker Program

Liability Management Exercises

5

Relevant Benchmarks

6 International Settlement Platforms (Euroclear, Clearstream)

Develop and increase repo transactions (i.e. Repo to term). Develop Peruvian Treasury Index / Securities Lending.

Increase the depth and liquidity of including treasury bills. Manage debt stock to optimize cost and debt profile. Issue benchmarks with large volumes (To increase liquidity). Diversify investor base.

Next steps: 7

Securities Lending / Short Selling

8

Liability Management in local market

Provide liquidity to the secondary market. Optimize debt profile.

38

1

Two adverse shocks

2

The recovery path in 2017

3

A Growth Strategy for the medium term

4

Debt management

5

Capital markets reform

1

2 3 4 5

Developing a competitive local capital market Local market strengthening • Development of financial schemes for infrastructure and SME financing.

• Development of more sophisticated products, channels and processes.

• Diversify the set of available financial products.

• Improve the framework of incentives to promote a more active participation in the local market.

• Increase the participation of local and foreign investors.

• Sophistication of participants.

Short term

Integration strategy

Local market sophistication

• Strengthen the integration process with strategic partners, such as the Pacific Alliance - PA.

Medium term

40

1

2 3 4 5

Promote greater liquidity in the capital market By leveling the playing field with traditional financial instruments Value traded in the Lima Stock Exchange

Tax incentives: •

•

Capital gains tax exemption for equity, fixed income, listed mutual funds, REITs and receivables listed in public exchanges.

(In US$ Billions)

7.8

Fixed Income and others added

7.6 6.0

REITS and factoring tax structure for individuals, including via investment funds and trusts.

5.8

Exemption for EQ begins

6.1 4.6

3.5

Benefits:

•

Greater liquidity in the Lima Stock Exchange.

•

Aligning the tax structure to that of our partners in the Pacific-Alliance.

Source: BVL.

2011 2012 * Annualized

2013

2014

2015

2016

*2017

41

1

2 3 4 5

Enhancement of the capital market’s depth and diversity Potential of REITS in emerging markets

By developing new products and segments

(Index 2011=100) 300

•

REITs1: Better regulatory framework:  Investment funds: 2 operating, US$ 30 million AUM, starting in 2016  Trusts: created in 2016, based on Mexican FIBRA

Tax incentives for REITs (capital gains and deferral of income and realestate taxes).

AAGR: 17% 250 200 150 100 AAGR: 7% 50 2011

2012

2013

2014

MSCI US REIT Index

2015

2016

2017

FBMEX Index

AAGR: Annual Average Growth Rate

Factoring market development (Millions of US$)

•

Factoring:  Improving operational regulation  Promoting electronic issuance systems

 Tax incentives for individuals (5%), including via investment funds and trusts

180

12000

150

10000

120

8000

90

6000

60

4000

30

2000

0

1/ Real Estate Investment Trust Sources: Bloomberg, MEF.

0 Ago-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Ago-16 Oct-16 Dec-16

Total Amount Traded

# of operations (right axis)

42

PERU Preserving Sustained Growth and Macroeconomic Stability Mr. Alfredo Thorne Minister of Economy and Finance May/June 2017 InPerú