Carlos Oliva Neyra. Minister of Economy and Finance PERU Macroeconomic overview Carlos Oliva Neyra. Minister of Economy and Finance September 14th., 2018 “PERU: LEADING GROWTH ACROSS THE REGION”

Content 1 Macroeconomic fundamentals 2 Current economic situation 3 Economic policy measures 3 Debt management 4

Three reasons why to invest in Peru Macroeconomic stability Investment-friendly environment Openness to the world

Macroeconomic stability: healthy balances International reserves Inflation (%, average 2000-2017) Public debt (% of GDP, 2017) International reserves (% of GDP, 2017) Country risk (bps, average 2017) 264 256 84.0 194 145 54.2 49.4 130 28.2 6.7 23.6 23.3 18.0 5.2 4.6 14.7 14.3 13.7 3.3 2.8 Bra Col Mex Chi Per Bra Col Mex Chi Per Bra Col Mex Chi Per Bra Col Mex Chi Per Source: International Monetary Fund (World Economic Outlook, April 2018).

Macroeconomic stability: strong economic institutions The macro-fiscal framework is based on rules that seek a predictable, responsible, and transparent management of public finances, following best practices in developed countries. Autonomous and independent central bank. Monetary policy is conducted under an inflation targeting scheme with foreign exchange flexibility. Under a market-oriented economy that promotes openness and a legislation that gives the same treatment to local and foreign investors.

(US$ billion and % of exports to the world, 2017) Openness to the world Peru: total exports (US$ billion and % of exports to the world, 2017) USD 8.5 billion Europe (20.3%) Peru has implemented Free Trade Agreements (FTA) with 21 countries that represent 75% of the world GDP and 90% of total world trade. The Pacific Alliance, which includes Chile, Colombia, and Mexico, is a platform to jointly promote investment and financial integration. Accession process to the OECD will support continuity of important structural reforms on institutions, informality, innovation, among others. USD 19.1 billion Asia (44.2%) USD 8.1 billion North America (19,2 %) USD 6.9 billion LAC (14,7%) USD 0.3 billion Africa (0.7%) USD 0.3 billion Oceania (0.9%) Source: Sunat and Mincetur.

Content 1 Macroeconomic fundamentals 2 Current economic situation 3 Economic policy measures 3 Debt management 4

Current economic activity upturn is driven by domestic demand GDP (Real % annual change) Domestic demand1 (Real % annual change) Fiscal stimulus Private investment 1/ Inventories are not included. Source: BCRP, INEI. Slide pasado.

Total investment has fostered the upturn of employment Public and private investment (Real % annual change) Formal employment1 (% annual change) 1/ Information based on Sunat’s electronic payrolls. Source: BCRP, MEF. Slide pasado.

Latin America: credit ratings and outlooks Peru continues as one of the few economies with no credit rating changes Fiscal balance1 (% of GDP, 12-month rolling sum) Latin America: credit ratings and outlooks S&P Moody’s Fitch Perú BBB+ A3 BBB+ Chile A+ A1 A Colombia BBB- Baa2 BBB México BBB+ A3 BBB+ Brazil BB- Ba2 BB- Stable outlook Negative outlook Stable outlook but recent downgrade in the last 12 months 1/ Non-financial public sector overall balance. Source: S&P, Moody’s, Fitch, BCRP, MEF.

Macroeconomic strength is important in financial turbulence periods Emerging markets: MSCI equity index1 (Index) 2018: Financial indicators1 Exchange rate (% change, YTD) Sovereign risk (Diff. pbs., YTD) Peru has a strong external position recognized by global investors: low level of short-term debt, high net international reserves and current account financed by long-term investment. 1/ As of September 11th., 2018. Source: Bloomberg.

Latin America: GDP forecasts Peru will continue to lead regional growth with sound fiscal fundamentals Latin America: GDP forecasts (Real % annual change, average 2018-2022) Peru: fiscal balance (% of GDP) - 1.0 - 1.0 - 1.9 - 2.1 - 2.7 - 3.1 - 3.0 - 2.9 MMF 2018-2021 - 3.5 Current forecast 2017 2018 2019 2020 2021 Source: LatinFocus Consensus Forecast - august 2018, MEF forecasts.

Content 1 Macroeconomic fundamentals 2 Current economic situation 3 Economic policy measures 3 Debt management 4

The government has designed guidelines to increase potential growth 1 Strengthen growth Modernization of the public sector Foster competitiveness 2 3 Source: MEF.

The goals are to promote economic growth and increase citizens’ welfare Achieve growth rates of 5% in the coming years Reduce poverty Underpin potential growth Improve country’s general welfare Source: MEF.

Content 1 Macroeconomic fundamentals 2 Current economic situation 3 Economic policy measures 3 Debt management 4

Lines of defense to finance Economic Growth Fiscal Stabilization Fund 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 Fund size as of July 31, 2018 Local Market International Market USD 6,388 million National Emergency Savings Mechanism Soberanos Bonds Global Bonds Stock as of July 31, 2018 USD 9,336 mn EUR 2100 mn International Crisis Sources of Funds Other Non Financial Public Sector Financial Assets Multilateral and Bilateral Loans CAF BID BIRF Otros Secondary Liquid Reserve Contingency loans As of July 31, 2018 USD 4,000 million

“solarize” Debt and develop local debt capital markets Composition of Public Debt by Currency (% of total debt) Liability Management (LM) 2014-2017 (Millions of dollars) LM 2016 LM 2017 LM 2014 LM 2015 soles EUR USD No USD paper No New money * Jun. 2018

Peru has significantly increased its Soberanos debt stock by focusing on international format debt issuances (GDNs and Euroclear) Since 2005, Peru has successfully increased its Soberanos (PEN) debt stock by 10.9x compared to a growth of 1.8x for its Global Bonds (USD and EUR) debt stock… Debt Capital Markets Local Market Sovereign bonds and Global bonds (soles MM, USD/EUR MM, nominal) Development of the debt market through sovereign bond issues in soles 10.9x Soberanos linkers Treasury bills Local GDN’s Euroclear International Market Taking advantage of Windows of opportunity to maintain liquidity/efficient yield curves 1.8x USD Global Bonds EUR Global Bonds

Primary Market Activity Secondary Market Activity The solarization strategy has been successful in improving market Liquidity in primary and secondary markets Primary Market Activity (PEN million) Secondary Market Activity (PEN million) +32% Monthly average 14,211 Monthly average 10,760 +56% +42% Monthly average 6,906 Monthly average 4,853 * Aug. 2018

Sovereign Bonds: Non- resident investors Diversification of non- resident investor base for local bonds Issuance S/ 10 billion 6.15% Sovereign Bonds 2032 (Issuance that had a demand exceeding 30bn and that was settled through Euroclear) Sovereign Bonds: Non- resident investors (% of total investors) Issuance of S/ 10.3 billion 6.35% Sovereign Bonds 2028 (One of the largest local currency issues in emerging markets, the same that reduced liabilities in USD) Issuances Benchmark * 41.9% 7.840% Aug 2020s S/ 4,196 millions Date.; Nov 10 5.700% Aug 2024s S/ 7,128 millions Date; Nov 14 6.950% Aug 2031s S/ 4,392 millions Date; Mar 15 6.350% Aug 2028s S/ 10,251 millions Date; Sep 16 6.150% Aug 2032s S/ 10,000 millions Date; Jul 17 * Aug. 2018

Windows of opportunity in USD and EUR However, while the Republic has focused on “Solarization”, it remains committed to both its USD and EUR curves Diversify currencies looking for natural hedges Windows of opportunity in USD and EUR Provide better liquidity Continue to grow the depth and breadth of its high quality investor base Lower risk of funding by diversifying markets Increase investor pool

Carlos Oliva Neyra. Minister of Economy and Finance PERU Macroeconomic overview Carlos Oliva Neyra. Minister of Economy and Finance September 14th., 2018 “PERU: LEADING GROWTH ACROSS THE REGION”