Economics, Politics, Trade
Monetary, trade and economic backgrounds
Economics, Politics, Trade
This paper shall be a comparison of two countries of the world-one which is a developed country and another developing country. The developed country chosen for the study is Germany and the developing country is Peru. The paper shall deal with the geopolitical base and the Monetary, trade and economic backgrounds of the two countries.
Germany occupies 356,959 square kilometers. It is the sixth biggest country in Europe with Alps in the south and extending 853 kilometers from Denmark as its northern border. Germany measures roughly 650 kilometers from the Belgian-German border in the west to the Polish frontier in the east. The province of the earlier East Germany, occupies approximately one-third of merged Germany’s territory and one-fifth of its population. In 1993 the Bundestag, the lower house of Germany’s parliament, after a close poll, preferred to shift the capital from Bonn in the west to Berlin, a city-state in the east bounded by the Land of Brandenburg. By the year 2000 it is expected that the transfer procedure will be completed, following the shift of the Bundestag, the Bundesrat, the Chancellory and ten of the eighteen federal ministries. (Geography of Germany)
Germany with its uneven, drawn out shape presents an admirable example of a repeated series of landforms found all over the world. A plain spotted with lakes, moors, marshes, and heaths havens from the sea and touches inland, where it becomes scenery of hills crisscrossed by streams, rivers, and valleys. These hills escort uphill, slowly developing into high plateaus and woodlands and eventually climaxing in spectacular mountain ranges. In the mid 1990s, almost 37% of the country’s area was arable; meadows and pastures occupied 17%; 30% was forests and woodlands; and 16% was dedicated to other uses. Geographers regularly split Germany into four definite topographic regions: the North German Lowland; the Central German Uplands; Southern Germany; and the Alpine Foreland and the Alps. (Geography of Germany)
On the other hand, Peru is regarded as the complex blend of traditional and advanced cultures, populations, queries, divergences and quandary. The land seems to provide great experiments. Peru is regarded as the eighteenth largest nation in the world and the fourth largest nation in Latin America in terms of the area having 1,285,216 square kilometers. Being situated amidst 8900-kilometer-long Andean range, the geography and climate of Peru even though appear to be similar to that of Andean neighbors, are considered as unique making the region as the most heterogeneous and dynamic. The main features of Peru among others are its desert coast; the forty great snow-covered peaks over 6000 meters in altitude, and the mountain ranges they anchor. The Costa, Sierra and Selva each are having a divergent and sharply distinct environment from that of the main region of the country. (Geography of Peru)
The coastal Peru is austere, rocky and mountainous desert that extends from Chile to Ecuador, punctuated by fifty-two small rivers that slide down through steep, arid mountains and empty into the Pacific. The Costa is a strange land of great sandbank and rolling expanses of barren sand. Once upon a time it was a desert but with the passage time the humidity has increased to be 90% in the winter from June to September when temperatures in Lima records an average of about 16 degrees Celsius. The temperature is higher along the coast near the equator in the north where the summer is considered to be blazingly hot and reduce to cooler levels in the south. The Sierra is the authoritative feature of the territory of Peru, with its height up to 6,768 meters. A large number of permanently glaciated and snowcapped peaks constitutes canopy over the valleys. The sharp porous Pacific edge of the Andes supports only a thin population in villages located at infrequent springs and seepages.
Conversely, the tropical forests cover the eastern portion of the Andes as high as 2,100 meters. The Selva, embracing the humid tropics of the Amazon jungle and rivers, covers about 63% of Peru but contains only about 11% of the total population of the country. Another ecological environment is created within the Peruvian territory by the maritime region. The exports of fish meal and fish products are of crucial significance for the economy of the Peru. Due to this the variations in the environmental patterns on the coast or in the adjacent ocean have distressing impacts on employment and therefore, national stability. The regular visit of warm current, El Nino flowing south and temporary depletion limitless stock of anchovy through intensive fishing has become the major concern for the Peru. (Geography of Peru)
1. B. Political systems:
The political system of Germany system spelled out in the 1949 constitutions, the Grundgesetz, has continued in effect with minor amendments after 1990s German Reunification. The constitution lays emphasis on the safeguard of individual liberty putting forth an extensive array of human rights and also distributes powers both between the federal and state levels and between the legislative, executive and judicial branches respectively. The Grundgesetz, of 1949 is considered to be a strong reply to the conceived defects of the 1919 failure of Weimar Republic Third Reich. Sixteen Federal States constitute the Federal Republic Bundesrepublik. The Grundgesetz, of 1949 laid down that the legislature is to be managed by the states in every respect unless specifically mentioned in the Grundgesetz. However, this norm has been countered in practice with several amendments from time to time primarily leaving only police and cultural affairs to be handled by state legislature. The political structure of the individual states is governed by the provisions enshrined in the state constitutions however, similar to that of the federal level to a certain extent. (Politics of Germany)
The federal government is headed by Minister-President termed as Ministerpr sidenten or in case of the three city states Regierender Burgermeister or Erster Burgermeister. All of them form a state cabinet also irrespective of their size is much smaller than the federal government. The elections for the parliaments of the Bundesl nder are scheduled to be held in every four to five years varying from state to state. He is elected by and liable to the Parliament of Germany. The Chancellor cannot be overthrown during a four-year term unless the Bundestag decides for a successor. A member of his cabinet preferably the Foreign Minister is appointed as Vice-Chancellor. The heads of government may vary the framework of the ministries whenever and however they see fit. The power of the legislature can be viewed in terms of special jurisdiction and concomitant jurisdiction with the L. nder in areas particularly prescribed under the Basic Law. The Parliament of Germany, the Bundestag, shoulders the major liability. (Politics of Germany)
In relation to the political structure of Peru, it can be pointed out that the elected President Fujimori dramatically launched a military backed self-coup on April, 1992 superseding legislature and judiciary and suspended the Constitution of 1979. The executive power under the Constitution of 1979 has been assigned to the elected President of the Republic, elected for a four-year term through the elections held every five years. A President is barred from serving two consecutive terms. The Administration is carried on with the assistance of a Council of Ministers headed by the Prime Minister. The legislature consists of the Bicameral Congress having a 60 member Senate elected district wise and a 180-member Chamber of Deputies directly elected through the proportional representation. (Peru: Government and Politics)
The election to both the houses was elected for a term of five years coinciding with those of President and Vice-President. It necessitated at least two-thirds majority for superseding the Presidential Veto. At the apex of the judicial administration there is the Supreme Court of Justice consisting of twelve members nominated by the President for the life time terms. The Constitution of 1979 authorized establishment of regional governments at the regional levels. There was an initiation for regionalism in 1988, however, was held up 1992. The direct elections for municipalities occurred every three years and for regions in every five years. The Fujimori initiated its reformed democracy, with the international persuasion, establishing the Democratic Constituent Congress to serve as autonomous single-chamber legislative body. (Peru: Government and Politics)
2. Monetary, trade and economic backgrounds
2. a. Germany
Germany has one of the world’s largest financial systems along with the United States and Japan and also occupies the most domineering central banks. The GDP of Germany with DM3 trillion is fewer by one-third of the United States GDP and one-half of Japan’s. Germany, though small in size, has constantly applied a strong power on the world economy. The Federal Republic has performed a crucial role in opening, organizing, or concluding each calamity and each stage felt by the global monetary system, ever since the end of the World War II. The first stage was the Bretton Woods period, christened after the New Hampshire resort where the Allied monetary conference of July 1944 formed the IMF and wrought the global postwar order. For the period of the late 1960s and early 1970s, West Germany strived to assist the dollar. The United States and many other nations pushed West Germany to reassess so as to make up for the dollar excess. (Germany in the World Economy)
At last, after escalating waves of conjectures, the Bretton Woods system had a collapse in August 1971. All through the post-Bretton Woods period, the deutsche mark stayed under pressure. In order to relieve strain within Europe, West Germany and other European states assented to peg their currencies to a special system of comparatively narrow exchange rate bands officially named the ‘European narrow-margins agreement’ but unofficially identified as the ‘snake’. The United States and West Germany performed main roles in attempting to organize a new global monetary system. but, in spite of its willingness to make small exchange-rate alterations for the benefit of new currency arrangements, West Germany declined to obligate itself to any arrangement that would compel it to reassess in the upcoming years.
The United States and other governments and central banks, in March 1973, renounced their attempts to protect the Bretton Woods system by establishing new fixed exchange rates. With that resolution, the next stage of the postwar international system, ‘floating’ commenced. In the midst of floating, the correlation between the United States dollar and the deutsche mark started depending on market forces instead of official talks. West Germany was not sure whether floating would supply its requirements but was not ready to follow any other option. The economic outcomes of floating for Germany were not consistently helpful. But West German industry, and particularly West German exporters, did not greet the randomness that flexible exchange rates brought into commercial preparations and production plans. In the floating period, a choice had to be made definitely; but German governments and the Bundesbank have nearly forever selected an anti-inflationary strategy. Compared against a weak currency, which would risk the steadiness of the German monetary system, they favored a strong currency, which might badly influence business. With that selection, they established policy for others and for themselves. (Germany in the World Economy)
On condition that the deutsche mark is strong and German interest rates stay tall, even the United States can deviate from German policy only at the jeopardy of considering its own currency drop in value. All have been nervous to set up the highest likely level of international certainty owing to Germany’s monetary predicament, and since the German government and the nation’s bankers and industrialists have acknowledged German restrictions and susceptibilities. The Germans turn out to be usual members in international economic consultations, and they have highlighted the worth of such consultations at every occasion. Global economic coordination after the demise of the Bretton Woods system has led to the growth of several coordinating institutions. (Germany in the World Economy)
The German economy was viewed as a typical model of victorious capitalism even decades after the Second World War. (Teutonic plague) After U.S. And Japan, Germany has the world’s third most technologically influential economy. (the German Economy) West Germany went through a constant economic expansion from the 1948 currency reform until the early 1970s, but the real GDP growth decelerated and even weakened from the mid 1970s through the depression of the early 1980s. Germany has seen annual average real growth of only about 1.5% and persistently high joblessness, since the reunification in 1990. The finest deed since reunification was recorded in 2000, when real growth reached 3.0%. (Economy of Germany) When the magnitude of the big German companies is used as a yardstick for calculating the intensity of the German economy, then it is more obvious. 29 major German companies were listed among the 100 largest in Europe in 2003, and these 29 companies alone reported for 35% of the business volume of the European top 100 in 2003. (Perspectives for the German economy in 2004)
The German economy is mainly export-oriented, with exports amounting for more than one-third of national output. Consequently, exports have conventionally been a main element in German macroeconomic expansion. Germany’s second main trading partner is the United States; and the U.S.-German trade has progressed to develop powerfully. In the year 2000, the two-way trade in goods and services amounted to $88 billion. U.S. exports to Germany were $29.2 billion while U.S. imports from Germany were twice as high, $58.7 billion. The U.S. trade deficit with Germany is the United States, which is the fourth largest after Mainland China, Japan, and Canada at $29.5 billion. Aircraft, telecommunications equipment, electrical equipment, data processing equipment, and motor vehicles and parts are some of the main U.S. exports groups. The German export sales are focused in motor vehicles, machinery, chemicals and heavy electrical equipment. Most of the joint trade is intra-industry or intra-firm. (Economy of Germany)
Germany abides by a moderate policy to foreign investment. The normal flows of U.S. straight investment in Germany from 1995 to 1999 were $3.4 billion, while that of German investors in the United States reached $21 billion. During 1998-99, Americans reported for 18% of all foreign direct investments in Germany, the third largest source after France and the UK. German investment in the United States was assessed at $111 billion in 1999, which was twofold since 1995, while investments in Germany was valued at just under $50 billion, having increased by only 12% since 1995, in terms of collective position. (a Little German Reform Would Go a Long Way)
Merchandise and services worth â‚¬ 764 billion were exported overseas in 2003, which is six billion Euros more than that in 2002 and about twice as much as in 1989. The expansion of German exports has been a percentage higher than the negligible growth of GDP, over the past years. Hence, German exports and the optimistic poise of trade have tended to support and alleviate the complete economic position. The portion of exports within GDP has risen from 24.5% in 1995 to 35.7% in 2003; now greatly more than the peak attained by West Germany before unification of the two German states in 1990. The reliance on foreign trade has not only improved. The reliance on exports to countries outside Europe has particularly increased, which is shown by the structural improvement of exports. As per the statement given by the German Institute for Economic Research -DIW, from 1991 to 2001, foreign trade with the U.S.A. urbanized more energetically than German foreign trade as a whole. (Perspectives for the German economy in 2004)
The export of the goods to USA in this period was raised by 217% nominally whereas German exports as a whole increased by almost 90%. The most significant motives for the export bang lies in the fact that the economic growth in the U.S.A., which persisted for years, was more rigorous than other countries as well as in the growing competitiveness of German exporters, due to the reason that in this period the U.S. lessened the Dollar by 25 per cent in real terms. (Perspectives for the German economy in 2004) Germany’s vigor, together with comparatively small inflation rates, was the jealousy of more lethargic economies that appeared to be incompetent of producing momentum. However it is not so. (Teutonic plague) at present the primary capitalistic economy has begun to tussle under the affliction of liberal social benefits. (the German Economy)
Although it has financial possessions worth more than â‚¬ 3,800 billion, just 0.5 per cent of the population has a section of the disposable wealth, and the 100 richest people together have 250 billion Euros. But on the other hand scarcity is on the rise in Germany. Since 1994, yearly income from businesses and capital assets has gone up by 21% prior to taxes, whereas since 1991 employees’ income has been raised only by 1%, which denotes that it has almost been inactive. The GDP â‚¬ 2,130 billion in 2003 has enhanced by â‚¬ 560 billion in the past ten years. In 2001 the German economy dropped into a fresh depression, which sustained and intensified until 2003. By glancing at the sequences from 1948 to 2003 one can derive the following deductions: On the whole, the average GDP growth rates diminished with each consecutive cycle. At the end of the 1960s, the average annual growth of the GDP was in excess of four per cent, but it was down to below three per cent in the 1970s and 1980s. (Perspectives for the German economy in 2004)
In the most current cycle the German GDP growth rate has been merely 1.5%. It is common that in capitalist economies there is an everlasting series of ups and downs and a plain cycle of growths and slums. but, what we really find is a steady drop in the economic state of affairs, a steady expansion of depressions and predicaments and a persistent expansion in unemployment. The German economy was battered by the world predicament at the same time as other large OECD countries. It was moving towards a disaster well ahead of the terrorist attacks of 9/11. (Perspectives for the German economy in 2004) Economists identify Germany with a combination of disdain and apprehension, feelings reinforced by proof on May 15th 2003 that the economy is officially in depression, with two consecutive quarterly drops in output. (Teutonic plague)
Structural inflexibilities similar to a high rate of social contributions on wages have made unemployment a long-standing, not just recurring problem, while Germany’s aging population has pressed social security expenditures to surpass contributions from workers. The incorporation and advancement of the eastern German economy stays an expensive long-standing hitch, with annual relocations from the west amounting to approximately $100 billion. (the German Economy) for months, the unemployment data have been producing specific discomfiture. Industrial manufacture had been declining, as are manufacturing orders, slapped by a mixture of feeble local requirement and dropping exports, compressed by the sudden rise in the euro. (Teutonic plague) Legitimate data illustrated that the German economy, the largest in the 12-country euro zone, contracted by 0.1% in 2003, its most awful performance in a decade, as a depression in the first half of the year overshadowed a humble revival in the second half. (German economy spluttering only slowly back to life)
The federal statistics office Destatis computed that German Gross Domestic Product -GDP shrunk by 0.1% in real or price-adjusted terms, the first annual drop in GDP since a 1.1-percent decline in 1993. The German government had been projecting zero growth for 2003 after the economy had extended only marginally by 0.2% in 2002 and by 0.8% in 2001. The data denotes that the German economy was the worst performing economy in the whole euro zone for the third year in a row. (German economy spluttering only slowly back to life) the huge increase in the exchange rate of the Euro since autumn, 2002, makes German exports, particularly exports into the Dollar region, more costly, thus discouraging very much the competitiveness of goods and services from Germany as the Dollar was concurrently undervalued. (Perspectives for the German economy in 2004)
The fall of Europe’s biggest economy has disturbing consequences not only for its close neighbors but also for the world economy as a whole. By the same token, the frail and worried reaction of the government is upsetting. Real interest rates are now considerably higher in the euro area than in America, which might partially clarify the quick rise of the euro in opposition to the dollar lately. Regrettably, the extent for relief of a fiscal kind is also greatly inhibited by the steadiness and expansion deal that puts restrictions on government borrowing. The European Union has already adjusted the rules once, by postponing the time limit for impartial budgets from next year to 2006. But Schroeder and his colleagues have lately confessed that even this new time limit will be missed. This is all very discomforting, as Germany was the main originator of the deal in the first place. (Teutonic plague)
The German government has been forecasting a forthcoming economic upswing ever since 2001. This year also it is once again the same. They keep on being hopeful in concert with the economic research institutes and other bourgeois experts. However, they have to regulate their forecasts downwards in the light of proceedings. However, they declare that it will be different in 2004. The officially chosen Council of Advisors has set more stipulations and established its viewpoints for 2004 upon a number of crucial suppositions, a type of insurance policy to shun being out once more. The foundations of their viewpoints comprise of an average oil price of $29 per barrel, the general growth of world trade by 7.5% and a steady exchange rate between the U.S. Dollar and the Euro with a ratio of 1.15 to 1. Their forecast is also founded on an average annual wage raise of merely 2.2%. These notions are believed to force the unions into a reasonable pose in the impending cycle of wage talks. Due to whatever reason, if the wage increases surpass that level and economic growth turn out to be underneath forecast, then, they know whom to criticize. If the political leaders fail to append to an inflexible thrift policy of sound budgets, they will also be held responsible for likely economic impediments. (Perspectives for the German economy in 2004)
The Schroeder government and bourgeois experts assert that the economic upswing was the outcome of their reforms and that the consequence of these reforms was now being experienced. The economists projected a GDP growth of between 1.6 and 2 per cent for 2004. The expectations for 2004 are now concentrated on the prolongation of the upswing in the world economy and on the optimistic, stimulating effects of foreign trade on the domestic economy. What are the bases for these expectations? The capture by the Red-Green government in 1998 happened in an era of economic growth that survived until 2000, a period in which the number of unemployed dropped and tax revenues kept on rising. Misled by this growth it was simpler to cut state expenditure and manage with less indebtedness than in an economic droop. But capitalism has its own rules that cannot be annulled by any neo-liberal or Keynesian economic policy. All the pleasant dealing with statistics that was done by the German government after the elections was founded on an era of good climate. But there was one thing they had not considered, that is, the truth of capitalism. Economic cycles are basic constituent parts of capitalist economies. Politicians in office are inclined to overlook this truth when they assert that an upswing was a result of their good economic policies and alternatively that a fall was caused by global economics, increasing oil prices or terrorism. (Perspectives for the German economy in 2004)
Because of the feebleness of ultimate local requirement, the economy is a long way from working at full power. Weak labor market functioning continues to reflect on consumer feeling and business assurance stays unstable. The labor market is affected with feeble growth and unclear motivations, with both contributing to problems in accepting work and offering employment. Even though monetary conditions should continue to be supportive for GDP growth in the euro area, a continuing German inflation differential relative to the euro area average would denote that actual temporary interest rates risk slowing the revival of requirement in Germany to a level, which may not be balanced by the equivalent gain in competitiveness. (Economic Survey – Germany 2004: Main issues and policy challenges)
Public sector demands are trailing behind with low capital investment and low level private utilization. Investment in industry and the construction sector has slumped in 2001, 2002, and 2003. In 2004, there is no sign of an upsurge in these sectors, which would be vital for a general upswing. Specifically, there is barely any demand for new industrial buildings. The new fall of public investment shows a huge load for any possible development in the construction industry. (Perspectives for the German economy in 2004) Recurring vulnerability and the structural problems of the economy influence stoutly on public budgets, while insecurity about how public finances will be put on a strongly sustainable path is an additional factor discouraging assurance. (Economic Survey – Germany 2004: Main issues and policy challenges) program of contradicting reforms and attacks on workers, the unemployed, the sick, and old age pensioners called ‘Agenda 2010’, was stated by Schrder in March, 2003, and has resulted in extensive union and social opposition as uttered by half a million people partaking in the three regional trade union demonstrations on April 3, 2004. The government continues to assert that implementing ‘Agenda 2010’ will herald an upswing. but, the outcome of ‘Agenda 2010’ will be a decline in private utilization. It is unlikely to encourage growth. It is clearly shown by the raise in the rate of savings. All the procedures of ‘Agenda 2010’ will result in monetary losses particularly for those whose salaries are already below the average and will thus weaken consumer expenditure. This is real in instance of the increase in health sector charges and reduction in old age pensions. The main part of this is there is an addition of the low paid sector by applying huge pressure upon jobless people and welfare receivers to starve them into taking up any useless job provided. However what is declared as the formation of new jobs only amounts to a redeployment of work as jobs on honest union rates and conditions are damaged and many workers who are made surplus are pressed into the low salary group. In regard of this saving policy, the pulling apart of the welfare state and the rising ambiguity of many families a clear motivation of the national economy is not to be predicted. (Perspectives for the German economy in 2004)
The foremost reason for the latest lethargic performance is due to the domestic structural problems as per the reflections of some foreign and German experts. The major cause for continuously high joblessness is the rigid labor market. Arduous bureaucratic regulations weigh down many businesses and the procedure of opening new businesses. Even during times of moderately rapid developments, German employers say that they normally choose to invest abroad or establish more machinery, rather than make job-creating investments at their national services. Re-establishing Germany’s conventional economic strength calls for a complete policy reaction within a rational structure. The German government has reacted to this challenge by taking considerable steps to improve labor and product markets, and significant improvements to the social security system have of late been legislated. Though not all actions are yet in force, the power of these improvements is apt and can be probable to develop labor market performance and business vigor in the medium term. To build faith it is essential that improvements reveal a rational view about the reorientation of economic policy and are applied according to a clear and predictable roadmap. It is necessary that the restructuring must be continuous and intensified for the economic performance to be improved in a stable way. (Economic Survey – Germany 2004: Main issues and policy challenges)
Germany wanted to lessen the rules for layoffs, cut sharply the utmost period of joblessness benefits, eliminate inducement to retire early, boost competition in the health sector to lessen the cost of medical treatment, and decrease public expenditures so taxes become less burdensome. (a Little German Reform Would Go a Long Way) the major confrontations are connecting sustainable consolidation of general government finances with public sector reform. This is inclusive of inter alia, improving budgetary measures, including those governing federal relations, plummeting misrepresentations of the tax system, improving long-term care and lifelong health and pension reform, as well as balancing public and private sector labor and pension systems; improving employment formation through better motivation to provide and insist work, a more competent management of labor market policies and better receptiveness of pay structure to labor market disparities; intensifying output growth by nurturing product market competition and the economy’s ability to innovate. Progressing in similarity to tackle these challenges concurrently is necessary for harvesting the synergies across reforms in the different fields. (Economic Survey – Germany 2004: Main issues and policy challenges)
2. B. Peru
The economy of Peru attained a higher rate of economic growth in comparison to that of the average for Latin America during the period from 1950 to 1965, however, since then has turned from one of the more dynamic to one of the most deeply troubled economies in the region. (Peru. Chapter 3: The Economy) Peru confronted with serious economic upsets throughout the 1980s due to regional crises and several associated internal determinants. Particularly, Peru suffered from severe crisis in the region and demonstrated as one of the nations with the worst economic problems coupled with high levels of internal violence. Predominating economic problems of Peru among others include escalating inflationary trends, rapid fall in the rate of production and enhanced poverty and inequality. Major break through in the Peruvian economy is noticed with the elected President Alberto Fujimori assuming charges in 1990. Significant economic supports like declining rates of inflation and declining levels of violence were achieved in the country in consequence to the successful implementation of economic plans and his individualistic approach to governance. (the Fuji Shock: How and why did it occur?)
Peru was succeeded in transforming itself with market oriented reforms and privatizations through 1990s and made conducive for secular and sustainable growth. (Peru: Economy. CIA World Factbook) in terms of the standards of Latin America, the Peruvian economic policy is considered to be liberal and open. The Government is striving to mobilize foreign investment as the strength behind the economic growth with the goal of struggling against unemployment and poverty. The Government has succeeded in seeking persistent international support for funding the social development programs. (Peru: Economic Policy. October 2003) From 1994 through the year 1997, the economy recorded robust growth which was motivated by foreign direct investment. (Taxing times for Peru’s economy)
Assuming office, President Alejandro Toledo, stressed upon the conventional economic policies and took stringent steps for attracting the investment. His government could succeed in reducing the deficits down to 2.5% of GDP in 2001 and to 2.2% in 2002. There is an enthusiastic improvement in the Peruvian economy during 2002 recording a growth rate of 5.2%. (Peru: Economy. CIA World Factbook) the increasing growth rate in the economy of Peru noticed since the early 2002 has continued rapidly. The inflation was only 1.5% in the year 2002. Peru thus has the highest rate of growth and the lowest rate of inflation amongst the Latin American countries in 2002. The exchange rate of the Peruvian Nuevo Sol -PEN continued to be stable. The exchange rate as a matter of principle has been maintained at 3.50 PEN to the U.S. dollar and slightly over 3.60 PEN to the euro. (Peru: Economic Policy. October 2003)
The liberalization of the financial system and macroeconomic stability has resulted in financial intensification of the economy. The bank deposits during 1991 accounted for 9.68% of the GDP. This was 19.2% of the enhanced GDP during 1997. The quick enhancement in the deposits along with the withdrawn of entry barriers and the presence of foreign banks strengthen modernization and a substantial reduction in costs of the banks. The deposits per bank employee were only $U.S. 53,000 in 1990 which has enhanced to about $U.S. 469,000 by 1997. The enhancement in the amount of loans per worker has even more radical during the period. During the year 1990 the loans recorded $U.S. 27,000 which has been enhanced to about $U.S. 490,000 by the end of 1997. The rapid rate of growth of loans has been made possible by greater access to the foreign lines of credit. The international trade operations have largely assisted in the growth of the banking services. The mid and long-term loans are reintroduced in Peru with the availability of increasing funds and increased competition between banks. Prior to 1990 the average maturity of a loan was seen to be quite less than four months. Presently, the mortgages of up to 20 years are commonly prevalent. Simultaneously, the people those have no access to credit prior to 1997 are now able to obtain loans if they cross the monthly income level of $U.S. 150. (Peru: Economic Policy Analysis)
The basic macro-economic indicators as a whole are also considered to be very enthusiastic. Presently, the current account deficit was estimated to be of 2% of GDP with foreign exchange reserves of about USD 10 billion and foreign debt totaled around USD 28 billion which is 49% of the GDP. The public expenditure has grown to about USD 11 billion in 2002 with a reduction in the budgetary deficits amounting to some USD 1.2 billion. The service industry is regarded as the most important sector in the economy of Peru that accounted for about 64% of GDP in 2002. Next to it the industrial production, including construction, agriculture, fisheries and mining are considered significant. As the economic growth of 2002 was primarily attributed to the mining and construction sectors other sectors are now also comprehend the impact of economic growth mining sector in particular continues guarantee considerable prospective amidst the prosperous natural resources like natural gas, lead, copper, zinc, silver, gold, iron ore and coal. Development opportunities for farmers are extended by existed of fertile soils even amidst widespread scarcity of water necessitating artificial irrigation. The tourism sector is considered lucrative in view of the existed of widespread scenic beauty and rich cultural heritage. There is a remarkable rate of increase in the exports by USD 0.6 billion during 2002 to USD 7.7 billion with an increase of only USD 0.2 billion to USD 7.4 billion in its imports generating an export surplus in the balance of trade account for the first time. (Peru: Economic Policy. October 2003)
The trade surplus so generated in 2002 is considered to be first among the 11 years. The major trading partners of Peru are U.S., EU, Japan and Colombia, Brazil, China and Venezuela. More than 25% of exports from Peru are directed towards U.S. And 30% of the imports from Peru result from the exports of U.S.. The exportable items of include fish, copper, zinc, gold, petroleum, coffee and textiles and apparel. The imports include machinery, vehicles, processed food, petroleum and steel. (Peru: Economic Policy Analysis)
Out of the total trade volume of about USD 15 billion about USD 2.5 billion was trade conducted with the EU of which some USD 500 million with Germany. The exports of Germany to Peru in 2002 were of about USD 202 million and the German imports from Peru were about USD 286 million. Among the remarkable buyers of the Peruvian goods include United States, other countries of the Andean Pact, Chile and the MERCOSUR countries. This strategy of growth has continued to 2003 with the GDP anticipated to expand by 4.0%. Inflation is reduced to 2% in association with a stable currency and unemployment level of 9.1%. The fiscal deficit is well regulated and likely to cater to the IMF requirement of 1.9% of GDP. The foreign exchange reserves increased to $1 billion in 2002. The external debt was estimated to be 48.5% of the GDP during 2002. The growth in 2003 has been attributed to the sectors of construction, investment, domestic demand and ATPDEA related exports. (Peru: Economy. CIA World Factbook) in this way while the German economy was confronting difficulties Peru was making progress in the years starting from 2002.
Irrespective of the fact that Peru represents a better regulated economy in Latin America and persistently improving it confronts with various challenges. (Peru: Economy. CIA World Factbook) One such major challenge is to direct the economic and development policies in reducing poverty and unemployment and under-employment which is not possible in the short-term. (Peru: Economic Policy. October 2003) Additionally, even in the period of fast growth rate, Peru was experiencing high magnitude of poverty and inequality and ever since 1980s the poverty was witnessed to become much worse. Major variations in economic policy initiated since 1990 and 1991 extends new hope for future growth however, have not been inclined towards reduction of poverty and inequality. (the Economy. (http://countrystudies.us) While Peru was demonstrating remarkable economic progress during the period of 1990s much of the achievement has occurred at the cost of public services like education, health and social services. The poorer class particularly the young people has been thrown to an environment of unemployment, social violence, and lack of opportunities. Moreover the availability of enough scope in the field of education again posed a serious challenge. As per the estimate only 74% of the children in urban areas and 44% of children in rural areas have access to the secondary education. As a result of the emerging financial problems most of the college students are compelled to drop out and not able to complete their graduation. (Peru: Economic Policy Analysis)
The critics pointed out that even though there have been better tax collection and increase in revenue is apparent due to high growth rates the public expenditure is not in consonance with that. Peru could succeed in securing $750 million of external financing targets for 2003 by issuing international bond early in the year and could able to raise over $400 million through a new domestic bond program. However, there may be a necessity for further $1 billion during 2004. The government confronts strong social challenges of reducing the poverty of 54% and abysmal poverty of 24%. The unemployment and underemployment scenario settles at 56% and the growth is considered not enough to perpetuate strong new employment opportunities. The government deprives of the adequate revenue to finance the social investment. Ensuring of long-term growth necessitates improving of the investment climate, reducing corruption and completing other reforms. (Taxing times for Peru’s economy)
Increasing attacks recently by the left wing extremist groups, Shining Path, implies that the government has to generate additional resources to support and maintain huge police and armed forces. In order to finance a pay increment for the teachers of the country the state of Peru has to explore the resources amounting to more than $200 million. The taxation is considered to be the only option left with. Generation of employment opportunities in Peru is considered to be a critical issue and a stupendous task. The official figures disclose an unemployment level of about 9.3%. However, in Lima alone, it is estimated that about one third of the working age population is striving for a job. What the Peru really requires is international investment in employment generating projects. However, lack of adequate enthusiasm of bureaucracy and inefficient administration has discouraged the general public in this direction. (Taxing times for Peru’s economy)
Moreover, the liberal trade policy of Peru aims at its integration with the emerging globalization so as to benefit from the specialization in the international markets. Peru therefore, more particularly is inclined towards making the anticipatory international trade performance stronger, of course, basing on the fair competition, generation of comparative advantage and more liberalization. It has unanimously agreed upon that the developing countries like Peru would continue to need special and discriminatory treatment. (Peru: Economic Policy Analysis) the first assessment of the economic performance of Peru was completed by the Executive Board of the International Monetary fund under a 26-month Stand-by Arrangement that was completed on June 9th, 2004. As per its reports the performance of the economy of Peru is quite efficient. It has been remarked that the economic activity is tough, the rate of inflation is considerably low and the external position is strong. Significant safeguards have been built in the Peruvian economy to alleviate the vulnerabilities inclusive of a comfortable level of international reserves and a well capitalized banking system.
The necessity for a national agreement on effective policies and reforms are felt to be safeguarded so as to further alleviate the vulnerabilities associated with the public debt and financial reforms in relation to conversion of currency in terms of dollar thereby continuing the Peruvian strategy existing from fund-financial support. Since the effective macro-economic strategies and structural refinements are anticipated to continue in the coming years it is perceived that the out look of the coming years and at the time of mid-term appraisal is considered positive. The preservation of the macro-economic stability and promotion of poverty reduction continue to be co-objectives of the authorities. The financial targets for the year 2004 is considered to attainable and the draft budget estimates for the year 2005 is aiming at fiscal consolidation. Since the pressures exerted by wage hikes are expected to remain strong in the coming months, it is considered significant to prepare emergency measures ensuring compliance with the 2005 financial targets. (Peru: www.stern.nyu.edu)
Several of the growth stimulating restructuring is under process and the personnel are determined to deal with the delays reflected in some areas of the structural reforms agenda. The authorities concentrate on awarding infrastructure transportation in dispensation with the private sector and restructuring the preferential public pension regime. The business environment is expected to further improve by the establishment of the commercial court by the end of 2004. Additionally, the private sector investment is anticipated to be growing with the grant of the two major roads in concession by end of April 2005. The other strategically significant areas in which improvement has been noticed constitute census of government employees and pensioners and initiating the measures towards lowering labor costs by withdrawing the special payroll tax, etc. (Peru: www.stern.nyu.edu)
Germany occupies 356,959 square kilometers and is the sixth biggest country in Europe. Peru on the otherhand occupies has 1,285,216 square kilometers in terms of area is the fourth largest nation in Latin America and the eighteenth largest nation in the world.
Even though Germany is the world’s third largest economy and the biggest in Europe, the latest performance of the country is not active and the German economy is stained by susceptibility to exterior shocks and internal structural problems. The economy continues to be powerful and globally aggressive in spite of the continuous structural inflexibilities in the labor market and wide government regulation. Germany is even now an export powerhouse, though the production costs are enormous. Furthermore, Germany is tactically positioned to take lead of the fast growing central European countries. The present government has tackled some of the country’s structural problems, with essential tax, social security, and financial-sector improvements. In the forthcoming years, Germany has to tackle additional basic economic alterations to increase growth and job creation. (a Little German Reform Would Go a Long Way)
Peru confronted with serious economic upsets throughout the 1980s due to regional crises and several associated internal determinants. However there have been serious improvements in the Peruvian economy with President Alberto Fujimori assuming charges in 1990. Peru has succeeded in transforming itself with market oriented reforms and privatizations through 1990s and made conducive for secular and sustainable growth. Peru has the highest rate of growth and the lowest rate of inflation amongst the Latin American countries in 2002 and this trend is continuing. The basic macro-economic indicators as a whole are also considered to be very enthusiastic. The Government is striving to mobilize foreign investment with the goal of fighting against unemployment and poverty. Irrespective of the fact that Peru represents a better regulated economy in Latin America and persistently improving it confronts with various challenges. One such major challenge is to direct the economic and development policies in reducing poverty and unemployment and under-employment. Several of the growth stimulating restructuring is under process and the personnel are determined to deal with the delays reflected in some areas of the structural reforms agenda.
Thus both the countries have several internal problems which are stumbling blocks in its path to economic development, which need to be worked upon even though both has made significant improvements over the years.
Little German Reform Would Go a Long Way” (Dec 1, 2003) Business Week. Issue: 3860; pg. 22. Retrieved from home.uchicago.edu/~gbecker / Businessweek/BW/2003/12_01_2003.pdf Accessed on 24 November, 2004
Economic Survey – Germany 2004: Main issues and policy challenges”
Retrieved at http://www.oecd.org/document/17/0,2340,en_2649_201185_33633425_1_1_1_1,00.html. Accessed on 24 November, 2004
Economy of Germany” Wikipedia, the free encyclopedia. Retrieved at http://en.wikipedia.org/wiki/Economy_of_GermanyAccessed on 25 November, 2004
Geography of Germany” Retrieved at http://worldfacts.us/Germany-geography.htm. Accessed on 24 November, 2004
Geography of Peru” Retrieved at http://worldfacts.us/Peru-geography.htm. Accessed on 25 November, 2004
German economy spluttering only slowly back to life” (January, 2004) AFP. Accessed on 24 November, 2004 www.eubusiness.com/afp/040119121448.2da414h6- 29k
Germany in the World Economy” Retrieved at http://www.germanculture.com.ua/library/facts/bl_germany_world_economy.htm. Accessed on 24 November, 2004
Murdter, Christoph; Funke, Der. “Perspectives for the German economy in 2004” Retrieved at http://www.marxist.com/Europe/perspectives_german_econ.html. Accessed on 24 November, 2004
Newbold, Samantha. “The Fuji Shock: How and why did it occur?” An analysis of Alberto Fujimori’s policy Reversal of 1990. Retrieved at http://www.georgetown.edu/sfs/programs/clas/Pubs/entre2003/Fujishock.html. Accessed on 25 November, 2004
Peru. Chapter 3. The Economy” Retrieved at (http://lcweb2.loc.gov/cgi-bin/query/r-frd/cstdy:@field (DOCID+pe0073). Accessed on 25 November, 2004
Peru: Economic Policy Analysis” the McKeever Institute of Economic Policy Analysis.
Retrieved at http://www.mkeever.com/peru.html. Accessed on 25 November, 2004
Peru: Economic Policy.” October 2003. Retrieved at http://www.auswaertiges-amt.de/www/en/laenderinfos/laender/laender_ausgabe_html-type_id=12&land_id=134Accessed on 24 November, 2004
Peru: Economy.” (2003) CIA World Factbook.
U.S. Dept. Of State Country Background Notes. Retrieved at http://globaledge.msu.edu/ibrd/CountryEconomy.asp?CountryID=142&RegionID=4Accessed on 24 November, 2004
Peru: Government and Politics” Retrieved at (http://lcweb2.loc.gov/cgi-bin/query/r-frd/cstdy:@field (DOCID+pe0008). Accessed on 25 November, 2004
Peru” Retrieved at http://www.stern.nyu.edu/globalmacro/countries/Peru.htm. Accessed on 25 November, 2004
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Taxing times for Peru’s economy” (28 July, 2003)
Retrieved at http://news.bbc.co.uk/2/hi/business/3097307.stm. Accessed on 25 November, 2004
Teutonic plague” May 15th 2003. The Economist Global Agenda.
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