Peru, a coca-producing country in the Andean region of South America, has had a turbulent political history. Despite its tumultuous past, Peru has recently taken steps to consolidate its democracy and pursue market-friendly economic policies. For the past six years, Peru, a leading mineral exporter, has posted some of the fastest economic growth rates in Latin America. GDP growth reached 8% in 2006 and, despite damage caused by a recent earthquake, is expected to exceed 7% in 2007. In June 2006, former president Alan García (1985-1990) was elected president in a close race. Since taking office, García has embraced the proposed United States-Peru Trade Promotion Agreement (PTPA) and launched an aggressive coca eradication campaign. The United States enjoys strong ties with Peru, with trade issues a key U.S. priority. The proposed PTPA was ratified by the Peruvian legislature in June 2006, and amended to include labor and environmental provisions in June 2007. After a trip to Peru in August 2007, congressional leaders indicated that consideration of the proposed PTPA would likely occur this fall. See CRS Report RL34108, U.S.-Peru Economic Relations and the U.S.- Peru Trade Promotion Agreement and CRS Report RS22521, Peru Trade Promotion Agreement: Labor Issues. This report will be updated periodically.

This report provides an overview of Peru's government and economy and a discussion of issues in relations between the United States and Peru. Peru and the United States have a strong and cooperative relationship. Several issues in U.S.-Peru relations are likely to be considered in decisions by Congress and the Administration on future aid to and cooperation with Peru. The United States supports the strengthening of Peru's democratic institutions, its respect for human rights, environmental protection, and counternarcotics efforts. A dominant theme in bilateral relations is the effort to stem the flow of illegal drugs, mostly cocaine, between the two countries. In the economic realm, the United States supports bilateral trade relations and Peru's further integration into the world economy.

Peru and the United States have a strong and cooperative relationship. Several issues in U.S.-Peruvian relations are likely to be considered in decisions by Congress and the Administration on future aid to and cooperation with Peru. The United States supports the strengthening of Peru's democratic institutions, counternarcotics efforts, security and respect for human rights, and environmental protection. A dominant theme in bilateral relations is the effort to stem the flow of illegal drugs, mostly cocaine, between the two countries. In the economic realm, the United States supports bilateral trade relations and Peru's further integration into the world economy. This book provides an overview of Peru's political, economic, and security conditions and of U.S.-Peruvian relations.

Peru shows promising signs of economic and political stability and the inclination to work with the United States on mutual concerns. President Alan García is, however facing challenging times during this, the third year of his five-year term. Widespread social unrest has increased as growing inflation combines with unmet expectations that social conditions for Peru's poorest citizens would improve with Peru's economic growth. Peru's economy has been stronger than virtually all other Latin American economies since 2001. Peru's poverty rates have been dropping since 2000, but still remain high considering Peru's income levels. Economic power is, and has been traditionally, concentrated in the hands of a small economic elite of European descent. The subsistence sector, on the other hand, is concentrated in the mountainous interior, and among the mostly indigenous population there. Indeed, the percentage of the population living in poverty in cities in 2007 was about 26%, while the percentage living in poverty in rural areas was about 65%. While Peru's sound public finances can help offset damage from the global financial crisis, its institutional weaknesses may limit the effectiveness of economic stimulus measures and the Peruvian government's ability to carry out poverty reduction programs. As the world economic downturn leads to a dramatic slowing of Peru's economic growth, this weak institutional capacity may also hinder the government's ability to implement responsive economic policies effectively. Peru and the United States have a strong and cooperative relationship. The United States supports the strengthening of Peru's democratic institutions and respect for human rights. A U.S.-Peru Trade Promotion Agreement (PTPA) went into effect on February 1, 2009. The two countries also cooperate on counter-narcotics efforts, maritime concerns, combating human trafficking, and improving disaster preparedness.

The early 1990s marked a critical turning point in the relationship between the United States and Peru. Prior to the election of Albert Fujimori in 1990, the relationship between governments had been contentious. Fujimori, however, sought to work together with the United States regarding issues such as security threats, free-market reform and narcotics control. Yet even with this new spirit of cooperation, the two governments still clashed over international standards of democracy and human rights at a time when most Latin American countries were much more democratic. This work traces the relationship between the two countries from 1990-2000, examining political and military issues, including drug trafficking, guerrillas, human rights violations and the US role in the 1995 war between Peru and Ecuador.