Interview: Ricardo Guevara Bringas
How widespread is arbitration in the legal system?
RICARDO GUEVARA BRINGAS: The World Bank’s “Doing Business 2019” report ranked Peru 70th out of 190 economies in terms of enforcing contracts. Collecting debt takes an average of 426 days, given the excessive time Peruvian courts take to evaluate claims. As such, the use of arbitration to settle business disputes has become widespread and is now common practice in Peru. Public bodies, as well as the state, submit their cases to arbitration. For instance, for cases that are related to public procurement, arbitration is compulsory under Peruvian law.
In addition, Peru is a member of a number of international arbitration mechanisms, such as the International Centre for Settlement of Investment Disputes, the Overseas Private Investment Corporation and the Multilateral Investment Guarantee Agency.
How is foreign investment encouraged?
GUEVARA: Peru has adopted a series of provisions at the constitutional level to guarantee freedom of trade and limit the powers of government when it comes to economic activities, foreign investment and contracts in general. Thus, no law may establish any type of discrimination between local and foreign investors, and people are free to hold and dispose of foreign currency. There is no doubt that the constitution has shifted its views on the government’s role in economic activity. Indeed, Article 60 states that the government may only engage in business activities in a subsidiary way, whether directly or indirectly, and then only for reasons of public interest or national benefit.
Foreign investors have the right to trade and to engage in all economic activities. They may also decide upon the organisation of the business related to their investment. Thus, any legal provision establishing forms of production or productivity are prohibited, except for the ones related to hygiene and industrial security, environmental protection and health. They may also freely decide upon the distribution of profits or dividends, and have the right to receive all profits and dividends they are entitled to without prejudice to the obligations concerning the workers’ shareholding, the legal reserve and relevant tax obligations. They also have the right to transfer their share capital, dividends and any royalties abroad in freely convertible foreign currency without previous authorisation or prior payment of legal taxes.
What major judiciary reforms can be expected after the December 2018 referendum?
GUEVARA: The National Board of Justice, the entity previously in charge of appointing judges at all levels, has been replaced by the National Justice Committee, which will elect judges through a public exam. Despite the overwhelming results of the 2018 referendum, it is still too early to speak of major changes. In May 2019 a member of Congress declared that the reforms would not be ready any earlier than 2021.
What makes the country’s legal framework attractive to private investment?
GUEVARA: Peru has had almost three decades of uninterrupted growth, mainly thanks to the constitution of 1993. Through it, the government was reformed to take on a subsidiary role in the economy, rather than directing it. The framework rests upon the protection of certain key rights, such as the right of all people to enter into valid agreements, and equality under the law for both local and foreign investors. Stability agreements have also played a key role in protecting investment and offering a certain degree of predictability for investors.
Additionally, Peru has an estimated infrastructure deficit of $160bn. In an effort to close this gap, the use of public-private partnerships (PPPs) has become very common. PPPs are regulated under Legislative Decree No. 1362, through which the government is able to efficiently contract with private entities for these types of investment. There are 58 pending projects over the 2019-21 period, worth an estimated total of $10.3bn.
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