s coastal waters provide excellent
fishing grounds. However, overdependence on minerals and metals
subjects the economy to fluctuations in world prices, and a lack of
infrastructure deters trade and investment. After several years of
inconsistent economic performance, the Peruvian economy was one of
the fastest growing in Latin America in 2002 and 2003, growing by 5%
and 4%, respectively, with the exchange rate stable and an annual
inflation lower than 2%. Foreign direct investment also was strong,
thanks to the ongoing Camisea natural gas pipeline project
(scheduled to begin operations in 2004) and investments in gold
mining. Risk premiums on Peruvian bonds on secondary markets reached
historically low levels in late 2003, reflecting investor optimism
and the government's fiscal restraint. Despite the strong
macroeconomic performance, political intrigue and allegations of
corruption continued to swirl in 2003, with the TOLEDO
administration growing increasingly unpopular, and local and foreign
concern rising that the political turmoil could place the country's
hard-won fiscal and financial stability at risk. Moreover, as of
late 2003, unemployment had yet to respond to the strong growth in
economic activity, owing in part to rigid labor market regulations
that act as an impediment to hiring.

Philippines
The Philippines was less severely affected by the Asian
financial crisis of 1998 than its neighbors, aided in part by annual
remittances of $6-7 billion from overseas workers. From a 0.6%
decline in 1998, GDP expanded by 2.4% in 1999, and 4.4% in 2000, but
slowed to 3.2% in 2001 in the context of a global economic slowdown,
an export slump, and political and security concerns. GDP growth
accelerated to 4.4% in 2002 and 4.2% in 2003, reflecting the
continued resilience of the service sector, gains in industrial
output, and improved exports. Nonetheless, it will take a higher,
sustained growth path to make appreciable progress in poverty
alleviation given the Philippines' high annual population growth
rate and unequal distribution of income. The MACAPAGAL-ARROYO
Administration has promised to continue economic reforms to help the
Philippines match the pace of development in the newly
industrialized countries of East Asia. The strategy includes
improving the infrastructure, strengthening tax collection to
bolster government revenues, furthering de