Peru Is a Developing Economy, Not a Third World Country

Peru
Tony Dunnell

Peru is considered to be a developing country, and although you might sometimes see Peru referred to as a "third world country," this term has become antiquated and is not used in intellectual discourse.

The Merriam-Webster dictionary defines "Third World countries" as those "economically underdeveloped and politically unstable," but the Associated Press notes that the phrase developing nations is more appropriate "when referring to the economically developing nations of Africa, Asia, and Latin America," which includes Peru.

Peru is also considered a developing economy—as opposed to an advanced economy—by the International Monetary Fund's World Economic Outlook Report. Since 2012, several economic initiatives, international loans, and infrastructure projects have drastically improved the quality of life in Peru, meaning Peru is likely to achieve the status of an "advanced economy" within a few decades.

Achieving First-World Status

In 2014, Peru’s Institute of Economy and Enterprise Development—part of the Chamber of Commerce of Lima—stated that Peru has the opportunity to become a first-world country in coming years. To reach the first-world status by 2027, the organization noted that Peru would need to achieve a sustained annual economic growth rate of 6 percent, which it has, on average, since 2014.

According to César Peñaranda, the executive director of the institute, current economic indicators place Peru as “average for the region and slightly better than the world average, so the goal [of first world status] is not impossible provided that the necessary reforms are given.”  The World Bank noted that Peru is, indeed, experiencing an annual growth rate of nearly 6 percent, coupled with low inflation of about 2.9 percent.

Tourism, mining and agricultural exports, and public investment projects make up the majority of Peru's Gross Domestic Product each year, and with more money being funneled into each sector, Peru is expected to be able to stabilize and independently maintain its economy within the next 20 years.

Future Challenges of Peru's Economy

Poverty and low standards of education are two of the biggest issues that point toward Peru’s continuing developing status.

However, the World Bank noted that "strong growth in employment and income have sharply reduced poverty rates" in Peru. Moderate poverty fell from 43 percent in 2004 to 20 percent in 2014, while extreme poverty declined from 27 percent to 9 percent over the same period, according to the World Bank.

Several major infrastructure and mining projects are helping to fuel Peru's economic growth, the World Bank notes, but to continue this growth—and climb from developing to advanced economic status—Peru faces some specific challenges.

The decline in commodity prices and a possible period of financial volatility associated with rising interest rates in the United States will present economic challenges in Fiscal Year 2017 to FY 2021, according to the World Bank Systematic Country Diagnostic for Perú. Policy uncertainty, the impact of El Niño on the infrastructure of Peru and its agricultural large share of the population remaining vulnerable to economic shocks all also present unique barriers to achieving first world status.

According to the World Bank, the key to Peru rising from the status of a developing country to one with an advanced economy will be the country's ability to foster sustained but "equitable" growth.

 In order to do so, this growth must be fueled by "domestic policy reforms that increase the access to quality public services for all citizens and unleash economy-wide productivity gains, which would provide workers access to higher-quality jobs," the World Bank states.