PERU
Peru is located on the west
coast of South America. It is the third largest nation of the
continent (after Brazil and Argentina) , and covers almost 500.000 square
miles (about 14 per cent of the size of the United States). The land has enormous contrasts, with a desert
(drier than the Sahara), the towering snow – capped Andes
mountains, sparkling grass – covered plateaus, and thick rain forests. Peru has approximately 27 million people, of
which about 20 per cent live in Lima,
the capital. More Indians (one half of
the population) live in Peru
than in any other country in the western hemisphere. The ancestors of Peru’s Indians were the famous
incas, who built a great empire. The
rest of the population is mixed and a small percentage is white. The economy depends heavily on agriculture,
fishing , mining, and services, GDP is approximately $15 billion and per capita
income in recent years has been around $4,3000.
In recent years the economy has gained some relative strength and
multinationals are now beginning to consider investing in the country.
One of these potential investors is a large New York based bank that
is considering a $25 million loan to the owner of a Peruvian fishing
fleet. The owner wants to refurbish the
fleet and add one more ship.
During the 1970s, the Peruvian government nationalized a
number of industries and factories and began running them for the profit of the
state in most cases, these state – run ventures became disasters. In the late
1970s the fishing fleet owner was given back his ships and allowed to operate
his business as before. Since then, he
has managed to remain profitable, but the biggest problem is that his ships are
getting old and he needs an influx of capital of make repairs and add new
technology. As he explained it to the new York banker.
“Fishing is no longer just an art. There is a great deal of technology
involved. And to keep costs low and be
competitive on the world market, you have to have the latest equipment for both
locating as well as catching and then loading and unloading the fish”
Having reviewed the fleet owner’s operation, the large
multinational bank believes that the loan is justified. The financial institution is concerned,
however, that the Peruvian government might step in during the next couple of
years and again take over the business. If this were to happen, it might take
an additional decade for the loan to be repaid.
If the government were to allow the fleet owner to operate the fleet the
way he has over the last decade, the fleet the way he has over the last decade, the loan could
be repaid within seven years.
Right now, the bank is deciding on the specific terms of
the agreement. Once theses have been
worked out, either a loan officer will fly down to Lima
and close the deal or the owner will be asked to come to New York for the signing. Whichever approach
is used, the bank realizes that final adjustments in the agreement will have to
be made on the spot. Therefore, if the
bank sends a representative to Lima,
the individual will have to have the authority to commit the bank to specific
terms. These final matters should be worked out within the next ten days.
Questions:
1. What are some current issues facing Peru? What is the climate for doing
business in Peru
today?
2. What type of political risks does this fishing company need to
evaluate? Identify and describe them.
3. What types of integrative and protective and defensive
techniques can the bank use?
4. Would the bank be better off negotiating the loan in New York or in Lima
? Why?
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