Peru to Cut Foreign Debt Payments

In a challenge to international creditors, a young populist announced at his presidential inauguration here Sunday that Peru will sharply limit foreign debt repayments over the next year.

Proclaiming a “democratic revolution” biased toward Peru’s poor, rural majority, Alan Garcia, 36, called for Latin American regional unity on the issue of foreign debt.

Garcia’s inauguration, safeguarded by Draconian security against terrorist threats, went off without a hitch.

Garcia won repeated standing ovations from a Congress dominated by his party, the American Popular Revolutionary Alliance, as he outlined visions of domestic economic and social reforms. He called for economic reactivation, government decentralization, police reorganization, increased emphasis on Andean agriculture, a reinvigorated judiciary, tax reform, stiff sanctions against crooked bureaucrats and higher real wages for workers.

He also promised a crackdown on Peru’s flourishing drug industry. “We do not wish to have an international reputation as exporters of poison,” he said. About half of the raw coca that eventually winds up in the United States as cocaine is grown in Peru.

Garcia, who describes himself as a Social Democrat, vowed “to build a nationalistic, democratic and popular government,” but he warned that Peru’s present economic crisis means difficult times ahead. “It is later than we think,” Garcia said. “The crisis is worse than we think.”

Garcia said he will oversee governmental austerity, but not austerity imposed by the International Monetary Fund as a condition for debt rescheduling.

“We will hold a dialogue with our creditors without the involvement of the IMF, and we will pay no more than 10% of the value of our exports in debt servicing over the next 12 months,” Garcia proclaimed to an audience that included six Latin American presidents and Treasury Secretary James A. Baker III as the head of the U.S. delegation.

Baker made no public comment. His visit was curtailed to less than 24 hours by security concerns in a capital city where Marxist guerrillas exploded two car bombs in the 72 hours before Garcia’s inauguration.

In his one-hour, 45-minute address, Garcia vowed to suppress the guerrillas as well as human rights violators among security forces pursuing them.

“Death is not a tool of democratic government,” he proclaimed.

Garcia stressed that Peru will honor its $14-billion debt, but he said a more pressing priority is “the internal debt to the Peruvian people . . . especially the poorest who suffer most.”

As the debt is currently structured, Garcia said, Peru would have to repay $3.7 billion in 1985. But exports, the source of foreign exchange income, will generate only around $3 billion. A cap of 10% of export earnings, or around $300 million, would leave Peru far short even of paying overdue interest.