Peru Stance on Debt Payment Greeted Calmly

Peruvian President Alan Garcia’s promise to limit Peru’s foreign debt payments is understandable, but the action is not likely to inspire similar moves by other debtor nations, analysts said Monday.

The left-leaning former congressman said in his inaugural speech Sunday in Lima that he would limit debt payments to foreign banks for the next 12 months to 10% of the value of Peru’s exports and would increase payments only when the country’s economy recovers.

Garcia also said he would not bend to pressure from the International Monetary Fund to institute austerity measures because they would exact too great a sacrifice from the country’s poor.

He pointed out that the $3.1 billion that Peru expects to get for its 1985 exports would not cover the $3.7 billion in interest and principal due this year.

Peru, an impoverished nation of 18 million people, has a foreign debt of $13.6 billion. It is $425 million behind in its interest payments, of which $170 million is owed to U.S banks.

“The idea of tying interest to some sort of GNP (figure) is not new in terms of theory, but this is the first time a national leader has espoused it,” said James Wooden of the investment firm Merrill Lynch.

“Peru has not been paying any interest for some time, so any interest they (the banks) get would be welcome,” he added.

Still, he said, Peru’s action is “not nearly in the same character of Mexico, Argentina, Brazil or Venezuela.”

Not only are the debts of those nations much larger, but those four also have been cooperating with their creditors in paying some of their debts, he said.