Peru Restricts Private Sector Debt Payments

The government on Friday ordered all private firms to stop making loan payments to foreign banks for at least two years.

A presidential decree published in the official gazette banned any interest or principal repayments of the privately held debt, worth more than $1 billion, to creditors until August, 1988.

Creditors would only receive repayments after that date if debtor firms had renegotiated the loan within guidelines set by the Economy Ministry, the decree said.

Hector Neyra, general manager of the Central Bank, said in a telephone interview that the ban covered the private sector’s medium- and long-term debt to all foreign creditors, including banks, suppliers and governments.

That debt has been estimated by Peruvian finance officials at $1.35 billion. Neyra said it was more than $1 billion.

Short-Term Payments OK

Private firms in Peru would be allowed to continue to service all short-term foreign debt, believed to be worth several hundred million dollars, Neyra said.

Peru has a total foreign debt of about $14 billion, sixth-biggest in Latin America. The public sector holds $12 billion of the total.

The private sector has been generally up-to-date in its payment, bankers said, in sharp contrast with the public sector, regarded by bankers as among the most delinquent in Latin America.

Since taking office July 28, 1985, President Alan Garcia has set a debt service ceiling of 10% of annual export earnings on the public sector’s medium- and long-term debt, worth about $11 billion.

Under this limit, the government remitted only $320 million over the past year, about one-seventh of what was due.