IMF Strikes Blow to Peru’s Foreign Borrowing Ability

In the first such action against a South American country, the International Monetary Fund on Friday declared Peru ineligible to borrow, effectively denying the country further bank credit from any source.

The action by the executive board of the IMF made Peru only the fifth country ever to have borrowing rights cut off because of overdue payments.

Peru owes the fund $705 million but also owes $14 billion to commercial banks in the United States and elsewhere. It is seriously in arrears on payments to all creditors.

The declaration will make it difficult and probably impossible to reach further accommodations with commercial banks on repayment terms and rules out any new loans, officials familiar with the situation said.

“This decision was taken in light of Peru’s overdue financial obligations to the fund,” a brief IMF statement released late Friday said.

Peru joins Sudan, Vietnam, Liberia and Guyana as IMF outcasts, ostracized from the Western world’s financial system.

Sources within the international financial community said the IMF Executive Board regretted that it was forced to take the drastic action. But it considered a cutoff unavoidable, they said, because of Peru’s deteriorating financial situation and the declaration of its president, Alan Garcia, that it would pay on its international debts only amounts representing 10% of its export earnings.

Peru made a $35-million payment to the IMF last week, the first such payment in over a year, but still is in arrears $160 million. The cutoff had been threatened by the IMF months ago, but Peru obtained an extension.

The sources within the financial community said Peru, despite notification of the cutoff, has assured the IMF it will maintain a dialogue with the international lending institution and has been urged by the board to catch up with its payments and regain its international credit rating as soon as possible.