Plan Includes Insurance Firms, Exchange Houses : Peru Proposes Nationalization of Banks
President Alan Garcia, beginning his third year in office, moved to gain control over the country’s turbulent financial system Tuesday by proposing the nationalization of all banks and credit institutions in Peru.
The plan would include the nationalization of the insurance industry and the closure of foreign exchange houses, and would outlaw the street sale and purchasing of foreign currency, which government officials have blamed for causing economic uncertainty.
A government official said the nationalization was intended to include foreign banks.
Garcia said in a state of the nation address to the Peruvian congress that the government was taking over the country’s banks because they had discriminated against the rural poor in their lending practices and had contributed to capital flight. He said he was taking the measures to ensure adequate investment capital in Peru, where growing uncertainty has led many savers and investors to purchase dollars.
Bank Operations Frozen
Banking operations will be frozen while congress studies the measure, Garcia said. If approved, the owners of any banks that were expropriated would receive compensation.
The left-of-center president did not make clear how nationalization, if approved, would affect the six foreign bank subsidiaries operating in Peru. They are: Bank of Tokyo Ltd., Citicorp, BankAmerica Corp., Bank of London and South America Ltd., Banco Central de Madrid, and Chase Manhattan Corp.
He said the exchange houses were contributing to capital flight and fueling inflation because they were being used by drug traffickers to launder proceeds of drug sales.