Peruvian campaigners put debt on the election agenda

New Peruvian Government calls for debt restructuring

Upon taking the reins of Peru's interim government, new president Valentin Paniagua has included foreign debt payments among the many problems that need to be tackled following the downfall of Alberto Fujimori in November 2000. In his inaugural speech Paniagua boldly stated that Peru's debt structure needed to be examined in order to make payments more affordable. Although this was immediately toned down by his finance minister Javier Silva, insisting that the “profile” of the country's $19 billion foreign debt should be changed, the government has highlighted the damaging impact of foreign debt on Peru's economy, currently in recession.

According to Jubilee 2000 Peru co-ordinator Ismael Muñoz, for the government "it is clear that debt payments cannot be met given the economic situation in the country. For the 2001 budget, tax receipts will not be enough, it is impossible to pay." Silva himself admitted as much, saying of meeting the payments for the $2.1 billion debt service required in 2001: "we are not in a position to do so. To be in a position to do so we would have to make an economic adjustment that would be intolerable for the Peruvian people." Instead Silva has stated that Peru will be able to pay $1.2 billion - still a considerable sum. The implications are stark. If Peru is forced to make all its payments, it will mean yet more hardship especially for the millions of Peruvians who live in poverty.

Peru will no doubt be sensitive towards entering into restructuring agreements with private lenders. New York-based hedge fund, Elliot Associates, successfully sued Peru and in October 2000 received full payment plus capitalised interest of Brady bond debt they acquired in 1996. The reason Elliot was able to sue was that it had refused to enter into a debt restructuring deal between Peru and private lenders in 1997 in the knowledge that it could begin legal proceedings to win the full amount. Although the government will most likely pursue debt restructuring with the Paris Club, the Elliot case has thrown up a dangerous precedent for any future renegotiations with private lenders.

The fall of Fujimori's government has also exposed high levels of corruption which have contributed to ever higher debt payments. Fujimori's key adviser and former intelligence chief Vladimiro Montesinos, was discovered to have at least $70 million hidden away in Swiss bank accounts. Most of the money came from controversial arms deals from which Montesinos received a substantial commission. Peruvian debt campaigner Muñoz believes that this money should be "repatriated to Peru and used in alternative development programmes in coca-growing areas, programmes to prevent drug abuse and social development programmes."

According to figures released by former Economy Minister Carlos Boloña, just under half of Peru's debt is owed to the Paris Club ($8.424 billion). Multilateral loans account for $5.614 billion, commercial banks $3.892 billion, commercial suppliers $1.053 billion, and over $150 million to bilateral sources in Europe and Latin America. As a country Peru is a notable example of the failure of the current provisions for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. Peru's level of GDP and the size of debt do not allow it to qualify for HIPC. Nevertheless, the country suffers from a serious imbalance in wealth distribution, meaning that three out of four Peruvians live under the poverty line, and one in six in extreme poverty. These are, in all probability, conservative estimates, given that they are based on the government's own poverty definition. For 2000 the World Bank estimates that debt service will reach 5.6% of GNP, more than the combined health and education expenditure for 1998.