Alan Garcia proposes to pay debt service according to the capacity of Peru

"If I become president I will renegotiate the external debt under better conditions" said the former president of Peru (1985-1990) Alan Garcia at a massive meeting in Lima after returning home from 8 years in exile in Colombia.

He argued that when the IMF -International Monetary Fund, WB -World Bank and other international financial institutions know the real level of the country's production and its capacity - they will accept and understand that renegotiation.

Alan Garcia Perez is running for the next presidential election in April. Even before he returned to Peru, he commanded 12 per cent of popular support, some points behind the front-runner Alejandro Toledo, who lost to ousted President Alberto Fujimori in last year's dubious elections.

Mr Garcia confronted the multilateral institutions (IMF/WB) in 1985 when he decided to pay 10% of exports in debt service. As a consequence Peru was punished and excluded for many years from the international financial markets; but his successor, Alberto Fujimori (1990-2000) paid about 28% of Peru's export revenues in debt service.

However, when the new president of Peru, Valentin Paniagua took the oath last November, he set as one of the three objectives of his transitional government the need for a new debt negotiation. Peru will this year spend $2.2 billion on debt service - around 4% of GDP. The national budget on education for 2001 is $ 550 million, 1% of GDP; and in health $420 million, 0.8% of the GDP.

Peru is a severely indebted middle income country. Its total debt is around $32 billion, a figure which has not decreased even after paying more than $14 billion between 1990 and 2000, and receiving $ 9.7 billion of new loans. Most of the loans were used to repay old debt.