PERU: STATUS OF DEBT REPAYMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T01298R000100110001-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: August 2, 2011
• Sequence Number: 1
• Publication Date: October 10, 1985
• Content Type: REPORT

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DIRECTORATE OF INTELLIGENCE
10 October 1985
Peru: Status of Debt Repayments
Summary
Although we lack precise figures on Peru's debt to
communist countries--it is somewhere between $1 and $2 billion
and is owed primarily to the USSR--fairly accurate figures are
available on Peru's scheduled and actual payments on this debt
in 1984 and the first half of this year. The record of
payments shows that there was a slight improvement in Peru's
performance in servicing its debt to communist countries
between 1984--when it met 18 percent of its scheduled payments
to these countries--and the first half of 1985--when it paid 22
percent of scheduled payments.
By contrast, there was significant slippage over the same
period in Peru's servicing of its debt to the two main groups
of Western creditors--Western governments and agencies and
international organizations in one group and Western bankers in
the other. Peru met 51 percent of its obligations to the first
group in 1984 but only 36 percent in the first half of 1985.
The bankers fared even worse, receiving 16 percent of scheduled
payments. from Peru in 1984. but only 2 percent in the first
Any discussions with the new Garcia administration about
the improvement in Peru's servicing of its debt to communist
N9T MICROFILMED
&+mia Cniryry
This memorandum was requested by the Deputy Assistant Secretary of State
U the Office of African and Latin American Analysis and coordinated with
the Office of Global Issues and the Office of Soviet Analysis. This
analysis is based on information as of 30 September 1985. Comments and
questions may b"j7 cted to the Chief, South America Division, ALA17
ALA M-85-10105C
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countries in the first half of 1985 as against the comparative
slippage in its debt servicing to Western creditors and bankers
would be complicated by the fact that payments to communist
countries have been in goods while Western creditors insist on
cash. Pointing to the disparity in an effort to persuade Peru
to pay more of its debt to Western creditors could in fact
backfire--Garcia for his part could point to the communist
countries' willingness to accept payments in goods in an
attempt to convince Western creditors to follow suit.
Background
Since the 1970s, Peru has increasingly relied on Western bankers to
finance new projects and balance of payments deficits; debts incurred with
the USSR and other communist countries were primarily related to purchases
of military hardware. Based on official data, Peru's debt rose from $9.2
billion in 1979 to an estimated $13.5 billion last year and debt servicing
obligations increased from $1.7 billion to $2.5 billion during the same
period (Chart). The debt buildup and Peru's stagnant exports caused the
ratio of debt service to exports to increase steadily to 76 percent during
1984. Nonetheless debt repayment obligations were generally met until
__ 2 J , ^^A F_ I
With domestic political pressure building against austerity, Lima
unilaterally stopped paying interest to foreign bankers in July 1984.
According to US Embassy reporting, Peruvian officials claimed that the
general strike in June 1984 halted government tax collection and that the
Central Bank could not make interest payments without violating targets
under its IMF agreement. By September, however, Peru became ineligible to
draw further on its standby loan because of an excessive government
deficit, and payments have been sporadic ever since.
Although the Belaunde government made token payments to Western
creditors after the turn of the year--and reached formal agreement with
Moscow allowing Peru to continue repaying part of its $1-2 billion debt to
the USSR in goods--arrearages mounted by another $1 billion during the
first half of the year and interest payments fell past due by more -than
180 days, one of the criteria fur a declaration of value-impaired by US
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The Record and What it Shows
We believe that data available from Peru's Central Reserve Bank
provide an accurate record of Peru's recent debt servicing performance.
These figures (see Table 1) show that in 1984 Peru made actual debt
payments of approximately $51 million ($35 million in principal and $16
million in interest payments) to communist countries, almost all of which
was in the form of goods. These payments constituted 18 percent of
.scheduled payments to communist countries in 1984. In the first half of
this year, Peru made actual debt payments--again primarily in goods--of
$63 million to communist countries ($60 million in principal, and $3
million in interest payments). These actual payments constituted
approximately 22 percent of scheduled payments to communist countries over
By the way of comparison, in 1984 Peru paid approximately $573
million ($214 million in principal and $359 million in interest payments)
to Western creditors, mainly in cash. Western governments and agencies
and international organizations received some $213 million ($53 million in
principal and $160 million in interest payments) and bankers were paid
$151 million ($4 million in principal and $147 million in interest).
These payments represented 51 percent of 1984 scheduled payments to
Western governments, agencies, and international organizations, and 16
percent of scheduled payments to bankers. In the first half of 1985 Peru
actually paid $126 million ($67 in principal and $59 million in interest
payments) to Western creditors, again in cash. Western governments and
agencies and international organizations received approximately $65
million ($29 million in principal and $36 million in interest payments)
and bankers $6 million ($1 million in principal and $5 million in interest
payments). These payments constituted 36 percent and 2 percent of
scheduled payments to these lenders, respectively, over the January-June
Garcia's Approach
We do not yet have Central Reserve Bank compilations on debt
servicing payments made since President Alan Garcia took officp on- " y
1985.
In his
aaaress, arcia in effect formalized the Belaunde government's
repayment policy by declaring a limit on debt servicing to 10 percent of
export earnings over the next 12 months. While the new President has yet
to formulate concrete debt repayment schedules, US Embassy reports suggest
he may dribble out payments to multilateral institutions and then to
government donors. Lima will probably pay a significant part of the $230
million it owes to communist countries over the next 12 months with
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goods. Based on the same repayment allocations made during the
January-June 1985 period, we estimate Peru's past due payments will
increase another $2.1 billion in the next year (see Table 2).
US bankers, in our view, probably will receive only negligible
payments in the near term and have already written off some of their
Peruvian exposure. Although the potential for confrontation exists, the
Garcia government will probably search for methods to make debt payments
in goods to Western creditors to avoid becoming an international financial
pariah. Moreover, payments in goods fit well with the President's
publicized economic plans because they will help economic development,
generate new employment opportunities, and increase Peruvian exports. We
believe Garcia will point to Soviet willingness to accept goods as payment
for debt his attempts to convince Western creditors to follow suit.
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PERU: RISING ANNUAL DEBT SERVICING BURDEN
? SUPPLIERS
? UITL BANKS
? COMMUNIST
? WEST OOVS
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Table 1
Peru: Mounting Payments Arrearages
(US$ million)
1984
Scheduled
Payments
Actual
Payments Arre
arages
Total
2,492
624
1,86
8
Principal
1,627
249
1
37
8
Interest
865
375
,
49
0
Western Governments and
Agencies and International
Organizations*
213
20
7
Principal
249
53
19
6
Interest
171
160
1
1
International Banks
967
151
Principal
615
4
61
1
Interest
352
147
20
5
Communist Countries
285
51
Principal
230
35
19
5
Interest
55
16
3
9
Suppliers**
Principal
533
157
37
6
Interest
287
52
235
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Table 1 (Continued)
January-June 1985
Scheduled
Payments
Actual
Payments
Arrearages
Total
1,168
189
979
Principal
691
127
564
Interest
487
62
425
Western Governments and
Agencies and International
Organizations*
183
65
118
Principal
I
84
29
55
nterest
99
36
63
International Banks
339
6
333
Principal
152
1
151
Interest
187
5
182
Communist Countries
281
63
218
Principal
241
60
181
Interest
40
3
37
Suppliers**
365
55
310
Principal
I
214
37
177
nterest
151
18
133
*Most government debt is Paris Club debt.
**Most of the major suppliers are i-s manufacturers and will likely be paid
through barter agreements. Total :??iit to suppliers would amount to $1.6
billion if we add the $650 million .-.-chase of 26 Mira a 2000s $100 million
duP to ho Wahl n--+ ,~.,.. ,_..
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Table 2
Peru: Payments Due in the Next 12 Months
(US$ million)
Scheduled
Obligations
Estimated
Repayments
Arrearages
Total 2,456
312
2,144
Western Governments and
Agencies and Int'l
Organizations
1,103
109
994
International Banks
779
9
770
Communist Countries
232
Suppliers
342
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SUBJECT: Peru: Status of Debt Repayments
Copy 1 -
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Paul Taylor,
of State for
DDI
NIO/LA
NIO/ECO
NIC/AG
PDB Staff
C/DDI/PES
D/ALA
ALA/PS
ALA Research
CPAS/IMC/CB
Deputy Assistant Secretary
Inter-American Affairs
18 - C/SAD
19 - 21 - C/SAD/R
ALA/SAD/R
(10 October 1985)
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