Peru Says it Intends to Deepen Debt Stance

President Alan Garcia said he sought to deepen Peru’s hard-line foreign debt stance, possibly by limiting repayments to the World Bank.

In a televised address tonight, he criticised the World Bank for making Peru make larger debt payments than the amount the bank is willing to make in new loans. “We will deepen our policy on the foreign debt,” he said.

Peru has limited foreign debt repayments to 10 pct of export earnings, effectively suspending most remittances due foreign private banks and many governments. It has generally been current for most of Garcia’s 20 months in office on payments to the World Bank and the Inter-American Development Bank.

But tonight Garcia said: “We have met our aim of limiting the payment of the debt and will limit it also even though organisations like the World Bank have credits which oblige us to buy a certain type of machinery and to build certain types of public works and not others, and to pay much more in dollars than that which they are willing to newly lend us.”

The Economy Ministry said last year it owed the World Bank about 520 mln dlrs in loans out of the country’s 14 billion dlr debt.

Garcia said his government had been a model for Latin America because Peru had enjoyed growth in gross domestic product (GDP) last year of nine pct while taking its hard line on debt. He said GDP would grow by at least six pct this year.

He announced an immediate 40 pct rise in the minimum wage to 1,260 intis per month, benefiting the 1.3 mln minimum-wage workers out of a total labour force of 6.7 mln.

Salaries will go up this month by 30 pct for civil servants and 27 pct for those workers earning above the minimum wage but not covered by collective bargaining agreements.

He also said the price of petrol, frozen since August 1, 1985, would increase by 20 pct from the current 17.5 intis per U.S. Gallon and remain at the new level for the rest of the year. He did not say when this increase would be effective.

Taxes on petrol are the government’s leading revenue earner, traditionally accounting for about one-third of taxes. Sales taxes on autos, liquour and cigarettes would also go up, he said, without specifying the amount.

Garcia announced the government would encourage Peruvians to repatriate their savings deposited abroad by paying a 15 pct premium above the market exchange rate.

The inti’s official buy-sell rate against the dollar is 14.85/92 and the free rate is about 21.70/80.

To encourage private investment, he said the government would set up a special fund with which it would match every two intis of private investment with one inti from the government.

He also said his dismissal of Peruvian Air Force Commander Lieutenant General Luis Abram Cavarellino yesterday strengthened the democratic authority of his government.