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ECONOMY-PERU: MOUNTING DEBT COULD UNDERMINE TOLEDO'S RULE

By Abraham Lama
LIMA, Nov. 6, 2002 (IPS) -- Peru will have to make payments of more than $2 billion on its foreign debt to Western banks next year, an obligation analysts say is impossible to meet and could trigger a fiscal collapse, weakening the country's always fragile political stability.
While President Alejandro Toledo seeks new international credits to make good on previously contracted debts and ratchets up taxes in order to boost revenues, some experts are pointing to the potential threat of a forced conversion of reserves and deposits into government-issued bonds.
The Peruvian economy has been afflicted with a serious recession for the past five years, pushing more and more of its 25 million people into poverty. The gross domestic product (GDP) of this Andean nation is around $55 billion, while exports this year are predicted to reach just $6 billion.
The foreign debt, which stands at $28.1 billion, is supposed to be gradually paid off over the next 37 years, but Peru is required to make payments of more than a billion dollars annually from 2003 to 2014, according to the schedule agreed with its Western creditors.
The biggest disbursements are slated for 2003, 2004 and 2005, when the country must shell out more than $2 billion dollars a year, covering capital and interest.
Economy minister Javier Silva Ruete gave his own vivid description of the situation: "We are nearing the crest of the external debt hump left by former president Fujimori (1990-2000) as his legacy."
To balance Peru's budget, Silva Ruete is channelling efforts in three directions: selling off to major corporations the state enterprises that have not yet been transferred to the private sector, imposing new taxes and seeking additional loans from abroad.
The minister hopes these will provide the $2.55 billion needed to balance the budget and to handle international credit obligations this year.
"In open credit lines, $695 million is expected -- $400 million from the Inter-American Development Bank and World Bank, and $295 million from private banks -- and we have a pending conversation with the Andean Development Corporation (a regional financial body)," he said.
"Although the strict conditions for loans in Latin America are coming down on us hard in the wake of the negative experience in Argentina and the evolution of politics in Brazil, we hope to obtain $700 million in bonds from the international institutions," stated the minister.
Lawmaker Javier Diez Canseco, of the opposition Decentralist Parliamentary Union, says it was a "dirty trick of the Fujimori government to concentrate virtually unpayable debt totals for his successor to have to deal with." "But it was a dirty play that had the backing of experts from the international financial organizations, which agreed to the payment plan even in the full light that it would be impossible to fulfil."
"The errors in calculations of the international financial institutions, which accept unrealistic commitments from development countries when granting them loans or renegotiating payments, are paid for by the people of those countries," added the legislator.
"And if the countries can't pay, the only solution those organizations offer is to negotiate new loans. That is, they invite us to increase our external debt even more, and under even tougher conditions," concluded Diez Canseco.
Peruvian economic analyst Hugo Aquino points out that the international financial organizations negotiated with Peru and agreed on setting the highest payments for 2003, 2004 and 2005 ”based on the very
optimistic calculations of the 1996-2001 period, of an average eight-percent growth in exports and five- percent in GDP."
"Although Peru was disciplined and fulfilled the requirements dictated by the International Monetary Fund (IMF), the growth predicted by its experts did not bear out. On the contrary, we are caught in a new recessive crisis from which we have failed so far to escape," says Aquino, editor of the monthly review Avance Económico.
Some economists with links to the government, like Guillermo Runciman, of the University of the Pacific, and Oscar Ugarteche, an expert on foreign debt matters, believe it would be possible to obtain funds through debt-swapping mechanisms aimed at investment and stimulating the national economy.
Runciman cites the example of Chile, "which converted $11 billion of debt into investment, permitting accelerated growth for its exports."
But independent analyst José Villaurduña, in a column published in the opposition daily Correo, expressed skepticism about the government's chances of obtaining fresh financial resources, given the current financial crisis in most of South America.
"The foreseeable difficulties in financing the fiscal deficit with foreign credits are probably tempting the government to put its hand in the $9.5 billion in reserves," he wrote.
"In this context, greed could lead it to the private pension funds -- which reach $3.9 billion -- and part of the $1.6 billion that the public sector has deposited in the banks, which could be subject to a forced exchange for government bonds," concluded Villaurduña.