Basis for an external debt policy in Peru: An analysis of creditors, mechanisms and macroeconomic framework

Net capital inflows are needed to alleviate the debt problem and to foster economic growth in Peru. These capital inflows could be in the form of foreign direct investment, capital repatriation, new loans, debt relief, or some combination thereof. Peru\u27s partial moratorium on debt is not enough any more to bridge the gap between Peru\u27s internal savings and its investment needs. The country requires an alternative approach to the debt problem which will allow for economic growth.In order to propose an alternative strategy, it is necessary first to understand the extent and causes of the debt crisis and the major approaches and proposals that have been suggested to manage the debt situation. Part I of this study offers a general outlook in this respect.Part II, the core of this study, provides the grounds for an external debt policy in Peru by covering three major aspects of the policy-making process. First, it identifies the various actors of the system, explores their interactions and their different objectives. Based on past and expected political and economic benefits for Peru, it suggests a debt policy that differentiates and prioritizes relationships with creditors.Second, this study analyzes the variety of mechanisms and suggestions that have emerged since the eruption of the debt crisis to manage the situation. Based on Latin America\u27s experience with such alternatives and on Peru\u27s own economic and political characteristics, it suggests a debt policy that is selective in terms of alternatives available.Finally, this study provides the quantitative framework that identifies the critical values required for a successful outcome of a growth-oriented debt policy. Based on this framework, several scenarios are outlined and modeled for the case of Peru