In this epoch, Peru was one of the first countries in Latin America to develop extensive ties with private commercial banks. The Peruvian case highlights difficulties facing small countries in the international financial system. In 1954 Peru became the first country to sign an IMF-designed standby agreement. Peruvian policymakers' coping strategies have varied dramatically, from orthodox “shock” treatment to cautious rebellion against the international monetary system.

In August 1983 President Fernando Belaúnde Terry, whose term in office began in 1980 and ended in 1985, began a quiet moratorium on the debt. He carefully maintained the front of a compliant debtor by negotiating with the banks and promising but not delivering orthodox adjustment. By contrast, Belaúnde's successor, President Alan García Pérez, in office between 1985 and 1990, condemned the IMF outright as a “modern system of imperialism.” In an unprecedented move, García suspended payments to the IMF and unilaterally declared that Peru would pay commercial banks no more than 10% of its export earnings. By 1990 Peru was the world's “worst” debtor: it owed $950 million to the IMF, roughly half the Fund's total bad debts.

We divide our analysis of Peruvian rescheduling in the 1980s into four periods. The first began in March 1983 when negotiations over a jumbo loan began, and ended in June 1983 with an agreement with the banks. Growing instability in Peru led to a changed bargaining game, with the second period encompassing the major rescheduling in February 1984 and the remainder of the Belaúnde Administration until the inauguration of President García in July 1985.