Peru economy could fall by 20% as consumer debt crisis looms - govt

LIMA, Oct 1 (Reuters) - Peru´’ economy could plummet by more than 20% if unpaid consumer debts continue to mount, a scenario the government hopes to stave off with an emergency plan to reschedule troubled loans with state guarantees, the government said on Thursday.

Economy Minister María Antonieta Alva said banks were increasingly under pressure as Peruvians have struggled to pay mortgage, consumer and small business debts, leaving the country on the brink of crisis.

“If there were a disruption in the financial system, we believe that the projections of the fall could be much higher than the (previously predicted) 12%,” Alva said, adding that gross domestic product could plummet by 20% or more.

Alva said the government-proposed bill would back consumer loans with state guarantees and reschedule them. Lawmakers, by contrast, have put forward a proposal to freeze unpaid debts, a measure President Martin Vizcarra opposes because it would violate contracts between lenders and consumers.

Alva specified that under its plan, the state would back loans up to $1.39 million for people or small business with a strong credit history prior to the pandemic.

The plan would extend the repayment period for loans and reduce the interest rate by up to 20%, a move that would benefit some 3.4 million debtors, she added. (Reporting by Marco Aquino; Writing by Dave Sherwood; Editing by Sandra Maler)

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