ABSTRACT
This chapter discusses that in 1975 the budget deficit doubled, and both the inflation and the balance-of-payments problems became more acute. The average price of basic consumer goods was raised by 20 to 30 percent, as many subsidies were lowered to cut the budget deficit and the inflation rate. The first installment of the International Monetary Fund loan was released in December, but in February the Fund's mission returned and declared Peru in massive violation of the agreement. In refusing the second and all further drawdown, it focused special attention on the budget deficit. Peru's pegging of the sol at 130 per dollar, and some dubious accounting procedures were designed to help cover up the shortfalls. One of the key issues raised by the subject of private loans to Third World countries has revolved around the question of stability, declaring that sooner or later, an important country would default on its debts.
