ABSTRACT
This chapter attempts to tell, in a synthetic way, the story of Peru's experience with private banks and then to explore what lessons might be drawn from it. Whatever the vulnerability associated with a dominant role for private banks in the financing of development, it was exacerbated in the case of Peru by what might be termed "overborrowing." Peru's actual shortfall of internal savings has its origins in two intractable financing gaps: the government budget and the balance of payments. Even if Peru has been most imaginative and aggressive in tackling the gaps when foreign finance was restricted, the advent of abundant credit on easy terms usually caused this discipline to unravel and debt to build up to unsustainable proportions. Peru was one of the first countries in Latin America to establish a significant articulation with private banks based on medium-term lending. Peru's newly elected civilian administration, under the leadership of Fernando Belaunde Terry, assumed power in mid-1963.
