In 1987 the García government attempted to nationalize Peru's banks, financial institutions, and insurance companies. Under the legislation, which Congress approved despite a judicial ruling against the government's proposals, the government was to hold 70 percent of shares of nationalized banks, with the remaining 30 percent offered for sale to the public. The legislation excluded foreign banks operating in Peru from the nationalization program but prohibited them from opening any new branches in Peru. This set of proposals stimulated widespread public opposition and provoked a breakdown of cooperation between business leaders and the government. Private investment fell abruptly. García attempted to pursue the nationalization despite all the opposition, but adverse judicial rulings slowed implementation and finally killed the proposals.
In early 1991, Peru's financial system included four development banks, twenty-two commercial banks, eight credit firms (financieras de crédito), fifteen savings-and-loan mutuals (mutuales), twelve municipal savings-and-loans institutions, and the Savings Bank of Lima (Caja de Ahorros de Lima). In May 1991, the Fujimori government introduced a new package of economic measures designed to liberalize the banking system. The government suspended the powers of the Central Reserve Bank (Banco Central de Reservas, or BCR--hereafter Central Bank) to set interest rates and allowed them to float according to market forces. It also stipulated that in the future foreign banks would be able to operate in Peru under the same conditions as Peruvian banks. In addition, it amended the Agrarian Reform Law of 1969 by allowing farmers to put up their land as collateral for bank loans. When it went into effect in June 1991, the new banking law shook up the state banking sector, which employed 20,000 people and included six state-owned banks. The new law eliminated specialized banks, credit firms, and mortgage-lending mutuals, forcing them to reorganize as commercial banks.
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