Peru will stick to local law in debt dispute: Finance Minister
By Paul Kilby and Davide Scigliuzzo
LIMA, Oct 11 (IFR) - Peru's government will stick to the letter of local law in a heated dispute over the value of 40-year-old land-reform bonds, the country's finance minister told IFR on Sunday.
Creditors say a 2013 Constitutional Court ruling on the method of payment short changes them by several billion dollars and subordinates institutional investors in the payment structure.
The row intensified this week as the spotlight fell on the Andean country, which is hosting the annual meetings of the International Monetary Fund and the World Bank - the first Latin American nation to do so in nearly fifty years.
The bonds, which had maturities of between 20 and 30 years, were issued between 1969 and 1982 as compensation for the government's expropriation of some 23 million acres of land.
Former Peruvian finance minister Ismael Benavides Ferreyros, who is among the holders of the bonds, has described the unpaid debt as a selective default and values the notes at around US$5.1bn after accounting for inflation.
The different valuation methodology used by the government, however, could mean that the combined payment for all bondholders will be as little as a few million dollars, which Peru can effectively delay until 2021, according to US-based emerging markets hedge fund manager Gramercy.
"The Supreme Decree issued by Peru last year is a complete repudiation of the debt cleverly wrapped in the cloth of a resolution," said James Taylor, chief legal officer at Gramercy, which is one of the holders that snapped up the bonds hoping for large returns.
The administration of President Ollanta Humala says it will comply with the Peruvian court's rulings. Continuación...