“Given Peru’s fiscal soundness and the development of its main indicators of fiscal solvency and sovereign debt rating, its generous capacity for external debt repayment has been clearly established.”
— Dr. Ismael Benavides, Former Peru Finance Minister, et al.
On the Costs and Benefits of Restructuring the Selective Default of the Peruvian Land Debt, 2/17/15
In the decades since Peru emerged from communism and economic crisis, the country has resolved all of its old national debts—except the agrarian reform bonds. This is not because Peru is unable to pay. The country has one of the strongest balance sheets in Latin America, with a debt-to-GDP ratio of only about 24%, and recent sovereign bond issues are rated investment grade. Peru is selectively defaulting on the agrarian reform bonds because its leaders believe they can get away with it.
As Peru refuses to disclose how much it is willing to pay to settle the agrarian reform debt, various stakeholders and observers have estimated the amount owed:
Former Peru Finance Minister Ismael Benavides
Standard & Poor’s
UCLA Economist Sebastian Edwards
Several billion dollars would represent about 2% of Peru’s GDP. Meanwhile, the country has borrowed billions of dollars in recent years by issuing sovereign debt. These bonds are rated investment grade, and Peru brandishes its ability to repay them with one of the lowest debt-to-GDP ratios in Latin America. The agrarian reform debt is clearly a case of unwillingness—not inability—to pay.