“We haven’t lost hope of getting paid… Even if we don’t enjoy it ourselves, we will see our children enjoy it.”
— Ed Aedo, California Resident & Son of Rancher Whose Land Was Seized
The Wall Street Journal, 1/15/16
Between 1980 and 1990, Peru’s economic situation deteriorated and inflation spun out of control. The country defaulted on all its external debt, including loans from both commercial banks and multilateral development banks. Hyperinflation and multiple currency changes practically wiped out the nominal value of the agrarian reform bonds, and eventually Peru stopped repaying them.
Source: OECD (2017), OECD Integrity Review of Peru: Enhancing Public Sector Integrity for Inclusive Growth, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264271029-en
In the early 1980s, three converging factors were squeezing Peru financially: the Latin American debt crisis, a sharp drop in prices for the country’s mining exports, and the 1982-1983 El Niño phenomenon. The government suspended payment on its external commercial bank debt in 1984, failing to make scheduled payments totaling $1 billion in principal and interest at year-end. Peru also defaulted on loans from the Inter-American Development Bank, International Monetary Fund and World Bank.
Inflation peaked in August 1990 at 12,377%. In that month alone, the legal tender currency lost 75% of its value. Meanwhile, the country changed the currency twice in six years. As a result, the nominal equivalent of a Sol de Oro—the currency in which the agrarian reform bonds were issued—was one billionth of a Nuevo Sol. Due to the massive debt and slumping economy, Peru’s Agrarian Bank had stopped repaying the bonds by 1992.
The government still has not resumed payments on the agrarian reform bonds, long after the economy rebounded and Peru’s external debts were repaid or renegotiated.