“Peru today has a respected economy and aspires to be a first-world country. With that comes responsibilities. And one of those responsibilities is to honor its debts.”
— Beatriz Merino, Former Prime Minister of Peru, in reference to the agrarian reform bonds
In 1996, Peru passed a law allowing the government to repay the agrarian reform bonds at a value that rendered them essentially worthless due to hyperinflation and currency devaluation. Peruvians alleged this proposal was unconstitutional. A series of court rulings over the next 10-plus years affirmed the rights of bondholders and the government’s obligation to repay them at a fair price, and Congress approved plans to do so. However, the Executive Branch has defied the courts by blocking repayment.
2001 – Court Rules Peru Must Repay Bonds at Current Value
Peru’s Constitutional Tribunal rules the agrarian reform bonds are valid debt obligations, and the government must update the amount owed to account for hyperinflation and currency changes. This is known as the “CPI methodology,” enshrined in Peru’s 1984 Civil Code. Repayments are to begin immediately.
2004-2010 – CPI Methodology Repeatedly Affirmed
The Constitutional Tribunal reaffirms its decision mandating Peru repay the agrarian reform bonds using the CPI methodology in 2004. In 2006 and again in 2010, Peru’s Supreme Court validates that decision.
2005-2006 – Congress Issues Report & Passes Repayment Bill
In a 2005 report, the Agrarian Commission of Peru’s Congress recommends legislation establishing a plan to repay bondholders. The bill calls for bond values to be updated using the CPI methodology—the Peruvian government’s “official” system for updating national accounts, the report notes. After passing Congress, the bill must be signed by President Alejandro Toledo.
2006 – President Blocks Repayment
Toledo vetoes the bill shortly before leaving office, saying bond values should be updated using an “adjusted Consumer Price Index”—although he fails to explain what this means. (Toledo currently resides in California, fighting extradition to Peru to face corruption charges in a separate case.)
2011 – Congress Approves New Repayment Plan
The Permanent Committee of Peru’s Congress—which had the authority to approve legislation because Congress was in recess—passes a bill providing for repayment of the agrarian reform bonds using the CPI methodology. If signed by outgoing President Alan Garcia, the legislation would authorize the Peruvian Ministry of Economy and Finance to exchange the agrarian reform bonds for new sovereign debt with maturities of up to 30 years.
2011 – Another President Prevents Repayment
After members of President-Elect Ollanta Humala’s party criticize the legislation, it is announced that Garcia will not sign the bill into law. (Today, Humala is being jailed pending an unrelated corruption probe, while Garcia is being investigated for alleged corruption in a separate case.)