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July 20, 2011 10:22 am
More than 40 years after a leftist military regime stripped Peru’s landowners of their holdings, Congress passed a bill this week that will honour the families’ “reform bonds” with a $1.4bn sovereign paper swap.
If outgoing president Alan García approves the bill in the last days of his administration, bondholders will be able to swap their now defunct bonds for new 30-year sovereign paper.
While some holders kept their bonds locked in dusty vaults through the decades following the chaotic land redistribution programme, others, including Banco de Credito, Peru’s biggest bank, are suing the government for a pay-off. State-owned Banco de la Nacion also holds the bonds.
General Juan Velasco’s reform was targeted at the biggest landholders in a country with high rates of inequality, but middle-class farmers were also ensnared, after some 5,000 properties were seized between 1969 and 1981.
If the bill is finally approved, families who were given the bonds in supposed compensation would have until December 15 2015 to tender their until-now largely worthless paper.
The incoming administration of president-elect Ollanta Humala has criticised the move as “downright irresponsible”.
Freddy Otárola, a spokesman for Mr Humala’s party, Gana Peru, said the bonds should in principle be honoured, but that the last-minute bill had been passed without due debate, creating a spending “time bomb”.
“It affects not only the government but the entire country,” Mr Otárola told reporters in Lima. “It is not known if they’re worth $1bn or more, given the interest that’s accumulated over the years.”
There is no register of bondholders, but estimates of the bonds’ current value range from $1.4bn to more than $4bn, worth as much as 2.6 per cent of Peruvian gross domestic product.
Mr Humala takes office on July 28, independence day. Despite strong economic indicators, investment inflows and GDP growth forecast at 6.5 per cent for 2011, the incoming president’s party has been complaining about a slowdown and various “time bombs” in the form of spending commitments and unresolved social conflicts.
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