Putting a value on land bonds the government issued 40 years ago is difficult as hyperinflation in the late 1980s and early 1990s eliminated much of their worth, Finance Minister Luis Miguel Castilla said. Holders of the country's land bonds want the government to finally pay billions of dollars in old debts that in most cases were never paid.
They say the government should carry out a debt swap that replaces old bonds with new bonds, so as to avoid putting too much pressure on the budget. Beatriz Merino, a lawyer by training and Peru's first woman prime minister, said last week the time has come for the executive branch to take care of a liability estimated at $1 billion to $3 billion, or nearly 2 percent of gross domestic product, by paying off the bonds issued to people whose land was seized for redistribution.
"The central problem is how to value the debt as there were periods of high inflation and hyperinflation in the late 1980s and early 1990s. What is critical is the determination of the value of these obligations that the state has," Castilla told Reuters at a meeting of the Inter-American Development Bank in Montevideo.
"At the moment, in our accounting books, the land bonds are zero, because their (value) was liquidated by hyperinflation." The country's constitutional tribunal told the executive branch to pay the bonds a decade ago, but in most cases that hasn't happened, leading holders to say the government isn't fulfilling the court's mandate.
"I don't think we are in a situation of non-compliance and we are going to honour all of our obligations," Castilla said in an interview as the IADB meeting opened on Friday. "There was never a law determining how they would be valued, the rate they would be valued at, and a mechanism to certify the validity of each claim," Castilla said.
He said the government was periodically paying claims to holders who have won lawsuits filed with the judiciary. "We follow through once there is a sentence by giving resources to the agriculture ministry to cancel the debts of holders of land bonds," he said.
In what became one of the most bitter chapters in Peruvian history, the agricultural bonds were issued in the 1970s during a chaotic land redistribution program started by leftist dictator Gen. Juan Velasco, who sought to take farms from the rich and hand them over to peasants.
Many middle-class planters were also ensnared in the program, which caused Peru's agricultural output to collapse as 5,000 farms were seized between 1969 and 1981. Hundreds of claims have been filed but many holders have never bothered to do so. Agricultural output plummeted following the redistribution, which took farms from aristocrats and middle-class planters alike and handed them over to workers and the poor. Peru has since transformed itself into one of the world's fastest-growing economies, with numerous free-trade agreements and investment-grade credit ratings.