A US hedge fund has filed a $1.3bn claim against Peru over the government’s alleged refusal to repay long-defaulted local bonds at a reasonable rate, arguing that it amounts to expropriation and falls foul of a free-trade agreement with the US.

Gramercy, an emerging markets-focused hedge fund, has snapped up about 20 per cent of bonds originally issued to landowners after their property was seized by a leftwing junta led by General Juan Velasco following a 1968 coup.

But the junta soon defaulted on the “Agrarian Reform” bonds and since then Peruvian holders have been fighting through the local judicial system to get repaid. The courts have long agreed that the bonds should be repaid, but a succession of Peruvian governments have baulked at the cost of doing so in full and adjusted for inflation…

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