REUTERS – Peru’s top court on Tuesday ordered the government to pay 40-year-old land reform bonds at their current value and with interest, terms that will likely lead to a payment worth several billion dollars.
The government has six months to pass a decree with further details on how to appraise the bonds and carry out the payments, two years to recognize the debt and eight years to pay it off, the court’s president Oscar Urviola said.
The payments don’t have to be in cash and could be made in the form of land or by issuing new bonds, he told local news station RPP.
Peru’s President Ollanta Humala’s administration has previously said it would comply with the long-awaited decision, which aims to clear up a bitter chapter in Peruvian history.
The resolution said the president of Peru’s Constitutional Tribunal ruled in favor of bondholders after members were split 3-3 on whether to force the government to pay off the debt.
Conservative estimates put the value of land-reform bonds at between $1 billion and $3 billion. Other estimates say the liability is far larger, between $4.6 billion and $8 billion, or about 4 percent of Peru’s gross domestic product.
Previous Peruvian presidents have resisted honoring the bonds, saying they lacked the cash, even after the court ruled 12 years ago that the government should pay up.
Paying off the bonds will officially put their value on the government’s books, though resolving the outstanding debt might also boost Peru’s credit ratings.
Last week Humala asked the court to abstain from ruling on “sensitive” topics such as the land bonds until Congress named new members to the court – suggesting the court’s decision would lack legitimacy.
Humala was elected in 2011 after pledging to make sure the poor benefited from Peru’s decade-long economic boom.
Bond payments could further anger critics who say Humala has favored the rich, as public sector doctors strike for wage increases and civil servants and universities protest performance-based reforms.
Much of the land-reform debt has been bought by local and foreign creditors over the years.
“I voted against resolving the debt because I don’t believe ownership of the bonds is legitimate,” court member Fernando Calle said on RPP television.
The agricultural bonds were issued as compensation for land lost in the 1970s under a redistribution program started by leftist dictator General Juan Velasco, who sought to create a more equal society and redress the legacies of Spanish colonialism.
Many middle-class farmers and workers were ensnared in the program, which caused Peru’s agricultural output to collapse when 5,000 farms were seized between 1969 and 1981.
Since the 1990s, Peru has shed Velasco’s left-wing economic model and become one of the region’s fastest-growing economies, with free-trade agreements from China to Europe and investment-grade credit ratings.