Pick a number, any number. You might just hit on the amount Peru’s government will have to pay out to the holders of 40-year-old “land bonds” that hark back to the leftist military regime of Juan Velasco Alvarado.
When General Velasco expropriated huge tracts of land off wealthy ranchers to redistribute amongst campesinos, landholders were paid in bonds which have since been stored hopefully in family safes or sold on to speculative investors.
Now that Peru’s Constitutional Tribunal has ordered the government to come up with a plan for making good on the dusty bonds within the next six months, estimates of the amount that will have to repaid are ranging somewhat wildly between $400m and $8bn.
Ismael Benavides, a former finance minister who holds bonds because his family lost property under the agrarian reform, says the payment could eventually be 15 per cent to 20 per cent of $3bn-$4bn.
Like many before him, Peru’s president, Ollanta Humala, was unnerved by the prospect of a new billion-dollar item on his budget, so much so that he publicly called on the Constitutional Tribunal to delay its ruling until he had made some new appointments to its bench.
The Tribunal, Peru’s highest court, took exception to this very public political pressure and handed down its ruling this week. Its judges were split 3-3, with the president, Oscar Urviola, deciding in favour of the bondholders.
Shortly after, Peru’s Congress appointed six new judges to the Tribunal, causing public uproar and accusations of political interference in the country’s institutions. (“Lack of strong institutions” usually comes in just after “social protests” on the list of top risks of doing business in Peru).
Humala said on Thursday that the government was analysing all aspects of “this very sensitive issue”. He also called on one of the new judges to resign from the Tribunal, given the serious questions raised about his suitability.
As a footnote to this latest chapter in the land bonds saga, questions now have also arisen about the complaint brought to the Tribunal in the first place, after the Peruvian College of Engineers named in the claim said it one of its members had used its name without full approval. Whether this would be enough to derail the entire ruling remains to be seen.
Bondholders have waited up to 40 years for action; it’s likely they will have to wait at least a little longer for clarity.