The emerging-markets hedge fund Gramercy Funds Management LLChas filed a Notice of Intent to pursue an international arbitration claim for $1.3bn damages against Peru. The claim relates to Gramercy’s holdings of Peruvian Agrarian Land Reform Bonds (“Land Bonds”), the value of which Peru has written down to near-zero. Gramercy’s legal representative describes Peru’s revaluation of these bonds as “deplorable conduct” and claims that it violates the terms of the US-Peru Trade Promotion Agreement (TPA).

The history of these bonds is rather colorful. In 1969, the leftist Government of Peru did a Zimbabwe, passing a Land Reform Act that allowed it to expropriate the land holdings of wealthy families and redistribute them to small farmers and laborers. Over the next ten years it expropriated and redistributed an area about the size of Portugal.

The Peruvian government agreed to compensate the landowners for the expropriation of their property by issuing bonds at 4-6% annual interest, to be repaid over 20-30 years. These are the Land Bonds that are the subject of Gramercy’s claim…

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