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  HOME | Peru

Ex-Justice Denounces Fraud in Ruling That Harmed Holders of Peruvian Debt

LIMA – Holders of Peruvian agrarian bonds demanding repayment of that debt, which was issued in exchange for expropriated property during a decades-old land reform, were adversely affected by a Constitutional Court ruling marred by fraud, a former justice on that tribunal says.

In statements Wednesday to EFE, Carlos Mesia, a member of that court until June 2014, confirmed that a suit had been filed for alleged corruption against the court clerk and other justices over a 2013 ruling that was allegedly manipulated with the goal of enabling the Peruvian government to avoid honoring the debt it owes to those bondholders.

“The court approved a ruling that supported the bondholders and which I signed. But overnight a new document emerged that in practice eliminated the debt. Signatures were erased from the original ruling, which was modified to make it appear like a solitary opinion on my part, an opinion I never gave,” the judge said.

The bondholders’ case was given new impetus this week in the form of a request by the Agrarian Debt Bondholders Association (ABDA) to the Paris-based Organization for Economic Co-operation and Development (OECD).

In that petition, the ABDA argued that Peru should not be admitted to that economic organization due to its selective default on bonds that Gen. Juan Velasco Alvarado’s 1968-1975 left-wing military government issued to landholders as compensation for their expropriated property.

The ABDA’s request was based on a report written by Hans Blommestein, the OECD’s head of Public Debt Management from 2001 to 2016, who said Peru’s “refusal to provide fair compensation” for those bonds and its “shortcoming in public integrity ... in particular its commitment to the rule of law, human rights and transparency” should preclude it from joining that exclusive inter-governmental body.

Mesia recalled that in 2001 Peru’s Constitutional Court ruled that the country must repay the bond debt at a price that reflects their “real” value and takes into account the fact that the country’s accumulated inflation and economic ups and downs had rendered the bonds worthless at face value.

“But the Constitutional Court did not say at that time how that real value should be calculated ... And in truth there was no real formula in Peruvian law for calculating that, so the position I defended at that time in the manipulated ruling was that it should be paid in accordance with the accumulated CPI (consumer price index), which is how the government demands payment on the debt it’s owed,” Mesia said.

He added that the Constitutional Court’s 2013 ruling established a ridiculous method for calculating the debt that effectively allows the government to “thumb its nose at the bondholders.”

The Constitutional Court’s decision was the result of pressure from the Economy Ministry and made a mockery of the law, according to Mesia.

“This debt needs to be repaid and repaid properly. Sooner or later this will end badly for the officials responsible for this, because truth and justice is on the side of the bondholders,” he said.

Velasco Alvarado’s regime took possession – often forcibly – of more than 9 million hectares (34,750 sq. miles) from large private landowners in exchange for the bonds.

Some of that debt was acquired by global investors, who are the ones seeking repayment on those bonds.


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