Peru's PPK: 'I don't think we owe [Gramercy] anything' - Exclusive

Peru's PPK: 'I don't think we owe [Gramercy] anything' - Exclusive

Peru Bonds Funds

Peru’s newly-elected President has hit back at Gramercy Fund Management’s $1.6bn lawsuit against the country, saying the fund is not due anything – and that the sovereign has lawyered up.

“I don’t think we owe them anything,” Pedro Pablo Kuczynski told LatinFinance in an exclusive interview in Lima on Friday. “It’s that simple.”

Gramercy says Peru’s treatment of its claim has violated the country’s Trade Promotion Agreement with the US.

“These land reform bonds were issued in the 1970s, they’re under Peruvian law, not internationally recognized bonds,” Kuczynski said. “And we have a very good team of lawyers. These folks think they can buy something for a cent and make 100. It doesn’t work that way.”

Starting in 1969, Peru's military government granted the agrarian reform bonds to farmers as compensation for land seizures. The country began defaulting on the bonds in the 1980s, during a time of hyperinflation. Gramercy says it bought about 10,000 of the defaulted bonds, or about 20% of the total, in 2006.

The situation is different to Latin America’s most recent sovereign fight with a hedge fund – and with Peru’s previous encounters with aggressive creditors, the newly elected president said.

“This is not funded debt like the Argentine bonds were, that were actually issued. This is something quite different…. The same group of investors – Paul Singer and company – already in the late 1990s got Peru to pay up. But that was funded, internationally recognized debt. This is not.”

Kuczynski says the sovereign will address the issue in due course.

“We will look at it when the issue comes up. They’ve hired lobbyists, they’re making a big fuss. And we’re not stupid. We know what to do. We’ll face the music if there is music.”

Peru's finance ministry criticized Gramercy's move in a statement last month, before Kuczynski took office on July 28. 

"Gramercy attacks Peru and the system it has in place in an effort to obtain increased returns to which it has no right. It is Gramercy, not Peru, that has violated the object, purpose and requirements of the treaty," the finance ministry said in a statement.

The fund said a lack of dialogue had forced it into a legal dispute. 

"Peru’s stonewalling and steadfast refusal to have any substantive discussions has left Gramercy no choice but to commence arbitration and enforce its rights," Robert Koenigsberger, founder and CIO at Gramercy, said when the firm filed the suit in June. LF