U.S. fund sues Peru in land bond dispute

LIMA (Reuters) - Gramercy Funds Management LLC sued Peru for $1.6 billion in a dispute over the country’s 40-year-old land-reform bonds on Thursday, three days before a presidential election.

U.S.-based Gramercy said in a statement it had filed the arbitration claim because it disagreed with the way Peru calculated the current value of the land bonds when it agreed to honor them in 2013.

By rendering the bonds virtually worthless, Peru violated its free trade agreement with the United States, Gramercy said. The agreement went into effect in 2009.

Gramercy owns about 10,000 of the bonds and said they should be worth $1.6 billion instead of the $1.1 million it said it would get under the current calculations.

Peru’s finance ministry called the suit an attempt to discredit Peru. It “mainly appears designed by Gramercy to call attention to their particular interests during the country’s current circumstance,” the ministry said in a statement.

The bonds were issued as compensation for land confiscated and redistributed to the poor in the 1970s. Gramercy notified Peru of its plans to sue in February and had to wait 90 days before formally filing.

Peru’s Supreme Court ordered the government of outgoing President Ollanta Humala to pay back the bonds with interest in 2013. Previous presidents had refused to pay the debt, arguing Peru did not have the cash.

Gramercy says Peru, which has enjoyed nearly two decades of uninterrupted economic growth, could afford to pay the at least $8 billion it believes the bonds are worth.

The bonds have not been a campaign issue. Two Wall Street friendly candidates are vying to replace Humala in Sunday’s election: Keiko Fujimori and Pedro Pablo Kuczynski.

Reporting by Caroline Stauffer; Editing by Chris Reese