A U.S. hedge fund is threatening to sue Peru for payment of US$5.1 billion in unpaid bonds issued by the country’s former military government.
The fund, Gramercy, purchased the defaulted debt in 2008 for pennies on the dollar and is now demanding full repayment.
The tactic is similar to one employed by another U.S. hedge fund, Elliot Management, which has tried to use the U.S. legal system to compel the government of Argentina to repay the full amount of its own defaulted bonds.
“It’s ironic that this threat is coming amidst global meetings in Peru that continue to try and stop this kind of predatory behavior,” said Jubilee USA executive director Eric LeCompte, referring to the annual meetings of the World Bank and International Monetary Fund currently taking place in Lima.
Firms that try to collect defaulted debt in this manner are disparagingly referred to as “vulture funds.”
Gramercy is specifically threatening to sue Peru through a tribunal system known as the Investor State Dispute Settlement mechanism, or ISDS.
Peru’s finance minister, Alonso Segura, said on Friday that the government would oppose any legal action outside its borders. “That’s not going to happen,” he said. “This issue will be dealt with by Peruvian laws.”
The ISDS is comprised of special legal tribunals, often established through “free trade” agreements, that allow corporations in one country to collect on debts in another. Critics argue the system prevents country’s from overcoming crippling debts—in Peru’s case, debts incurred by an unelected military regime.
An ISDS-style trade tribunal is reportedly part of the recently signed Trans-Pacific Partnership, which includes Peru and 11 other Pacific Rim nations.
As an alternative to the ISDS, the Union of South American Nations is currently reviewing a proposal to establish a regional Arbitration Center, which would analyze and propose mechanisms to reform arbitration proceedings that could take into account the broader needs of the society and continent as a whole.
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teleSur 11 de octubre de 2015
