Forty-six years ago, government officials backed by soldiers drove their trucks up to my family’s farmhouse in Peru. They announced that the leftist military dictatorship that controlled the country was seizing our farm and turning it over to “the people.” Our family farm, which my great-grandfather had founded more than 130 years earlier, was gone.

Other families suffered a similar fate: The dictatorship that ruled Peru in the 1970s expropriated around 5,000 farms totaling 23 million acres – an area about the size of Indiana. 


At the time of the expropriations – I was just a teenager then – the government said it would pay the fair value of the property. But in fact, the government grossly undervalued the land, farm animals, equipment and other assets. Worse yet, the government did not pay us in cash. Instead, it forced landowners to accept “agrarian bonds” with a state guarantee of repayment, with interest, over the next 20 to 30 years.

Four decades later, for families like mine and countless others, the government still has not kept that promise. Despite the fact that Peru now has a flourishing democracy and strong economy, it has chosen bond default over repayment.

This is a problem not only for Peru but also for the United States, which needs reliable, trustworthy allies, trading partners and investments in this hemisphere. As a recent Congressional Research Service report note, the bonds are “fiscal skeleton” that could eventually affect the country’s credit rating, impacting not only bondholders such as myself but other investors. A Peruvian government delegation is meeting with the US Trade Representative’s office Thursday to discuss the US-Peru Trade Promotion Agreement, and this land bond dispute should be on the agenda. It’s time Peru put this sorry chapter behind it. 

The land redistribution scheme was disastrous for Peru, destroying much of the country’s agricultural wealth. 

My father, for example, was an agricultural engineer committed to introducing modern farming techniques and innovations. In partnership with a research center in Lima, he hired experts in farming and animal husbandry. Raising sheep for wool, cattle for dairy, and crops that included potatoes, barley and several vegetables, the farm’s productivity soared during the 1950’s and 60s.  This investment created both food and jobs. 

When the land was redistributed to a hastily organized “cooperative,” however, this expertise was lost.  The farm’s productivity quickly declined -- an experience repeated across Peru, turning the country from an exporter to an importer of many crops.

Now all that remains of my family’s farm are photographs and memories.  Even my great-grandfather’s remains, which were buried in the chapel that used to sit on our land, were torn from the earth and scattered by thieves hoping to find treasure rather than work to create it.

The same type of misguided policies that destroyed the agricultural sector also crippled Peru’s economy.  In the late 1970s and especially during the 1980s, Peru went into an economic tailspin. The country suffered crushing hyper-inflation – in 1990 alone, the annual inflation rate was 7,481 percent – and changed its currency twice. 

As a result, the government simply stopped paying on the agrarian bonds.  And the bonds themselves became worthless pieces of paper if considered in their original currency, which no longer even exists.

After the bondholders exhausted other remedies, they took the matter to Peru’s highest constitutional authority, the Constitutional Tribunal, which issued a landmark ruling in 2001.  It ordered repayment of the agrarian bonds in an amount that fairly compensated bondholders based on the value of the bonds when they were originally issued, adjusted for inflation and currency changes.

Regrettably, successive governments have ignored the Tribunal’s ruling and simply refused to pay the bonds.  Fourteen years since the Tribunal’s decision, the government continues to pretend that these debts don’t belong on its books.

The government’s refusal to obey the orders of Peru’s own courts prompted bondholders to return to the Constitutional Tribunal, which in 2013 issued yet another directive to the government to repay the bonds.

Unfortunately, the ruling—which is now under criminal investigation—disregarded Peru’s traditional way of updating debts, and in response the government crafted a new, underhanded formula that valued the bonds at virtually nothing. For example, in the case of my own family, for 10,000 of our outstanding bonds, we would receive just 228 nuevos soles (about $70 at today’s exchange rate) under the new formula, compared to 81,989 nuevos soles ($25,347) under the old formula. This is a travesty.

Today Peru has one of the strongest economies in the region and can easily afford to pay the agrarian bond debt.

Peru issues new government debt in public bond markets at favorable rates, and it aspires to join the Organization for Economic Co-operation and Development (OECD), an international group of 34 leading economies dedicated to democracy and free market economics.  But how long can it be considered an economically safe and responsible country if it remains in default on a whole series of government bonds? 

The international financial community is waking up to this embarrassing legacy, which is severely tarnishing the progress Peru has worked so hard to make. If Peru does not change course, it will struggle to attract foreign investment, borrow money at reasonable rates and regain the confidence of all Peruvians – at home and abroad.

Americans who admire and respect Peru should demand that the government correct this injustice and repay the bonds. My family can never reclaim our farm. But if Peru acts responsibly, together we all can reclaim our dignity. 

Llaveria, a naturalized U.S. citizen, is a technology consultant in the Atlanta area. He is a board member of Peruvian-American Bondholders for Justice.