Politico | 11 April 2017
Labor union calls out Peru over land bond dispute
By Adam Behsudi
The Teamsters labor union has escalated an investor dispute against Peru, arguing that its members’ pensions could be thrown into jeopardy as a result of the government’s alleged failure to pay investors $5 billion worth of debt tied up in land bonds.
“Many of our pension funds are holding defaulted Peruvian land bonds through various investment vehicles,” Teamsters President James Hoffa said in a March 24 letter to Peru’s U.S. envoy, Carlos Pareja, that was obtained by POLITICO. “We believe that America can no longer allow countries that take advantage of our large domestic market to get away with defaulting on their debts, particularly when it hurts our workers and retirees. The Teamsters union calls on the Peruvian government to make good on its responsibility to pay its debts.”
The union’s involvement in the issue is significant given that Peru’s handling of the land bonds is subject to an investor-state dispute case. The Teamsters, which opposes the “insidious” investor-state dispute process, makes no mention of the case but highlights that the 2009 U.S.-Peru trade deal “was supposed to provide legal protections for outside investors.”
U.S. hedge fund Gramercy Funds Management LLC filed a case in June under the investment rules of the U.S.-Peru free-trade agreement seeking $1.6 billion from the Peruvian government. Gramercy argues that Peru’s decision to revalue the bonds diminished their value and amounted to an indirect expropriation of its investment, among other charges. A decade ago, the hedge fund bought a large share of the land bonds issued by Peru’s left-wing military government in the 1970s as compensation to land owners after the seizure and redistribution of their property.
A Gramercy spokesman said he couldn’t disclose the identities of the fund’s clients but said the Peruvian land bonds it holds “are beneficially owned by institutional investors including approximately 200 U.S. state, municipal and trade union pension funds located in approximately 25 states.” The Teamsters represent 1.4 million workers in a broad range of industries.
Peru has said it would vigorously defend itself against what it views as Gramercy’s demand for an unreasonable rate of return on the bonds. The government says Gramercy failed to consult in good faith on the issue and accuses the fund of not participating in a special administrative procedure set up for bond holders after the government established a new valuation methodology.
A source familiar with the situation who was contacted by POLITICO declined further comment, but noted that Peru has continued to advance the bond holder process and recently set out further details on calculations and forms of payment.
"Peru is an economically stable and fiscally responsible sovereign. It is a trusted ally of [the] United States, a favorable host state for lawful investment and a trusted issuer of contemporary sovereign bonds," the government said in an earlier response to the arbitration. "Efforts by Gramercy to portray Peru as a defaulting sovereign are unfounded."