Gold Bonds May of 1875 History

1. By the middle of the 19th century, the exploitation of the guano and later the salitre
were the biggest source of revenues of Peru making it along with Bolivia the equivalent
of the Arab countries for the exploitation of the petroleum of the modern time.

2. The generated sensation of well-being made the Peruvian governments accumulate a

big debt for the execution of infrastructure works against the future revenues of the
guano.

3. The exploitation of the guano had been given in consignment to foreign mainly English
companies, which lent to the government against the payments that Peru would receive
as tax.

4. By the year of 1870 the Peruvian debt to the guano companies was very big and it was
increased with the nationalization of these companies decreed by the government.

5. Among the years 1865 and 1869 Peru had made arrangements of payment of this debt
having mortgaged the whole future guano sale for the consumption of the United States
until its total cancellation.

6. April 16, 1875 the Congress of Peru authorizes the Executive Power to make payment
arrangements with the Guano Consignment Company what is it summed up with the
signature of a Contract dated April 24, 1875 in the city of Lima.

7. The amount settled down in the Contract was $3' 600,000 dollars gold and for the
payment they agreed the emission of 3600 bonds in New York.

8. May 1st, 1875 were emitted the 3600 bonds or "Certificates of Indebtedness",
subscribed by a Plenipotentiary Minister from Peru in the offices of Hobson – Hurtado in
New York, as financial agents from Peru.

9. Each certificate or bond was $1000 dollars gold paying an interest of 7% annual with
capitalization semiannual until its cancellation and no date of expiration.

10. These bonds should be redeemed in the following way: 10% March 1st 1876, 15% in
1877, 20% in 1878, 25% in 1879 and the balance in 1880.

11. In 1879 Peru enter in a war against Chile and no more payments were made.

Legal opinions

1. The official position of the Peruvian Finance Ministry, for many years, is that this debt
already prescribed because of Law 8509 of November 18, 1937. However a) the first
article of this law clearly indicates that it refers to Internal Debt so it doesn’t affect this
debt, which is External; b) an unilateral decision of decreeing the prescription of a debt
can only affect Peruvians and it is against the international laws.
2. Dr. Enrique Chirinos Soto in report of January 9, 1973 supports the thesis that Law
8509 is not applicable and he suggests the judicial action against the government.

3. The opinion of Dr. Ernesto Arias Shreiber regarding this debt, in Memorandum of June
8, 1977 is that although the contract that originated these bonds was subscribed in Peru,
the emission of bonds was made in United States; therefore this obligation is governed
by the laws of the United States.

4. Lately other respected legal consultants have the same opinion

5. Last year a Las Vegas based company sued the Peruvian government in order to
cash one bond. Unfortunately they sued in Peru so although they won in the first
instance they lost in the second legal instance. Peruvian judges are obligated to follow
Peruvian laws.

6. Suing the Peruvian Government in New York would be different and should be more
effective because according to the recently signed Free Trade Agreement between Peru
and USA, payment of Peruvian debt to US companies has the highest priority.