Gramercy, a Connecticut-based hedge fund, has threatened to sue Peru over bonds issued by the country's former military regime.

The company, which specializes in emerging global markets, purchased Peru’s defaulted debt in 2008.

Hedge funds commonly purchase inexpensive defaulted bonds in order to make a profit in a settlement. The reasoning behind this tactic is steeped in risk. Investors purchase distressed debt at a low percentage in the hopes that it will later sell for a higher price.

As the BBC reports, Peruvian Finance Minister Alonso Segura says the government will oppose any legal action outside its borders.

The International Monetary Fund has predicted that soon global forces will push Peru into its first contraction since 2009. As the Wall Street Journal reports, the nation will suffer a 0.3 percent drop in gross domestic product this year, while inflation will go up 11.2 percent.

Agusto Cardenas, a 50-years-old union leader, sums up the sad state of Peru’s economy by saying, “Things are looking really tough,” and adding that, “The economic growth hasn’t been felt by the workers, only the big businesses and government.”

Peru’s economy is at the mercy of foreign purchase of their exports, which are principally copper and gold. China, a nation that had been a major consumer of Peruvian raw materials, has pulled back on its demand, and Peru has subsequently felt the loss.

Hugo Perea, the chief economist at BBVA Banco Continental in Lima, says that the end of a period when Peru could depend on an export-driven economy has led to vast instability in the region. Those Peruvians who have managed to escaped poverty remain close to the poverty line, says Perea, adding, “At any moment they could become poor again.”