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Peruvian Government Goes Back for Unconstitutionality of Expropiation of Private Clinics

Gobierno Peruano Retrocede por Inconstitucionalidad de Expropiación de Clinicas Privadas

By Michael Zavaleta Álvarez

Founding Director of ZavaRod Institute Private Studies Center and ZavaRod Private Studies Magazine. ZavaRod Consulting Global Investing, Tax & Legal Partner

Published by Revista Estudios Privados ZavaRod Nº 7/2020, Segunda Época Digital


President Vizcarra said June 24, 2020 that he would expropriate in 48 hours if the Private Clinics do not accept his proposal to charge approximately[1] USD 579 per day in bed care in the ICU of the Private Clinics, according to the interpretation of Executive Power Constitution and theoretical minority [2].


Some theorists of ponderous neoconstitutionalism[3] maintain that the President said would be valid according to the Constitution based on its article 70:

"Article 70.- Inviolability of property rights

No one may be deprived of their property except exclusively for reasons of national security or public necessity, declared by law, and upon payment in cash of justified compensation that includes compensation for eventual damage.”

In fact, the Premier PCM is of the same idea that it is feasible to expropriate based on this article 70, as it has argued weeks ago on various occasions, by maintaining that the Peruvian State can expropriate medicines, food, factories and Clinics, among others and that they are going to weigh it, he has even maintained in the press, given the conjuncture of COVID-19.

However, we consider that such expropriations would be unconstitutional, since, at least with respect to Private Clinics, the power to expropriate based on art. 70 corresponds to the Legislative Power via Law, the Executive does not have said power; and because President Vizcarra himself has shown that there is no need because there are beds in Public Hospitals yet, that is, there is no need and the requirements of art. 70 constitutional, as erroneously stated by some theoretical constitutionalists who are unaware of the reality and econometrics of the market for private clinics and public hospitals.

The threat of expropriation of the Peruvian Private Clinics within the 48-hour period alleged by the Executive Power is openly unconstitutional for the following reasons:

(i) There is no Market Value "Objective" of the service, the Peruvian Constitution includes the subjective theory of Market value, that is, it is freely set by the parties in terms of supply and demand,

(ii) Because Private Clinics of Chile -as a paragon- charge USD 4 K per patient bed to serve patients, the Peruvian Clinics have offered a solidarity fee of approximately USD 1 K, however, the State only wants to recognize USD 579 per day.

(iii) Because the State has not complied with paying the debts to the Clinics that have cared for patients who came to use Private Clinics even though they came with SIS and / or Essalud,

(iv) Because the Government has recognized that there are beds in State Hospitals and Clinics, then, there is no public need!

Greater foundations in attached statement of Association of Private Clinics on “N Channel”[4]. The solution is for the Executive Power to assume its duty to serve all citizens because all Peruvians have a constitutional right to medical care and health care in accordance with the Constitution, including those without private or public insurance.

Abundant in arguments, personally I consider that, Constitutionally expropriating a private company for price in our country where there is no price control, it would be causal, to go to international Tribunals in order to defense of the private investment of individuals shareholders of the Private Clinics, specifically from the International Court of San José, Costa Rica, in the last instance if necessary, because possibly in Peru you would lose yourself before the internal jurisdiction (the current Constitutional Court) and seek to win abroad as an individual shareholder expropriated of your actions of the Private Clinic .

This being so, then, the natural person shareholder would be compensated with Peruvian money, because Peru has investment protection treaties and because the Constitution has clearly been violated. Although Venezuela also signed and disrespected them, however, we share Beteta's[5] opinion that the free market is not to blame for the failures of government mismanagement to complete its task.

Let's put some examples to understand the problem.


Example 1: What is the market value of the masks?

Let's imagine that we are the owners of a Fabric Factory for Masks, we invest and take risks and due to the great failings of the State it orders us that instead of PEN 6 soles per Mask N95 we charge PEN 2.5 sol, taking as a comparison quotes from Chinese Companies (with which they compare because there are other cost structures) and grants us the grace of 48 hours to decide to sell all our masks at PEN 2.5 soles or they would expropriate us.

Expropriation is supposed to be at fair price, but what would be the fair price in the context of Covid and with market value of sale price undervalued by legal mandate?

Example 2: What would be the fair price of private education?

Another example in education: how the University, Academy and College "N" is ours and we invest, we take risks and we charge S /. 4,500 monthly per student and face-to-face classes, again, due to the great failings of the State, MINEDU threatens us and tells us, instead of charging S /. 4,500 you must charge S/. 2,250 soles for Online classes per month, because they are not in person and you have 48 hours to decide or I will expropriate you.

Example 3: What is the fair price of food in times of COVID-19?

In equal food, the Executive Power could compel companies to sell a quarter of their current Pricing under threat of expropriation. Why does a grilled chicken cost PEN 75 soles with fries, a liter bottle of chicha morada and salad, if the frozen chicken is worth PEN 15 soles at Wong? If you don't sell for PEN 20 soles cocked and grilled chicken with fries and Chicha and Salad, the President comes out and says that he will expropriate you if you don't lower the price of your chicken.

Example 4: What if the State decides to lower the salary of public employees?

As in Communist Russia and China, public politicians decide to lower the salaries of all state employees; something like this: “Gentlemen, we won PEN 55,000 soles or PEN 30,000 soles or PEN 15,000 soles or PEN. 7,000 soles a month is a lot ”! So now we will all earn the same PEN 1,500 soles and the balance will be attended to COVID-19 patients, however, the reduction will be permanent or they will be dismissed (expropriated their jobs). They have 48 hours to agree to lower their wages, and sign or we fire them!


In light of the arguments analyzed, the following can be concluded:

(a) As we have shown, in the case of Private Clinics, the same thing is happening regarding the "subjective market value".

(b) That, it would be looking to make private companies look like the "devil"

(c) That, as an additional aggravating circumstance, these expropriation threats occur despite the fact that it is a clear "failure of the State", because the State cannot attend to all, despite the fact that it is its duty to provide health care

(d) It is the Executive Power that has failed, not the Private Clinics just as neither the Private Schools nor the Private Pollerias nor the Employees or Workers mismanaged by their Politicians.

In conclusion, neither the Constitution nor the State of Emergency authorize these expropriations based on the supposedly overvalued “market value”.

Likewise, when we began this work it was 11 pm on the 24th after 12 noon, it was reported in the press that the Executive Power and Clinics agreed and they would not be expropriated. Congratulations to the parties for reaching a consensus “settlement” without resorting to an unconstitutional expropriation. The Clinics agreed to receive the flat fee of S /. 55,000 per patient, whether it be a day or 30 days, that is to say that, in the end, the proposal of the Executive Power to pay no more than USD 579 for approximately days that they raised at the end prevailed; President Vizcarra's strange way of negotiating, threatening to expropriate.

In line with that, we have argued whether the Private Clinics have freely accepted the offer of the State, despite state coercion, finally, that is the subjective market value too, since they contractually agree, and under the Austrian theory of value, as Merger and Von Mises have taught, as stated in our Political Constitution.

The question that remains for us is, will the President apply a similar negotiation method in the case of School Pensions, grilled chicken, bank interests (according to the bill of Congress that seeks to freeze them), the wages of public officials threatening to expropriate? This introduces a new method of negotiation of the Peruvian Executive Power with private companies? [6]

Finally, President Vizcarra[7] had not offered to finish building more than 80 Public Hospitals and 1000 new Schools at the end of 2019, has anyone seen them built and finished or even started?


[1] Source: Private Clinics Association








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