Treacherous Presidential Policies: The Costs of Growth in Peru

By: Scott W. Downs, Research Associate at the Council on Hemispheric Affairs

Peru’s burgeoning economy is a result of the government’s two decades of pro-mining policies and free-trade agreements. President Ollanta Humala presides at a time when the extraction and exportation of natural resources has earned international acclaim. The International Monetary Fund (IMF) indicated in a 2014 report that 70 percent of Peru’s foreign direct investment (FDI) comes from mining. China, the United States, Canada, Switzerland, Australia, Mexico, and Brazil are among the leading investors. The Peruvian Ministry of Energy and Mining (MEM) anticipates an estimated $57 billion USD in new global investment over the next three years. [1] Regardless of the economic windfall predicted by the MEM, existing water purification, taxation, and illegal mining regulations do little to reduce the negative side effects of mineral trade on Peru’s inhabitants.

 The economic policies set into motion by Presidents Alberto Fujimori and Alan García Pérez exploited Peruvians through violence and pollution.[2] Extraction projects continue to affect towns surrounding worksites negatively because of such factors as displacement, water contamination, and deforestation. Ignoring these aspects will leave Humala with a legacy of human rights parallel to his predecessor’s legacy, something he should not desire. The President now finds himself in a somewhat precarious position; his legacy will juxtapose economic prosperity for the wealthy with exploitation of the poor.[3]

Decades of FDI Courtship

During the 1990s, Fujimori privatized state-owned mines, lowered mining taxes, and eased environmental standards for extractive industries.[4] These reforms created welcoming conditions for foreign investors that revitalized mining. Jeffrey Bury, Associate Professor of Environmental Studies at the University of California, Santa Cruz, stated in 2007 that Fujimori’s approach to mining was “neoliberal reforms” targeted at integrating Peru “into the rapidly globalizing international economy.”[5] Fujimori enacted policies that solicited large international mining projects to repair an economy dogged by inflation.[6]

Unfortunately, growth-inducing economic policies were concurrent with gross human rights violations. The Truth and Reconciliation Commission (CVR) published evidence of atrocities committed under Fujimori’s authoritarian rule in a 2003 report.[7] The CVR found the Fujimori regime to be responsible for massacres, thousands of abductions, countless executions, the formation of death squads, and abusive detentions.[8] President Alan García, like Fujimori, carried out wrongful arrests of organizers and protestors for the sake of industrial expansion.[9]

The platform for foreign investment established by Fujimori invited expansion and became the basis of free-trade agreements enacted by Presidents Alejandro Toledo and Alan García Pérez during the early 2000’s. The United States-Peru Free Trade Promotion Agreement (PFTPA) and the Trans-Pacific Partnership Agreement allowed Toledo and García to further entice FDI, especially in the mining sector. Policies adopted to solicit transnational investment brought praise from the World Bank (WB). The WB stated, “[P]rudent macroeconomic policies and a favorable external environment enabled an average GDP growth rate of 6.4% between 2002 and 2012.”[10] The trend continued in 2012, the first full year of President Humala’s leadership, where mineral extraction industries represented over 14 percent of Peru’s $203.8 billion USD Gross Domestic Product (GDP)—almost $30 billion USD.[11]

The Ministry of Energy and Mining, the National Tax Authority, and the Ministry of Finance all supervise the taxation of the $30 billion USD derived from mining.[12] These bureaus regulate through corporate income taxes, royalties, liens, and concession rights.[13] To be more inviting to extractive investors, free-trade agreements eliminate double-taxation between trade-partners.[14] Counterbalancing the taxes, deductions are made available to organizations that elect to extend their projects towards infrastructure development, nullifying the costs of concessions.[15] The United States accounting firm Price Waterhouse Cooper (PWC) offers praise for the investment climate in the South American country, stating in a 2013 report, “Mining companies can find the political and socio-economic environment within Peru very attractive.”[16] Many transnational firms share PWC’s opinion of Peru’s emerging economy, deeming it worthy of extensive investment.

With little regard for social cost, illegal mining reached unprecedented levels during the 2000s as the global demand for precious metals continued to increase.This ailment has plagued the nation for decades and is now rampant with estimates of unlicensed operators ranging from 100,000 to 550,000. Miguel Santillana from the Institute of Peru discussed some of the damage these unregistered miners leave in their wake, citing “environmental damage … including mercury contamination of water and destruction of the Amazon forest, as well as … increased crime and corruption.” Illegal extraction is one of the many obstacles Humala needs to address more aggressively. [17]

Unlicensed Complications

Unregulated miners represent a tremendous loss to the government. The Peruvian Treasury loses an estimated $500 million USD annually from unlicensed laborers who leave pollution and financial damage in their wake.[18] The projects compliant with regulation emit less mercury and lead than their counterparts.[19] In an effort to recoup lost tax revenue and temper the ecological contamination caused by these illicit activities, Congress signed legislation in 2012 offering illegitimate operators a two-year period to register and become compliant with trade regulations.[20] As the April 19, 2014 deadline arrived for registration, more than 30,000 miners, or 30 percent, ignored the invitation for amnesty.[21] Ernesto Ráez-Luna, an Advisor to the Ministry of the Environment, acknowledged the impracticality of the commission, stating, “You can’t prosecute or arrest 100,000 people.”[22] Meanwhile, Humala’s administration succeeded in vilifying unregistered miners as the predominant cause of environmental degradation.

In a modest effort to address the tens of thousands of non-compliant miners, the administration formed a commission to evaluate the illegal activities. The most notable response was a police raid in the town of Huepetuhe shortly after the April registration deadline that seized and destroyed $20 million USD in heavy machinery.[23] Illegal miners function as a convenient scapegoat for soil and water contamination, but these problems stem from decades of inadequate regulation. Whether extracting minerals by licensed or unlicensed miners, the value seems to outweigh the environmental costs.

Precious Metal Violence

Among the 12 sought-after minerals in the country, those with the highest demand on a global scale are iron, lead, copper, silver, and gold.[24] Extensive copper deposits rank Peru third in the world for extraction, with 1.3 million tons of the mineral mined annually.[25] The nation is also third in the world in silver mining, producing 111.3 million ounces each year.[26] The desire to maintain this favorable international ranking affects, to a large extent, the legislative agenda of Humala, much as it influenced his predecessors.

President García featured tax cuts in his administration. From 2007 to 2011, total tax receipts fell from 20.6 percent to 14.9 percent while FDI dramatically grew. Yet, in spite of the reduction in tax revenues, regional and local governments have been able to accumulate billions of soles in reserves for their jurisdictions. Legislators could have appropriated resources towards the development of “water treatment, roads, education [or] health care,” but unfortunately they have not.

Vehement displeasure with departmental and national legislators has inspired violence which has resulted in over 2,300 injuries and close to 200 deaths. [27] When indigenous opposition mounted against the Santa Ana silver mine owned by Bear Creek Mining Corporation in April of 2011, protestors declared their objections to continual contamination of the water supply and the poisoning of agricultural crops.[28] The 4,000-person protest began with barricades preventing access to service roads and escalated to an aggressive march on police at Inca Manco Cápac International Airport near Juliaca, Peru. The assigned police force responded by killing six people and wounding 30. Protestors responded by burning tires and throwing rocks at police.[29]

Tragic stories such as these are abundant among the isolated communities throughout the Andes region, which suffer as a result of toxic drugs and violence. In the May 2014 monthly summary of recent social conflicts, released by the Defensoría del Pueblo, 100 of 135, or 74.1 percent, of the cases related to inflammatory activities at the mines.[30] The evidence indicates that violence is still rampant under Humala’s presidency, and the frequent uprisings result from disagreements between transnational corporations, laborers, community groups, and activists. Protestors often contest the perpetual contamination of water and soil, but are all too often dismissed in favor of the value of ore.

Trickle-Down Contamination

A growing opposition has set the pursuit of precious metals against the need for clean, drinkable water. For his part, President Humala counters that citizens may enjoy wealth from ore extraction, as well as clean water. Yet mining uses reservoirs for cooling processed materials causing contaminants to seep into the soil causing biological destruction. [31] The present requirements are inadequate and emphasize the importance of metal extraction to the economy. Mining reforms mandating more rigorous water purification processes would draw Peru closer to the standards of its neighbors.

According to the Blacksmith Institute, mining produces the third highest level of toxic pollutants of all global industries.[32] Mercury, a byproduct of gold refining, has poisoned 20,000 hectares of Peruvian rainforest.[33] Recent studies of the southeastern region of Madre de Dios, renowned for its abundance of gold, revealed that 80 percent of all adult inhabitants had toxic levels of metal in their systems.[34]

Another lethal hazard affecting mining communities is lead, which seeps into the water supply and soil, and even floats in the air.[35] A 2009 study by the Carnegie Institute for Science (CIS), in partnership with the World Health Organization (WHO), discovered toxic residues near mining towns in unsettling quantities. As CIS stated, “[O]ur assessment that 1.6 million people in Peru could be exposed to lead in soil indicates that political will and resources are urgently needed to reduce the effect of exposure on the cognitive development of future generations.”[36] Ernesto Ráez-Luna, an Advisor to the Ministry of the Environment, reiterated this concern warning that continuous exposure to pollutants would lead to members of local communities “having an IQ that is five, 10 or 15 points lower than they would have had in optimum environmental conditions.”[37]

While many ecological studies are dismissed in favor of economic policy, Peru’s Minister of Environment, Manuel Pulgar-Vidal, emphasized the value of this type of research, declaring that it is “fundamental for decision makers in order for them to take action and make policies that aim to preserve the sustainable use of these resources and services.”[38] Peru has embraced the prosperity brought by mineral extraction, yet remains irresponsible with poisonous toxins generated from mining worksites. Instead of reaping the benefits of trickle-down economics, communities closest to the mines suffer from trickle-down contamination.

Case Study: Minas Conga

The Minas Conga project in Cajamarca, Peru embodies the heated dispute of minerals versus water. This transnational venture is a partnership between Newmont Mining Corporation, Buenaventura, and the World Bank.[39] It is a $4.8 billion USD example of how economists envision implementation of the PFTPA. Newmont, based in Denver, owns a 51 percent stake, with Peruvian partner Buenaventura owning 43 percent, and the World Bank holding the remaining balance.[40]

Approximately 17,000 people find themselves downstream from the massive operation, which predicts over $10 billion USD in extractive revenues over the next 20 years.[41] Local opponents worry amalgamation will continue to contaminate natural water sources. They fear another spill similar to the one by a Newmont sub-contractor in June 2000, which dumped 335 pounds of liquid mercury onto a highway leading to a worksite.[42] To alleviate this concern, Newmont agreed to build four reservoirs to ensure clean water throughout the existence of the new mine.[43] However, in spite of the financial commitments made by the Newmont consortium, they lack public support for the Minas Conga project, as violent protests led to a halt in construction in 2011.

Necessary Regulatory Reform

Peru’s tremendous economic growth in recent decades stands in stark contrast to the continual suffering of the communities near mineral extraction sites. Relaxed permitting requirements for mining projects, loose tax regulation, and a general disregard for environmental violations have hurt rather than helped Peru’s mining communities.

The urgent need to increase mining oversight is clear. The relentless pursuit of foreign investment requires greater regulation to halt the contamination of soil and water. In particular, the extended exposure to mercury, lead, and other hazardous byproducts of the trade continue to poison many of those living locally. Exploited citizens and laborers protesting working conditions have grown defiant, leading to hundreds of violent incidents over the past 25 years. Pollution caused by unlicensed artisanal mining further complicates these issues.

While President Humala campaigned on an anti-mining platform, he has become still another champion of neoliberal economic policy in line with his predecessors Fujimori, García, and Toledo. Unless he is able to tighten the screws on the ensuing pollution, expand licensure, and curb violence, his legacy will be that of willful negligence and the side effects of irresponsible exploitation will remain a blight on the country’s economic achievements.

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References

[1] Fei Han et al., “Peru: Selected Issues,” International Monetary Fund (2014), accessed June 16 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr1422.pdf .

 

[2] Jo-Marie Burt, “Guilty as Charged: The Trial of Former Peruvian President Alberto Fujimori for Human Rights Violations,” The International Journal of Transitional Justice 3 (2009): 384-394. Accessed June 19 2014. doi: 10.1093/ijtj/ijp017, http://ijtj.oxfordjournals.org/content/3/3/384.full.pdf+html ; Frank Bajak, “Peru’s Gold Mine Conundrum,” Huffington Post, accessed June 24 2014, http://www.huffingtonpost.com/2011/11/25/peru-gold-mine_n_1113475.html .

 

[3] Peggy Pinedo, “Peru Makes Progress Against Illegal Mining,” Infosurhoy, April 18 2014, accessed June 22 2014 http://infosurhoy.com/en_GB/articles/saii/features/main/2013/06/18/feature-01 .

 

[4] Martin Bergel, “CONACAMI: a National Organization Facing Mining Multinational Companies in Peru,” Choike, accessed July 13 2014, http://www.choike.org/nuevo_eng/informes/3940.html

 

[5] Bury, Jeffrey. 2007. “Mining Migrants: Transnational Mining and Migration Patterns in the Peruvian Andes.” Professional Geographer 59, no. 3: 378-389. Academic Search Premier, EBSCOhost (accessed June 19, 2014).

 

[6] Ibid.

 

[7] Jo-Marie Burt, “Guilty as Charged: The Trial of Former Peruvian President Alberto Fujimori for Human Rights Violations,” The International Journal of Transitional Justice 3 (2009): 384-394. Accessed June 19 2014. doi: 10.1093/ijtj/ijp017, http://ijtj.oxfordjournals.org/content/3/3/384.full.pdf+html .

 

[8] Ibid.

 

[9] Frank Bajak, “Peru’s Gold Mine Conundrum,” Huffington Post, accessed June 24 2014, http://www.huffingtonpost.com/2011/11/25/peru-gold-mine_n_1113475.html .

 

[10] “Peru Overview,” The World Bank, accessed June 18 2014, http://www.worldbank.org/en/country/peru/overview .

 

[11] “Country at a Glance,” The World Bank, accessed June 18 2014, http://www.worldbank.org/en/country/peru .

 

[12] “Mining Peru: Country Mining Guide,” KPMG International (2013), accessed June 16 2014, http://www.kpmg.com/PE/es/IssuesAndInsights/ArticlesPublications/Documents/Country-Mining-Guide-Peru.pdf .

 

[13] Ibid.

 

[14] Sandra Orihuela, “Mining 2014: Peru,” Law Business Research LTD, accessed June 26 2014, http://latinlawyer.com/reference/topics/46/jurisdictions/19/peru/ .

 

[15] Ibid.

 

[16] Orlando Marchesi, Fernando Gaveglio and Humberto Salicetti, “2013 Mining Industry: Doing Business in Peru,” Price Waterhouse Cooper (2013), accessed June 16 2014, http://www.pwc.com/pe/es/doing-business/index_en.jhtml .

 

[17] The Editors, “Peru’s Illegal Mining Metastasizes Into Social and Political Problem,” World Politics Review, May 6 2014, accessed July 3 2014, http://www.worldpoliticsreview.com/trend-lines/13762/peru-s-illegal-mining-metastasizes-into-social-and-political-problem

 

[18] Peggy Pinedo, “Peru Makes Progress Against Illegal Mining,” Infosurhoy, April 18 2014, accessed June 22 2014 http://infosurhoy.com/en_GB/articles/saii/features/main/2013/06/18/feature-01 .

 

[19] Ibid.

 

[20] Cecilia Jamasmie, “Peru’s President Allegedly Financed Campaign With Illegal Mining Funds,” Mining.com, June 12 2014, accessed June 22 2014, http://www.mining.com/perus-president-allegedly-financed-his-campaign-with-illegal-mining-funds-93081/ .

 

[21] Peggy Pinedo, “Peru Makes Progress Against Illegal Mining,” Infosurhoy, April 18 2014, accessed June 22 2014 http://infosurhoy.com/en_GB/articles/saii/features/main/2013/06/18/feature-01 .

 

[22] Ibid.

 

[23] Rodrigo Abd and Frank Bajak, “Peru Security Forces Trash Illegal Mining Machines,” The Associated Press, April 29 2014, accessed July 3 2014, https://news.yahoo.com/peru-security-forces-trash-illegal-mining-machines-040539283.html

 

[24] Orlando Marchesi, Fernando Gaveglio and Humberto Salicetti, “2013 Mining Industry: Doing Business in Peru,” Price Waterhouse Cooper (2013), accessed June 16 2014, http://www.pwc.com/pe/es/doing-business/index_en.jhtml .

 

[25] Cecilia Jamasmie, “Peru set to Regain World’s Second Largest Copper Producer Place This Year,” Mining.com, April 20 2014, accessed June 22 2014, http://www.mining.com/peru-set-to-regain-worlds-second-largest-copper-producer-place-this-year-26694/

 

[26] Staff Writer, “Top 10 Silver-Producing Countries in 2012,” Silver Investing News, April 21 2013, accessed June 22 2014, http://silverinvestingnews.com/18530/top-10-silver-producing-countries-in-2012.html

 

[27] Alana Wilson, “Peru’s Social Conflict is About More Than Mining,” Fraser Forum September / October (2012): 15-17, accessed June 25 2014, http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/articles/perus-social-conflict-is-about-more-than-mining.pdf

 

[28] Franklin Briceno, “Peru Cancels Mine After Police Kill 6 Protestors, Wound 30,” Huffington Post, June 25 2011, accessed June 22 2014, http://www.huffingtonpost.com/2011/06/25/peru-mine-protest-santa-ana-bear-creek_n_884587.html

 

[29] Ibid.

 

[30] “Reporte de Conflictos Sociales No. 123, Mayo 2014,” Defensoria del Pueblo, accessed June 26 2014, http://www.defensoria.gob.pe/modules/Downloads/conflictos/2014/Reporte-Mensual-de-Conflictos-Sociales-N-123-2014.pdf

 

[31] Alana Wilson, “Peru’s Social Conflict is About More Than Mining,” Fraser Forum September / October (2012): 15-17, accessed June 25 2014, http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/articles/perus-social-conflict-is-about-more-than-mining.pdf

 

[32] “Top 10: Toxic Pollution Problems 2012, Mining & Ore Processing,” Blacksmith Institute, accessed June 24 2014, http://www.worstpolluted.org/projects_reports/display/98

 

[33] Cecilia Jamasmie, “Peru’s President Allegedly Financed Campaign With Illegal Mining Funds,” Mining.com, June 12 2014, accessed June 25 2014, http://www.mining.com/perus-president-allegedly-financed-his-campaign-with-illegal-mining-funds-93081/

 

[34] Cecilia Jamasmie, “Mercury Pollution Linked to Illegal Gold Mining in Peru Reaches Lethal Levels,” Mining.com, March 25 2013, accessed June 25 2014, http://www.mining.com/mercury-pollution-linked-to-illegal-gold-mining-in-peru-reaches-lethal-levels-73281/

 

[35] Alexander van Green, et al, “Lead Exposure From Soil in Peruvian Mining Towns: A National Assessment Supported by two Contrasting Examples,” The World Health Organization, August 28 2012, accessed June 26 2014, http://www.who.int/bulletin/volumes/90/12/12-106419/en/

 

[36] Ibid.

 

[37] Peggy Pinedo, “Peru Makes Progress Against Illegal Mining,” Infosurhoy.com, April 18 2013, accessed June 18 2014, http://infosurhoy.com/en_GB/articles/saii/features/main/2013/06/18/feature-01

 

[38] “Minister of Environment for Peru and UNFCCC COP 20 President Highlights New Report On Amazon Security Agenda,” Global Canopy Programme, January 28 2014, accessed June 18 2014, http://www.globalcanopy.org/sites/default/files/Press%20release%20-%20Minister%20of%20Environment%20for%20Peru%20and%20UNFCCC%20COP%2020%20President%20highlights%20new%20report%20on%20Amazon%20security%20agenda.pdf

 

[39] Lynda Sullivan, “Peru’s Conga Mine Conflict: Cajamarca Won’t Capitulate,” Upside Down World, May 1 2014, accessed June 19 2014, http://upsidedownworld.org/main/peru-archives-76/4823-perus-conga-mine-conflict-cajamarca-wont-capitulate

 

[40] Ibid.

 

[41] Frank Bajak, “Peru’s Gold Mine Conundrum,” Huffington Post, accessed June 24 2014, http://www.huffingtonpost.com/2011/11/25/peru-gold-mine_n_1113475.html .

 

[42] Peter Hecht, “Peasants in Peru Near Shutdown on Mercury Spill,” MAC: Mines and Communities, March 5 2005, accessed June 16 2014, http://www.minesandcommunities.org/article.php?a=1384

 

[43] “Conga: Overview,” Newmont Mining Corporation, June 2013, accessed June 24 2014, http://www.newmont.com/node/4937