Promise and Pitfalls in Peru
By Sean Carberry | February 17, 2010 | Peru
Back in November I spent a couple of weeks in Peru on an International Reporting Project Gatekeepers Fellowship. The program was a whirlwind tour of the country. We began with a few days in Lima, flew to Cusco, visited Machu Picchu, trekked off to the Amazon region of Madre de Dios, and back to Lima. Along the way we met with government, business, academic, and development figures. We explored public health, development, environmental, and political issues.
We even visited the International Potato Center and learned that the country has more potato varieties (on the order of 3,000), than any other country.
So, I want to share some thoughts, observations, and takeaways from the trip. In essence, the best summary of Peru came from the US Embassy team who described Peru as a “swing state.”
Peru is a state on the edge in a variety of ways: politically, socially, environmentally, narcotically… It has made tremendous progress over the last decade or so. Growth is up, poverty is down, and the country is becoming more politically and socially stable. But, poverty is still dangerously high at 35%, and the distribution of the wealth and growth has been uneven.
Like many transitional nations, Peru’s governance capacity is limited. This fact was echoed by people in all sectors and parts of the country. The capital of Lima is overstretched. 8 million people are living in a city designed for probably half of that at best. Traffic is brutal, and there is no public transportation system to speak of. The craggy, barren hills of the city are lined with squatter communities.
Poor people have descended from the mountains seeking some form of economic opportunity, and while the city does offer more than the mountains or parts of the Amazon, there are huge numbers of people living in illegal communities that lack services and infrastructure. In fact, these are the kinds of hillside shantytowns that crumble in earthquakes or mudslides and result in massive human devastation.
Part of the problem is the fact that Peru’s regional governments are considered weak at best, and corrupt and counterproductive at worst – depending on how diplomatic the source of the analysis is. Under the law, 50% of tax revenue from the extractive industries is shared with the regional government where the revenue is generated. So, that means that regional governments are often receiving very large amounts of money due to the surge in commodity prices in recent years. But, we heard repeatedly that the regional governments don’t have the capacity to spend the money on building infrastructure and providing social services. Much of the money sits there doing nothing, and some of it “disappears.”
All of this fuels several responses. One, people move to the cities where they think they will have better opportunities. Two, people engage in illegal mining or forestry. Three, it provides space for “authoritarian populist” political candidates to gain favor. In the 2006 presidential election, Ollanta Humala, the Chavez-backed candidate rode a wave of popular discontent and frustration and came close to winning the general election. While no one we met with really thought that Peru would elect Humala or a “Chavez” candidate in 2011, people do admit that the Peruvian electorate is emotional and unpredictable, and if the people see the government making money and failing to improve the lots of the poor in the country, then anything can happen.
On the subject of the economy, the country again can go either way. Former President Toledo lamented Peru’s “resource curse” and the fact that the country is blessed with substantial mineral wealth. As he and others pointed out, that has meant the country has been able to grow based on extractive industries, rather than developing a modern, technology, or knowledge based economy. Mining might create impressive wealth, but does not create many jobs. And, it also ties the country to fluctuations in commodity prices – a great thing when gold prices are soaring, but dangerous if prices crash.
By and large, the country gains little extra revenue from its resources once they are extracted. The country makes little in terms of final products, so there is a tremendous opportunity to create industries that make products from the metals, or flooring out of timber. That would create jobs and keep more wealth in the country – a win-win.
People we spoke with said that this is a critical moment where Peru needs to invest its revenue in transforming its economy and developing sustainable industries that create jobs and stability. This will require transforming Peru’s education infrastructure, which people told us is in desperate need of help.
Returning to the subject of the extractive industries, mining is one of the great threats to Peru’s environment. Miners and mining corporations are required to follow a variety of laws to minimize their impact. And what has evolved over the years is a legal and illegal mining sector. The legal sector consists of large multinational corporations as well as small-scale operations. From what we heard from people in the industry, and various critics and watchdogs, there are some bad apples in the legal sector, but the consensus is that the formal mining companies do a decent job of minimizing their environmental damage.
The problem is the massive growth of informal mining – or illegal mining. Individuals stake a claim along a stretch of river, or swath of forest, and stop at nothing to extract as much gold as possible. In the process, they dump obscene amounts of mercury into the water, soil, and air. So, the illegal sector causes both pollution, and increasingly, deforestation.
And as we saw and heard, the government has little capacity to enforce the laws in the more remote parts of the country. As you can see in my slideshow, communities like Huayapethue in the Madre de Dios region, flagrantly conduct illegal mining, and the government is powerless to stop it.
This raises concerns on a few levels. The pressure to grow the economy and combat poverty means that sometimes industry and development can take precedence over the environment. The Interoceanic highway project is expected to increase trade and growth in the country, but it also brings the specter of environmental damage. As I explored in my story for our current radio program, the highway makes it easier for individuals to access more remote areas in the rainforest and cut down trees to plant crops or grow livestock.
These practices do provide more revenue for people with few options to make money, but the challenge is to foster sustainable forestry and agriculture. As people told us, the economic incentives favor cutting down Peruvian rainforest, and so the government, NGO’s, USAID and others are trying to develop incentives and alternatives.
Sustainable farming and forestry, eco-tourism, and eventually a carbon credit market that gives value to standing forest are all measures that can change the equation and create wealth for individuals and preserve the environment.
In the short run, the government needs to step up its enforcement measures and combat the illegal farming and mining while it works to implement alternative practices. And unlike some places in the world where countries might lack regulations to protect the environment, in Peru’s case, people say the laws are there, but the ability to enforce them isn’t.
And on the subject of law enforcement, there’s the resurgence of drug production in the country. Peru had made great progress in reducing its drug production, but the country has been backsliding. Factors such as neighboring Colombia’s crackdown on narco trafficking have contributed to the uptick in Peru. Again, much of this relates back to the fact that the state has little presence in the remote areas of the Andes or the Amazon. So, it’s not hard for narco-traffickers to set up shop. Often, they employ poor, local, and otherwise law-abiding citizens, and that makes it even harder to stop the industry.
There have been isolated success cases like San Martin, where the Peruvian government and USAID have worked to promote alternative crop production and the high demand for coffee and chocolate has provided locals with viable alternatives to dabbling in drugs. Unfortunately, the conditions in San Martin are not easily replicable across all the parts of the country where cocaine is produced. So, it’s another uphill challenge.
Despite the fact that I have been listing off a litany of challenges or weaknesses, Peru has been on a positive trajectory. The country is truly blessed with resources ranging from gold and oil to lush rainforest, picturesque mountains, and beautiful beaches. As the country has become more stable, tourism has grown, and Peru is also establishing itself as a culinary powerhouse.
But, the message we heard was clear – if the country doesn’t make inroads in improving governance and services, transforming to a more diverse, value-added economy less tied to fluctuations in commodity prices, reforming its education sector and expanding opportunity for its people, then the ride could be as rough as the roads heading to Machu Picchu. But, the upside is boundless if the country can make the most of its resources – mineral and human.
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