Peru’s Mining Economy Booming But at What Cost?

Peru’s growth has been impressive but comes at the cost of environmental degradation and social unrest.

Statue in Lima's Plaza Mayor, Peru, June 14, 2013
Statue in Lima’s Plaza Mayor, Peru, June 14, 2013 (Flickr/John M.)

Last month, the Lima Chamber of Commerce announced that annual economic growth needed to remain at 5.5 percent if Peru’s poverty reduction is to continue as anticipated. That may well be attainable though the price could be environmental degradation and social unrest.

The Latin American country has enjoyed something of an economic miracle since the turn of the century. Once the major threat of the Shining Path Maoist insurgency had subsided, Peru experienced steady and then exponential growth. Over the past decade, it has become one of the world’s fastest growing economies.

This has been a rare success story for Peru which has more commonly been associated with, and plagued by, political corruption and disruption.

In spite of such obstacles, its relative stability throughout the last twenty years, when terrorist threats were severely diminished and military coups became a thing of the past, has allowed Peru to prosper. Its GDP increased 6.4 percent between 2002 and 2012, demonstrating significantly higher growth than the average for Latin American and Caribbean countries. This has resulted in the number of people living below the poverty line falling from 59 percent in 2004 to 26 percent in 2012. Some 491,000 Peruvians escaped poverty last year, taking the percentage down to 23.9.

The World Health Organization reports that the improved living conditions resulting from the economic recovery has caused life expectancy for both men and women to rise. Life expectancy for men increased a full decade between 1990 and 2012. For women, it rose by seven years.

Cuzco, the old Inca capital, with its flourishing tourist trade and its prodigious mining and hydrocarbon resources, has shown GDP growth of 59 percent over the last five years. These figures cannot fail to impress.

While GDP growth has fallen somewhat since 2007, due in part to diminished commodity prices, the Peruvian finance minister, Miguel Castilla, still forecasts 5.7 percent growth this year up from 5 percent in 2013 with further projections of 6.4 percent annual growth between 2015 and 2017.

Such forecasting is based upon improved infrastructure, increased mineral production from Peru’s mines and subsequent exportation of copper, silver and gold. The mining industry represents 60 percent of the country’s exports and could reach $14 billion this year.

Peru’s new mines and energy minister, Eleodoro Mayorga, has stated that he will seek increased foreign investment in the mining industry, a sentiment that is echoed by Cesar Peñaranda of the Lima Chamber of Commerce who notes that “private investments … are the engine that drives the economy and represent 22 percent of the GDP.”

This is undoubtedly true but many of these mining investment initiatives have encountered resistance in the rural Andean communities which are worried about the effects on the environment. Indeed, earlier this month the government reported the discovery of 9,000 polluted sites which have predominantly been contaminated by mining.

By way of response, the government has tried to regulate the activities of “informal miners” but in doing so has caused quite a ruckus. More than 15,000 miners took to the streets in protest. They have been accused, among other offenses, of tax evasion, environmental contamination and corrupting government officials and are believed to be heavily entrenched in highly profitable illegal gold mining — worth $3 billion.

The government finds itself in quite a predicament, with rural environmental protesters on one side and illegal miners on the other.

Peru’s National Mining Society’s annual meeting is currently in session. They are naturally keen for the influx of investment to continue into the mining industry but recognize that this will be dependent upon the government establishing acceptable regulatory conditions.

It seems that the Peruvian government will seek to chart a central course, thereby attempting to avoid further confrontation with pressure groups. The National Institute for Statistics and Information has revealed that the Madre de Dios region is the least affected by poverty, no doubt due to the presence of the thriving illegal gold mining industry. On the other hand, poverty stricken Cajamarca is suffering as a result of lower levels of services and mining. The government faces something of a moral dilemma, poverty nourished by environmental responsibility and affluence standing on the shoulders of environmental neglect.

Even when the going looks good in Peru, it is still complicated.