Peru Political Reviews

Increased investment in the extractive industry has made Peru one of the fastest growing economies in Latin America. At the same time, the investment creates conflict due to environmental consequences and uneven distribution of the goods.

Peru is a multicultural, multiethnic and very diverse country. Conservation International places Peru among the 17 countries with the greatest biodiversity, reflecting the country’s potential. Peru has one of Latin America’s highest economic growth rates with 5.8 percent growth in 2013, and the conditions for further growth are positive. The country is rich in natural resources such as minerals, oil, gas, forest, fish and agricultural lands. The mining sector in particular has helped bring national revenues to new heights. Despite this, a large proportion of the population (24 percent) remains poor, and at the same time a large number of environmental and social conflicts are prominent.

New government, new course?

When Ollanta Humala was elected president in 2011, he had created high expectations in the population, especially among the poorest. He outlined his government plans in a document called “The Great Transformation,” which promised Peruvians major changes. He suggested that the state should take a more active role in the extractive industries by, among other things, reassessing the licenses of the mining companies. Humala’s stated goal was to ensure that the income from the economically important mining sector would benefit the entire population of Peru to a greater extent.

However, in order to win the second round of the presidential election, Humala had to form an alliance with more center-right-oriented forces, thus significantly moderating its political proposals. Finally, he signed a far more moderate government plan called the “road map”, promising not to implement the most radical social proposals presented in “The Great Transformation”.

Humala took over the government at a time when Peru was riding a wave of optimism over a seemingly unstoppable economic growth of over 7 percent of gross domestic product annually. At the same time, his government also inherited a great deal of unresolved social demands and social and environmental conflicts. The rapid growth between 2000 and 2010 was not able to secure equal opportunities for the population.The gap between the richest and the poorest was widening.

The lack of both proper environmental standards and political will to protect the environment had caused negative consequences for the population in the form of polluted water and air, as well as deforestation. Humala also had to decide on the requirement to finally implement indigenous peoples’ right to consultation – a right formally recognized by Peru through ratification of ILO Convention No. 169 in 1994. This claim was reinforced by the fact that his predecessor, President Garcia, had pursued a policy. as suppressed and criminalized social protest. The memory of the clashes in Bagua in 2009 was freshly remembered. At least 34 people were killed, including police and civilians.

In short, Humala’s main challenge was to lead the country towards sustainable development. That is to maintain the high economic growth and at the same time solve the social and political demands of the population which so far have not benefited from the national progress. Humala, after all, had won the election by promising “growth with social inclusion”.

Poverty and inequality

The Humala government chose to implement a package of social programs to reduce poverty: the pension program Pensión 65, the toddler program CunaMás and the scholarship scheme Beca 18. According to Peru’s National Institute of Statistics and Informatics (INEI), the proportion of poor people in the population has dropped from 34 to 24 percent during Humala’s reign. However, this calculation is based on a definition of poverty where a poor person is a person living on less than US $ 2.25 a day. This means that a person who today receives support from the state and lives on US $ 3 a day is no longer considered poor. It is important to note that the World Bank believes that poverty is far more pervasive than previously estimated, and that the latest calculations do not reflect the potentially large impact rising food and fuel prices may have on the poor share of the population. According to Countryaah, poverty in Peru is higher than that reported by the country’s authorities.

On the other hand, these figures omit differences between urban poverty levels and rural areas. They do not show the great differences that exist in Peru. More than half of the rural population lives in poverty, while the figure is only 16 percent in the cities. It is striking that poverty levels are higher in the highlands (35 percent) and in the Amazon region (32 percent) than along the coast (15 percent), where the largest cities are located. Furthermore, it is startling that the poverty in the first two areas decreases very slowly, if at all. Looking closer at Peru’s 25 regions, the differences become even more dramatic. In Cajamarca, home to one of the world’s largest gold mines, Yanacocha, 53 percent of the population lives in poverty.

Despite almost 6 percent annual economic growth in 2013, the opportunities for further poverty reduction can be questioned. Peru’s economic development is almost entirely based on the extraction of primary resources. The export of raw materials depends on the strength of trading partners such as China, Europe and the United States, which, according to the International Monetary Fund, is doing worse than expected. This makes the prospects for further growth and poverty reduction less likely.

At least half of the seven million Peruvians who became part of the middle class over the past decade are highly vulnerable to any stagnation in growth or other difficulties that could affect their income. The head of the World Bank of Latin America, Augusto de la Torre, commented that if economic growth in Latin America falls from 3 to 2 percent, half the people who have been lifted out of poverty – the group that has been called “the unconsolidated middle class ”- fall back. The same goes for Peru: If average growth were 4 percent instead of 5.5 percent, unemployment reduction would stop. If the growth rate drops to 3.5 percent, about 3.5 million Peruvians will fall back into poverty.

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