Peru’s President Ollanta Humala has shown surprising determination to keep foreign capital flowing into the Andean nation, defying the expectations of many investors who greeted his election in June with concern. While he raised taxes on miners, he’s now pledged to protect legitimate mines from agitators. Mr. Humala may be a leftist, but he’s shown Peru is open to the international investment that it needs to grow richer.
Big gold mining projects such as the Conga mine, owned by Newmont Mining and Peru’s Buenaventura, estimated to cost $4.8-billion (U.S.) and located at 13,800 feet in the Andes, inevitably produce environmental and local-opposition problems. The project’s opponents claim that it will disrupt a chain of Alpine lakes and pollute water supplies.
Conga’s environmental impact study was approved in October, 2010, by the previous centre-left Garcia administration, and included the provision of new reservoirs to replace threatened mountain lakes. Since Mr. Humala was elected with the support of the rural poor, it was thought he might delay the project, but his government has merely vowed to “review” the approval.
Mr. Humala has already moved against miners by increasing taxes on their operations, expected to produce about $1-billion in annual revenue. However, disruption and delay through environmental problems can be far more costly and troublesome to international investors than increased, predictable taxes. The current protests are estimated to be costing the Cajamarca region $10-million a day. Approvals that must be renegotiated with each political change also produce huge costs through the delays they impose.
Mr. Humala may not like foreign mining companies, but he seems to recognize the wealth they can bring to Peru, especially when resource prices are near record highs. More important, his administration is distinguishing between problems that foreign investors can deal with and those with the potential to gum up the economy broadly. If he persists on the current course, Peru may find itself promoted well up international investors’ wish lists – with potentially long-term benefits to its people’s living standards.