Magazine article Washington Report on the Hemisphere

Peru's Environment vs. China's Investment

Magazine article Washington Report on the Hemisphere

Peru's Environment vs. China's Investment

Article excerpt

Peru's political left greeted with exultation the election of Ollanta Moisés Humala Tasso as president in 2011. Former president Alejandro Tole described it as, "The people have won, democracy has won, the memory of the people won." But Humala's populist policy was clearly not supported by industrial interests and foreign trade in Peru and contrasted strongly with runner-up Keiko Fujimori's platform of neo-liberal economics. Humala led Peru to two environmental advances, at least on paper. He brought the nation the Extraction Industry Transparency Initiative (EITI) standards that oversee the enactment of the Law of Prior Consultation (LPC), and put the International Labour Organization (ILO) convention 169 on the table. The EITI creates a voluntary association holding extraction industry members to a higher standard of financial accountability; the big hitch is that companies can decide if they want to join. The LPC is a law that also guarantees indigenous peoples the right to consultation before the government makes any major decision affecting them, their lifestyle, and values.

The two laws were greeted with cautious optimism by some Peruvians as well as members of the international community, but also with criticism by many of them. They were criticized as governmental "greenwashing" rather than authentic change as Peru begins courting the outside world for investments in its resources. Some skepticism is warranted about the LPC in particular, as it only promises consultation, and the government has final say even if indigenous peoples do not want it to move forward with a given project. These laws lay a foundation for responsible and sustainable mining, but depend entirely on Peru to actually enforce them. The solidity of that foundation is at least dubious, as the government has a compelling reason not to enforce the laws: China.

Beijing's financial investment in South America since the turn of the century has become enormous. The Asian giant has emerged as the world's largest consumer of natural resources in the world; unsurprisingly, it looks covetously at new markets in resource-rich South America. There is enthusiasm on both sides of the Pacific for greater economic cooperation, and Peru has been chomping at the bit to get involved. The country has rich deposits of copper, iron, and coal, and as of the end of 2013, one of the least volatile currencies in the world. It is thus a prime candidate for investment. Chinese resource-extraction companies had been expanding methodically in Latin American countries, but in 2007 Peru became the first regional nation to sign a free trade agreement (FTA). With this action, Peru began to draw more investment than ever. In 2014, it captured half of all China's foreign direct investment in South America; Peru's portion totaled $14.24 billion USD in that year, according to the Chinese Ministry of Commerce. Almost 70 percent was used for mineral extraction, and Chinese investment now makes up slightly less than a third of all mining in Peru.

The EITI agreement and the LPC were produced in the context of this enormous surge of Chinese investment. Mining companies from other nations such, as the United States and Canada, began do business in Peru before environmental protection laws and accords were put in place, and they initially developed their practices without restraint. Chinese mining companies, however, are starting relatively fresh in the region. If the Lima government can resist bending its own laws, it can collaboratively work with Chinese companies to set a new precedent in mining that is both profitable and environmentally responsible.

In 2014, the EITI organization lauded Peru for a wellintentioned program which returns 50 percent of all revenue collected from companies involved in extraction to the communities hosting their mining operations. These communities are primarily rural with large indigenous populations, so the program should theoretically contribute to their social advancement. …

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