By Antonio Sampaio

Ollanta Humala, a former army officer who once led a military rebellion to overthrow the Peruvian government, has been sworn in as the country’s new president. Eleven years have transformed his political views. He was once an ally of Venezuelan leader Hugo Chávez and a fierce adherent of populist politics, drawing support from the poor and indigenous sectors of society. This year, however, he has attained the presidency through promising a moderate path, combining the reduction of social inequalities with economic development. 

This is where his biggest challenges lie, since economic development has been historically separated from social progress in Peru. The country’s path towards further economic progress (Peru has already registered an impressive growth rate during the last few years) is connected to its mineral resources, a large part of which lie under the Amazon rainforest and indigenous lands - a recipe for internal strife.

Humala has sworn a public oath on the Bible to respect rights of foreign investors, as a sign of his disavowal of the Chávez model, instead supporting former Brazilian president Lula’s moderate model of development. He has also appointed figures to the ministry of economy and the Central Bank that are popular in financial markets, signaling the sincerity of his promise to respect foreign investment. There is no doubt that many have believed him. Two of the largest telecommunication companies in the world, Spain’s Telefónica, and Claro, a subsidiary of América Móvil from Mexico, have announced a total of USD$2,5 billion in Peruvian investments following Humalaʼs victory.

His orthodox choices were necessary to gain not only support of investors, but also that of other parties, such as the “Perú Posible” coalition of former president Alejandro Toledo, which was the only way to guarantee enough votes to govern in Congress. But the names have provoked criticism from within Humalaʼs own coalition, “Gana Perú” (“Peru Wins”). One of the lawmakers from this coalition, Javier Diez Canseco, a personal friend of Lula, has said that the choices did not please him. However, he added, “We need to be patient and think on the Brazilian model”. Similarly, other members of the radical leftist sectors of the governing coalition are inclined to have patience due to the successful example of Brazilʼs economic measures, which have diminished poverty while maintaining economic development and foreign investments. 

The main dangers ahead lie not in a sudden U-turn back to radical, populist policies, but in Humalaʼs capacity to appease the disenfranchised sectors that have traditionally been his most loyal constituency. Unlike politicians, Peruʼs indigenous communities have become more impatient and violent in recent years. As Peru becomes increasingly popular among foreigners, a large portion of investments will go towards its most economically attractive sector: mining. The country is one of the worldʼs largest producers of gold, silver, zinc and tin. This resource richness has allowed the country to register impressive growth rates: between 5 and 10 per cent from 2002 to 2008. Public debt has fallen 20 percentage points from the beginning of the last decade until 2007. The poverty rate has dropped by 19 percentage points since 2002, although it is still double the rate of neighbouring Chile. Unemployment is also high.

However, the impact of mineral exploration on the lives of ordinary Peruvians is the most immediate threat to the country’s stability. The rural communities, where the majority of mining operations take place, have yet to see the benefits of this growth. At the moment, what most of them see is more pollution, water contamination and damage caused by agricultural pesticides. Some areas also complain about getting an unfair share of revenues from these mineral resources. Human rights agencies have identified 200 social conflicts over natural resources. Clashes have killed nearly 100 people in the last three and a half years. In 2009, during the government of President Alan Garcia, the country witnessed the worst wave of violence since the days of the insurgency led by Sendero Luminoso. Indigenous communities rebelled against a legal proposal that would open more jungle areas to foreign companies for extraction of natural resources. During the worst protest, in June 2009, 23 policemen and 10 Indians were killed. An alliance of 64 tribal groups blocked roads, waterways and oil pipelines, halting development projects. The government withdrew 4 of the 11 proposals.

Latin America is not short on precedents of resource-driven violence. Similar conflicts over natural gas brought down the government of neighbouring Bolivia in 2005.The continual reliance on natural resources for economic growth paves the way for more tension. Foreign companies have pledged USD$50 billion for the mining and oil sectors during the next decade. But companies are increasingly concerned about the potential for social conflict.

Just one month before Humala was sworn in, Peru cancelled the license of a USD$15 billion energy project led by Brazilian companies. The consortium would have built 6 hydroelectric power plants capable of generating 10,000 megawatts. The reason for this cancellation was protests in the Puno region, where the largest plant was to be built, in which 5 people died. The Brazilian government hopes that Humalaʼs close ties to indigenous communities will facilitate the resumption of the project. But the new presidentʼs roots may also have the opposite effect: higher expectations can lead to higher disappointments.

The new government has indicated that it will include environmental and social issues in the complex administration of the country. It has announced new taxes on mining companies in order to direct more money to social programmes. But it is treading carefully, through dialogue and moderation, in order not to ruin the hard-earned trust of investors.

The country enjoys favourable international prices for many of its commodities, leading to economic growth of 9 per cent last year, which is projected to remain high. The favourable economic environment and the precedence of a successful Brazilian model (and of Brazilian advisors hired by the new president) mean that the new government has some space to think ahead. But the clock is ticking: Humalaʼs popularity has already dropped by 20 percentage point since June, due to a scandal involving his brother. With the mining sector accounting for 63 per cent of Peruʼs export revenues, the source of the country’s growth and prosperity for the last decade is also likely to engender further social unrest in the coming years. How much unrest will largely depend on how successfully Humala can engage the rural poor and indigenous communities, through dialogue and Lula-style social programmes. 

Antonio Sampaio is a Brazilian national and holds a BA in Journalism from the Pontificia Universidade Católica do Rio de Janeiro. He is currently pursuing an MA in Terrorism, Security and Society at King's College London. Before moving to London, Antonio worked as Editor of International Affairs at Globo TV. 

29 July 2011