Mining its way to economic success: an old strategy reinvented for a new president

27 August 2016

By Kathryn Babineau

As was demonstrated by the National Statistics Institute's most recent economic report, Peru has long depended on its diverse, ample natural resource base for economic growth, and its newly-elected President plans to continue with that model. President Pedro Pablo Kuczynski was elected on a platform that promised to encourage economic growth, growth he intends to achieve through increased mining revenues.

At first glance, it appears that this strategy is no different from that of much of the past quarter century: allowing the extraction of natural resources to stimulate continued growth. And while this strategy has been undoubtedly successful, experts have long argued that it leaves Peru's economic health vulnerable to swings in commodity prices.

As a former chief economist of the International Finance Corporation (IFC), minister of energy and mines, and businessman with long-standing ties to mining throughout the Americas, the president's belief in mining as a model for economic growth is not surprising. In response to concerns that the national economy is too dependent on raw commodity exports, Kuczynski used his time as president-elect to lay out a strategy that captures a greater amount of the value in the mining supply chain.

One of the key methods Kuczynski plans to use is encouraging investment in smelter and refining, in order to allow minerals extracted from Peru to also be prepared for global sale on Peruvian soil. As confirmed by his upcoming visit to Beijing, Kuczynski also continually works to shore up investment support from China, particularly in mining.

In many ways, therefore, Kucynski's economic strategy is more of the same, and in fact may be trying to turn back the clock to the time when environmental and social considerations mattered much less than encouraging and keeping investment from extractive multinationals.

This week, Congress will debate legislation to extend the timeline for the liquidation of the La Oroya smelter plant, a metallurgical processing site closed due to Doe Run Peru's (the US-owned operating company) financial woes and serious environmental concerns regarding sub-par pollution protections. While environmental concerns may have helped close the plant, Kucynski and his PPK party say they will do everything necessary to get the plant up and running. That may mean relaxing the environmental clean-up requirements originally imposed on any company willing to operate the plant, protections that would require significant investment.

In a recent interview in El Comercio, Environment Minister Elsa Galarza Contreras equivocated on questions regarding enforcing environmental protections when extractive investment, like the re-opening of the La Oroya plant and oil drilling in the Amazon, is at stake. Ultimately, only time will tell if such a return to old economic practice will promote a return to impressive economic growth. However, tensions between communities and extractive companies continue to run high.

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    The Peru Support Group exists to promote social inclusion, sustainable development and the observance of human rights in Peru. To that end the PSG highlights shortcomings in observance of established norms, whether international or local in nature, in its research, advocacy and publications. In so doing, it underscores the relationships that exist within the political system, how institutions work, and the effectiveness of policies that aim to reduce poverty and inequality within the context of sustainable development.

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