Editorial: All That Glitters...

Update 103. 30 April 2004

On the face of it, Peru should benefit enormously from the recent recovery in the prices of precious and base metals on world markets. Economists say that growth this year is likely to be in the region of 4-5% and that the country's exports should hit US$9 billion for the first time.

The resurgence in minerals prices is due in part to the recovery in growth in the United States and the decline in the value of the dollar, but probably the main factor is the continued dynamism of the Chinese economy. This looks set to continue. The balance between world supply and demand for minerals has shifted decisively over the last twelve months, ending a lengthy period of oversupply and low international prices. World prices for gold, copper, silver and zinc are all at their highest levels for many years.

But who benefits from a boom in minerals exports?

The prime beneficiaries, of course, are the companies involved in extracting and processing minerals. Most of these are multinational companies, like Britain's BHP-Billiton. Their profits will be well up this year, as their return on the capital they have invested increases. Some may reinvest these profits back into their Peruvian operations, although they will also face strong demands (not least from their shareholders) to channel the money elsewhere.

The Peruvian state also stands to benefit. Because of higher tax yields, it should also have more cash to spend; and maybe some of this will go on tackling the social deficit. However, in order to attract companies to invest in Peru, successive governments have pared back the tax obligations on foreign mining companies. Also, the government will face pressure from the IMF to cut the fiscal deficit further before increasing spending.

Will ordinary Peruvians benefit? Not much. The increased price of minerals has very little effect on employment, which remains the number one problem for most Peruvian families. Unless there is a massive government programme of social spending, the impact on poverty will probably be minimal. The economy needs to grow at double-digit rates for the UN Millennium Targets for poverty relief to be met. Minerals booms in countries like Peru tend to exacerbate, not reduce, levels of inequality. The absence of mechanisms, or even policies, for income redistribution mean that the wealth effect is concentrated primarily in those business sectors linked in one way or another to the mining industry.

Thought therefore urgently needs to be given about how to make 'trickle down' economics trickle further. The Peruvian authorities ought to spend some time looking at how things are done in other parts of the world in this respect. This may mean taking distributive policy a bit more seriously, anathema though such ideas are to the multilateral banks (like the World Bank) that remain hugely influential in policy design in Peru.

But it also means that the state, the only viable mechanism through which redistribution can take place, needs to clean up its act. Unfortunately, in this respect much too little has been done since 2000 to correct the hyper-corruption encouraged from on top during the Fujimori decade.

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  • PSG Aims

    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.

  • Historical Overview

    Over the past century Peru has suffered a series of autocratic governments and a civil war in which nearly 70,000 people died. Many of the country's ongoing political and social problems are a legacy of its somewhat turbulent past. 

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    Human rights violations were widespread during the twenty years after the initiation of armed conflict in 1980. Efforts to convict perpetrators since the war's end have made only limited progress. Today, concerns remain over the treatment of those engaged in social protest, particularly against strategically important investment projects.

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