Cooperacción report calculates Treasury losses from illegal gold

31 October 2015

A new report by Victor Torres Cuzcano, published in August 2015 by Cooperacciόn, traces the changes in the gold sector since 2007, the date of an earlier study by him. Torres shows that the changes have enormous fiscal significance, in addition to their environmental and social consequences.

It is well known that both informal and illegal mining have expanded greatly since 2007 when the issue of illegality was barely mentioned. It was first mentioned in 2010 in an official document and then defined in 2012 (p26).

Torres estimates that informal and illegal gold mining together totalled 10% of production in 2006, peaking in 2011 at 29%. His estimate for 2014 is 20% (p35). The increase since 2006 in part is compensation for the fall in production by large formal enterprises. What Torres does is to put numbers to the expansion and to the fiscal loss involved, and provide a succinct analysis of the causes.

Among the causes, he identifies first the huge rise in the price of gold, making risks worth taking on the ‘return’ side; second, the lack of alternative livelihoods making risks necessary on the ‘demand’ side; and third, the institutional weakness of the state which makes control ineffective. On this last point, he rightly points out that this is independent of any particular government in the recent past.

The repeated failures and limited scope of attempts to control illegal mining have stimulated growth in the sector. One result of its growth has been de-concentration of production and the growth of ‘productores golondrinos’ – fly-by-nights. He cites the fact that in 2013 one such golondrino was the country’s fourth largest exporter of gold (p55).

The golondrinos, Torres claims, declare ever less of their production and send ever more to Bolivia as contraband. In 2012-14 Bolivia, a non-producer, exported US$2.27 billion of gold. He estimates that 11.2% of the volume of Peruvian gold exports 2003-14 originated in the illegal/informal sector, not registered with the Ministry of Energy and Mines (MINEM). With a careful methodology, he estimates that the resultant loss to the Treasury was as much as US$1.31 billion a year. This of course also translates into a loss of ‘canon’ revenue – between $47 and $73 million a year on average for Madre de Dios region during 2003-14 (p56).

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