Peru fails to dig its way out of deadlock amid mining unrest

Peru's government dispatched troops to the south west of the country at the weekend after violent protests against a copper mine project resulted in the death of a second activist and a policeman last week.

Local people say the proposed mine will ruin the environment and damage agriculture if it becomes operational.

President Ollanta Humala said he has not "lost hope" that dialogue over the project could be resumed." However, any breakthrough in the long running dispute over the Tia Maria mine seems distant.

Nearly $25bn of mining investments in Peru have been stalled by the violent unrest and rising costs, paralysing the economy of the world's third largest copper-producing nation

The fate of the $1.4bn mine, proposed by Grupo Mexico's Southern Copper, is symptomatic of how momentum has been lost in what has been one of Latin America's great growth stories. The end of the commodities boom has left Peru, where mining contributes some 15 per cent of gross domestic product, struggling to adapt.

"Renewed protests against Tia Maria will further delay the project and could derail it altogether; more widely they highlight structural challenges facing mining activity in Peru limiting the government's efforts to attract investment," said the Eurasia Group.

Tia Maria has been subject to a strike since March while Minas Conga, another high profile project, spearheaded by US gold giant Newmont, has been stalled since late 2011 after protests left several dead.

President Humala, a former army officer, won a close election four years ago pledging to support the poor in the country's many mining disputes. But the bitter battles have continued and little else has been achieved, critics say. Meanwhile, the economy has slowed sharply. Expectations are low as the clock ticks down on the 15 months remaining of the president's five-year term.

"Peruvians are waiting for this government to end," said Luis Nunes, a political scientist. "Business leaders, politicians and people on the street fault the president for his inability to make decisions, to take action." The government had expected $64bn in mining investments by the end of the decade, but more than a third is frozen because of protests and rising costs.

Part of the paralysis stems from a revolving door in the government. Mr Humala has run through a long list of cabinet ministers, including seven prime ministers - a record - since his inauguration. All but one of the prime ministers has left in the midst of scandal. The most recent, Pedro Cateriano survived a confidence vote on April 27.

The government's next battle will be to convince a highly fractured Congress to grant it special powers to legislate on economic issues. Analysts doubt the votes are there.

Peru's economy has slowed partly as demand for resources has declined in Asia. Its average annual growth rate over the past decade was 6.4 per cent, but that plummeted to 2.4 per cent last year, and just 1.3 per cent in the first two months of this year.

The finance ministry is sticking to its forecast of 4.2 per cent expansion for the full year. March mining production numbers are in its favour, with copper output up by 9.3 per cent and gold up by 10.4 per cent over the same month last year.

But few economists share this upbeat outlook. Francisco Rodriguez, chief Andean economist at Bank of America Merrill Lynch, expects growth of around 2.4 per cent. "The Humala administration has very little political capital left to engineer a turnround in the economy," he says.

"Humala is unpopular not only in public opinion but also with the business sector, most of which - unfairly in my view - criticise him for the slowdown," adds Mr Rodriguez.

The president's popularity has been below 30 per cent for more than a year, with a late April poll by GfK putting his approval rating at 24 per cent. The economy is the biggest worry in a country used to the status of South America's star.

The government has been announcing stimulus measures in stages for a year. It is also betting on an increase in mining production and public investment to get the economy growing. But construction on some awarded major public works projects have yet to start, including work on the $6bn second line of Lima's metro.

"What is dragging down growth is a combination of the delays in private investments, such as mining projects," said Munir Jalil, chief Andean economist at Citi, which has forecast growth at 3.8 per cent with the forecast on the downside. "And the electoral race for the presidency starting in the second half of the year."

Mr Humala is constitutionally banned from seeking immediate re-election, but the April 2016 poll will be a crowded race with at least 20 parties already registered to run.

The list of candidates is likely to include former president, Alan Garcia, and Keiko Fujimori, the popular daughter of another former president currently serving a long prison sentence. Her party is the strongest force in Congress. For Mr Nunes: "Peru's already fractured political system could grow even more fragile post-2016."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation