Investment Over Environment As Humala Reforms Rip Up Red Tape

Peru is enticing greater investment in its mining and oil industries at the expense of environmental regulations, to kickstart its stalling economy.

Lawmakers passed a package of ‘urgent’ economic reforms Wednesday to stimulate its sliding mining and hydrocarbon industries, after the economy expanded its least in five years in April.

Ecologists and conservationist groups criticised the package, which gives faster permits, lower fines and tax incentives to firms, and say it reduces the role of Ministry of Environment.

“It’s a big setback to the advances Peru has made on the environment,” said its former vice-minister, Jose de Echave.

The Environment minister Manuel Pulgar-Vidal, voted against the bill in protest, which passed convincingly.

Studies assessing the ecological impact of projects will now have up to 30 days to complete, and the Ministry of Environment’s capacity to create conversation areas will be reined in. Fines will be lowered “temporarily” for three years.

“Modernising the state”

President Ollanta Humala denied its commitment to environmental checks would be undermined by reform package.

“The environmental parameters are all being kept, none have changed.  We are trying to modernise the state.  We want there to be more investment with these measures,” Mr Humala told reporters on Wednesday.

Big business has welcomed the reforms, with Moody’s Investors Service, the credit agency calling the measures ‘positive’.

“They tackle the business community’s concern about bureaucratic procedures that have negatively affected economic sentiment,” it said in a report on Jun. 17.

Projects can take up to two years to be approved in some cases, which is “paralysing” the country and restricting growth, said a director of the industry group, the National Society of Mining, Oil and Energy (SNMPE).

The government said the legislation could add 3 percent to GDP in three years and would attract $11 billion in investment.

Conservationist protests

Activists from conservationist and human rights movements gathered in Lima’s San Martin Square yesterday to protest the measures, which they called a “paquetazo”, referring to the so-called “paquete” (reform package).

This drew deliberate comparison with the “paquetazo” reforms of the presidency of Alberto Fujimori of 1990 to 2001.

To reverse chronic hyperinflation which hit 7,500 percent in 1990, President Fujimori privatised vast tracts of Peru’s mineral deposits and cancelled subsidies on staple food items.

The sell-offs often were of land belonging to indigenous groups, which would be later affected by extraction operations.

These initiatives would further harm indigenous people living near projects, said the former vice-minister De Echave.

A spokesman for the Interethnic Association of the Development of the Peruvian Jungle (Aidesep) said the measures would favour “businesses who continue to contaminate the rivers, forests and valleys of Peru’s Jungle.”

Slumping economy

Only 94 (1.7 percent) of the 5,517 cases which the Environment ministry’s tax authority (OEFA) supervised last year resulted in fines, El Comercio newspaper reported.

That the Mining and Energy Ministry will now be able to vote on conservation zones, raises doubt over the future of the 11 hydrocarbons deposits off the coast of Tumbes and Piura in northern Peru.

Studies to create a conservation area took place last October. Fourteen “protected zones” from the Amazon to the Andes exist.

Peru’s economy was the best performer in South America in the last decade, averaging about 6 percent growth a year.

Falling exports on lower Chinese demand for copper has contributed to a slowdown however, with growth for 2014 being downgraded. Growth in April was just 2 percent, the lowest monthly increase in five years.

Moody’s expects Peru to grow 5.2 percent this year, against 5.8 percent in 2013, though some analysts have predicted as little as 4 percent.

Investment has declined similarly from 17.2 and 10.3 percent in the second quarters of 2012 and 2013 respectively, to 1.6 percent in this year’s first quarter.

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