Peru has been blessed with natural resources, such as gold, silver, and copper, as the map below indicates.
For centuries, the export of minerals has brought more foreign exchange to the country; however, these have also been a source of social conflict in places where the ore is extracted.
Peru - an Example of Resource Curse and its Evolution
Many pre-Columbian gold artifacts have been found in Peru, such as Tumi, a ceremonial knife, and textiles whose tissues are threads of gold. The story goes that the Spanish conquest of Peru in the sixteenth century began when a group of soldiers took the decision to go to South America to become rich, because the rumors spoke of “El Dorado,” a region where everything was made of gold.
Today, the gold, silver, copper, iron and other minerals, as well as oil and gas, represent the abundance of natural resources for Peru. Exports of these natural resources are the main source of foreign exchange for the country.
Extractive activities are performed by state enterprises and private companies. These companies pay large amounts of taxes. These taxes become the source of resources that are distributed between the national and local governments.
Peruvian history shows that the country has been inflicted with the resource curse for decades, and this condition has delayed Peruvian economic and political development. Peru, as with other many Latin-American countries, has suffered from a lack of political institutions and military governments that try to use the resource abundance as a short-run solution to economic challenges. After many years and a large political crisis caused by the Shining Path terrorism movement in the 1980s and 1990s, a new economic and political order was established that has been the base of current economic development.
Peru Looking for a Different Path: Managing the Resource Curse
Beginning in the mid-1990s, the Peruvian government employed a set of measures that caused a structural reform of the country. In the economic sphere, the aim was to make Peru more open to trade and investment and to have stronger institutions in the field of economic management. Such institutions include the Superintendency of Banking and Insurance, Tax Authority, Superintendence of Customs Administration, The Central Bank, The Ministry of Economy and Finance, as the more representative institutions among others.
The economic discipline that has followed this change in policy has allowed the Peruvian economy to grow. In these years Peru has been able to develop productive capacities and services in areas other than those of the extraction of natural resources. This has meant that today while mineral exports represent an important source of foreign exchange, these are not as in yesteryear, the largest single source. There is now a local productive chain capable of exporting products such as textiles, food, financial services, and gastronomic services among others. (To enjoy the benefits of this new policy, we suggest you check out your local Peruvian restaurant.) All these changes have reduced the extreme dependence of Peru on natural resources.
While there has remarkable economic progress in Peru, its political institutions have not advanced as far as one might wish. For example, it appears that much of the spending of local governments benefits the elite few and not the wider population. Studies show that, in 2013, 90% of local authorities have been the subject complaints of corruption and misuse of funds.
The Stress of the Resource Curse
Mining has brought some conflict to the village where the ore is extracted. A good summary is contained in the video below.
From 2004 to 2014, the Peruvian economy grew at a very strong rate of six percent per year. Much of this growth, however, was driven by unusually high resource prices. As the video linked discusses, commentators in Peru became concerned as resource price soften in 2014. Their concern was that the society had become accustomed to economic growth. If the price of resources fell, economic growth would be reduced or eliminated, leading to social unrest.
There are other sources of social unrest. The people who live near mining projects are often concerned about the environmental effects of such projects. There are often political demonstrations opposing mining projects. This has led to a delay or sometimes a denial of permission to being mining from the government.
The source of opposition to mining projects appears to come from several sources. First, local residents often do not benefit greatly from mining projects. This may occur because they are poor negotiators, or because their local leaders do not always have their interests at heart. In addition, local residents often have limited access to judicial systems. Thus, if a mining company violates a regulation or an agreement it has with a community, the local people may have difficulty forcing the mining company to comply with regulations or live up to its promises. Another way of looking at this is that mining companies who do desire to support their local communities may have a difficult time showing that they are committed to such a policy. They, therefore, may have trouble gaining the support of nearby residents, even when the mining company will act to improve the quality of life in the region.