Protest rises as government support ebbs

Public protest is never far from the surface in today's Peru, and October promises to be a rough month for the García administration, under attack for its liberal economic policies, its lack of social sensibility, and its illiberal posture towards anyone who dares to oppose it.

October 7th has been selected as a day of protest against the government. Already the government is facing a strike by doctors and the threat of a new strike on the part of mineworkers. The CGTP, the main union confederation, is rallying its affiliates to take their opposition on to the streets. Regional groups, particularly in the south of the country, are mobilising support for the October 7th stoppage. In Huánuco, the coca workers and other social movements are mobilising against what they see as the government's backsliding on an earlier agreement on drug eradication. The list goes on...

The government's poor standing reflects itself in the latest batch of poll figures. Produced by the Catholic University - and supported by other opinion polling agencies - these show a relentless decline in the numbers expressing support for President Alan García. As of the middle of September, only 19% of Peruvians thought he was doing a good job. The support level outside Lima is a good deal lower than this.

The reason for the dissatisfaction is not hard to detect. While the Peruvian economy continues to grow at an impressive rate - 9% this year - according to the government's own projection, the benefits of growth are being creamed off by the very richest sectors of society. Even Lourdes Flores, the leader of the right-wing Unidad Nacional (UN) coalition, has criticised García for presiding over a government that purports to be popular but whose policies benefit the wealthy.

The rise in the rate of inflation has contributed significantly to the climate of discontent. Wages are now falling well behind the rise in prices, and people's real incomes are beginning to shrink. Current inflation rates are around 8%, but since the rise in food prices is much higher than this, its impact is far worse on the poor who spend proportionately more of their income on food.

The government's claims to have reduced poverty substantially are beginning to seem very hollow in this context. Most economists agree that poverty rates in Peru - like most other Latin American countries - will climb this year, reversing any possible falls in rates during 2006 and 2007.

The new Finance Minister, Luis Valdivieso - whose many years working in the IMF make him a strong advocate of orthodox fiscal remedies - has taken steps to cut public spending over the next year. Much of the axe will fall on regional spending, particularly on capital investments. But the central government ministries will also suffer the consequences, and several are beginning to raise their voices in complaint.

Meanwhile, faced by growing hostility across a range of social sectors, the government makes no secret of its ill-will towards those who raise their voices in opposition. Although indigenous groupings in the Amazon region forced the government on to the back foot in pushing ahead with development projects that will endanger ancestral habitats, so far there are no signs of any real willingness to retreat on the so-called 'Law of the Jungle' (see Peru Update 128).

At the same time, the government continues to harass non-governmental organisations (NGOs) that take it to task on issues such as corruption, human rights abuse and the unrestricted exploitation of natural resources. One of the key authorities behind these scenes is First Vice-president Luis Giampietri, the retired admiral who was allegedly involved in the massacre of Sendero Luminoso prisoners at El Frontón during Alan García's first administration.

NGOs currently in the firing line include the Instituto de Defensa Legal (IDL), the Asociación Pro-Derechos Humanos (Aprodeh) and the Asociación Interetnica de Desarrollo de la Selva Peruana (Aidesep). These are all very well-established organisations of long proven competence in their respective fields.

In light of such increasing social unrest it remains to be seen just quite how García intends to keep detractors at bay and maintain appearances both at home and abroad in the run-up to the Asia-Pacific Economic Cooperation (APEC) leaders' summit to be held in Lima mid-November.

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5th anniversary of TRC report
August 28th saw the fifth anniversary of the publication of the final report and recommendations of Peru's Truth and Reconciliation Commission (TRC). The report laid much of the blame for the country's internal armed conflict (1980-2000) on the inequality, discrimination and exclusion of the majority of Peruvians, especially those from poor, Quechua-speaking communities in the high Andes. Although implementation of the recommendations has been largely disappointing, there have been a number of key advances in the area of reparations.

Fast forward five years, and Peru finds itself back under the command of President Alan García, whose first term in office (1985-1990) saw huge increases in terrorist activities and hyperinflation. Prime Minister Jorge del Castillo stated that the government "considers the work of the TRC to be important" and that it "had performed important work that we respect". Other key government players, such as Defence Minister Antero Flores Aráoz and first vice-president Luis Giampietri, were not as diplomatic in their assessment. Giampietri doesn't believe that the report has contributed to the peace process. Flores Aráoz ruled out the possibility of an apology from the armed forces for excesses committed during the conflict saying that he did not see any reason to apologise for the actions of others.

Former president of the TRC Salomón Lerner outlined in his commemoration that five years should be sufficient time to push forward the recommendations made in the report, yet is too short a timeframe to change the national psyche of a country. According to Lerner, it's too soon to confine the final report and recommendations of the TRC to the past, as change is both necessary and possible.

State of Emergency in the Amazon
Indigenous groups in the provinces of Cusco, Loreto and Amazonas called off their protests after a congressional committee voted to repeal legislation which would seemingly have made it easier for large energy companies to buy their land, thought to be resource rich (see Update 128). This decision now has to be approved by Congress.

Fujimori Case
The final summing up in former president Alberto Fujimori's case is expected to start on September 29th and last no longer than three weeks. It is expected that sentence will be passed for his alleged role in the Barrios Altos and La Cantuta massacres some time in November

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EITI Update: Transparency in Peru's Extractives Sector
By Epifanio Baca, Grupo Propuesta Ciudadana

Over the last six years, the Peruvian economy has experienced a sustained period of economic growth, driven by investment in the extractives sector, mainly mining, followed by agro-exports, textiles and services such as tourism and construction. Although, as mentioned in this month's editorial, this growing economic dynamism has been accompanied by a threats of greater inflation caused primarily by the hike in oil prices and foodstuff on the international market.

The dynamism of extractives industries over the last four years has been marked by the extraordinary increase in the price of minerals such as gold and copper. The result of which is that mining and hydrocarbons currently make up 70% of exports (compared with 41% in 2001) and 30% of domestic taxes (this was 7% in 2001). This contribution to fiscal income has resulted in the growing transfer of resources to sub-national governments which - according to the Canon law (1) - have the right to a share in this income. The annual total of the aforementioned transfers is around US$2,300 million (?1,276 million) a year. 

However, over the last few years socio-environmental conflicts between extractives companies and local communities have spread throughout several regions in Peru, due to perception by these communities that their economic and social rights are being violated. Additionally, they face a State that has little capacity and political will to uphold the quite permissive socio-environmental regulations. Consequently, communities are protesting because the canon resources don't directly benefit them; and in turn the local and regional authorities have demanded that companies comply with the universal payment of royalties and have even suggested imposing a tax on the windfall profits that these companies make due to the high international minerals prices.

In this context of economic dynamism and social unrest, the subject of income transparency generated by the extractives industries - as well as their use by municipal and regional governments - gains great importance for the industry's sustainability. Communities and regional social leaders feel that they have the right to access timely, complete and trustworthy information on the contributions made by companies that are exploiting non-renewable natural resources.

For this reason, the Citizen's Proposal Group (GPC - Grupo Propuesta Ciudadana) welcomed the Peruvian government's decision in 2004 to join the Extractive Industries Transparency Initiative (EITI), because we trusted that it could contribute to improving the transparency of payments made by companies and the income recorded by the State. This information is of great relevance because according to what is set out in the Canon Law it represents income for the producer regions. Also, in 2004 the country learned of cases whereby some companies paid less than they should have in taxes, or indeed paid no taxes at all, and improperly used their legal and administrative stability contracts (designed to promote foreign private investment for a fixed ten-year period. In these agreements, the Government guarantees certain privileges such as tax and exchange rates at the time when the agreement is signed). The worst hit by such practices are the regions of Ancash and Arequipa, as they stopped receiving tens of millions of dollars from the mining canon (2).

One criteria of the EITI is the: "Regular publication of all material oil, gas and mining payments by companies to governments and all material revenues received by governments from oil, gas and mining companies to a wide audience in a publicly accessible, comprehensive and comprehensible manner". It then adds that: "Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator's opinion regarding that reconciliation including discrepancies, should any be identified" (EITI Conference, London, March 2005).

Currently in Peru, the National Superintendency of Tax Administration (SUNAT) publishes information on the overall total income tax that companies in the mining and hydrocarbon sectors pay. In addition, the State provides information on transfers to the regions according to: mining canon, oil canon (royalty) and sobrecanon (royalty surtax), mining royalties and validity rights. But that information is of no use to compare the mining canon and gas canon transfers that Peru's Ministry of Economy and Finance makes as these are calculated on "declared income tax" and not on the "tax paid" which is what SUNAT publishes.

As a candidate country to the EITI, Peru's multi-stakeholder working group was officially established in May 2006, with representatives from industry, the State and civil society (represented by GPC). It has an approved action plan with resources - channelled through the World Bank - for it to move forward. Nevertheless, the required national study has not yet begun because, up until May 2008, representatives of the working group had not reached agreement on important aspects of the study's content. GPC's approach - in the role of the civil society representative - stressed that the study should contain information on: a) the fixed tax declared by each participating company; b) a description of the process determining the calculation of the rate of tax to be paid by the participating company, taking into account existing regulations and applying international standards.

The industry representatives suggested that the study should be limited to the revision of the amount of tax declared by participating companies and be published in aggregate form only. GPC believes that this approach is not in accordance with the spirit of the EITI. If the idea of the EITI is that the companies in favour of transparency make public the total tax they pay the State - as in fact already happens with some mining companies - we don't see the use of a study which doesn't list, company by company, the declared tax and the basis on how this is calculated.

Following much discussion all parties finally reached an agreement which we hope will enable us to implement the initiative. This includes incorporating two categories for company participation: category A for companies who wish to accept the publication of its individual figures; and category B for those who want to take part but only accept the publication of aggregate figures. The implementation of this initiative will depend on whether the companies in category A represent a significant percentage of mining and hydrocarbon production. In this context it is important to report that the mining company Antamina took the decision to publish data on the tax and non-tax payments that it makes to the State on its website, which we welcome as it opens the way to increase the kind of transparency that we hope will gain more followers.

(1) Legislation detailing transfers from State to local and regional governments of a percentage of tax revenue generated by the extractives sector.

(2) Transfer from State to local and regional governments of a percentage of tax revenue generated by the mining sector.

What is the EITI?
The Extractive Industries Transparency Initiative was announced at the World Summit on Sustainable Development in Johannesburg, September 2002 by former UK Prime Minister Tony Blair. The idea was to combat the 'resource curse' that many developing countries suffer from. The theory behind the voluntary initiative was to set a global standard for companies to publish what they pay and for governments to disclose what they receive for the extraction of oil, gas and metals. All this data would be subsequently checked by an independent auditor in accordance with international standards and then published in a publicly accessible and comprehensible report.

The Multi-Donor Trust Fund for the EITI was established in August 2004 through an agreement between the United Kingdom's Department for International Development (DFID) and the World Bank. Germany, the Netherlands and Norway joined in 2005. France joined in 2006 and Australia, Belgium, Canada and Spain joined in 2007. The US and the European Commission joined in 2008