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The Peruvian Miracle

9:05 AM, Jan 16, 2013 • By JAIME DAREMBLUM
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Finally, between 2011 and 2012, it moved up six spots (from 67th to 61st) in the World Economic Forum’s Global Competitiveness Index. The WEF praises Peru for its macroeconomic stability and for “high levels of efficiency” in its good markets, labor markets, and financial markets, while also noting that weak public institutions, poor infrastructure, and low educational quality remain serious problems. Over the long term, if Peru wants to become a rich country with an innovation-driven economy, it must improve its innovative capacity through better schools and greater R&D spending.

A more immediate challenge for President Humala is to quell the social unrest that has accompanied Peru’s recent growth. Alonso Segura, chief economist at the country’s largest bank, has said that “the feeling of unrest is, without a doubt, Peru’s biggest risk domestically.” (Remember: Peru experienced two decades of bloody civil war from the 1980s to the 2000s.) In particular, rural indigenous communities have been protesting against the environmental impact of various mining projects.

The most prominent dispute involves the Conga mine, a $4.8 billion project spearheaded by the U.S.-based multinational Newmont Mining. The protests over Conga have led to riots and deadly violence. Back in August, Peruvian prime minister Juan Jiménez announced that “the project has entered a new phase of suspension that the company already decided on and the government of course asked for.” More specifically, Conga is stalled while Newmont works to address concerns over how it will affect local water supplies. Nevertheless, Humala’s minister of energy and mines, Jorge Merino, sounds confident that the project will eventually move ahead. “Conga must go forward,” he told Reuters last month. “We don’t have the luxury to lose an investment that big.”

Mining ventures such as Conga have come to epitomize the 21st-century Peruvian economic miracle, but they also epitomize the new social tensions that have been created by growth and investment. Humala faces difficult challenges in resolving these tensions. But his job performance thus far has been very encouraging.

Ambassador Jaime Daremblum is a senior ellow and director of the Center for Latin American Studies at the Hudson Institute.

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