Monday, July 22, 2024
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Peru: ‘economic growth with social inclusion’


Last month the Peru Support Group invited Javier Diez Canseco, a Congressman from Peru’s ruling party, to the UK. Below, Isabel Crabtree Condor discusses with the Gana Perú deputy his views on politics, mining and corruption in Peru.

Isabel Crabtree Condor: Could you give us some general reflections on the current political situation in Peru?

Javier_Diez_CansecoJavier Diez Canseco: We have had a change of government and that means a change in policy in favour of economic growth with social inclusion. What we have experienced up to this point is exclusive growth. Peru is one of the region’s economic stars, with 8 or 9% growth, but we are at the bottom of the PISA [OECD Programme for International Student Assessment] test league tables and educational attainment rankings. The health system isn’t functioning, the informal economy accounts for over 80% of the economically active population and there is an enormous concentration of wealth and income…The government’s top priority today is growth with redistribution. To achieve this there will have to be graduated increases in the minimum wage, with the aim of it doubling by the end of this term…We also need to tackle low standards of living by improving access to education, water, healthcare, sanitation, working conditions, rights of association and by constructing a more participatory democracy as a way to fight corruption.

The government has already taken important steps here…[but] these initiatives are being advanced by a government that is not entirely a Gana Perú government. It is, rather, a coalition government, a ‘rainbow government’ of all ideological hues. Gana Perú won 32% of the vote in the first round and to win the second we needed to form agreements and alliances. This meant trimming the manifesto, but keeping its core redistributive tax reform (particularly in the mining sector) and building a common front against corruption. Undoubtedly, the need for stability, especially during the early days of the government, meant including a number of people from the neo-liberal end of the spectrum who signed up to our idea of distributive growth and social inclusion. These individuals are now involved in managing the economy. The government has balanced these appointments with those of left-wing, centrist and progressive ministers who make up the other part of the rainbow cabinet.

ICC: What do you consider to be the major challenges for the new cabinet? Where will the major battlegrounds be?

JDC: The biggest challenge will be the fight against corruption…Politicians in Peru may be legal in terms of status but they lack legitimacy. This is because they lack credibility and they lack credibility because there is such a high level of corruption…As part of the fight against corruption, we must recover official funds that have been lost. It is estimated that some 15% of the annual national budget is lost through corruption. With such funds at our disposal, we could address the problems of social injustice, poor public services and improve standards of living.

Then the next major challenges will be tax reform and income redistribution: we need to focus on three key areas. First is the income derived from minerals, oil and gas exploitation. We need to harness this revenue so that Peru can use its natural resources to industrialise and generate employment…Financial capital also needs to be a key area for reform. Financial capital is hugely profitable in a country where inflation is running at between 2 and 3% and credit costs between 25 and 30% for the average Peruvian. Corporate credit is at 4% whilst the interest on consumption/retail credit varies from 42% up to 120%. This needs to be confronted not only to boost domestic consumption and dynamise the domestic market, but also to help small and medium-sized businesses that cannot survive with such high interest rates. The third potential source of tax revenue is from mid to high-level professionals – such as lawyers, private doctors and psychiatrists – who do not submit full receipts for their income and pay next to no taxes. The country needs to be a lot firmer in this area…

[Another major challenge] is the relation between the state and the market…The state is not going to be a socialist state, still less a centrally planned one, but it needs to recover its planning functions if we are to give the country purpose and direction. The state needs to perform its regulatory role, and to do so more strictly than it does today. It needs to recover sovereignty over natural resources so that it not only receives income, but also promotes expenditure on industrial and social development. We need a state that supports the growth of the internal market, regulates and generates competitiveness in the financial sector – in particular with credit rates – and performs a regulatory role with respect to agricultural property.

ICC: Recent events in Bolivia demonstrate how difficult it can be to maintain policies of sustainable development which respect indigenous rights and a development policy that has, at its heart, the exploitation of natural resources. How do you view this challenge in the Peruvian context?

inverted_commas_3[Another major challenge] is the relation between the state and the market…The state is not going to be a socialist state, still less a centrally planned one, but it needs to recover its planning functions if we are to give the country purpose and direction.JDC: The tension between mining on the one hand and water, agriculture and the environment on the other is crucial. The mining sector holds de facto power in Peru. It has huge political influence, holds sway with the media and exercises control over, or at least maintains close relations with, those in positions of political power…I think there is a cultural divide that needs to be overcome and better relations need to be built. This is because some, though by no means all, mining companies have behaved so stubbornly, so arrogantly, so abusively that they have lost all credibility. Poor management practices have driven some mining projects into a dead-end, into direct conflict with communities who have had enough. There is the well known case of Tia Maria [in Arequipa], or of Southern in Tacna where the company wants to expand operations, and therefore water usage at a time when Tacna is suffering from chronic water shortages…

To me it seems natural that there are tensions because the nature of the relationship between mining and water or agriculture is naturally contradictory. A balance needs to be struck between the benefits of such projects and conditions for nearby communities and for the country…Roads and large infrastructure works are likely to impact on things that have an intangible value to some people. I do not subscribe to the theory of the “Buen Salvaje”: that all that is primitive is necessarily better than what is modern. I am acutely aware that a world without mining simply is not possible. We need metals and minerals for the continued development of humankind.

ICC: At the Peru Support Group conference last year, you spoke of the need for constitutional change in Peru. How possible are progressive reforms without a new constitution?

JDC: A number of things are possible within the existing constitution. The current constitution establishes a liberal state which should not intervene in the private sector. But it also says that the state can intervene in the economy using specific laws. For many things we don’t even need specific laws. PetroPeru already exists, ElectroPeru exists, albeit in a very weak condition. We can intervene in the financial sector through COFIDE [the Development Finance Corporation]. There are mechanisms available that would let us achieve some of the changes we want to implement.

Is there currently sufficient momentum for constitutional change? No there is not. The current political project needs to focus on converting Humala’s and Gana Perú’s electoral majority into a political and social majority…When that has been achieved there may be the possibility of opening discussions on the constitution. But to be able to engage in such discussions we first need to build a political majority and convince our allies that these changes are necessary and the right thing to do. We have opted for change through politics and democratic processes. We do not want change through violence or direct confrontation, rather through democratic agreement and convincing political argument.

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