Could Peruvian Politics Shake Mining, Oil and Gas Investments?

Human-rights advocate Susana Villaran appears poised to become the first female mayor in Lima, the capital of Peru, and the city's first left-wing mayor in decades.
Human-rights advocate Susana Villaran appears poised to become the first female mayor in Lima, the capital of Peru, and the city's first left-wing mayor in decades.

Regional elections in Peru are keeping investors in suspense as

small progressive and independent political parties appear to be beating out more traditional parties, at least in partial ballot counts. Peru is South America's third-largest country and the site of the region's most important mining and gas resources, as well as one of the world's fastest-growing economies.

The surprising results so far, for the Oct. 3 election, have cast
uncertainty over next year's presidential race and the sustainability of the country's commodities-led growth. Some worry that a shift to the left could discourage investment if newly elected officials roll back market-friendly policies that have helped the economy boom.

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For example, some business leaders are concerned that the election of human-rights advocate and educator Susana Villaran (pictured) as the mayor of Lima, Peru's capital, could prove bad for business, according to Dow Jones Newswires. Villaran, whose Fuerza Social (Social Force) party represents a coalition of left-wing parties, including some socialist groups, appears poised to become Lima's first female mayor and its first left-wing politician in decades.

Despite her history as an activist, Villaran says she favors private investment in Peru.
"Our proposal is the promotion of private investment with a slightly more active government that ensures the distribution of public goods, like quality education and healthcare," she said last week in a meeting with members of the foreign press.

Meanwhile, popular conservative legislator and presidential candidate Keiko Fujimori has made economic policies a key platform, claiming that her administration would always welcome foreign investors.

Is Peru Leaning Left?

While moderate, left-wing movements have made headway around the region in recent years, Peru has served as a notable exception. And for obvious reasons: a left-leaning military dictatorship that instituted a failed agrarian reform in the 1960s was followed by two decades of internal conflict with the Maoist Shining Path insurgency. When President Alan Garcia was serving his first term in office, from 1985 to 1990, he introduced nationalist policies that led to disastrous levels of hyperinflation and foreign capital flight.

But in Lima, Villaran's message of social inclusion appeared to appeal to low-income residents who feel left out of the country's economic boom. "Most politicians are petty thieves, but she seems to really care about poorer people," says Guillermo Martin Falcon, a parking attendant in Lima's gritty Rimac neighborhood who, at age 40, was inspired to cast a vote for the first time.

The plight of the poor is likely to be a key issue in the presidential race, as well. Fujimori has said she also would work to prevent social conflicts by spreading the wealth more evenly.
A strategy of inclusion could benefit the roughly 30% of Peruvians in poverty, but also could slow the pace of development.

Still, it is early to gauge how the municipal elections will factor into the presidential campaign. According to a September poll, Fujimori --
the daughter of former President Alberto Fujimori, who is currently serving a sentence for human rights crimes -- is the front-runner in the presidential race. Ollanta Humala, a nationalist who nearly won the presidential election in 2006, unnerving investors, is trailing in fourth place in the polls.

Clashes Over Natural Resources

Peru's rich natural resources have attracted strong foreign investment in the past, but as global demand for commodities has grown in recent years, dozens of people in Peru have died in clashes with authorities over the management of these resources.

"People are quickly understanding that the way to [politically] negotiate in Peru is by way of really strong action, by blocking roads and by protests," said Jorge Bave, a political risk analyst for Export Development Canada, a consultancy that promotes Canadian investment abroad.

Protests have halted multibillion-dollar mining projects and forced companies to come to the table and -- in some cases, such as the Camisea natural gas project in central Peru -- to negotiate new contracts, winning higher royalties for the communities affected by development.

Opposition to oil drilling in Bagua, a district in the Peruvian Amazon, led to a violent clash in June 2009 in which more than 30 indigenous people and policemen were killed.Bagua remains "a vivid and very powerful image for investors,"Bave said.

Newly formed leftist parties have prevailed in elections in
Cajamarca, Peru's most important gold-mining region, and in other areas rich with metals and natural gas in Peru's Andes and Amazon, which could further raise investor concerns.

But Peru's rich natural resources will likely continue to draw investors who factor some level of public opposition into their cost-benefit calculations.

"Everyone can assume there will be opposition. The worry is that the national government will side with the regional governments," said Pedro Tuesta, a Washington, D.C.-based economist with 4Cast.