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Peru’s Self-Sabotage

SAN MARCOS – You may know Peru as the cradle of Incan civilization. Or you may have tasted its outstanding cuisine. But Peru boasts another impressive characteristic: it is among Latin America’s fastest-growing economies, with GDP up by 4.8% year on year in the first quarter of 2014. Peru’s long-term prosperity, however, is far from certain.

In fact, Peru’s economic growth – which is based largely on exports of raw materials and hydrocarbons – is already slowing, from annual rates of 5.5-6.9% over the last three years. And, though the government recognizes the need for growth-enhancing reform, its approach is all wrong.

Specifically, President Ollanta Humala recently won legislative approval of a set of “realistic” procedures to reduce the red tape perceived to be hampering investment in the extractive industries – the very industries on which the economy should become less dependent. The new law seriously weakens Peru’s ability to regulate land use, set environmental quality standards, and rein in corporate misconduct through environmental-impact assessments.

The Peruvian government now has a serious problem. Beyond diminishing Peru’s international credibility as a “climate champion” – an image that some members of the government have been attempting to cultivate – the law jeopardizes Peru’s natural environment and economic-growth prospects.

Peru’s government has not just failed to do what is needed; it has actively worked against its country’s long-term interests. At a time when countries should be regulating land use more strictly, Humala’s “reform” eliminates zoning restrictions.

Moreover, under the new law, subnational governments will no longer be able to limit investments on environmental grounds – decisions that were guided by strict technical standards and highly trained experts. Instead, a national authority – that is, a political body – will call the shots. All of this makes Peru more vulnerable to corporate misconduct that results in environmental damage.

As if that were not enough, the new law, in a reversal of previous legislation, could lead to reduced sentences for offenders, and even allow them to operate with impunity for three years. This is good news for mining, oil, and gas companies eyeing rich reserves under the Amazon rain forest and the Pacific shelf. But, for indigenous communities, it will open a new chapter of dispossession, poverty, and strife; and, for all Peruvians, it amounts to a massive missed opportunity to put the country on a more sustainable development path.

The problem is not the government’s efforts to support businesses; measures to bolster business growth and development would be critical to any economic-reform plan. But allowing companies with poor environmental records to operate with impunity is no solution. A country where legislation is tailor-made to benefit a few, at the expense of the public interest, cannot achieve long-term inclusive prosperity – and is likely to experience social instability.

The new law is not the only problematic policy that Peru’s government has pursued. Last month, the Congress also moved to weaken the government’s environmental oversight, claiming that this would add 1.5-3% to the economy’s growth rate. The government pushed the proposal through in a little more than two weeks, with only token public consultation and no time for reasoned public debate. Given strong opposition from civil-society groups, political parties, the United Nations, and even some business interests, the government’s behavior was both understandable and inexcusable.

In fact, more than 100 organizations rejected the package before it was approved, while calling for higher environmental standards and stricter enforcement. They recognize that what Peru urgently needs is a new, future-oriented economic vision, focused on reducing its reliance on the extractive industries, whose days are numbered. “Green” investment – which, as the World Bank recently proved using robust economic modeling, does not constrain economic growth – is a good place to start.

In September, Humala will go to New York to outline Peru’s “bold and ambitious” actions to head-off the global climate crisis. In December, Peru will host the next round of UN climate negotiations, with governments from around the world gathering in Lima to pursue a comprehensive agreement that supports a transition from environmentally devastating fossil fuels to low-carbon energy solutions.

Peru’s recent actions have severely undercut its ability to act as a global climate leader, to everyone’s detriment. Only with a new strategy based on economic diversification and investment in renewable energy can Peru achieve stable, inclusive, long-term prosperity – and make a real contribution to mitigating climate change.