Keynote speech at Peru Support Group AGM November 17, 2012

I’m pleased that the theme of this year’s Conference is Peru and the Persistence of Inequality. Those of you who have read The Spirit Level or spent any time on The Equality Trust website will acknowledge that there is evidence to show that a correlation exists between inequality and social malfunction. The greater the degree of inequality, the worse the physical and mental health of the population, the greater the misuse of illegal drugs and alcohol, the higher the rates of crime and violence, and so on. The statistical evidence from OECD countries for this statement is abundant and convincing, but there seems little doubt that it would apply to a society like Peru if the figures were available. When we met a year ago, the government of Ollanta Humala was nearing the end of its first 100 days in office. In that period, measures were passed that aimed to improve the position of the poor and, in so doing, reduce levels of inequality in the country. Several of our speakers at last year’s conference expressed cautious optimism that what was happening might indicate a new commitment among officials in Lima to advance the interests of Peru’s poorest. The commitment to double spending on education, with similar increases in health and other public services, to double the national minimum wage over five years and to introduce non-contributory pensions, funded partly by graduated direct taxes on income and a windfall tax on extractive industries all promised a radical departure from García’s prioritisation of the interests of Peru’s business elites and particularly those of investors in extractive industries which generate much of Peru’s GNP. Shortly after our that however, developments in the country led many to reassess their views of the Humala administration. Community demonstrations in Cajamarca against the US$ 5 billion Minas Conga mining project in late 2011 provoked a political crisis and led Humala to dismiss the cabinet of Salomon Lerner. He was then replaced as prime minister by Oscar Valdés, a retired colonel with a long-standing relationship with the president. Many of the more progressive elements of the ruling coalition lost their posts at the same time, putting in doubt some of the redistributive aspects of its political programme. In the event, some of these reforms were indeed delayed under the Valdes cabinet. Perhaps more disconcerting was the confrontational stance the government adopted towards those protesting against extractive projects. During the next few months, demonstrations in Cajamarca and in Espinar were greeted with the declaration of states of emergency in those regions. A number of civil liberties were restricted, and there was an accompanying increase in the use of heavy-handed policing techniques. As well as the death of several protesters during clashes, this period also saw prominent human rights defenders, including Marco Arana, being beaten by state officials. Such tactics, and the ongoing controversy over the Conga project, eventually led to a dip in Humala’s approval ratings which, in turn, prompted a second cabinet reshuffle in July. Valdes was replaced by Juan Jimenez, a lawyer with expertise in constitutional matters and, to a lesser extent, human rights. This move represented a slight shift back towards the centre, but was by no means a return to the programme on which Humala was elected. Since this date, the president has sought to re-launch the idea - championed by Brazil’s former president Luiz Inacio Lula - that growth is the consequence of foreign investment, and that without growth there can be no increase in social spending. Peru is on track for an enviable 6.2% GNP growth rate this year, and in September there was a balance of trade surplus of $403 million. Investors are queuing up to pour money into gas, hydro, renewable, transmission and distribution infrastructure, as well as maintenance and overhaul of power stations. There is already an agreement with Brazil to export up to 6,000 MW of electricity up to 2016 and that could be expanded. But critics have noted that in the Peruvian context, the link between foreign investment, growth and the elimination of poverty is by no means automatic. Those who profit from new commercial projects have tended to be already among the wealthiest sectors of Peruvian society. Geographically, most of the money created from extractive industries ends up in Lima and not in the parts of Peru where it is generated. Despite some advances, the Humala government has not, thus far, made a significant impact on levels of poverty and inequality in Peru. The World Bank poverty rate had dropped from 48.3% in 2004 to 31.3% in 2010, but there has been no sign of an acceleration, and a large gap remains between regions to date. While only 15% of Lima’s population lives in poverty, areas such as Huancavelica have rates closer to 80%. In total, the gap between the richest and poorest regions in the country is over 600%: in the rich countries that make up the OECD, the widest gap is 100%. The pernicious effects of inequality in Peru, and Latin America in general, are often overlooked by external observers. Bill Gates told the Spanish government last February that it made no sense to help countries like Peru which have “resources to exploit and could be as rich as a European country”. It is indeed better off in terms of GNP per head than Bosnia, and almost on a level with Serbia and Bulgaria if indeed it hasn’t done so already this year with its higher rate of growth. But the principle of cutting off aid to middle income countries has taken off and is being adopted in policy decisions, including those of the UK and the EU, and the UK has just signalled the ending of our aid to India, whose GNP per head is far beneath Peru’s. Nor are we in a position to advise Peru on how to reduce inequality, considering that the burden of eliminating the deficit here has fallen disproportionately on the worst off. There is no one simple explanation for the persistence of inequality in the country. Indeed, discussion of what factors have contributed to the phenomenon will comprise a large part of today’s debate. Some point to the legacy of colonialism, while others highlight low levels of tax revenue, uneven distribution of mining profits, weak institutional machinery, gender disparities or the poor performance of public schools. The menace of the drugs business and the continued activities of Sendero Luminoso is a possible contributory factor in the areas affected, and Humala is gearing up for an expansion of defence and counter-narcotics spending particularly in the valleys of the Apurimac, Ene and Mantaro rivers, the so-called VRAEM area. Of course the motive for this programme isn’t to benefit the people in the VRAEM, an area the size of Belgium which has been under a state of emergency since 2003, but to protect the gas pipeline which crosses the area. There is an $850 million project under way to double the capacity of the line, which is of benefit to the economy as a whole. But the programme does include improvements to the infrastructure of the region, and assistance to the local farmers with alternative crops to replace coca cultivation, which accounts for half of Peru’s production. Maybe the EU could help with that part of the programme, which is so obviously in our interests. Our speakers today will examine the issue of inequality in Peru from a variety of different angles and perspectives. The conference will feature several sessions on the causes and consequences of the phenomenon, as well as the success of initiatives which aim to reduce it. In addition to the UK-based experts on Peru here with us today, we will also be joined – via Skype – by two eminent Peruvian academics and development professionals for the afternoon session.