Ollanta Humala Year One: Passing Muster?

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“We have made a lot of mistakes, we are learning within the Government.  We wanted to move faster on our desired reforms, but understand that everything has a process”        ​​​​​

Ollanta Humala Tasso, Message to the Nation, July 28, 2012

Public speaking is not the Peruvian President´s forte.   While Ollanta Humala´s first Message to the Nation in 2011 was criticized for unnecessarily provoking the opposition, this year’s address was criticized for not being provocative enough.   Pundits from all sides charged that he talked too long but said too little, presenting a laundry list​ of proposals from his Cabinet members rather than a central vision of his own. The once-incendiary nationalist was also slammed for being too boring, too technical, and lacking in “soul”.

Last year Humala responded to critics with a prolonged cure of silence​, letting his Prime Minister and party leaders do the talking.  But after one year in office, three Cabinet turnovers, rising social protest and falling approval ratings, it was time for the President to face the Nation.  Looking beyond the stilted delivery, does Humala pass muster?

In fact, this government has delivered on core promises to maintain economic growth, raise the minimum wage and increase social spending.  While the pace of private investment has slowed due to the world economy, growth has remained around 6%, driven by strong public investment and domestic demand.  Through rising tides, more formal sector jobs and expanded public assistance programs, the official poverty level declined another 3% this year, from 30.8% to 27.8%.

This is a first year record any leader would envy.  So why so much protest?   The answer lies partially in the President, and in the weak political system in which he operates. Both factors in turn impede progress towards addressing a root cause of discontent: the fundamentally unequal distribution of wealth and opportunity that persists in this society.

If “social inclusion”, the main slogan of this administration, is understood as giving people an equal chance for participation in society, then Peru has a long way to go.  The country ranks poorly on the World Bank’s Human Opportunity Index for Latin America, which measures inequality of opportunity in basic services for children — the extent to which the playing field is equal at the start.  This includes access to safe water, electricity and sanitation, as well as parents´ education and income.  Using a multidimensional approach that includes health, education and living conditions, Enrique Vásquez​ estimates that nearly 40% of the population remains poor, and up to 81% in rural areas, a situation that the new Ministry of Social Inclusion is well aware of.  Access to justice and security are also limited to a small minority. And Peru´s rural indigenous communities are at the very end of the line.

Last year, in an article titled Liderar un País Rico (Leading a Rich Country), I argued that the major challenge for this administration would be precisely that – leadership.  Although Humala was an inexperienced politician, one hoped that his autonomy from entrenched interests would enable him to rally citizens around a more audacious reform agenda, and that 22 years in the military might give him the courage to carry it out. I also cited two areas in which bold leadership was urgent: management of Peru´s natural resources, and overhaul of its educational system.  On both issues, however, this administration has fallen short of expectations.

All that Glitters?  

Peru is a world leader in minerals exports, but the expansion of large-scale mining into new territories since the 1990s has also been a leading source of conflict.  The government is increasingly dependent on the tax revenue this brings in, while many remote communities where mines operate have not felt the benefits of growth, and they have undergone unsettling changes in their natural environment, lifestyles and power structures.  Most mineral-exporters face similar challenges, yet those with more established states and political systems – such as Chile, Canada and Australia — have been able to address these problems more directly.

Minerals today constitute 60% of Peruvian exports and 14.5% of national GDP, up from 5% a decade ago.  The industry contributes 25% of total tax revenues and more than half of all income taxes.   Although world minerals prices in the short run are expected to remain strong, reliance on them to stoke public spending is cause for concern, especially since the volume of production has stagnated in recent years.   As economist Claudia Cooper stressed in a recent forum, policymakers have been unable to expand the tax base and seek more sustainable sources of income, preferring to push forward the more than US $41 billion in new mining investments projected over the next few years.

In Peru a mechanism called the mining canon requires the central government to transfer half of the income tax paid by mining firms back to the regions where the mines are located.   Industry leaders initially favored this as a means to win local peace, but the result has been the opposite; more canon means more conflict.  Local politicians are unable to spend wisely the enormous rents pouring into their coffers, leading to considerable waste, distortion of local economies, and fractious competition over the spoils.  Even industry-supported studies recognize that benefits from mining in the regions where they operate have gone disproportionately to the wealthy.

This so-called “extractivist” path has continued under Humala.  As a candidate he repeatedly criticized the industry in regions where sensitivities to the local impacts of mining are acute.  But once in office he shifted tack, insisting that new investment in this sector was necessary to fund social programs.   While this may be true, the abrupt change generated resentment among key constituencies as well as regional and local authorities who had supported his candidacy.

Humala´s lack of political skill has contributed to the tension.  This year he did little to rally Congress or bring regional authorities on board, helping them to manage the rents they receive.   And he avoided rather than embraced public debate on critical issues inherent in this model, including how to strike the right balance between mineral exploitation and conservation, and improve state capacity to regulate environmental impacts.  Of the roughly 250 conflicts monitored monthly by the Public Defender, 60% are attributed to socio-environmental concerns.

The inability to lead on these issues was epitomized in the conflict over Conga, a $5 billon gold and copper project in the northern department of Cajamarca whose majority owner is Newmont Mining.  Protests against the megaproject, which initially proposed to eliminate four alpine lakes, became a lightening rod for broader indignation over  Humala´s turnabout.  The President insisted it go forward, then dispatched others to figure out how.  After two environmental ministers, two prime ministers and three foreign technical experts​ could not appease local opposition, he sent in the Army, and after five people died in violent clashes, he sent an Archbishop.  Yet neither the Bible nor the bayonet offer real solutions to this and other natural resource conflicts percolating around the country.

Will this situation improve in the years ahead?   There is certainly room for hope. Humala´s third Cabinet – named last week – signals a return to civility, as former Justice Minister and human rights lawyer Juan Jimenez moved into the Premier’s spot.  A conflict resolution unit within his office will be headed by Vladimir Huaroc, former President of Junín, a region where mining has been the main activity for 150 years.  Interestingly, in that area the $2.2 billionToromocho copper project, owned by Chinalco, is moving fairly smoothly.

The government is also moving to implement a Law of Prior Consultation with Indigenous and Native Peoples, vetoed by a prior administration that had violent clashes with Amazonian natives over extractive activity in their lands. In terms of revenue transparency, this year Peru became the first country in the Americas to comply with the high standards set by the Extractive Industries Transparency Initiative (EITI).  Humala´s new “laundry list” includes measures aimed at reforming the national public investment system (SNIP) and the civil service, both seen as obstacles to effective use of public revenues.  Yet economists like Cooper worry that fiscal dependency on mining makes it difficult to undertake structural reforms in sectors such as health or education, which require long term spending commitments.

The Kids are not All Right

Education should be a primary means for equalizing opportunities in society.  Demand for it in Peru has led to nearly universal coverage at the primary level, closure of the gap between boys and girls, and a boom in private services at all levels.  Yet the poor quality of schools serving the majority of children is simply alarming, and social and ethnic differences appear to be getting worse.

A government evaluation in 2010 revealed that just 28% of Peruvian second graders comprehend what they read, and just 14% can resolve math problems at their age level. In the international PISA exam, Peruvian students rank 64th of 66 countries in reading and second to last in science.  While the problem is system-wide, reading achievement is 25% higher in private schools than public, and 28% higher in urban areas (SNI 2012).

Within this context, there are over one million indigenous children of school age in Peru, but one in three does not attend classes and 73% lag behind their age group.   These children have a legal right to bilingual intercultural education, but the majority do not get it, and few indigenous kids develop reading capacity in their native tongue: just 2% of Aymara, 5% of Quechua and 3,2% of Awajun (Vásquez, Chumpitaz y Jara 2009; see also Servindi).  The majority also lack adequate reading skills in Spanish.

With such a deficient system, it is impossible to produce the kind of critical and informed citizens that bolster democracy and drive a more competitive economy.  All presidential candidates recognize this and promise change, but abandon the effort once in office.  Why is this so?   It’s not for lack of good diagnostics, policy proposals or money, because Peru has all of the above.   What’s lacking is courage and political skill.  Courage to confront the bureaucratic inertia and entrenched interests that benefit from the current situation, including a recalcitrant union leadership that feeds on the poor working conditions and demoralization of teachers.  Political skill to rally parents, community leaders and an economic elite that abandoned the public system generations ago and has shown little interest in this cause.

A year ago I also argued that if Humala sincerely wanted an educational revolution, he should give it top priority and lead it like a crusade.  “More important that who he names as Minister of Education, the President himself should lead​” this effort, to invest more money and a lot more attention in the public schools, raise the morale and rewards for good teachers, and retrain or buy out those who don´t meet the mark.

Unfortunately, to date Humala has followed the path of least resistance.   Education has been left in the hands of a technically competent but politically weak Education Minister, who suspended a controversial system of merit-based teacher evaluation initiated by the prior administration, but is still working on a convincing alternative.  Violent teacher strikes in Puno, Ayacucho and elsewhere have shut down schools for long periods, demanding blanket pay increases and various political concessions.  Because many rural schools began the school year late and their teachers frequently miss class, experts like Hugo Díaz say these kids will end up getting less than a third of the class time to which they are entitled.

And the Rest of Us?

In his first year Humala has presided over positive economic indicators, but has yet to establish a bold vision for this rich country, and his political skills leave much to be desired.  The new Cabinet is comprised of capable professionals who are committed to social inclusion, but also lack the kind of political experience usually needed to build reform coalitions, win public opinion and overcome strong resistance.  This is not surprising in a country where parties are weak and people with other options in life tend to avoid them like the plague.   So who will take the lead in this second year?  Some analysts say popular First Lady Nadine Heredia​ is playing that role, though that model obviously has its limits.

And since government alone cannot move this agenda forward, what can the rest of us do – as universities, media, donors, taxpayers – to make it our own?

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