Peru's hot economy wracked by growing conflicts

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LIMA, Peru (AP) -- Peru's president is seizing every opportunity at this week's Pacific Rim economic summit to sell his country as investment-worthy growth engine to visiting Asian business leaders.

Despite the global downturn, Peru's recent economic boom could "convert the country into a refuge for foreign capital and a hub, a bridge" between Asia and other Latin American countries, President Alan Garcia told a forum on Tuesday.

Garcia, a bullish free marketeer, leads the region's fastest-growing economy. Peru has averaged 6.5 percent growth over the past five years, nearly two percentage points above the regional mean - winning investment grade status in April and signing a trade pact with the U.S. that takes effect in January.

It was also expected to announce a trade deal with China on Wednesday.

Yet Peru's main growth engine, mining, has been hit by falling prices, and Garcia's gung-ho efforts to attract foreign investment to the nation's budding oil industry have been sullied by a bribes-for-contracts scandal that cost seven Cabinet ministers their jobs last month.

Indigenous groups upset by the encroachment have occupied oil and gas installations in the Amazon and threatened to cut a natural gas pipeline. And just as 8,000 political and business leaders arrived for this week's 21-nation Asia-Pacific Economic Cooperation summit, resurgent leftist rebels killed three police officers and wounded two soldiers in separate attacks. Elsewhere in the countryside, two protesters were killed and 40 people injured as opponents of a planned sewage plant rioted.

Garcia is a darling of international investors, but his approval rating at home is just 19 percent.

Some 71 percent of Peruvians said they support free trade in an Ipsos-Apoyo poll released Sunday. The survey of 1,000 people in 16 cities had an error margin of 3.1 percent.

But the benefits of globalized trade - including cheap Chinese electronics and a flood of Chilean investment in retail and banking - have barely trickled down to the poor, who account for 40 percent of Peru's 22 million people.

Peru now has two economies, one "developed and competitive, another depressed and lost in poverty," said Carlos Gonzalez, an economist at Peru's exporter's association.

Conflicts largely pitting communities or social groups against the state or business interests more than doubled to 189 last month, up from 83 in January, according to government figures. Nearly half involve foreign oil and mining companies and tend to stem from complaints about pollution and infringements on communal land and water.

Militants behind such protests want to paint Peru "before the eyes of the world as a backward country with lots of conflicts," Interior Minister Remigio Hernani told Lima's largest newspaper, El Comercio.

Peru is only minimally affected by the drug trafficking-related violence that deters investment in Mexico and Colombia. It has been years now since Peru was wracked by a leftist dictatorship that expropriated land and businesses from the rich in the 1960s and a Marxist insurgency that bloodied the country in the 1980s and 90s.

But if Garcia doesn't now do a better job of reducing poverty, he risks a backlash that could thrust populist nationalist Ollanta Humala to the presidency in 2011.

Humala almost beat Garcia in 2006 and is close in his politics to the leftist presidents of Ecuador, Venezuela and Bolivia, who have also spooked foreign investors.

Still, China, the most sought-after investor at this week's summit, might not be deterred. Its craving for natural resources has often left it blind to concerns like workers' rights and environmental protection - issues that got exhaustive treatment in the U.S. trade pact, said Nicholas Consonery, an analyst at the Eurasia Group in Washington, D.C.


Associated Press writer Frank Bajak contributed to this report.

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