Monday, January 11, 2010

The rape of Peru goes on

Last week The Observer newspaper carried an article about the plight of the Quechua-speaking people living in the Huancavelica region of Peru, where weather extremes brought on by climate change are worsening an already appalling situation:

Huancavelica has always been one of Peru's most deprived regions, with 80% of families, largely indigenous farmers living at heights of up to 5,000m, subsisting below the poverty line.

The changing weather has come on top of a lack of basic health services, animal diseases, rising food prices and a declining availability of water.

Christian Aid's Sarah Wilson has added a further dimension to the article. In a letter to The Observer, she notes that Peru is rich with copper and gold, but none of that wealth trickles down to where it is most needed:

These seams are being vigorously mined by European and North American companies under a favourable tax regime. The combined effects of tax incentives and tax avoidance means that Peru collects only a fraction of what European countries demand.

Read more from Christian Aid on Peru and taxation here.

Trickle-down theory, based on the cranky idea that if you lavish a horse with enough oats the sparrows will be able to feast on its droppings, has long-since had its day. Sadly, however, the denizens of the Washington Consensus have studiously avoided the problem of how tax holidays and tax evasion by mining companies drives a coach and horses through any possibility of the rents from mineral resources working its way to those who most need it.

Behind so many of the privatisations of copper, gold and other mining companies in Latin America, lies the dead hand of the University of Chicago and its followers at the World Bank and International Monetary Fund. None of these organisations has a word to say about tax evasion and the uselessness of tax incentives. Washington remains the epicentre of the resource curse.


Blogger Physiocrat said...

This is both shocking and strange. The British government obtained huge revenues from oil, not by taxing the oil companies, but by leasing the extraction rights. The money was squandered but that is another matter. The Norwegian government did the same but did not squander the revenue, so it is a prosperous country.

If the Peru government had good advice it would establish a system of payments for mineral rights, perhaps through competitive bidding and leasing, on the lines of that through which radio spectrum was auctioned. Nationalisation of the mineral rights only, and leaseback might be an option - the aim should be to get as much as possible whilst not driving the mining companies away.

With all those minerals, Peru should be a country where there is no poverty. The same can be said of many African countries eg South Africa, Zimbabwe, Zambia, Nigeria, etc. The value of the minerals in the ground - it is land value - should go to the people in the country. Of course the mining companies should be rewarded and the value of their investment should be respected and duly rewarded. But the mining companies never put the copper in the ground in the first place and that value does not belong to them. It belongs to all the people of Peru.

It is the same as the case for land value taxation.

11:02 am  
Blogger tiffany said...

Anthony LoBaido investigates the diversity of the Peruvian mining industry, with a special look at gold

11:17 am  

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