Peru’s Toledo builds bridges with Canadian miners (December 13, 2010)

Alejandro Toledo, president of Peru from 2001-06, announced in November that he is returning to the public stage and running in the Peruvian presidential elections that will be held in April 2011 to find a successor to current President Alan Garcia, whose five-year term is ending. (Under the Peruvian constitution, the president cannot seek reelection immediately after his or her term in office, but can run again after sitting out one term.)

Toledo, of the centre-left Peru Posible party he founded, is currently tied in the polls with two candidates from the right of centre: Lima Mayor Luis Castenada of the Solidaridad Nacional party and Keiko Fujimori of the Fuerza 2011 party. Ollanta Humala of the leftist Nacionalista Peruano party is running a distant fourth in recent polls.

Toledo took time out from campaigning to travel to Vancouver in early December to meet with the city’s mining community, which has extensive investments in Peru. He provided the following exclusive interview with The Northern Miner:

The Northern Miner: There is a tight three-way race for the presidency of Peru at the moment. I don’t think anyone’s surprised you’re running again, but Canadians may be surprised to learn you’re running against Keiko Fujimori, the daughter of a man you helped put in jail, former president Alberto Fujimori. What are Canadians to make of this?

Alejandro Toledo: Well, it has been a tough decision for me because I had to leave my academic activities at Stanford University and in Washington, D.C., at the Brookings Institution. But the decision has already been made and I’m committed to it.

To run for the second time, as you can imagine, I’m not running to be a president. I’ve already been a president.

Now, the other competitors, it’s rather paradoxical that I will once again have to run against Fujimori, this time against the daughter. But that is democracy. I have no problem with that, but 10 years later, destiny puts me again into a political competition with the daughter of the president who’s in jail.

TNM: Humala came such a close second against Alan Garcia last time around, and now he’s kind of faded in popularity. Why is that?

Toledo: You have your data very well put. He has faded. At a given moment he was sort of (a sign of) desperation for people who had to choose the former president Alan Garcia, who is now president, since when he was president between 1985 and 1990, he was absolutely a disaster.

So people were caught choosing between Humala and Garcia. That was not a good picture. So Humala rose highly. He almost made it, but now as people end up knowing more about him, and what his propositions are, and now you have other choices of candidates, he is, as you put it, fading away.

TNM: Generally, Peru has weathered the global recession very well and, as an economist, you would especially appreciate Peru’s tremendous GDP growth with low inflation in recent years. What is your comment on the state of Peru’s economy?

Toledo: Peru, and Latin America as a whole, is the most promising region of the world. We have our outliers, which are Venezuela, Nicaragua and Bolivia, but on the average, the region is doing very well. Let me be very candid: if this global financial crisis would have happened 30 years ago, the region might have been in flames.

However, the region has been able to weather rather rapidly the adverse impacts of the global financial crisis that was not produced by Latin Americans, this time.

In the case of Peru, the crisis found us with rather solid legs to weather the adverse impacts of the crisis. We have recuperated much faster than the United States and the European Union.

Now, I think that it is a very good climate for capital investment. Peru, in particular, is increasingly more a mining country. The conditions are improving, and the economy is growing at an average rate of 9%. This year we will grow again at 9%. That means almost nine years of growing at 9%. For the next five years, we are able to grow at eight or nine percent. We will consolidate, and then Peru could be a major player in the global economy.

It’s the only economy growing at those levels — not even Brazil, not even Chile, not even Colombia. So we cannot miss this opportunity. We have to take it on, and we need to strengthen the institutional framework, particularly on the rules of law to provide economic, political, social and legal stability to attract capital investment.

TNM: One thing the Peruvian government did at the onset of the recession was put money into infrastructure programs such as road building and rural electrification, which would also help agriculture. Was that a good program or is there more to do there?

Toledo: With my government, we have initiated 3,500 km of highway that connects Peru with Brazil and Bolivia, and that infrastructure has generated jobs and it has had multiplier effects in other sectors.

As you know, we began the Camisea project (a pipeline bringing natural gas up from the Camisea field in Peru’s Amazon region westward to Pisco and Lima) that is providing energy and is reducing our necessity of importing oil.

We are discovering new oilfields, but we still need to do some infrastructure investment, particularly around Lima. As you know Peru is mainly oriented towards being an exporting economy, so for manufactured products, agro-industries, oil and minerals, we need to have more effective ports and airports in order to be competitive with all the countries in the world.

TNM: In recent years, there was a trend around the world of governments raising taxes on mining companies. Peru had that debate, but didn’t raise taxes. Where do you stand on that?

Toledo: Well, last week there was a Congressperson who raised the issue of raising the taxes. But that’s really one single voice, and that’s done in the lead-up to an election. They want to be re-elected in the Congress.

But there is no need to worry. We want to reassure — and that’s one of the reasons I have interrupted my campaign to come to Vancouver — investors that they can rest assured on the rules of the game. Once we agree on some items of the contract, we have to stand by it.

We are competing in the world for capital investment that is needed for providing sustainability of economic growth, so the double-taxation, the changing of the rules in the middle of the game, will not pass. I’m saying that not only as a candidate, but giving the political mood of the country.

TNM: One thing Peru could do is make Lima even more of a regional centre for venture capital in the mining industry, especially for smaller companies. Is there a role there for the Peruvian government?

Toledo: Yes. I met last night, and am meeting today, not only with potential miners who are in exploration and those who are actually doing mining, but also with the bankers. I think there is a space because if we find a gold mine, or silver, copper, or we find more oil or gas, then we need to have the financial engineering ready to finance those projects.

Fortunately country risk has decreased considerably in Peru. Peru is investment grade, as you know. So we are placing bonds in dollars and soles in the stock markets. We are doing well, fortunately. And although Europe has sovereign debt problems with Portugal, Spain, and Ireland, we are in the other end of the world in trying to come out and provide some stability and clear rules of the game for bankers and investors.

TNM: There’s been some talk about combining the Lima Stock Exchange with those from Chile and Colombia. Is that realistic, or is it just too difficult with pension rules and other hurdles?

Toledo: You are well informed. I just had a meeting with President Santos of Colombia, and that’s a project that is rolling. I think it’s very viable. These are three countries that have a
lot of things in common, and we may unify exchange markets that, when combined, will be more global, more stable and give more transactions within Chile, Peru and Colombia.

TNM: What could the president do to improve education in Peru, to allow for more mineral wealth to be kept within the country?

Toledo: That is the key role of the state. I have offered to produce a revolution in education. There is no country that could jump to the First World without having aggressive investment in initial, primary, secondary and higher education. Now, it’s not only accessibility of schools, it’s the quality of education that matters.

And therefore, I might go up to the miners if I am elected and say, “Listen, we need to do this job together. And maybe you need to come up with some resources to create a specific fund to train teachers and administrators of education that leads to improving the quality of education by international standards. It’s indispensible.”

It is one of the reasons I have to go back and run again for president. It’s my strong commitment to the role that education plays to the medium and long-term. I might not see the results, but I want to start full-blast, very aggressive, and we today have standards where we can measure our performance: international standards, the education standards of the OECD countries.

That’s a crucial role of the state, but also of the private sector. But not to impose a double-taxation that breaks the rules of the game, but is in their own interest also.

TNM: You have often talked about the poorest of the poor in Peru, the bottom 10-20%, and especially the rural poor. How does mining fit into helping their lives, especially foreign investment in mining?

Toledo: You know, the state has the responsibility to provide economic, social, political and legal stability. But the companies have the responsibility to cope with the environmental demands, and also with the corporate social responsibility.

For companies today to be competitive, they have to be at a high level on the corporate social responsibility requirements.

There are clear rules of the game on our part, but they have to comply with them, too.

To understand the cultural idiosyncrasies of the communities in which the mining sites are going to be, is indispensible for the project to be viable. If the community feels there are people coming from outside to destruct the natural resources, to put it on a train to export it outside, without seeing any benefits for the community, then there is going to be a reaction. And NGOs who have political motivations are going to come in very fast, and could even truncate whatever rich, viable project it might be.

TNM: Are there any specific projects, particularly Canadian ones, that stand out in Peru?

Toledo: As you know, Canadian companies have a great presence in the mining sector in Peru. Barrick is one, and perhaps, among all the companies, they are the ones that are most sensitive in the area of corporate social responsibility.

But still, we need to do more and better on the issues of education, of access to potable water and sanitation, and access to health care. Also roads, infrastructure, electricity and access to internet platforms.

Those can be done, not just as a responsibility of the state, but also, if the state has the private sector as a partner. In this particular case, with (the participation of) the mining entrepreneurs, we can do a better job, sooner, to improve the levels of education, and improve the quality of the communities where the mining sites are located.

TNM: How would you judge the quality of the NGOs in Canada and the U.S. that are involved in Peru?

Toledo: There are some NGOs who are promoting environmental sensitivity, but there are others who have their own political orientation.

But if the company and if the state do not establish a solid bridge between both of them (and the community), that will allow the politi-cized NGOs to come in and to threaten, and therefore the community becomes very resentful.

And so it is the job of the state and the companies to have a communication channel that enables them to transmit the message that the community is not being just exploited, that they are having some benefits.

TNM: Have you been following the Bill C-300 debate in Canada? Because that was one of the issues there.

Toledo: No, I haven’t. We have our own foundation, the Global Center for Development and Democracy ( www.cgdd.org),

that operates for Latin America from a base in Lima, from a North American base in Washington, D.C., and a European base in Madrid.

Some of the issues that I’m talking to you about now, about corporate social responsibility, poverty reduction, social exclusion, and access to education and health care of quality are the issues of the foundation.

We have created what we call the “social agenda for democracy in Latin America” with the participation of 21 former presidents of the region, and 17 leaders of the world.

So I have to tell you that we are better prepared to govern than to win an election at this point.

TNM: I’m curious: You have the indigenous background. Is there any benefit to linking up indigenous groups in Canada and Peru, or are the language and distance challenges too much to bridge?

Toledo: No. My wife is an anthropologist, and she has followed very closely with me. No, there is a lot to be learned from each other. Language might be different but the issues are the same.

Through the foundation I have tried to establish some linkages with the indigenous communities in Canada, Peru, Bolivia and in Ecuador.

TNM: Has anything happened there?

Toledo: No, but we have decided to do a first step of welcoming a delegation of Canadian indigenous people to Peru, and then to reciprocate with a delegation from Peru, Ecuador and Bolivia to Canada.

TNM: In a last few years, there’s been a broad trend towards resource nationalism in the world. How does Peru fit in there? Do you want your own Codelco or large national mining company in Peru?

Toledo: No, no, that would have been 25 years ago, when the sentiment would have been different. Now, it’s much more about attracting capital investment, provided the companies comply with environmental demands and with the corporate social responsibility demands that I mentioned before.

Thirty years ago, there was nationalism embedded there. That is no longer the case, and in fact, companies are competing. Trying to understand the cultural idiosyncrasies of the communities is very important for the firm, because it creates a friendship and a bridge for communication. And so the nationalism that used to be there in the past is no longer the case now.

TNM: Any last words you’d like to share?

Toledo: I’m very glad to be in Vancouver. Canada is a very great investment and trade partner with Peru. The democratic values are much more rooted (here) than with us. Canadian companies in Peru, particularly in the mining sector, are very responsible.

And so I’m very glad I came to communicate and assure that if I am elected, they can rest assured that their investment is safe, and that we will respect the rules of the game and we expect them to respect our rules of the game.