Peru's political fault line

They do things differently in Latin America. Just two weeks after political protests in Peru erupted into violence, the prime minister has announced his resignation and the controversial laws which sparked the unrest have been repealed.

It is the sort of dramatic political victory that is unheard of among British activists. The win comes at a significant cost, though. Dozens of protesters and police were killed in the clashes in the Amazonian region of Bagua on 5 June. Officials say 34 people died, while indigenous leaders put the figure at more than 50.

The Peruvian president, Alan Garcia, has portrayed the conflict as a misunderstanding between his government and the unsophisticated Amazonian people who cannot grasp the need to attract foreign investment if mineral and petroleum reserves are to be extracted.

The laws which sparked the protests would have allowed mining, oil and gas exploration and other economic development in the Amazon rainforest.

Thousands of indigenous people – fearing that such exploration and exploitation would cause major environmental damage and eventually render their lands uninhabitable – blockaded roads, rivers and fuel pipelines to put pressure on the government.

It is a familiar story in the Andean region. In 2005, the government of neighbouring Bolivia was brought down by a series of indigenous protests and blockades over the management of Bolivia's enormous natural gas reserves. (A fact which no doubt crossed President Garcia's mind when he agreed to repeal the law.)

The region is extremely rich in mineral resources. The Peruvian government has been actively promoting foreign investment, particularly in the mining and hydrocarbons sectors. Today, Peru is one of the leading mineral producers in the world and Latin America's top producer of gold, silver, zinc, lead and tin.

How to exploit these valuable natural resources in a way that promotes each country's development is the most significant political fault line in the Americas.

Governments of the left like Hugo Chávez in Venezuela and Evo Morales in Bolivia favour a mixture of state control and relatively high taxation to help direct the benefits of the highly-profitable extractives sector to the poorest communities.

Alan Garcia of Peru and Alvaro Uribe of Colombia are pursuing a more neoliberal economic agenda which argues that without foreign investment, the natural resource wealth beneath the soil is effectively worthless because it will never be successfully exploited.

The Peruvian government has enthusiastically promoted foreign direct investment, particularly in the extractives sector, over any other measure that might develop its private sector. Growth rates and exports have dramatically increased, particularly during the years of the commodities boom and Peru's macro economic indicators are touted as demonstrating success.

But the country's progress on job creation and poverty reduction has been woefully inadequate. Around 25% of children under five suffer from chronic malnutrition (this rises to a staggering 49% in the remote mountainous region Huancavelica in the south of Peru) and no progress has been made in reducing this in the last decade.

During the protests in the Amazon, President Alan Garcia stated that every Peruvian should be entitled to benefit from the nation's natural resources, and that "the Amazon belonged to all Peruvians, not just a small group of people who live there."

Christian Aid and the indigenous groups with whom we work in Peru agree that the benefits of the nation's natural resources should be shared by all Peruvians. We are not against development. But with foreign companies allowed to operate in an extremely low tax regime and very limited environmental controls, it is difficult to see how any Peruvians are benefiting. The vast majority of the profits from this lucrative industry go abroad while the Peruvians are left to cope with the environmental damage.

Claire Kumar, Aid's Economic Justice expert for Latin America.