TRANSPARENCY SNAPSHOT

Overall, Peru performs much better than many resource abundant countries in both revenue and expenditure transparency, thanks to a legal framework that guarantees citizens access to basic information about oil, gas and mining revenues and their distribution and usage.

However, activists continue to lack information on contracts, corporate income tax payments and corporate social contributions, particularly at the sub-national level.

Historically, mining has accounted for half of Peru's export earnings, and in 2005 the mining sector accounted for 6% of GDP and more than 10% of revenues. Peru also has the fifth largest proven natural gas reserves in South America.

Peru's hotly contested 2006 presidential election marked the first peaceful transition of power after the 2000 return to democratic rule. Peru has adhered to a market economy and to macroeconomic stability, which have paved the way for sustained economic growth. Peru has also reduced infant and maternal mortality, increased access to secondary education, and improved access to other basic services.¹

However, the high poverty rate remains a problem, with half of Peru's 28 million residents living below the national poverty line. The nation also suffers from a lack of infrastructure and general distrust of public institutions.²

Revenue Transparency

Despite an early commitment to implement the Extractives Industries Transparency Initiative (EITI), Peru has not taken new steps since its action plan was drafted by a multi-stakeholder committee in June 2005.³ The EITI Board nevertheless gave Peru the status candidate country in September of 2007. This new designation requires that the country validate its implementation of EITI principles in the future.

Revenue transparency is mandated by the Law of Transparency and Access to Public Information (2003) and the Law of Responsibility and Fiscal Transparency (2001). Based on this legal framework, the Ministry of Finance publishes information on public finances, economic baselines, and transfers to regional governments on an easily accessible website.⁴

According to Propuesta Ciudadana, an organization that reports on transparency and accountability in Peru, most federal and regional agencies provide timely and complete information when they receive citizen information requests. However, information on the income tax is reserved by law and a majority of private companies does not publish information about their financial performance.⁵ In fact, these provisions regarding confidentiality of tax information continue to delay the full implementation of the EITI in Peru.

Expenditure Transparency

The Open Budget Index reports that the government of Peru provides its citizens with substantial information about the budget and financial information, although there is still room for improvement. For instance, Peru makes public its audit reports, but it does not provide information on whether auditors' recommendations are implemented.⁶

Transfers from the central government to the regional and local governments have increased exponentially since 2000, due to an ongoing process of decentralization and record-high mineral prices. During 2006, revenue from mining activities rose by 29.6%, due primarily to a 67% real rise in income tax collection. Over the same period, transfers to municipalities rose by over 60%.⁷ Approximately half of the fiscal revenue from extractive activities is transferred to regional governments.

These transfers from the federal government to regional and municipal governments originate from the taxes and royalties that the Treasury collects from the extractive industries (mining and hydrocarbons).⁸ Although the Ministry of Finance transfers 50 percent of mining and hydrocarbon revenues to local governments, each activity has a separate regulation. Universities and other educational institutes also benefit from these transfers.

In 1997 Peru established its Financial Management Information System, which has become a useful tool to monitor fiscal expenditures and budget execution.⁹ In addition the National System of Public Investment assesses projects that regional and local authorities can execute. However, sub-national governments are failing to invest all the transfers they receive from the extraction of natural resources. The effective use of resources has been constrained by the limited capacity to identify and execute productive investment projects.

As of September 2006, regional governments had accumulated USD 500 million in savings accounts, despite gaps in infrastructure such as roads and basic public services. According to the World Bank, gaps such as these are a strong determinant of poverty levels and inequality variations across regions and departments.¹⁰ An additional problem is that transfers of mining revenue to sub-national governments are highly concentrated, with seven departments accounting for close to 80% of the total.¹¹

During 2007, due to the record high prices of minerals, the government of Peru negotiated a voluntary contribution from mining companies to increase social and infrastructure spending. The amount of this agreement is expected to reach USD 800 million over the next five years, depending on prices of minerals and companies' profits.¹² However, these funds will stay outside of the budget and will be managed by the companies, in coordination with committees that include local government representatives. Ensuring that these resources are applied towards poverty alleviation and mitigation of negative impacts from mining should be a priority for civil society organizations.

Freedom of Information

Access to information is protected in the Constitution and in January 2003 a new Law of Transparency and Access to Public Information went into effect. The Constitutional Court also protects this right under the habeas data provision. An Ombudsman has the power to investigate acts of non-compliance and to issue recommendations to public officers.¹³

Mining and Sustainable Development

Peru has a long history as a mining country. At the end of 2005, Peru was the third largest producer of silver, tin, zinc, and bismuth; ranked fourth in production of copper, lead, and rhenium; and ranked fifth as producer of gold and molybdenum. The industry structure has been defined by privatization and deregulation since the 1990s. According to the Ministry of Energy and Mines, Peru was the fifth most attractive country for investment in exploration, after Australia, the US, Canada, and Indonesia, with more than 250 foreign mining companies operating there since 1990. Among the largest foreign companies are Barrick, BHP Billiton, Glencore International, and Newmont.¹⁴

The need for sound social and environmental practices in the mining sector remains a pressing issue. Mining activities have often been affected by social unrest, for example at the Yanacocha gold mine (Newmont), whose output was curtailed by 20% in 2006 due to protests and strikes organized by nearby communities. A stable and predictable regulatory environment is needed to maintain sound social and environmental practices for sustainable development (particularly at the local level), and to ensure that benefits from mineral extraction reach all Peruvians.

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1. World Bank, Peru Country Brief
2. World Bank, Country Partnership Strategy 2007
3. Peru EITI website: http://www.minem.gob.pe/eiti/default.asp
4. Peru Ministry of Finance transparency website: http://transparencia-economica.mef.gob.pe/
5. Propuesta Ciudadana, Vigilancia de las Industrias Extractivas #9, November 2006.
6. Open Budget Index highlights (www.openbudgetindex.org)
7. EIU, Peru Country Report, March 12, 2007.
8. Propuesta Ciudadana, Vigilancia de las Industrias Extractivas Nacional Report #1, March 2006.
9. Official site: www.mef.gob.pe/siaf/
10. IMF, "Peru: Article IV Consultation 2006," p. 28.
11. ibid, p. 19.
12. ibid, p. 20.
13. www.freedominfo.org, as of January 24, 2008
14. USGS, "Peru: 2005 Minerals Yearbook," June 2007.