After political violence, Peru reckons with economic fallout

Lima, Peru – The anti-government protests, which left dozens dead and blows to some of Peru’s most critical sectors, are beginning to subside, but they have left their mark on the country’s economy.

Operations in the country’s copper-rich south are steadily increasing and the iconic ruins of Machu Picchu, the country’s crown jewel, are once again open to foreign tourists.

But for three months vital highways were shut down by boulders and burning tires, lucrative copper mines were paralyzed and the rail lines leading to the ancient Inca citadel, like much of Peru’s economy, were brought to a halt amid shockingly violent demonstrations.

Examining the damage done to a monolithic mining sector and the country’s iconic brand as a bucket-list travel destination, analysts told Al Jazeera they see signs of a tentative reboot of these key sectors. However, months of unrest, an ongoing political deadlock and the threat of renewed protests will pose serious challenges to the country’s economic growth in 2023, they warned.

As a clearer picture of the economic impact has emerged, they have said one thing is certain: more instability will hamper investment in minerals and deter tourism – economic drivers that account for 10 percent and 3.9 percent of the country’s gross domestic product (GDP). .

“Our estimate for GDP growth in 2023 is 2.5 percent, with a significant downward trend,” Hugo Vega, an economist at BBVA Research Peru, told Al Jazeera by email. The effect of the political crisis in January alone has deducted about 0.3 percent from this year’s growth, he said. Including February and March, plus the long-term effect on tourism and overall investment, paints “a very challenging picture for the year as a whole,” he said.

Even in a country as accustomed to political chaos as Peru, which has had seven presidents in seven years, President Dina Boluarte’s chaotic accession to the throne in December after ousting her predecessor, Pedro Castillo, plunged the country into unprecedented violence. in decades.

Despite a 77 percent disapproval rate, Boluarte has held on to power with a heavy hand, and a deadlock between the executive and the judiciary has stalled hopes of new elections this year, a key demand from protesters.

Implications for mining

The unrest, which has left more than 50 dead, is concentrated in the mineral-rich and heavily indigenous highlands, where vast copper reserves have enabled Peru to surpass China as the world’s second-largest producer.

In Apurimac, a region ravaged by recent unrest, campesino communities demanding President Boluarte’s resignation blocked a highway leading to the China-owned Las Bambas mine, which produces about 2 percent of the world’s copper supply, leaving it transportation of materials was disrupted. In neighboring Cusco, protesters set fire to workers’ homes at the colossal Antapaccay mine, temporarily halting operations.

While the magnitude of the impact on production was still unclear, experts noted a long history of social conflict between local communities and mining companies in the region. long-term damage to the industry.

“If you continue to produce, but you don’t get your product out, when there’s a new opportunity, you export it and it quickly recovers in terms of export volume and fiscal revenue,” said Carlos Monge, a researcher at Center for Studies and Development promotion or DESCO. “[But] if you have to close the operation, it is not easy to restart that production, because the value chain is broken.”

The extractive sector, which accounted for 62 percent of Peru’s exports, shrank 3.6 percent year-on-year in January and there are concerns that continued instability could deter private investment, which amounted to $5.4 billion last year.

But Monge and other analysts highlighted the mining industry’s resilience amid political turmoil, as well as copper’s critical role in an electric vehicle boom.

“In broader terms, there are two positive trends to watch: high prices and demand, and the [clean] energy transition, which is highly dependent on certain minerals. And one of them is copper.”

Losing tourism

Heading north from the mine shaft, the rugged Andes yields to the Sacred Valley, where the 15th-century Inca citadel of Machu Picchu was once again isolated from the world for nearly a month.

The Peruvian Ministry of Culture closed the archaeological site in late January after blockages of highways and damaged railway lines left hundreds of tourists stranded. The site reopened to the public almost a month later.

The closure was another blow to Sofia Arce’s boutique travel agency, Intense Peru, which sells personalized tours of the Cusco region.

“My company has survived a pandemic, and now this social crisis,” says 49-year-old Arce. “Since the beginning of December, the company has been set to zero.”

Arce closed 2022 with 63 percent of turnover compared to 2019, a top year for many tour operators in Peru.

“[I]It probably won’t be until around 2025 or 2026 before we get back to 2019 levels. And that is when there is no more political crisis,” Arce told Al Jazeera.

From the spicy ceviche and pisco sour to the Amazon River and Rainbow Mountain, the country’s appeal to backpackers and luxury travelers alike made for pre-pandemic highs of 4.4 million foreign tourists. But the recent turmoil has ravaged the sector. According to the Peruvian Ministry of Foreign Trade and Tourism, tourism losses have already reached $600 million due to the political crisis.

The hotel industry has been particularly hard hit, with an occupancy reduction of 83 percent.

“We are losing employees and we are losing money,” said Jose Koechlin, founder of InkaTerra, a luxury hotel chain in the Andes and Amazon.

His largest hotel, with 162 rooms, was closed from December through February due to a lack of tourists. Koechlin said his workforce of about 700 has been reduced to a minimum, which has hampered the local economy.

But he remains optimistic, in part because of a major capital injection recently announced by Peru’s finance ministry, including about $130 million for the tourism sector alone.

“The downward curve has stopped. There are no more cancellations and we are now receiving reservations and guests.”

This week, local communities in the Andes have called for renewed anti-government strikes, including highway blockades – troubling news for Sofia Arce, who is preparing to accompany 24 tourists from the US on a once-in-a-lifetime trek through the Sacred Valley .

For now, she said, no cancellations and no blocked highways.