SANTIAGO - When Ollanta Humala, a left-winger and ex-military official, took office last year as the president of Peru, he had one clear priority: make sure that the mining industry remains strong.

It seemed simple enough. In Peru, mining accounts for 60% of exports and 20% of government revenue. Peru is the world's second leading copper producer after Chile, international copper prices were high thanks to demand from China. Gold was up too – way up, reaching historic records in recent years.

While it's true that Humala's campaign for the presidency focused more on fighting poverty than on economic development, he'd also given up on spouting the kind of Hugo Chavez-like rhetoric that cost him the 2006 election. And once in office, Humala quickly turned his attention to macroeconomics, promising that the Peruvian economy would grow by 6% annually – in other words, it could even match the growth levels achieved during the tenure of Peru's controversial free-market president, Alberto Fujimori (1990-2000).

A year later, however, Humala's seemingly simple formula for ensuring those kinds of growth numbers is being compromised by anti-mining protests that threaten several key projects. Together those mining ventures represent about $53 billion worth of investments in the coming years.

The most recent case occurred in late May in the south-Andean province of Espinar, south of Cusco. Two people died and 40 were injured after Humala dispatched troops to clamp down on locals protestors who were blocking the transport of copper from a mine called Tintaya, owned by the Swiss mining giant Xstrata. The protestors, who object to the mine for environmental reasons, demand that the company share up to 30% of its earnings with local communities.

As a result of the violence in Espinar, four lawmakers in Congress split from Humala's political block, accusing the president of swerving to the right. Not only is the president losing sway in the legislature, he's also losing popular support. His approval rating currently stands below 45%, down from 57% last August.

What's even more worrisome when it comes to foreign investment is the situation facing the so-called Conga project, a gold mine being planned in the northern region of Cajamarca by U.S. mining company Newmont.

The project, in which Newmont plans to invest $4.8 billion, is currently stalled due to protests by locals worried about the effects the mine could have on their water supplies. In late May, a general strike was declared across the entire region, and the regional president is calling for Humala to step down for failing to adhere to his campaign promise of "Agua sí, oro no" (water, not gold).

The balance of promises and priorities

As he marks the first anniversary of his presidency, the Peruvian head of state faces a double challenge: on the one hand, he must follow through on his campaign pledge to reduce inequality in Peru, where 30% of the population lives below the poverty line; at the same time, he must guarantee conditions so that both national and foreign companies can invest with confidence and thus ensure growth levels similar to what the country experienced during the pro-free market administrations of the past two decades.

Humala cannot and should not give in to the anarchic provincial protests. Nor should he legitimize in any way the demands of residents in Espinar, for example, who insist on 30% of Xtrata's earnings. But at the same time, he must not send soldiers into the streets to stop the demonstrations with bullets.

What he should do, rather, is encourage companies to take the kind of best practices approach to community relations that some companies in Peru have already successfully implemented.

A case in point is Minera IRL, an English-Canadian firm that on June 6 – at a time when the conflicts in Cajamarca and Espinar dominated headlines – signed a historic 30-year agreement with local communities in the Puno region. In exchange for access to local gold deposits, IRL granted those communities a 5% share in the mine.

The company involved local communities in its decision making process from the beginning. It made a point of establishing a transparent dialogue, never trying to hide information about the size of the deposit, or about its investment plans, earnings expectations and environmental impact studies.

The second thing Humala ought to do is more difficult: restructure Peru's system of regional governments. Under the current system, regional presidents have acquired too much power. It's understandable that past governments have made an effort to decentralize the country, to balance things out so that not all decisions are made in Lima, Peru's economic and political capital. But decentralization shouldn't come at the cost of the country as a whole. Once again, the answer here isn't about regional leaders exerting control. Instead it's a matter of more citizen participation, of establishing permanent and transparent dialogue between residents and the local authorities they elect.

Third, Humala must strengthen the ability of regional governments to make better and faster use of the royalties they receive from mining companies. The region of Cajamarca, for example, has already received $250 million from the Newmont mining company. But only 20% of that money has been assigned to regional improvement projects.

Part of the problem is how badly some regional governments lack basic management skills. But there's also the cumbersome bureaucratic process by which regional improvement projects must be approved. This is yet another area where Humala could use community participation to help ease the bottleneck.

President Humala certainly has his work cut out for him. But the task he faces isn't an impossible one. And while he may not have much to celebrate right now, on the first anniversary of his presidency, he can take solace in the fact he still has four more anniversaries to go.

Read the original story in Spanish.

Photo - Office of the presidency of Peru