Situation and cooperation

The Cathedral of Lima, Peru

Peru’s recent history has been extremely turbulent. The 1980s were overshadowed by the terrorist activities of the Maoist Shining Path guerrilla movement. This was followed by the authoritarian or dictatorial government of President Alberto Fujimori. Yet in 2001 Peru returned to the democratic fold. In free elections in 2001 Alejandro Toledo was elected President. His government chalked up major successes in the fields of economic and social development. The aim of the current President, Ollanta Humala, is to consolidate democracy further and to tackle poverty in the country with even greater resolve, through a policy of "social inclusion".

The consolidation of democracy in Peru has brought with it an impressive upturn in the economy. Between 2002 and 2012 the economy grew by an average of 6.5 per cent per annum. In 2013 a growth rate of 5.8 per cent was recorded.

The main factors behind this positive economic development are foreign trade and extensive investment in mining and in the production of natural gas. Peru benefits from the high prices on world markets for its export goods, especially for mineral resources such as gold, copper, silver and zinc. With an annual per capita income of 6,270 US dollars, Peru has now established itself as an upper-middle-income country.

Successes in poverty reduction although social inequality remains high

In the streets of Lima, Peru

Although progress has been made in tackling poverty and inequality in the country, they remain Peru’s greatest problem. The distribution of wealth and income in Peru is been very uneven. Many Peruvians depend on subsistence farming and poorly paid jobs in the informal sector to earn a living.

The declared goal of President Humala’s government is to reduce poverty and expand social policy. Parallel to this, however, the government intends to retain its liberal economic policy with strict budget discipline. The first fruits can already be seen: according to World Bank figures, in 2004, a total of 58.7 per cent of Peruvians lived below the national poverty line. By 2013 the figure had been pushed down to 23.9 per cent. Although the extreme urban-rural gap has narrowed, a divide remains. In rural areas 48 per cent of the population live in poverty, while this is true of only about 16 per cent of town and city dwellers.

High economic growth has increased the level of public revenue in Peru. In turn, the government has committed significantly more resources to social programmes. These include the new tax-funded pension programme Pensión 65 and the conditional cash transfer programme JUNTOS.

The government has so far had limited success in ensuring that the poor sections of the population also benefit from the country’s economic growth.

Mining is the main driver of economic development, but the sector creates few new jobs directly. Moreover, mining ventures often lead to social conflicts. These are sparked primarily by disputes relating to environmental issues and how the revenue is to be distributed. The indigenous population benefits to a very limited extent from the country’s economic upswing. Indeed they suffer, as agriculture, logging and mining encroach further and further into their traditional areas. In order to enable the indigenous population to have a say in investment decisions for large-scale projects, Peru’s government passed a prior consultation law in 2011.

Drug trafficking and illegal mining

One of the biggest problems for the further development of the rule of law and for stabilisation in Peru is drug cultivation. Along with Colombia and Bolivia, Peru is one of the world’s largest coca producers and the world’s largest exporter of cocaine. In some regions, the state is unable to enforce its monopoly on the use of force and to take effective action against the heavily armed drug mafia.

Other problems include illegal logging and uncontrolled, illegal gold mining. The latter is fuelled by attractive prices on the world market and, in the Amazon region in particular, it is having a devastating impact on the natural environment and the people living there.

As long as no alternative sources of income are available, these highly productive illegal areas of the economy will continue to play an important role, especially for the poor rural population. Many rural development projects therefore concentrate on promoting the production and marketing of alternative agricultural products, such as coffee and cocoa.

Progress on environmental protection, risks caused by climate change

Aerial view of the Andes

Environmental awareness among Peruvians has risen sharply in recent years. In May 2008 the Peruvian government established a Ministry of the Environment, with German support. Good progress has also been made on environmental protection legislation. New protected areas have been designated. Revised forestry legislation is designed to make logging more sustainable and more environmentally responsible, and tougher penalties are now in place for illegal gold mining, although the stringent laws still need to be enforced more rigorously.

People are increasingly coming to realise that Peru’s geographical location will make it one of the countries in the world most severely affected by climate change. Global warming is already causing irregular precipitation patterns and major variations in temperature, and causing the glaciers in the Andes to melt.

In many parts of the country, glacier run-off is used to irrigate fields as well as to supply drinking water. If the glaciers shrink further the country could suffer extreme water shortages. Hydropower, too, is becoming vulnerable as a result of glacial retreat. Droughts, flooding, landslips and mudslides all pose a threat to people in coastal regions and in the Andes, and increase the risks to harvests.

Priority areas of German cooperation with Peru

In May 2014 German-Peruvian government negotiations were held in Lima. Germany pledged Peru 122 million euros in new funds. These were topped up by another 0.5 million euros in 2015. Of the total, 92 million euros are earmarked for Financial Cooperation and 30.5 million euros for Technical Cooperation. Since funds were pledged provisionally in 2013, the total support provided for the years 2014 and 2015 is 201.8 million euros. In view of Peru’s own economic performance, the funds have been pledged primarily in the form of low-interest loans.

Development cooperation between Germany and Peru focuses on the following three priority areas:

  • Democracy, civil society and public administration
  • Drinking water supply and sanitation
  • Natural resource management and climate change.

In addition, German development cooperation is actively involved in the fields of renewable energy and energy efficiency, violence against women and pre-school education. Germany is also supporting various cooperative arrangements with the private sector, and is promoting triangular cooperation arrangements to pass on the experience of German-Peruvian cooperation to other developing countries.

Activities are closely coordinated with the German Federal Ministry for the Environment which is also extensively involved in Peru within the framework of the International Climate Initiative.

Democracy, civil society and public administration

German Development Minister Gerd Müller talks to representatives of non-governmental organisations at the 2014 Climate Change Conference in Lima, Peru.

Germany is assisting the Government of Peru in its efforts to fundamentally modernise the state and to develop the capacity of state institutions. The aim of this cooperation is to make efficient public services more accessible to poorer sections of the population.

In order to achieve this, German development cooperation works with state bodies at national, regional and local level, and with civil society. The focus is on implementing important reform processes in the regions. These include improving results-based public financial management, restructuring social programmes and providing social benefits. Germany’s engagement is helping make the actions of the public sector more transparent, as well as strengthening state control mechanisms. Support is also being provided for reforms of criminal law and the courts system.

Drinking water supply and sanitation

According to the World Bank, about 87 per cent of Peruvians have access to safe drinking water and 73 per cent have access to proper sanitation. There is still a huge disparity, however, between rural and urban areas. Sanitation systems, especially sewage treatment plants, are not available in all parts of the country, and water quality is not yet guaranteed across the board. The financial situation of water utilities is improving only slowly, and the training available for technical specialists in the sector is still inadequate.  Nevertheless, the government is making substantial efforts to improve the situation. It is therefore expected that the Millennium Development Goals relating to drinking water supply will be achieved.

The primary goal of Germany’s development cooperation is to consistently improve the supply of drinking water and sanitation systems for poorer sections of the population. With this aim in mind, Germany is advising the Peruvian government on the implementation of a new water law. Utilities are receiving support to help them make technical upgrades, reduce water losses, introduce efficient management, reform their tariff systems and improve the level of training. In addition, the Federal Ministry for Economic Cooperation and Development (BMZ) is promoting the construction, extension and modernisation of drinking water supply systems, sewage systems and sewage treatment plants.

Natural resource management and climate change

Coffee farmer Leoncio Parisaca

The protection of global public goods is a central aspect of German-Peruvian cooperation. German engagement focuses on the management of protected areas, forest protection, the promotion of sustainable forest management and natural resource management.

One aspect of this involves making Peru’s tropical timber production more competitive. To this end, the percentage of certified timber coming from sustainably managed forests is to be increased and steps taken to combat the illegal trade in tropical timber.

Germany is also supporting Peru’s system of protected areas, for instance by financing infrastructure in national parks and improving the administration and financing of protected areas and buffer zones. Germany is supporting not only the central government, but also several regional governments, developing their expertise in the management of natural resources.

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