Can Peru overcome the ‘resource curse’?

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WASHINGTON, DC – International financial institutions can improve their role in Peru’s oil and gas sector by supporting local governments to better use resource revenues for addressing the persistent poverty facing their citizens, says international humanitarian organization Oxfam America. A research report published today examines the Camisea natural gas project in southeastern Peru and the role of local governments as well as international financial institutions (IFIs) in harnessing the potential of this massive project.

The Camisea project is the largest producer of hydrocarbons in Peru. Between 2004 and 2009, approximately $1.13 billion in revenue generated by the project was transferred to local governments in the surrounding area. However, the report finds that many local governments were largely unprepared for the Camisea revenue windfall and IFIs did not adequately support these governments in parallel with their support for the project. More than five years after the start of operations, the basic needs local citizens have not been met.

“Too often, we have seen communities suffer the consequences of oil, gas, and mining operations without experiencing the rewards,” said Raymond C. Offenheiser, president of Oxfam America. “Peru has an opportunity to reverse this so-called ‘resource curse’ by ensuring transparent and accountable management of the natural gas industry.”

People, Power and Pipelines: Lessons from Peru in the governance of gas production revenues – a research collaboration between World Resources Institute, Oxfam America, and Bank Information Center – examines oil and mining development in Peru, focusing on the use of revenues generated by the Camisea project. Most recently, Peru has experienced unprecedented economic growth with support from hydrocarbon and mineral extraction. However, as of 2008, close to 60 percent of the rural population remained in poverty, including areas where natural resources are extracted. Citizens in these regions are often left without basic services, including electricity, water, and sanitation services.

In 2002, Peru’s national government launched a decentralization process, establishing regional governments and delegating more authority and resources to local governments for improving the delivery of basic services to citizens. Local governments have made progress in effectively managing natural resource revenues and providing public access to revenue information, but they still fall short of what is required by Peruvian law and of what is necessary to enable citizens to hold their local officials accountable.

“Local governments must ensure that revenues support local development and translate to tangible benefits for local communities like health, education, and jobs. Providing citizens with information is the best way to hold these governments accountable for using revenues to provide basic services that are critical to the pathway out of poverty,” said Offenheiser.

As donors, the collection of IFIs supporting Peru’s natural resource sector have a crucial role to play in helping local governments strengthen their strategic planning processes, transparency and accountability practices, and their ability to evaluate their progress. The report provides recommendations for IFIs to improve these areas using several tools, including loans for improved fiscal management, loans for energy sector development, and project-based investment loans like those granted to the Camisea project.

“As natural gas flows out of Peru, the international community must support a transparent flow of resources and information. Donors must support local governments in using these resources to foster a sustainable, vital industry in Peru that benefits local communities and contributes to the long-term reduction of poverty,” says Offenheiser.

Click here to download the full report.

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