Interview with Ollanta Humala by Financial Times

Copyright 2006 The Financial Times Limited
Financial Times (London, England)
March 30, 2006 Thursday
London Edition 1
SECTION: THE AMERICAS; Pg. 12
Ollanta Humala, the frontrunner in Peru’s presidential elections, has vowed to alter contracts with foreign investors that are currently ex-empt from paying royalties, a move that would affect global miners such as Newmont, BHP Billiton, Phelps Dodge, Falconbridge and Barrick.
In an interview with the Financial Times, Mr Humala also pledged to introduce “21st-century nationalisation” and said he would refuse to sign the trade deal Peru has agreed with Washington. In addition, he promised to restrict imports from China, limit Chilean investment in Peru and end US-sponsored eradication of coca, the raw material for cocaine.
“We won’t revise all contracts but we will certainly change those with companies that aren’t paying taxes and royalties,” Mr Humala said. He added that he was thinking of projects such as Yanacocha in northern Peru, the most productive gold mine in the world, controlled by Newmont of the US.
Mr Humala, a radical nationalist, regularly attacks foreign investors in his campaign speeches but has been vague about which contracts he would seek to revise. Although he did not say whether the changes would be negotiated or imposed, he stressed that “we will not act outside the law”.
Peru has a sliding scale of royalties of up to 3 per cent of gross sales, but companies that bought privatised state-owned mines and deposits in the 1990s are exempt. Their contracts contain tax-stability agreements designed to attract long-term foreign investment in Peru after the economic crises of the late 1980s and early 1990s.
The former army officer also proposes to introduce a “windfall tax” on international mining companies, which have invested Dollars 9bn (Euros 7.5bn, Pounds 5.2bn) in Peru over the past decade. Mr Humala has 33 per cent support and a six-point lead over Lourdes Flores, his pro free market rival, according to Apoyo, the country’s leading pollster. However, internal government polling is thought to show his support as high as 42 per cent and some analysts even speculate that he may gain the more than 50 per cent necessary to win outright in the first round of elections on April 9.
His views on trade and coca will worry the Bush administration. On the trade agreement with Washington, agreed last December and yet to be ratified, Mr Humala said he would refuse to sign it. “We want a trade deal but it has to represent our national interests. This one does not, and it needs to be changed.” He also promised to end coca eradication, for which Peru receives some Dollars 100m a year in US aid. “The US strategy hasn’t made any progress against narco trafficking,” Mr Humala said. “We need to work together – to tackle demand and to change international conventions that prevent us from industrialising and exporting legitimate coca products.”
In another sideswipe at Washington, Mr Humala said he would “not tolerate a foreign military presence in Peru”, signalling that he would not accept a Colombia-style arrangement with the US in the “war on drugs”.
Mr Humala said he wanted to change the constitution, which prevents the state from taking more than a subsidiary role in the economy. “The current constitution gave a lot of power to foreign companies,” he said. “It created economic growth but not development.” He said the state could buy shares in companies or set up joint ventures.
“We want to nationalise strategic sectors of the economy. For example, LAN Chile has a monopoly on air travel in Peru. We need to set up a national airline – either publicly owned or as a public-private partnership – to break LAN’s monopoly. That is what is meant by 21st-century nationalisation.”
The candidate repeatedly struck a protectionist note, warning of the need to “protect internal markets and aid economic development”. He warned that “imports of cheap textiles from China are wrecking our textiles industry”.
“Small productive companies that provide employment are being destroyed. We should restrict those imports,” he said.
Acknowledging the importance of China as a buyer of mining exports, Mr Humala said limiting textile imports would not damage relations. “China knows better than to let the issue affect our relationship. For them, it’s not as strategic a sector as it is for us.”
He also said he would block investors from Chile, Peru’s historic rival, from bidding in port concessions.
Despite the new details of his economic thinking, there were signs that much still remained to be hammered out. Asked whether he considered mining to be a strategic sector in which the state needed to be involved, Mr Humala was evasive: “I’ll tell you when I take office on July 28.”