June 17, 2009
A few months ago, I gave a presentation on environmental policy in Latin America, and one of the cases studies I cited was the Doe Run mine-smelter complex in La Oroya, Peru. It is a terrible example of the often-dysfunctional nature of foreign investment in Third World countries. On one hand, there is a desperate need for capital from foreign countries for the purposes of economic development and job creation, but on the other hand there is a deeply ingrained suspicion of outsiders that results in unduly strict regulations. When you add to that the corrupt nature of bureaucracies that prevails in many Latin American countries, you've got a mess -- figurative and in this case, literal.
During the government of Alberto Fujimori, many state-owned corporations were privatized, and in 1997 the US-owned Doe Run Corporation bought the state-owned smelter in La Oroya with the condition that toxic waste would be cut. It didn't work out that way, however, and last year CNN aired a special report by Dr. Sanjay Gupta about the terrible health problems suffered by metallurgical workers who have ingested lethal doses of lead, via fumes. Sadly, many of them are so poor that they keep working in the smelter just to feed their families, even though they know it will gradually kill them. La Oroya is a main center of lead and zinc production in Peru, located about 100 miles east of Lima. Elsewhere in Peru, there are huge copper mines and iron mines. A blogger called American in Lima followed up on this case with some observations from a local perspective.
As you might expect, the recent global economic crisis has accentuated the dilemma, making it harder than ever for the company to live up to its obligations. In April, Doe Run secured a $175 million line of credit, but the deal is on the verge of collapse because of the company's failure to achieve more environmental progress. The parent company Renco has declined to bail out its subsidiary, raising the possibility of a total shutdown. There is a deadline set for October, but given the current economic uncertainties, the Doe Run company could fail before then, or it could get another extension from the government. See BBC.
To its credit, the government of President Alan Garcia has played an active role in getting a satisfactory resolution of this awful problem. Several of Garcia's cabinet ministers were dismissed for corruption several months ago, and that fact plus Garcia's own past as a gringo-bashing demagogue put him in a weaker position than might otherwise be the case. He has governed in an effective and responsible way since being elected in 2006 (unlike his disastrous first term, 1985-1990), and he wants to continue upholding his improved reputation, so he will probably refrain from reverting to the old-fashioned populism that got him in so much trouble before.