US embassy cable - 05LIMA1390

UNCLAS SECTION 01 OF 03 LIMA 001390 
 
SIPDIS 
 
DEPT FOR WHA/AND 
DEPT PASS TO PEACE CORPS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EMIN, EINV, ECON, PGOV, PE 
SUBJECT: AMBASSADOR DISCUSSES MINING AND DEVELOPMENT IN 
CAJAMARCA 
 
REF: A)  04 Lima 5441    B) 04 Lima 4471 
 
1.  (SBU) Summary.  During a March 3-5 trip to Cajamarca in 
Northern Peru, the Ambassador met with local dignitaries to 
discuss mining and economic development, toured the Newmont- 
operated Yanacocha mine, and visited with Peace Corps 
volunteers.  Cajamarca has more factors in its favor than 
virtually any other Andean province.  Economic activity is 
relatively diversified between agriculture, mining and 
tourism (though agriculture still employees over 70 percent 
of the population).  The province receives nearly $100 
million per year in mining royalties, and it abuts two fast- 
growing coastal regions.  Still, it is not clear that 
Cajamarca will make the break through to success.  Local 
government leaders appear to be focused on grand 
infrastructure projects rather than linking their poor and 
unproductive farmers as suppliers to the booming agri- 
industrial enterprises on the coast.  Also, officials have 
tense rather than symbiotic relations with the modern mining 
sector - one that is key to their future.  Like many 
mountain provinces, many locals fear they will be losers in 
a Free Trade Agreement between Peru and the U.S.  End 
Summary. 
 
Rich in Resources, But High Levels of Poverty 
--------------------------------------------- 
 
2.  (U) Cajamarca Department has abundant natural resources, 
accounting for approximately 50 percent of Peru's total gold 
production.  Despite mineral wealth, the department suffers 
from high levels of poverty.  Over 70 percent of the 
population (almost one million people) live in rural areas. 
Cajamarca's per capita GDP in 2000 was $895, less than half 
the national levels of $2,100.  The majority of 
Cajamarquenos make their living by producing agricultural 
products, including mangos (some of which are exported) and 
milk and cheese (for domestic consumption only).  Textile 
and artisan production also accounts for a small percentage 
of employment. 
 
Local Government Interested in Trade and Development 
--------------------------------------------- ------- 
 
3.  (SBU)  During his trip, the Ambassador met with the 
Regional Vice President, Mayor of Cajamarca and the Bishop 
to discuss economic development, including the benefits of 
an FTA and tourism.  Regional Vice President Alejandro 
Rebaza explained that the regional government plans to 
improve infrastructure, including building highways that 
will connect Cajamarca with the more economically prosperous 
coastal departments of La Libertad and Lambayeque, as well 
as to Ecuador.  The regional government would also like to 
attract new air carriers, as only one company currently has 
service to Cajamarca.  With improved transportation 
linkages, Rebaza stated, resources and people will move more 
freely in and out of Cajamarca. 
 
4.  (SBU) Mayor Horna declared that the local government is 
committed to improving the standard of living, but noted 
that the lack of funding is an issue.  (Note:   The 
Cajamarca regional government received over $90 million in 
mining royalties in 2004, which are to be used for 
development projects.)  The government is working to advance 
energy development, improve the standard of education, and 
is cooperating with Yanacocha mine to build a new water 
treatment plant and renovate the regional hospital. 
 
Mining for Economic Development 
------------------------------- 
 
5.  (SBU) During his meeting with local officials, the 
Ambassador also discussed the role of the mining industry 
and its tensions with the local community.  Monsignor Jose 
Martinez Lazaro noted that the local population often has 
unrealistic expectations for Yanacocha (which is majority 
owned by Newmont Mining and minority owned by Peruvian 
Buenaventura).  The population often falls into dependency, 
looking to the mine to provide jobs and basic governmental 
services.  Regional Vice President Rebaza stated that while 
the mine is a major source of local income, local mines must 
be more socially responsible.  He spoke of a number of 
projects being pushed by the regional government where he 
hoped for multi-million dollar contributions from Yanacocha. 
6.  (SBU) Mayor Horna asserted that relations between the 
local government and Yanacocha are good, though he also 
complained that Yanacocha had not followed through on 
certain unspecified promises.  Horna said that his 
government is helping to coordinate dialogue between the 
mining community and NGOs.  The mines continue to have 
problems, however, since the majority of the public does not 
trust the companies, arguing that they are only interested 
in profits and do not do enough to protect the environment. 
(Note:  September 2004 protests against Yanacocha's 
exploration of Cerro Quilish were predicated on the belief 
that Cerro Quilish provides the city's drinking water 
(reftel B) End Note.) 
 
Visit to the Yanacocha Mine 
--------------------------- 
 
7.  (U) On March 4, the Ambassador, along with over 30 local 
press, toured Newmont Mining's Yanacocha mine, as well as 
two of Yanacocha's social projects.  Operating over 697 
square miles and employing 8,000 workers, Yanacocha produces 
more than 3 million ounces of gold a year, making it South 
America's largest gold producer.  During a tour of the 
facilities, General Manager Brant Hinze highlighted 
facilities to protect the environment, including a state-of- 
the art water quality laboratory and dams to prevent 
sediment from leaching into local farming irrigation 
systems. 
 
8.  (U) Hinze noted that Yanacocha pays over $160 million in 
taxes annually.  Since it began operations in 1993, the 
company has spent more than $14 million on social programs, 
which include farming and agriculture programs that provide 
new machinery, as well as artisan programs that teach self- 
sustainability.  In private remarks to the Ambassador, Hinze 
offered a frank critical appraisal of the company's troubled 
relations with local communities.  Among the problems he 
cited were (a) Yanacocha's failure to recognize the extent 
of the problem and to make resolution a priority; (b) a 
paternalistic approach to social programs  (Yanacocha would 
decide what communities needed rather than develop projects 
through dialogue with villagers.); and  (c) a lack of good 
information about local concerns that caused the company to 
misjudge reaction to its activities.  The company has hired 
more than 100 sociologists to listen to community concerns 
and broadly engage villagers in design of social programs. 
 
9.  (U) The Ambassador and the press entourage visited one 
Yanacocha-supported farming program near the mine.  Covering 
over 14,000 hectares and with 1,150 people living and 
working on the land, this cooperative produces agricultural 
products (trout, cheese, milk products), handmade textiles 
and lumber.  In a separate visit to a local jewelry 
production operation partially funded by Yanacocha, the 
group was able to see how local artisans teach residents to 
make jewelry using gold and silver from the mine. 
 
Tourism to the Rescue? 
---------------------- 
 
10.  (SBU) The Ambassador hosted a round table discussion 
with local business and NGO officials on March 4.  John 
Herdin, local Vice President of CANATUR (Peru's tourism 
council), outlined thoughtful and ambitious plans to promote 
tourism as a vehicle for economic growth.  While some of the 
plans seemed overly ambitious (i.e. making Cajamarca into a 
regional air hub) tourism entrepreneurs were clearly 
coordinating well among themselves and bustling with ideas. 
Luis Ara, Coordinator of the Local Dialogue on Mining, 
argued that the government should focus on strengthening 
agricultural output instead of tourism.  The majority of the 
local population, he pointed out, lives in rural areas where 
farming is the way of life.  Agricultural production for 
export, rather than domestic consumption, should be the 
government's main goal.  The debate continued for over an 
hour, and while no final conclusion was reached, local 
officials were able to share their viewpoints in an effort 
to plan for Cajamarca's future. 
 
Visit to Peace Corps Sites 
-------------------------- 
11.  (U) The Peace Corps has a robust presence in Cajamarca, 
with 27 volunteers living and working throughout the region. 
Volunteers work in several sectors, including small business 
development, community health, and youth development.  On 
March 3, the Ambassador attended the regional Peace Corps 
Counterpart Day, where he had the opportunity to meet 19 of 
the volunteers.  He then toured two of the regional Peace 
Corps programs; one textiles program outside of Cajamarca 
city and one program that provides at-risk children with a 
safe haven, located within the city. 
 
Comment 
------- 
 
12.  (SBU)  The Cajamarca visit provided some insight into 
the tensions between the local community and Yanacocha mine. 
The smooth symbiotic relationship between the two that would 
best promote local economic development has yet to achieved. 
The critical self-assessment of Yanacocha management bodes 
well for improving relations.  Unfortunately, the Ambassador 
did not observe similar critical thinking on the part of 
regional officials.  The latter fully understand the 
importance of the mine to their ability to generate jobs and 
services.  That notwithstanding, the regional Vice President 
and Cajamarca Mayor seemed to place a higher priority in 
squeezing more resources from the company for infrastructure 
projects.  Toward that end, local officials were generating 
expectations that were unlikely to be met and which would 
complicate community relations. 
 
STRUBLE