Following a campaign laden with promises of social inclusion, President Ollanta Humala’s administration has already begun fulfilling some of them. Having gained legislative approval to establish the Ministry of Development and Social Inclusion only weeks after taking office in August 2011, Humala turned his sights to renegotiating royalties derived from the country’s main economic growth driver, the mining sector, to fund social programmes. An assortment of other reforms, including a higher minimum wage, pension reform and the overhauling of various social programmes, have also been promoted during his first year in office.

AN ENDURING CHALLENGE: Social inequality is a major problem in Peru and recent economic growth has failed to have a consistent positive impact across all social classes, leading to dissatisfaction among some of the lower-income segments. Nevertheless, overall poverty is in decline. According to the National Statistics Institute, between 2005 and 2010 the percentage of the Peruvians living below the national poverty line fell from 48.7% to 31.3%. In view of such progress, the economic agenda of the current administration has for the most part continued the successful, business-friendly economic policies of previous administrations.

At the heart of the debate on economic development and social inclusion is the mining sector, which has been the primary catalyst of recent economic success. However it has also been the cause of protests and social conflicts around the country, many of which have been set off by public anger over the lack of economic benefits trickling down to local towns and communities where most of the mining activity takes place.

Humala has set about renegotiating royalties paid by the mining industry. Despite initial fears that the industry would be unjustly penalised, the administration sought private-sector involvement when hammering out the details of the scheme (see Mining chapter). The higher royalties paid by mining companies to the government are calculated based on operating profits and, as such, any significant cyclical decline in global commodity prices could result in decreased royalties, shielding the private sector from potential heavy losses. The new royalty scheme is predicted to bring in an additional $450m a year, much of which will go toward funding social programmes in areas where mining activities are most fiercely opposed in the Andean highlands.

FACILITATING DEVELOPMENT: Humala appointed rural development expert Carolina Trivelli as the first minister of development and social inclusion, who will be tasked with implementing the administration’s social agenda. The ministry was created to centralise the numerous social programmes, although Trivelli has stressed the importance of linking short-term poverty alleviation cash-transfer programmes with development programmes designed to eliminate the conditions preventing families and neighbourhoods from escaping the poverty cycle. Programmes such as PRONAA, the national food assistance programme, and Juntos, a national cash-transfer programme for families in extreme poverty, have already been placed under the ministry’s watch. In early 2012 the ministry launched an initiative providing support to 16,000 children in the poor rural areas of Ayacucho and Cajamarca.

INTERNATIONAL SUPPORT: The World Bank announced it had approved a $3bn loan to the Peruvian government to aid Humala’s anti-poverty initiatives. The bank’s vice-president for Latin America, Pamela Cox, said she hoped the Peruvian government would be as successful in reducing poverty as the administration of former Brazilian President Luiz Inácio Lula da Silva.

While many social programmes that rely on cash transfers will certainly increase the short-term livelihood of low-income households, only economic development will raise their standard of living in the long term. Indeed, some of the administration’s loftier long-term goals include the overhaul and expansion of universal access to public services, such as education and health care, both of which are in need of reform and development. If the administration can achieve these goals, it will bring enduring benefits to the Peruvian people.