A Consultation Law just passed by Peru’s Congress requires the government to consult indigenous peoples directly affected by oil drilling and mining operations. If effectively implemented, this law could reduce social conflict and improve Peru’s investment climate.

All eyes are on Peru’s new president, Ollanta Humala, in his first weeks on the job. Peruvian citizens and the international community watch closely to gauge how he approaches one of the country’s key challenges: reducing social conflict and economic inequalities associated with Peru’s booming mining and oil activities without undermining the country’s impressive economic growth.

Last week, Peru’s Congress took a major step in the right direction by unanimously approving a law that requires the government to consult with indigenous peoples prior to implementing legal or administrative measures that would affect them directly, including development projects like oil drilling and mining. The law specifies that consultations should aim to secure indigenous peoples’ agreement or consent. If effectively implemented, this law could reduce social conflict and improve Peru’s investment climate.

Peru’s national ombudsman office recently documented more than 200 social conflicts across the country, the majority of which relate to socio-environmental issues, such as those that often emerge around mining and oil projects. In 2009, the situation became particularly explosive when police clashed with indigenous protesters in the town of Bagua in northern Peru, leaving 34 dead and numerous injuries among police officers and indigenous peoples. The conflict erupted around a set of legislative decrees put in place by the Garcia government, which indigenous federations and civil society organizations claimed would infringe upon indigenous land rights, and were passed without genuine consultation with indigenous communities.

After the unfortunate events in Bagua, the Peruvian government made some attempts to increase dialogue with indigenous leaders. In May 2010, Peru’s Congress passed a Consultation Law backed by many indigenous organizations and civil society organizations. Oxfam provided support to partners in Peru for their advocacy work around the law. Unfortunately, former President Garcia vetoed the law and the issue stalled until after Humala’s July inauguration.

It looks like the law will not meet with opposition from the administration this time around. President Humala has stated that he supports consultation, and the day after Peru’s Congress passed the law, he tweeted: “The right to prior consultation regarding the development of indigenous peoples is one more sign of social inclusion. We create a Peru for everyone.”

Indigenous groups and civil society organizations in Peru and abroad have also lauded the law’s passage. James Anaya (UN Special Rapporteur on the rights of indigenous peoples) stated that the law “represents an important step forward for indigenous peoples’ rights in the country and elsewhere in the Latin American region.” At the same, numerous actors have highlighted the importance of ensuring that the law moves beyond paper. In order to promote adequate implementation of the law, the Peruvian government will need to develop clear administrative procedures and rules, including, for example, guidelines to ensure that consultations include adequate indigenous representation. The government should also prioritize capacity building within the relatively new Ministry of Culture (established July 2010), which will be responsible for implementing consultations.

Oil and mining companies and investors should also be excited about this law. Pedro Martinez, president of Peru’s national mining society, expressed support for the law, while also highlighting the need for effective regulation: “We believe that with this law we can narrow the distances and move towards a true culture of dialogue with the communities, but the regulations will need to be approached with care.” His positive reaction is no surprise given that for the private sector, effective consultation is a bottom-line issue and promotes responsible spending. When communities are unhappy about a particular project and begin protesting (for example, by blocking off roads or shutting down production facilities), projects becomes riskier. That was the case for Newmont’s Yanacocha Mine in northern Peru. When the company decided to expand the mine without consulting the community, thousands of people staged demonstrations and blocked access to the mine for two weeks. During those two weeks, the company’s stock price fell 7 percent, a loss of more than $1 billion in shareholder value, according to calculations made by Oxfam.

By signing the Consultation Law, President Humala would be giving indigenous peoples a voice in the decision-making process around the use of their lands and livelihoods, and at the same time helping to reduce social conflict around extractive projects. Hopefully other countries will soon follow suit. Oxfam America – through our Right to Know, Right to Decide campaign – works to promote the right of communities in Peru and globally to Free Prior and Informed Consent. For more information, please visit our campaign website.