New Internationalist

Rtz And The Red Mountain

Issue 99

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CENTRAL AMERICA [image, unknown]

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RTZ and the Red Mountain
All over Central America foreign companies have put investment plans on the back burner. All except Panama where American involvement with the famous Canal helps calm jittery corporate executives. Robert Carty examines the plans of the British mining giant Rio Tinto Zinc to open a $2 billion copper mine in the small isthmus nation.

As a measure of political climate, few barometers are as reliable as the movement of private capital. And in most of Central America capital is running scared.

Foreign investors won't go near El Salvador for fear of the looming insurrection the military regime is sustained only by massive injections of aid from a belligerant but faithful US administration. The flight of capital from neighbouring Guatemala mirrors that country's deepening political crisis while adjacent Honduras is unable to attract more than a trickle of foreign investment. International companies are adopting a wait-and-see attitude towards Costa Rica as it turns to the International Monetary Fund for financial relief. In Nicaragua, foreign capital is slow to accept the Sandinista government's commitment to a mixed economy.

The exception it seems is Panama. While multinational corporations view most of Central America with paranoia, Panama is emerging as their favoured protege. The 'bridge of the Americas' has long been the site of most Central American foreign investments, but multinationals blacklisted it throughout the 70s until the 1979 signing of the new Panama Canal Treaties.

The Treaties suddenly signalled stability and, in the words of a grouping of prominent European banks, 'fuelled private investors confidence and expectations.' Now Panama is the focus of investment planning of immense proportions.

The country's off-shore banking centre is expanding at a gallop - 108 international banks currently use Panamanian offices as fronts for over $40 billion in assets. A quarter-billion dollars is being spent to construct a trans-isthmus oil pipeline to carry Alaskan crude to eastern US refineries. Japanese investors are discussing the possibility of building a new multi-billion dollar, sea-level canal to speed delivery of strategic raw materials to their resource-poor country.

But the single largest industrial project currently being developed in Panama is the Cerro Colorado copper mine. Cerro Colorado is a $2 billion mega-project. It unites a British multinational corporation, Canadian government financing, and the Panamanian state in a venture to exploit one of the world's largest copper deposits to serve Western European and Japanese markets. It also brings together some of the classic problems of resource-dependent development for small Third World countries.

Cerro Colorado, the 'red mountain', straddles the continental divide in Panama's western province of Chiriqui. First discovered in 1932, the deposit has only beenunder active development for the past ten years.

In May 1980, Panama selected the British-based mining conglomerate, Rio Tinto Zinc (RTZ), to replace previous investor Texas gulf Inc. and take up a 49 per cent shareholding in Cerro Colorado. RTZ is a worldclass, multinational firm - the sixth largest corporation in the UK (ranked by assets) and the largest, diversified private mining company in the world - with a propensity for attracting controversy wherever it operates.

In Namibia, it is extracting uranium in partnership with the South African government and in controvention of United Nations decrees. In Australia, it is charged with destroying aboriginal cultures. In Canada, miners claim that working conditions at the company's Elliot Lake uranium mines have caused cancer-related deaths. In Papua New Guinea, RTZ's copper mine has provoked the ire of the local government and bitter trade union disputes. Despite its reputation, however, Panama regards Rio Tinto-Zinc as a reputable mining enterprise with the ability to carry off the Cerro Colorado project.

A Panacea for Panama
Panamanian authorities are more than eager to get the project underway. The government sees Cerro Colorado as a prestige venture which will diversify its economy from dependence on service industries and commerce with the United States. At the same time the mine is supposed to boost foreign exchange earnings, employment and tax revenues.

The copper mine also has the personal backing of General Omar Torrijos, the former Head of State, now leader of the National Guard - and clearly the man-behind-the throne of the current civilian administration. Torrijos believes that Panama's mining potential is 'far more significant than the Canal' and he's staking his future comeback in Panamanian politics on the success of the venture.

But is Cerro Colorado really a panacea for Panama? In selecting RTZ, Panama has locked itself into a relationship for perhaps 50 years. In such a relationship the host government - nominally the majority shareholder and the owner of the resource - is the weaker partner. The group sales of Rio Tinto Zinc are one-and-a-half times greater than Panama's Gross Domestic Product and its pre-tax profits almost equal Panama's total central government spending.

As the project administrator, RTZ has a virtual veto over important decisions concerning the mine's operations. The foreign firm has the right to prepare technical studies on the project in English only - a measure which directly limits Panamanian participation (either in the project or in opposition to it) and insults the country's nationalist pride. And while Panama has no guarantee that it will earn profits from the mine, RTZ is assured a regular income from fees for its administrative role.

Panama's supposed benefits are restricted by the very nature of the scheme. Of the five essential elements required for developing a world-scale copper mine - capital, technology, management, markets and labour - Panama possesses only labour. But Cerro Colorado's permanent workforce will number just 2,300 - barely enough to dent the country's unofficial 30 per cent unemployment rate. The cost of such employment generation - almost a million dollars per permanent job - is extremely expensive when compared to the estimated $15,000 cost of creating permanent jobs in manufacturing.

Nor will the project significantly stimulate other sectors of the national economy. The total investment cost of $2-billion is equivalent to Panama's 1976 Gross Domestic Product. But because most of the materials required to build the mine (machinery, building materials, engineering services) will have to be imported and since all of its output will be exported (without further processing) Cerro Colorado will generate nation-wide inflation and not help create new, self-sustaining industries. Like the country's banana plantations, Cerro Colorado will be an 'enclave' economy.

Drastic transformation
Against this ledger of questionable benefits the risks involved in the project loom large. Foreign borrowing (over $1 billion has been offered by the Canadian government's Export Development Corporation) will increase Panama's foreign debt by an additional two-thirds.

The country will also become dependent on one of the most volatile commodities on international markets. Should the price of copper continue its wild historical fluctuations, or should the mine encounter operating difficulties, the weight of the project's debt could fall on the shoulders of the ordinary taxpayer. The result could be less investment in education, health and jobs.

Like the building of the Panama Canal at the turn of the century, the Cerro Colorado development will dramatically transform the nation. But the most immediate and brutal impact will be absorbed by the Guaymi Indians who live in the eastern zone of Chiriqui province.

An estimated 70,000 Guaymies live in western Panama subsisting on communal agricultural production and occasional wage labour on nearby coffee and banana plantations. Poverty, malnutrition and illiteracy are widespread. They have never known the kind of high-technology industrial development which is about to invade their traditional territory.

An estimated 7,000 Guaymies will be directly affected by the copper mine and smelter. Although, as the local Bishop, Daniel Nunez points out, the wider impact of the project 'is of such a magnitude that there are those who speak of the extinction of the Guaymi people.' Specific concerns include:

The loss of indigenous lands and the lack of an established relocation and compensation plan.

• The potential destruction of Guaymi social organization which is based on the land, extended families and co-operative village communities.

• The hazards of respiratory diseases caused by mine dust and the contamination of rivers and water supplies by mine wastes.

• The fact that Cerro Colorado will provide few, mostly unskilled, jobs for the Guaymi.

• The spread of alcoholism and prostitution as a consequence of locating thousands of construction workers near Indian communities.

Understandably, the Guaymi are united against the project. Indian leaders have demanded the project be halted until the government recognizes their land rights through the passage of a law establishing the Guaymi 'Comarca' (reserve). If Indian land rights are not secured, they insist, 'the plunder of the land will continue unpunished and the gradual destruction of our people continue. Today, the Comarca is a question of life and death.'

But the primary interests of these international investors is not the welfare of indigenous peoples. For Rio Tinto Zinc, Panama is a source of strategic supplies of copper for UK, Western European and Japanese markets. For Canada's Export Development Corporation, Cerro Colorado is an opportunity to subsidize exports of Canadian mining machinery. Both view Panama as one of the most stable countries in all of Latin America.

Politically, Panama's long-term stability is insured by the presence of US troops and bases which keep the country under the US military umbrella. Even after the Canal's administration is transferred to Panamanians in the year 2000, the US retains the right to protect its strategic interests by measures up to and including military intervention. The deeper Panama submerges itself in large scale foreign-run projects like Cerro Colorado, the sea-level canal and the banking centre, the more secure each investment becomes. If only because the country is more closely bound by dependent development.

In backing Cerro Colorado, Panama may be opting for more than a copper mine. It will be opting for a model of development which will eventually jeopardize its own sovereignty.

Robert Carty is a Canadian journalist and member of the Latin American Working Group.


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