- In the Andean countries responsibility for the provision of key public services has been transferred to local institutions. However, national governments still exert control over strategic assets such as natural resources, with national and regional interests sometimes clashing.
- In Peru, local politicians have used these powers to obtain forest concessions or collude with individuals operating within the informal economy.
- Despite gaining more power, local authorities in Peru continue to experience difficulties in limiting wildcat mining in the state of Madre de Dios.
The Andean nations are unitary republics by history and constitution. Consequently, the push to devolve power to lower jurisdictions is less obvious and its degree of implementation variable. Over the last several decades, Andean countries have, at different times and with different levels of determination, organized efforts to decentralize decision-making and the state’s administrative functions. These reforms have profoundly changed the nature of governance, because they have transferred responsibility for providing key public services to local institutions answerable to individuals elected by their neighbors.
Peru started its decentralization process in 2002, when constitutional and legal reforms enacted after the collapse of the Fujimori government led to the first local elections in the nation’s history. The transfer of administrative responsibility was matched by revenues that were earmarked for social programmes, such as teacher salaries and healthcare centers. By 2016, about 8% of GDP and 50% of total government expenditures were executed by regional and local governments, an increase of more than 100% compared to 2002. Most revenues are now distributed according to population; consequently, benefits have accrued to urban areas on the coast and the mid-sized cities in the highlands, with one notable exception: revenues from the exploitation of natural resources.
Peru’s economy is highly dependent on mining and hydrocarbons, and the political reforms of the early 2000s included a revenue-sharing mechanism that is among the most generous in the world. Known as the canon, it refers to a series of rules for collection of taxes, fees and royalties generated by five natural resources (minerals, hydropower, natural gas, fisheries and forests), which distribute the revenues among the three levels of government (region, province and district). In the last decade, tens of billions of dollars have been transferred to local and regional governments with large-scale mines or gas or oil fields. Under the rules governing the distribution of the canon, revenues are shared among all the districts within a region, not just the specific district where the resource is exploited. Nonetheless, there are still massive inequalities, and some districts without an extractive industry receive nothing.
The legislation specifies that the bulk of canon money can be spent only on physical infrastructure, such as roads or buildings; for example, funds can be expended to build schools but not to train teachers or pay their salaries. Canon flows tend to encourage corruption, because construction contracts are a magnet for bribery, particularly in jurisdictions with little or no oversight. Even if corruption were not an issue, many local governments would still have difficulty spending the amounts at their disposal.
Conspicuously absent from all government reports are statistics on the source, amount and use of funds from the Canon Forestal. Although small compared to revenue from mining, potential royalties from timber would represent important revenues for the remote districts where most logging takes place. A recent study estimates that the upstream timber sector generated approximately US$ 350 million annually and approximately three times that amount if the post-sawmill portion of the supply chain were considered. Taxes and royalties would vary depending on species and cost considerations, but the distributable canon would probably be in excess of US$ 50 million, a significant amount of money for remote forest communities.
Another problematic power that has been decentralized is the administrative authority over land use and forest management, which was transferred in 2010 to regional governments, which now authorize forest concessions and approve management plans. Their responsibilities include monitoring compliance with national forest policy, which is set by the central government, and authorization of deforestation when appropriate. They do not, however, appear to collect any taxes or royalty payments. The total absence of data from the Finance Ministry is most likely a sign that they are not being collected, or at least transferred to the national treasury for distribution via the canon system.
Local politicians have used these powers to obtain forest concessions or collude with individuals operating within the informal economy. For example, a prominent politician in Ucayali, who was also the legal representative of a logging company, was accused of laundering five million cubic metres of illegal timber stolen from an Indigenous community by reporting it as timber harvested from his concessions, which were apparently unexploited. The national regulatory agency (OSINFOR) discovered the fraud, rescinded the concessions and fined the company US$ 80,000; however, the company appealed the decision in a court seated in Pucallpa, where the judge dismissed the fine and returned the concession.
Recent changes in the Forest and Wildlife Law in Peru have transformed the regulatory framework that governs land use and forest management in the Peruvian Amazon. The most significant change was the transfer of the regulatory power governing forest zonification from the Ministry of the Environment and Climate Change (MINAM) to the Ministry of Agriculture and Irrigation (MINAGRI). The previous version (Ley 29763 of 2011) gave this power to AlterA after receiving input from SERFOR, a technical agency within MINAGRI, while the revised law (Ley 31973 of 2024) reverses those responsibilities. In addition, the revised law pardons past illegal deforestation by smallholders and delegates the issuance of future land use permits to regional authorities. Environmental and social advocates warn these changes will increase deforestation and threaten Indigenous rights, because it transfers responsibility from an institution that prioritizes forest conservation to one with a long history of agricultural development.
Collusion between local business interests and government functionaries was behind the irregular sale of thousands of hectares of public forests to foreign investors between 2010 and 2019. The malfeasance first came to public attention when two industrial-scale oil palm plantation companies (Plantaciones de Pucallpa and Plantaciones de Ucayali) cleared land to establish 11,000 hectares (27,182 acres) of oil palm on land claimed by the Shipibo-Konibo Indigenous community of Santa Clara de Uchunya. The scheme involved fraudulent title documents for 180 small landholdings issued by local authorities in the name of third parties (friends and families), which were sold to an intermediary on behalf of a Czech-American palm oil entrepreneur who also had holdings in Malaysia (Dennis Melka). The same entrepreneur was involved in a separate scheme with another corporate subsidiary (Cacao del Perú Norte) that led to the deforestation of 2,500 hectares (6,178 acres) near Iquitos, allegedly coordinated with the governor of Loreto (Fernando Meléndez) and the director of the Autoridad Regional Ambiental de Loreto (Juan Carlos Vilca Tello), who allowed the company to continue working after a court had ordered a cessation of operations.
Subsequently, a similar type of land fraud was uncovered by investigative journalists, involving a scheme to sell land to Mennonite colonists in the districts of Masisea (Ucayali), Padre Márquez (Ucayali) and Tierra Blanca (Loreto).
These fraudulent transactions are particularly worrisome because Mennonites have a long history of migration, colonization and deforestation, and their establishment on a forest frontier heralds a new deforestation hotspot. The lands sold to them have been claimed by Shipibo-Konibo or Ribereño families, but have not been formally recognized by the national land tenure certification system.
Another unfortunate outcome of decentralization is the laxity of the environmental review process, particularly as it pertains to the wildcat mining sector. Peru’s Sistema Nacional de Evaluación de Impacto Ambiental (SEIA) delegates many responsibilities to regional and local authorities, which in the case of small mining operations are the technical offices of the regional governments. The regional government of Madre de Dios lacks the budget, technical capacity and security forces to confront thousands of miners, many of whom are armed for self-protection. In 2018, the governor of Madre de Dios appealed to the president for assistance, including a change in national mining regulations and support from the armed forces. That eventually led to the creation of a task force, which has reduced incursions into the region’s protected areas, but the mining sector continues to expand and has occupied most of the floodplain of the Madre de Dios River between Manu National Park and Biosphere Reserve and the city of Puerto Maldonado.
Colombia has an unusual form of decentralization that segregates the administrative functions of subnational jurisdictions into two parallel systems. The larger is the traditional political scheme composed of departments and municipalities, each of which has specific responsibilities and revenues. Education, health, sanitation and infrastructure are the domain of these entities, which are funded from a fairly typical mix of revenue transfers and jurisdictional taxes and fees. The smaller system consists of Corporaciones Autónomas Regionales (CARS), public entities organised around watersheds. These are essentially regional environmental authorities that are governed by the Ley General Ambiental of 1993. The term ‘autonomous’ refers to their independence from regional (departmental) entities; the CARS sometimes, but not always, overlap with political jurisdictions. They are quasi-subsidiary agencies of the Ministry of the Environment and are governed by an ‘assembly’ of multiple stakeholders.
The CARS are responsible for developing and implementing ‘policies, plans and programs’ related to natural resource management, as well as participating in the strategic planning process of the political jurisdictions and leading land-use planning within the corporation’s boundaries. They have important regulatory functions, including the authority to grant concessions for the use of renewable natural resources, including forests, surface and groundwater, and wildlife, as well as to establish emission standards for potentially harmful substances. Finally, the CARS supervise and approve environmental impact studies and monitor activities related to the exploitation of non-renewable natural resources.
There are several legal and administrative firewalls between the CARS and the regional governments that are meant to avoid, or at least minimise, conflicts of interest and nepotism. The Colombian state has also created a fiscal system to ensure that the CARS are financially independent from their partner entities. The CARS are endowed with specific revenue sources, including a rural property tax, hydropower royalties, water-use fees and fines paid by polluters. This system is unique to Colombia and represents an important innovation in environmental governance. It essentially takes the concepts of the SEA process and institutionalizes them via a permanent planning process organized horizontally across an ecoregion or watershed. The CARS also enjoy substantive legal authority over the EIA review and licensing process, and they create formal institutional linkages to national and regional authorities.
Bolivia’s experience with decentralization is radically different from that of other Andean countries because it is associated with a demand for regional autonomy. Autonomy is distinct from decentralization, because it assumes the right to determine policy independently of the central government. In contrast, decentralization tends to be an administrative process where policy is formulated at the national level but executed locally. The demand for autonomy in Bolivia originated from lowland (Amazonian) provinces dissatisfied with the political and economic domination of the Andean elites.
The movement for autonomy started in the 1930s, when Santa Cruz, then Bolivia’s principal oil and gas producer, negotiated a revenue-sharing agreement that allocated eleven per cent of hydrocarbon revenues for regional development. This agreement, however, was not implemented until 1958, when a civil protest forced the central government to fund a locally controlled institution dedicated to infrastructure. These resources catalyzed a development boom that was further fuelled by the central government’s development policies in the 1960s and 1970s. The city of Santa Cruz de la Sierra grew from 70,000 inhabitants in 1970 to a metropolis of more than two million people by 2024. During the interim, Bolivia’s political evolution proceeded through military regimes and a democratic consolidation, which gave rise to a decentralization process that began in 1992. The Ley de Participación Popular established municipalities as the focal point for democratic reform by mandating the direct election of mayors and city councils, while transferring twenty per cent of revenues from a nationwide value-added tax.
Regional autonomy became associated with departmental political movements that gained strength in the last decade of the nineteenth century; unfortunately, these were fuelled by long-simmering animosity between highland and lowland populations. Part of the discord can be attributed to distinct cultural traditions, but it was also driven by different economic models, with Andean elites preferring statist models, while Cruceño elites embraced private enterprise. The acrimony was aggravated by the mass migration of highland peasants and the subsequent colonization of tropical forest landscapes.
The quest for autonomy became enmeshed in the populist revolt of Indigenous groups that led to the election of Evo Morales, who campaigned on a platform opposing both private enterprise and regional autonomy. Although Morales won the national election, the autonomists prevailed in referendums in five of nine departments. A series of compromises led to the direct election of governors and departmental legislatures in 2010 and a fiscal regime that shared the revenues from a hydrocarbon tax. Unlike the pre-existing royalty regime, the revenue-sharing mechanism ensured that non-hydrocarbon producing regions also received benefits from the exploitation of a national resource. The combination of oil royalties, revenue sharing and the solidarity surtax has created a decentralized state in which about 11 % of GDP is executed by local and regional jurisdictions, accounting for about 30 % of all government expenditures.
The parallel processes of autonomy and decentralization continue to evolve in Bolivia, along with countervailing efforts to centralize power by a government with autocratic tendencies. The national government has maintained control over most of the country’s natural resources, including access to public lands, which it uses to benefit a core constituency: rural migrants from the Andean highlands. These people originally referred to themselves as colonizadores, but they now favor the term Interculturales, to avoid the negative perception linked to the global legacy of colonialism. The autonomist block continues to dominate the regional government of Santa Cruz, which it has used to protect the interests of landowners and agribusiness. The competition for land is a significant driver of Bolivia’s high deforestation rate, which is the second-highest in the Pan Amazon, just behind Pará, with a mean deforestation rate of about 450,000 hectares (1.11 million acres) per year.
Ecuador is a relative latecomer to decentralization. Following a series of half-hearted initiatives in the early part of the twenty-first century, the government of Rafael Correa launched an ambitious government reorganization that was formalized by the 2008 Constitution and codified by law in 2010. This system, which is still evolving, foresees a jurisdictional structure of four nested subnational entities: Regiones, Provincias, Cantones and Parroquias. The central government maintains ownership of strategic assets (minerals, oil and gas, water resources, biodiversity), but certain large-scale planning and investment decisions are delegated to lower jurisdictions (e.g., watershed management, irrigation and regional road networks). The delivery of key services is to be managed by the Cantón (potable water, waste management and urban cadasters), with limited responsibilities delegated to local communities (maintaining public properties, presumably schools and clinics). The budget is financed by revenue transfers amounting to approximately 21 per cent of the national budget: 27 per cent for regional governments, 67 per cent for provinces and cantons and six per cent for local communities.
Parallel to this jurisdictional system of administrative decentralization, a pre-existing geographic regionalization has long influenced budgets and programmes. There are four major regions: Costa, Sierra, Oriente and Galápagos that are united by cultural traditions, ecology and economic production systems. The Oriente is synonymous with the Amazon, which is recognized within the 2008 Constitution as a strategic region.
Starting in the 1990s, the Ecuadorian Amazon was the recipient of a modest royalty fee (US$ 0.50 per barrel) for oil extracted from both private and state-owned reserves, which were deposited into the Fondo de Ecodesarrollo Regional Amazónico (ECORAE) and distributed to provinces (28%), cantones (58%) and parroquias (6%), as well as a quasi-autonomous entity spanning political jurisdictions, the Instituto para el Ecodesarrollo Regional Amazónico (8%). That financial system was dissolved in 2018 and replaced by the Fondo Común para la Circunscripción Territorial Especial Amazónica, which continues to receive the funds mandated by the hydrocarbon law, as well as additional revenues from oil production (2% surtax on profits), the mining sector (60% of royalties and 12% surtax on profits) and state-owned hydropower plants (30% surtax on profits).
Between 2019 and 2023, the Fondo Común Amazónico approved 297 projects (out of 926 submitted) for a total of US$ 491 million, of which the overwhelming majority are investments in infrastructure for basic services, particularly water treatment, waste management, health and education, followed by transportation infrastructure and flood control. The fund provided only limited support to ‘productive enterprises,’ mainly extension support for cattle, cacao and coffee producers, as well as for commerce-related infrastructure, such as local markets and logistical centres. There have been no (apparent) investments in non-conventional forms of biocommerce, except for nine tourism projects, including two marketed as community-based tourism.
Banner image: Illegal and unregulated gold mining in the La Pampa area near Puerto Maldonado, Peru. Image courtesy Jason Houston/Upper Amazon Conservancy.
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