Downtown in The Lost Cities of the Amazon

This article first appeared in March of 2012, in Spanish in Caretas and in English in the Andean Air Mail & PERUVIAN TIMES.
By Nicholas Asheshov
Some weeks ago two events, one of them startling, came together to pin-point the mysterious new conundrum of the Amazon.

The first was the appearance on a busy riverbank in the Madre de Dios of a few dozen members of a previously-isolated group of Indians. They killed someone who had been trying to help them.

The naked Indians, seen on TV screens around the world, were described by anthropologists as descendants of an unbroken line of hunting and gathering savages, living fossils of our neolithic past.

This is, according to new Amazon thinking, incorrect. These Indians are the sad, socially degenerated remnants of nations and tribes that were productive, sophisticated and stable just a few centuries ago.

The other event was an article in The New York Times that reported on the discovery in Acre, only a few hours travel from the Madre de Dios Indians, of extensive, deep straight, or sometimes circular, trenches, ridges and mounds dating back to pre-Columbian times, indicating a large, well-developed society.

This was just the latest evidence that the Amazon, or at least parts of it, was heavily populated by well-organized societies in much the same way as the high Andes were remodelled by the Tiahuanuco, the Chavin, the Chachapoyas, the Huari, and the Incas.

Over the past couple of decades the pre-history of the Americas has been revolutionized, setting off poison-tipped academic and ecological vendettas.

First of all, the Americas were populated much earlier, at least 33-35,000 years ago, double the time previously calculated. That is back to Neanderthal epochs.

Second, there were many more people here when Columbus arrived than was earlier thought. And, most important, the societies and nations of the Americas were much more sophisticated and structured than was previously understood. They were agriculturalists, not the war-whoopers of the movies. Their mode of life and agriculture had massive, long-term effects on the original pre-human forests. Fire was a basic control mechanism.

Today the evidence of genetics, linguistics and archaeology is clear that the Amazon was not just an impenetrable green hell populated by primitive hunters and fishermen eking out an unchanging, culturally marginal existence.

The same applies to North America. Here most of the descriptions of primitive Indians come from 18th and 19th century travelers who were seeing only the sorry leftovers of great nations that had been obliterated by smallpox, viral hepatitis, influenza and other European and African diseases. The Conquest set off the Dark Ages in the Americas.

In the Amazon the same collapse, featuring malaria and yellow fever, was exacerbated by the rubber boom of the late-1800s and early-1900s.

You can check this out in three fine recent books. Two of these are Charles C Mann’s easy-to-read, well-researched 1491 and a sequel, 1493, just out; and in John Hemming’s Tree of Rivers, a masterly description of the Amazon. Hemming, author of the classic The Conquest of the Incas has also written, earlier, three volumes on the peoples of the Amazon.

Charles Mann describes, for instance, how my old friend William Denevan, Professor Emeritus of Geography at the University of Wisconsin, discovered how the Beni, on the edge of the western Amazon in Bolivia, was a flourishing, well-organized center of islands and causeways on what is today a bleak, sparsely-inhabited combination of dense jungle and flood-plain, inhabited today by sad remnants of Siriono Indians.

Bill worked on the Peruvian Times just before me in the 1960s and his stories on the Beni and similar mounds and trenches around Lake Titicaca in the PT were the first indication of this revolution in South American prehistory.

“Beginning as much as three thousand years ago, this long-ago society,” Mann writes, “created one of the largest, strangest, and most ecologically rich artificial environments on the planet.”

Great stuff.

Mann describes the Amazon as one of the world’s half-dozen agricultural heartlands, where plants were domesticated, the epicenters of civilization. Others were the tropical Andes, Central America, the Fertile Crescent, and China.

The Amazon, including the area where the savage Indians appeared the other day, just north and west of the Beni, was the source of yuca, known elsewhere as manioc or cassava, as well as tobacco, peanuts chili pepper, chocolate, Brazilian broad beans, the peach palm, and Brazil nuts.

It was also the homeland of Hevea Brasiliensis, the rubber tree, which was to be, along with steel and oil, one of the three creators of the 20th century version of civilization.

For the Amazon, including the Indians on the banks the other day of the Madre de Dios, rubber became a disaster, just as gold and silver had been for Peru and Mexico. The malaria and yellow fever, imports from Africa, that it helped to spread turned the Amazon and its western tributaries into what Charles Mann calls “depopulated fever valleys.” Slavery did the rest.

The Amazon as a center of civilization has become the subject of a bitter dispute between two magnificent lady academics, the archaeologists Betty Meggers of the Smithsonian Institution and Anna Roosevelt of the University of Illinois.

Hemming mentions the two warring camps on the issue of whether or not there were tribes with sophisticated, stable, large populations: Dr Meggers says that the Amazon basically had only hunters+gatherers; Dr. Roosevelt says that there were big lively societies all over the place.

Here is a message to me the other day from John Hemming and you will find nowhere else a more precise and appropriately colorful description of the state of play today in Amazon studies.

Broadly, I think that Anna (and her acolytes like Michael Heckenberger) are right to say that there were large chiefdoms on some riverbanks of the main Amazon and its tributaries (although there were also very long stretches of uninhabited river). Those chiefdoms were based on the river and its fish and turtle resources. 

But I think that the Roosevelt school exaggerates the size and sophistication of their beloved chiefdoms, which they compare to the great civilizations of Peru.

They also exaggerate the extent of human manipulation of forests. Remember that it was very laborious indeed for early man to fell trees (other than palms) with their stone axes. And they had no need or desire to do so: they were very happy in pristine forests full of game. Planting the trees they liked near their villages was merely rearranging the deckchairs. It did not alter the Amazon landscape.

Meggers is right about the inability of Amazon terra-firma forest to support villages of more than a thousand people maximum – the surrounding game is exhausted otherwise, and the soils under mature forests are too weak to sustain large-scale farming. So, away from the rivers, early tribes were not much larger than their modern descendants at the time of first contact and before being hit by imported disease.

For many years, John was Secretary of the Royal Geographical Society, London, and we can all understand what he means by “rearranging the deckchairs.”

But not everyone agrees. Charles Mann in his just-published 1493, calls the Amazon “the world’s richest garden,” quoting archeobiologists and looking at parts of the Amazon today that are carefully-distributed and well-tended collections of trees, plants and fish and game reserves.

Today there are tourists but it can still be a tough place. Near the Acre ruins noted in The New York Times, settlers are still gunned down by big-money ranchers. I remember John telling me of the day in 1961 when he carried the arrow-filled body of his friend Richard Mason back to camp. A decade later, in 1970, I myself was searching the jungles of the Pantiacolla in the Upper Madre de Dios for my friend Robert Nichols, chief reporter of the Peruvian Times of which I was then the editor, who had set out to find Paititi, a version of El Dorado. It transpired that he, and two French companions, had been stoned to death by the Machiguengas.

Unlike John, I am not prejudiced by knowing what I am talking about and I unreservedly plump for the Roosevelt school’s bumptious Amazonian super-civilizations and I am supported by no less than Brad Pitt and Angelina Jolie. Their latest movie, due out this year, is The Lost City of Z, where Brad plays Colonel Percy Fawcett, the English explorer, searching in 1925 for El Dorado in the Amazon. Let’s hope that Brad has better luck than Percy, who never returned.

————–

Notes.
Colonel Percy Fawcett said: “The answer to the enigma of Ancient South America – and perhaps that of the entire prehistoric world – will be found when the old South American cities are located and opened up to scientific research. These cities exist, and I will prove that they exist.”
————-
Tony Morrison, the wildlife photographer and author, on a recent trip to the Beni:
“Setting out from Trinidad in the Beni we hopped on a 35b bus in the plaza and headed to the great mound at Eviata where the entire village is built above the floodplain. I went there to see the last of the Siriono tribe, as they have a base around the old mission church. What a bedraggled lot they were and the mound is now topped by a huge ENTEL satellite dish — not a bad place to site it as it should be above the annual flood.”
——
Vera Tulyneva charlie.quispe@yahoo.com . Ms Tulyneva is completing a thesis on “Paititi” at the Universidad Catolica, Lima. Commenting on The New York Times story on ancient remains in the Acre:

“The earth constructions of Acre have been in the news for the past five years. The first one to speak of them was Martti Pärssinen, an historian from Finland who had been working in the region for many years. In fact, they are not “geoglyphs,” i.e. earth figurative drawings of apparent religious/ritual function, but rather utilitarian earthworks, like drainage trenches. Acre, Mojos, Beni, Xingu and many other Amazonic regions are full of them.”
————–
Michael Heckenberger website on Xingu: The Xingu Ethnoarchaeological Project
————–
An article on Acre: Pre-columbian geometric earthworks
and Geometric Earthworks in the Upper Purus

————–
The New York Times: The Nazca Lines of the Acre jungle – Land Carvings Attest to Lost World
______________________________________

Nick Asheshov is a veteran journalist, noted explorer and entrepreneur. He was editor of the Peruvian times from 1969 to 1990.

——————————————————————

In response to this article, Dr. Jennifer Watling responded: (See her paper on the subject: Watling et al 2017 + SI)

For you to state the following: ‘These Indians are the sad, socially degenerated remnants of nations and tribes that were productive, sophisticated and stable just a few centuries ago’ for me shows a great disrespect and lack of knowledge about indigenous Amazonians and their ancestors, I’m afraid.

Best,

Jenny

Dr. Jennifer Watling
Post-doctorate Fellow,
Laboratório de Arqueologia dos Trópicos, Museu de Arqueologia e Etnologia,
Laboratório de Micropaleontologia, Instituto de Geosciências,
Universidade de São Paulo
https://www.researchgate.net/profile/Jennifer_Watling2/info

Chinchero — Lost in the Clouds of Poor Engineering, Bad Finance

By Nicholas Asheshov ✐

It seems President Kuczynski is to lay the First Stone of the new Chinchero Airport in Cusco this coming week. If so, it will be the third first stone for this sad project. Presidents Toledo and Garcia have preceded him. Some locals say Presidents Belaunde and Fujimori were others. We have to hope President PPK’s stone suffers the same fate. Chinchero is a disaster waiting to happen.

This week top regulatory officials in Lima resigned in protest at the illegal contracts for the financing for Chinchero. But crooked finance contracts are the least of of what has always been a rotten project.

The Cusco city fathers say they need a new airport. This is incorrect. Their object is to grab the valuable building land of the present airport. But even if Cusco needs  a new airport, Chinchero is easily the worst of the alternatives. The Pampa de Anta, nearby, is incomparably better. Anta is dramatically lower in height and is already runway flat.

Chinchero is outside Cusco  at an oxygen-less 500ms higher, on the road to Machu Picchu.

It started off, as these projects do, with funny money. Four years ago the Cusco Regional Government, run then by ‘Humala associate Jorge Coco’ Acurio, paid $70 million for a 330-hectare string of potato fields on the rolling, cold, cloudy massif of Chinchero.

The lucky owners of the fields were the 426 members of a couple of Chinchero’s comunidades. They received $230,000 for each hectare, making them by far the most expensive potato fields in the world. You can buy a hectare of potato field in Idaho, the world’s biggest potato region, for $5,000 per hectare. In expensive southern England, in Devon and Somerset for instance, the same potato field might cost GBP 10,000, one-twentieth of the Acurio Chinchero price.

The Chinchero potato fields are good for potatoes, beans, a couple of sheep and a burro.  They make a lousy airport. Difficult in fact to find a worse location. The average height of this ancient farmland is 3,700 m.a.s.l. The only commercial airport in the world that is higher is El Alto, at 4,000 m.a.s.l., the airport for La Paz. El Alto can be used only for local one-hour , max 90-minute hops down to Cochabamba and Tarija and Santa Cruz. Arica is a ski-jump away, Lima a hop up the coast. But that’s it. El Alto never will be commercial because planes cannot take off at these altitudes with a full load of fuel and passengers.  You can have either a full tank and just a few tourists or lots of tourists and a few gallons of fuel, enough to get down the hill. In the case of Chinchero, that means Lima. As Newton said, apples fall down for free. Bolivia’s international airport is at Santa Cruz at 400 m.a.s.l. Passengers to and from La Paz to Rio, Buenos Aires, Miami and even Lima go via Santa Cruz. Check the timetables.

It will be the same for Chinchero. The bureaucrats and politicians in Cusco and in Lima, at ProInversion and the Ministry of Transport, have taken to calling it the ‘International’ Cusco airport. This is a lie propagated by the under-funded concessionaire, Kunturwasi.  Flights between Chinchero, if this idiot, foggy project goes ahead, will continue to go via Lima, as they do today and till the next century. With one difference. The tickets will cost $300 more than they do today.

Fog, hailstorms, normal in high mountains, add to the Chinchero danger. The glaciers and snowfields of the Cordillera Urubamba, at 6,000 m.a.s.l., loom over Chinchero. They are just a few miles to the north of the Chinchero potato fields. Picturesque, dramatic. Dangerous.

Technological advances in aviation are focused on electronics and nano materials. But Newtonian physics will not change, whatever the Cusqueño powerbrokers seem to think.

It could not get worse? Yes, it does.

The Chinchero massif is a limestone base. For engineers, this means sinkholes. For instance, the Inca terraces at Moray close to Chinchero at the same height, are sinkholes.  The Chinchero lakes of Piuray and Huaypo reflect the same geology. Engineering studies reflect no deep drilling to assess this risk. A 200-ton airliner will one day  land at Chinchero and open a massive instant hole. Not good.

Cusco road, sewage and electricity services are already pathetic. There’s talk, but no plans exist for new transport between Chinchero and Cuzco, nor Urubamba. Power cuts are almost daily in Urubamba, the province in which poor Chinchero is located, thanks to state-owned Electro Sur Este.

What to do with the 7 million tourists a year promised by President Kuczynski?  Machu Picchu is already at a standing-room-only 5,000, sometimes 7,000 visitors a day. A study commissioned by the government says the max daily entry cannot pass 5,400/day. Call it 2 million per year.

Cuzco thinks, says, it needs a new airport. The present one, Velasco Astete is at 3,250 m.a.s.l., 500ms lower than Chinchero, which is a big difference at these delicate heights.  Velasco Astete, run and owned by Corpac, the government airport authority, consists of 240 hectares of good flat land which could easily and cheaply have its runways extended and expanded, with new terminals and, above all, new electronics. The A219 and A320 used by Latam and Avianca can fly in on self-drive computers as they do routinely, of course, in Europe and North America where the weather, though for sure not the height, is much worse than Cusco ever is.

But the Cusco shakers, the chambers of commerce and the local politicos have other plans for Velasco Astete’s 240 hectares of land, which is only a few minutes from downtown. As building land it is worth already today $1,000/m2, $2,000/m2 before the end of the decade. Use your own fingers to work out how much this free gift of land will be worth to the imperial city’s top dogs.

In theory, the central government (all Peruvians) is owner of the land,  and indeed this is how it should be. But, no, the Cusqueños have already bought it. Under a quiet agreement with former President Humala, the $70mn it paid the Chinchero comuneros is being handed over to the central government in exchange for the 240 Corpac hectares of Velasco Astete.  Acurio was later thrown out of the regional president job by the Cusco Supreme Court for one of several instances of corruption. Acurio is one of the Humala-Heredia team being investigated by state prosecutors for corruption linked to the jailed Mr. Belaunde Lossio for thousands of millions of dollars in state construction contracts.

So Chinchero is shrouded in big money corruption, and should be stopped, investigated on these grounds alone. This apart from its technical stupidity, a characteristic of corrupt projects.

There is a good way for the Cuqueños to have their cake and eat it too. They can do the sensible thing and build a new airport on the Pampa de Anta, closer than Chinchero to their downtown and flat as a tortilla. It needs a few million bucks worth of drainage but none of the expensive earthmoving of Chinchero. Its approaches are no more dangerous than Cusco itself, better actually.

What height is Anta? Same as Velasco Astete, 3,225.

What is the Region Cusco to do with its world-record expensive potato fields, burro grazing at Chinchero? Forget it. The money has long gone on pick-up trucks and on a forest of dreadful cinderblock highrises.

Chinchero is a traditional Andean village with a fine cultural tradition in textiles, with superb views of the cordilleras reaching over to Machu Picchu. Leave it as it is. No airport means tourists will retain as fine a view as any in the Andes. The bells of the charming colonial church will continue to float out over the Inca ruins, the primary schools and the workshops of the internationally recognized weavers.

Nick Asheshov was editor of the Andean Air Mail & Peruvian Times during the 1970s and 1980s, and of The South Pacific Mail, Santiago during the 1990s.  He was Latin America Editor of Institutional Investor, New York over the same period.  He lives in Urubamba, where he writes a blog and where he has been prominent in the hotel and railway business.

This article appeared in the Peruvian Times on  January 26, 2017

Camels, Commodities, and Bankers Instead of the Incas

Peru is going through its most serious drought in decades.

The piece below on Camels etcetera was published half a dozen years ago in Caretas. The author adds this today (December 15, 2016):

I discussed the longer-term global warming issue the other day with President Kuczynski, asking what he has in mind, and referring specifically to the continued drop in fisheries stocks in the Peruvian Pacific, the disappearance of the glaciers in the Central and Southern Andes, and continued logging in the jungle. He replied it was essential to rebuild fisheries stocks, meaning cutting back in commercial and factory fishing. On logging, he said the first thing has to be a halt in gold placer illegal mining in the jungle. In the mountains, he said the government is planning high altitude forestry plantations a la Inca.

Let’s hope.

Camels, Commodities, and Bankers Instead of the Incas

By Nicholas Asheshov

Ferocious blizzards in the United States, a warm North Pole, biblical floods in Queensland and drought in northern China are being blamed on La Niña but here in Urubamba close, one supposes, to the Niño+Niña epicentre, the climate could not be more charming.

The shock pre-Niña rains here a year ago, which cut away big slices of the railway to Machu Picchu, have been followed this year by the traditional monsoon mixture of daily sunshine and rainfall. It’s sparkling, green and friendly, our favourite time of the year. Here we are in the mysterious, carefully-sculpted Cloud Kingdom of the Incas. They got it right.

The first El Niño that gave Peru a headline role in the world’s climate drama occurred four decades ago with the 1972 Niño. Newspapers worldwide published little maps showing Peru with arrows going in all directions. My sister Anna, an international skier, complained that Peru’s desert rainstorms were ruining the snow in the Swiss Alps for her championship schedule -globalization avant le mot.

That Niño had been preceded in Peru by a famously remorseless anchoveta hunt by the brash new Peru fishing fleet led by the engaging, brilliant Lucho Banchero. Every single anchoveta, from the beach breaks to the whale belt 100 miles offshore was netted. Boats would capsize and sink with too much fish. The catch was 12 million tons, one in every five fish caught worldwide that year.

The Apus struck back instantly and, as we will see, they are still furious. The horizon-to-horizon clouds of seabirds, the world’s greatest, have never returned. We watched starving pelicans fight for their last scraps in the Surquillo market. The price of fishmeal, corn, wheat, sugar, cotton and soya skyrocketed on the New York and Chicago markets.

Serendipitously possibly, OPEC doubled and tripled the price of oil to $15 the barrel.

I myself moved the market. I reported to McGraw-Hill’s commodities wire on the basis of a good-humoured tip from the U.S. Embassy, then literally a stone’s throw away on Av Washington, that Arabs had come to Lima to buy copper. I practically had them mounting their camels in flowing robes at the door of the Hotel Bolivar before riding down La Colmena. The Chicago Board of Trade copper price jumped from 60 to 70 cents the pound but I was too young and poor to take advantage. In any case I had just come from Fleet St where you learn on Day One never to believe your own story.

Thus the first post-WWII price crisis. Nixon had de-pegged the dollar from gold. The oil people had no idea what to do with their billions –before that a million or two was real money– and gave it to Citibank who lent it to obscure states that even Brazilians hadn’t heard of, to Peronists in Argentina and to the Banco Popular in Peru. Six hyper-crises later, here we are yet again. Hundred-degree heat scorched the wheat crop last year in Russia and the Ukraine, The same economists who six months ago were gasping deflation are now fighting inflation by, of all things, reducing taxes.

So here in Urubamba we all know that bumbling bankers, confused bureaucrats and a cascade of Niños and Niñas have packaged themselves into a global rollercoaster. Stop the World, I want to get off, though I bet that here in Peru we’re safer than anywhere else.

Here in any case is where we stand, broad-brush, in the southern Sierra as far as global warming is concerned.

Four decades of figures from Senamhi, the weather bureau, show an average increase of between two and three degrees centigrade –the figures themselves are precise but it depends on the location. This is a lot. The glaciers from the Vilcabamba south to the Cordillera Real above La Paz and Lake Titicaca have all but disappeared. The remains of old airplanes that crashed into them 30 years ago are being uncovered.

Average rainfall has lessened, too, though the overall figures aren’t startling. But the rain now comes in sharp bursts, meaning there’s a lot less for farmers.

“We’re having to undo the work of decades where European NGOs brought in expensive cows and crops like alfalfa to feed them. Now there’s not enough water,” a government official in Cuzco tells me.

“We’re bringing back llamas and alpacas, smaller fields. We’re going back to how it used to be.”

As you might imagine, the Incas had it all clear. Their big polylepis-queuña forests conserved water and their thousands of terrace complexes made best use of it.

If I, like many of my friends, were running for President, my plan de gobierno would be just four words and here they are:

Back to the Incas.

This February, 2011 article was first published in Spanish in Caretas.

The people who ran the Sun

By Nicholas Asheshov

The Incas, living as they did at 3,000m a.s.l., focused on the Sun’s capacity to provide more than warmth for their fertile, glacier-fed tropical valleys. They and their predecessors grasped, like the Egyptians and others, that the movements of the Sun, moon, and stars could predict rain and temperatures.

Informatica, then as now, was power. But the study and understanding of the sun and the stars gave the Andean peoples much more than a weather channel. They were able to reflect the orderliness and mathematical precision of the heavens into their own world. The unequalled exactitude of Inca stonework and their careful, magnificently engineered, imaginative landscaping of their mountain world was a statement of philosophical power on a Shakespearean scale. They would control the uncontrollable: the earthquakes, enemies, famine, and disease. Under the Inca there would be no apocalypse.

The Incas took it a logical step further. They would control the Sun itself. At Machu Picchu, Choquequirao, Pisac, and a score of other centres, they placed carefully-engineered granite blocks and windows so finely that at the solstices —June 21 and December 21— needles of light would hit exactly at such-and-such a marker.

The Incas, like politicians through the ages, spun the Sun story. It was they who were family with the Sun, sons no less of the Sun. Running the universe had become a family business. The sun’s rays would change direction on the orders of the Inca every 187.5 days.

At the winter solstice, the Inti Raymi, visitors to Ollantaytambo today can climb high up to the other, western, escarpment of the Rio Vilcanota and at 7:00 a.m. on and around June 21 can look down across the river half a kilometer away and watch a sudden sharp spotlight, then, moments later a couple of hundred yards away, another and then another, appear on an Inca throne-room the size of a tennis court.

If this is a stirring experience today it is not difficult to imagine the awe,, the grateful weeping, the roars of enthusiasm with which tens of thousands of Inca faithful would watch this mystic magic five, six and more centuries ago. They would see their Inca and his family re-born, the unchallengeable nexus of this world with the past and the future.

Accurate knowledge of how to interpret and predict stellar movement was a vital part of the management of a heavily populated agricultural society for which control of irrigation water and of the rivers was essential in both drenching monsoons and periodic drought.

The Incas upgraded the Tiahuanaco and Huari terrace systems and roads into one of the world’s safest and most productive polities, as we can see today from a million terraces in great flights of ingenious engineering of one of the planets most spectacular sculpted landscapes. The renovations included unequalled mountain hydrologic and civil construction, together with agricultural and genetic research.

The magnificent interconnected terraces in the Colca, the Urubamba, the Pisac and a score of other Andean valleys needed sophisticated agricultural techniques and engineering controlling water, heat, and experienced biological genetic experimentation. These terrace systems were so delicate that most of them are today unused because no one is sufficiently knowledgeable and well-organised to use them.

The Inca Empire, stretching thousands of miles along the Andes from Colombia to Argentina, was joined by perhaps 15,000 miles of stone all-weather roads with A, B and C grades of size for lateral valleys of better quality and deeper penetration than any land communications system anywhere in the world until the advent of the railways in the 19th century. Legal, census and production records were kept on the decimal-based khipu knotted strings.

Warehouse complexes stored food and clothing. The Andes were more cohesive, more productive than anywhere in contemporary Europe, on a par with Ming Dynasty China.

Today energy not the Sun, has become the new god. It is energy, starting just two and a half centuries ago with the invention, in England, of the steam engine, which has created a different universe. Before 1750 no one moved faster than a horse, a running man, or a sail-driven galleon. Wood fires became coal, electricity, petroleum and nuclear.

A Bank of England economist calculated the other day that if we look at the 50,000 years of the existence of modern homo sapiens and call it 24 hours, 99% of the progress will have taken place in the last 20 seconds. It’s a nice notion though it might be seen to give short shrift to the Acropolis, to Leonardo and Bach. But it makes the point that few among the seven billion of us can understand the world today and for sure no one can control it. It is built to change. Intrinsically unstable. It must, faster and faster, keep on the move.

By contrast, anyone can see, at Machu Picchu and at Sacsayhuaman that the people who built these achievements did indeed understand their universe. They had done it themselves, stone by careful stone. It was built never to change, to last forever. Maybe it will. FIN

First published in Spanish in Caretas in March, 2015

Finance Tightens — Peru joins the Troubled Ten

By Nicholas Asheshov

Morgan Stanley has told its clients that its MSCI division, which monitors international markets, is preparing to downgrade Peru from EM, Emerging Market, to Frontier status.

MSCI has also expanded its Fragile Five 2013 list —Brazil, Turkey, India, Indonesia and South Africa— to its Troubled Ten for 2016, to include also Peru, Colombia, Chile, Malaysia and Singapore. MSCI says these countries have new and above-average currency risks. These countries will have increasing difficulty in covering their current account deficits, meaning that debt payments plus imports will be higher than today’s low, slow income from exports.

The party is over.

For Peru it was a good one, by far and away the best in memory. During the first dozen years of this century it catapulted Peru into a respectable new level of economic growth and management. An urban middle class expanded by millions. Poverty in the Andes dropped by millions. Pay levels and property values doubled.

But today in 2015, the rapid growth of China that helped Peru, Brazil and a score of others to flourish is finished. This was signaled last week by an initial 4.4% devaluation of the Yuan, the Beijing currency. It was this that woke up the Wall St. analysts even though the slowdown had started a year ago.

The practical effect is twofold.

One is that China is saying it will need less and pay less for oil, gas, copper, iron ore, lead, zinc, gold and silver. Second, it means that for the coming few years at least, China will be growing not at seven percent, much less the ten percent of earlier years, but more like one or two percent. This is the new normal, like the United States struggling to get higher than two percent a year, Europe which cannot get yet to one percent. China is joining them, just another shambling mammoth.

Peru, though no monster, marches to the same drumbeat. A remarkable part of the past couple of decades, here and elsewhere, is how much has changed for the good despite the weak quality and performance of the government, and the public administration. The ministries and the Central Bank have been slow and often indecisive. There is no sign that they are improving. Out in the provinces it has become seriously dysfunctional.

But this has always been a rough neighborhood. Few other countries in Latin America are any better and some are much, much worse. Brazil’s economy is falling this year as it will in 2016, in the midst of world-class corruption and mountainous mismanagement. Sao Paulo, for instance, has run out of water. Venezuela and Argentina, two of the best-endowed countries in the world, continue to sink into incoherence, apparently endemic. This is a level of political stress from which Peru has notably escaped with no sign of a turn, much less return, to the serious confusion of the 70s, the 80s and the 90s.

The most consistent measure of the perversity of today’s financial markets is in the commodities. These will continue to stay low and to sink. This is not, exactly, because the world is in recession. It is not even that demand for copper, oil, lead, zinc, tin has fallen but that it is not rising to absorb what is coming every day onto the market.

New iron ore mines and oil and gas fields and techniques have opened, paid for with cheap money. The problem is that even cheap money has a price, has to be paid for. The iron ore companies, including Vale do Rio Doce, Anglo American and BHP, have between them issued $200,000mn worth of bonds to finance mines without a market. China was supposed to buy it but is disappearing back into its Oriental mist. A part of this is the heat-hazy nature of Chinese accounting where statistics, profits, loans and taxes are spelled differently in Chinese. The same happened in Japan as of a quarter of a century ago.

Copper is in the same slow boat. In Peru, Toromocho (Chinese), Cerro Verde (Freeport M), and Las Bambas (Chinese), fine mines all, will be getting $2/lb instead of the $4-5/lb they expected just three years ago. Chile, led by Codelco, the state-owned, high-cost mammoth, has it even worse which is why it, too, is being downgraded.

Morgan Stanley says that its downgrade warning on Peru will be confirmed on September. 30 but this is a formality. It means that foreign funds will be selling their investments in companies like the Banco de Credito, Graña y Montero and Buenaventura quoted in Lima, and Peru-based companies quoted in New York and London. Many funds will be selling, too, some of their holdings of bonds issued by companies in Peru. The sums may be impressive. Between 2010 and 2013 alone, US$15,000mn worth of bonds were sold to international investors, according to Bloomberg. Peru is just a part of a bond bubble including China itself, as well as other members of the Troubled Ten.

Similar downgrades are being issued for other countries in Latin America and elsewhere. The government-backed debt of Brazil, not long ago a Wall St. high flyer, has been knocked down to a notch over junk.

This is not the case for Peru, which has just raised $2,000mn on Wall St at only 2.5% more than the rate paid by the United States Treasury. It is remarkable, looking back a couple or three decades, that loans of this size and price should have become routine, merely a note in the middle of the financial pages. The money is needed, this time, to shore up the government deficit that has appeared because of the slowdown of the economy, and they will certainly need more to fill an even bigger tax shortfall in 2016.

Another sign of homebrewed discomfort is that inflation is running strongly higher than the Central Bank’s target of 2%: it is probably higher than six percent. This week Mr. Velarde, executive president of the Central Bank, cited inflation, which he has a constitutional mandate to control, and the exchange rate as among his “growing fears.”

Peru’s Central Bank, the BCRP, and even the lame-duck Humala government, may want to take comfort from being in the same lifeboat as bigger, noisier countries. Peru is only three percent of the dollar investment to Latin America. Another way of looking at it is that Peru is being dragged down by the neighbors.

This is not going to persuade many Peruvians. They will remember that the economists at the Central Bank, BCRP, and the Ministry of Finance, the MEF, were predicting as recently as this past Christmas that Peru would be growing this year at a tear-away 5.6%.

This made no sense (PT, Jan 22 and 29, 2015) but set the scene for inappropriate policies. They should long ago have launched an emergency plan, with low Soles interest rates and a fast-track devaluation of the Sol, from S/.3=$1, as it was at the beginning of the year down to S/.4=$1, before the end of the year. This was the path taken by well-managed central banks like those of Japan and the EU, Canada, Sweden and Mexico. Instead, the Central Bank in Lima has moved the exchange rate only just a tad more than inflation, to just over S/.3.25, burning $1,000mn a month of dollars that are going to be needed 2016-2018. This is allowing bankers here and abroad to buy billions of dollars at a giveaway price. This questionable policy is why Peru has been dumped, as Bloomberg has it, into the bucket of the Troubled Ten.

Forget a recovery, even of the United States

There is no prospect that basic commodities prices will increase for years. Huge iron ore mines in Brazil and Australia will be producing at a loss. Oil will be priced at thirty-something dollars a barrel. Natural gas will be down to prices that only the huge fields in North America, Australia and the Middle East can do.

For Peru as for other third-level hydrocarbon areas, this means that the jungle oilfields and the Camisea gas fields are today, and maybe forever, worthless. They are, in today’s terminology, “stranded assets”, on the books as potential profit centers but in practice valueless.

Peru has great resources and fine prospects, in agriculture, for instance, as well as mining.

But in today’s world, Peru is nowhere for oil and gas. As part of a Peru emergency plan to ride out the recession, the government should close down Petroperu and write off the jungle gas and oilfields. Peru will be able to buy cheaper for years from Mexico, Canada and the United States.

Work on the Southern Peru Gas Pipeline should be halted immediately. This $8,000mn piece of corruption-ridden nonsense, being constructed by Odebrecht, Sao Paulo, whose chief executives are in jail for similar boondoggles at home, should be transferred to the Brazilian taxpayer.

Any expectation that the Peru economy might stay afloat is made unlikely by predictions in Lima, the United States and elsewhere that a big El Niño is beginning. Based on the experience of 1972, 1983 and 1997-8, this will subtract between two and four percent from the country’s output.

The good news is that a capable new government may take control in less than a year’s time, ready and able to turn the progress of the past several years to good account.

Published in English by the Peruvian Times on August 21, 2015.

A Spanish version of this article appears in Caretas No. 2399 under La Fiesta se Acabó

The Berlin Wall 1989, Peru Elections 2016

By Nicholas Asheshov

Deutsche Bank, DB, Germany’s flagship financial institution, has announced that for the past quarter it has lost $7 billion and for the first time in half a century it will not pay the dividend on which tens of thousands of German families rely. A big part of the loss is to pay fines by European and United States courts and regulators for dishonesty in London, New York and in Germany itself. The dishonesty consisted in part in selling clients valueless bonds and paper, and in rigging interest and currency exchange rates.

The latest losses follow years of criminal activities, as described by New York, London, and Berlin prosecutors, by DB among a dozen French, English, Swiss and U.S. global banks caught rigging markets. The money, the funny money, goes to directors and managers, not to shareholders much less to the tax collector. The DB announcement came a few days after Volkswagen admitted to fixing the exhaust emissions of its diesel vehicles. VW faces $20bn worth of criminal charges and trading losses. The head of VW, a 68-year-old engineer, said it was nothing to do with him. He has been replaced, taking $70mn in retirement benefits.

Lufthansa allowed earlier this year one of its planes to be deliberately crashed, killing 200 passengers.

VW, Deutsche Bank, and Lufthansa have represented German, European, world dependability and engineering and social responsibility. Ambitious capitalism toned down by worker and government involvement, a contrast to Anglo-American a ultranza combative corporations, ruthless but often as we see today, more open. Japan, so successful for a few decades after the War, is tight and closed and its famously turgid economy seems to reflect this.

It seems to be a similar story, perhaps, in the EU. VW, DB and Lufthansa have represented, created, today’s version of the European tradition.
Next door, in Switzerland, the Swiss president of FIFA, Herr Blatter, is being investigated by U.S. and Swiss law enforcement agencies as the head of a criminal organization, with its HQ in Zurich, running the world’s biggest, bar none, recreation business.

Long-respected Swiss banks like UBS, Union des Banques Suisses, and Credit Suisse are in court, like Deutsche Bank, for rigging the markets and running money-laundering and tax rackets. They also face charges of rigging precious metals and money markets.

Credit Suisse is raising $6bn in new capital to make up losses, as also is DB itself. Today’s shareholders are being watered down. They are losing part of their investment as well as their dividends. It is difficult to put together half a dozen names that have better represented the most reliable, responsible face of 21st Century capitalism.

Everyone also knows that the European banks, led by DB and the International Monetary Fund, have lent Greece $460bn and that every last euro of this has disappeared into new accounts at the same banks. European taxpayers will pay the losses via the Brussels printing presses. To put this in context, the total loans to Latin America in the 1980s banking crisis was under $200bn loaned to 15 countries with a population of 600mn. They paid it back, give or take.

The population of Greece is 10mn. Every Greek man, woman, and child should be sitting on $40,000. But many of them are hungry or worse, out of work, facing a daily invasion of thousands of war refugees from the Middle East.

It was just 25 and a bit years ago that Communism and the Berlin Wall collapsed. The capitalist West had won a 70-year confrontation. Good had vanquished Bad. Christian values had emerged as the dominant, indeed the only, world scheme. If it was not Christian, it was a first cousin, Liberal Democracy, the rule of law.

When the Berlin Wall fell in 1989, Peru was a failing nation, as is today, for instance, Venezuela. The government was collapsing, terrucos and cocaine cartels seemed to be taking over. Peruvians had to carry their money in shopping bags, wheelbarrows even.

A quarter of a century later, Peru is a liberal democracy with a solid financial system. It meets its international obligations. It has a lively line in corruption. But its best efforts are a modest, tropical shadow of the German and Swiss corporations, which have set out to cheat their customers and stakeholders.

The failed nation of 1989 has had elections every five years, since 1980 with a whoops to bring in the new millennium. In six months there will be another election. And another again, it’s reasonable to expect, in 2021.

This is not to say that Peru does not have a long way to go. Nor that the Germans and the Swiss are not thoroughly good people, world leaders in all sorts of valuable ways.

Many Peruvians would understandably harumph! at the “rule of law” clause that necessarily goes with liberal democracy. But just this week the Constitutional Tribunal with an occasionally fuzzy record, cracked down decisively on an attempt by Nadine Heredia, President Humala’s wife, to slide past due process with openly inappropriate legal maneuvers. Instead of skirting the issue the Tribunal quickly, decisively, cleanly blew the whistle on the lively Sra. Humala and stopped her efforts to avoid investigation by the courts into her colorful financial history.

It may be that the Tribunal will have done her a favor and that her financial doings may be less than meets the eye. But the point is that Peru has shown that when push comes to shove, as it certainly did in this case, the system has proven to be not only better than expected by most, but getting better than it used to be.

First published in the Peruvian Times, October 23, 2015

 

Peru Eurobond Issue— A Lemon, Shows Government Financial Confusion

By Nicholas Asheshov

The minister of Finance, Alonso Segura, is patting himself on the back for selling €1bn worth of bonds on the European market at 2.75% above the ECB base rate, which is as everyone knows an eyelash above zero.

This brings the amount borrowed by Peru on the international market this year to the equivalent of $4.5bn, according to official statements. There are two problems, more like half a dozen, with this.

The first is that this latest, huge issue, is going to be thrown straight into the black hole of the government current account deficit. It will not create a single new job. It will not build a meter of road, a school or a first aid post in the Sierra.

Instead, the Central Bank, the BCRP, will be slurping it up in just one month to pay foreign and local bankers to keep the Sol at or near its present damaging, unrealistic, and unsupportable rate — this week a centimo or two below S/.3.30=$1. This brings the devaluation of the Sol against the dollar in these first 10 months of the year to 10%, between a third and a half of the rate of respectable neighbors like Chile and Colombia. This means that dollars are cheap in Peru, and local and foreign bankers are buying them while stocks last.

One of many bad results from this short-sighted expensive policy is that the Peruvian economy has slowed much more than need be. Non-traditional exporters are closing, hundreds of thousands of jobs have disappeared and will continue to disappear long after some sensible action is taken, presumably with a new government at the end of next July. Government economists like to say that government money is different from the Central Bank’s. This is incorrect. It is in one pocket. Economists, like accountants, count the dead and like to put them in neat cemeteries.

The Central Bank has been spending dollar reserves at the rate of $1bn/month for the past two and more years, call it $25 bn though the real figures are fudged by issuing swaps in soles with a guaranteed dollar repurchase.

A second problem with the new Peru Eurobonds is that they are way overpriced, at 2.75%, and much too short, only 10 years. Minister Segura himself said he had received offers for three times the amount, over €4.2bn, a sure sign that they were too expensive, from Peru’s point of view, and too short. If the issue had been properly prepared, he could have sold them at 30 years, maybe more, and with a much lower interest coupon. Crummy risks like Portugal, France, Spain and Italy just pay the eyelash, without the 2.75% These days Peru is a much better risk than these and dozens of others. If the bonds had been 30- or 40-years, some of the cost would disappear into the distant mist of the inflation that will be needed to wipe away today’s round-the-world trillions in unbacked debt, the Greek holes snow-banking through the markets today.

Debt payments impact the budget but are not yet an issue for Peru reserves, thanks to the good fortune and decent management of previous governments. But Peru, like the rest of the world, is facing a future with the certainty that things will be slow for many years. The world economy is not growing even though virtually unlimited quantities of dollars, euros and yen continue to be issued. Today few businesses and governments are using capital or credit to invest in infrastructure like roads, schools and ports. Or in mines and agriculture facilities.

In the United States and Europe governments continue to insist on austerity, meaning roads are not repaired, much less built. In Peru austerity is not a policy but the public works agencies, mostly in the provinces, are not functioning properly. The result is the same. Instead, the economies of the world, capitalism itself, has become distorted, destabilized The only assets that have increased in face value with all the trillions of quantitative easing are shares and bonds on Wall St and the European, Japanese and Chinese bourses.

This is the dangerous financial world through which the government is wandering, babes in a darkening wood. They have been predicting, this past week, for instance, that next year will see Peru growing at 4.2%, according to the Central Bank, 5.6% according to the Ffinance ministry. Either figure is the other side of silly, a warning sign only that they intend to borrow more abroad. The government people did the same for 2015 as a way, as old as the Andes, of papering over the sure-thing hole in their accounts. Peru’s budget deficit is ballooning under the sparse cover of these ‘predictions.’
Today the problem for banks, starting with central banks, is to lend. Borrowing is easy, as the youthful Mr Segura has discovered, at the expense of Peru’s taxpayers over the coming decade. Italy, a financial sinkhole if ever there was one, is paying its bondholders negative rates. These accept this payment because they believe that Germany will pick up the tab. More worrying, the financial markets sense the possibility of deflation where their bonds will increase in value. Italy, by the bye, is the third-largest, after the U.S. and Japan, issuer of sovereign debt in the world and, if it were not for Brussels and the Bundesbank in Frankfurt, would be below Russia and way below Peru on a risk/reward balance, another of the new perversities of 21st century finance.

The new Peru bond issue is not just a mistake in financial strategy but a complete misconception of the world, and the Peruvian economy today. The BCRP in Lima today should be pushing, forcing local banks to lend, soles and dollars, euros, whatever.

Peru is not the same as the dead-in-the-water economies of Western Europe —Eastern Europe is a different animal— Japan and the United States. It could and should have an agricultural export business 10 times, for starters, of today’s: this is a better California. Its metal-working shops have been honed on supplying a big, by any standards, mining province. There is more, like textiles. These can compete easily in today’s ho-hum world economy even with the Peru cost of, for instance, out-of-date labor legislation. But they cannot compete where the Central Bank is gerrymandering the exchange rate —it should today be S/.4.30, not 3.30— and increasing, not decreasing, the cost of bank credit. Both these, devaluation and cheap money, are the only Central Bank options today. With the exception of disasters like Venezuela, Argentina and, increasingly Brazil, everywhere else, bar none, is using them. Right or wrong, this is the world 2015-2020 and Peru’s agro- and metal-based companies are being short-changed by the Lima government, the Central Bank and the four big Lima banks themselves, willing fools in Lenin’s phrase. These have turned themselves for the nonce into expensive exchange houses with the equally willing Central Bank’s approval: anything for P & Q until the new government comes in.

It is a new financial world out there, where it is not exactly that money no longer counts, but it is equally sure that no one any longer can count the money.

First published in the Peruvian Times, November 2, 2015