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Security Situation In Peru Heats Up! Does This Create Greater Country Risk For Investors?

|Includes:ABX, Compañía de Minas Buenaventura S.A.A. (BVN), GFI, GTE, NEM, PEGFQ

Despite long held claims by the Peruvian security forces that the Shining Path as an organized insurgency are essentially a spent force we have seen a recent spike in Shining Path attacks on security forces and mining operations across the country. It seems the resurgent Shining Path are being financially fuelled by the cocaine trade, which has grown exponentially in neighboring Colombia and Boliva.

With much of their activity being criminally focused with kidnapping for ransom by the group on the rise, which is in stark contrast to a recent statement from South America's longest running insurgent group, the Colombian FARC, in which they state they have abandoned kidnapping for ransom. Is this resurgent group politically based and are they intent on destabalizing the government or are they more concerned with self enrichment through kidnappings and cocaine manufacturing? As the Wall Street Journal highlights in a recent article:

While the Shining Path was a heavily ideological group with links to universities in Lima, analysts debate whether the current groups are mainly revolutionaries or profiteers-much like Colombia's cocaine-funded guerrillas, the Revolutionary Armed Forces of Colombia, or FARC.

Of even more concern is the disorganized and haphazard approach to managing the problem, which is symptomatic of poor decision making within the government. The fallout from a recent Shining Path ambush has seen the resignation of the Peruvian Interior and Defense ministers.

This recent article from RRT News certainly indicates that the insurgency is not a spent force and is actively targeting oil operations and workers in the country and that the government response has been shambolic at best.

The development comes as both Interior Minister Daniel Lozada and Defense Minister Alberto Otarola were under threat of being censured by the country's Congress over the death of the policemen and the search operations that followed.

The incident in question happened after Shining Path rebels ambushed a convoy of security forces and police officers as they were pursuing a group of rebel fighters who had abducted 36 gas workers last month near natural gas fields in the Apurimac-Ene valley in the southern region of Cusco.

There was a public outrage in Peru after the father of one of the policeman killed in the ambush managed to find his son's body in the jungle by himself days after authorities abandoned their search for the missing.

Further, one wounded policeman had managed to survive in the jungle all alone for 17 days before making his way to safety days after the security forces abandoned their search for their missing colleagues. The incidents triggered calls for resignation of the concerned ministers.

This certainly leads to a reconsideration of the degree of country risk because of the escalating security situation and signs of political instability within the current government. Should this prevent investors from considering investing in Peru? Certainly not at this time, but it is important to be aware of the situation on the ground and the risks incident such as these that create additional risk for investors.

Disclosure: I am long BVN.

Stocks: BVN, NEM, ABX, GFI, GTE, PEGFQ