FOOL'S GOLD

This term has two very different meanings.  One refers to the mineral pyrite (FeS₂) which shines like gold but has little value.  As a female geologist pyrite never fooled me!  This blog is concerned with the second meaning: a plan to get money, a stupid plan because it will either fail or cause problems.  I have in mind the recently launched mining initiative of the Brazilian government to legalize artisanal and small-scale mining (ASM) in the Amazon (the so-called garimpos).  Not only it will certainly fail, but it will pile more problems on top of those already affecting this sector.  It is hypocrisy doubling up on fallacy since the government wants us to believe that this artisanal mining activity still takes place in the Amazon.  In my view, it is a smoke screen for the Bolsonaro government to surreptitiously decriminalizes unregulated and predatory large-scale garimpos.  In other words, the state plans to make crime legal and hopes to make money in the process.  Hardly surprising, when a decision of this kind comes from a government led by a president who bragged, “The interest for the Amazon is not in its Indians, not in the f*cking trees, but in minerals.”

My last blog was on gold in Africa and how rapacious Russian mercenaries were taking advantage of it.  Through history, gold has always been exceptionally valuable and has strongly impacted on our life.  Explorer supremo Christopher Columbus knew a thing or two when he wrote that “Gold is a treasure, and he who possesses it does all he wishes in this world and succeeds in helping souls into paradise.”  His “discoveries” were expected to open the road to riches for the benefits of the kingdom of Spain.  Columbus was certainly prophetic even if gold had the contrary effect: it sent many souls to Hell.  Gold has long been fetishized and for a few governments and people alike, gold reserves have retained their charm.  Are they not supposed to lend credibility, stature and protection? To this end, Putin[1] has hoarded US$ 142 billion worth of gold.  Conversely, John M Keynes referred to gold as a “barbaric relic.”

By the world’s standards, Brazil is a modest gold producer, with its average annual production estimated in the 81 tons range.  About 51% of this production comes from two industrial mining complexes, the rest from a variety of legal and illegal sources predominantly from garimpos operating in the Amazon Forest.  According to some sources, 38% of gold traded is of unknown origin!  Production, trade and sales figures are subject to interpretation since they greatly vary according to their sources, whether governmental, academic or NGOs! Besides, these days fanciful data from officialdom are not unheard of.

                                                                   "Apocalypse Now", Garimpo style

Garimpo is where garimpeiros work; the term was coined in the 18^th century when the first gold and diamond rushes took place in the State of Minas Gerais.  Historically, garimpeiros were independent wildcat miners or prospectors who operate mostly open cast mining camps with picks and shovels and limited mechanization.  They are usually “freelancers” not employed by mining companies.  Some are subsistence miners depending on their own limited financial resources.  They are alternatively referred to as ASM.  This blog sounds like a mining paper but wait for the fun because garimpos are free-for-all businesses where theory and laws do not apply. They are the stuff of a Netflix crime documentary.

Almost everyone has heard about the 19^th century gold rushes in the New World, principally the California Forty Niners and the Klondike stampede.  These gold rushes played a large part in glorifying the Western American folk culture with its exaggerations and social oversight.  The California Gold Rush is much hyped because two years later in 1850, California became the 31^st state of the Union.  To this date, one may acknowledge that it may be the sole gold rush with a positive legacy.  Gold depleted, the miners used their skills with picks and shovels to farm the land.  On the other hand, more than 100 000 prospectors trudged to the Klondike in Canada, but the Yukon stampede was short lived (1986-89).  Thousands of prospectors and their mules froze to death on the treacherous Yukon Trail.  Only a handful got rich, predominantly traders, saloon owners and prostitutes.  The local indigenous people were left with a destroyed environment and they subsequently lost their livelihood and starved.  The Yukon Gold Rush inspired Charlie Chaplin’s Gold Rush film.

Between 1979 and 1986, Brazil witnessed its own gold rush in the Amazon.  Attracted by gold nuggets the size of a fist, some 100 000 down-and-out men flocked to the Serra Pelada region[2].  Most were escaping poverty and social marginalization.  Officially some 44.5 tons of gold were extracted but the exact figure may be close to 360 tons as black market and smuggling went hand in hand with mining.  Ten years later, the garimpeiros left behind a giant toxic lake, dangerous mercury pollution in the rivers, social misery, lawlessness and a burgeoning official corruption.  I view the legacy of this gold rush as utterly negative; in addition to the inherent social and environmental destruction, it accelerated the invasion of rough and tumble garimpos in the most remote and pristine parts of the Amazon Forest.  Presently, garimpos may be responsible for 10 to 15% of the Amazon deforestation. 

                                                                         Left behind and polluted

About six years ago, as the result of the falling cocaine price, ASM became the laundromat of Peruvian and Colombian drug cartels.  Likewise, Brazilian drug and crime syndicates took gold as a hedge against their reduced income.  In the Amazon, there is strong evidence that drug cartels are partnering with paramilitary groups made of active or retired police officers, the infamous milicias (militias).

Despite these evident flaws, garimpo is regarded positively by both Jair Bolsonaro and many local officials whose election depends on economic expansion and bribes from illegal mining.  One of their champions is the mayor of the city of Itaituba (nicknamed Nugget City).  Drug and extorsion monies have scaled up garimpos which retains ASM in name only.  The Federal police and IBAMA[3] recently launched destruction operations in various regions of the Amazon that have exposed the large-scale dimension of illegal garimpos.  They have heavy duty equipment to build runways, roads and excavate gold pits; they fly planes and helicopters and they operate hundreds of dredging barges docked on the rivers.  It is surrealistic to watch federal agencies battling illegal garimpos while their bosses have direct access to the presidential palace!  It is also hilarious to read that the national agency which grants mining leases has given one the size of 800 soccer fields to the pilot of a notorious drug boss.  Caught red-handed, the agency indicated that it provides leases without running background checks!

Willingly, or unwillingly, the locals, including the indigenous populations whose land is invaded and damaged, have to cohabit with these violent intruders.  In the Amazon, mining has taken place for decades and the poverty rate has not declined.  Formalizing ASM has been the pipe dream of government agencies in many developing countries.  It is my experience that ASM can only subsist by cutting corners; legalization means rules, fees and legal transactions and none can be financially internalized by ASM.  Conversely, in the Amazon, garimpos are awash with drug and extorsion money.   

Bolsonaro’s government plans to help and legalize these crime-sustained garimpos! No joking!  Nobody is duped or fooled.  It is an ideological and cynical pre-election move to please Bolsonaro’s base, a base which unfortunately is made of tree haters, flat earth believers and unsavory types like milicia members.  No need to be an economist to understand that the economic fallout will be negative: fool’s gold.

Milicias and drug cartels operate undisturbed in large areas of Brazil; they have not captured the state yet, but one should not underestimate their strength.  These days, life is sweet for them.

 

 

P.S. This blog is not for profit, just for friends.

---

[1] He no longer deserves to be addressed as President!

[2] The series of photos taken by Sebastiẩo Salgado illustrates the violence and dangerousness of the mine. 1986.

[3] The Brazilian Institute of Environment and Renewable Natural Resources.