“Iquitos is not really an island, of course,” says Catherine Davila, looking out to the Amazon River from the rooftop restaurant she manages. “But in Peru, we are nicknamed ‘La Isla Bonita,’ the beautiful island, because, like islands, we are isolated.”
Remoteness has always been a challenge for Iquitos, Peru, the largest mainland city in the world unreachable by road. On the final stretches of the Amazon River, Iquitos is separated from most of Peru by the towering Andes mountains. Most goods arrive from Lima after a 22-hour road journey over the Andes, followed by at least three days on the river. Perishables are flown in, while cheap manufactured goods from Brazil float in on the Amazon.
Iquitos is the capital of Loreto, the fourth-poorest of Peru’s 24 departments. “We are surrounded by rivers; yet because we lack water purification infrastructure, we only have potable water two to four hours per day,” says Coco Morales, a business owner and vice president of the Loreto Chamber of Commerce. “We have the most expensive electricity in Peru, and we are the only region not connected to the national grid, or the national highway system. This makes it difficult to invest here.”
But visionary citizens and NGOs are working to give Iquitos a more prosperous and connected future. They are aiming at a new free trade zone, more sustainable agricultural development, and increased government transparency, among other improvements. Their development plans must navigate within the twofold constraints of 1) the higher cost of transporting raw materials into the Amazon and 2) heavy environmental protections of the Amazon rainforest and its tribes.
Potential in Tourism, Air Travel, and Local Manufacturing
Tourism has been among the strongest sectors in Iquitos. The city received some 742,000 visitors in 2019 (before the COVID-19 pandemic), far more than its population of 490,000. Tourists come to explore the Amazon on boat cruises and jungle treks, visit tribes, sample Amazonian gastronomy (including paiche or arapaima, the largest freshwater fish in South America), and participate in shamanic retreats involving drinking ayahuasca, the hallucinogenic traditional medicine invented by Amazonian tribes. And the city’s blend of cultures is an attraction in itself: Most Iquiteños trace their roots to some mix of Andean and/or Amazonian tribes and migrants who came during the Amazon rubber boom of the 19th century, from countries like Spain, Portugal, Brazil, and China. Tourists also flock to animal rescue centers around Iquitos, which shelter species like manatees, monkeys, anteaters, and jaguars. These rescue centers help combat Peru’s illegal wildlife trade, the third-highest in the world.
Despite its location in the Amazon rainforest, Iquitos has a traditional Spanish colonial city center on the riverfront, where new restaurants, cafes, and boutique stores are popping up, which can add to its tourist appeal. In this ramshackle city of contrasts, blocks from the sleek Hilton Doubletree Hotel on the Plaza de Armas lie a half-block plantain market and street vendors selling freshly-cooked caiman. Stately historic buildings line the riverfront, while motorized tuk-tuks and motorcycles, not cars, dominate the road. Rap music blares through open windows of startup gyms, where young people sweat through aerobics and Crossfit. Near storefronts stacked with power generators and chain saws are posters advertising an upcoming theater performance of Shakespeare’s Romeo and Juliet in Spanish.
Boria also believes Iquitos can be an air hub connecting Andean countries, as Loreto is the only department in Peru bordering three countries. “We’re only 45 minutes by plane from airports in Brazil, Colombia, and Ecuador,” he says. Currently, flights between Peru and these countries typically go through Lima, even when Iquitos is much closer. So Boria is lobbying for the government to promote Iquitos as an air hub, by removing all taxes on international flights to and from Iquitos International Airport.
While Loreto lags in manufacturing, a 2021 Harvard paper, Loreto’s Hidden Wealth: Economic Complexity Analysis and Productive Diversification Opportunities,” found that it has strong potential to produce things for itself, especially motors, generators, ships, and construction materials. This has already been demonstrated by the Honda factory which opened in Iquitos in 2006 to locally manufacture motorcycles, generators, and the popular three-wheeled tuk tuk-style Honda “Motokar.”
A Model in Manaus
For visions of what Iquitos could be, many Iquiteños look 1500 km east down the Amazon River to Manaus, Brazil. It is the largest city in the Amazon and the main port for Brazil’s massive Amazonian timber and agricultural output. “Look at Manaus, it has been very successful,” says Ricardo Boria, the president of the Loreto Chamber of Commerce. Unlike Iquitos, Manaus established a free trade zone (FTZ) in 1967, where import taxes are reduced by 88% and income taxes by 75%. The Manaus FTZ now hosts over 600 companies, including Samsung, Philips, Siemens, Nokia, Harley Davidson, Honda, and hundreds of Brazilian firms. The resulting job growth brought Manaus a tenfold population increase, from 233,000 in 1967 to over 2.3 million today.
Boria says Iquitos should emulate Manaus’ legal requirement that companies in its FTZ reinvest profits in the region. So he is now leading the Loreto Chamber of Commerce in proposing a new free trade zone called the Zona Económica Especial de Iquitos (ZEEI), which would require 40% of net profits to be reinvested in Loreto. The ZEEI would be open to the free transfer of capital, the free hiring of workers foreign and domestic, without income tax, and the free use and availability of foreign currencies at the most favorable exchange rates, all as part of a 50-year pact between Iquitos and the Peruvian State.
Natural Resources: Balancing Expanding Production with Fighting Corruption
The tropical climate and sheer size of Loreto Department, which makes up 28% of Peru’s territory, have helped make it Peru’s top cassava producer, second in timber, and third in palm and plantains. But Loreto also has major potential for expanding tree farming and high-value cacao. However, efforts at sustainable expansion have been plagued by persistent corruption. In response to revelations of extensive illegal deforestation and timber trafficking in the Amazon, Peru’s government shut down agribusiness United Cacao in 2015. In 2019, it ordered Tamshi (formerly Cacao del Perú Norte) to pay over $4.2 million for damages to the ecosystem, sentencing its manager to eight years in prison.
In its 2019 report “The Forest Avengers,” human rights watchdog Global Witness revealed extensive log laundering in Loreto. It found that government agencies commonly issue logging permits based on inspections that never happened. The result is that 60% of the timber that had passed inspection by Peru’s forest agency, OSINFOR, turned out to have illegal origins. In response, Peru created three new sets of executive resolutions in 2019 to improve tracking and controls in the forest supply chain. But still today, “No one knows the extent of illegal logging in Peru, or whether it is worse of better,” says Chris Moye, who leads forest investigations for Global Witness. Moye says political changes have led to a decline in inspections by OSINFOR, with many local forests now completely ignored by inspectors. He believes that to prevent a conflict of interest, Peru needs to stop allowing the same regional governments that grant timber harvesting rights to also perform forest inspections, and instead leave the inspections to more impartial national bodies. And in the bigger picture, Moye says that all the departments that oversee Peru’s forests “need a relentless focus on recruiting on merit and attempting to change the culture of favoritism, nepotism, and clientelism” that is rampant in regional governments.
Like the neighboring Ecuadorian Amazon, Loreto has major oil and natural gas reserves. But drilling has been limited due to environmental threats to both the Amazon rainforest and local tribes. Oil production stands at just over 15% of capacity (estimated at 42,000 barrels per day), which is less than 10% of oil production in the Ecuadorian Amazon. Efforts to expand drilling in Loreto Department have met tremendous opposition from indigenous groups, who are supported by numerous NGOs. Peru first struck oil in the 1970s, and today the 1,106-kilometer North Peruvian Pipeline operated by state-owned PetroPerú carries oil from Peru’s Amazon to its Pacific coast. But over the past decade, numerous oil spills and indigenous protests have shut down the pipeline for months at a time. For example, in June 2023, indigenous protesters hijacked and captured two oil tanker ships. Just since December 2021, there have been 15 pipeline attacks, in which people intentionally cut the pipeline a total of over 50 times. Oil spills have flowed into the Amazon’s tributaries in Loreto, including three spills in September 2022 alone and another in July 2023. Spanish oil giant Repsol was hit with a $1 billion lawsuit in January over a 2022 spill on Peru’s coast, in which 10,000 barrels were dumped on beaches and in the Pacific Ocean. Nonetheless, amid higher oil and gas prices, Peru’s state energy agency PeruPetro opened extensive new areas for oil and gas exploration in February 2023. By contrast, in a national referendum in August 2023, Ecuador voted against oil drilling in Yasuní National Park in its Amazon region. It remains to be seen whether Peru will commit to the future without oil that indigenous groups seek, or to turning Loreto into a fossil fuel powerhouse like its Amazonian neighbors.
Governance: A Solution and a Problem
Government has been both an obstacle and a catalyst for development in Iquitos. According to local restaurant manager Catherine Davila, after elections in Loreto, “Each new government starts its own initiatives. But they do not respect what has already been started, what people have invested. So often, what you get is a lot of nothing.” One example is a new bridge over the Nanay River that connects to nothing.
Davila says that as each new government initiative comes with a new budget, this creates a new opportunity for officials to steal. For example, in 2022, an Iquitos mayor was charged with writing “phantom checks” in a bribery and embezzlement scandal. Indeed, out of 2,815 public entities in Peru, watchdog group Vigilante ranked the Regional Government of Loreto third-highest in “functional misconduct” and in the top ten in corruption. Peru tied for 101st out of 180 countries on Transparency International’s 2022 Corruption Perceptions Index. Davila believes that the international perception of Peru’s governance as corrupt and dysfunctional deters foreign direct investment.
“We have a lot of impunity,” says Morales. “Acts of corruption go unpunished. Or they only open investigations but later archive them. Or to delay the process, they make token arrests and hold people in prison, just until they have exceeded the maximum time in prison without a trial, then release them. We must ensure that acts of corruption are judged and punished at all levels, not only at the regional level but also at the national level.”
At the same time, Peru’s government has also done much to promote development in Iquitos and Loreto Department. Davila points out that Peru’s 1998 Law to Promote Investment in the Amazon removed all sales taxes on tourism, hotels, and restaurants in Loreto. And today, PromPerú (The Commission for the Promotion of Peru for Exports and Tourism) has helped make tourism Peru’s fastest-growing sector. It has created highly popular tourism brands and logos, from the “Peru Brand”—whose distinctive spiraling logo has appeared in billboards in Times Square—to the Loreto Brand, whose slogan is “Loreto: The Amazon River in You,” to the Iquitos brand, “Iquitos: La Isla Bonita.”
Amid geographic, economic, and political challenges, there is spirit of hope and change in Iquitos. Tourists are streaming in again in the post-COVID-19 era. Small businesses are hustling. While remoteness and restrictive conservation laws make navigating a path to prosperity no easy task, Boria and Morales believe it can be done. “We are not anti-conservation,” says Morales. “But the Amazon region does need industries and infrastructure to develop. Right now, investors make money here, but then take their money elsewhere. Establishing a reinvestment strategy for Loreto is the key to the future.”
