Reuters International

By Mitra Taj

HUEPETUHE, Peru (Reuters) - In this wildcat gold mining town in the Peruvian Amazon, the boom is over.

A government crackdown on illegal mines at the end of a decade-long gold rush has shuttered restaurants, quieted the town's muddied streets and slowed the flow of migrants from poor Andean towns seeking the jungle's riches.

But the residents of Huepetuhe, whose town square is dominated by a golden statue of a muscular miner, see a shimmer of hope in presidential election front-runner Keiko Fujimori's promise to decriminalize the makeshift mines at the heart of the region's economy.

Fujimori says she will repeal laws aimed at protecting the environment that ban the use of dredges and heavy machinery by miners in rivers and wetlands. She is also offering miners cheap credit and tax exemptions while they form tax-paying businesses.

The pledge is part of Fujimori's strategy of locking in support from key groups by promising specific reforms, helping give her a lead of more than 5 percentage points over rival Pedro Pablo Kuczynski ahead of the run-off election on Sunday.

"I'm going to vote for Keiko, but only because of that proposal," said Ronald Vizarreta, a 29-year old clerk who buys gold directly from miners on a muddy road between Huepetuhe and the ravine where the work.

Vizarreta said he has long opposed Fujimori and the right-wing populist movement she has steered since her father and authoritarian former president Alberto Fujimori was imprisoned for crimes committed during his 1990-2000 government.

But unless Fujimori wins, Vizarreta said, corrupt police will continue to hunt for bribes in Huepetuhe backed by a raft of government controls, from fuel rations to bans on mercury. "Everything is illegal now."

Wildcat miners in Huepetuhe and other towns in the remote rainforest region of Madre de Dios said President Ollanta Humala betrayed them by lumping them together with the hardened criminals who now control a flourishing black market for gold instead of folding them into the legal economy as promised.

Authorities have blown up machinery in dozens of raids on illegal mining camps and seized more than a tonne of suspicious gold from export companies during Humala's term.

"No one ever came to teach us how to mine sustainably," said Luis Elsin, a 26-year-old miner who migrated to Huepetuhe when he was 16. In 2014, police destroyed Elsin's $2,000 investment in two motors that helped him pump river beds for flecks of gold.

Elsin said he now loses one day a week lining up at multiple fuelling stations to evade the region's 10-gallon-per-person daily cap on gasoline purchases. He also plans to vote for Fujimori on Sunday.

'PERSECUTED'

Humala aggressively courted wildcat miners at the last election in 2011, helping him narrowly defeat Fujimori during her first presidential bid. She took the lesson to heart.

"Today they're persecuted, they're under investigation, and unfortunately at times they can't even buy their most essential tool - dynamite," Fujimori said recently, flanked by representatives of Peru's more than 400,000 small-scale miners.

She called Humala's bid to formalise wildcat miners a failure. Of more than 70,000 who signed up in the government's programme, less than 1,000 now run legal operations - and none in the region of Madre de Dios.

But environmentalists say Fujimori's proposal gives a free pass to miners who have already destroyed 100,000 hectares (247,105 acres) of rainforest and polluted Amazonian rivers with so much mercury that local fish are no longer safe to eat.

Despite the crackdown, miners continued to expand deeper into nature and indigenous reserves, and regularly threaten and attack park rangers, said Victor Hugo Macedo, an official in Madre de Dios with Peru's park system.

"What we don't want is this, what's happening in Madre de Dios," Kuczynski told Fujimori at a presidential debate as he held up an aerial photo of rainforest pocked with illegal mining pits. "That's going to happen in multiples if you follow through with what you say."

Kuczynski, a 77-year-old former prime minister and Wall Street investor, has proposed creating a state-controlled bank to offer wildcat miners a competitive price for their ore if they can show they adhere to environmental and labour standards.

Fujimori denies she will let miners expand unfettered in the Amazon and promised new legislation within 100 days if she becomes president.

But she has said little about how she plans to safeguard the environment. She promised new technologies to curb the use of mercury, widely used to separate flecks of gold from dirt and rock, and an "aggressive reforestation" programme for Madre de Dios. Her adviser Jose Carlos Ramirez said it would involve timber and agricultural concessions on degraded land.

Easing restrictions on wildcatters would likely boost gold production from Peru, the world's sixth biggest supplier.

In the first three months of 2016, wildcat miners in Madre de Dios produced an estimated 5.5 tonnes of gold, nearly as much as output from Peru's biggest legal mine, Yanacocha, according to data from the energy and mines ministry.

But a lack of clarity on what is in store after Humala's term ends on July 28 worries Swiss refiner Metalor Technologies SA.

"It's unacceptable, in our view, for a new government to start from scratch," said Metalor's attorney Jose Camino. "If we don't know exactly where the gold comes from, we're not going to buy from Peru."

(Reporting By Mitra Taj; Editing by Kieran Murray)

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