By Mary Anastasia O'Grady

The sudden resignation of Peruvian Prime Minister Salomón Lerner a week ago Saturday sent tremors through the fragile South American democracy. It wasn't only because Mr. Lerner had presided over President Ollanta Humala's cabinet for a mere 136 days. The announcement also triggered a wave of worry because it was accompanied by the news that Mr. Humala, a former army officer, would replace Mr. Lerner with another retired military officer, Oscar Valdés.

In the hours that followed a single question ricocheted in Peruvian cyberspace: Was Mr. Humala, an economic nationalist who once led a failed coup against the Peruvian democracy, militarizing the government? Peruvians shuddered.

Yet a week later it seems clear that, for now at least, those concerns were misplaced. If anything, the Lerner resignation seems to have been set off by a Humala decision to defend the rule of law and ensure that Peru remains an important destination for foreign investment. The real lesson of the drama is about the risks to development coming from a hard left operating under the guise of "environmentalism."

For the past decade the Peruvian economy has grown at an annual average rate of 6.3%, and as a result a nascent middle class is blossoming. This stands in sharp contrast to neighboring Ecuador and Bolivia, where authoritarian governments have crushed free speech and private enterprise and moved to revive the statism of the 1970s.

A key driver of Peruvian growth has been mining, where investment has doubled in the last two years. If Peru is to stay on its development course, these flows must continue. The prospects are good: The government estimates that there is currently $50 billion of investment in the mining pipeline for projects over the next 10 years. In a $168 billion economy, this is real money.

As a candidate, Mr. Humala had a history of romanticizing national socialism that made him an ill-suited champion of the economic liberty that Peru needs to keep growing. Yet he promised a better life to the poor, his No. 1 constituency. In Peru's open economy, dependent as it is on access to international capital markets, his policy options for delivering on those promises leave him little room for left-wing socioeconomic experimentation. This was the hope of those who backed him in a runoff election against the daughter of former president Alberto Fujimori.

Now he's facing his first big test in the northern city of Cajamarca, where Newmont Mining Corporation is ready to begin work on a $4.8 billion copper and gold mine. Opponents calling themselves environmentalists have been using roadblocks and violence to try to stop it. The outcome of the dispute will be carefully watched by foreign investors and will heavily affect the country's economic future.

A spokesman for Newmont Mining says the environmental impact assessment (EIA) process for the Conga mine took three years and "was the most rigorous EIA for a natural resource development project ever conducted in Peruvian history." In October 2010 it was approved and, according to the company, the public hearing that closed out the process—with more than 3,000 people in attendance—was notable for its calm.

It wasn't until a year later, three months into Mr. Humala's presidency, that organized opposition began to emerge. A one-day general strike on Nov. 9 in Cajamarca was followed by an indefinite general strike on Nov. 24 that, according to press accounts, eventually laid siege to the city. The opponents claimed to be up in arms about the company's plan to build four reservoirs to replace four lakes which under current circumstances turn to swamps in the dry season. But since the new reservoirs will double the volume of water available to the local communities and will ensure that there is water available year-round, their concerns are suspect.

Suspicions are greatly heightened by the knowledge that key agitator Wilfredo Saavedra, president of something called the "Environmental Defense Front," also happens to be a former member of the terrorist Tupac Amaru Revolutionary Movement, which advocates Cuban-style communism.

The president needed to act both for the safety of the city and for the long-term interests of the country. On Dec. 4, after the company had agreed to suspend construction as a good-faith gesture and the protesters had refused to lift the Cajamarca blockade, he imposed a state of emergency and restored order.

Not a week later Mr. Lerner, who had been in charge of finding a negotiated solution to the dispute, resigned and was replaced by Mr. Valdés, who has been in the private sector for years. On Thursday the president lifted the state of emergency and the government announced it would resume negotiations with protesters.

Mr. Humala's forceful action has damaged his left-wing coalition in Congress and he may have to make a deal with the fujimoristas in order to govern. But the alternative of setting a precedent that mining investments can be driven out of the country with violence would be far more damaging to his legacy.