By Maria Luisa Palomino

ESPINAR, Peru, May 28 (Reuters) - Two years ago, 2,000 people in this small town in the Peruvian Andes stormed the offices of the Tintaya copper mine, demanding its owners spend more money on social projects and the environment.

This month, inhabitants of the same town applauded executives from the mine, owned by Anglo-Swiss company Xstrata <XTA.L>, when they arrived at a ceremony to open a new hospital.

This transformation has been held up as a model by moderate leftist President Alan Garcia, who wants more private companies to invest directly in communities to ease the burden on poor Peruvians, who mostly supported his opponent in a runoff election last year.

"This is a project that was completed almost miraculously in six months," Garcia said as he officially opened the hospital, high in the Andes near the southern city of Cuzco.

"If you don't spend quickly, efficiently and honestly, it leads to social protests, and that hampers investment."

While Garcia's popularity soared after he took office last July, it has since slipped and remains low in mostly poor, mountainous places. He won just 25 percent of the vote in Espinar province, compared with 75 percent for nationalist candidate Ollanta Humala.

Humala, a former military officer often compared to Venezuelan President Hugo Chavez, proposed increasing state control on mining and natural gas companies, among other measures.

Garcia, who had a previous term as president in the late 1980s that ended in economic chaos, is actively promoting privately funded programs like the one at Tintaya, and trying to boost public investment, following decades of failed government development.

Peru is the world's third biggest producer of copper and zinc, the fifth largest miner of gold and among the two leading silver-producing countries in the world. Mining provides the government with 3.95 billion soles ($1.25 billion) in royalties last year.

But while its mineral wealth has helped the economy grow rapidly, millions of Peru's 27 million people still live in poverty and the lack of investment in social projects is a source of deep discontent.

According to Garcia, regional governments, bogged down in bureaucracy, spent only 16 percent of the investment money available to them in the first four months of this year.

And not only is investment slow, it is often misplaced.

The Peruvian Andes are littered with bull rings, swimming pools and monuments in places where there is a pressing need for drinking water and electricity.

"There's no doubt that people are frustrated," said Ysaac Cruz, president of the National Society of Mining, Petroleum and Energy, a private body representing companies in those sectors.

"They have a series of requirements, some of them basic, which are not being met due to this inability to manage problems properly."

TIME TO INVEST

Days after opening the hospital in Espinar, Garcia unveiled a plan to speed up public investment to complement such private initiatives.

He issued a presidential decree prioritizing everything from building projects to road improvements to health and education projects to the construction of a prison in the capital Lima.

The government has also initiated an overhaul of the state's National System for Public Investment (SNIP), which it says needs to improve.

"We have to understand that investment in social projects like education, health, irrigation, drinking water has to be considered an emergency," Garcia said.

Some analysts question the wisdom of the president's plans.

Alberto Adrianzen, a political analyst in Lima, says that in trying to cut through bureaucracy by relaxing the rules on investment, Garcia risks attracting low-quality investment that may ultimately prove counter-productive.

"He's trying to respond quickly to demands, but often the things that people want are things that need to be studied, or are not necessarily the best option to go for," Adrianzen said.

Meanwhile, the kind of protests that convulsed the Tintaya copper mine in Espinar two years ago are unlikely to abate.

The state ombudsman recently identified 76 potential hot-spots where it believed people might rise up in protest, either in search of a greater share of profits, or for better protection of their environment or other reasons.

Of the 76, a third revolved around mining projects.

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