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Viewing cable 06LIMA1064, CONSERVATIVE OR POPULIST? LOURDES' ECONOMIC PLANS

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Reference ID Created Released Classification Origin
06LIMA1064 2006-03-17 18:30 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0021
RR RUEHWEB

DE RUEHPE #1064/01 0761830
ZNR UUUUU ZZH
R 171830Z MAR 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 9240
INFO RUEHBO/AMEMBASSY BOGOTA 3122
RUEHQT/AMEMBASSY QUITO 0128
RUEHLP/AMEMBASSY LA PAZ MAR SANTIAGO 0294
RUEHCV/AMEMBASSY CARACAS 9176
RUEHBU/AMEMBASSY BUENOS AIRES 2308
RUEHBR/AMEMBASSY BRASILIA 6577
RUEHBJ/AMEMBASSY BEIJING 0365
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUMIAAA/USCINCSO MIAMI FL
RUEHC/DEPT OF LABOR WASHINGTON DC
UNCLAS LIMA 001064 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/AND, WHA/EPSC, EB/IFD/OMA 
USTR FOR BHARMAN 
TREASURY FOR OASIA/INL GSIGNORELLI 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD PGOV PE
SUBJECT: CONSERVATIVE OR POPULIST?  LOURDES' ECONOMIC PLANS 
 
REF: A) LIMA 728    B) LIMA 979 
 
1.  (SBU) Summary.  Center-right candidate Lourdes Flores 
has developed an economic plan based on neo-liberal economic 
policies, including stressing fiscal responsibility, calling 
for the streamlining of government, endorsing the 
privatization of state owned enterprises and infrastructure, 
and promoting free trade.  During a March 8 speech in Lima, 
Flores sought to re-energize her campaign by promoting more 
populist economic policies.  She laid out ten campaign 
promises -- including creating 650,000 jobs annually, 
providing 8 million Peruvians with health insurance, and 
providing $2 billion in microfinance credit to small 
businesses.  It remains to be seen whether her new promises 
will increase her support base as Peru heads into the first 
round of elections.  End Summary. 
 
Solid Macroeconomic Plans 
------------------------- 
 
2.  (U)  Flores has surrounded herself with strong neo- 
liberal economic advisors, whose ideas are clearly reflected 
in the Unidad Nacional's recently published government plan. 
The 100-page document emphasizes Peru's current economic 
problems -- low levels of production and competitiveness; a 
high debt/GDP ratio; high levels of informality; high levels 
of poverty and inefficient state institutions -- and 
provides numerous proposals for how to promote economic 
development and competitiveness in Peru. 
 
3.  (U) Flores' economic blueprint stresses the need to 
create a favorable investment climate with clear rules of 
the game and improved customs procedures; the importance of 
maintaining fiscal prudence and restructuring the tax 
system; and prioritizing public spending on education, 
health, and security.  A UN Government would streamline the 
procedures for establishing businesses (it currently takes 
an average of 98 days to open a business in Peru), would 
respect intellectual property rights, and would invest 
heavily in the development of infrastructure, including 
ports, airports and highways.  Flores' ideas, particularly 
the reduction of the value added tax and the elimination of 
discriminatory taxes, have garnered rousing support from the 
 
business community in Peru. 
 
Encouraging Globalization and Investment 
---------------------------------------- 
 
4.  (SBU)  In direct contrast to ultra-nationalist candidate 
Ollanta Humala (Ref A), Flores's government plan also states 
the importance of integration into the world economy, 
through increased exports, reduction of tariff levels, and 
labor reforms.  Flores is decidedly pro-trade and supports 
not only the free trade agreement with the United States, 
but also pursuing FTAs with other countries.  She has gone 
on record, stating that the current Congress should debate 
and ratify the agreement and that, if elected, she will not 
seek to overhaul the accord. 
 
5.  (SBU)  Flores strongly believes that by making Peru more 
competitive in the world economy, Peru will attract more 
investment, both domestic and foreign.  Peru received less 
than $13 billion in foreign direct investment in 2005, only 
17 percent of Peru's GDP.  In contrast, foreign direct 
investment in Chile accounted for 26 percent of the GDP in 
2005.  In an effort to alleviate fears of foreign investors 
and to show disparity with Humala, Flores has indicated that 
she will respect existing gas, mining and petroleum sector 
contracts, but that her government is likely to establish 
tougher contracts for foreign investors in the resources 
sector.  Like Humala, however, Flores has publicly stated 
that her government would not allow the Chileans to 
participate in the concessions of Peruvian ports. 
 
Trend Toward Populism? 
---------------------- 
 
6.  (SBU)  While Flores continues to lead in the polls, her 
popularity over Humala and APRA's Alan Garcia has slipped in 
recent weeks (Ref B).  In an effort to re-energize her 
campaign, during a March 8 speech, Flores deviated from her 
neo-liberal economic ideas and expounded on ten campaign 
promises that smacked of populism.  Among her campaign 
pledges, Flores promised to create 650,000 jobs annually, 
eradicate poverty for three million Peruvians, and provide 
eight million Peruvians with health insurance.  She also 
emphasized the need to spend 6 percent of GDP on education, 
and guaranteed the availability of $2 billion in micro 
credit for micro enterprises. 
 
7.  (SBU)  Garcia immediately criticized Flores' promise to 
create 650,000 jobs annually, calling her a liar that could 
not deliver.  He noted to the press that, given the 
conditions in the current Peruvian market, a new government 
could realistically create 400,000 jobs annually.  (Note: 
From 1996-2004, an average of 496,000 new jobs were created. 
This average includes 103,000 new net jobs created in 2000 
and 943,000 in May 2003 - Apr2004.  Our assessment of the 
Peruvian labor force shows that, even with high levels of 
investment and economic growth at a rate of 7 percent or 
higher, it will take several years before a new government 
is able to generate the 650,000 jobs.  End Note.) 
 
Comment 
------- 
 
8.  (SBU)  Flores' economic message has resonated well with 
the business community, but she has been less successful in 
attracting the support of poorer Peruvians.  It appears that 
Flores is now listening to advisors, encouraging her to use 
more populist rhetoric to capture the vote.  However, 
Peruvians may not be convinced by her ten campaign promises, 
especially as economists show that it is economically 
unlikely that more than half a million jobs can be created 
annually. 
 
STRUBLE