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Viewing cable 06LIMA2534, GARCIA'S ECONOMIC PRIORITIES

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Reference ID Created Released Classification Origin
06LIMA2534 2006-06-26 18:02 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0000
RR RUEHWEB

DE RUEHPE #2534/01 1771802
ZNR UUUUU ZZH
R 261802Z JUN 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 1207
INFO RUEHBO/AMEMBASSY BOGOTA 3614
RUEHQT/AMEMBASSY QUITO 0503
RUEHLP/AMEMBASSY LA PAZ JUN SANTIAGO 0699
RUEHCV/AMEMBASSY CARACAS 9641
RUEHBU/AMEMBASSY BUENOS AIRES 2494
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS LIMA 002534 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/AND, EB/TPP/BTA/ANA 
USTR FOR B. HARMAN 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
 
E.O. 12958: N/A 
TAGS: ETRD EAID ECON EAGR PE
SUBJECT: GARCIA'S ECONOMIC PRIORITIES 
 
REF:  A) Lima 2323  B) Lima 2507  C) Lima 2532 
 
1. (SBU) Summary: During a June 20 meeting with the 
Ambassador, President-elect Garcia's economic team detailed 
Garcia's short term priorities, including improving water 
quality and promoting agricultural exports from the Andes. 
These programs should begin shortly after the July 28 
inauguration, and if progressing smoothly, will help APRA 
leaders in the upcoming November 30 regional elections.  In 
the medium term, Garcia is looking to reform key government 
institutions, including the judicial system and SUNAT. 
Garcia is also focused on maintaining macroeconomic growth 
while encouraging new investment.  End Summary. 
 
2.  (SBU) The Ambassador hosted a meeting on June 20 with 
Garcia's economic advisors, including Enrique Cornejo, 
principal advisor and author of the majority of APRA's 
economic proposals, Luis Revolledo, Carlos Nunez, 
environmental advisor Jose Salazar and Jorge Menacho. 
During the meeting, Cornejo provided a detailed vision that 
spanned the breadth of the economy and current GOP national 
capacity, setting priorities within a strict timeline. 
 
Garcia's Priority Programs 
-------------------------- 
 
3. (SBU)  Cornejo began the meeting by describing Garcia's 
short term priorities, which are all related to poverty 
reduction: building infrastructure, improving access to 
water (agricultural and drinking), promoting agricultural 
export capacity building in the highlands and "the South" - 
a reference to the many in Southern Peru who voted for 
Ollanta Humala.  Garcia and his team should be able to 
develop, and announce these programs during the July 
inauguration.  Garcia's medium term goal is institutional 
reform.  Cornejo also emphasized the need to maintain 
macroeconomic stability and attract new investment. 
 
4.  (SBU)  The Sierra Exportadora program, which seeks to 
promote the production of export oriented agricultural 
products in the highlands (Ref B) is an immediate Garcia 
priority.  Cornejo noted that the Administration would begin 
a pilot of this program, which could easily be replicated 
quickly in 28 other sites.  The incoming government's other 
agricultural priorities include improving the transport 
chains, especially the road infrastructure, and 
strengthening micro enterprises. 
 
5. (SBU) The incoming Administration will also focus on the 
environment, immediately launching a reforestation program 
in Eastern Peru.  This program will reforest 100,000 
hectares while creating $500 million in exports and 50,000 
jobs.  Cornejo and Environmental Advisor Jose Salazar 
described the need to revise the forestry concession law, 
and noted their extensive work with environmental NGOs to 
develop workable forestry management plans.  Salazar also 
noted that Garcia plans to create a $100 million fund to 
finance water projects, both for agriculture and drinking 
water.  Donors and multilateral development banks will 
provide the majority of the financing, with the GOP 
providing $10 million.  Salazar claimed to be well along in 
securing commitments for the fund, but mentioned a desire 
for U.S. Environmental Protection Agency technical 
assistance for the fund's structuring and management plan. 
By November 30, stressed Cornejo and the other APRA 
participants, the water program needs to show some solid 
results.  Salazar is coordinating with APCI (the GOP's 
technical cooperation agency) on the best projects to 
implement in the short term. 
 
Timeline for Priorities 
----------------------- 
 
6. (SBU) Cornejo acknowledged that Garcia will not have a 
honeymoon period to develop his programs.  He underlined 
that the APRA transition team, the outgoing Toledo 
Administration and foreign donors must work together to 
coordinate priorities before July 28.  President-elect 
Garcia will announce his priority programs during his 
inauguration speech.  Some of these programs, particularly 
those mentioned above, should already be in the 
implementation stage as a result of coordination with the 
outgoing government.  Garcia hopes that these priority 
programs, which focus on eliminating poverty and providing 
access to potable water, will help win back APRA votes in 
the upcoming November 30 regional elections, particularly in 
the Southern Andes. 
 
Continuing Macroeconomic Success 
-------------------------------- 
 
7. (SBU) Cornejo acknowledged that the Toledo government is 
leaving Garcia a stable macroeconomic situation.  Although 
Toledo's management of the macro economy was good, Cornejo 
pointed out that high export commodity prices played a key 
role in increasing the value of exports.  Peru now has to 
plan for the day when world metals prices drop.  Cornejo 
said that Garcia wants to keep the deficit at one percent of 
GDP, but noted that the Garcia team would be speaking with 
the multilateral banks to explore how Peru's macroeconomic 
health could be maintained with some slight adjustments to 
debt ratios.  Garcia also sees the need to manage public 
expenditures and will mention austerity in his inauguration 
speech.  The new government must control public salaries in 
order to have funding for poverty reduction programs. 
 
8. (SBU) Cornejo agreed with the Ambassador on the 
importance of the FTA in connectiQle to their own 
national/domestic markets as well as to foreign markets. 
Cornejo reiterated that the United States Government and 
APRA need to work together to create a short and medium term 
agenda that includes FTA implementation and other common 
priorities. 
 
Garcia's Plans for the Mining Sector 
------------------------------------ 
 
9. (SBU) We discussed the difficulties in the mining sector 
with the APRA Economic Team.  Cornejo acknowledged that 
mining companies pay high taxes, but that municipalities 
have trouble accessing the mining canon.  The canon is 
important to addressing poverty; the new Administration 
would seek to redress the imbalance in canon distribution 
that has led to complaints and a disconnect between the 
companies, the people and the municipal governments. 
 
10.  (SBU) Cornejo said the government would not interfere 
with the mining sector's tax stability agreements.  He 
emphasized the popular sentiment that these firms were not 
paying taxes, or enough taxes, was wrong.  But the public 
rightly complains of too little benefit from the canon and 
public budgets.  He described a cultural problem in Peru, 
where municipal governments elect to do small, easy and 
symbolic projects, such as building a new municipal plaza or 
office, over more needed public works.  The government 
instead must focus on regional projects that benefit the 
public. 
 
Institutional Reforms 
--------------------- 
 
11.  (SBU) Cornejo concurred with the Ambassador of the 
necessity to reform state institutions.  Judicial reform is 
paramount, but the Garcia government must maintain the 
autonomy of the judiciary.  Cornejo mentioned discussions 
with GOP Dispute Coordinator Aurelio Loret de Mola, noting 
how these disputes created difficulties for Peru and the 
rule of law.  Cornejo also agreed with the AID Director on 
the need for alternative dispute resolution mechanisms,  and 
observed the recent improvements in the AID-sponsored Lima 
Commercial Courts system. 
 
12. (SBU) SUNAT, the GOP tax agency, was also singled out 
for reform.  Cornejo had no complaint with SUNAT employee 
ethics, but observed that SUNAT's aggressive approach was 
not always in the best interests of the government or 
people, and had led to disputes with U.S. firms.  Other 
reforms included making the Vice Ministry of Fisheries, 
currently under the Ministry of Production into a separate 
ministry.  Cornejo also talked of the need to reform 
government procurement policies.  The economic team 
acknowledged the importance of land titling, but also agreed 
with the continuing institutional challenges -- and great 
expense -- faced by the GOP and USAID in its efforts to work 
this issue. 
 
Comment 
------- 
 
13. (SBU) The possible win of a number of Humala supporters 
in many of the local and regional elections, with a 
resulting opposition front to the national government -- in 
which Garcia already does not have a Congressional majority 
-- makes November 30 critical for the poor voters who have 
supported Humala.  Garcia will indeed have no honeymoon, and 
his July 28 speech will be compared with Toledo's ambitious 
promises and Garcia's past record of poor governance.  We 
expect that the incoming government will move quickly to 
implement poverty reduction policies in the Southern Andes. 
We were impressed by Cornejo's openness in attributing what 
he sees as their major challenges and APRA's positive 
assessment of the macro economic situation they will 
inherit.  Clearly, he views the United States government as 
an ally in moving Peru forward under Garcia. 
 
STRUBLE