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Viewing cable 06LIMA4519, GOP DECENTRALIZATION "SHOCK" A NECESSARY BUT

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Reference ID Created Released Classification Origin
06LIMA4519 2006-11-29 13:59 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0002
PP RUEHWEB

DE RUEHPE #4519/01 3331359
ZNR UUUUU ZZH
P 291359Z NOV 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 3128
INFO RUEHBO/AMEMBASSY BOGOTA 4135
RUEHBR/AMEMBASSY BRASILIA 7105
RUEHCV/AMEMBASSY CARACAS 9969
RUEHLP/AMEMBASSY LA PAZ NOV QUITO 0850
RUEHSG/AMEMBASSY SANTIAGO 0973
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHOND/DIRONDCP WASHDC
UNCLAS LIMA 004519 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV KDEM SNAR PE
SUBJECT: GOP DECENTRALIZATION "SHOCK" A NECESSARY BUT 
INCOMPLETE STEP FORWARD 
 
REF: A. LIMA 4451 
 
     B. 05 LIMA 4661 
     C. 05 LIMA 4634 
     D. 05 LIMA 4633 
     E. 05 LIMA 4217 
 
Sensitive But Unclassified. Please handle accordingly. 
 
Summary: 
------- 
1. (SBU) President Garcia has announced a series of measures 
to accelerate the GOP's decentralization process, including 
the transfer of many government functions and over $1 billion 
USD to the regions and municipalities in 2007.  The political 
motive behind the initiative is clear -- Garcia will be 
transferring substantial blame for poor services to 
mostly-opposition controlled regions and municipalities. 
Many local governments are unprepared to assume the new 
duties.  For all that, the Garcia proposal has some strong 
merits.  The Toledo government's effort to build professional 
capacity before transferring authorities moved too slow. 
Moreover, moving resources and decision-making closer to the 
people is a rational way to address the dangerous feelings of 
exclusion that this year's elections made so evident in 
Peru's highlands.  One controversial proposal in the package 
would cede parts of the GOP's control of the licit coca 
market to the Cuzco regional government.  End Summary. 
 
Garcia's decentralization "shock" 
--------------------------------- 
2. (U) President Garcia has declared that decentralization, 
or the transfer of government responsibility and resources 
from the national to the regional and municipal governments, 
is his most important state reform.  On 10/18 Garcia 
announced 20 measures to advance the GOP's decentralization 
process and moved up the deadline by three years for the 
central government to transfer certain financial and 
operational responsibilities to regional and local 
authorities. (Ref C, D).  In total, the package would shift 
185 government functions, including some social programs and 
3.5 billion soles (over $1 Billion USD) to regional and 
municipal governments by the end of 2007.  Significant 
elements in Garcia's package include: 
 
-- Through pilot projects, the national government will 
transfer primary health care and primary educational 
responsibilities to the municipalities; 
 
-- Regional governments will select and manage regional 
program directors, who currently report to the central 
government ministries; 
 
-- The regional government of Cuzco will assume the functions 
of the National Coca Company (ENACO) (see para 7); 
 
-- The national government will transfer road projects, 
financed by World Bank and International Development Bank 
credits, to the regions; 
 
-- The regions will manage electricity distribution; 
 
-- The Transportation and Communications Ministry will 
connect over 4000 communities to the internet in the next 
year; 
 
-- The government will offer tax incentives for municipal 
infrastructure projects and industry in the Andean highlands; 
 
-- The government will relaunch the process to form 
"megaregions" that stalled in October 2005 after failed 
referenda (ref B); and, 
 
-- The government will provide training for local and 
regional governments as they assume more responsibilities. 
 
All that glitters...? 
--------------------- 
3. (SBU) The head of USAID's Pro Decentralization Program 
(PRODES) told Poloff the proposals are a necessary step 
forward and the political will appears real, but he 
identified three concerns: 1) legal structures are lacking 
 
 
(i.e., an Organic Law for the Executive Branch, a Public 
Service Employment Law), 2) the would-be regional and local 
implementers need training and preparation to be able to 
successfully take over the responsibilities, and 3) the GOP's 
National Decentralization Council (CND) that will coordinate 
and facilitate the transition lacks the technical 
capabilities to do so. 
 
4. (SBU) USAID program experts highlighted three additional 
areas that need attention for the decentralization effort to 
be successful.  First, to date the GOP has made little 
progress on setting national standards for the delivery of 
services that now will be responsibility of regional and 
local government, raising the prospect of discrepancies in 
the quality of services provided by the regions.  Second, the 
national government agencies have a limited capacity to 
monitor local performance.  Third, decentralization raises 
complex financial management and accountability issues 
regarding the transparent transfer of resources from the 
central to the regional and local levels.  While the GOP has 
taken steps with a system to track general movements of 
resources, additional monitoring and oversight are necessary. 
 
5. (SBU) Some commentators have criticized the proposals as a 
collection of cherry-picked announced measures with political 
motivations.  The former head of the GOP's National 
Decentralization Council (CND), Luis Thais, in an "El 
Comercio" editorial said the measures were disjointed and 
lacked a focused vision and an integrated national strategy. 
Others speculated that the announcement was timed to benefit 
APRA in advance of the November regional and municipal 
elections.  The current head of the CND, who will oversee the 
transition, fed this skepticism when he told press after 
Garcia's announcement that he was unfamiliar with over a 
third of the measures.  Analysts in Arequipa told PolCouns 
that the regional and municipal governments doubt the central 
government's commitment and intentions, and will wait for 
tangible changes before they believe. 
 
6. (SBU) CND Technical Secretary Wilfredo Silva defended the 
GOP plan, but acknowledged that the schedule for transferring 
responsibility is ambitious and a major roadblock is the 
local and regional capacity to assume these new roles.  He 
blamed the skepticism surrounding decentralization on the 
prior government's lack of commitment, which was exacerbated 
following its decisive loss in the 2002 regional elections. 
 
ENACO to Cuzco - A Danger of Increased Coca Cultivation? 
--------------------------------------------- ----------- 
7. (U) One of the more controversial proposals is the 
transfer the National Coca Company (ENACO), which oversees 
management of the licit coca market, to the Cuzco regional 
government (Septel).  (Note: ENACO is the state-owned company 
responsible for buying and selling licit coca.  According to 
law, only the GOP through ENACO can commercialize coca. End 
Note.)  The GOP sent implementing legislation, which is still 
under consideration, to Congress for this transfer.  The 
draft law proposed that the national government retain two of 
the five seats on ENACO's governing board.  According to GOP 
proponents, this would allow the national government to 
ensure that ENACO maintains the licit coca control and 
marketing functions at a national level and that Peru 
complies with international treaty commitments. 
 
8. (SBU) Comment: Although 70 percent of Cuzco coca goes to 
narcotrafficking, Cuzco has the highest concentration of 
traditional coca users and the most suppliers of licit coca. 
Both we and the GOP are interested in driving a wedge between 
traditional licit producers and coca farmers who supply 
narcotraffickers.  Cuzco Regional President Carlos Cuaresma 
last year tried to strengthen his political hand with a 
regional ordinance, eventually overturned, that declared all 
coca in Cuzco legal (Ref E).  The challenge with the ENACO 
proposal will be to give Cuzco the appropriate traditional 
use status without letting regional politicians use it as a 
banner to "legitimate" newer coca that goes to 
narcotraffickers; the latter would only stimulate increased 
coca production.  End Comment. 
 
Comment: 
-------- 
 
9. (SBU) A massive shift in government authority is 
complicated in Peru because the country has always been 
highly centralized and has few domestic models to learn from. 
 Moreover, President Garcia's decentralization proposals are 
freighted with controversial political motives. Garcia knew 
even before the November 19 regional elections that his party 
would take a pasting in them; his rapid transfer downward of 
funds and responsibilities will make it harder for 
opposition-led regional governments and municipalities to 
blame the central government for poor services and 
infrastructure. 
 
10. (SBU) A fundamental challenge in Peru is the lack of 
citizen confidence in democratic institutions.  Pushing down 
responsibility for essential services to unprepared local and 
regional Governments without adequate preparation may 
exacerbate this problem.  At the same time, the profound 
feelings of exclusion that were so visible during the spring 
2006 national elections (and which fed Ollanta Humala's 
radical candidacy) are best addressed by putting more 
decisions and resources close to communities, particularly in 
the highlands. 
 
11.  (SBU) Given this mixed picture, the Garcia government's 
plan may be among the best choices in a menu of bad options. 
The Toledo administration's approach, which emphasized 
building capacity before transferring authority, moved so 
slowly that it was hard to see when the process would come to 
fruition.  Many local governments were in no hurry to assume 
more responsibility -- and blame -- for providing services. 
While Toledo can be justly faulted for giving only 
intermittent attention to decentralization, it is equally 
true that many regional/local governments appeared to give 
low priority to building the capacity to take on more 
functions.  There is justification for thinking that they 
need to be stressed by having a quicker-paced process thrust 
upon them.  Many unprepared governments will fail the test 
they are about to undergo.  It remains unclear whether and 
how the national government will address such failures. 
 
12.  (U) The Embassy, through USAID, has provided technical 
assistance to the key agencies and has trained nearly 
one-third of the country's municipalities and regional 
governments, but the need for additional capacity building is 
large.  We will remain engaged in supporting and 
consolidating the decentralization process as an important 
component of our efforts to promote good governance. End 
Comment. 
STRUBLE