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Viewing cable 07LIMA2542, SCENESETTER FOR UNDERSECRETARY HUGHES

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Reference ID Created Released Classification Origin
07LIMA2542 2007-07-26 20:13 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0000
PP RUEHWEB

DE RUEHPE #2542/01 2072013
ZNR UUUUU ZZH
P 262013Z JUL 07
FM AMEMBASSY LIMA
TO RUEKJCS/SECDEF WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 6282
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 1729
RUEHBO/AMEMBASSY BOGOTA PRIORITY 4902
RUEHBR/AMEMBASSY BRASILIA PRIORITY 7477
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2999
RUEHCV/AMEMBASSY CARACAS PRIORITY 0613
RUEHLP/AMEMBASSY LA PAZ JUL 4395
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 9237
RUEHQT/AMEMBASSY QUITO PRIORITY 1355
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1402
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY
UNCLAS LIMA 002542 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV MARR ECON ETRD PHUM PE
SUBJECT: SCENESETTER FOR UNDERSECRETARY HUGHES 
 
Sensitive But Unclassified. Please handle accordingly. 
 
1.  (SBU) Summary: You will arrive in Peru as President Alan 
Garcia closes his first year in office with a bang and with a 
whimper.  The bang is the probable approval by the U.S. 
Congress of the U.S.-Peru Trade Promotion Agreement (PTPA). 
The PTPA has been the centerpiece of Garcia's 
market-oriented, investment-friendly economic strategy and 
should help Peru maintain its torrid economic growth, which 
reached nearly 8 per cent in 2006.  The whimper is the 
public's disappointment at the government's slow pace in 
converting that growth into palpable poverty reduction. 
Public frustration caused widespread protests in July and has 
eroded Garcia's popular support nationwide.  In relations 
with the United States, Garcia has emphasized the confluence 
of our mutual interests, most notably, in combating 
narco-trafficking, in promoting a democratic, free market 
vision of society, and in countering the regional security 
threat posed by President Hugo Chavez's "Bolivarianism." 
Peru's economic boom and a talented Cabinet eager to address 
the challenges facing the country suggest that the democratic 
consolidation witnessed during Garcia's first year in office 
will continue.  End Summary. 
 
--------------------- 
Garcia after One Year 
--------------------- 
 
2.  (SBU) You will arrive in Peru just after the 
administration celebrates one year in office, on July 28 -- a 
time when news stands and airways traditionally are filled 
with intensive appraisals of the government's performance. 
The news is mixed.  Since taking office, Garcia has calmed 
skeptics who feared a return to the economic mismanagement 
and populist spending of his first term (1985-1990). 
Instead, he has stayed the economic course carved out by his 
predecessor Alejandro Toledo, maintaining macro-economic 
stability (less than 1 per cent inflation) and overseeing the 
sixth straight year of impressive GDP growth, almost 8 per 
cent in 2006 and more than 7 percent in 2007, despite a 
recent drop in commodity prices. 
 
3.  (SBU) Garcia, moreover, appears poised to achieve his top 
strategic goal: approval by the U.S. Congress of the PTPA. 
Peru's Congress overwhelmingly passed amendments 
strengthening key labor and environmental provisions June 27, 
and the agreement now awaits final approval by the U.S. 
Congress.  PTPA approval would provide a powerful political 
boost for Garcia, give Peruvian exports permanent, 
tariff-free access to the U.S. market, and help ensure 
continued strong economic growth. 
 
------------------- 
The Need to Deliver 
------------------- 
 
4.  (SBU) The GOP's principal domestic policy goal has been 
to convert this solid economic performance into palpable 
benefits for all Peruvians.  According to the National 
Statistics and Information Institute, in 2006 44 per cent of 
Peruvians lived in poverty, a 4 percent drop from 2004, a 
result of the macroeconomic policies pursued by ex-president 
Alejandro Toledo.  But this reduction in poverty largely took 
place within the relatively prosperous coastal provinces, 
leaving stubbornly high poverty rates  -- as  high as 70 to 
80 percent -- in the politically volatile southern Sierra 
region where Garcia has never been popular.  Senior officials 
recognize the urgent need to reduce poverty and provide 
better social services -- particularly quality education in 
public schools and greater access to health care.  In 
response, the Garcia administration has pursued a host of 
initiatives, including building access to clean drinking 
water for poor rural and urban communities, linking small 
rural producers to national and international markets, 
expediting the flow of public purchases and investments, and 
transferring bureaucratic functions to regional and municipal 
governments. 
 
5.  (SBU) The GOP, however, has bumped against the structural 
limitations of a dilapidated and often dysfunctional state. 
The underlying problem is that state mechanisms, particularly 
at the local level, have proven incapable of administering 
the abundant resources made available by the economic boom. 
Another aspect of the problem is the lack of talented 
administrators, who have fled to better paying jobs in Lima, 
leaving municipalities unable to manage basic public services. 
 
-------------------------- 
Protests and Falling Polls 
-------------------------- 
 
6.  (SBU) Fairly or unfairly, the dearth of high-impact 
projects has been perceived by many as a failure by 
government to deliver on its campaign promises, resulting in 
a steady erosion of Garcia's popular support: in August he 
received a 63 per cent approval rating, which had dropped to 
36 per cent by July 2007.  The Peruvian Congress has fared 
even worse and in recent national polls received an approval 
rating of less than 17 per cent, a result of a series of 
scandals that involved fifteen of Peru's 120 legislators. 
Despite his growing unpopularity, Garcia shows no sign of 
abandoning his pro-market economic vision and returning to 
the ill-fated populism that marred his first term.  By 
comparison, Toledo received only a 16 percent approval rating 
after his first year in office. 
 
7.  (SBU) Pent-up frustration at the slow pace of reform 
fueled a tumultuous month of protests in July, when a total 
of 35 major protests took place in 16 of Peru's 24 
departments.  A wide variety of causes sparked the unrest: 
teachers protesting mandatory testing; miners seeking an end 
to subcontracting; regional presidents calling for more 
public works; and ne'er do wells seizing the chance to sow 
trouble.  The GOP proved adept at addressing the localized 
causes of the unrest, and so far, the widely-separated 
demonstrations have failed to produce a national movement, 
although Peruvian officials are convinced that Venezuelan 
money is helping organizers coordinate more effectively. 
Even though Caracas remains active in trying to exploit 
localized discontent, poverty and discrimination remain the 
fundamental causes of unrest.  Although strikes have largely 
ended, the cycle  of protest could resume during your trip. 
 
-------------- 
Foreign Policy 
-------------- 
 
8.  (SBU) Garcia's foreign policy aims to complement his 
domestic focus on growth-led poverty reduction by 
prioritizing ties with pragmatic integration-minded, 
pro-growth countries, including Chile.  Steps to intensify 
and expand Peru's relationship with Chile have been at the 
center of this effort and engendered what the GOP sees as an 
informal "axis" of Pacific coast nations -- including Chile, 
Peru, Colombia and Mexico -- that can counterbalance the 
destabilizing influence of Chavez in the region.  The point 
of this pragmatic posture is to demonstrate that 
trade-friendly democracies offer more opportunities than that 
static, state-dominated alternative.  The momentum for a 
closer working relationship with Chile was slowed by the 
GOC's July 11 decision not to extradite former president 
Alberto Fujimori (the GOP has appealed), but most critics 
blamed the Toledo Administration for submitting a flawed 
legal brief, and Garcia is likely to continue the pragmatic 
orientation of his regional policy. 
 
--------------------- 
Relations with the US 
--------------------- 
 
9.  (SBU) Garcia's emphasis on deeds and results, not 
rhetoric or confrontation, has coincided with a period of 
intense and productive relations with the USG.  Garcia sees 
strong ties with the U.S. as an essential component of both 
his economic and security policies.  He has traveled to 
Washington twice, first in October 2006 and again in May, 
when he met with President Bush and a number of key 
congressional leaders to underscore the importance of the 
PTPA.  Garcia has personally received a stream of official 
U.S. visitors to Peru, including Deputy Secretary of State 
Negroponte, Treasury Secretary Paulson, and then-Director of 
Foreign Assistance Tobias.  He has also received several 
congressional delegations, including the high profile visit 
of Senate Majority leader Reid.  President Garcia's foreign 
policy team has been pleased by the policy attention from 
Washington. 
 
10.  (SBU) The Garcia government has also proven to be a 
reliable U.S. partner as a rotating member of the UN Security 
Council.  Peru has supported a number of key U.S. and 
European UNSC initiatives, including on North Korea, Sudan, 
Iran, Haiti and Kosovo.  While Peru has sought to avoid 
controversy and to support consensus positions, bilateral 
calculations have tipped the scales in most of the 
government's decisions, which Garcia has often taken himself. 
 In his meetings with President Bush, Garcia has demonstrated 
a keen engagement with issues of global security, 
particularly on Iran and North Korea. 
 
11.  (SBU) In the fight against drug trafficking, Garcia has 
emphasized publicly that counter-narcotics efforts, including 
forced eradication, will continue, and he has vowed that 
there "would be no treaty in the war against drugs."  Part of 
Garcia's strong public stance was a reaction to the 
unauthorized talks that former Agriculture Minister Juan Jose 
Salazar held with cocaleros in the early part of 2007, talks 
that emboldened cocalero leaders to seek more concessions 
through protests.  Garcia sacked Salazar May 22 and replaced 
him with a respected businessman who said he would not allow 
cocaleros to dominate his ministry's agenda.  UN figures 
showed coca cultivation increased slightly in 2006. 
 
12.  (SBU) Finally, the GOP shares a strikingly similar world 
view with the United States, particularly with respect to the 
nature of the security threats we face in the region and 
around the globe.  In this connection, Peru sees 
transnational threats such as narcotics trafficking, 
terrorism, smuggling, trafficking in persons, and piracy as 
the main menaces facing the region.  The GOP remains 
concerned about Venezuela's attempts to foment instability 
and fuel conflict in marginalized sectors of Peruvian society. 
STRUBLE