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Viewing cable 07LIMA3060, SCENESETTER FOR THE VISIT OF SECRETARY GUTIERREZ

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Reference ID Created Released Classification Origin
07LIMA3060 2007-09-11 19:53 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0011
OO RUEHWEB

DE RUEHPE #3060/01 2541953
ZNR UUUUU ZZH
O 111953Z SEP 07
FM AMEMBASSY LIMA
TO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 6795
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 5054
RUEHZP/AMEMBASSY PANAMA PRIORITY 0860
UNCLAS LIMA 003060 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON OVIP
SUBJECT: SCENESETTER FOR THE VISIT OF SECRETARY GUTIERREZ 
TO PERU 
 
 1.  (SBU) Summary: You will arrive in Peru at a good time 
for President Alan Garcia.  Last month, the government 
statistics office declared that poverty rates had declined 
significantly to 44.5%.  Last week, President Garcia took his 
first steps on the world stage at the APEC Summit in Sydney, 
an event Peru will host in 2008, calling for a new 
political-economic architecture for the Pacific Rim.  This 
week's polls show his approval ratings rebounding as a result 
of his government's strong response to the August 15 
earthquake that left over 500 dead and many more injured. 
The next likely event is the long-hoped for likely 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 8 per cent in 2006.  Garcia's skillful 
blend of patience and pragmatism has pushed the PTPA forward 
as the focus of the government's efforts to spread the 
benefits of trade-led growth to the Peruvian population left 
behind.  The PTPA would also bolster Peru's place among 
pro-market democracies, providing a successful example that 
contrasts with Bolivarian alternatives. 
 
2. (SBU)  Nevertheless, Garcia still faces public skepticism 
about the government's slow pace in converting that growth 
into palpable poverty reduction.  Public frustration caused 
widespread protests in July and had 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 
--------------------- 
 
3.  (SBU) 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 2 per cent inflation) and overseeing the sixth straight 
year of impressive GDP growth, 8% in 2006 and more than 7% 
projected for 2007. 
 
4.  (SBU) Garcia, moreover, appears poised to achieve his top 
strategic goal:  approval by the U.S. Congress of the PTPA. 
On June 27, Peru's Congress overwhelmingly passed the labor 
and environmental amendments requested by the U.S. Congress. 
The GOP also negotiated an understanding with U.S. 
Congressional leaders in August.  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.  A free trade 
agreement with the United States would also bolster Peru's 
place among pro-market democracies, providing a successful 
example in contrast to Bolivarian alternatives. 
 
------------------- 
The Need to Deliver 
------------------- 
 
5.  (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 44.5% of 
Peruvians lived in poverty, a 4% drop from 2004.  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% -- 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 
public education and greater access to health care, water and 
infrastructure.  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. 
 
6.  (SBU) The GOP, however, has often 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. 
 
------------------------------------ 
Steadiness Despite Public Impatience 
------------------------------------ 
 
7.  (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:  his 63% August 
2006 approval rating dropped to 36% by July 2007.  However, 
Garcia's dynamic efforts to take personal charge of 
earthquake relief efforts helped his popularity ratings 
rebound to close to 35%.  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. 
 
 
8.  (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 
-------------- 
 
9.  (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.  His bold call at the 
September 9 APEC summit in Sydney for a new political- 
economic architecture of the "Pacific Arc" is part of a 
series of efforts to expand relationships with both Latin and 
Asian partners in this region.  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 
--------------------- 
 
10.  (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 
2007, 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 USTR John Veroneau, 
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 visits of Senate Majority leader 
 
Reid and House Ways and Means Chairman Rangel.  President 
Garcia's foreign policy team has been pleased by the policy 
attention from Wahington. 
 
11.  (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. 
 
12.  (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. 
 
13.  (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. 
NEALON