TOLEDO AT THE HELM

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 003418 SIPDIS CONFIDENTIAL PAGE 02 LIMA 03418 01 OF 03 191454Z E.O. 12958: DECL: 06/11/06 TAGS: PGOV PHUM KDEM PHUM KDEM PHUM KDEM PE PEPGOV PEPGOV SUBJECT: TOLEDO AT THE HELM REF: LIMA 03297 CLASSIFIED BY AMBASSADOR JOHN R. HAMILTON FOR REASONS 1.5(B) AND 1.5(D). ¶1. (C) SUMMARY: ALEJANDRO TOLEDO WAS TENACIOUS IN HIS STRUGGLE TO REACH THE PRESIDENCY AND WILL APPLY THE SAME TENACITY TO SUCCEED IN OFFICE. HE COMES TO OFFICE WITH NO GOVERNMENT OR MANAGEMENT EXPERIENCE, HOWEVER, AND HIS PROPENSITY TO BE A ONE-MAN SHOW CAN BE A NAGGING SHORTCOMING. NONETHELESS, IN OUR VIEW, HE WILL ULTIMATELY EXERCISE SOUND JUDGMENT. HE FACES THE PRESSURE OF EXORBITANT CAMPAIGN PROMISES, EXPECTATIONS THAT A VICTORY FOR DEMOCRACY CAN SPEEDILY RESOLVE PERU'S ILLS, AND POLITICAL DEBTS. HE ALSO FACES DIFFICULT ECONOMIC CONDITIONS. IT IS THE ECONOMY WHERE HE WILL FOCUS, WHILE TRYING TO GIVE OTHER PRIORITIES, SUCH AS JUDICIAL AND MILITARY REFORM, THEIR DUE. INTERNATIONALLY, HE WILL PURSUE AN INDEPENDENT COURSE, WHICH NEVERTHELESS WILL BE IN ACCORD WITH US MUCH OF THE TIME, AND BE LESS CONCERNED ABOUT BEING IN LOCKSTEP WITH PERU'S NEIGHBORS. WHETHER HIS GOVERNMENT SUCCEEDS OR FAILS WILL ALSO BE SEEN AS A TEST FOR DEMOCRACY. END SUMMARY. GOVERNING STYLE =============== CONFIDENTIAL PAGE 03 LIMA 03418 01 OF 03 191454Z ¶2. (C) WHEN ALEJANDRO TOLEDO ASSUMES THE PRESIDENCY JULY 28, HE WILL BRING TO OFFICE A STRONGLY PERSONAL ONE-MAN STYLE. DECISION-MAKING WILL RESIDE WITH HIM AS IT HAS DURING THE CAMPAIGN. ALTHOUGH HE TALKS A GOOD GAME ABOUT EMPOWERING HIS MINISTERS, TOLEDO HAS NOT PROVEN ABLE TO DELEGATE AUTHORITY. A SOLITARY LEADER, HE DOES NOT EASILY EXTEND HIMSELF OR HIS TRUST TO OTHERS. CLOSEST TO HIM IS HIS WIFE, ELIANE KARP. NEGATIVE PERCEPTIONS OF HER INFLUENCE HAVE LED THE TOLEDO CAMP TO LOWER HER PROFILE TEMPORARILY, BUT HER INFLUENCE IS SIGNIFICANT AND WILL LIKELY GROW. ¶3. (C) ALSO AFFECTING TOLEDO'S PERSONAL STYLE IS HIS NEED FOR AFFIRMATION, DOMESTIC AND INTERNATIONAL. AT HOME, THIS CHARACTERISTIC, ACCORDING TO CRITICS, BRINGS HIM TO THE BORDERS OF A MESSIANIC COMPLEX. AFTER THE VINDICATION OF HIS ROLE IN RETURNING DEMOCRACY TO PERU, TOLEDO NOW SEES HIMSELF AS SINGLE-HANDEDLY RESPONSIBLE FOR LIFTING PERU OUT OF POVERTY OR, AT A MINIMUM, OUT OF ECONOMIC RECESSION. THE TEST OF THE TOLEDO GOVERNMENT ON ECONOMIC ISSUES IS ALSO THE TEST OF TOLEDO THE MAN - HIS PERSONAL SUCCESS OR FAILURE BOUND UP WITH THAT OF HIS GOVERNMENT. ON THE INTERNATIONAL SCENE, TOLEDO'S NEED FOR APPROVAL INFLUENCES HIS ATTITUDE TOWARDS THE USG. HE HARBORS SOME RESENTMENT, FOR EXAMPLE, THAT WE DID NOT BACK HIM OPENLY WHEN HE OPPOSED FUJIMORI AND SOUGHT INTERNATIONAL RECOGNITION. HE WILL EXPECT TO BE TREATED ON EQUAL FOOTING WITH WORLD LEADERS, INCLUDING WITH PRESIDENT BUSH, AND WILL USE THE ATTENTION ACCORDED HIM BY OTHERS, REGARDLESS OF THE MERITS OF THE COMPARISON, AS A BASELINE. CONFIDENTIAL PAGE 04 LIMA 03418 01 OF 03 191454Z ¶4. (C) THE POSITIVE SIDE OF TOLEDO'S INDIVIDUALISM IS HIS TENACITY AND HIS DETERMINATION TO SUCCEED. HE IS PROUD OF BEING A FIGHTER, DEMONSTRATED IN HIS TWO-YEAR STRUGGLE TO GET TO THE PRESIDENTIAL PALACE. HE COMES TO THE JOB, HOWEVER, WITH NO EXPERIENCE AS AN ELECTED OFFICIAL OR IN MANAGEMENT. THIS SHORTCOMING WILL MAKE THE DECISION-MAKING PROCESS IN TOLEDO'S GOVERNMENT APPEAR DYSFUNCTIONAL, BUT WE BELIEVE TOLEDO'S DECISIONS ON THE KEY ISSUES OF IMPORTANCE TO THE U.S. WILL ULTIMATELY BE THE RIGHT ONES. PRESSURES ========= ¶5. (C) CHIEF AMONG THE PRESSURES TOLEDO WILL FACE ARE THE EXPECTATIONS HE HAS RAISED WITH HIS CAMPAIGN PROMISES. NEWSPAPERS HAVE PUBLISHED LISTS OF THEM AND THERE ARE MANY THAT WILL BE KEEPING SCORE. ONE ANTI-TOLEDO DAILY, FOR EXAMPLE, DID NOT WAIT A DAY AFTER THE JUNE 3 ELECTIONS TO HIGHLIGHT THAT TOLEDO ADVISORS HAD ALREADY BACKTRACKED ON TWO PROMISES RELATED TO TAXES. TOLEDO'S POPULAR SUPPORT WILL HELP HIM WEATHER MUCH OF THE CRITICISM, AT LEAST IN THE FIRST THREE TO SIX MONTHS IN OFFICE. HE IS AWARE THAT HE HAS TO BE PUBLICLY AGGRESSIVE IN REDUCING THOSE EXPECTATIONS, AND HAS ALREADY BEGUN TO DO SO, SPEAKING OF CONFIDENTIAL CONFIDENTIAL PTQ8213 PAGE 01 LIMA 03418 02 OF 03 191454Z ACTION WHA-00 INFO LOG-00 NP-00 AID-00 AMAD-00 CIAE-00 SMEC-00 INL-00 DODE-00 DOEE-00 SRPP-00 DS-00 EB-00 EUR-00 VC-00 H-01 TEDE-00 INR-00 IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02 OIG-03 OMB-01 OPIC-01 PA-00 PC-01 PM-00 PRS-00 ACE-00 P-00 SP-00 STR-00 TRSE-00 USIE-00 PMB-00 DSCC-00 PRM-01 DRL-02 G-00 NFAT-00 SAS-00 /013W -------------- FAC8F9 191454Z /38 P 191453Z JUN 01 FM AMEMBASSY LIMA TO SECSTATE WASHDC PRIORITY 0718 INFO AMEMBASSY ASUNCION AMEMBASSY BOGOTA AMEMBASSY BRASILIA AMEMBASSY BUENOS AIRES AMEMBASSY CARACAS AMEMBASSY GUATEMALA AMEMBASSY LA PAZ AMEMBASSY MADRID AMEMBASSY MEXICO AMEMBASSY MONTEVIDEO AMEMBASSY QUITO AMEMBASSY SANTIAGO USCINCSO MIAMI FL C O N F I D E N T I A L SECTION 02 OF 03 LIMA 003418 SIPDIS CONFIDENTIAL PAGE 02 LIMA 03418 02 OF 03 191454Z E.O. 12958: DECL: 06/11/06 TAGS: PGOV PHUM KDEM PHUM KDEM PHUM KDEM PE PEPGOV PEPGOV SUBJECT: TOLEDO AT THE HELM THE NEED FOR PATIENCE. ¶6. (C) THERE IS ALSO THE QUESTION OF WHAT HE MAY OWE POLITICALLY TO HIS CAMPAIGN'S SUPPORTERS. WITH ONLY RUDIMENTARY CAMPAIGN FINANCING RULES, THERE IS LITTLE INFORMATION ABOUT POSSIBLE FINANCIAL BACKERS AND THEIR INTERESTS. WITH THE EXCEPTION OF THE ONE MILLION DOLLARS GEORGE SOROS' OPEN SOCIETY PROVIDED FOR THE JULY 2000 ANTI- FUJIMORI PROTESTS (CUATRO SUYOS),ONLY MEDIA BUSINESSMAN BARUCH IVCHER HAS BEEN IDENTIFIED AS A CONTRIBUTOR. THERE ARE RUMORS THAT ANOTHER, SOMEWHAT UNSAVORY BUSINESSMAN, LEON RUPP, HAS BEEN A MAJOR BACKER. RAUL DIEZ CANSECO, THE FIRST VP FROM AN OLD, WEALTHY LIMA FAMILY, ALSO HELPED TO BANKROLL TOLEDO'S CAMPAIGN. ¶7. (C) TOLEDO'S MOST PROMINENT POLITICAL DEBT IS TO MORALIZING INDEPENDENT FRONT (FIM) LEADER FERNANDO OLIVERA. FIM PLAYED THE CAMPAIGN ATTACK DOG AGAINST APRA'S ALAN GARCIA AND PLEDGED ITS ELEVEN LEGISLATORS TO BACK TOLEDO IN THE CONGRESS. OLIVERA, HOWEVER, IS NOT VIEWED AS A RELIABLE POLITICAL PARTNER (REFTEL). THE KEY FOR TOLEDO WILL BE TO BALANCE ANY REWARDS FOR OLIVERA AGAINST MAINTAINING COHESION IN HIS OWN PARTY'S RANKS. WITHOUT THE FIM, THE ONLY OTHER SUBSTANTIAL CONGRESSIONAL BLOC TOLEDO HAS SUCCESSFULLY COURTED, TOLEDO'S LEGISLATIVE AGENDA MAY SUFFER. CONFIDENTIAL PAGE 03 LIMA 03418 02 OF 03 191454Z YES, IT'S THE ECONOMY ===================== ¶8. (C) TOLEDO WILL FOCUS HIS ENERGIES ON THE ECONOMY, WHERE HE IS DESPERATE TO GET POSITIVE GROWTH FAST. HE HAS STAKED MUCH ON REVITALIZING THE AGRICULTURE SECTOR, GENERATING EMPLOYMENT AND BRINGING PERU OUT OF RECESSION. HE HAS A SOLID, IF SOMEWHAT ECLECTIC, ECONOMIC TEAM AND IS BANKING ON THE LYNCHPIN CABINET APPOINTMENT OF WELL KNOWN INVESTMENT BANKER PEDRO PABLO KUCZYNSKI. HIS TWO VICE PRESIDENTS, RAUL DIEZ-CANSECO AND DAVID WAISMAN, BRING BUSINESS EXPERIENCE TO THE LEADERSHIP TEAM. ¶9. (C) THE ANTENNAE ARE OUT, HOWEVER, FOR POSSIBLE TURNING POINTS IN HOW TOLEDO HANDLES ECONOMIC MATTERS WHEN THESE ARE TOUGH ISSUES AND POTENTIALLY COMPETING ADVICE AND INTERESTS. ONE FEAR IS THAT HE MAY RESORT SIMPLY TO HIS OWN ECONOMICS EXPERTISE RATHER THAN RELYING ON OR LISTENING TO ADVISORS. ANOTHER IS THE POSSIBILITY THAT HE MAY BEGIN TO PURSUE POPULIST MEASURES IN RESPONSE TO SOCIO-ECONOMIC PRESSURES AS HIS ECONOMIC RECOVERY PROGRAM EITHER TAKES LONGER THAN EXPECTED OR DOES NOT MEET EXPECTATIONS. ¶10. (C) NON-DOMESTIC FACTORS, BEYOND TOLEDO'S CONTROL, WILL ALSO INFLUENCE HOW HE DOES ON THE ECONOMY. ON A MACRO-LEVEL, A SLOW DOWN IN THE U.S. AND WORLD ECONOMIES WILL HAVE A SIGNIFICANT EFFECT. IF THE U.S. ECONOMY SLIDES, EVEN GOOD DECISIONS MAY NOT HAVE THE DESIRED EFFECT. WORLD PRICES FOR PERU'S COMMODITIES AND THE POSSIBLE RETURN OF THE DESTRUCTIVE EL NINO WEATHER PATTERN ARE ADDITIONAL FACTORS THAT COULD AFFECT PERU'S GROWTH IN CONFIDENTIAL PAGE 04 LIMA 03418 02 OF 03 191454Z THE COMING YEARS. MORE SPECIFICALLY, HOW THE ANDEAN TRADE PREFERENCES ACT (ATPA) FARES IN THE U.S. CONGRESS WILL ALSO BE IMPORTANT. ¶11. (C) IN ADDITION TO THE ECONOMY, WE CAN EXPECT TOLEDO TO DEVOTE ATTENTION TO JUDICIAL REFORM AND TO THE MILITARY. THE INDEPENDENCE OF THE JUDICIARY HAS RECEIVED A STRONG BOOST UNDER THE PANIAGUA GOVERNMENT AND IT IS LIKELY TO REMAIN ON THE SAME TRACK UNDER TOLEDO. NEVERTHELESS, ALTHOUGH JUDICIAL INDEPENDENCE HAS BEEN LARGELY RESTORED TO THE STATUS QUO ANTE FUJIMORI, THE PERUVIAN JUDICIAL SYSTEM REMAINS IN DIRE NEED OF RADICAL REFORM AND MODERNIZATION. THE MILITARY, DISCREDITED FOR ITS CORRUPT LINKS TO FORMER INTELLIGENCE ADVISOR VLADIMIRO MONTESINOS, FACES AN UNSYMPATHETIC MASTER IN TOLEDO. HE HAS PUT THE ARMED FORCES ON NOTICE ABOUT PURSUING CORRUPTION AND ABUSES, FAVORS MILITARY BUDGET CUTS AND WILL PRESS FOR GREATER CIVILIAN CONTROL. TOLEDO ON THE WORLD STAGE ========================= ¶12. (C) TOLEDO IS UNLIKELY TO PURSUE POLICIES INIMICAL TO THE UNITED STATES. FAMILIAR WITH THE SCOPE OF THE CONFIDENTIAL CONFIDENTIAL PTQ8211 PAGE 01 LIMA 03418 03 OF 03 191454Z ACTION WHA-00 INFO LOG-00 NP-00 AID-00 AMAD-00 CIAE-00 SMEC-00 INL-00 DODE-00 DOEE-00 SRPP-00 DS-00 EB-00 EUR-00 VC-00 H-01 TEDE-00 INR-00 IO-00 L-00 VCE-00 AC-01 DCP-01 NSAE-00 NSCE-00 OIC-02 OIG-03 OMB-01 OPIC-01 CAEX-01 PA-00 PC-01 PM-00 PRS-00 ACE-00 P-00 SP-00 STR-00 TRSE-00 USIE-00 PMB-00 DSCC-00 PRM-01 DRL-02 G-00 NFAT-00 SAS-00 /015W -------------- FAC904 191454Z /38 P 191453Z JUN 01 FM AMEMBASSY LIMA TO SECSTATE WASHDC PRIORITY 0719 INFO AMEMBASSY ASUNCION AMEMBASSY BOGOTA AMEMBASSY BRASILIA AMEMBASSY BUENOS AIRES AMEMBASSY CARACAS AMEMBASSY GUATEMALA AMEMBASSY LA PAZ AMEMBASSY MADRID AMEMBASSY MEXICO AMEMBASSY MONTEVIDEO AMEMBASSY QUITO AMEMBASSY SANTIAGO USCINCSO MIAMI FL C O N F I D E N T I A L SECTION 03 OF 03 LIMA 003418 SIPDIS CONFIDENTIAL PAGE 02 LIMA 03418 03 OF 03 191454Z E.O. 12958: DECL: 06/11/06 TAGS: PGOV PHUM KDEM PHUM KDEM PHUM KDEM PE PEPGOV PEPGOV SUBJECT: TOLEDO AT THE HELM BILATERAL RELATIONSHIP, HE WILL NONETHELESS SEEK TO ENSURE HE MAKES HIS MARK. IN COUNTER NARCOTICS, FOR EXAMPLE, TOLEDO WILL LIKELY SUPPORT COCA ERADICATION, BUT HE WILL INSIST ON CREATING JOBS FOR FORMER COCA GROWERS. TO ASSIST THESE FARMERS, TOLEDO WILL LIKELY ARGUE FOR TRADE PREFERENCES ON TEXTILES AND OTHER PRODUCTS. IN SUPPORTING ALTERNATIVE DEVELOPMENT, TOLEDO WILL FAVOR ALTERNATIVE CROPS, BUT HE MAY PROMOTE INTERNATIONAL PRICE SUPPORTS. OVERALL, TOLEDO HAS INDICATED HE WILL TAKE A HARD LINE AGAINST NARCOTICS TRAFFICKERS. ¶13. (C) UNLIKE THE INTERIM PANIAGUA GOVERNMENT, WHICH FAVORED WORKING IN CONSENSUS WITH ITS NEIGHBORS REGARDLESS OF DIFFERENCES, TOLEDO WILL PLAY A MORE INDEPENDENT ROLE IN REGIONAL RELATIONS. LINKS WITH BRAZIL WILL NEED REPAIR AFTER THE RECENT HISTORY OF BRAZILIAN FAVORING OF FUJIMORI AND OF ONE OF TOLEDO'S FIRST ROUND OPPONENTS, LOURDES FLORES NANO. SIMILARLY, THERE IS NO LOVE LOST WITH VENEZUELA'S HUGO CHAVEZ, REGARDED BY TOLEDO AND MANY IN HIS CAMP AS THE ANTI-DEMOCRAT. IN ADDITION, THERE IS THE COMMON PERCEPTION THAT, IN PART THANKS TO CHAVEZ, MONTESINOS HAS BEEN SUCCESSFUL IN REMAINING A FUGITIVE. BOTTOM LINE =========== ¶14. (C) TOLEDO HIMSELF HAS GENERATED HIGH EXPECTATIONS FOR CONFIDENTIAL PAGE 03 LIMA 03418 03 OF 03 191454Z HIS PRESIDENCY. HIS EVERY ACTION WILL BE SUBJECT TO SCRUTINY. AND JUST AS HE SEEKS TO PUT HIS PERSONAL MARK ON HIS TENURE, SO WILL HE BE HELD PERSONALLY RESPONSIBLE. BUT THERE IS MORE AT STAKE IN PERU THAN WHETHER TOLEDO SUCCEEDS OR FAILS. THE DEMOCRATIC PROCESS GAVE PERUVIANS A CHOICE BETWEEN TWO -- FOR MANY UNPALATABLE -- CANDIDATES. HOW WELL TOLEDO FARES WILL ALSO BE SEEN AS A TEST FOR DEMOCRACY IN PERU AND THE REGION. HAMILTON CONFIDENTIAL >