FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE

C O N F I D E N T I A L SECTION 01 OF 04 LIMA 001190

SIPDIS

E.O. 12958: DECL: 03/07/2015
TAGS: PGOV ECON EINV ETRD PE
SUBJECT: FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE
WITH AMBASSADOR

REF: A. 04 LIMA 3839


B. 04 LIMA...

id: 28458
date: 3/9/2005 22:57
refid: 05LIMA1190
origin: Embassy Lima
classification: CONFIDENTIAL
destination: 04LIMA3839
header:
This record is a partial extract of the original cable. The full text of the original cable is not available.



-------------- header ends --------------

C O N F I D E N T I A L SECTION 01 OF 04 LIMA 001190

SIPDIS

E.O. 12958: DECL: 03/07/2015
TAGS: PGOV ECON EINV ETRD PE
SUBJECT: FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE
WITH AMBASSADOR

REF: A. 04 LIMA 3839


B. 04 LIMA 2405

C. 04 LIMA 1908

D. 04 LIMA 800

Classified By: Ambassador Curt Struble for Reason 1.4 (B, D)


1. (C) SUMMARY. The Ambassador met with former President
Alan Garcia on 2/28 at APRA Party Headquarters. Garcia
stressed the importance to APRA of forming inter-party
alliances for the 2006 presidential campaign, and said he
expected to enter into negotiations on an alliance with
former President Paniagua later this year. Garcia conceded
that President Toledo had done a decent job with the economy,
and said that despite pressures to the contrary, Economic
Minister Kuczynski was still trying to maintain fiscal
discipline in Toledo's last year in office. Garcia predicted
that Unidad Nacional legislator Antero Flores-Araoz would be
re-elected as President of Congress, and said that President
Toledo would definitely finish his term. He said FTA
negotiations should be wrapped up with relative ease, but
emphasized the importance to APRA of a good deal on
agriculture. Garcia offered to assist Embassy's efforts in
resolving the dispute between Exxon-Mobil and Peru's tax
authority, SUNAT. END SUMMARY.

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ELECTORAL POLITICS
--------------


2. (C) Ambassador referred to the public statements Garcia
had made recently about the need to form alliances for the
2006 presidential election, and asked how this might play
out. Garcia said it was clear that in the current scenario
no one party could expect to govern by itself. He recognized
that he had to be more realistic than in 1985, when APRA
thought it could change the world by itself. To the
contrary, the party's lack of experience in government hurt
it badly. Participating in a coalition, he said, would allow
APRA to develop the executive skills of its cadres. He had
tried to reach out to the Toledo Government in 2001 to help
it achieve broader support, and the political situation could
have been more stable now if Toledo had accepted his
overtures.


3. (C) Garcia acknowledged that he was a lightning rod, and
when he made public comments about forming political pacts,
it was natural this would stimulate rejection and rhetoric by
APRA's opponents. Fortunately, he had useful individuals
like party Co-SecGen Jorge Del Castillo, who was able to
serve as a bridge to other sectors, and when these matters
were discussed in private, all the parties conceded that
political alliances would be necessary. Important
consultations involving himself, Unidad Nacional leader
Lourdes Flores, and former Interim President Valentin
Paniagua, had already taken place with businessmen and other
sectoral leaders.


4. (C) Although he was personally impressed with Paniagua,
Garcia noted that in a practical sense, he is a man without a
party. (NOTE: Paniagua's once-dominant Popular Action Party
now holds three of 120 seats in the Congress. END NOTE.) He
said Paniagua wants to create a political front together with
left-wing Congressman Javier Diez Canseco and former Mayor of
Arequipa Juan Manuel Guillen. Garcia was dismissive of
including Javier Diez Canseco, but was otherwise interested
in being part of such a group.


5. (C) The Ambassador asked Garcia about his public
statements six months ago on the possibility that APRA could
form an alliance with the Peruvian Communist Party - Patria
Roja (PCP-PR). Garcia said PCP-PR takes a pro-Chinese line,
which is not necessarily a bad thing, when one looks at
China's expanding engagement with the world through its
investment policies. Garcia considered PCP-PR SecGen Alberto
Moreno a bright, forward-thinking individual (he said Moreno
would like to be Minister of Technology),as well as someone
to be reckoned with, because of PCP-PR's domination of SUTEP,
the national teacher's union. He suggested the Ambassador
meet with Moreno some time. Garcia clarified, though, that
he was not interested in an alliance with Patria Roja per se,
but rather with moderate elements within the party who could
help tame SUTEP.


6. (C) Garcia said SUTEP was divided internally between a
dominant authoritarian group composed of PCP-PR and Sendero
Luminoso elements, versus a democratic wing including many
teachers who were Apristas. He said Toledo's education
policies had been misguided, as he had tried to co-opt SUTEP
by promising to double salaries and putting a few computers
in the schools, but had not demanded improved performance in
return. As a result, the teaching profession as a whole
still constituted a mechanism for spreading subversion and
hatred in the schools.


7. (C) Changes in the education system, said Garcia, would be
APRA's second-biggest priority for the new government, after
agricultural reform. That would only be possible by
harnessing and allying with the moderate wing. He said his
recent experience when meeting with Apristas in New York had
brought home to him the importance of teaching English in
Peru's schools as a means of getting ahead in the formal
world economy. The English-speaking Apristas he talked with
were businessmen and cardiologists, while the monolingual
group was made up of house cleaners.


8. (C) Returning to electoral prospects, Garcia noted that
Election Day in April 2006 was still 14 months away, and that
to run a solid political campaign would take only two or
three months. An extended campaign was against his
interests, Garcia said, because he would be the flak catcher.
Garcia hoped to shorten the active campaign by spending the
time between now and October in a dialogue with Paniagua on
the terms of a possible alliance. Looking at some of the
other major players, he said that Hernando De Soto was a very
sensible person who could be a key coalition member. Lourdes
Flores had a small base and few political options. Lima
Mayor Luis Castaneda was a good manager of a small operation,
but was too obsessed with being President. The fact that the
latter two were of the same political stripe constituted a
problem for both.


9. (C) Garcia intended to work on a "minimum program" with a
10-point consensual agenda for Peru's political woes. (NOTE:
This is an allusion to APRA founder Haya de la Torre's
platform for the basic reforms needed to transform the
Peruvian State. END NOTE.) If negotiations on an alliance
were successful, Garcia could foresee a presidential ticket
headed up by De Soto and Paniagua, with perhaps the second
vice presidency reserved for APRA. More important to his
party than the presidency was maintaining its base of 25 to
30 seats in the Congress. Garcia expected that by July, he
and his chief advisors would sit down in a round of
negotiations with Paniagua and five of his former ministers.

--------------
THE ECONOMY
--------------


10. (C) Garcia reiterated previous comments (Reftels) that
there was no point in beating up on President Toledo or
trying to hound him from office. He conceded that Toledo had
done a decent job with the economy, and said there was wide
respect in the international financial community for Economic
Minister Pedro Pablo Kuczynski (PPK). He said that even
though most governments tended to loose sight of fiscal
discipline in their last year in office, PPK was still trying
to hold the line. Garcia perceived PPK's contradictory
statements to the Congress about Toledo's ProPeru plan (the
GOP's proposal to pay USD 30 monthly subsidies to Peru's
poorest citizens) as an attempt to slow down the momentum of
the program. Garcia thought ProPeru was ill-conceived and
would create a beggar class, just as had been the case in
Andalucia with similar programs of Spanish PM Felipe
Gonzalez. He also worried that it would saddle the next
government with huge costs. The main financial concern that
Garcia saw for the GOP at present was a big increase in
internal debt due to borrowing from pension funds (AFPs),
which unlike foreign borrowing, is not subject to statutory
limits.

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THE CONGRESS
--------------


11. (C) The Ambassador noted that behind the scenes, there
seemed to be a spirit of cooperative inter-party relations in
the Congress, and asked about what might happen in the next
election for the Presidency of Congress in July. Garcia
thought it likely that Antero Flores-Araoz would be
re-elected as President. Flores-Araoz was a plain, simple
and respectable man, under whose leadership the tone of
debate had improved considerably from its previously
conflictive state. He stressed that another term by
Flores-Araoz should not be seen as threatening to President
Toledo. Garcia did not think that Congressional censure
would result from the scandal over the alleged use of faked
voter signatures to register President Toledo's Peru Posible
party in 1997-98, although he expected Toledo would have to
answer these accusations after he left office.


12. (C) The Ambassador asked if there were still a chance
that the Congress would endorse a constitutional reform
reinstating the Peruvian Senate (eliminated under Fujimori).
Garcia said the opportunity for this had passed in December,
even though APRA Congressman Aurelio Pastor had worked hard
in the Constitutional Committee to get the measure enacted.
Opponents had spread the impression that bringing back the
Senate would do nothing more than create 50 expensive
political sinecures. Garcia considered this a shame, since
the Senate could be a source of reflection, and shift the
legislative focus away from the political scandal du jour.

--------------
FREE TRADE AGREEMENT
--------------


13. (C) The Ambassador noted that the prospects looked good
for finishing up the negotiations on the U.S.-Andean Free
Trade Agreement (FTA) by June, which could lead to the pact
being reviewed by the Peruvian Congress toward the end of the
year. When asked how he viewed the FTA, Garcia said Commerce
Minister Alfredo Ferrero had done well in the negotiations,
and that most issues considered to be potentially contentious
would be wrapped up with relative ease. IPR, for instance,
was something for Brazilians and Frenchmen to worry about,
not Peruvians. Garcia felt, however, that closing out
agriculture would be rough, and that each side would still be
pushing at the last hour to get whatever it could. APRA
voters were particularly concerned about agricultural issues,
and getting a couple of more years of protection for critical
products could mean a lot to Peru.


14. (C) In terms of support for the implementation phase of
the FTA, Garcia suggested Hernando De Soto could play an
important role for both sides. He said De Soto was perceived
by the press as a figure of substance, had good links to the
U.S. economic community, and would carry more weight (and be
seen as more impartial) than any of Toledo's ministers.
Ambassador agreed that De Soto could be a useful FTA
proponent, but suggested he would be better employed leading
a discussion of complementary reforms, such as public
education, investment guarantees, anti-corruption initiatives
and an improved judiciary, that will be critical to ensuring
that FTA benefits become institutionalized.

--------------
EXXON-MOBIL TAX DISPUTE
--------------


15. (C) The Ambassador raised the dispute between Exxon-Mobil
and Peru's tax authority SUNAT, outlining the fact that even
though some relief had been achieved for companies selling
fuel which is subsequently re-exported, Exxon-Mobil was
unable to use its tax credit as currently constituted. He
explained that additional remedial measures were under
consideration in the Congress, but that APRA Congressman Juan
Valdivia had opposed this action in the Economic Committee.
Garcia said he would take the issue up, and promised to help
with remedial legislation. Ambassador said he would forward
copies of the relevant SUNAT decisions, plus a copy of the
draft legislation (these have since been provided).

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AMBASSADOR'S COMMENT
--------------


16. (C) There are two categories of fools in Peru -- those
who refuse to believe anything Alan Garcia says and those who
accept him at face value. Most of the business community and
virtually all of the established non-APRA politicians believe
that Garcia,s tack toward economic moderation is completely
insincere. I don,t agree; Garcia has learned some lessons
from his failed administration, and a second factor is also
at work. APRA,s traditional political stronghold is along
the coast, which is the area that has benefited most from the
free market, free trade policies of the past 10 years. That
is having an impact on the party generally and on Garcia
specifically. For all of that, I don,t have the sense that
Garcia,s present advocacy of fiscal responsibility and
pro-investment policies are so deeply rooted that they would
withstand the political temptation of adopting a short-term
outlook if he were in power. Garcia,s admiration of
Hernando de Soto is genuine and -- interestingly enough -- is
reciprocated to a fair degree. In private conversation with
me, De Soto has recalled fondly his work with Garcia during
the latter,s Presidency and his constructive relationship
with APRA. (By contrast, the famous economist has nothing
good to say about Toledo.) Still, De Soto is very wary of
being used by Alan.


17. (C) The credibility of Garcia,s offer to take the junior
role in a governing coalition is constantly undercut by APRA
Congressmen who insist that their party must get the
Presidency. I think that Garcia really is open to the idea,
though not married to it. He realizes that his high
negatives are likely to keep him from the Presidency unless
he can overcome the public,s memories of his economically
disastrous term. He is young enough to focus on his
prospects in the Presidential election of 2011 rather than
2006, if participating in a coalition led by someone else can
help him reform public perceptions of him.
STRUBLE

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