SCENESETTER FOR A/S SILVERBERG'S VISIT TO LIMA,

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 005090

SIPDIS

BUENOS AIRES PLEASE PASS TO IO A/S SILVERBERG

E.O. 12958: DECL: 11/30/2015
TAGS: PREL PGOV ETRD PE
SUBJECT: SCENESETTER FOR A/S SILVERBERG'S VISIT TO LIMA,
DECEMBER 2-6


Classified By: Political Counselor Alexander Margulies. Reason: 1.4(d)
.

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SUMMARY: Welcome to Peru
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1. (U) On behalf of Embassy Lima I am pleased to extend a
warm welcome to Peru. Your visit provides an excellent
opportunity to lay the groundwork for close cooperation on
the UN Security Council (which Peru will join in January for
a two-year term) and on U.N. reform issues. We are arranging
meetings with the Foreign Ministry's Multilateral Affairs
Bureau, key Congressmen, leading opinion makers and
influential journalists. Your arrival will coincide with
end-game Free Trade Agreement negotiations in Washington,
which is a top priority for the Toledo Government. Active
campaigning has begun for the April 2006 general elections.
The GOP is promoting Peru's accession to the Law of the Sea
Convention, but this is being opposed by the major opposition
party and has become a campaign issue. Concern has also been
raised over the recruitment of Peruvians by a U.S. company to
work as security guards in Iraq. You can expect that
Peruvian interlocutors may raise these issues, as well as
those dealing specifically with the UN. END SUMMARY.

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UN COOPERATION
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2. (U) Peru historically has placed a great deal of
emphasis on its foreign relations, seeking to "punch above
its weight" in international and regional fora. It points
proudly to examples of its leadership role in international
organizations, such as Javier Perez de Cuellar's service as
UN SecGen. The Foreign Ministry remains wedded to many
traditional Latin American foreign policy concepts (Third
Worldism, North-South economic divide issues) and zealously
guards its elite status within the GOP. Consequently, Peru
in principle strongly promotes multilateralism, strengthened
international institutions (particularly the UN) and
expansion of international law (the International Criminal
Court). In practice, however, the Toledo Administration has
played an understanding and constructive role on issues of
major importance to the U.S., such as combating terrorism,
the military operations in Iraq and Afghanistan, and the
Middle East peace process. President Alejandro Toledo is a
firm proponent of human rights, and Peru took the lead in
Latin America in supporting the UNCHR Cuba Resolutions
through 2004, but acceded to pressure from Brazil and
Argentina to abstain on that resolution in 2005.


3. (C) Foreign Minister Oscar Maurtua and our contacts in
the Foreign Ministry's Multilateral Affairs Bureau have
expressed their strong interest in cooperating closely with
the U.S. on international security issues during Peru's
2006-2007 term on the UN Security Council. On UN Reform,
Peru has been supportive in principle, but non-committal on
details. On UNSC expansion, Peru tepidly backs Brazil's bid
for permanent status publicly, but privately is content to
leave this issue on the back-burner. We have an excellent
working relationship with our counterparts in the Ministry,
most of whom have served in Washington and/or New York.

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The Political Scene
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4. (U) President Toledo heads up a lame-duck administration
heading into its final eight months in office. His
popularity remains in the low-teens, but the GOP is firmly in
the saddle as the opposition parties are cooperating in
maintaining economic and political stability with an eye to
inheriting a steady ship of State next July 28. Active
campaigning for the April 2006 elections has begun and
dominates the headlines: the race remains wide open as no
candidate has even reached 30 percent support in the polls.
Former President Alberto Fujimori's 11/16 arrest in
neighboring Chile, and Peru's preparation of an extradition
request, has further muddied an already complex political
scene.

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Free Trade Agreement Talks
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5. (C) Your visit will coincide with what we hope are
end-game negotiations on a U.S.-Peru Free Trade Agreement
(FTA) in Washington. The FTA is a top priority for the
Toledo Government, and Foreign Ministry officials in the past
have suggested that Peru's cooperation in the UNSC would be
enhanced should an FTA be concluded. You can expect
inquiries and asides on this issue from Foreign Ministry
officials, congressmen and journalists.

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The Law of the Sea Convention
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6. (U) The GOP, pushed by the Foreign Ministry, has been
actively promoting Peruvian accession to the Law of the Sea
Convention (LOS). In early November, Toledo promulgated
legislation unilaterally fixing Peru's southern maritime
baseline boundary and has argued that Peru's accession to the
LOS, in combination with its newly set maritime baseline,
will enable it to extend its maritime jurisdiction into
waters currently claimed by Chile. This led to a diplomatic
squabble with Santiago, which holds that the two countries'
maritime boundary was fixed by agreements entered into in
1952 and 1954, while Peru insists that these agreements only
dealt with fishing issues, not maritime boundaries. Former
President Alan Garcia, the presidential candidate of the
major opposition party APRA, has chosen to make this a
campaign issue, opposing the LOS as a surrender of Peru's
historical claim to a 200-mile territorial sea. Your
interlocutors may raise this issue with you and inquire as to
the USG's position on this issue: we have signed the LOS and
submitted it for congressional ratification.

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Peruvians in Iraq
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7. (U
) The recruitment of several hundred Peruvians by U.S.
company Triple Canopy (on a State Department contract) to
work as security guards in Iraq was a page-one issue over the
last month and spurred some in the Foreign Ministry to
propose revising the Convention Against the Recruitment, Use,
Financing and Training of Mercenaries to regulate the
activities of private security companies. While this matter
has receded from the headlines, GOP and political contacts
warn that it will resurface with a vengeance should a
Peruvian be killed in Iraq. It is possible that this issue
will be raised during your meetings and interviews.

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The Economy
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8. (U) Peru's economy is one of the most dynamic in Latin
America. GDP grew 5.1 percent in 2004, reaching $67 billion.
Growth was driven by exports, construction, mining,
investment, and domestic demand. Exports, propelled by high
mineral prices, ATPDEA benefits and the completion of the
Camisea gas project, surged above $12 billion in 2004, up 39
percent in dollar terms from 2003. U.S. exports to Peru
increased 27 percent during the same period, to $1.8 billion.
Peru,s $2.6 billion trade surplus drove the currency up 5.5
percent against the dollar over the year.


8. (U) The economy has steamed ahead in 2005, with a growth
rate of 5.6 percent for the first half of the year. Exports
are up another 20 percent since last year, and reserves have
hit a record $14.1 billion. Inflation is 2.5 percent, and
the government is on track to meet its deficit target of one
percent of GDP for 2005. Revenues are up 11 percent since
last year.


9. (U) Peru's major trading partners are the U.S., China,
EU, Chile and Japan. In 2004, 29 percent of exports went to
the U.S. and 20 percent of imports came from the U.S. Key
exports include gold, copper, fishmeal, textiles and apparel,
petroleum, zinc, asparagus and coffee. Imports include
machinery, vehicles, processed food, petroleum and steel.
Registered foreign direct investment (FDI) is $12.9 billion,
with the U.S., Spain and Britain the leading investors. FDI
is concentrated in mining, electricity, telecom and finance.

10. (U) Despite Peru's macroeconomic success, huge
challenges remain. Peru must reduce poverty of 52 percent
(under $58/month) and extreme poverty of 24 percent (under
$32/month). Wealth and economic activity are overly
concentrated in Lima and other large cities. Unemployment
and underemployment levels total 56 percent nationwide, and
over 60 percent of the economy is informal. Growth is just
beginning to generate employment faster than new entrants
come into the labor force. The government lacks revenues for
adequate social investment. Boosting long-term growth and
reducing poverty will require strengthening the judiciary,
reducing corruption and completing other reforms to improve
the investment climate.
POWERS