VISIT OF CONGRESSMAN GREGORY MEEKS TO PERU, MAY 26-

UNCLAS LIMA 002083 SIPDIS SENSITIVE SIPDIS FOR CONGRESSMAN MEEKS FROM AMBASSADOR STRUBLE E.O. 12958: N/A TAGS: ECON PGOV ETRD PE SUBJECT: VISIT OF CONGRESSMAN GREGORY MEEKS TO PERU, MAY 26- 28, 2006 ¶1. (SBU) On behalf of the Country Team, I welcome your visit to Peru, May 26-28. Peru is at a historic crossroads, with a close presidential election on June 4 and the opportunity to ratify the free trade agreement with the United States. With a stable political system and a strong economy, Peru nevertheless faces political, economic and social challenges that the U.S. government is helping Peru to meet. Demographic Overview -------------- ¶2. (U) Peru is a country of 27.2 million people, of whom 30 percent live in the Lima/Callao metropolitan area. Most Peruvians are either Amerindians (45 percent, largely Quechua-speaking but also many Amazon languages) or Spanish- speaking mestizos (37 percent, a mixture of indigenous and European roots). The remainder of the population includes persons of European (15 percent),African, Japanese, and Chinese ancestry. Peru's distinct geographical regions are mirrored in a socioeconomic divide between the coast's mestizo-Hispanic culture and the more diverse, traditional cultures of the highlands and jungle area. Although the Government of Peru has made progress in reducing poverty during the Toledo administration, almost 50 percent of Peruvians still live below the poverty line (less than $2/day),including 18 percent in extreme poverty (less than $1/day). The Political Scene -------------- ¶3. (SBU) Following first round presidential elections on April 7, the two top vote-getters, Alan Garcia of the APRA party and Ollanta Humala of the Union for Peru (UPP) party, will face each other in a June 4 runoff. This election offers voters a clear choice between two quite different alternatives. Garcia stands for the continuation of policies that have brought Peru nearly five years of five percent annual economic growth, respect for human rights, job creation and poverty reduction through market-based economic growth, and improved relations with the U.S. ¶4. (SBU) Humala, in contrast, is an ally of Venezuelan President Chavez and Bolivian President Morales and advances policies that resemble theirs: a stronger executive promoting state intervention in the economy, suspicion of foreign trade and investment, and unsustainable, populist social programs. ¶5. (U) Current polls show Garcia leading Humala by more than 10 percent, however many analysts expect a closer race given that the polls likely under-represent rural areas where Humala is favored. The elected president and the new 120-member Congress (elected April 7) will take office on July 28. ¶6. (SBU) President Toledo's priorities as his term winds down are: congressional passage of the free trade agreement (called Peruvian Trade Promotion Agreement or TPA) with the U.S. and ensuring an orderly transition to his successor. It appears his party, Peru Possible, will squeak into Congress barely garnering sufficient votes for representation. Toledo in past months has climbed up from the lowest approval ratings in the hemisphere (consistently below fifteen percent) to 30 percent, the highest they have been since after his election. ¶7. (SBU) Congressional election results are 95 percent complete, and the new Congress will probably consist of seven parties, with no party having more than about a third of the seats. The fragmented nature of the incoming Congress will be a challenge for whoever wins the presidency. Peruvian Labor -------------- ¶8. (SBU) The Peruvian labor movement is small and weak. Only 3-5 percent of Peruvian workers are members of unions. Nonetheless, the labor movement, particularly the Marxist- led National Confederation of Peruvian Workers (CGTP),is capable of producing large marches in the capital for positions it favors. Peruvian labor opposes the TPA and advocates stronger labor inspections and approval of a new, comprehensive labor law, which has been bottled up in Congress for a year. Labor, government and business sector representatives remain divided over a series of questions, the most significant being whether employers should continue to have the right to fire workers without reference to a specific cause listed in law. Employers argue that they need this freedom to ensure competitiveness. Labor leaders state that the ability to fire without reference to a legally defined cause has been used against rising labor organizers. The U.S.-Peru Trade Promotion Agreement -------------- ¶9. (SBU) President Toledo has called the completion of a free trade agreement with the United States a "policy of State" and intends to present the TPA to the Peruvian Congress after the June 4 Presidential election. The Toledo Administration views the TPA as a way to consolidate ATPDEA benefits and to energize much-needed reforms in education, infrastructure, government efficiency and competitiveness. Proponents argue that the TPA would generate more jobs in the formal economy, thus enhancing the protection of worker's rights. The TPA's environmental chapter would require Peru to enforce its extensive but often unenforced environmental laws. ¶10. (SBU) U.S. companies present in Peru support the TPA because it would strengthen institutions and lock in rules of the game, notably by establishing an effective dispute resolution mechanism. Recent Peruvian public opinion polls show 56 percent approval of the TPA, and the private sector is largely supportive, with the exception of some local pharmaceutical firms and traditional agricultural producers. Strong Economic Growth has Continued Even in the Face of Political Uncertainty -------------- ¶11. (U) Just-released first quarter 2006 economic results indicate that Peru's economy grew 6.8 percent for the quarter, surprising the Peruvian government and analysts alike. Exports continued to play a strong role in GDP growth, growing 22 percent to $4.6 billion. Imports reached $3.4 billion, a 28 percent increase, including nearly $1 billion in capital goods imports. Although still under control, inflation has been inching upwards, registering 2.9 percent on an annualized basis during the first quarter of 2006. ¶12. (U) Peru has capitalized on new trading arrangements, especially the Andean Trade Promotion and Drug Eradication Act (ATPDEA) that granted the Andean countries trade preferences for more than 6,500 products, and a receptive global economy to grow its non-services exports to $17.2 billion in 2005 (from a base of $7.7 billion in 2002). Apparel/textile, agricultural and mineral exports have all grown impressively over the last several years, and current forecasts project that Peru will reach $20 billion in exports in 2006. The United States remains Peru's top export market with $5 billion in 2005, a 37 percent year-on- year increase. Trade with China continues to grow rapidly at 50 percent year-on-year growth to account for $1.8 billion in exports as Peru's second most important trading partner. Your Schedule: Outreach Opportunities -------------- ¶13. (SBU) Your day will start with a breakfast briefing by Ambassador Struble and his Country Team, at his residence. Your outreach activities begin with a meeting with Prime Minister Pedro Pablo Kuczynski and Trade Minister Alfredo Ferrero at the Ambassador's residence. Following that meeting, you have a meeting with President Alejandro Toledo at the Presidential Palace. All speak excellent English. ¶14. (SBU) The Ambassador will host a luncheon at his residence with representatives of the Afro-Peruvian community, planned to include several Afro-Peruvian members of the Peruvian Congress. ¶15. (SBU) A following meeting with business leaders representing both Peruvian and American companies will also be at the residence. These leaders can provide valuable insights into import/export businesses as well as the investment climate for U.S. firms. They are also well versed in the labor, environmental and commercial challenges as well as opportunities present in Peru. ¶16. (SBU) In the early evening, we have scheduled a meeting at the hotel with representatives of various trade unions, including the AFL-CIO and the National Confederation of Peruvian Workers (CGTP). ¶17. (SBU) Dinner will be hosted by the Executive Director of the American Chamber of Commerce and will include leaders from Peruvian and U.S. companies. ¶18. (SBU) We have requested telephone conversations with the presidential candidates Ollanta Humala and Alan Garcia. If confirmed, you would likely make these calls from the Ambassador's residence during the afternoon. STRUBLE