UNDERSTANDING GARCIA'S EXPORT PROMOTION PLAN

UNCLAS LIMA 002507

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND, EB/TPP/BTA/ANA
USTR FOR B. HARMAN
COMMERCE FOR 4331/MAC/WH/MCAMERON
USDA/FAS/ITP/BERTSCH

E.O. 12958: N/A
TAGS: ETRD EAID ECON EAGR PE
SUBJECT: UNDERSTANDING GARCIA'S EXPORT PROMOTION PLAN


1. (SBU) Summary. In an effort to promote economic growth
in southern Peru and the highlands, President-elect Alan
Garcia has made his Sierra Exportadora program a key
priority of his incoming administration. The five-year
project will encourage farmers in the highlands to shift
from the production of traditional agricultural products -
corn and potatoes - to higher value export products,
including artichokes, snow peas and peppers. Garcia's plan
includes the strengthening of the Agrarian Bank and building
of infrastructure to connect the highlands with the rest of
Peru. APRA predicts the program, which should create
300,000 new jobs, will cost the GOP approximately $150
million over five years, with a heavy emphasis on attracting
additional private investment. End Summary.

Promoting Exportable Agricultural Products
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2. (SBU) The Peruvian highlands are home to more than
eight million Peruvians, of which 70 percent live in
poverty. The majority of Peruvians in this area are
dependent upon agriculture for their livelihood, producing
corn, potatoes and quinoa. Small farmers produce food for
their own consumption, and sell any extra in local markets.
Farmers in the highlands produce 54 percent of Peru's
agricultural products, although less than 4 percent of them
are exported. Many farmers are unable to get their products
to the major national markets on the coast.


3. (SBU) President-elect Garcia's Sierra Exportadora plan,
a top government priority, will encourage farmers in the
highlands to shift their production away from traditional
agricultural products to export-oriented products, including
artichokes, peppers, snow peas and trout. Citing coastal
Peru as a model, Garcia's APRA party notes that farmers in
the highlands need to adapt to market conditions in order to
become more prosperous. (Note: the coast produces 40
percent of Peru's agricultural products, accounting for more
than 85 percent of Peru's agricultural exports, which have
increased dramatically under ATPDEA. End Note.)


4. (U) Garcia's plan is based on the belief that the
highlands have the land, people and capacity to increase
production of exportable products. Under the Sierra
Exportadora program, the next Government plans, over a five-
year period, to convert 150,000 hectares (30,000 hectares
annually) of farmland for the production of new products.
Garcia's program will strengthen the stat-owned Agrarian
Bank, which will provide revolving credit of $102 million to
small farmers to help establish improved chains of
production. (Note: Under President Toledo, the role of the
Agrarian Bank greatly diminished. The Agrarian Bank
currently provides loans to either small local banks and
credit unions or to members of a production chain rather
than to individual farmers. The Agrarian Bank, which is
under funded, lacks the staff necessary to conduct risk
assessments for loans. End Note.) Only farmers and
members of production chains that seek to produce export-
oriented crops will be eligible for these loans.


5. (U) The program also calls for the improvement of
interconnectivity between the highlands and coast. The
Garcia Administration plans to build 28 roads over a five-
year period, financed in part by the state and private
concessionaires. These roads, which will be smaller than
the existing major highways, will better connect ten Andean
departments to the coast, providing an improve access way
for the export of products.

And the Result Will Be...
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6. (SBU) The Sierra Exportadora program, as depicted by
APRA, will cost $150 million over five years: $102 million
will be provided to the Agrarian Bank for loans with the
remaining money used for infrastructure improvements.
Garcia will also promote increased private investment in the
highlands, encouraging enhanced public-private partnerships.
APRA officials predict that the Sierra Exportadora program
will create 300,000 direct and indirect jobs in five years
while reducing poverty levels. With the production of
export-oriented, high value crops, officials also believe
that Peru's exports could increase by up to $1 billion.
Farmers that participate in the program could see a tripling
in their revenues and small farmers may be able to expand
their production capacity as profits increase, according to
APRA officials.

Comment
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7. (SBU) One of the Garcia Administration's economic goals
is to create 350,000 new jobs annually. The Sierra
Exportadora program, which will encourage farmers to take
advantage of the benefits created by the U.S.-Peru free
trade agreement, will improve the capacity of farmers to
produce high value products for export while creating new
jobs. Garcia will want to announce concrete short-term
measures in his July 28 inauguration speech, with some
tangible results by the November 30 regional elections. We
expect the incoming government to move quickly on this
project, which will target the southern (and pro Humala)
highlands in an effort to capture APRA votes. There are
several issues that the Garcia Administration should
address, including the need to hire and train Agrarian Bank
officials on risk assessment, the road concession process,
and how to ensure the competitiveness of small farms, for
the program to be a success.

STRUBLE