TOLEDO ADMINISTRATION TOUTS LONGEST ECONOMIC BOOM

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E.O. 12958: N/A
TAGS: ETRD ECON EINV EFIN PGOV PE
SUBJECT: TOLEDO ADMINISTRATION TOUTS LONGEST ECONOMIC BOOM



1. (U) Summary. Outgoing Finance Minister Fernando Zavala announced
that Peru is currently experiencing its longest economic boom,
enjoying one of the highest growth rates in South America. During a
July 11 presentation, Zavala highlighted Peru's 60 consecutive
months of macroeconomic growth and stability, which he attributed to
the increase in private investments and the value of mineral
exports, more effective tax collection, and to the structural
reforms enacted by the Toledo Administration since 2001 to
liberalize Peru's financial system. Zavala provided a positive
forecast of Peru's economy from 2006-2009 while emphasizing the need
for the incoming Garcia administration to maintain Peru's 'virtuous
cycle' of growth through greater fiscal discipline, more effective
social investments, and a more open trade policy to improve Peru's
competitiveness in the global market. End Summary.
Sustainable Economic Boom
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2. (U) At a July 11 presentation on the current state of Peru's
economy, outgoing Minister of Finance Fernando Zavala reported that
Peru is experiencing its longest period --nearly 60 consecutive
months -- of economic growth, enjoying one of the highest growth
rates in South America. According to national statistics, average
real GDP growth increased from 4 percent in 2003 to 4.8 percent in
2004 to 6.7 percent in 2005.


3. (U) Zavala highlighted the country's positive macroeconomic
indicators -- lower inflation, higher investment levels, and job
creation -- and attributed Peru's overall growth and stability to
the structural reforms implemented by the Toledo administration.
Zavala argued that the next Administration should be able to sustain
this boom because the growth is supported by long-term structural
reforms, including more effective tax collection, greater private
investments, an increase in traditional mineral and non-traditional
agricultural exports, and by the liberalization of Peru's financial
system. Recent economic growth, according to Zavala is due to the
Toledo Administration's more market-oriented policy reforms and
fiscal discipline, given the recessionary economy it inherited in

2001.

2006-2009 Economic Forecast and Recommendations
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4. (U) According to Zavala, future prospects for maintaining Peru's
overall macroeconomic growth and stability appear positive,
particularly with the country's steady increase in traditional and
non-traditional exports and the June 28 approval by the Peruvian
Congress of the U.S.-Peru Trade Promotion Agreement (PTPA). Zavala
underscored the need for Peru to become further integrated in the
world economy and to improve its overall productivity and
competitiveness with its largest trading partners -- the U.S.,
Chile, China, and Mexico. Minister Zavala cautioned the incoming
Garcia Administration to exercise fiscal discipline to maintain the
current 'virtuous cycle' of economic growth while at the same time
improve social services to disadvantaged communities through more
effective public investments.


Comment: A Hard Act to Follow?
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5. (SBU) Despite the outgoing Administration's optimistic assessment
of Peru's current macroeconomic situation, many Peruvians feel that
the current government has not focused on issues such as poverty,
job creation, inequality and the country's economic vulnerabilities
to the PTPA -- issues that became key during the recent presidential
elections. In the coming months, President-elect Alan Garcia will
face greater pressure to strike a careful balance: to reassure
foreign investors that his policies can sustain the current
macroeconomic boom and improve Peru's investment climate, while
winning over the pro-Humala opposition with tangible results of his
pro-poor policies before the November regional elections.

STRUBLE