PERU'S SECOND CITY LEANS LEFT BUT OPEN TO GLOBAL

C O N F I D E N T I A L LIMA 004744

SIPDIS

SIPDIS

DEPT FOR EB, WHA AND WHA/AND
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN AND MCARRILLO

E.O. 12958: DECL: 12/19/2016
TAGS: PGOV ECON PREL ETRD EMIN EAID TBIO PE
SUBJECT: PERU'S SECOND CITY LEANS LEFT BUT OPEN TO GLOBAL
ECONOMY

REF: A. LIMA 4451

B. LIMA 4519

Classified By: Ambassador J. Curtis Struble, Reasons 1.4 (b) and (d)

SUMMARY
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1. (C) Despite their affiliation with radical nationalist
groups, the recently-elected regional president and the mayor
of Arequipa, Peru's second largest city, come across as
having clear and sensible plans for economic progress in
their region, including orderly decentralization. In recent
meetings with Ambassador, both demonstrated a desire to work
with the USG on further integrating Arequipa into the global
economy and on poverty reduction. Both showed interest in
post's development and outreach programs in the region, and
showed a keen awareness that Arequipa's economy depends on
exports for a quarter of its GDP -- of which half go to the
U.S. End Summary.

AREQUIPA LEANS LEFT...AND BUSINESS CONCERNED
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2. (C) In the November 19 regional elections (ref A),
Arequipa was the only major city or region to elect a
candidate from far-left former presidential candidate Ollanta
Humala's Nationalist Party. That said, incoming mayor Simon
BALBUENA appears to have affiliated with Humala's group for
reasons of convenience not conviction: Balbuena had formerly
successfully run for office with a center-right group and his
record as a district mayor is that of a pragmatic and
effective administrator. The election of a controversial
former mayor of Arequipa city, Juan Manuel GUILLEN, as
president of the Arequipa region has prompted some
expressions of concern by the business community. During an
earlier stint as mayor of Arequipa, Guillen dramatically
blocked the privatization of local electricity companies and
allegedly demanded payoffs from telecom companies. He had
told the press he would accept Humala's invitation to discuss
how to ensure the Garcia Administration enacts meaningful
decentralization and government reform. Yet Guillen's
strategy for engaging with the central government appears to
be pragmatic.

LEADERS SHOW OPENNESS DESPITE LABELS
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3. (C) In separate meetings with the Ambassador on November
29, both incoming leaders conveyed clear policy goals and a
desire to work with the USG to improve local business and
reduce poverty. Mayor-elect Balbuena told the Ambassador
that he was "nationalist but not a communist," and that he
wanted very much to attract private investment. Balbuena
also told a reporter that although he was partly indebted to
Humala's party for his victory, the reporter would have to
ask Humala about the Nationalist Party's policy views as
Balbuena actually had his own opinions. The Ambassador
flagged for Balbuena Post's numerous programs in Arequipa,
including: a new Peace Corps program that will initially
focus on microenterprise, a partnership linking the Arequipa
Chamber of Commerce with the American Chamber of Commerce in
Lima, an expanding Fulbright program, the active Binational
Center, and desire to extend to Arequipa USAID's successful
poverty alleviation program (PRA),which helps teach isolated
producers how to integrate themselves into larger markets.
Guillen and Balbuena both indicated their support for these
programs, and showed their awareness that Arequipa's economy
depended on exports for a quarter of its GDP -- about half of
which go to the U.S.

DECENTRALIZATION TAKING CENTER STAGE

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4. (SBU) Guillen told the Ambassador that he would push the
central government to enact reforms that would allow more
direct local control (including tax authority) of revenue
(including value-added tax, fuel producers' tax, mining
canons, and company registries). He also said he supports
decentralizing public investment, including the centralized
watchdog National System of Public Investment (SNIP),so that
regions can more quickly get the infrastructure they need.
Guillen said the Garcia Administration's decentralization
proposals (Ref B) were positive steps in the right direction,
but needed to be complemented with clear regulations that
would actually reduce the central government apparatus. He
acknowledged that some regions were more ready than others to
assume responsibilities from the central government, but said
the less prepared regions could move forward at a slower
pace. Confirming his reputation as a coalition-builder,
Guillen met with the incoming presidents of five other
regions on December 13 to try to carve out a consensus
approach on the challenge of decentralization.

COMMENT
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5. (C) Decentralization is shaping up to be both the Garcia
Administration's biggest structural reform challenge, and an
opportunity to address the exclusion of so many rural
Peruvians from access to infrastructure and to trade. Mayor
Balbuena and Regional President Guillen may prove to be much
more motivated than their political labels would suggest;
their interest in pursuing the decentralization challenge
dovetails with the Embassy's increasing engagement in the
Arequipa region. Maintaining a productive relationship with
these leaders is probably the best way to ensure that USG
programs and U.S. businesses will continue to have mutually
beneficial relationships in Peru's southern hub.
STRUBLE