GARCIA'S DOG DAYS -- POLLS DOWN, BUT ECONOMY UP

C O N F I D E N T I A L LIMA 002577 SIPDIS SIPDIS E.O. 12958: DECL: 07/24/2016 TAGS: PGOV PINR PHUM PE SUBJECT: GARCIA'S DOG DAYS -- POLLS DOWN, BUT ECONOMY UP Classified By: A/POLCON David Boyle, for Reasons 1.4 (c,d) ¶1. (SBU) Summary: July has brought ugly poll numbers for Peruvian President Alan Garcia: his approval rating has dropped from 62 per cent in August 2006, when he assumed office, to 36 percent in July 2007, and for the first time, his support in the Lima metropolitan area has slipped. The biggest drop -- 10 percentage points -- took place in July, when a series of well-organized protests broke out in 16 of Peru's 24 provinces. The disappointing numbers make it more likely that cabinet changes will be deeper than previously planned. We assess that despite lower approval ratings Garcia will not return to the populist spending that marred his first term in office (1985-1990),a scenario that has kept the business community on edge for the last year. End Summary. -------------- The Poll Numbers -------------- ¶2. (SBU) Recent public opinion surveys by the polling firms Conecta and Apoyo show a sharp drop in President Garcia's approval rating, from 62 per cent in August 2006 to 36 percent in July 2007. The largely indigenous altiplano regions remain hostile territory for the administration: in the northern Sierra, only 13 per cent of these polled approve of the president, only 18 per cent the central Sierra, and only 16 per cent in the southern Sierra. These regions served as the epicenter of July's protests and voted overwhelmingly for Ollanta Humala in last year's presidential elections. Even more troubling for the president, his popularity has slipped badly in Lima: in March, 63 percent of those surveyed supported the president but only 38 per cent held favorable views in July. More than half cited the president's failure to fulfill campaign promises as the main reason for his unpopularity. -------------- Garcia's Response -------------- ¶3. (C) Garcia shows no signs of overreacting to the downturn in popularity. In the past month, Ambassador Struble has made a series of farewell calls on senior officials, all of whom made it clear that they understand the frustrations in the countryside but are determined to maintain the economic course that has brought Peru rapid economic growth. Prime Minister Jorge del Castillo, for example, told the Ambassador that pro-market policies were the only way to generate wealth and address Peru's deep-seated poverty, and he pointed out that July's protests represented localized reactions to specific complaints rather than a repudiation of the president's economic philosophy. In a separate conversation with the Ambassador, Minister of Defense Alan Wagner said the GOP is committed to a three-year reform plan: in year one, the GOP cut spending; in year two, the president plans to streamline state administration; and in year three, the GOP expects will reform the salary structure of government employees. ¶4. (C) According to senior officials, Garcia recognizes that popularity swings are part of being president, and he remains confident that he sustains sufficient popularity to implement his ambitious reform agenda. Officials note that former President Toledo received a 16 per cent approval rating after one year in office and that Garcia's numbers are not a serious problem for a president with four more years to serve. -------------- When in Doubt, Fire the Minister -------------- ¶5. (SBU) The president can also depend on the traditional political stratagem of jettisoning ministers to buoy popularity. Only Minster of Trade Mercedes Aaroz enjoys a popularity rating above 50 per cent, whereas nine of 15 cabinet ministers have approval ratings of less than 33 per cent. The two ministers most often mentioned by insiders as likely to go are Justice Minister Maria Zavala and Health Minister Carlos Solchaga. The press is speculating that Economy Minister Luis Carranza will also get the ax. Indications before the most recent protests were that he would hold on, but President Garcia may now be more inclined to sacrifice him. Women's Affairs Minister Virginia Borra may step down for personal reasons. -------------- Business Reaction -------------- ¶6. (C) The Peruvian business community still remembers the hyperinflation brought by irresponsible government spending during Garcia's first term and harbors suspicions about the presidents commitment to the free market. That skepticism helped fuel the internecine debate over the General Labor Law, which business groups feared would return Peru to an earlier era of labor stability that made it impossible to fire workers. Garcia heard these complaints and refused to sign the law, complaining it would undermine economic growth. From time to time, Garcia must intervene in debates like this because the staunchest supporters of labor stability are actually the dinosaurs in his own party. Privately, government sources tell the Embassy that Garcia is acutely aware of the economic failures associated with his first term and is unlikely to depart from his commitment to the free trade and open markets. -------------- Comment -------------- ¶7. (C) In June, del Castillo had predicted the government was in for a rocky period, and he was correct in noting that the protests would lose steam. The GDP rose more than 7 per cent in May, and uninterrupted economic expansion has created an elite backing the Garcia administration -- and even started to produce a significant downturn in national poverty figures. Businessmen remain upbeat about the country's future, as the stock market booms and trade and investment continue to climb. Against this background, Garcia's increasing personal unpopularity, though significant, is not decisive, and Garcia knows that the business community is watching closely to insure his economic policies stay on the straight and narrow path of economic orthodoxy WUNDER