NEW ECONOMY AND FINANCE MINISTER FOR PERU?

C O N F I D E N T I A L SECTION 01 OF 02 LIMA 001170

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E.O. 12958: DECL: 07/09/2018
TAGS: ECON EFIN PGOV TBIO PE
SUBJECT: NEW ECONOMY AND FINANCE MINISTER FOR PERU?

Classified By: Charge d'Affaires James Nealon, reasons 1.4(b) and (d)

SUMMARY
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1. (C) It's been an open secret for many months that Economy
and Finance Minister Luis Carranza is leaving. But recently,
IMF veteran Luis Valdivieso's name has come up unofficially
as his replacement. While insiders have confirmed the moves
to us, there is still no official announcement. The
government nonetheless has not denied that Valdivieso is
being groomed to replace Carranza in the next months. An
announcement is likely to be made by July 28, the country's
Independence Day, but that has not stopped unsourced but
informed media articles appearing, touting Valdivieso as his
certain replacement. Economists are generally positive about
the new candidate and describe him as being just as capable
but having more "street smarts" than Carranza. END SUMMARY.

CONFIRMED?
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2. (C) Economy and Finance Minister Luis Carranza has made
no secret of wanting to leave government. This has been an
open secret in Lima for many months. Yet the GOP has not
publicly confirmed his departure and that he might be
replaced by IMF economist Luis Valdivieso. Nevertheless,
unsourced front page articles have touted Luis Valdivieso as
his replacement, including the front page of the weekly news
magazine Caretas. Traditionally, cabinet changes in Peru
come during the July 28 Independence Day festivities.

CARRANZA PLEASED WITH HIS LEGACY
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3. (C) Former Peruvian Energy Minister Jaime Quijandria
(please protect),currently at the World Bank, confirmed
privately that Valdivieso had been tapped to replace
Carranza. Quijandria said he had spoken with Carranza this
week and the Minister had made a positive evaluation of his
two-year stint at the Ministry of Economy and Finance (MEF).
He said Carranza was very satisfied with his legacy: strong
and consistent economic growth, the PTPA, investment grade by
some rating agencies, etc. Quijandria said Carranza decided
to leave, as the job's pay was causing a hardship to his
personal finances.

VALDIVIESO: ALREADY ASSEMBLING HIS TEAM
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4. (C) Economists are generally positive about the likely
nomination. Economist Roberto Abusada, director of the think
tank IPE and a former Vice Minister of Finance, said
Valdivieso was currently in Peru and quietly assembling his
team. He predicted that the GOP would make the announcement
in the next weeks. He said Carranza had complained openly
about his reduced salary, but was leaving largely because of
policy disagreements with fellow ministers, whose demands for
more budget allocations he refused to meet. Abusada said
Valdivieso should be able to handle interpersonal relations
with fellow ministers more adroitly since he has more "street
smarts" ("criollo", in Peruvian slang) than Carranza.


5. (C) Guillermo Arbe, Head of Economic Research at
Scotiabank Peru, said he thought the markets would take
Valdivieso's designation well. Arbe notes that Valdivieso
has devoted his expertise for a long time to Asia and Pacific
issues at the IMF, and thus may not be conversant with
Peruvian issues. BBVA Banco Continental's Economic Studies
Manager, Hugo Perea, said Carranza commands high respect in
the markets but expects that Valdivieso should win their
favor too, as a solid technician and as a responsible
economist. Nevertheless, Perea said he thought that as a
technocrat, Valdivieso would be a minister without much
political clout with a diminished ability to help push
forward pending structural reforms (of the judiciary,
executive branch, etc.). He also wondered whether Valdivieso
was up to date on Peru's new realities.

BIOGRAPHICAL INFO
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6. (U) The son of one of Peru's most famous soccer goalies,
Luis Valdivieso has been at the IMF for almost 28 years and
is currently in charge of the Asia portfolio. He
participated in the structural reforms processes of Mexico
(1982-1987),Russia (1992-1996, where he was the deputy head

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of the local IMF mission),Tajikistan (1996-1997),and
Armenia (1997-1999). He has led teams to Cambodia and East
Timor. He received his PhD from Boston University.

COMMENT
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7. (C) Luis Carranza has made no secret of his desire to
leave this year. He has complained privately that under the
President's austerity budget, his take-home pay has been cut
in half. No less importantly, in his zeal to maintain
effective controls on spending, Carranza made many enemies,
including within the cabinet and the Congress. Like
Carranza, Valdivieso, an orthodox IMF official for the last
almost three decades, is also an "orthodox" and "neo-liberal"
economist. But he is seen as being more flexible and having
better interpersonal skills. He has broad experience working
on reform issues in Asia. Economists here hope he can adapt
his approach to Peru's new realities.
NEALON