PRESIDENT GARCIA AT TWO YEARS: WEAKENED BUT

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 001348

SIPDIS

E.O. 12958: DECL: 08/15/2018
TAGS: PGOV PREL PINR ECON PE
SUBJECT: PRESIDENT GARCIA AT TWO YEARS: WEAKENED BUT
PRESSING ON

REF: A. LIMA 389

B. LIMA 1191

C. LIMA ...
id: 166149
date: 8/14/2008 20:20
refid: 08LIMA1348
origin: Embassy Lima
classification: CONFIDENTIAL
destination: 08LIMA1081|08LIMA1191|08LIMA389
header:
VZCZCXRO1096
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHPE #1348/01 2272020
ZNY CCCCC ZZH
P 142020Z AUG 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 9152
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY

-------------- header ends --------------

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 001348

SIPDIS

E.O. 12958: DECL: 08/15/2018
TAGS: PGOV PREL PINR ECON PE
SUBJECT: PRESIDENT GARCIA AT TWO YEARS: WEAKENED BUT
PRESSING ON

REF: A. LIMA 389

B. LIMA 1191

C. LIMA 1081

Classified By: Amb. P Michael McKinley for reasons 1.4b and d.


1. (C) Summary: President Alan Garcia enters the third year
of his presidency facing the same principal challenges that
have confronted his government since he took office in July
2006: how to turn Peru's strong growth into benefits for the
entire population. Peru grew 9% in 2007 and the government
has made substantial strides in combating poverty and
expanding infrastructure, but polls suggest that much of the
population believes it has not gained. Discontent with the
uneven distribution of economic wealth has helped fuel
numerous protests during the past year, particularly in the
unruly southern Andes, and dragged Garcia's popular support
below 30%. Garcia has publicly acknowledged that many are
unhappy with his government and pledged to do more to ensure
that growth benefits the poor. Despite the President's drop
in support, the opposition remains in disarray, and Garcia
maintains the political strength to implement the policies
his government believes will help spread growth evenly. End
Summary.

Economy Continues to Boom
--------------

2. (U) President Alan Garcia enters the third year of his
presidency facing the same principal challenges that have
confronted his government since he took office in July 2006:
how to turn Peru's strong, borderline spectacular growth into
palpable benefits for the entire population. First the good
news: according to Peru's government statistical institute
INEI, GDP grew 9% in 2007 and is on track to grow about 8% in
2008, which will make six consecutive years of growth over
4%. The mining sector, Peru's principle economic driver,
grew 3% in 2007, and 7% through May 2008. Despite this rapid
growth and rising world agriculture and fuel prices, the GOP
maintained inflation at 5.8% -- measured between August 2007
and July 2008 -- the second-lowest inflation rate in Latin
America. At the same time, according to GOP statistics
poverty rates dropped from 48.7% in 2005 to 44.5% in 2006 and
to 39.3% in 2007.


3. (U) President Garcia highlighted these successes during
his July 28th State of the Nation address and set ambitious
new goals for the coming year. Garcia emphasized that
national production by the end of this year will probably
reach $135 billion, near the $140 billion goal he had earlier
set for 2011. He also said that in his first two years, the
GOP had built or repaired 1,100 miles of roads and would more
than double this total in the next twelve months. He
promised that by the end of 2008 his government will have
invested $12 billion in infrastructure. Garcia listed a
series of statistics about the number of houses built, people
taught to read, and water services delivered, and reiterated
his pledge to reduce poverty to 30% by the time he leaves
office in 2011.

Yet Polls Say Populace Not Benefiting Evenly
--------------

4. (U) Despite Peru's success during President Garcia's first
two years, polls suggest that much of the population
perceives that it is not benefiting from economic growth.
According to a recent national, urban Ipsos-Apoyo poll, 48%
of the two poorest sectors of society -- which pollsters call
Sectors D & E and compose a majority of the population --
perceive their economic situation as bad or very bad compared
to last year. By comparison, only 11% and 20% of the
wealthiest two sectors (Sectors A & B) respectively believe
their economic situation has worsened (most believe it has
improved). Looking to the coming year, only 26% and 29% of
Sectors D & E believe their economic situation will improve,
compared to 64% and 40% of Sectors A & B, which have
benefited most from high growth. General consumer confidence
has also slipped to a Garcia-administration low of 43.7%,
down from a high of 60.6% shortly after the President took
office in July 2006. The main complaint, suggest the polls,
is the price of essential food items -- such as bread, rice,
and cooking oil -- which is rising at a much higher rate than
general inflation.

Sporadic Protests Reflect Discontent with Uneven Growth
-------------- --------------

5. (U) Discontent with the unevenly distributed benefits of
economic growth has fueled numerous protests during the past
year, particularly in the unruly southern Andes. A national
agricultural strike in February shut down major roads and led
to clashes with police that left several dead protestors in
Ayacucho and Arequipa. Later that month, rock-throwing

LIMA 00001348 002 OF 003


protestors shut down rural and urban Cusco and attacked the
local airport. Protestors in Puno took to the streets in
April against Regional President Hernan Fuentes as well as
President Alan Garcia, bringing economic activity to a halt.
A national strike called in early July by a major labor union
fizzled in Lima, but gathered force in Ayacucho, Cusco, Madre
de Dios and Puno. (Refs A & B) According to the Ipsos-Apoyo
poll, 67% of Peruvians outside Lima -- including 83% in
central and southern regions -- favored the national strike.
Statistics from the Human Rights Ombudsman's office
(Defensoria del Pueblo) show a rising number of conflicts
throughout the country, and an increasing percentage of these
conflicts involving protests of mining investments and
projects. According to some sources, radical groups across
the country such as the communist Patria Roja party and the
CGTP labor confederation have a concerted plan to draw on
this discontent in order to fan the flames of anti-government
and anti-mining protests.

Critics Attack Garcia's Decentralization and Anti-Narcotics
Efforts
-------------- --------------

6. (U) Another critique lobbed by administration opponents is
that the government is ineffectively implementing its
decentralization policy and doing little to fight
narco-trafficking. On decentralization, many regional
leaders complain that central government has rapidly devolved
numerous responsibilities without sharing the necessary
resources or technical capability to manage the new tasks.
The government retorts that it has delivered the necessary
resources, but regional governments are unwilling or unable
to carry out their newly broadened functions. Leveraging the
mechanism of the Association of Regional Presidents (ANGR) to
coordinate a coherent policy approach with the central
government, regional presidents have sought to gain the
administrative and budgetary tools they need to implement
decentralization more effectively.


7. (U) On the anti-narcotics fight, both press and expert
analysts have begun to criticize what they perceive as
government inaction. While accepting the scope and
complexity of the challenge and acknowledging that
counter-narcotics efforts have improved significantly over
those of President Garcia's predecessor -- particularly in
the Upper Huallaga Valley coca-production zone -- analysts
point out that the government has made little or no effort in
the key Ene and Apurimac River Valley (VRAE) production zone.
(Note: Several contacts allege military and police
complicity with narcotrafficking in the VRAE. End Note.)
Observers also say that prosecutors have made little progress
in the major narcotics trafficking case against the Sanchez
Paredes family, which many believe has close ties to members
of the APRA party.

Garcia Continues to Lose Popularity, Pledges to Press On
-------------- --------------

8. (U) As consumer confidence has fallen and protests have
increased, President Garcia has fallen in popular opinion
polls. The Ipsos-Apoyo poll says Garcia had 26% approval in
July, down from 63% after he took office in mid-2006, and 44%
in mid-2007. While Garcia maintained 30% approval in Lima
and comparatively wealthy northern Peru, his support in the
discontented south dropped to 11%. Although Garcia's
approval levels have fluctuated somewhat during the past
year, the clear trajectory is downward. (Note: Garcia won
about 24.3% of the vote in the first round of the 2006
presidential election, and therefore appears to retain his
political base. By comparison, Garcia's predecessor
Alejandro Toledo had single-digit support through much of his
administration. End Note.)


9. (U) President Garcia acknowledged during his recent State
of the Nation address that many are unhappy with his
government and pledged to do more to ensure that growth
benefits the entire population, particularly the poor.
Garcia also expressed frustration that Peruvians have not
given him credit for his accomplishments while blaming him
for inflation that was in fact caused by global conditions
rather than his administration's economic management. But
the President -- who was notoriously obsessed with his poll
ratings during his 1980s government -- promised only
continued hard work, rather than grand populist initiatives
designed to arrest his falling poll numbers. (Note: Some
analysts believe that Garcia intentionally sought to contrast
his speech this year from his second State of the Nation in
1987, when he announced the nationalization of the banking
system. Moreover, a ruling party insider claimed the
government was not overly concerned with the downward
trajectory in the polls, as long as the macro-economic
picture held steady. End Note)

LIMA 00001348 003 OF 003



Government Bolstered by Opposition Disarray
--------------

10. (U) The Garcia Administration's governing prospects
during this period of relative public disaffection are
strengthened by the opposition's continued disarray. Despite
a successful June opposition effort to block constitutional
reforms and reported divisions within APRA (Ref C),the
governing party rallied in July to recapture the
congressional presidency for another one-year term. APRA won
the office in part by horse-trading to obtain a handful of
votes from the opposition National Unity and Union for Peru
parties, causing both opposition groups to splinter into
several factions. The ruling party also (reportedly)
strengthened its tacit cooperation agreement with former
President Alberto Fujimori's party -- Fujimorista Congressman
Alejandro Aguinaga is Congress's first vice-president -- as
well as the center-right Popular Christian Party and National
Solidarity. Among the opposition, only Ollanta Humala's
Peruvian Nationalist Party -- with 23 of 120 deputies --
retains a cohesive congressional bloc.
Comment: Another Year to Show Results
--------------

11. (C) As the political temperature slowly rises, President
Garcia probably has another year or so of relative stability
to show that he can effectively distribute Peru's growing
prosperity. After this year, Garcia will probably face
mounting political challenges as both the opposition and
groups currently aligned with APRA seek to position
themselves for the November 2010 regional elections, and the
April 2011 presidential elections.
MCKINLEY

=======================CABLE ENDS============================