UNIONS LOOK AT THE PERUVIAN LABOR SCENE

C O N F I D E N T I A L LIMA 000470

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/03/2018
TAGS: ETRD ELAB PGOV PHUM ECON PE
SUBJECT: UNIONS LOOK AT THE PERUVIAN LABOR SCENE


Classified By: Charge James Nealon, for Reasons 1.4 (c,d)


1. (SBU) Summary: Many political analysts and labor
officials agree on the fundamental labor issues facing the
government of Peru as implementation of the U.S. and Peru
Trade Promotion Agreement (PTPA) draws closer. The most
pressing is reducing the size of the informal economy and
providing more Peruvian workers with formal labor
protections. A second is untangling the confusing knot of
regulations, supreme decrees, and statues that comprise
Peruvian labor legislation. Representatives of organized
labor hope that entry into force of the PTPA will spur
progress on both fronts, while business leaders believe more
flexible labor rules will enable businesses to take full
advantage of the PTPA. Skeptical observers emphasize that
business and union leaders have adopted a conflictive model
of labor negotiation that has failed to forge the kind of
compromises needed for reform. For these analysts, the PTPA
may fuel economic growth but will not easily change deeply
ingrained habits that have hindered an expansion and
improvement in labor protections. End Summary.

Peru's Millstone: The Informal Economy
--------------

2. (C) In separate meetings with poloffs, labor and
government officials gave conflicting estimates of the number
of Peruvians working in the informal economy. Mario Huaman,
secretary general of Peru's largest labor confederation --

SIPDIS
the pro-Communist General Confederation of Peruvian Workers
(CGTP) -- said 75 per cent of Peruvians workers, eight
million workers in an 11 million-member labor force, lack
formal employment. Sylvia Caceres, the Ministry of Labor
(MOL) representative on the National Labor Board, said that
40 percent of the workforce has formal employment. Julio
Bazan, head of the United Confederation of Workers (CUT),
said the MOL's own statistics show 80 per cent of small
businesses -- which employ 90 per cent of Peruvians --
operate outside the formal economy, meaning 70 percent of
workers are in the informal economy.


3. (C) Oscar Muro of the AFL-CIO's Solidarity Center in Lima
says the different estimates result from different
interpretations of Law 28015, passed in 2007, which allows
small businesses -- firms with less than 10 employees -- to
pay only a portion of the taxes normally required for social
security. The MOL considers these businesses part of the
formal economy; unions do not. Whatever its exact size, the
informal economy, says Muro, is so big that it depresses
wages, robs government of revenue, and creates a culture of
lawlessness that lures workers and businessmen into evading
labor laws. Luis Davis, the International Labor
Organization's representative in Peru, told poloffs the best
definition of formal employment in Peru is those jobs
offering health benefits; by that measure, only 19 per cent
of Peruvians work in the formal sector. Davis says such a
low level of participation, while not unique in the Andes,
means the government is losing its ability to regulate the
labor market and may face, at some point, an insoluble
problem.

The General Labor Law to the Rescue?
--------------

4. (C) Minister of Labor Mario Pasco told Emboffs that the
government is taking a three-pronged approach to the problem:

-- generating economic growth to increase formal employment;

-- easing tax requirements for small businesses to allow them
to participate in the legal system; and

-- pushing for passage of the General Labor Law (GLL).

APRA Congressmen Luis Negreiros, one of the principal authors
and promoters of the GLL, told poloff that new legislation is
fundamental to the process. In order to bring more workers
into the system, he says ironically, "we must first create a
system." According to Negreiros, the GLL clarifies the mass
of confusing and sometimes contradictory regulations
governing labor rights and provides a single source of
reference to arbitrate disputes. At the same time, the law
potentially strengthens worker protections by reducing the
ways businesses can subcontract work and by increasing
benefits for discharged employees.


5. (C) In general, businesses oppose the GLL, arguing that
it would increase labor rigidity and hinder economic growth.
Business associations cite the World Bank's annual Doing
Business Report, which ranks Peru close to the bottom (159th)
in the world in terms of labor rigidity. Many employers
criticize Peru's laws for imposing inflexible work schedules
and for making both hiring and firing workers extremely
difficult. At the same time, according to Sebastian Otero,
an analyst with the American Chamber of Commerce, Peruvian
businessmen need clearer labor laws. Citing regulations
governing the hiring of temporary workers as a case in point,
Otero said no one in Peru is sure whether the practice is
limited to a specific period of time, to a percentage of
workers at a firm, or to the type of work performed. Otero
noted that such confusion reflects the challenge of trying to
rebuild a system of labor protections that was dismantled
during the Fujimori years.


6. (C) Although Otero believes the GLL is needed, he doubts
it will be passed. This is partly because both labor and
business are unwilling to compromise on key issues, such as
the rights of fired workers, despite more than seven years of
negotiations. Caceres confirmed to poloffs that the Minister
of Labor is planning to appoint a National Commission to
suggest more changes to the GLL, because the Minister doubts
the commission will ever be able to reach agreement on the
law as it currently stands. The delay is unsettling to
Negreirios who fears congressional interest in reforming
existing labor legislation is waning as implementation of the
PTPA approaches.

The PTPA to the Rescue?
--------------

7. (C) Union leaders say the real problem in Peru is not a
lack of legislation but the failure of the government to
enforce existing labor laws. In separate interviews with
poloffs, the heads of Peru's four major labor confederations
said the PTPA offers the best hope of forcing the GOP to put
teeth into enforcement and to end practices such as the
illegal use of contract workers that have swelled the ranks
of informal workers. Each confederation has formed a
committee to monitor the GOP's compliance with what they
understand as the PTPA's provisions. Huaman, for example,
says the CGTP can document 3448 cases in the past year when
CGTP organizers were fired for engaging in union activity.
Huaman says he will encourage the Embassy to press for GOP
enforcement of labor protections. Other unions have similar
intentions. (Note: In discussions with contacts in organized
labor, we often underscore the utility of their taking their
case directly to Peruvian government and elected authorities.
End Note.)

No Silver Bullet
--------------

8. (C) Some observers of the Peruvian labor scene doubt any
legislation -- whether the PTPA or the GLL -- will bring
harmony and satisfaction to a sector marked by endemic
disputes. Walter Alban, a political analyst at Catholic
University in Lima, told poloffs that both sides are locked
into romantic visions of the past: unions hope to regain the
absolute labor stability of the 70's while businesses pine
for the no-holds-barred capitalism of the 90's. Neither
side, Alban says, is looking for middle ground to bridge
these conflicting positions. For the ILO's Davis, labor and
business have both erred by focusing on writing new
legislation, which applies only to the formal sector and
leaves the bulk of (informal) workers shut out from the
benefits reform might bring. Guillermo Miranda, head of the
MOL's Office of International Affairs, told poloff that many
labor and business representatives are adept at complaining
-- particularly about the MOL's shortcomings -- but have been
unable to move beyond a deep-seated desire to protect
existing rights in order to begin a dialogue that could
produce genuine reform.

Comment: Growth Must Generate Benefits
--------------

9. (C) The Garcia administration's vigorous commitment to
open markets and free trade has helped produce record-setting
growth -- GDP grew by 8.8 per cent in 2007. Some of this
success has "trickled down" in the form of more jobs and
increased purchasing power, including in certain sectors of
the middle and lower classes. But it has also sharpened
political tensions by raising expectations and fueling
frustration -- especially of workers in the vast informal
sector who see and hear about the boom but have not (yet)
felt its benefits directly. Even critics of the PTPA in
organized labor expect growth to continue and hope the PTPA
will be an engine that draws more workers into the formal
economy and provides leverage for a fuller enforcement of
fundamental labor protections. But for many Peruvians, the
success of the PTPA and the meaningfulness of continued or
even expanded economic growth will be measured not in
macro-economic charts or improved systems but rather in
palpable improvements in everyday lives: better jobs, houses,
schools, health and, ultimately, hopes for the future.
NEALON