Identifier
Created
Classification
Origin
09LIMA146
2009-02-03 22:13:00
CONFIDENTIAL
Embassy Lima
Cable title:  

GARCIA AT THE HALF-WAY MARK

Tags:  PGOV PREL SNAR PINR ECON EFIN ETRD PE 
pdf how-to read a cable
P 032213Z FEB 09
FM AMEMBASSY LIMA
TO SECSTATE WASHDC PRIORITY 9983
INFO AMEMBASSY ASUNCION PRIORITY 
AMEMBASSY BOGOTA PRIORITY 
AMEMBASSY BRASILIA PRIORITY 
AMEMBASSY BUENOS AIRES PRIORITY 
AMEMBASSY CARACAS PRIORITY 
AMEMBASSY LA PAZ PRIORITY 
AMEMBASSY MONTEVIDEO PRIORITY 
AMEMBASSY QUITO PRIORITY 
AMEMBASSY SANTIAGO PRIORITY 
NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
USCINCSO MIAMI FL PRIORITY
C O N F I D E N T I A L LIMA 000146 


E.O. 12958: DECL: 02/03/2029
TAGS PGOV, PREL, SNAR, PINR, ECON, EFIN, ETRD, PE
SUBJECT: GARCIA AT THE HALF-WAY MARK

Classified By: DCM James Nealon for reasons 1.4(c) and (d).

C O N F I D E N T I A L LIMA 000146


E.O. 12958: DECL: 02/03/2029
TAGS PGOV, PREL, SNAR, PINR, ECON, EFIN, ETRD, PE
SUBJECT: GARCIA AT THE HALF-WAY MARK

Classified By: DCM James Nealon for reasons 1.4(c) and (d).


1. (C) Summary: At the ...

id: 190261
date: 2/3/2009 22:13
refid: 09LIMA146
origin: Embassy Lima
classification: CONFIDENTIAL
destination:
header:
P 032213Z FEB 09
FM AMEMBASSY LIMA
TO SECSTATE WASHDC PRIORITY 9983
INFO AMEMBASSY ASUNCION PRIORITY
AMEMBASSY BOGOTA PRIORITY
AMEMBASSY BRASILIA PRIORITY
AMEMBASSY BUENOS AIRES PRIORITY
AMEMBASSY CARACAS PRIORITY
AMEMBASSY LA PAZ PRIORITY
AMEMBASSY MONTEVIDEO PRIORITY
AMEMBASSY QUITO PRIORITY
AMEMBASSY SANTIAGO PRIORITY
NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
USCINCSO MIAMI FL PRIORITY


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

C O N F I D E N T I A L LIMA 000146


E.O. 12958: DECL: 02/03/2029
TAGS PGOV, PREL, SNAR, PINR, ECON, EFIN, ETRD, PE
SUBJECT: GARCIA AT THE HALF-WAY MARK

Classified By: DCM James Nealon for reasons 1.4(c) and (d).


1. (C) Summary: At the half-way point in President Garcia's
term, the political balance is mixed but positive overall.
On the plus side, Garcia has demonstrated sound economic and
disciplined fiscal management, including in the face of the
global crisis. He has conducted a pragmatic foreign policy,
whose centerpiece is the U.S.-Peru Trade Promotion Agreement
(PTPA),while seeking to strengthen Peru's ties with
like-minded neighbors and key European and Asian partners.
These accomplishments, coupled with a mild leftward shift,
have fueled a recent rise in the President's poll numbers.
On the other side of the ledger, notwithstanding the
government's expressed intentions and political will, weak
institutions continue to hamper public service delivery and
to complicate Garcia's ability to confront thorny problems,
including drug trafficking and terrorism. In addition, the
ongoing eavesdropping scandal could yet cause the government
further problems (septel). Garcia's challenge remains clear:
expand the system's reach and representation, and thereby
reduce the political space for the many anti-systemic

elements plotting for 2011 -- it remains a close call. End
Summary.

Sound Economic Management
--------------

2. (C) At the half-way point of his second term, President
Garcia has dispelled some personal demons and showed he has
learned from past mistakes. (His first term, 1985-90, is
widely seen as a disaster -- plagued by economic
mismanagement, foreign policy miscalculations and a failure
to stem the rising tide of terrorism.) While die-hard Garcia
skeptics claim to discern disturbing parallels between his
first term as President and the present one, the political
balance now is positive overall. For one, Garcia has
overcome lingering doubts regarding the depth of his economic
conversion by demonstrating sound economic management and a
disciplined approach to government spending. He has presided
over a period of unprecedented growth (over 9% in 2008) and
relatively low inflation -- the highest and lowest in the
region respectively. These positive numbers began to
significantly reduce Peru's endemic poverty, which fell from
over 44% in 2005 to 39% in 2007. Garcia has also been an
impassioned cheerleader for investment-led growth,
confronting a deep-seated historical mindset that sees the
state as benefactor and principal motor of development. Even
in the face of the global economic crisis of uncertain depth
and scope, President Garcia has followed a fiscally prudent
course while using the significant reserves accumulated in
the boom years in shaping a public stimulus plan whose launch
will be calibrated to the crisis's (likely rising) impacts on
Peru. Corruption remains a widely discussed concern and a
top government priority, but few concrete cases have emerged
to date, notwithstanding constant media coverage of the
ongoing phone-tap scandal.

Pragmatic Foreign Policy
--------------

3. (C) Pragmatism has also marked Garcia's foreign policy,
in which Peru's economic interests have shared a leading role
with geo-political strategy. The U.S.-Peru Trade Promotion
Agreement (PTPA),entered into force February 1, has been the
centerpiece of the government's trade-friendly foreign policy
aimed at integrating Peru into the broader international
economic system. In parallel, Garcia has sought to
strengthen Peru's ties with like-minded neighbors such as
Chile, Colombia and Mexico via bilateral efforts, trade
agreements, and regional initiatives such as the "Arc of the
Pacific." He has also intensified Peru's commercial
relations with regional leaders like Brazil, and sought to
woo fence-sitters, particularly Ecuador. Finally, he has
kept at arm's length the volatile populist governments of
Venezuela and Bolivia. To mark distance from UNASUR, Garcia
has sent an envoy to the organization's presidential level
meetings. He was also a no-show at the Brazil Summit.


4. (C) Peru's role as host of two successful high-profile
international conferences -- the EU-LAC Summit in May and the
APEC summit in November -- also enabled the Garcia government
to project a positive image of the country onto the global
stage. This has produced some concrete benefits. After much
back and forth, in late 2008 the EU agreed to pursue
negotiations on a comprehensive agreement, which includes a
free trade component, with Peru outside the Andean Community
framework. President Garcia has also demonstrated a keen
personal interest in expanding Peru's commercial and other
ties with Asia, particularly China, with which Peru is
completing a free trade agreement. He is tentatively
scheduled to visit Japan, Korea and China in early March --
for the second time this term -- to underscore his interest
in deepening Peru's engagement in that dynamic region.

A Rise in Polls
--------------

5. (C) The government's accomplishments in maintaining
stability, successfully carrying out two international
summits, and securing implementation of the long-awaited
US-PTPA have probably contributed to a recent rise in
Garcia's nationwide poll numbers -- from below 20% in October
to 28% in January (35% in Lima). (President Toledo's support
was in the single digits at this point of his term.) Some
analysts believe the dip in inflatin -- a central cause of
his earlier falling numbers -- has also played a role.
Political insiders also credit Garcia's calculated shift to
the left to reclaim the center and stem his fall in the
polls. In doing this, he has sought to distance himself from
his image as "president of the rich" (whom he spent his first
two years successfully cultivating) while moving closer to
the "people." This shift is reflected in Garcia's choice of
Yehude Simon to succeed Jorge del Castillo as PM, in a series
of public events in which he has been seen mingling with the
common folk, and in periodically announcing high-profile
public-works projects -- water, roads, energy -- in poor
areas throughout the country.

Serious Challenges Remain
--------------

6. (C) Notwithstanding the government's expressed intention
to improve public services, weak and even dysfunctional state
institutions continue to hamper basic service delivery and
undermine public confidence. This challenge is particularly
worrying in politically vulnerable regions where the state is
largely absent and the anti-systemic opposition is strong.
Some critics complain that Garcia has not made a serious
attempt at state reform. As for the ongoing decentralization
process in which Garcia has invested a great deal of time,
energy and political capital, it so far has brought mixed
results, sometimes exacerbating rather than mitigating the
state's underlying structural dysfunctions. Much will depend
on how this process plays out in the remaining half of
Garcia's tenure.


7. (C) Meantime, the country's public education, health care
and transportation infrastructure, in spite of significant
increases in social spending and whatever the diverse
improvements, remain under-equipped to address the real
challenges and fall short of meeting popular expectations.
Echoing a long-standing lament, his detractors claim Garcia
tends to promise more than he can deliver, to continually
repackage past promises into seemingly new proposals, and to
focus more on publicly launching projects than on ensuring
their bureaucratic follow-through. All this results in a
pattern of expectations raised and then dashed -- a recipe
(in the view of critics) for rising frustration.


8. (C) Peru's deficient state mechanisms have complicated
Garcia's ability to confront some of Peru's profound
structural challenges. The recent national police operation
to remove squatters from public land in the northern region
of Lambayeque, which resulted in three dead police officers,
underscores the problem of weak state authority confronting
difficult and sometimes dangerous actors and situations. The
Garcia government has made a more serious effort to combat
drug-trafficking than its predecessor -- including by
launching a National Anti-Drug Strategy partly supported with
its own budget -- and that effort has scored some notable
successes. Rural communities in the San Martin region that
have turned from coca production to licit lifestyles are an
illustrative case in point. That said, coca production and
drug trafficking throughout Peru have probably expanded
somewhat over the past 30 months, and the government's
continuing efforts need strong reinforcement to ensure a more
enduring success. Similarly, in late 2008 the Army launched
a long-delayed operation to challenge remnants of the Sendero
Luminoso (SL) terrorist group on their home turf in the
emergency VRAE region, but many critics believe the scope of
the operation has been unequal to the task and will have
little permanent effect unless it is significantly expanded.
Bringing the necessary urgency, focus and resources to bear
will be paramount in meeting this challenge.

Unfolding Wire-tap Scandal
--------------

9. (C) In addition, the ongoing eavesdropping scandal could
yet undermine Peru's forward progress. The initial round of
the scandal, in which several figures with government
connections were caught in secretly taped telephone
conversations apparently greasing the skids for deals
involving oil block concessions, caused the collapse of
Garcia's first cabinet. The current round, in which some of
the wire-tappers-for-hire have been identified and additional
tape recordings have come to light, is still unfolding.
Notwithstanding the almost relentless media coverage over the
past six weeks, so far there has been no smoking gun or
evidence of fire. Little has come to light that directly
implicates government officials in any legally actionable
corrupt act, no suitcase of cash or illegal bank account.
That said, the whiff of corruption is strong, and the
impression that private interests prey upon public
institutions and trust pervasive. There is also a lingering
concern that information yet to come to light could cause
further problems for the government.

Comment: Still a Close Call
--------------

10. (C) Garcia's challenge remains clear: expand the
system's reach and representation, consolidate the still
fragile trade- and investment-friendly policy consensus, and
thereby reduce the political space for the many anti-systemic
elements plotting for 2011 -- the year of the next general
elections. Given the positive but still ambivalent results
of President Garcia's first 30 months and the increasingly
complicated imperatives of latter-term, pre-electoral
politics, it remains a close call.


MCKINLEY

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