Cabinet Change: Araoz to Ministry of Economy

UNCLAS LIMA 001725 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PREL PGOV EINV ECON EFIN ETRD PE SUBJECT: Cabinet Change: Araoz to Ministry of Economy ¶1. (SBU) Summary: Following the resignation of Economy Minister Luis Carranza, Mercedes Araoz (previously Minister of Production) was sworn in to assume the post December 22. President Garcia publicly tasked Araoz with maintaining Peru's reputation for fiscal discipline. Observers believe Garcia chose Araoz because he trusts her to carry out his wishes in an increasingly politicized environment. Former VM of Transportation and Communications Jose Nicanor Gonzales was sworn in as the new Minister of Production. End Summary. ¶2. (SBU) In a surprise move, Luis Carranza resigned as Minister of Economy December 22. Carranza had led the Economic Ministry twice - the first time from July 2006 to July 2008, and again from January 2009. (Current Peruvian Ambassador to the U.S., Luis Valdivieso, was Minister of Economy in the interim period.) In publicly announcing Carranza's resignation, President Garcia said the Minister had fulfilled his promise to serve an additional year. According to news and other reports, however, Carranza had opposed the government's decision to promulgate a law granting tax-free status to economic activities in the Andean highlands and sought to block salary increases for police and military forces. More generally, observers believe the technocratic Carranza was growing uncomfortable with mounting political pressures to free up public moneys in the run-up to electoral season. (Regional elections are scheduled for October 2010, general elections for April 2011.) ¶3. (SBU) Taking direct aim at these rumors, in the December 22 swearing-in ceremony President Garcia tasked Minister Araoz with maintaining Peru's vaunted macro-economic stability and hard-earned reputation for fiscal discipline. Araoz is one of three Ministers who have been in the cabinet since the beginning of Garcia's government in July 2006 (the other two are Minister of Foreign Affairs Garcia Belaunde and Minister of Education Chang),but in her case as head of three successive ministries. She began as Minister of External Trade and Tourism where she played a pivotal role in securing implementation of the U.S.-Peru Trade Promotion Agreement, was transferred to Production following the June 5 violence in the Amazon region near Bagua, and has now assumed responsibility for the Economy Ministry portfolio. ¶4. (SBU) Many observers believe Garcia chose Araoz because he trusts her to carry out his wishes in an environment in which political factors are gaining primacy. While not a member of the ruling APRA-party, Araoz is seen as an able and intelligent technocrat, close to President Garcia, and sufficiently savvy to navigate the complicated politics of this sensitive and important cabinet position. More than any other Peruvian official, she also embodies the new Peru, with an image of youthful energy and worldly sophistication. Some critics and opposition figures have expressed concern that Araoz may bend excessively to the President's political will and open the fiscal floodgates in ways that could damage Peru's solid macro-economic foundations. ¶5. (SBU) Jose Nicanor Gonzales was sworn in to succeed Araoz as the new Minister of Production. Gonzales has been working in the Garcia administration in different capacities, most recently as Vice-Minister of Transportation and Communications. His areas of professional expertise are private investment promotion, government planning and competitiveness. He is a retired Navy Admiral who has been trained a the U.S. Naval Academy, MIT and Harvard. MCKINLEY