SCENESETTER FOR CHAIRMAN OF THE JOINT CHIEFS OF

UNCLAS SECTION 01 OF 03 LIMA 000225 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV PREL OVIP MASS MARR PE SUBJECT: SCENESETTER FOR CHAIRMAN OF THE JOINT CHIEFS OF STAFF ADMIRAL MIKE MULLEN ¶1. (SBU) Summary: You will arrive in a Peru relatively well-positioned to deal with the unfolding global economic crisis but deeply concerned about its longer-term implications. Thanks to several recent policy successes and a tactical shift to the left, President Garcia's nation-wide poll numbers have risen to nearly 30%. Peru's weak state institutions limit the government's ability to deliver the kinds of public services people expect and to address key structural challenges such as drug trafficking and terrorism. U.S. security assistance supports Peru's efforts to build a professional/modern military and to combat the growing Sendero Luminoso threat. U.S.-Peru ties have rarely been better, anchored in free trade, long-standing counter-narcotics cooperation, a good security relationship and a broadly shared world view. Welcome. End Summary. ¶2. (SBU) Peru finds itself facing the same heavy global cross-winds that are buffeting the world. Many analysts believe Peru is relatively well-positioned to weather the storm -- with high liquidity, low debt and little exposure to the core structural causes of the crisis -- and its projection for growth this year (4-5%) remains the highest in the region. But few argue that Peru's relative economic stability means the country is in the clear, and local confidence has been further shaken with each successive wave of troubling news. For example, the price of commodities, which still make up over 60% of the country's export earnings, have plummeted since the onset of the storm. Peru's small stock market also has dropped sharply. Some large companies have begun payroll cuts and lay-offs, and some multinationals are rethinking their long-term investment strategies. Even Peru's remittance earnings have fallen somewhat. In responding to this challenge, the Garcia government has designed a public stimulus plan whose launch will be calibrated to the crisis's direct and likely increasing impact on Peru. ¶3. (SBU) Thanks to several recent policy successes and a greater focus on social priorities, President Garcia's nation-wide poll numbers have risen from below 20% in October to nearly 30% in January. The government's relatively favorable economic positioning, its successful organization of two major international meetings in 2008 (the European Union-Latin American country summit in May, and the APEC summit in September),and the entry into force of the long-awaited U.S.-Peru Trade Promotion Agreement (PTPA) have contributed to this rise. Some analysts believe the dip in inflation -- one cause of his earlier lower numbers -- has also played a role. Garcia's recent shift is reflected in the choice as Prime Minister in his new cabinet of Yehude Simon (the popular former regional president of Lambayeque who embodies a left-of-center, social democratic political philosophy),in events with a broader public, and in his periodically announcing high-profile public-works projects -- water, roads, energy -- in poorer areas throughout the country. ¶4. (SBU) Peru's weak state institutions limit the government's ability to deliver the kinds of public services people expect. This challenge is particularly worrying in politically vulnerable regions where the state is largely absent and the "anti-system" opposition is strong. The government has sought to counter this problem with policies relating to streamlining public service entities, increasing spending on social services, and decentralizing key state functions to regional and municipal governments. The results of these policies have been mixed. In the case of decentralization, for example, much has depended on the quality of local leadership, the administrative capacity of sub-national governments, and the resources available to the region through royalties on mining and other natural resources. ¶5. (SBU) Peru's governmental challenges have also complicated President Garcia's ability to confront Peru's internal security challenges - including drug-trafficking and the growing remnants of the terrorist group Sendero Luminoso (Shining Path). Nonetheless, Garcia's government has made a serious effort to combat drug-trafficking in cooperation with the United States and other countries. Internally, the government places emphasis on interdiction and eradication, the latter of which has been directly linked to alternative development. While entrenched pockets of coca cultivation persist, the strategy of closely linking eradication with alternative development has had significant results in the Upper Huallaga Valley. Externally, the GOP most recently reached out to Mexico during the APEC leaders' meeting to LIMA 00000225 002 OF 003 enhance counternarcotics cooperation, signed an agreement with Thailand on alternative development, and has been working with Colombia on its shared responsibility initiative. ¶6. (SBU) The involvement of Shining Path (SL) remnants in drug trafficking, whether as facilitators or direct participants, continues to present a particular challenge for Peru's security forces. There have been an increasing number of armed confrontations with the SL in the last few months in the Valley of the River Apurimac and Ene (VRAE). Whether this was a deliberate decision by the SL to intensify operations or only a response to the increased military presence is open for debate. The Peruvian military launched Operation Excellence, the plan for military operations in the VRAE, in August 2008. ¶7. (SBU) Despite dedication of a significant amount of their limited resources, the Peruvian Armed Forces have not achieved many results against the SL. Early indications are that the new Peruvian Army Commander, General Otto Guibovich, appointed in December 2008, is energizing the Army efforts in the VRAE. In February, Guibovich installed a more senior general, LTG Ricardo Monacada Novoa as the overall Commander for the new military region comprising the VRAE. Guibovich also has initiatives to increase the budget for equipment destined for the VRAE as well as plans for improved training. Due to the rainy season, which inhibits military operations in the VRAE, the Peruvian military will have until late March to organize, form a viable plan of action and implement necessary changes before resuming operations. One impediment to success in the VRAE is the chronic lack of helicopters, an issue may wish to raise in your meetings. ¶8. (SBU) U.S.-Peru ties have rarely been better, and even Peruvian government officials have said publicly they are the best in living memory. According to opinion surveys, the U.S. has a broadly positive image and enjoys considerable reserves of public sympathy in Peru. The comprehensive and intensive bilateral relationship is anchored in free trade -- the PTPA went into force February 1, to the great relief of Peruvian officials and general satisfaction of the informed public. In addition to the solid counternarcotics cooperation noted above, we have expanded our political-military relationship, with bilateral humanitarian exercises, support for Peru's expanding international peacekeeping operations capabilities and, potentially, demining work along the Ecuadorian border. Most importantly perhaps, positive relations are rooted in intensive people-to-people ties -- close to one million Peruvian nationals live in the U.S. -- and a broadly shared world view in which regional and global opportunities and threats match closely. ¶9. (SBU) The Peruvian Government and Armed Forces value the military-to-military relationship with the United States, manifested by unprecedented high-level, State Department and Office of the Secretary of Defense-led bilateral meetings in recent years to discuss strengthening political-military cooperation. The Peruvian Armed Forces' primary focus is on combating external and internal threats to include addressing transnational crime, terrorism, drugs, and control over national territory. Balancing these tasks is difficult for the Armed Forces given their limited resources and reluctance to engage on internal security matters due to past human rights violations. Peru is looking for U.S. assistance with military, institutional and operational reform, through site visits, military exchanges and professional military education. Peru also seeks U.S. military equipment to replace aging Soviet-era hardware, and has initiated significant conventional weapons modernization purchases since 2007. Lack of resources, particularly much-needed rotary-wing assets, continue to plague current and future operations. Encouraging the expansion of Peru's limited helicopter fleet, for both military and humanitarian operations, should be emphasized during the visit. ¶10. (SBU) U.S. security assistance supports Peru's efforts to build a professional, modern military, and to enhance the military's ability to control its borders and national territory thereby denying terrorist organizations areas to train and organize. The USG provides foreign military financing (FMF-FY09 $900,000 requested),international military education and training (IMET-FY09 $400,000 requested),funding under the global peace operations initiative (GPOI-FY08 $1.7M allotted),and humanitarian assistance. The Peruvian Armed Forces are actively involved in peacekeeping operations, providing close to 250 personnel LIMA 00000225 003 OF 003 primarily to operations in Haiti. In recent years, the United States has supported Peruvian defense modernization through the Excess Defense Articles program, providing tank landing ships, light-attack aircraft, and surface vessels to enable disaster relief response and establishment of state presence. The USG is also working with the Peruvian Armed Forces to facilitate destruction of excess and obsolete weaponry, and is renewing support for Peru's landmine removal efforts. ¶11. (U) Again, welcome. We look forward to your visit. MCKINLEY