THE PRO-SYSTEM VIEW: PERU ON RIGHT COURSE BUT

C O N F I D E N T I A L LIMA 000899

SIPDIS

E.O. 12958: DECL: 06/23/2019
TAGS: PGOV PREL ECON ETRD EINV PINR PE
SUBJECT: THE PRO-SYSTEM VIEW: PERU ON RIGHT COURSE BUT
CONSENSUS FRAGILE

REF: LIMA 866 (AND PREVIOUS)

Classified By: Pol/C Alexis Ludwig for reasons 1.4b and d.


1. (C) Summary: Pro-system political figures believe Peru is
an example of how democratic government coupled with an open,
market-based economy can promote development, reduce poverty
and lay the groundwork for long-term progress. Many see the
2011 general elections as a defining moment, likely
determining whether Peru's pragmatic policy approach gains
permanence or is undermined and deflected in another
direction. The formal political system's ability to address
Peru's principal challenges -- persistent poverty,
inequality, the absence of the state -- is complicated by a
series of structural factors. These include weak public
institutions writ large, a discredited Congress, political
parties in disarray and a legal framework that hinders
parties' ability to aggregate diverse social demands while
contributing to the proliferation of "informal" and even
anti-system political actors. The political system's
structural weaknesses, acutely manifested during the recent
protests (refs),lay bare the fragility of Peru's pragmatic
consensus. End Summary.

Pro-growth Policies Mark Way Forward
--------------

2. (C) Pro-system political figures believe Peru is an
example of how a democratic system, coupled with an economy
open to international trade and investment, can advance
national development in the broad sense. Peru's pragmatic,
pro-growth model has provided uninterrupted positive growth
over the past eight years (a streak broken in May 2009 with
the first evidence of negative month-on-month growth since
2001.) This good news story reflects several successive
governments' commitment to a fundamental policy premise --
namely that maintaining strong economic growth is a necessary
condition for tackling social problems and reducing poverty.
Importantly, according to government statistics, Peru's
macro-economic success has begun providing significant social
benefits in recent years, reducing poverty from 52% in 2004
to less than 37% last year, generating diverse employment
opportunities unavailable before, producing emerging pockets
of new wealth (particularly in Lima and coastal cities) while
also creating an incipient but still small middle class. If
promising, these statistics also highlight the scope and
magnitude of the challenge in a country deeply divided along
social, economic, geographic and ethnic faultlines.


3. (C) Political parties that support the government's
pragmatic economic approach constitute a clear majority in
Congress. In general terms, these include the ruling
APRA-party, National Unity Alliance (UN),the Fujimorista
bloc, Peru Posible (PP) and several other smaller parties.
To differing degrees, these parties believe that former
President Toledo handled the economy well and that President
Garcia has maintained the needed policy continuity to keep
Peru on a positive path, including by finishing a free trade
agreement with the U.S. that he had all but opposed as a
candidate. In that sense, the loose pro-system "coalition"
in Congress has sought mostly to support the government on
economic issues while some of its member parties have freely
sided with the "opposition" in other debates. Some, for
example, have faulted the government for failing to move fast
enough in a time of plenty to reform public institutions,
expand and improve basic service delivery and better
redistribute the economic benefits of growth to lift more
people out of poverty.

2011 Elections Pivotal
--------------

4. (C) Many pro-system figures see the 2011 national
elections as a defining moment. Pro-system actors hope that
the benefits generated for real people by the welcome
pro-growth policy continuity over the past 15 years will lead
Peruvian voters to elect to continue along the same path.
Our contacts in several pro-system parties have emphasized
that Peru needs at least one more 5-year presidential period
of economic pragmatism to consolidate the political consensus
around the pro-growth strategy and to end the futile debate
over economic models and fundamental policy directions.
Given an additional minimum period of policy continuity,

according to this view, the political, economic and social
benefits of the pragmatic approach should have spread to a
sufficiently large percentage of Peruvians such as to make
the country resistant to the still latent (and sometimes
explosive -- refs) anti-system challenge. In other words,
Peru will have crossed a critical threshold because more
Peruvians will have enough to lose to make them wary of
risking it with a leap into the unknown. By contrast, should
Peruvians choose to pursue a different option in 2011, all
bets are off. The policy basis of Peru's recent progress
could be undermined, and the accumulated benefits of the past
15 years squandered and diverted in different directions.

Congress Discredited/Political Parties Weak
--------------

5. (C) The formal political system's ability to address
Peru's main challenges and resolve social conflicts is
complicated by a series of structural factors. The weakness
or absence of the state in large swaths of national
territory, and its inability to provide basic public services
-- from security to health -- underly them all. Even in this
complicated context, however, the legislative branch is in
particularly dire straits. Popular support for Congress --
in theory the arena in which social compromises are forged,
conflicts mediated and national strategies debated and
decided -- has been abysmally low and suffered another blow
during the recent crisis (refs),plunging to 11% in June
polls. This means that, no matter the make-up and majority
view of the current Congress, legislative decisions risk
being seen as unrepresentative and even illegitimate by many
Peruvians. Political parties too, which are supposed to
represent broad social currents and diverse interest groups
throughout the country, are seen as creatures of narrower
scope, often dominated by one charismatic figure, usually in
Lima. Party leaders complain of other exacerbating factors,
including a restrictive political party law that regulates
the registration, internal democracy, and financing of formal
parties while leaving "informal" regional movements free to
act as they please -- and therefore to proliferate.


6. (C) This situation has weakened traditional parties,
contributed to the fragmentation of political representation
and complicated the prospects of Peru's democratic
consolidation. National parties hold 10% of regional-level
elected positions, and only 2% of local-level offices.
Disparate regional movements, with no single political vision
or program binding them to one another, hold 21 of 25
regional presidencies. While some congressional, regional
and local leaders in the "informal" camp are competent and
guided by pragmatism, many continue to maintain at least one
foot in the "anti-system" opposition even as they exercise
the limited authorities of their office. This often
motivates them to pursue the symbolic gesture -- including
leading protests -- more often than the practical solution to
generate or maintain political support. The most notable
example of this widespread phenomenon is the Regional
President of Puno, Hernan Fuentes, elected with 18% of the
votes cast, whose precarious political position has compelled
him to call for a variety of politically exotic goals,
including undefined autonomy for his region.


7. (C) Several pro-system legislators have complained about
the large number of current members of Congress who have no
history with any party and no training or experience to
prepare them for elected office, which tilts them toward
"informal" practices. (Note: Over 80% of current
Congressional representatives are on their first term. End
Note.) Apart from opposing the government's pragmatic
approach to economic matters, these "informal" congressional
representatives tend to engage in thinly disguised
demagoguery, presenting poorly-conceived legislation that
seeks to benefit a small minority in their regions or that
has absolutely no chance of being implemented in the real
world. They also bring anti-system tactics to the chambers
of Congress, attacking the legitimacy of the institution from
within. The recent staging of a hunger strike on the
congressional floor by seventeen PNP congressional
representatives is an example of such behavior (refs) --
resulting in the 120-day suspension of seven of them and
their public counter-accusation that the "voice of the
people" had been suspended from Congress. This weakening of

formal institutionality has forced conflict resolution and
public debate to other ad hoc mechanisms such as
"multi-sectoral commissions" and so-called "mesas de dialogo"
that are more susceptible to the outside pressures of the
moment.

Comment: Fragile Consensus
--------------

8. (C) The political system's weaknesses and faults have
provided openings for anti-system actors to increase their
strength and to challenge Peru's pro-growth consensus. The
recent protests of Amazon communities, which ultimately
resulted in a violent confrontation with security forces and
the subsequent repeal of two legislative decrees that the
government and a majority in Congress had actively defended
before (refs),underscore the continued and even acute
fragility of this consensus. The worrying results of the
protests -- the erosion of state authority perhaps foremost
among them -- suggest that, unless the government and its
supporters are able to make a strong stand, the political
momentum may turn the other way. Or less ominously, it could
mean that for its remaining two years the Garcia government,
which up to now has sought to project some measure of state
authority on to a difficult social and political landscape,
may choose a modus operandi more like that of its predecessor
(Toledo),tactically ceding to the demands of demonstrators
while never quite giving away the store.
NEALON