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