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DE RUEHPE #0240/01 0291840
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P 291840Z JAN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 3746
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 4314
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2765
RUEHCV/AMEMBASSY CARACAS PRIORITY 0119
RUEHLP/AMEMBASSY LA PAZ JAN 3995
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RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1086
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 4361
RHMFIUU/CDR USSOUTHCOM MIAMI FL PRIORITY
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY

UNCLAS LIMA 000240 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ETRD PE PGOV
SUBJECT: PERU: LABOR REFORM INCHES FORWARD 
 
Peru: Labor Reform Inches Forward 
 
¶1.  (SBU) Summary: In seeking consensus on the General Labor 
Law, the congressional labor committee plans to consult again 
with civil society before it submits a draft to the plenary. 
Continued political differences over specific issues -- 
particularly the rights of dismissed workers and the right to 
sector-wide collective bargaining -- suggest the bill will 
face an uphill battle, and potentially stall there.  Critics 
of the bill, which would only apply to the 25 per cent of the 
Peruvian workforce in the formal sector, claim that it would 
impose rigid labor conditions at a time when the Peruvian 
economy desperately needs to create more jobs.  President 
Garcia and PM Del Castillo have stated they would veto any 
bill that fails to strike the proper balance between business 
and labor.  Meantime, the GOP is moving to institute other 
measures that would apply to a broader group of Peruvian 
workers who remain outside the formal sector, providing them 
for the first time with basic labor rights and social 
benefits.  End Summary. 
 
----------------- 
Elusive Consensus 
----------------- 
 
¶2.  (SBU) Congress's labor committee continues seeking an 
elusive consensus on the contentious General Labor Law. 
Progress on the bill broke down in December when congressman 
Luis Negreiros of the ruling APRA party sought changes to 
Article 165 to restrict companies' ability to fire their 
employees.  A chorus of business groups and pro-growth 
political leaders, including government officials, complained 
that the proposed changes returned Peru to an era of labor 
rigidity that made it impossible, in practice, to get rid of 
employees without incurring exorbitant penalties.  Negreiros 
has since backed down, but the issue remains unresolved.  A 
second impasse emerged over Article 364, which requires 
unions to obtain the consent of businesses before engaging in 
sector-wide bargaining.  According to congressional staffers, 
Negreiros and others who wanted to facilitate sector-wide 
union organizing were overruled by congressmen focused on the 
growth (including of formal employment) side of the equation. 
 This issue too remains unresolved.  Articles relating to 
subcontracting remained essentially unchanged from December, 
when the committee tightened the obligations of primary 
employers to ensure subcontractors shared in the profits of 
companies. 
 
¶3.  (SBU) Minister of Labor Susanna Pinilla acknowledged in a 
January 24 meeting with Emboffs that key elements of the 
labor law remained under contention, and the prospect of a 
quick resolution was unlikely.  She averred that, 
notwithstanding the Ministry's persistent and painstaking 
explanations, key members of the labor committee were still 
convinced that the best way to improve the lot of workers was 
to enact inflexible labor standards, reminiscent of those 
that preceded Peru's economic crises in the 1980s.  For their 
part, business groups and their congressional allies have 
kept up a steady drumbeat of complaints, warning that new 
labor protections in Peru--already among the toughest in the 
region--will choke off foreign investment and increase 
unemployment.  Ministry of the Economy officials were 
sympathetic to this view in a January 24 meeting with Emboffs 
and suggested the final law, whatever form it takes, could 
decrease formal employment by raising labor costs.  Critics 
of the law, including key government officials,  have made 
precisely that point, noting that the bill only covers the 
roughly 25 per cent of the labor force in the formal economy. 
 
¶4.  (SBU) Labor Minister Pinilla told us that, when the new 
congressional session opens in March, the labor committee 
planned to invite civil society, labor and private sector 
representatives to review and comment on the work done up to 
now -- a process that could take several months.  Pinilla and 
other insiders have speculated that, at the end of the day, 
the committee could deliver a bill to the plenary without 
having resolved these thorny outstanding issues beforehand. 
This suggests that the bill will face tough sailing in the 
plenary, and could even stall there -- a possibility that 
Pinilla openly acknowledged.  Moreover, President Garcia said 
he would veto any law that tilted excessively toward either 
business or labor.  To cover his social sector flanks, Garcia 
reportedly told International Labor Organization's (ILO) 
Director-General Juan Somavia in Lima last week that the GOP 
was committed to do "everything necessary" to improve working 
conditions, raise wages, and increase social benefits. 
Tacking in the other direction, Prime Minister Del Castillo 
stated January 25 that the government would block, and return 
to sender, any version of the bill that threatened economic 
growth or the expansion of jobs in the formal labor sector. 
 
------------------------ 
A Complementary Approach 
------------------------ 
 
¶5.  (SBU) To complement their work on the labor law and to 
begin to tackle the real labor problems besetting Peru, the 
government has issued decrees and prepared additional 
legislation to strengthen labor protections more broadly, and 
to attempt to attract workers into the formal sector.  In 
reviewing this strategy, Minister Pinilla told us: 
-- The government created an interagency committee to combat 
forced labor in January and plans to issue an action plan 
within 30 days; 
-- In March, the GOE will implement its new "Salud y 
Seguridad en el Trabajo" Law (Safety in the Workplace Law); 
-- In October 2006, the GOP issued Law 28806, which doubled 
the number of labor inspectors to more than 500, and 
increased their authority to conduct unannounced inspections 
and levy fines.  The government plans o redouble the number 
of inspectors in 2007; and 
--  The GOP also has begun a process of judicial reform to 
streamline procedures for resolving time-consuming labor 
disputes. 
 
¶6.  (SBU) The Ministries of Economy and of Labor also are 
quietly modifying legislation affecting small business to 
encourage more micro-enterprises (business with less than 10 
employees) to enter the formal sector.  (More than 90 per 
cent of Peruvian business are micro-enterprises, and 
approximately 55 per cent of the work force is in small 
business.)  In particular, proposed changes reduce the 
paperwork needed to set up and maintain small businesses, 
lower tax rates, and offer workers the opportunity to 
participate in the system of social benefits provided by the 
government, such as pension rights, paid vacations, severance 
pay and health insurance.  Minister Pinilla told us this 
legislation would seek to create an "intermediate step" 
between informality and the comprehensive rights and benefits 
package enjoyed by the small minority of workers in the 
formal sector, and explained that the government sought to 
bring some benefits to those who had nothing while avoiding 
undermining the rights of those who already had them. 
 
¶7.  (SBU) Comment: The proposed General Labor Law remains a 
problematic work in progress.  In any case, it represents 
only one part of a comprehensive GOP plan to improve labor 
rights and benefits.  The law itself, if passed, would 
provide some new benefits to the minority formal sector. But 
other GOP proposals are designed to tackle some of the most 
intractable problems that Peru's economy  faces: how to 
reduce the country's large informal sector and introduce 
basic social benefits and labor rights to the majority of the 
workforce.  The Garcia administration is proceeding in 
keeping with its rhetoric, hoping to balance economic growth 
and incentives with social justice.  That said, the Garcia 
administration has increased the pace of change in part to 
help win passage of the Peru Trade Promotion Agreement 
(PTPA), but also in response to the social and political 
costs of a labor force that remains largely outside the law. 
End Comment. 
POWERS