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DE RUEHPE #2577/01 2111714
ZNY CCCCC ZZH
R 301714Z JUL 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 6317
INFO RUEHBO/AMEMBASSY BOGOTA 4914
RUEHBR/AMEMBASSY BRASILIA 7490
RUEHCV/AMEMBASSY CARACAS 0625
RUEHLP/AMEMBASSY LA PAZ JUL QUITO 1362
RUEHSG/AMEMBASSY SANTIAGO 1417
RUEHBS/USEU BRUSSELS
RUMIAAA/CDR USCINCSO MIAMI FL

C O N F I D E N T I A L LIMA 002577

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/24/2016
TAGS: PGOV PINR PHUM PE
SUBJECT: GARCIA'S DOG DAYS -- POLLS DOWN, BUT ECONOMY UP


Classified By: A/POLCON David Boyle, for Reasons 1.4 (c,d)

¶1.  (SBU) Summary: July has brought ugly poll numbers for
Peruvian President Alan Garcia: his approval rating has
dropped from 62 per cent in August 2006, when he assumed
office, to 36 percent in July 2007, and for the first time,
his support in the Lima metropolitan area has slipped.  The
biggest drop -- 10 percentage points --  took place in July,
when a series of well-organized protests broke out in 16 of
Peru's 24 provinces.  The disappointing numbers make it more
likely that cabinet changes will be deeper than previously
planned.  We assess that despite lower approval ratings
Garcia will not return to the populist spending that marred
his first term in office (1985-1990), a scenario that has
kept the business community on edge for the last year.  End
Summary.

----------------
The Poll Numbers
----------------

¶2.  (SBU) Recent public opinion surveys by the polling firms
Conecta and Apoyo show a sharp drop in President Garcia's
approval rating, from 62 per cent in August 2006 to 36
percent in July 2007.  The largely indigenous altiplano
regions remain hostile territory for the administration: in
the northern Sierra, only 13 per cent of these polled approve
of the president, only 18 per cent the central Sierra, and
only 16 per cent in the southern Sierra.  These regions
served as the epicenter of July's protests and voted
overwhelmingly for Ollanta Humala in last year's presidential
elections.  Even more troubling for the president, his
popularity has slipped badly in Lima: in March, 63 percent of
those surveyed supported the president but only 38 per cent
held favorable views in July.  More than half cited the
president's failure to fulfill campaign promises as the main
reason for his unpopularity.

-----------------
Garcia's Response
-----------------

¶3.  (C) Garcia shows no signs of overreacting to the downturn
in popularity.  In the past month, Ambassador Struble has
made a series of farewell calls on senior officials, all of
whom made it clear that they understand the frustrations in
the countryside but are determined to maintain the economic
course that has brought Peru rapid economic growth.  Prime
Minister Jorge del Castillo, for example, told the Ambassador
that pro-market policies were the only way to generate wealth
and address Peru's deep-seated poverty, and he pointed out
that July's protests represented localized reactions to
specific complaints rather than a repudiation of the
president's economic philosophy.  In a separate conversation
with the Ambassador, Minister of Defense Alan Wagner said the
GOP is committed to a three-year reform plan: in year one,
the GOP cut spending; in year two, the president plans to
streamline state administration; and in year three, the GOP
expects will reform the salary structure of government
employees.

¶4.  (C) According to senior officials, Garcia recognizes that
popularity swings are part of being president, and he remains
confident that he sustains sufficient popularity to implement
his ambitious reform agenda.  Officials note that former
President Toledo received a 16 per cent approval rating after
one year in office and that Garcia's numbers are not a
serious problem for a president with four more years to serve.

--------------------------------
When in Doubt, Fire the Minister
--------------------------------

¶5.  (SBU) The president can also depend on the traditional
political stratagem of jettisoning ministers to buoy
popularity.  Only Minster of Trade Mercedes Aaroz enjoys a
popularity rating above 50 per cent, whereas nine of 15
cabinet ministers have approval ratings of less than 33 per
cent.  The two ministers most often mentioned by insiders as
likely to go are Justice Minister Maria Zavala and Health
Minister Carlos Solchaga.  The press is speculating that
Economy Minister Luis Carranza will also get the ax.
Indications before the most recent protests were that he
would hold on, but President Garcia may now be more inclined
to sacrifice him.  Women's Affairs Minister Virginia Borra
may step down for personal reasons.

-----------------
Business Reaction
-----------------

¶6.  (C) The Peruvian business community still remembers the
hyperinflation brought by irresponsible government spending
during Garcia's first term and harbors suspicions about the
presidents commitment to the free market.  That skepticism
helped fuel the internecine debate over the General Labor
Law, which business groups feared would return Peru to an
earlier era of labor stability that made it impossible to
fire workers.  Garcia heard these complaints and refused to
sign the law, complaining it would undermine economic growth.
 From time to time, Garcia must intervene in debates like
this because the staunchest supporters of labor stability are
actually the dinosaurs in his own party.  Privately,
government sources tell the Embassy that Garcia  is acutely
aware of the economic failures associated with his first term
and is unlikely to depart from his commitment to the free
trade and open markets.

-------
Comment
-------

¶7.  (C) In June, del Castillo had predicted the government
was in for a rocky period, and he was correct in noting that
the protests would lose steam.  The GDP rose more than 7 per
cent in May, and uninterrupted economic expansion has created
an elite backing the Garcia administration -- and even
started to produce a significant downturn in national poverty
figures.  Businessmen remain upbeat about the country's
future, as the stock market booms and trade and investment
continue to climb.  Against this background,   Garcia's
increasing personal unpopularity, though significant, is not
decisive, and Garcia knows that the business community is
watching closely to insure his economic policies stay on the
straight and narrow path of economic orthodoxy
WUNDER