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DE RUEHPE #3477/01 2971517
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R 241517Z OCT 07
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UNCLAS LIMA 003477 
 
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E.O. 12958: N/A 
TAGS: ECON SOCI PGOV ETRD PE
SUBJECT: GOP REVISION SHOWS POVERTY DECLINES IN 
2006 FASTER THAN ANTICIPATED 
 
 
¶1.  SUMMARY.   A National Statistical Institute 
(INEI) technical revision, supervised by the 
World Bank, indicates that PeruQs poverty rate 
declined more significantly than the government 
had previously calculated - by 4.2 percentage 
points, to 44.5 percent, from 2005 to 2006. 
Extreme poverty decreased also, but by only 1.3 
percentage points in 2006, to 16.1 percent.  The 
government welcomed the news.  The new numbers, 
reflecting more accurate 2004 data, showed that 
the administration of former President Toledo was 
even more successful than it had been given 
credit for on this important front. 
 
¶2.  Overall, the new figures for poverty are 
consistent with various indicators that show 
strong domestic demand (septel), booming private 
consumption and investment since 2006, like 
manufactured food goods sales; beverage sales; 
appliances imports; consumer loans; home 
building, etc.  While the global figures are 
positive, some areas in the country such as 
Huancavelica and Ayacucho - where support for the 
government remains weak - showed little 
improvement.  END SUMMARY. 
 
¶3.  Peru's National Statistical Institute (INEI) 
released July 19, 2007 new figures that revised 
poverty levels significantly downwards. (The new 
figures reflect data from 2004, 2005 and 2006.) 
While the 2004 figures had previously pegged 
poverty at 51.6, the revision now shows it at 
48.6.  On that basis, the 2006 figures drop to 
44.5 percent.   In its May 2007 medium-term 
economic report (MMM 2008-2010),  the GOP's 
Ministry of Economy and Finance had  set the 
GOP's goal to reduce the poverty rate by ten 
percentage points to a 40 percent rate by 2011. 
President Garcia used that figure in his July 
state of the union address. 
 
¶4.  The new poverty estimates have shaken the 
prevailing contention that Peru's impressive 
economic growth in the last five years has failed 
to reduce poverty by any significant measure. 
The new figures, which reflect progress made 
during the Toledo Administration, show a decline 
of almost ten percentage points.  Ironically, 
President Garcia has sought to differentiate 
himself from his predecessor by promising in his 
state of the union address to reduce poverty by 
10 points.  These new figures suggest that, while 
some of the work suddenly appears to have been 
done for the government, the political bar for 
further progress on poverty reduction has been 
significantly raised. 
 
POVERTY SIGNIFICANTLY LOWER 
--------------------------- 
 
¶5.  The table below shows that poverty in 2006 
went down by 4.2 percentage points, to 44.5 
percent from the prior year.  On the other hand, 
extreme poverty decreased only 1.3 percentage 
points in 2006, to 16.1 percent.  The new figures 
for poverty are consistent with various 
indicators that show booming private consumption 
and investment since 2006, like manufactured food 
goods sales; beverages sales; appliances imports; 
consumer loans; home building, etc., and recent 
surveys by private polling companies, like one by 
Ipsos Apoyo for nine cities. 
 
Peru: Poverty and Extreme Poverty, 2001-2006 
Percent of total population) 
---------------------------- 
2001  2002  2003 2004  2005  2006 
 
----------------------------------Poverty 
54.3  53.8  52.2  48.6  48.7  44.5 
Previous 2004 Poverty) (51.6) of which: 
Urban Areas 
50.0  46.4  44.1  37.1  36.8  31.2 
Rural Areas 
77.1  77.7  75.7  69.8  70.9  69.3 
Extreme Poverty 
24.1  24.2  21.9  17.1  17.4 16.1 
Previous 2004 Extreme Poverty (19.2) 
Of which: 
Urban Areas 
16.7  14.6  13.9   6.5   6.3   4.9 
Rural Areas 
49.8  51.7  45.9  36.8  37.9  37.1 
 
Source: Based on INEI. 
 
¶6.  The newly released poverty indicators 
surprised many local economists, who largely 
agreed with the prevailing thinking that poverty 
in 2005-2006 hovered around 50 percent, with 
extreme poverty around 20 percent.  As recently 
as May 31, 2007, the Ministry of Economy and 
Finance (MEF) stated that the Garcia 
Administration aimed to reduce total poverty by 
ten percentage points - to 40 percent - by 2011, 
and to reduce rural poverty by twenty percentage 
points - to around 50%.  The new data indicate 
that, with poverty down to 44.5%, much of this 
work has already been done by the previous Toledo 
administration. 
 
WINNERS AND LOSERS 
------------------ 
 
¶7.  Progress in poverty reduction has been far 
from evenly distributed in a geographic sense. 
Generally, departments with natural resources 
industries (mining, petroleum or lumber) or 
export-oriented crops or apparel (mostly on the 
coast) have fared much better than those without. 
In Tumbes and Moquegua, poverty decreased by 
about one third, while in Arequipa, Lima, Ancash, 
Tacna and Madre de Dios, the reduction was about 
one fifth.  Conversely, poverty actually 
increased in six departments.  In four of these 
cases - Ayacucho, Apurimac, Pasco and 
Huancavelica - the reversal wiped out earlier 
progress made in reducing poverty there.  Not 
coincidentally, those areas strongly supported 
nationalist candidate Ollanta Humala in the 2006 
elections and remain deeply skeptical of, and in 
some cases hostile toward, the government today. 
 
¶8.  Extreme poverty rates follow a similar 
pattern.  Reductions have been significant in 
departments in which extreme poverty levels were 
already low.  For example, extreme poverty fell 
by one half or more in Tumbes, Moquegua, Arequipa 
and Lima, but increased in Ayacucho, Apurimac, 
Huancavelica and Pasco, as shown in the table 
below. 
 
URBAN IMPROVEMENTS, RURAL STAGNATION 
------------------------------------ 
 
¶9.  Poverty decreased sharply in urban and 
coastal areas, to 31.2 percent and 28.7 percent 
respectively in 2006, while it remained steady in 
rural and highland areas, at 69.3 percent and 
63.4 percent respectively in 2006.  A similar 
situation took place in the case of extreme 
poverty. 
 
-  Peru: Changes in Poverty and Extreme Poverty, 
-2004-2006 
 
 
 
--------------------------------------------- -- 
Selected      Poverty Rate (Pct)  Percent Change 
- Departments/Areas 
2004  2005  2006    2006/2004 (*) 
--------------------------------------- 
-  Poverty 
Tumbes 
24.2  16.2  15.8      -34.7 
Moquegua 
38.7  30.3  27.3      -29.5 
Arequipa 
34.2  24.9  26.2      -23.4 
Lima (**) 
32.2  32.9  25.1      -22.0 
Ancash 
53.3  48.4  42.0      -21.2 
Tacna 
24.7  30.3  19.8      -19.8 
Madre de Dios 
27.1  30.8  21.8      -19.6 
Pasco 
65.7  72.9  71.2        8.4 
Apurimac 
65.2  73.5  74.8       14.7 
Ayacucho 
65.9  77.3  78.4       19.0 
 
Urban Areas 
37.1  36.8  31.2      -15.9 
Rural Areas 
69.8  70.9  36.9       -0.7 
 
Extreme Poverty 
Tumbes 
1.3   1.3   0.4      -69.2 
Moquegua 
10.9   5.4   3.9      -64.2 
Arequipa 
6.5   3.8   3.4      -47.7 
Lima (**) 
2.5   2.5   1.4      -44.0 
Madre de Dios 
6.3   9.4   4.3      -31.7 
Huancavelica 
64.6  76.2  72.3       11.9 
Apurmac 
28.0  34.7  39.7       41.8 
Ayacucho 
27.8  38.6  41.3       48.6 
 
Urban Areas 
6.5   6.3   4.9      -24.6 
Rural Areas 
36.8  37.9  37.1        0.8 
 
Source: Based on INEI's "Technical Report - 
Poverty Measurement 2004, 2005 and 2006" (in 
Spanish). 
(*) A negative sign is a reduction in the poverty 
rate; a positive sign is an increase. 
(**) Includes the Province of Callao 
 
SURVEYING PROBLEMS, DATA REVIEW 
------------------------------- 

¶10.  The last official poverty data survey was 
that of 2004, as INEI withheld publication of the 
one for 2005.  John Newman, local representative 
of the World Bank, told us that there was a 
significant error in INEI's 2005 household 
survey, with a high nation-wide 12.3 percent rate 
of non-reply to key questions.  The problem was 
even more serious in Lima, with a partial non- 
response rate of about 30 percent. (Note:  This 
error tends to over-estimate poverty.) 
 
¶11.  To address the situation, INEI called on the 
World Bank, Inter-American Bank, the French 
agency IRD, U.N.'s ECLAC, as well as a number of 
several local GOP agencies, universities and 
think tanks to assist it in the review process. 
Newman said an ad-hoc commission was set up with 
experts from those organizations, which worked 
five months on number-crunching and survey data 
review.  Once a figure for 2005 was obtained, the 
commission needed to review the 2004 survey, and 
finalized with the processing of the 2006 survey. 
 
WHO GETS CREDIT? 
---------------- 

¶12.  INEI's poverty figures reported during the 
Toledo Administration were harshly rebuked in 
mid-2006 by several top APRA leaders just before 
APRA took office at the end of July 2006. 
Current Interior Minister (and former Garcia 
Economy Minister during his first term) Luis ALVA 
Castro, then an APRA Congressman, accused INEI of 
"grossly" manipulating poverty statistics 
downwards, which showed that poverty was below 50 
percent in 2005. 
 
COMMENT 
------- 
 
¶13.  In various speeches at the beginning of his 
term, President Garcia promised to reduce the 
poverty rate significantly by the end of his term 
in 2011.  Obviously, with the revised figures 
from the Toledo years showing marked progress, 
his job has just become harder politically. But 
economists say the goals seem achievable as the 
economy is forecast to continue to grow strongly. 
However, these goals do require maintaining a 
favorable investment climate and demand more 
efficient government poverty-reduction policies. 
Continued forays of the government (APRA) partyQs 
ministers and politicians into populist policies 
in key areas like labor, mining, energy prices 
and the like, might impact negatively on the 
investment climate and on the governmentQs 
progress. 
 
McKinley