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C O N F I D E N T I A L SECTION 01 OF 03 LIMA 001348 
 
SIPDIS 
 
E.O. 12958: DECL: 08/15/2018 
TAGS: PGOV PREL PINR ECON PE
SUBJECT: PRESIDENT GARCIA AT TWO YEARS: WEAKENED BUT 
PRESSING ON 
 
REF: A. LIMA 389 
     ¶B. LIMA 1191 
     ¶C. LIMA ...
id: 166149
date: 8/14/2008 20:20
refid: 08LIMA1348
origin: Embassy Lima
classification: CONFIDENTIAL
destination: 08LIMA1081|08LIMA1191|08LIMA389
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DE RUEHPE #1348/01 2272020
ZNY CCCCC ZZH
P 142020Z AUG 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 9152
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 03 LIMA 001348 

SIPDIS 

E.O. 12958: DECL: 08/15/2018 
TAGS: PGOV PREL PINR ECON PE
SUBJECT: PRESIDENT GARCIA AT TWO YEARS: WEAKENED BUT 
PRESSING ON 

REF: A. LIMA 389 
     ¶B. LIMA 1191 
     ¶C. LIMA 1081 

Classified By: Amb. P Michael McKinley for reasons 1.4b and d. 

¶1. (C) Summary: President Alan Garcia enters the third year 
of his presidency facing the same principal challenges that 
have confronted his government since he took office in July 
2006: how to turn Peru's strong growth into benefits for the 
entire population.  Peru grew 9% in 2007 and the government 
has made substantial strides in combating poverty and 
expanding infrastructure, but polls suggest that much of the 
population believes it has not gained.  Discontent with the 
uneven distribution of economic wealth has helped fuel 
numerous protests during the past year, particularly in the 
unruly southern Andes, and dragged Garcia's popular support 
below 30%.  Garcia has publicly acknowledged that many are 
unhappy with his government and pledged to do more to ensure 
that growth benefits the poor.  Despite the President's drop 
in support, the opposition remains in disarray, and Garcia 
maintains the political strength to implement the policies 
his government believes will help spread growth evenly. End 
Summary. 

Economy Continues to Boom 
------------------------- 
¶2. (U) President Alan Garcia enters the third year of his 
presidency facing the same principal challenges that have 
confronted his government since he took office in July 2006: 
how to turn Peru's strong, borderline spectacular growth into 
palpable benefits for the entire population.  First the good 
news: according to Peru's government statistical institute 
INEI, GDP grew 9% in 2007 and is on track to grow about 8% in 
2008, which will make six consecutive years of growth over 
4%.  The mining sector, Peru's principle economic driver, 
grew 3% in 2007, and 7% through May 2008.  Despite this rapid 
growth and rising world agriculture and fuel prices, the GOP 
maintained inflation at 5.8% -- measured between August 2007 
and July 2008 -- the second-lowest inflation rate in Latin 
America.  At the same time, according to GOP statistics 
poverty rates dropped from 48.7% in 2005 to 44.5% in 2006 and 
to 39.3% in 2007. 

¶3. (U) President Garcia highlighted these successes during 
his July 28th State of the Nation address and set ambitious 
new goals for the coming year.  Garcia emphasized that 
national production by the end of this year will probably 
reach $135 billion, near the $140 billion goal he had earlier 
set for 2011.  He also said that in his first two years, the 
GOP had built or repaired 1,100 miles of roads and would more 
than double this total in the next twelve months.  He 
promised that by the end of 2008 his government will have 
invested $12 billion in infrastructure.  Garcia listed a 
series of statistics about the number of houses built, people 
taught to read, and water services delivered, and reiterated 
his pledge to reduce poverty to 30% by the time he leaves 
office in 2011. 

Yet Polls Say Populace Not Benefiting Evenly 
-------------------------------------------- 
¶4. (U) Despite Peru's success during President Garcia's first 
two years, polls suggest that much of the population 
perceives that it is not benefiting from economic growth. 
According to a recent national, urban Ipsos-Apoyo poll, 48% 
of the two poorest sectors of society -- which pollsters call 
Sectors D & E and compose a majority of the population -- 
perceive their economic situation as bad or very bad compared 
to last year.  By comparison, only 11% and 20% of the 
wealthiest two sectors (Sectors A & B) respectively believe 
their economic situation has worsened (most believe it has 
improved).  Looking to the coming year, only 26% and 29% of 
Sectors D & E believe their economic situation will improve, 
compared to 64% and 40% of Sectors A & B, which have 
benefited most from high growth.  General consumer confidence 
has also slipped to a Garcia-administration low of 43.7%, 
down from a high of 60.6% shortly after the President took 
office in July 2006.  The main complaint, suggest the polls, 
is the price of essential food items -- such as bread, rice, 
and cooking oil -- which is rising at a much higher rate than 
general inflation. 

Sporadic Protests Reflect Discontent with Uneven Growth 
--------------------------------------------- ---------- 
¶5. (U) Discontent with the unevenly distributed benefits of 
economic growth has fueled numerous protests during the past 
year, particularly in the unruly southern Andes.  A national 
agricultural strike in February shut down major roads and led 
to clashes with police that left several dead protestors in 
Ayacucho and Arequipa.  Later that month, rock-throwing 

LIMA 00001348  002 OF 003 


protestors shut down rural and urban Cusco and attacked the 
local airport.  Protestors in Puno took to the streets in 
April against Regional President Hernan Fuentes as well as 
President Alan Garcia, bringing economic activity to a halt. 
A national strike called in early July by a major labor union 
fizzled in Lima, but gathered force in Ayacucho, Cusco, Madre 
de Dios and Puno. (Refs A & B) According to the Ipsos-Apoyo 
poll, 67% of Peruvians outside Lima -- including 83% in 
central and southern regions -- favored the national strike. 
Statistics from the Human Rights Ombudsman's office 
(Defensoria del Pueblo) show a rising number of conflicts 
throughout the country, and an increasing percentage of these 
conflicts involving protests of mining investments and 
projects.  According to some sources, radical groups across 
the country such as the communist Patria Roja party and the 
CGTP labor confederation have a concerted plan to draw on 
this discontent in order to fan the flames of anti-government 
and anti-mining protests. 

Critics Attack Garcia's Decentralization and Anti-Narcotics 
Efforts 
--------------------------------------------- -------------- 
¶6. (U) Another critique lobbed by administration opponents is 
that the government is ineffectively implementing its 
decentralization policy and doing little to fight 
narco-trafficking.  On decentralization, many regional 
leaders complain that central government has rapidly devolved 
numerous responsibilities without sharing the necessary 
resources or technical capability to manage the new tasks. 
The government retorts that it has delivered the necessary 
resources, but regional governments are unwilling or unable 
to carry out their newly broadened functions.  Leveraging the 
mechanism of the Association of Regional Presidents (ANGR) to 
coordinate a coherent policy approach with the central 
government, regional presidents have sought to gain the 
administrative and budgetary tools they need to implement 
decentralization more effectively. 

¶7. (U) On the anti-narcotics fight, both press and expert 
analysts have begun to criticize what they perceive as 
government inaction.  While accepting the scope and 
complexity of the challenge and acknowledging that 
counter-narcotics efforts have improved significantly over 
those of President Garcia's predecessor -- particularly in 
the Upper Huallaga Valley coca-production zone -- analysts 
point out that the government has made little or no effort in 
the key Ene and Apurimac River Valley (VRAE) production zone. 
 (Note: Several contacts allege military and police 
complicity with narcotrafficking in the VRAE. End Note.) 
Observers also say that prosecutors have made little progress 
in the major narcotics trafficking case against the Sanchez 
Paredes family, which many believe has close ties to members 
of the APRA party. 

Garcia Continues to Lose Popularity, Pledges to Press On 
--------------------------------------------- ----------- 
¶8. (U) As consumer confidence has fallen and protests have 
increased, President Garcia has fallen in popular opinion 
polls.  The Ipsos-Apoyo poll says Garcia had 26% approval in 
July, down from 63% after he took office in mid-2006, and 44% 
in mid-2007.  While Garcia maintained 30% approval in Lima 
and comparatively wealthy northern Peru, his support in the 
discontented south dropped to 11%.  Although Garcia's 
approval levels have fluctuated somewhat during the past 
year, the clear trajectory is downward. (Note: Garcia won 
about 24.3% of the vote in the first round of the 2006 
presidential election, and therefore appears to retain his 
political base.  By comparison, Garcia's predecessor 
Alejandro Toledo had single-digit support through much of his 
administration. End Note.) 

¶9. (U) President Garcia acknowledged during his recent State 
of the Nation address that many are unhappy with his 
government and pledged to do more to ensure that growth 
benefits the entire population, particularly the poor. 
Garcia also expressed frustration that Peruvians have not 
given him credit for his accomplishments while blaming him 
for inflation that was in fact caused by global conditions 
rather than his administration's economic management.  But 
the President -- who was notoriously obsessed with his poll 
ratings during his 1980s government -- promised only 
continued hard work, rather than grand populist initiatives 
designed to arrest his falling poll numbers.  (Note: Some 
analysts believe that Garcia intentionally sought to contrast 
his speech this year from his second State of the Nation in 
1987, when he announced the nationalization of the banking 
system.  Moreover, a ruling party insider claimed the 
government was not overly concerned with the downward 
trajectory in the polls, as long as the macro-economic 
picture held steady. End Note) 

LIMA 00001348  003 OF 003 



Government Bolstered by Opposition Disarray 
------------------------------------------- 
¶10. (U) The Garcia Administration's governing prospects 
during this period of relative public disaffection are 
strengthened by the opposition's continued disarray.  Despite 
a successful June opposition effort to block constitutional 
reforms and reported divisions within APRA (Ref C), the 
governing party rallied in July to recapture the 
congressional presidency for another one-year term.  APRA won 
the office in part by horse-trading to obtain a handful of 
votes from the opposition National Unity and Union for Peru 
parties, causing both opposition groups to splinter into 
several factions.  The ruling party also (reportedly) 
strengthened its tacit cooperation agreement with former 
President Alberto Fujimori's party -- Fujimorista Congressman 
Alejandro Aguinaga is Congress's first vice-president -- as 
well as the center-right Popular Christian Party and National 
Solidarity.  Among the opposition, only Ollanta Humala's 
Peruvian Nationalist Party -- with 23 of 120 deputies -- 
retains a cohesive congressional bloc. 
Comment: Another Year to Show Results 
------------------------------------- 
¶11. (C) As the political temperature slowly rises, President 
Garcia probably has another year or so of relative stability 
to show that he can effectively distribute Peru's growing 
prosperity.  After this year, Garcia will probably face 
mounting political challenges as both the opposition and 
groups currently aligned with APRA seek to position 
themselves for the November 2010 regional elections, and the 
April 2011 presidential elections. 
MCKINLEY 

=======================CABLE ENDS============================