VZCZCXRO5172
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHPE #1453/01 2481206
ZNR UUUUU ZZH
R 041206Z SEP 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 9270
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 LIMA 001453 
 
SIPDIS 
 
USTR FOR BHARMAN AND MCARRILLO 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
TREASURY FOR MMALLOY AND MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON SOCI PGOV ETRD PE
SUBJECT: POVERTY IN PERU DECREASING SUBSTANTIALLY 
 
SUMMARY 
------- 
¶1.  Poverty in Peru dropped in 2007 to under forty percent, a 
substantial 5.2 percentage points below the 2006 level of 44.5%, the 
GOP's National Institute of Statistics (INEI) announced recently. 
The poverty reduction is consistent with high growth rates of recent 
years, including 9% GDP growth in 2007.  The poor numbered 10.9 
million in 2007, 1.3 million less than the prior year.  Despite 
sustained high economic growth, poverty reduction had been slow over 
previous years after peaking at 54.8% in 2001.  Economists said 
poverty in Peru had been rather inelastic to real growth, due 
possibly to the large pool of unemployed, the relative isolation of 
rural areas from markets, and the largely unskilled nature of the 
labor force.  However, observers suggest that continued strong 
growth and foreign and domestic investment (encouraged by high 
commodity prices), coupled with the government's focus on social 
policies and infrastructure, will lead to the kind of dent in 
poverty that occurred in Chile in the last decade and a half.  END 
SUMMARY. 
 
FINALLY MAKING A DENT 
--------------------- 
¶2.  Robust GDP growth since 2001, coupled with strengthened social 
policies, appears to be finally making a dent in poverty in the last 
two years.  The overall poverty rate decreased from 44.5% in 2006 to 
39.3% in 2007, and extreme poverty fell from 16.1% to 13.7%.  If 
high private investment levels hold, Peru's economy appears set to 
maintain some of the best growth figures in the hemisphere. 
Economists say this will lead to further correlation between 
economic successes and poverty reduction.  Additionally, the 
government is prioritizing social programs, with a focus on 
improving education and infrastructure. 
 
URBAN COASTAL AREAS BENEFIT THE MOST 
------------------------------------ 
¶3.  As usual in Peru, the areas better able to reap the benefits of 
steady growth, trade and government social programs were the urban 
and coastal areas.  As the table below shows, both poverty and 
extreme poverty recorded larger drops in urban than in rural areas. 
The largest reduction was that of urban extreme poverty, 28.6%. 
Although still high at 32.9%, rural extreme poverty also fell a 
considerable 11.3% in 2007. 
 
Peru: Poverty and Extreme Poverty, 2002-2007 
-------------------------------------------- 
                    2002  2003  2004  2005  2006  2007 
                    ----  ----  ----  ----  ----  ---- 
(% of population) 
Poverty             54.3  52.0  48.6  48.7  44.5  39.3 
- Urban Areas       42.1  40.3  37.1  36.8  31.2  25.7 
- Rural Areas       77.1  73.6  69.8  70.9  69.3  64.6 
Extreme Poverty     23.9  20.7  17.1  17.4  16.1  13.7 
- Urban Areas        9.7   8.9   6.5   6.3   4.9   3.5 
- Rural Areas       50.3  42.7  36.8  37.9  37.1  32.9 
 
(% annual change) 
Poverty             -0.9  -4.2  -6.5   0.2  -8.6 -11.7 
- Urban Areas        0.2  -4.3  -7.9  -0.8 -15.2 -17.6 
- Rural Areas       -1.7  -4.5  -5.2   1.6  -2.3  -6.8 
Extreme Poverty     -2.0 -13.4 -17.4   1.8  -7.5 -14.9 
- Urban Areas       -2.0  -8.2 -27.0  -3.1 -22.2 -28.6 
- Rural Areas       -1.9 -15.1 -13.8   3.0  -2.1 -11.3 
------------------  ----  ----  ----  ----  ----  ----Source: INEI, 
Ministry of Economy & Finance (MEF) 
 
POVERTY REDUCTION BY AREAS/DEPARTMENTS 
-------------------------------------- 
¶4.  At 23.6%, the Lima Metropolitan Area recorded the biggest 
poverty reduction in 2007, closely followed by rural coastal areas 
at 22.2%.  The smallest poverty reductions took place at urban and 
rural highland areas at 9.5% and 4.1%, respectively, as shown by the 
table below.  By Departments, poverty reduction was larger in those 
that have developed modern farming facilities and non-traditional 
export factories.  Ica (southern coast), Madre de Dios (southern 
jungle, benefitting from a large road project and high gold prices) 
and Lima led with 36.7%, 28.3%, and 22.7% poverty reductions, 
respectively.  At the other end, Tumbes (northern coast) and Cusco 
(southern highlands) recorded poverty increases of 14.7% and 15.0%, 
respectively. 
 
Peru: Changes in Poverty and Extreme Poverty 
-------------------------------------------- 
Areas/Departments   Poverty Rate (%)      % Change 
                     2005  2006  2007    2007/2006 
------------------   ----  ----  ----    --------- 
 
LIMA 00001453  002 OF 003 
 
 
Poverty by Area: 
Lima Metropolitan    32.6  24.2  18.5      -23.6 
Rural Coast          50.0  49.0  38.1      -22.2 
Urban Jungle         53.9  49.9  40.3      -19.2 
Urban Coast          32.2  29.9  25.1      -16.0 
Rural Jungle         65.6  62.3  55.3      -11.2 
Urban Highlands      44.4  40.2  36.3       -9.5 
Rural Highlands      77.3  76.5  73.3       -4.1 
 
Poverty by Department: 
Ica                  23.9  23.8  15.1      -36.7 
Madre de Dios        30.8  21.8  15.6      -28.3 
Lima & Callao        32.9  25.1  19.4      -22.7 
La Libertad          43.0  46.5  37.3      -19.9 
San Martin           54.1  54.3  44.5      -18.0 
Loreto               71.5  66.3  54.6      -17.6 
Ucayali              53.1  54.0  45.0      -16.7 
Piura                58.6  54.0  45.0      -16.6 
Junin                56.0  49.9  43.0      -13.9 
Huanuco              75.8  74.6  64.9      -13.0 
Ayacucho             77.3  78.4  68.3      -13.0 
Puno                 75.2  76.3  67.2      -11.9 
Pasco                72.9  71.2  63.4      -11.0 
Arequipa             24.9  26.2  23.8       -9.1 
Apurimac             73.5  74.8  69.5       -7.1 
Amazonas             68.6  59.1  55.0       -7.0 
Moquegua             30.3  27.3  25.8       -5.7 
Huancavelica         90.3  88.7  85.7       -3.5 
Lambayeque           44.0  41.1  40.6       -1.1 
Cajamarca            68.8  63.8  64.5        1.0 
Ancash               48.4  42.0  42.6        1.6 
Tacna                30.3  19.8  20.4        3.2 
Tumbes               16.2  15.8  18.1       14.7 
Cusco                55.6  49.9  57.4       15.0 
-------------------- ----  ----  ---- ----- ----Source: INEI 
"Technical Report - Poverty Measurement 2004, 2005 and 2006" 
 
DATA CREDIBILITY QUESTIONED... AGAIN 
------------------------------------ 
¶5.  INEI's poverty statistics drew plenty of fire, mainly from 
political quarters.  Former President Toledo and former INEI head 
Farid Matuk questioned the data's validity, arguing that INEI 
distorted the results by changing the computation methodology. 
Interestingly, these same two former officials were themselves the 
target of abrasive criticism by President Garcia's APRA party in 
early July 2006, just before the end of the Toledo Administration, 
when INEI reported a poverty decrease from 54.3% in 2001 to 48.3% in 
¶2006.  For example, current Minister of the Interior Luis Alva 
Castro, an APRA loyalist, had charged that INEI "grossly 
manipulated" poverty statistics. 
 
¶6.  To preempt criticism leveled at the newly reported poverty drop, 
the GOP held a press conference and summoned World Bank (WB), 
Inter-American Development Bank (IDB), and other officials.  INEI 
had asked the WB and others to form an expert committee to review 
the survey data and computation methodology, in order to obtain the 
most accurate results possible.  A few days after INEI released its 
2007 poverty statistics, WB Representative Felipe Jaramillo told the 
local media that a WB technical team audited INEI's methodology, 
vouching for the reliability of the results presented by INEI. 
Jaramillo added that the WB knew of problems with prior INEI 
surveys, particularly those of 2004 and 2005.  (Note: In July 2007, 
the former WB representative told us that there was a significant 
error in INEI's 2005 household survey, with a high nationwide 12.3% 
non-reply rate to key survey questions.  2004 and 2005 figures were 
revised slightly with WB help. End note.) 
 
MALNUTRITION STILL HIGH 
----------------------- 
¶7.  Notwithstanding the drop in poverty and extreme poverty, one of 
the worrying statistics that reflects how parts of the country are 
being left behind is the persistently high level of malnutrition. 
Malnutrition rates for children under 5 years old in urban areas 
have fallen from 26% in 1991-1992 to 10% in 2004-2005.  But rates in 
rural areas are still high, having fallen from 53% in 1991-1992 to 
39% in 2004-2005.  More and better GOP action in rural areas may be 
the only way to reduce substantially this troubling indicator. 
 
MORE POVERTY REDUCTION IN COMING YEARS 
-------------------------------------- 
¶8.  In its recently released medium-term policy and projections, the 
"2008-2010 Multi-annual Macroeconomic Framework," the MEF projects 
Peru's real GDP to grow an average of almost 7% annually from 2008 
to 2011, a projection in line with those of most local economists. 
The implied average real per capita GDP growth is of almost 5.7% 
 
LIMA 00001453  003 OF 003 
 
 
annually, and this bodes well for further poverty reduction.  GDP 
growth in 2008 is on pace to total 10% by the end of the year. 
 
COMMENT 
------- 
¶9.  It is likely that Peru will keep reducing poverty until the 
Garcia Administration concludes its term in July 2011, as 
macroeconomic and trade policies, commodity prices, foreign and 
domestic private investment, and growth are expected to remain 
steady.  Social policies continue to focus on ways to include 
hard-to-reach segments of the population, particularly in the 
highlands.  With business confidence high, President Garcia has been 
able to maintain prudent fiscal policies, with political allies 
helping to thwart populist proposals.  As the 2011 election draws 
nearer, the Garcia administration needs to improve and increase its 
social programs, so that their impact on poverty is sufficiently 
large and rapid to meet rising expectations of important parts of 
the population who, according to polls, still don't think Peru's 
economic boom is benefiting them and don't expect to be better off 
economically in the future. 
MCKINLEY