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DE RUEHPE #1507/01 2562112
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INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 2025
RUEHBO/AMEMBASSY BOGOTA PRIORITY 5972
RUEHBR/AMEMBASSY BRASILIA PRIORITY 7928
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 3467
RUEHCV/AMEMBASSY CARACAS PRIORITY 1221
RUEHLP/AMEMBASSY LA PAZ SEP 4972
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 9575
RUEHQT/AMEMBASSY QUITO PRIORITY 2062
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1999
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY

C O N F I D E N T I A L LIMA 001507 
 
SIPDIS 
 
E.O. 12958: DECL: 09/13/2018 
TAGS: PGOV PREL PINR PE
SUBJECT: CUSCO REGON: POVERTY GROWING AMIDST PLENTY 
 
REF: A. LIMA 1453 
     ¶B. LIMA 389 
 
Classified By: DCM James D. Nealon for reasons 1...

id: 169695
date: 9/12/2008 21:12
refid: 08LIMA1507
origin: Embassy Lima
classification: CONFIDENTIAL
destination: 08LIMA1453|08LIMA389
header:
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PP RUEHWEB

DE RUEHPE #1507/01 2562112
ZNY CCCCC ZZH
P 122112Z SEP 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 9317
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 2025
RUEHBO/AMEMBASSY BOGOTA PRIORITY 5972
RUEHBR/AMEMBASSY BRASILIA PRIORITY 7928
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 3467
RUEHCV/AMEMBASSY CARACAS PRIORITY 1221
RUEHLP/AMEMBASSY LA PAZ SEP 4972
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 9575
RUEHQT/AMEMBASSY QUITO PRIORITY 2062
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1999
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY


----------------- header ends ----------------

C O N F I D E N T I A L LIMA 001507 

SIPDIS 

E.O. 12958: DECL: 09/13/2018 
TAGS: PGOV PREL PINR PE
SUBJECT: CUSCO REGON: POVERTY GROWING AMIDST PLENTY 

REF: A. LIMA 1453 
     ¶B. LIMA 389 

Classified By: DCM James D. Nealon for reasons 1.4b and d. 

¶1. (C) Summary: Recently released poverty statistics from the 
Cusco region help put Peru's positive national-level 
macro-economic news into political perspective.  According to 
the National Statistics and Information Institute (INEI), 
poverty in Cusco actually increased by 4% from 2004-2007 at 
the same time as nationwide poverty dropped by nine percent. 
That Cusco is the heart of Peru's tourism industry and home 
to significant natural resource wealth only underscores the 
region's -- and Peru's -- broader challenge: how to 
distribute resources from a relatively prosperous urban core 
to impoverished rural areas.  Cusquenos blame the increase in 
poverty primarily on mismanagement and abdication of 
responsibility by local government.  Local observers also 
blame national laws restricting the use of mining and gas 
royalties received by the regional and local governments. 
Others argue that radical political agitators and individuals 
with a political or economic stake in Cusco's continued 
poverty have actively sought to undermine development 
efforts. End Summary. 

Growing Poverty in a Wealthy Region 
----------------------------------- 
¶2.  (C) A central question surrounding Peru today is how an 
economic boom, with growth high and macro-level poverty 
beginning to drop (ref A), can be accompanied by plummeting 
popular support for the country's political leadership, 
including President Garcia.  One answer is that the 
"big-picture" view conceals as much as it reveals.  Zoom in 
toward the regional, sub-regional and local levels and the 
picture gets more varied and fuzzier, the good news more 
ambiguous.  A snapshot of poverty in the Cusco region offers 
a representative example of this complex and somewhat 
counterintuitive situation. 

¶3.  (C) According to recent statistics from Peru's National 
Statistics and Information Institute (INEI), poverty in Cusco 
region has increased in recent years  -- from 53.1% in 2004 
to 57.4% in 2007 -- at the same time as national poverty 
levels fell from 48.6% to 39.3%.  This growth in poverty is 
notable given the region's rapidly expanding wealth in 
mineral resources and natural gas reserves and its status as 
the heart of Peru's tourism industry.  Between 2004 - 2007, 
Cusco's natural gas canon increased from about $24 million to 
about $200 million while its mining canon increased from zero 
in 2004 to nearly $100,000,000 in 2007.  (Note: "Canon" 
refers to natural resource royalties appropriated to regional 
governments, municipalities, and universities for use in 
development and infrastructure projects.  End Note.)  From 
2004 and 2007, the number of tourists visiting Machu Picchu 
rose from about 450,000 to about 800,000. 

¶4. (C) Cusco region's challenge mirrors the broader challenge 
faced by Peru as a whole: how to distribute resources from a 
relatively prosperous urban core into impoverished rural 
areas.  Cusco city, the capital of Cusco region, is 
predominantly middle-class with ample employment -- urban 
employment in Cusco grew more than 7% in the first half of 
2008, according to the Ministry of Labor -- and upward 
pressure on wages for skilled workers, local observers told 
poloff during a recent visit.  One NGO representative told us 
the demand for skilled construction workers was so high that 
it was difficult to find anyone to help with building 
renovations.  By contrast, the scene changes dramatically an 
hour outside the city.  Emboffs recently visited several 
agricultural villages near the tourist route to Machu Picchu 
and observed impoverished communities rivaling Peru's poorest 
regions.  The NGO representative commented that, judging by 
the telling metric of childrens' shoes, much of rural Cusco 
-- where children often have no shoes at all -- is even worse 
off than the struggling Puno region on the Bolivian border. 

Failed Local Government 
----------------------- 
¶5. (C) Cusquenos blame the increase in poverty primarily on 
the mismanagement and corruption of regional and local 
governments.  Our local contacts say that Regional President 
Hugo Gonzalez -- who won election in 2006 with about 29% 
support -- rapidly lost credibility after appointing family 
members to key policy positions.  XXXXXXXXXXXX told poloff that Gonzalez uses political criteria to designate resources for public work projects and 
said that Gonzalez's daughter often chooses people for 
government jobs.  In January 2008 Gonzalez sought to repair 
his image by appointing an apolitical technocratic manager to 
oversee development, but the manager resigned in frustration 
after six months of internal infighting.  Cusco's Mayor 
Marina Sequeiros in June 2008 was voted out of office by the 
city council on charges of corruption, including using 
municipal funds to pay her personal maid. 

¶6. (C) Our Cusco contacts also argue that local governments 
have abdicated their responsibility to provide basic public 
services.  XXXXXXXXXXXX told poloff that the 
teacher evaluation and training services provided by his NGO 
and others in rural Cusco by law should be provided by the 
regional government.  The medley of NGOs doing this work do 
not follow uniform standards or practices, and do not have 
the authority to implement their recommendations.  The 
regional government allows NGOs to handle the job and has not 
dedicated staff to assuming the services.  XXXXXXXXXXXX added that 
after months working with one dedicated employee in the 
regional government's education office, the employee was 
replaced.  Cusco's Regional Director for the National 
Institute of Civil Defense -- Peru's FEMA equivalent -- told 
a similar story.  Even though the central government in June 
had transferred new disaster planning responsibilities to 
regional governments, Cusco's government showed no 
inclination to assume these duties or even to discuss the 
matter with Civil Defense.  The Director said that his office 
would be forced to continue carrying out the same 
responsibilities with fewer resources.  Meanwhile, the 
Regional Government managed to spend only about half of its 
investment budget -- including canon resources -- in 2007. 

Mining Canon Resources Inflexible 
--------------------------------- 
¶7. (C) National laws restricting the use of mining canon 
resources has also undermined Cusco's development potential, 
according to local observers.  The laws governing mining 
canon allows governments to invest the canon only in new 
infrastructure and other development projects, not in 
maintaining former public works such as roads, or in 
recurring costs such as salaries.  Cusco's Human Rights 
Ombudsman told poloff that these restrictions led to 
situations like the one in the town of Espinar, where the 
mining firm Xstrata had built and staffed an impressive 
hospital while the Regional Government was unable to take 
over management of the hospital because it could not use 
canon resources to pay for operational costs.  Xstrata has 
continued paying doctors for now, but will eventually 
withdraw, leaving no sustainable impact.  Lack of creative, 
sustainable ideas for using mining canon has led some 
municipal governments to build unnecessarily large sports 
stadiums or statues.  (Note: Poloffs have observed this 
phenomenon in other Peruvian regions, including one lucrative 
mining area in Tacna where five of six small towns had 
oversized stadiums.  End Note.)  Another portion of canon 
resources goes unspent and is returned to the central 
government. 

Intransigents and Radicals Undermine Development 
--------------------------------------------- --- 
¶8. (C) Individuals with a political or economic stake in 
Cusco's continued poverty have also sought to undermine 
development, according to local contacts.  The regional human 
rights ombudsman told poloff about the case of a successful 
effort to reduce poverty in rural Cusco called "Sierra 
Productiva" (Productive Sierra).  Initiated by poor farmers 
from the town of Canas, the program has sought to apply 
ancient, local agricultural technologies to improve 
productivity and income.  Sierra Productiva has had so much 
success that it has attracted the attention of prominent 
economists in Lima, mining companies, and other firms that 
want to support and extend its reach.  The program has also 
drawn attacks from local leaders who fear that the its 
success will lead to a reduction in other social assistance. 
According to our contacts and press reports, a former Canas 
mayor from the communist New Left Movement, regional 
directors of the social program Juntos, local radio stations, 
and leaders from the radical teachers union Sutep have all 
worked to undermine Sierra Productiva.  They alleged that the 
program has created the false impression that Canas has 
eliminated poverty and no longer needs outside help.  Sierra 
Productiva's supporters argue that these groups' real motive 
is to destroy a program that, if successful on a broad scale, 
would undermine support for leftist parties and unions. 

¶9. (C) Leftist groups have also launched a series of strikes 
that has directly hit tourism revenues and undermined the 
region's image.  A violent strike led by radical unions and 
parties in February halted commerce for two days and led the 
central government to cancel several days of APEC meetings 
(Ref B).  Rural strikes in early July forced the cancellation 
of trains to Machu Picchu and led to a massive, 
military-escorted, midnight evacuation of 1,200 tourists from 
the area, according to Peru Rail's chief of security.  XXXXXXXXXXXX said part of Cusco's problem is that the communist Patria Roja party dominates student 
organizations at local universities, which he said churn out 
lawyers and activists better suited to political agitation 
than to deal with the region's genuine development problems. 

Comment: Southern Highlands Lagging Behind 
------------------------------------------ 
¶10. (C) Cusco's stagnation in the midst of plenty is a 
worrying reminder of the long development road Peru has yet 
to travel.  Some regions, particularly along the coast, have 
successfully managed their resources to reduce unemployment 
and rural poverty.  Others, particularly in the southern 
highlands, continue to fall behind. 
MCKINLEY 

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