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UNCLAS LIMA 001725 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV EINV ECON EFIN ETRD PE
SUBJECT: Cabinet Change: Araoz to Ministry of Economy 
 
¶1.        (SBU) Summary: Following the resignation of Economy 
Minister Luis Carranza, Mercedes Araoz (previously Minister of 
Production) was sworn in to assume the post December 22.  President 
Garcia publicly tasked Araoz with maintaining Peru's reputation for 
fiscal discipline.  Observers believe Garcia chose Araoz because he 
trusts her to carry out his wishes in an increasingly politicized 
environment.  Former VM of Transportation and Communications Jose 
Nicanor Gonzales was sworn in as the new Minister of Production. 
End Summary. 
 
 
 
¶2.       (SBU) In a surprise move, Luis Carranza resigned as 
Minister of Economy December 22.  Carranza had led the Economic 
Ministry twice - the first time from July 2006 to July 2008, and 
again from January 2009.  (Current Peruvian Ambassador to the U.S., 
Luis Valdivieso, was Minister of Economy in the interim period.) 
In publicly announcing Carranza's resignation, President Garcia 
said the Minister had fulfilled his promise to serve an additional 
year.  According to news and other reports, however, Carranza had 
opposed the government's decision to promulgate a law granting 
tax-free status to economic activities in the Andean highlands and 
sought to block salary increases for police and military forces. 
More generally, observers believe the technocratic Carranza was 
growing uncomfortable with mounting political pressures to free up 
public moneys in the run-up to electoral season.  (Regional 
elections are scheduled for October 2010, general elections for 
April 2011.) 
 
 
 
¶3.        (SBU) Taking direct aim at these rumors, in the December 
22 swearing-in ceremony President Garcia tasked Minister Araoz with 
maintaining Peru's vaunted macro-economic stability and hard-earned 
reputation for fiscal discipline.  Araoz is one of three Ministers 
who have been in the cabinet since the beginning of Garcia's 
government in July 2006 (the other two are Minister of Foreign 
Affairs Garcia Belaunde and Minister of Education Chang), but in 
her case as head of three successive ministries.  She began as 
Minister of External Trade and Tourism where she played a pivotal 
role in securing implementation of the U.S.-Peru Trade Promotion 
Agreement, was transferred to Production following the June 5 
violence in the Amazon region near Bagua, and has now assumed 
responsibility for the Economy Ministry portfolio. 
 
 
 
¶4.        (SBU) Many observers believe Garcia chose Araoz because 
he trusts her to carry out his wishes in an environment in which 
political factors are gaining primacy.  While not a member of the 
ruling APRA-party, Araoz is seen as an able and intelligent 
technocrat, close to President Garcia, and sufficiently savvy to 
navigate the complicated politics of this sensitive and important 
cabinet position.  More than any other Peruvian official, she also 
embodies the new Peru, with an image of youthful energy and worldly 
sophistication.  Some critics and opposition figures have expressed 
concern that Araoz may bend excessively to the President's 
political will and open the fiscal floodgates in ways that could 
damage Peru's solid macro-economic foundations. 
 
 
 
¶5.        (SBU) Jose Nicanor Gonzales was sworn in to succeed Araoz 
as the new Minister of Production.  Gonzales has been working in 
the Garcia administration in different capacities, most recently as 
Vice-Minister of Transportation and Communications.  His areas of 
professional expertise are private investment promotion, government 
planning and competitiveness.  He is a retired Navy Admiral who has 
been trained a the U.S. Naval Academy, MIT and Harvard. 
MCKINLEY