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### Viewing cable 05LIMA4131, PERU ADDS CLOTHING TO OFFER FOR HURRICANE KATRINA

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05LIMA4131 | 2005-09-22 19:17 | 2011-06-22 00:00 | UNCLASSIFIED | Embassy Lima
Appears in these articles: http://elcomercio.pe

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS LIMA 004131

    SIPDIS

    E.O. 12958: N/A
    TAGS: PREL PINS AEMR MARR CASC PE
    SUBJECT: PERU ADDS CLOTHING TO OFFER FOR HURRICANE KATRINA
    RELIEF

    REF: A. LIMA 4041

         ¶B. LIMA 3862
         ¶C. LIMA 3854

    The Peruvian Foreign Ministry, by Diplomatic Note dated 9/20,
    informed the Embassy that a local company, Cofaco S.A., has
    donated 2000 garments for Hurricane Katrina victims:  308
    articles of childrens' clothing and 1692 articles of adult
    garments.  Please advise on status of acceptance of these and
    previous offers of assistance (Refs).
    POWERS

    UNCLAS SECTION 01 OF 02 LIMA 004139

    SIPDIS

    DEPT FOR WHA/AND, EB/EPSC
    LABOR FOR ILAB, TMCCARTER, LBUFFO, CROMERO

    E.O. 12958: N/A
    TAGS: PREL PINS AEMR MARR CASC PE
    SUBJECT:  PERU AMONG WORLD'S MOST INFORMAL ECONOMIES

    REF: LIMA 3778

    ¶1.  Summary: The World Bank ranks Peru as the world's fifth
    most informal economy.  In urban Peru, nearly 70 percent of
    workers (62 percent in Lima) are employed informally, the
    third highest rate in Latin America.  Bureaucratic barriers
    largely account for Peru's informality, generating problems
    such as tax evasion, low productivity, and poor working
    conditions.  The GOP sought to reduce informality through
    legislation approved in July 2003, but it has achieved
    little progress.  The GOP views the U.S.-Andean FTA as a
    tool to reduce informality and generate more export-oriented
    employment.  End Summary.

    High Informality in Urban Centers
    ---------------------------------

    ¶2.  The Ministry of Labor's most recent report on national
    labor market informality reveals that Peru possesses the
    third highest rate in Latin America, behind Bolivia and
    Panama.  In its 2002 National Household Survey, the Labor
    Ministry reports 69 percent of all workers in urban Peru are
    employed informally.  The Ministry defines informal workers
    as: employees of unregistered businesses, workers without
    remuneration, untrained independent workers, and domestic
    employees.  In 2003, the World Bank listed Peru as one of
    the leaders in informal employment worldwide, ranking it
    fifth, with 60 percent informality (no definition for
    informality was provided).

    ¶3.  In Metropolitan Lima, 62 percent of all employment
    qualifies as informal, according to INEI, Peru's Statistical
    Organization.  The 1.3 million independent workers (domestic
    workers, taxi drivers, and food vendors, among others)
    account for 57 percent of the informal workforce, 279,000 of
    whom are street vendors.  Enterprises employing between two
    and four workers account for another 39 percent of the
    informal workforce.  Nearly all informal workers are
    employed by microenterprises, which employ less than ten
    workers.  The young bear the burden of informality.  Those
    between 11 and 24 years old make up 26 percent of the
    economically active persons, yet account for about half of
    informal workers.

    ¶4.  An even higher incidence exists in the urban areas
    outside of Lima, where informality accounts for 74 percent
    of the workforce.  Single worker enterprises occupy 50
    percent of the 3.2 million informal jobs existing in these
    areas.  Another 44 percent work for enterprises employing
    between two and four people.  Just as in Lima, micro
    enterprises account for nearly all informality.

    Costly to Join Formal Economy
    -----------------------------

    ¶5.  Despite Peru's positive macroeconomic growth, formal job
    creation has lagged.  Bureaucratic barriers are largely
    responsible for the long delays and high costs in
    establishing a formal business.  In Peru it takes a minimum
    of 98 days and costs $778 (36 percent of per capita income)
    to start a business, according to the World Bank.  Business
    leaders often complain that Peru's labor laws are too
    burdensome and costly, creating incentives for small
    enterprises not to join the formal economy.  Employers that
    adhere to the high-standard labor legislation find that 64
    percent of their labor expenses are non-salary related.

    ¶6.  The Labor Ministry indicates that 41 percent of workers
    participate in the informal sector because they could not
    find other work, whereas 50 percent participate by choice.
    The most prominent reason why people choose to work
    informally is the opportunity to make more money, followed
    by the desire to work independently.  Given the option,
    informal one-worker enterprises and microenterprises prefer
    not to pay taxes and cover the relatively high costs of
    being formal.  Many business leaders argue that by
    implementing a more flexible labor code and streamlining
    registration bureaucracy, Peru would attract more private
    investment and increase the size of the formal economy.

    Legislative Fix Fails to Reduce Informality
    -------------------------------------------

    ¶7.  Congress passed Law 28015 in July 2003, with the
    objective of reducing barriers to the formal economy and
    simplifying the registration process for microenterprises.
    Unfortunately, then-Labor Minister Fernando Villaran, the
    main promoter of the law, left his office just as it passed
    congress, and the four subsequent Ministers have not made
    its implementation a priority.

    ¶8.  The negative effects of informality are extensive,
    reaching both the demand and supply side of the labor
    market.  The visible effects of Peru's high informality
    include: the inability to collect income taxes from nearly
    70 percent of workers, no tax revenue from informal
    businesses, low workforce productivity (down 40 percent from
    1975), and unregulated and poor working conditions.  Without
    job security, workers in the informal sector often receive
    less than minimum wages and no benefits.

    Comment: FTA Promotes Formality
    -------------------------------

    ¶9.  A recent proposal by Labor Minister Juan Sheput to
    reduce labor market rigidity has met stiff opposition from
    labor unions and some political parties (Reftel).  While
    many in the GOP understand the problems affecting Peru's
    labor market, forward action is unlikely during an election
    year.  Nevertheless, the GOP views the U.S.-Andean Free
    Trade Agreement (FTA) as a tool to stimulate reform and
    create new export-related employment -- a key element for
    moving Peru's workforce into the formal economy.

    POWERS

`