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### Viewing cable 05LIMA1190, FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05LIMA1190 | 2005-03-09 22:57 | 2011-06-20 00:00 | CONFIDENTIAL | 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.

` `

    C O N F I D E N T I A L SECTION 01 OF 04 LIMA 001190

    SIPDIS

    E.O. 12958: DECL: 03/07/2015
    TAGS: PGOV ECON EINV ETRD PE
    SUBJECT: FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE
    WITH AMBASSADOR

    REF: A. 04 LIMA 3839

         ¶B. 04 LIMA...

    id: 28458
    date: 3/9/2005 22:57
    refid: 05LIMA1190
    origin: Embassy Lima
    classification: CONFIDENTIAL
    destination: 04LIMA3839
    header:
    This record is a partial extract of the original cable. The full text of the original cable is not available.

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

    C O N F I D E N T I A L SECTION 01 OF 04 LIMA 001190

    SIPDIS

    E.O. 12958: DECL: 03/07/2015
    TAGS: PGOV ECON EINV ETRD PE
    SUBJECT: FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE
    WITH AMBASSADOR

    REF: A. 04 LIMA 3839

         ¶B. 04 LIMA 2405
         ¶C. 04 LIMA 1908
         ¶D. 04 LIMA 800

    Classified By: Ambassador Curt Struble for Reason 1.4 (B, D)

    ¶1. (C) SUMMARY.  The Ambassador met with former President
    Alan Garcia on 2/28 at APRA Party Headquarters.  Garcia
    stressed the importance to APRA of forming inter-party
    alliances for the 2006 presidential campaign, and said he
    expected to enter into negotiations on an alliance with
    former President Paniagua later this year.  Garcia conceded
    that President Toledo had done a decent job with the economy,
    and said that despite pressures to the contrary, Economic
    Minister Kuczynski was still trying to maintain fiscal
    discipline in Toledo's last year in office.  Garcia predicted
    that Unidad Nacional legislator Antero Flores-Araoz would be
    re-elected as President of Congress, and said that President
    Toledo would definitely finish his term.  He said FTA
    negotiations should be wrapped up with relative ease, but
    emphasized the importance to APRA of a good deal on
    agriculture.  Garcia offered to assist Embassy's efforts in
    resolving the dispute between Exxon-Mobil and Peru's tax
    authority, SUNAT.  END SUMMARY.

    ------------------
    ELECTORAL POLITICS
    ------------------

    ¶2. (C) Ambassador referred to the public statements Garcia
    had made recently about the need to form alliances for the
    2006 presidential election, and asked how this might play
    out.  Garcia said it was clear that in the current scenario
    no one party could expect to govern by itself.  He recognized
    that he had to be more realistic than in 1985, when APRA
    thought it could change the world by itself.  To the
    contrary, the party's lack of experience in government hurt
    it badly.  Participating in a coalition, he said, would allow
    APRA to develop the executive skills of its cadres.  He had
    tried to reach out to the Toledo Government in 2001 to help
    it achieve broader support, and the political situation could
    have been more stable now if Toledo had accepted his
    overtures.

    ¶3. (C) Garcia acknowledged that he was a lightning rod, and
    when he made public comments about forming political pacts,
    it was natural this would stimulate rejection and rhetoric by
    APRA's opponents.  Fortunately, he had useful individuals
    like party Co-SecGen Jorge Del Castillo, who was able to
    serve as a bridge to other sectors, and when these matters
    were discussed in private, all the parties conceded that
    political alliances would be necessary.  Important
    consultations involving himself, Unidad Nacional leader
    Lourdes Flores, and former Interim President Valentin
    Paniagua, had already taken place with businessmen and other
    sectoral leaders.

    ¶4. (C) Although he was personally impressed with Paniagua,
    Garcia noted that in a practical sense, he is a man without a
    party.  (NOTE:  Paniagua's once-dominant Popular Action Party
    now holds three of 120 seats in the Congress.  END NOTE.)  He
    said Paniagua wants to create a political front together with
    left-wing Congressman Javier Diez Canseco and former Mayor of
    Arequipa Juan Manuel Guillen.  Garcia was dismissive of
    including Javier Diez Canseco, but was otherwise interested
    in being part of such a group.

    ¶5. (C) The Ambassador asked Garcia about his public
    statements six months ago on the possibility that APRA could
    form an alliance with the Peruvian Communist Party - Patria
    Roja (PCP-PR).  Garcia said PCP-PR takes a pro-Chinese line,
    which is not necessarily a bad thing, when one looks at
    China's expanding engagement with the world through its
    investment policies.  Garcia considered PCP-PR SecGen Alberto
    Moreno a bright, forward-thinking individual (he said Moreno
    would like to be Minister of Technology), as well as someone
    to be reckoned with, because of PCP-PR's domination of SUTEP,
    the national teacher's union.  He suggested the Ambassador
    meet with Moreno some time.  Garcia clarified, though, that
    he was not interested in an alliance with Patria Roja per se,
    but rather with moderate elements within the party who could
    help tame SUTEP.

    ¶6. (C) Garcia said SUTEP was divided internally between a
    dominant authoritarian group composed of PCP-PR and Sendero
    Luminoso elements, versus a democratic wing including many
    teachers who were Apristas.  He said Toledo's education
    policies had been misguided, as he had tried to co-opt SUTEP
    by promising to double salaries and putting a few computers
    in the schools, but had not demanded improved performance in
    return.  As a result, the teaching profession as a whole
    still constituted a mechanism for spreading subversion and
    hatred in the schools.

    ¶7. (C) Changes in the education system, said Garcia, would be
    APRA's second-biggest priority for the new government, after
    agricultural reform.  That would only be possible by
    harnessing and allying with the moderate wing.  He said his
    recent experience when meeting with Apristas in New York had
    brought home to him the importance of teaching English in
    Peru's schools as a means of getting ahead in the formal
    world economy.  The English-speaking Apristas he talked with
    were businessmen and cardiologists, while the monolingual
    group was made up of house cleaners.

    ¶8. (C) Returning to electoral prospects, Garcia noted that
    Election Day in April 2006 was still 14 months away, and that
    to run a solid political campaign would take only two or
    three months.  An extended campaign was against his
    interests, Garcia said, because he would be the flak catcher.
     Garcia hoped to shorten the active campaign by spending the
    time between now and October in a dialogue with Paniagua on
    the terms of a possible alliance.  Looking at some of the
    other major players, he said that Hernando De Soto was a very
    sensible person who could be a key coalition member.  Lourdes
    Flores had a small base and few political options.  Lima
    Mayor Luis Castaneda was a good manager of a small operation,
    but was too obsessed with being President.  The fact that the
    latter two were of the same political stripe constituted a
    problem for both.

    ¶9. (C) Garcia intended to work on a "minimum program" with a
    10-point consensual agenda for Peru's political woes.  (NOTE:
     This is an allusion to APRA founder Haya de la Torre's
    platform for the basic reforms needed to transform the
    Peruvian State.  END NOTE.)  If negotiations on an alliance
    were successful, Garcia could foresee a presidential ticket
    headed up by De Soto and Paniagua, with perhaps the second
    vice presidency reserved for APRA.  More important to his
    party than the presidency was maintaining its base of 25 to
    30 seats in the Congress.  Garcia expected that by July, he
    and his chief advisors would sit down in a round of
    negotiations with Paniagua and five of his former ministers.

    -----------
    THE ECONOMY
    -----------

    ¶10. (C) Garcia reiterated previous comments (Reftels) that
    there was no point in beating up on President Toledo or
    trying to hound him from office.  He conceded that Toledo had
    done a decent job with the economy, and said there was wide
    respect in the international financial community for Economic
    Minister Pedro Pablo Kuczynski (PPK).  He said that even
    though most governments tended to loose sight of fiscal
    discipline in their last year in office, PPK was still trying
    to hold the line.  Garcia perceived PPK's contradictory
    statements to the Congress about Toledo's ProPeru plan (the
    GOP's proposal to pay USD 30 monthly subsidies to Peru's
    poorest citizens) as an attempt to slow down the momentum of
    the program.  Garcia thought ProPeru was ill-conceived and
    would create a beggar class, just as had been the case in
    Andalucia with similar programs of Spanish PM Felipe
    Gonzalez.  He also worried that it would saddle the next
    government with huge costs.  The main financial concern that
    Garcia saw for the GOP at present was a big increase in
    internal debt due to borrowing from pension funds (AFPs),
    which unlike foreign borrowing, is not subject to statutory
    limits.

    ------------
    THE CONGRESS
    ------------

    ¶11. (C) The Ambassador noted that behind the scenes, there
    seemed to be a spirit of cooperative inter-party relations in
    the Congress, and asked about what might happen in the next
    election for the Presidency of Congress in July.  Garcia
    thought it likely that Antero Flores-Araoz would be
    re-elected as President.  Flores-Araoz was a plain, simple
    and respectable man, under whose leadership the tone of
    debate had improved considerably from its previously
    conflictive state.  He stressed that another term by
    Flores-Araoz should not be seen as threatening to President
    Toledo.  Garcia did not think that Congressional censure
    would result from the scandal over the alleged use of faked
    voter signatures to register President Toledo's Peru Posible
    party in 1997-98, although he expected Toledo would have to
    answer these accusations after he left office.

    ¶12. (C) The Ambassador asked if there were still a chance
    that the Congress would endorse a constitutional reform
    reinstating the Peruvian Senate (eliminated under Fujimori).
    Garcia said the opportunity for this had passed in December,
    even though APRA Congressman Aurelio Pastor had worked hard
    in the Constitutional Committee to get the measure enacted.
    Opponents had spread the impression that bringing back the
    Senate would do nothing more than create 50 expensive
    political sinecures.  Garcia considered this a shame, since
    the Senate could be a source of reflection, and shift the
    legislative focus away from the political scandal du jour.

    --------------------
    FREE TRADE AGREEMENT
    --------------------

    ¶13. (C) The Ambassador noted that the prospects looked good
    for finishing up the negotiations on the U.S.-Andean Free
    Trade Agreement (FTA) by June, which could lead to the pact
    being reviewed by the Peruvian Congress toward the end of the
    year.  When asked how he viewed the FTA, Garcia said Commerce
    Minister Alfredo Ferrero had done well in the negotiations,
    and that most issues considered to be potentially contentious
    would be wrapped up with relative ease.  IPR, for instance,
    was something for Brazilians and Frenchmen to worry about,
    not Peruvians.  Garcia felt, however, that closing out
    agriculture would be rough, and that each side would still be
    pushing at the last hour to get whatever it could.  APRA
    voters were particularly concerned about agricultural issues,
    and getting a couple of more years of protection for critical
    products could mean a lot to Peru.

    ¶14. (C) In terms of support for the implementation phase of
    the FTA, Garcia suggested Hernando De Soto could play an
    important role for both sides.  He said De Soto was perceived
    by the press as a figure of substance, had good links to the
    U.S. economic community, and would carry more weight (and be
    seen as more impartial) than any of Toledo's ministers.
    Ambassador agreed that De Soto could be a useful FTA
    proponent, but suggested he would be better employed leading
    a discussion of complementary reforms, such as public
    education, investment guarantees, anti-corruption initiatives
    and an improved judiciary, that will be critical to ensuring
    that FTA benefits become institutionalized.

    -----------------------
    EXXON-MOBIL TAX DISPUTE
    -----------------------

    ¶15. (C) The Ambassador raised the dispute between Exxon-Mobil
    and Peru's tax authority SUNAT, outlining the fact that even
    though some relief had been achieved for companies selling
    fuel which is subsequently re-exported, Exxon-Mobil was
    unable to use its tax credit as currently constituted.  He
    explained that additional remedial measures were under
    consideration in the Congress, but that APRA Congressman Juan
    Valdivia had opposed this action in the Economic Committee.
    Garcia said he would take the issue up, and promised to help
    with remedial legislation.  Ambassador said he would forward
    copies of the relevant SUNAT decisions, plus a copy of the
    draft legislation (these have since been provided).

    --------------------
    AMBASSADOR'S COMMENT
    --------------------

    ¶16. (C) There are two categories of fools in Peru -- those
    who refuse to believe anything Alan Garcia says and those who
    accept him at face value.  Most of the business community and
    virtually all of the established non-APRA politicians believe
    that Garcia,s tack toward economic moderation is completely
    insincere.  I don,t agree; Garcia has learned some lessons
    from his failed administration, and a second factor is also
    at work.  APRA,s traditional political stronghold is along
    the coast, which is the area that has benefited most from the
    free market, free trade policies of the past 10 years.  That
    is having an impact on the party generally and on Garcia
    specifically.  For all of that, I don,t have the sense that
    Garcia,s present advocacy of fiscal responsibility and
    pro-investment policies are so deeply rooted that they would
    withstand the political temptation of adopting a short-term
    outlook if he were in power.  Garcia,s admiration of
    Hernando de Soto is genuine and -- interestingly enough -- is
    reciprocated to a fair degree.  In private conversation with
    me, De Soto has recalled fondly his work with Garcia during
    the latter,s Presidency and his constructive relationship
    with APRA.  (By contrast, the famous economist has nothing
    good to say about Toledo.)  Still, De Soto is very wary of
    being used by Alan.

    ¶17. (C) The credibility of Garcia,s offer to take the junior
    role in a governing coalition is constantly undercut by APRA
    Congressmen who insist that their party must get the
    Presidency.  I think that Garcia really is open to the idea,
    though not married to it.  He realizes that his high
    negatives are likely to keep him from the Presidency unless
    he can overcome the public,s memories of his economically
    disastrous term.  He is young enough to focus on his
    prospects in the Presidential election of 2011 rather than
    2006, if participating in a coalition led by someone else can
    help him reform public perceptions of him.
    STRUBLE

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

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