US embassy cable - 05LIMA1190 (original version)

FORMER PRESIDENT ALAN GARCIA TALKS POLITICS, TRADE WITH AMBASSADOR (original version)

Identifier: 05LIMA1190
Wikileaks: View 05LIMA1190 at Wikileaks.org
Origin: Embassy Lima
Created: 2005-03-09 22:57:00
Classification: CONFIDENTIAL
Tags: PGOV ECON EINV ETRD PE
Redacted: This cable was redacted by Wikileaks. [Show redacted version] [Compare redacted and unredacted version]
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 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 

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