US embassy cable - 05LIMA2919

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 002919 
 
SIPDIS 
 
E.O. 12958: DECL: 06/28/2015 
TAGS: PGOV, EFIN, PREL, PINS, PE 
SUBJECT: PRESIDENTIAL ADVISORS ON POLITICAL SCENE 
 
 
Classified By: Political Counselor Alexander Margulies.  Reason:  1.4(b 
/d). 
 
1.  (C)  SUMMARY:  Two top presidential political counselors 
recently reviewed the political scene with Polcouns.  They 
were optimistic that President Alejandro Toledo and the GOP 
will work out a modus vivendi with the opposition parties on 
a new Congress President and a smooth transition to the 
successor government, that electoral code revisions will be 
passed to prevent minor parties from obtaining an undue 
number of congressional seats in 2006, and that the governing 
Peru Posible party's prospects in the upcoming elections are 
brightening.  While Cabinet changes are forthcoming in July, 
the advisors agreed that Prime Minister Carlos Ferrero is 
likely to stay on until October, when he must resign in order 
to run for re-election to Congress.  END SUMMARY. 
 
2.  (C)  Polcouns met with Presidency Political Advisor Juan 
de la Puente on 6/21 and lunched with Labor Minister Juan 
Sheput on 6/27.  The discussions in both meetings 
concentrated on the current political scene and the prospects 
for the 2006 election and addressed the following specific 
issues: 
 
--  POLITICAL STABILITY:  The political situation has 
stabilized following the opposition's unsuccessfull attempt 
to sanction Toledo over the false signatures scandal.  Both 
de la Puente and Sheput said that they were personally 
involved in discussions with the opposition APRA party and 
Unidad Nacional alliance to work out a modus vivendi on 
governability and a transition to the successor government in 
2006.  This will entail agreement on a new President of 
Congress to be elected in late-July, as well as the 
opposition's acceptance of a new Prime Minister. 
 
--  NEW CONGRESS PRESIDENT:  De la Puente and Sheput said 
that there was general agreement between the three big 
parties that they should agree on a consensus candidate in 
order to marginalize the smaller blocs as well as the 30 
legislators who have abandoned the parties that brought them 
to office.  According to de la Puente, no consensus candidate 
has yet been agreed on.  He said that all could support 
current Congress President Antero Flores-Araoz, but that the 
latter is weighing a bid for the national presidency and may 
not seek re-election.  Sheput, on the other hand, insisted 
that 2003-2004 Congress President Henry Pease (Peru Posible) 
has been decided upon.  (COMMENT:  Sheput may be engaged in 
wishful thinking.  Our recent contacts with APRA legislators 
indicate that this issue is still up in the air.  END 
COMMENT.) 
 
--  NEW PRIME MINISTER:  De la Puente stated that we should 
expect to see Prime Minister Ferrero remain in office well 
past July, conceivably until the first week of October, when 
he will have to resign in order to be eligible for 
re-election to Congress.  He explained that Toledo is 
comfortable with Ferrero, that Ferrero is happy with his job, 
that there is no one else who looks like a good fit, and that 
rumored successor Henry Pease may be the front-runner to 
succeed Ferrero, but that Pease can be a difficult character 
to work with.  Sheput agreed that Ferrero will stay on for 
the time being, and would not speculate on a possible 
successor. 
 
--  OTHER CABINET CHANGES:  Other than Finance Minister Pedro 
Pablo Kuczynski, whose imminent departure is common knowledge 
within the GOP, de la Puente and Sheput agreed that Foreign 
Minister Manuel Rodriguez is almost certain to depart in 
July.  De la Puente said that Rodriguez would be sent as 
Ambassador to either Paris or Geneva.  He also predicted that 
Defense Minister Roberto Chiabra and Interior Minister Felix 
Murazzo would be sent packing; Chiabra over his recent 
complaints regarding the Finance Ministry's unwillingness to 
release funds for the Armed Forces and Murazzo over his 
tendency to look out first for the parochial interests of the 
National Police (he was previously National Police Commander) 
rather than for those of the GOP.  Sheput would not identify 
specific ministers destined for the chop, but suggested that 
a recent article in daily "La Republica" was close to the 
mark.  That article looked at the popularity, relations with 
the President and political weight of Cabinet members, 
indicating that Rodriguez, Murazzo, Chiabra, and Agriculture 
Minister Manuel Manrique are vulnerable. 
 
--  ELECTORAL LAW CHANGES:  Both de la Puente and Sheput 
placed great importance on proposed changes to the electoral 
law, principally the initiative to require parties to garner 
five percent of the national vote in order to place 
candidates in Congress.  They viewed this revision as 
essential to prevent smaller parties (currently 27 parties 
are registered to run candidates for Congress) from allying 
themselves with regional movements and electing 1-2 
legislators each, which would result in a badly fractured 
Congress.  They were optimistic that his proposal will 
eventually pass, as the major parties are in favor of it. 
They also supported a proposal to eliminate the "preferential 
vote" (voters cast ballots for parties, then select two 
individual "preferences" among the candidates of the party 
they chose; parties are then awarded seats based on their 
proportional vote within each Department, with the seats 
awarded to the party's candidates who receive the most 
preferential votes) as this weakens the parties' control over 
who is elected to office.  They were pessimistic that this 
initiative would pass, however, given that all legislators 
benefitted from the "preferential vote" in gaining election 
to Congress. 
 
--  GOVERNMENT ALLIANCE:  De la Puente expressed discomfort 
over the actions of Fernando Olivera, the leader of the GOP's 
junior coalition partner the Independent Moralizing Front 
(FIM) and Peru's Ambassador to Spain.  He blamed Olivera and 
FIM legislator/Chairman of the Congressional Foreign 
Relations Committee Gustavo Pacheco for problems in the 
relations between Toledo and Foreign Minister Rodriguez, and 
viewed the FIM as more of a hindrance than a help.  He did 
not, however, indicate that the alliance was in danger. 
Sheput, on the other hand, stated that Toledo is warming to 
advice from the Labor Minister and other members of the "Hard 
Wing" of Peru Posible (which includes Prime Minister Ferrero) 
to ditch Olivera and the FIM after the July 28 State of the 
Nation address.  Sheput argued that Olivera and his party 
will break with the GOP, and the Government will earn 
political points if it acts first.  He added that the ongoing 
talks on governability and a smooth transition will be 
facilitated with Olivera's ouster, as both APRA and Unidad 
Nacional leaders are unwilling to enter into an arrangement 
with the GOP so long as Olivera maintains his influence. 
 
--  STATE OF THE NATION ADDRESS:  De la Puente said that he 
is pushing for Toledo to make a visionary speech, looking 
ahead to the election year and the transition, rather than 
resort to the usual listing of public works carried out over 
the previous twelve months.  Sheput stated that Toledo has 
bought into this concept, but will also use a power-point 
presentation to demonstrate how successful his government has 
been in comparison to the five previous governments in 
promoting economic growth, job creation and poverty 
reduction.  He added that the President saw a videotape of 
Colombian President Alvaro Uribe's last speech to the nation 
and was captivated by how Uribe used visual aids to emphasize 
and illustrate his points. 
 
--  THE 2006 ELECTION:  De la Puente's major concern with the 
2006 election lay in preventing smaller parties from winning 
seats and creating a fractionalized legislature that would 
threaten governability.  Sheput was enthusiastic about Peru 
Posible's electoral prospects.  Economic growth is trickling 
down to the masses, he explained, and Finance Ministry 
experts predict that this effect will really be seen in 
November, just in time for a happy Christmas season and a 
promising prelude to the April first round of balloting.  He 
noted that Toledo's popularity is inching up (rising to 16 
percent in the most recent Lima poll) and that Peru Posible 
strategists now see their party as winning a minimum of 15-20 
seats in the next Congress, vice the 5-10 seats they foresaw 
only a few months ago.  The party has learned its lesson from 
its current crop of unmanageable legislators, he added, and 
will not turn to local personalities to stand as candidates 
as it did in 2001.  Instead, Sheput declared, it will turn to 
qualified and respected candidates with a demonstrated 
loyalty to the party.  He thought that Finance Minister 
Kuczynski could be prevailed upon to run on Peru Posible's 
congressional slate, but doubted that he would make a 
presidential bid, noting that Kuczynski's dual Peruvian-U.S. 
citizenship would sink his chances in the provinces.  He also 
discounted the possibility that Housing Minister Carlos Bruce 
would run for President, lamenting that while Bruce is the 
most popular minister and could have a chance of winning, the 
Housing Minister prefers to settle for a certain 
congressional seat. 
 
3.  (C)  COMMENT:  The read-outs by de la Puente and Sheput 
provide a good indication of how the GOP views the political 
situation and prospects.  We tend to suspect that de la 
Puente is more on the mark as to the actual state of play, 
while Sheput reflects where the GOP hopes to steer matters. 
Their optimistic assessments of the GOP's current position 
and of its chances of achieving its political objectives is a 
welcome change from the relatively pessimistic views that 
both have expressed in the past.  With elections but nine 
months away the country's focus is now on who will be the 
next government, giving the GOP a welcome respite.  Whether 
Toledo and his administration can take advantage of this to 
cement an accord on governability and a smooth transition 
remains to be seen.  END COMMENT. 
STRUBLE