US embassy cable - 05LIMA4633

UNCLAS SECTION 01 OF 04 LIMA 004633 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV, PINR, PREL, PE 
SUBJECT: DECENTRALIZATION: MAKING DEMOCRACY WORK IN PERU, 
PT 1 
 
REF: A. LIMA 3267 
 
     B. 03 LIMA 5143 
     C. 03 LIMA 4668 
     D. 03 LIMA 0253 
 
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SUMMARY 
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1.  Peru will hold referenda in 16 of its 25 departments on 
10/30, in which voters will decide whether to consolidate 
their departments into up to five macro-regions.  The 
formation of macro-regions would be a major step forward in 
Peru's ongoing decentralization process, which is aimed at 
devolving resources and decision-making to regional and local 
governments.  Decentralization, one of the Toledo 
Government's priorities, is intended to enhance democracy at 
the local level and provide a mechanism to address more 
efficiently Peru's major social issues. If handled poorly, 
however, it could exacerbate the very social and political 
problems the reform is intended to resolve. Given the 
historical concentration of population and revenue in Lima, 
the diversity of actors involved and the power and resource 
shifts at stake, the challenge is daunting.  This cable 
focuses on the decentralization process and where it stands. 
Septel will focus on the 10/30 referenda and their 
implications.  END SUMMARY. 
 
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THE DECENTRALIZATION VISION 
--------------------------- 
 
2. Decentralization is intended to shift political, 
administrative and economic responsibility from the national 
government to regional governments and to provincial/district 
municipalities. Proponents argue that the transfer of these 
programs and resources will enable local governments to 
address more effectively regional development issues and will 
lead to strengthened democratic institutions, increased 
accountability, and greater political stability. 
 
3.  The three levels of government (national, regional, 
municipal) are to share responsibilities for social programs, 
education, public health, tourism, citizen security, housing, 
and environmental management.  The regional governments (RGs) 
are assuming exclusive responsibility for economic 
development in their geographic areas.  They will be 
authorized to design and implement regional infrastructure 
projects related to highways, water, energy, communications 
and other services.  RG projects will be funded through the 
transfer of public resources from the Central Government and 
through concessions and joint ventures with private 
companies. 
 
4. Local governments (LGs) will have exclusive responsibility 
for planning urban and rural development for areas 
circumscribed by their jurisdictions.  LGs will also manage 
local public services, create spaces for citizen 
participation, and develop their budgets.  LGs are to obtain 
their funding through local taxes and Central Government 
transfers. 
 
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A HISTORY OF FAILED DECENTRALIZATION 
------------------------------------ 
 
5. Peru has attempted to decentralize no less than seven 
times since its independence.  Past efforts have consistently 
failed; population and resources have steadily become more 
centralized in Lima. 
 
6. The last decentralization effort was launched in 1987 when 
then-President Alan Garcia began implementing a National Plan 
for Regionalization based on provisions of the 1979 
constitution.  The reform proved disastrous.  It was executed 
without consultations simultaneously throughout the country 
with little preparation, leftist extremists won most of the 
regional races, and many of the new regional assemblies 
elected regional presidents and tried to repeal national 
legislation. 
 
7.  The reform's deathblow came in 1992 with President 
Alberto Fujimori's "auto-golpe" and constitutional 
suspension.  To consolidate control, Fujimori ceased the 
transfer of agencies from the ministries to the regional 
governments, brought local projects back under central 
administration, and replaced elected regional governments 
with appointed Regional Administration Transitional Councils 
(CTARs).  Fujimori's 1993 Constitution maintained the 1979 
provisions for autonomous and directly elected regional 
governments, but effectively dismantled all previously 
created decentralization structures and called for a slower 
reform process. 
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DECENTRALIZATION UNDER TOLEDO 
----------------------------- 
 
8.  Alejandro Toledo emphasized decentralization as part of 
his 2001 campaign platform, promising to hold regional 
elections along with previously scheduled 
provincial/municipal balloting in November 2002.  After 
taking office, however, the Toledo Administration kept 
decentralization on the backburner.  Political pressure, 
particularly from the opposition APRA party, forced the 
President to convoke elections for regional governments as 
promised.  The GOP and Congress then scrambled to draft 
legislation to create regional governments, promulgating the 
requisite law only the day before the elections were held. 
Subsequent legislation governing the process has emerged in 
bits and pieces, often containing provisions that conflict 
with terms in other decentralization laws. 
 
9.  The hurried ad-hoc nature of the GOP's approach to 
decentralization has handicapped the process from the 
beginning.  Experts unanimously agree that Peru should have 
between four and eight regions.  Given the GOP's rush to 
fulfill its promise to elect regional officials, however, the 
Organic Law on Regional Governments simply took the country's 
existing 24 departments and transformed them into "regions." 
In addition, since the port city of Callao traditionally 
rejects being linked to Lima, it was deemed a separate 
region, resulting in a total of 25 regional governments. 
 
10.  The 10/30 referenda are intended to rectify this 
situation, with 16 of the regions voting as to whether they 
will combine into up to five macro-regions.  Unfortunately, 
the GOP's disorganized approach to establishing the ground 
rules continues; the law providing financial incentives for 
the formation of macro-regions was only recently passed, much 
of the electorate remains uninformed about the referenda 
(National Decentralization Council chief Luis Thais estimates 
that up to 25% of eligible voters remain unaware that the 
10/30 referenda is being held) and, with but three days to go 
before balloting, Congress is still debating whether 
blank/null votes will be counted in the balloting, whether 
macro-regions will be formed if only some of the departments 
vote in favor, and where the capitals of the new 
macro-regions will be located. 
 
11.  The 2002 election of regional presidents (RPs) were free 
and fair, and all 25 RPs took office without any hitches in 
January 2003.  There was no/no second round runoff balloting, 
however, and the large number of candidates competing for 
most positions resulted in a majority of the RPs being 
elected with less than 30 percent of the vote.  This has 
subsequently raised questions as to the RPs political 
legitimacy, and has encouraged them to take populist stands 
vis a vis the Central Government (RPs regularly take the lead 
in organizing regional strikes; the Cuzco and Huanuco coca 
ordinances recently overturned by the Constitutional 
Tribunal) and other RPs (border disputes between Ica and Lima 
and between Moquegua and Arequipa) to broaden their public 
appeal. 
 
12.  The performance of the RGs has varied according to local 
circumstances and individual leadership (Refs A, B).  The 
most recent poll (by the IMASEN consultancy) in the 16 
regions that will be voting on 10/30, found that half the RPs 
have approval ratings under 20 percent, with only 
Lambayeque's Yehude Simon above 40 percent.  Four RPs have 
been removed from office for corruption and other violations: 
APRA's Max Ramirez (San Martin) and Freddy Ghilardi (Ancash), 
and two independent leftists, Luis Beltran (Apurimac) and 
Rafael Rios (Madre de Dios). Puno's David Jimenez Sardon, an 
independent, was suspended for several months in 2005 because 
of corruption charges but has recently returned. 
 
13.  Since taking office, the RPs have been engaged in a 
constant struggle with the Central Government over the 
control of resources, infrastructure projects and hiring of 
personnel.  RPs are particularly insistent on their desire 
for more big-ticket infrastructure projects to create jobs 
and improve transportation/communication linkages.  The GOP 
has responded by transferring management of several 
large-scale infrastructure projects to selected RGs, such as 
the Olmos irrigation project to Lambayeque and the similar 
Majes project to Arequipa. 
14.  The GOP also created a system of accreditation to 
control the transfer or resources and authorities to the RGs 
to ensure that the latter were prepared to handle the new 
responsibilities.  To date a small percentage of the promised 
transfers have been made as implementation of the 
accreditation system has been delayed and some sectors lack 
the political will to transfer resources.  Public investment 
at the regional level continues to be managed by the central 
government.  Municipal and district governments have faired 
better.  According to the USAID-supported NGO PRODES 
(Pro-Decentralization Program), up to 90 percent of the local 
governments it works with in seven regions satisfactorily 
utilize mandated participatory budget mechanisms. 
Municipalities have increased their budgets and 
responsibilities through transfers of social programs. 
 
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THE PLAYERS 
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15.  Decentralization reform requires the coordination of 
numerous actors, each naturally protective of their own 
bureaucratic interests. Stakeholders include branches of 
national, regional and local governments; political parties; 
NGO's and other sectors of civil society; and members of the 
international community. 
 
16.  The GOP, in 2002, created the National Decentralization 
Council (CND), to lead and facilitate the reform process. 
The CND director, Luis Thais, holds Cabinet rank, and the CND 
includes eight other members, representing the President's 
Council of Ministers, the Ministry of Economy and Finance, 
and regional and local governments.  The CND develops 
decentralization policy, coordinates economic development 
plans, accredits municipal and regional governments, trains 
personnel, and handles fund and program transfers. 
 
17.  Regional and local governments are popularly elected. 
Both RGs and LGs also include two types of councils. The 
first are Regional or Municipal Councils, which serve 
legislative and oversight functions and consist of the 
President, Vice-President, and popularly-elected 
representatives.  The second type of council, called Regional 
or Municipal Coordination Councils, is advisory. They are 
elected bodies, made up of civil society leaders and mayors, 
which meet at least twice a year to offer non-binding advice 
on development plans and annual budgets.  Civil society is 
also represented on the "mesas de concertacion" or dialogue 
roundtables created in 2001 during President Paniagua's 
caretaker government.  The mesas offer recommendations to 
local authorities on development plans; their influence 
varies by region. The involvement of the Catholic Church in 
the mesas adds to their political weight. 
 
18. Before regional presidents were elected, the affairs of 
the departments were managed through Prefects, SubPrefects 
(provincial level) and Governors (district).  The prefects 
will continue to report to the Ministry of the Interior and 
are considered the national government's representative in 
the department.  For the near future, prefects will continue 
to be officially in charge of security for the departments 
whose boundaries for the time being are coequal with the 
regions, as national police commanders in departments are 
also reporting to their PNP superiors in Lima, the scope of a 
prefect's authority is often blurred.   Econoff's informal 
sampling of a number of prefects, subprefects and governors 
in several departments East of the Andes revealed a universal 
belief that there will be a role for them in the 
decentralized system, as the representative to the national 
government for the ordinary citizen, and to ensure security 
of the state.  The prefects are normally from the political 
party of the president, so new officials will be appointed 
with the new administration. 
 
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USG ASSISTANCE 
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19.  USAID supports two decentralization assistance projects: 
 PRODES and Participa Peru. PRODES trains local and regional 
governments to improve governance practices (planning and 
budgetary processes and accountability) and to handle the 
transferred governmental competencies. PRODES  operates in 
seven regions - Ayacucho, Cuzco, Huanuco, Junin, Pasco, San 
Martin and Ucayali ) covering more than 500 municipalities 
(30 percent of all municipalities in the country). Participa 
Peru focuses on transparency issues and information 
dissemination.  Total USAID funding for these programs has 
totaled USD $24.5M since their inception in 2002. 
Restrictions on the use of ESF, due to Peru's failure to sign 
an Article 98 agreement, however, will result in reduced 
support to public institutions at all levels of government, 
which could affect program success. 
 
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COMMENT 
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20.  A successful decentralization process holds the promise 
of bringing democratic governance closer to the people, of 
more efficiently addressing the country's major social and 
political problems, and of reversing the Lima-centric 
political/economic/social culture that has historically 
marginalized Peru's hinterland.  An unsuccessful process, on 
the other hand, could aggravate these same conditions, 
leading to increased conflict between Lima and the interior. 
Unfortunately, the GOP's hurried and haphazard approach to 
decentralization has resulted in an unworkable number of 
regions, a mishmash of often ambiguous and contradictory 
legislation, and RG officials who came into office facing 
huge public expectations without the preparation or the 
bureaucratic apparatus to meet them. 
 
21.  The 10/30 referenda offer a partial solution to the 
first problem.  Toledo's successor, along with the next 
Congress, will have the task of rationalizing the existing 
legislation/regulations and promoting the continued 
consolidation of mini-regions into macro-regions.  Given the 
low popularity of the current crop of RPs, it seems likely 
that a whole new group of RPs will be elected in November 
2006 and take office in January 2007.  The absence of a civil 
service regime governing regional employees will likely 
result in the wholesale replacement of existing RG personnel, 
and the consequent need to train the new bureaucrats so that 
the next set of RGs can develop anew the technical 
capabilities to handle their responsibilities.  In sum, 
decentralization is a necessary step for Peru, but remains a 
flawed work in progress.  END COMMENT. 
STRUBLE