US embassy cable - 05LIMA5090

C O N F I D E N T I A L SECTION 01 OF 03 LIMA 005090 
 
SIPDIS 
 
BUENOS AIRES PLEASE PASS TO IO A/S SILVERBERG 
 
E.O. 12958: DECL: 11/30/2015 
TAGS: PREL, PGOV, ETRD, PE 
SUBJECT: SCENESETTER FOR A/S SILVERBERG'S VISIT TO LIMA, 
DECEMBER 2-6 
 
 
Classified By: Political Counselor Alexander Margulies.  Reason: 1.4(d) 
. 
 
------------------------- 
SUMMARY:  Welcome to Peru 
------------------------- 
 
1.  (U)  On behalf of Embassy Lima I am pleased to extend a 
warm welcome to Peru.  Your visit provides an excellent 
opportunity to lay the groundwork for close cooperation on 
the UN Security Council (which Peru will join in January for 
a two-year term) and on U.N. reform issues.  We are arranging 
meetings with the Foreign Ministry's Multilateral Affairs 
Bureau, key Congressmen, leading opinion makers and 
influential journalists.  Your arrival will coincide with 
end-game Free Trade Agreement negotiations in Washington, 
which is a top priority for the Toledo Government.  Active 
campaigning has begun for the April 2006 general elections. 
The GOP is promoting Peru's accession to the Law of the Sea 
Convention, but this is being opposed by the major opposition 
party and has become a campaign issue.  Concern has also been 
raised over the recruitment of Peruvians by a U.S. company to 
work as security guards in Iraq.  You can expect that 
Peruvian interlocutors may raise these issues, as well as 
those dealing specifically with the UN.  END SUMMARY. 
 
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UN COOPERATION 
-------------- 
 
2.  (U)  Peru historically has placed a great deal of 
emphasis on its foreign relations, seeking to "punch above 
its weight" in international and regional fora.  It points 
proudly to examples of its leadership role in international 
organizations, such as Javier Perez de Cuellar's service as 
UN SecGen.  The Foreign Ministry remains wedded to many 
traditional Latin American foreign policy concepts (Third 
Worldism, North-South economic divide issues) and zealously 
guards its elite status within the GOP.  Consequently, Peru 
in principle strongly promotes multilateralism, strengthened 
international institutions (particularly the UN) and 
expansion of international law (the International Criminal 
Court).  In practice, however, the Toledo Administration has 
played an understanding and constructive role on issues of 
major importance to the U.S., such as combating terrorism, 
the military operations in Iraq and Afghanistan, and the 
Middle East peace process.  President Alejandro Toledo is a 
firm proponent of human rights, and Peru took the lead in 
Latin America in supporting the UNCHR Cuba Resolutions 
through 2004, but acceded to pressure from Brazil and 
Argentina to abstain on that resolution in 2005. 
 
3.  (C)  Foreign Minister Oscar Maurtua and our contacts in 
the Foreign Ministry's Multilateral Affairs Bureau have 
expressed their strong interest in cooperating closely with 
the U.S. on international security issues during Peru's 
2006-2007 term on the UN Security Council.  On UN Reform, 
Peru has been supportive in principle, but non-committal on 
details.  On UNSC expansion, Peru tepidly backs Brazil's bid 
for permanent status publicly, but privately is content to 
leave this issue on the back-burner.  We have an excellent 
working relationship with our counterparts in the Ministry, 
most of whom have served in Washington and/or New York. 
 
------------------- 
The Political Scene 
------------------- 
 
4.  (U)  President Toledo heads up a lame-duck administration 
heading into its final eight months in office.  His 
popularity remains in the low-teens, but the GOP is firmly in 
the saddle as the opposition parties are cooperating in 
maintaining economic and political stability with an eye to 
inheriting a steady ship of State next July 28.  Active 
campaigning for the April 2006 elections has begun and 
dominates the headlines:  the race remains wide open as no 
candidate has even reached 30 percent support in the polls. 
Former President Alberto Fujimori's 11/16 arrest in 
neighboring Chile, and Peru's preparation of an extradition 
request, has further muddied an already complex political 
scene. 
 
-------------------------- 
Free Trade Agreement Talks 
-------------------------- 
5.  (C)  Your visit will coincide with what we hope are 
end-game negotiations on a U.S.-Peru Free Trade Agreement 
(FTA) in Washington.  The FTA is a top priority for the 
Toledo Government, and Foreign Ministry officials in the past 
have suggested that Peru's cooperation in the UNSC would be 
enhanced should an FTA be concluded.  You can expect 
inquiries and asides on this issue from Foreign Ministry 
officials, congressmen and journalists. 
 
----------------------------- 
The Law of the Sea Convention 
----------------------------- 
 
6.  (U)  The GOP, pushed by the Foreign Ministry, has been 
actively promoting Peruvian accession to the Law of the Sea 
Convention (LOS).  In early November, Toledo promulgated 
legislation unilaterally fixing Peru's southern maritime 
baseline boundary and has argued that Peru's accession to the 
LOS, in combination with its newly set maritime baseline, 
will enable it to extend its maritime jurisdiction into 
waters currently claimed by Chile.  This led to a diplomatic 
squabble with Santiago, which holds that the two countries' 
maritime boundary was fixed by agreements entered into in 
1952 and 1954, while Peru insists that these agreements only 
dealt with fishing issues, not maritime boundaries.  Former 
President Alan Garcia, the presidential candidate of the 
major opposition party APRA, has chosen to make this a 
campaign issue, opposing the LOS as a surrender of Peru's 
historical claim to a 200-mile territorial sea.  Your 
interlocutors may raise this issue with you and inquire as to 
the USG's position on this issue:  we have signed the LOS and 
submitted it for congressional ratification. 
 
----------------- 
Peruvians in Iraq 
----------------- 
 
7.  (U 
)  The recruitment of several hundred Peruvians by U.S. 
company Triple Canopy (on a State Department contract) to 
work as security guards in Iraq was a page-one issue over the 
last month and spurred some in the Foreign Ministry to 
propose revising the Convention Against the Recruitment, Use, 
Financing and Training of Mercenaries to regulate the 
activities of private security companies.  While this matter 
has receded from the headlines, GOP and political contacts 
warn that it will resurface with a vengeance should a 
Peruvian be killed in Iraq.  It is possible that this issue 
will be raised during your meetings and interviews. 
 
----------- 
The Economy 
----------- 
 
8.  (U)  Peru's economy is one of the most dynamic in Latin 
America.  GDP grew 5.1 percent in 2004, reaching $67 billion. 
 Growth was driven by exports, construction, mining, 
investment, and domestic demand.  Exports, propelled by high 
mineral prices, ATPDEA benefits and the completion of the 
Camisea gas project, surged above $12 billion in 2004, up 39 
percent in dollar terms from 2003.  U.S. exports to Peru 
increased 27 percent during the same period, to $1.8 billion. 
 Peru,s $2.6 billion trade surplus drove the currency up 5.5 
percent against the dollar over the year. 
 
8.  (U)  The economy has steamed ahead in 2005, with a growth 
rate of 5.6 percent for the first half of the year.   Exports 
are up another 20 percent since last year, and reserves have 
hit a record $14.1 billion.  Inflation is 2.5 percent, and 
the government is on track to meet its deficit target of one 
percent of GDP for 2005.  Revenues are up 11 percent since 
last year. 
 
9.  (U)  Peru's major trading partners are the U.S., China, 
EU, Chile and Japan.  In 2004, 29 percent of exports went to 
the U.S. and 20 percent of imports came from the U.S.  Key 
exports include gold, copper, fishmeal, textiles and apparel, 
petroleum, zinc, asparagus and coffee.  Imports include 
machinery, vehicles, processed food, petroleum and steel. 
Registered foreign direct investment (FDI) is $12.9 billion, 
with the U.S., Spain and Britain the leading investors.  FDI 
is concentrated in mining, electricity, telecom and finance. 
10.  (U)  Despite Peru's macroeconomic success, huge 
challenges remain.  Peru must reduce poverty of 52 percent 
(under $58/month) and extreme poverty of 24 percent (under 
$32/month).  Wealth and economic activity are overly 
concentrated in Lima and other large cities.  Unemployment 
and underemployment levels total 56 percent nationwide, and 
over 60 percent of the economy is informal.  Growth is just 
beginning to generate employment faster than new entrants 
come into the labor force.  The government lacks revenues for 
adequate social investment.  Boosting long-term growth and 
reducing poverty will require strengthening the judiciary, 
reducing corruption and completing other reforms to improve 
the investment climate. 
POWERS