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Cablegate: Decentralization: Making Democracy Work in Peru,

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
-------

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.

------------------------------------
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.
-----------------------------
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.

-----------
THE PLAYERS
-----------

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.

--------------
USG ASSISTANCE
--------------

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
-------

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

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