Cablegate: Orthodox Economist Named to Chair Peru's Central Bank Board

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E.O. 12958: N/A
TAGS: ECON EINV EFIN PGOV TBIO PE

SUBJECT: ORTHODOX ECONOMIST NAMED TO CHAIR PERU'S CENTRAL BANK BOARD

1. Summary: President Alan Garcia named another well-known orthodox
economist, Julio Velarde, to chair the Central Bank's Board of
Governors, and three other governors as well. The other nominees
are the asparagus exporter and former Agriculture Minister (in the
first Fujimori Administration) Jose Chlimper, orthodox economist and
former IMF official Jose Valderrama, and former Industry Minister
Carlos Raffo, who had served in Garcia's first Administration.
Velarde is an ally of Garcia's conservative opponent in this year's
presidential elections, Lourdes Flores. Markets have welcomed these
designations as they indicate the willingness of the Garcia
Administration to designate technocrats to key economic positions,
as this may assure the independence of the Central Bank. Congress
will consider the ratification of Velarde and will designate its own
three governors to complete the new board. End Summary.

CONSERVATIVE ECONOMIST
----------------------
2. The official gazette El Peruano carried on September 7, 2006, a
Supreme Resolution designating Julio Emilio Velarde Flores as
chairman of the Central Bank's (BCR) Board of Governors for a
five-year term. Velarde is no stranger to the BCR, as he served
twice at its board of governors, first in 1990-1992, during
President Alberto Fujimori's first term, and later under President
Alejandro Toledo, both incomplete five-year terms. Born on July 1,
1952, Velarde received his B.Sc. in economics from the reputed local
University of the Pacific (UP) in 1974; he did graduate studies in
economics in Germany and was a Ph.D candidate in economics at Brown
University. He speaks good English and German.

3. Velarde was a professor and researcher at the University of the
Pacific since 1975, and has done consultancy work for international
agencies such as the IDB, World Bank, USAID, ILO and Canada's IDRC.
In October 2003 he was designated Executive President of the
Latin-American Reserve Fund (FLAR, for its Spanish acronym) for a
three year period, from 2004. FLAR was created in 1976 as the
Andean Reserve Fund, to be an alternative to the IMF for the Andean
countries. In 1988 it became FLAR to allow in other Latin-American
countries, with Bolivia, Colombia, Costa Rica, Ecuador, Peru and
Venezuela its current member countries.

4. For several years, as he worked as a civil servant for
international organizations, Velarde was also conservative
presidential candidate Lourdes Flores' personal economic adviser.
If Flores had won the 2006 elections, Velarde was expected to be
given a key economic position in her government.

OTHER CONSERVATIVES ON THE BOARD
--------------------------------
5. The BCR board of governors is made of seven members, four
nominated by the Executive branch and three by Congress. The GOP
designated the three other nominees: Jose Chlimper Ackerman, Jose
Valderrama Leon, and Carlos Alberto Raffo Dasso. Chlimper is a
major asparagus exporter, a partner in a local pharmaceutical
company and former Agriculture Minister in the first Fujimori
Administration in the 1990s. An agricultural engineer by training,
he is considered a reputable business leader. He is allied with
Parliament's 13-strong Fujimorista group, a group now headed by
Keiko Fujimori, the former President's daughter.

6. Valderrama is a respected orthodox economist and former IMF
official. He has worked in various positions and at different times
at the Ministry of Economy and Finance (MEF), as Advisor to the
Minister on macroeconomic issues, and he also headed the BCR's
Research Department. Valderrama has been a manager at two reputed
local think tanks, the Peruvian Institute of Economics, and Chief
Economist of the local consultancy Apoyo S.A., the group headed by
recently nominated Ambassador to the United States Fernando Ortiz de

Zevallos. Velarde did his doctoral work in economics at Vanderbilt
University. He is said to have been the personal choice of Minister
of Economy and Finance Luis Carranza.

7. Carlos Alberto Raffo is a friend of President Garcia's and
served as Industry Minister in his first APRA Administration
(1985-90). According to political observers, Raffo fills the APRA's
"quota" on the BCR's board, and will likely serve as the President's
eyes and ears on the board.

COMMENT
-------
8. The appointment of several conservative nominees to the BCR's
board of governors complements the appointment last July 2006 of
orthodox economist Luis Carranza as Economy and Finance Minister,
and markets have reacted positively. These latest nominations are
likely to work to help maintain the BCR's independence from the
Executive - which may be just what the Garcia Administration
intends, given the President's unfortunate experience in the 1980s.
STRUBLE

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