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Cablegate: Garcia On the Fta, Protests and Need to Expedite

VZCZCXYZ0000
PP RUEHWEB

DE RUEHPE #2430/01 1972230
ZNY CCCCC ZZH
P 162230Z JUL 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 6173
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUEHAC/AMEMBASSY ASUNCION 1721
RUEHBO/AMEMBASSY BOGOTA 4876
RUEHBR/AMEMBASSY BRASILIA 7463
RUEHBU/AMEMBASSY BUENOS AIRES 2985
RUEHCV/AMEMBASSY CARACAS 0570
RUEHLP/AMEMBASSY LA PAZ JUL MONTEVIDEO 9234
RUEHZP/AMEMBASSY PANAMA 0850
RUEHQT/AMEMBASSY QUITO 1346
RUEHSG/AMEMBASSY SANTIAGO 1386
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASH DC

C O N F I D E N T I A L LIMA 002430

SIPDIS

SIPDIS

USTR FOR EEISENSTAT, BHARMAN
COMMERCE FOR 4331/MAC/WH/MCAMERON

E.O. 12958: DECL: 07/16/2017
TAGS: ETRD ECON PGOV USTR PE
SUBJECT: GARCIA ON THE FTA, PROTESTS AND NEED TO EXPEDITE
GOVERNMENT SPENDING

Classified By: Ambassador J. Curtis Struble, reasons 1.4 (b) and (d)

1. (C) SUMMARY: During a 30-minute farewell call July 9 at
the Presidential Palace, President Garcia and Ambassador
Struble discussed the U.S.-Peru Trade Promotion Agreement
(PTPA), the current wave of nationwide strikes and the
difficulties the GOP has had in freeing up government funds
for much-needed infrastructure projects. Ambassador also
thanked President Garcia for the access and frankness that
characterized their relationship during his Presidency and
while Garcia was an opposition leader. Garcia told
Ambassador it was a pity that the U.S. Congress did not
appear ready to act on the PTPA, but said he hoped approval
would be forthcoming in the fall. On the current nationwide
strikes, while Garcia thought some leftist activists were
probably involved in stirring the pot, he also expressed some
sympathy with local officials who were frustrated at the
restrictions on much needed spending projects. End Summary.

2. (U) Ambassador Struble, accompanied by A/DCM, made a
30-minute farewell call July 9 on President Alan Garcia. The
President was accompanied by the APRA party's Secretary
General Mauricio Mulder.

U.S. DELAY ON FREE TRADE AGREEMENT
----------------------------------

3. (C) Garcia told Ambassador he thought it was a pity that
the U.S. Congress did not appear ready to act on the PTPA
before his departure July 30 but said he hoped approval would
be forthcoming in the fall. Garcia was confident that the
Peruvian economy would continue to perform very well, but
said that failure by the U.S. Congress to approve the PTPA
would shake confidence.

A RESTRICTIVE PUBLIC SPENDING SYSTEM
------------------------------------

4. (C) Garcia devoted most of his remarks to the protests
underway in the country this week. While he noted the
involvement of the usual suspects from the far left in
stirring the pot, he exhibited a certain understanding for
the frustration local officials feel over the hoops they must
jump through to make infrastructure investments. As Garcia
explained, it made sense in 2000-2001 for the government to
use the restrictive SNIP (National Public Investment System)
process to slow expenditures, suggesting it was designed in
part with that purpose. State funds were tight then, and it
also made sense to maximize the impact of state investments.

5. (SBU) In current circumstances, however, several aspects
of the SNIP system are harmful. First, SNIP rules demand a
annual rate of return of 14 percent on projects although the
central government can get IFI lending at 6-7 percent for
infrastructure projects. The qualifying rate of return
should be moved down to 11 percent, which Garcia said is the
South American average. Even at that level, road investments
in the poorest highland provinces would never qualify. Some
concessional rules there were clearly necessary to allow
projects with a 7 percent rate of return.

6. (SBU) Finally, Garcia said the steps in the SNIP process
need to be compressed from 5 to 3 by eliminating duplication
or substantively meaningless requirements. As things stand
now, he said, a highlands mayor who wants to spend one
million Soles to repair an irrigation channel that has
existed since the time of the Incas must spend two years
meeting SNIP requirements and another year or two in the
procurement process. It's no wonder, Garcia said, that this
drives local officials nuts.

7. (C) Ambassador expressed appreciation for Garcia's
friendship, accessibility and frankness both during his time
as an opposition leader and as President. Recalling their
informal breakfast meetings, Garcia noted (accurately) that
he had always delivered on his commitments for political
support of legislation important to the U.S.
STRUBLE

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