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Cablegate: Cabinet Change: Araoz to Ministry of Economy

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DE RUEHPE #1725 3572206
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R 232206Z DEC 09
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 0353
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION
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RUEHPE/AMEMBASSY LIMA
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RUEKJCS/SECDEF WASHINGTON DC

UNCLAS LIMA 001725

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E.O. 12958: N/A
TAGS: PREL PGOV EINV ECON EFIN ETRD PE
SUBJECT: Cabinet Change: Araoz to Ministry of Economy

1. (SBU) Summary: Following the resignation of Economy
Minister Luis Carranza, Mercedes Araoz (previously Minister of
Production) was sworn in to assume the post December 22. President
Garcia publicly tasked Araoz with maintaining Peru's reputation for
fiscal discipline. Observers believe Garcia chose Araoz because he
trusts her to carry out his wishes in an increasingly politicized
environment. Former VM of Transportation and Communications Jose
Nicanor Gonzales was sworn in as the new Minister of Production.
End Summary.

2. (SBU) In a surprise move, Luis Carranza resigned as
Minister of Economy December 22. Carranza had led the Economic
Ministry twice - the first time from July 2006 to July 2008, and
again from January 2009. (Current Peruvian Ambassador to the U.S.,
Luis Valdivieso, was Minister of Economy in the interim period.)
In publicly announcing Carranza's resignation, President Garcia
said the Minister had fulfilled his promise to serve an additional
year. According to news and other reports, however, Carranza had
opposed the government's decision to promulgate a law granting
tax-free status to economic activities in the Andean highlands and
sought to block salary increases for police and military forces.
More generally, observers believe the technocratic Carranza was
growing uncomfortable with mounting political pressures to free up
public moneys in the run-up to electoral season. (Regional
elections are scheduled for October 2010, general elections for
April 2011.)

3. (SBU) Taking direct aim at these rumors, in the December
22 swearing-in ceremony President Garcia tasked Minister Araoz with
maintaining Peru's vaunted macro-economic stability and hard-earned
reputation for fiscal discipline. Araoz is one of three Ministers
who have been in the cabinet since the beginning of Garcia's
government in July 2006 (the other two are Minister of Foreign
Affairs Garcia Belaunde and Minister of Education Chang), but in
her case as head of three successive ministries. She began as
Minister of External Trade and Tourism where she played a pivotal
role in securing implementation of the U.S.-Peru Trade Promotion
Agreement, was transferred to Production following the June 5
violence in the Amazon region near Bagua, and has now assumed
responsibility for the Economy Ministry portfolio.

4. (SBU) Many observers believe Garcia chose Araoz because
he trusts her to carry out his wishes in an environment in which
political factors are gaining primacy. While not a member of the
ruling APRA-party, Araoz is seen as an able and intelligent
technocrat, close to President Garcia, and sufficiently savvy to
navigate the complicated politics of this sensitive and important
cabinet position. More than any other Peruvian official, she also
embodies the new Peru, with an image of youthful energy and worldly
sophistication. Some critics and opposition figures have expressed
concern that Araoz may bend excessively to the President's
political will and open the fiscal floodgates in ways that could
damage Peru's solid macro-economic foundations.

5. (SBU) Jose Nicanor Gonzales was sworn in to succeed Araoz
as the new Minister of Production. Gonzales has been working in
the Garcia administration in different capacities, most recently as
Vice-Minister of Transportation and Communications. His areas of
professional expertise are private investment promotion, government
planning and competitiveness. He is a retired Navy Admiral who has
been trained a the U.S. Naval Academy, MIT and Harvard.
MCKINLEY

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