VZCZCXYZ0000
PP RUEHWEB
DE RUEHPE #2026/01 1621519
ZNR UUUUU ZZH
P 111519Z JUN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 5783
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 1668
RUEHBO/AMEMBASSY BOGOTA PRIORITY 4731
RUEHBR/AMEMBASSY BRASILIA PRIORITY 7389
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2915
RUEHCV/AMEMBASSY CARACAS PRIORITY 0450
RUEHGE/AMEMBASSY GEORGETOWN PRIORITY 0528
RUEHLP/AMEMBASSY LA PAZ JUN 4280
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 9188
RUEHQT/AMEMBASSY QUITO PRIORITY 1266
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1315
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY
UNCLAS LIMA 002026
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL PGOV PHUM ECON ETRD EINV PE
SUBJECT: DECENTRALIZATION: GOVERNMENT AMBIVALENCE AND
REGIONAL (IN)CAPACITY
REF: A. 06 LIMA 4519
B. LIMA 309
C. LIMA ...
id: 111659
date: 6/11/2007 15:19
refid: 07LIMA2026
origin: Embassy Lima
classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
destination: 06LIMA4519|07LIMA1804|07LIMA1940|07LIMA309
header:
VZCZCXYZ0000
PP RUEHWEB
DE RUEHPE #2026/01 1621519
ZNR UUUUU ZZH
P 111519Z JUN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 5783
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 1668
RUEHBO/AMEMBASSY BOGOTA PRIORITY 4731
RUEHBR/AMEMBASSY BRASILIA PRIORITY 7389
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2915
RUEHCV/AMEMBASSY CARACAS PRIORITY 0450
RUEHGE/AMEMBASSY GEORGETOWN PRIORITY 0528
RUEHLP/AMEMBASSY LA PAZ JUN 4280
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 9188
RUEHQT/AMEMBASSY QUITO PRIORITY 1266
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 1315
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUMIAAA/USCINCSO MIAMI FL PRIORITY
----------------- header ends ----------------
UNCLAS LIMA 002026
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL PGOV PHUM ECON ETRD EINV PE
SUBJECT: DECENTRALIZATION: GOVERNMENT AMBIVALENCE AND
REGIONAL (IN)CAPACITY
REF: A. 06 LIMA 4519
B. LIMA 309
C. LIMA 1804
D. LIMA 1940
1. (SBU) Summary: Decentralization -- the transfer of
administrative responsibility from the national government to
regions and municipalities -- is a cornerstone of the Garcia
government's state reform plan. In pursuit of this policy,
President Garcia recently signed a decree transferring 185
functions from the central government to regional and
municipal governments by the end of 2007. Despite the Garcia
Administration's public commitment to decentralization, many
observers believe it is ambivalent about implementation,
partly because some regional and municipal governments
represent rival and sometimes radical political groups.
Analysts are also concerned about the administrative
incapacity of local governments, and believe transferring
functions without equivalent financial resources or needed
technical support is a recipe for failure. The success of
decentralization policy is likely to vary from region to
region, primarily as a function of the potential for economic
development there. By pursuing accelerated administrative
decentralization, the Garcia government hopes to minimize its
responsibility for social conflicts in newly "decentralized"
regions -- but it is unlikely to escape such responsibility
in the end. End Summary.
Hypercentralization
-------------------
2. (U) "Lima is Peru, and Peru is Lima" goes a national
refrain. Home to roughly 9 million people (more than one
third of the country's population), Lima is the fulcrum and
reference of national political life, the undisputed economic
center (producing close to half of the gross national
product), the sole financial hub, and the clear social and
cultural capital. No other Peruvian city comes close to
matching its multifarious heft. As one national politician
noted, Lima generates enormous centripetal pressure that
"sucks" everything toward its vortex: investment, people,
business, construction, traffic. Partly to counteract the
negative consequences of such hypercentralization, and to
redress the acute underdevelopment of the southern highlands
and Amazonian regions in particular, decentralization has
been pursued in fits and starts by various administrations in
the past. After passage of a framework decentralization law,
in 2002 Regional Presidents were chosen in popular elections
(rather than appointed by the central government) for the
first time.
Decentralization as Cornerstone
-------------------------------
3. (SBU) Under the Garcia administration, decentralization
has emerged as a cornerstone of the government's state reform
plan. This effort aims to bring government closer to the
governed and to respond to widespread demands for more and
better public services, particularly in regions virtually
abandoned by the state and left out of Peru's economic surge.
To underscore his commitment to this process, in April
President Garcia signed an executive decree to transfer 185
functions from the central government to regional and
municipal governments by the end of 2007. This represented a
significant acceleration of a timetable that was initially
set to take place over Garcia's full five year presidential
term. The GOP set up 20 decentralization objectives or
"shocks" to help achieve this goal (Ref A). Garcia signed
the plan in the northern region of Piura, the first stop of a
region-by-region tour intended to highlight his desire to
push government out of the capital city and into the
provinces. Spurred by the executive, Congress has also
approved supplemental credits to funnel state resources to
the sub-national level.
4. (SBU) In response to pressure from regional presidents
and to help free up the significant moneys that are sitting
idle in government coffers, Garcia recently signed a separate
supreme decree limiting the role of the onerous System of
National Public Investments (SNIP) (and the state public
procurement system) in approving development projects in
education, health, transportation, communication and
agriculture for regions and municipalities (Ref C). After
discussions with the Finance Minister, who has responsibility
for the SNIP function, the President rescinded the decree and
subsequently issued a revised one that limited SNIP
intervention to large-scale regional projects. The revised
decree also formed two commissions tasked with making
recommendations to streamline the SNIP and government
adquisitions processes in orQo make them more
user-friendly (particularly) for regional and local
officials. Many analysts believe that in issuing the decree
Garcia was motivated by the desire to see that urgently
needed and impatiently awaited regional development and
infrastructure projects were kicked off with all possible
dispatch.
Government Ambivalence
----------------------
5. (SBU) Despite the Garcia Administration's public and
private statements of commitment to decentralization,
analysts suspect it is ambivalent about implementation.
Grover Pango, head of the Executive Secretariat for
Decentralization, recently underscored to us the government's
genuine commitment to decentralization. And yet the
Secretariat he heads -- now part of the PM's office -- was
SIPDIS
created out of the formerly autonomous National Council for
Decentralization (CND), a move that effectively and
ironically recentralized this pivotal function (Ref C).
(Note: Observers acknowledge that the former CND was not
doing its job and therefore needed to be overhauled. After
the CND was disbanded, the country's 25 regional presidents
formed the "National Assembly of Regional Governments" as a
vehicle to maintain leverage and to continue pressing the
national government for effective decentralization. End
Note.) Pango added that he was being tasked to implement the
accelerated decentralization schedule with a skeleton staff,
most of whom had little experience with the critical issues
in question. Some analysts say that the government's mixed
signals reflect real internal divisions, with several top
government officials firmly in favor (PM Del Castillo, FM
Garcia Belaunde) and others more inclined to maintain strong
centralized control. Many believe that President Garcia
himself -- at once keenly aware that decentralization is an
urgent priority and yet instinctively centralist in his
approach to governing -- embodies this ambivalence.
6. (SBU) The government's ambivalence was reinforced by the
results of the November 2006 regional and municipal
elections, in which a plethora of local leaders representing
mostly narrow local interests gained power and the ruling
APRA party captured only 2 of 25 regional presidencies. The
government now has to deal with a mixed bag of regional
forces, some friendly, some hostile, and many in between.
The result so far has been predictable: the government has
willingly transferred functions in some cases while proving
reluctant to do so in others. The recent civil unrest in
Ancash was a case in point. In April, the Regional Governor
of Ancash Cesar Alvarez -- widely seen as a hot-head and
openly hostile to the APRA government -- organized a blockade
of the Pan-America Highway in retaliation for the central
government's refusal to transfer administration and execution
of the Chinecas Hydroelectric/Irrigation Project to his
government -- giving it instead to a small municipal
government headed by an APRA ally. Alvarez was particularly
angry because seven other National Institute of Development
(INADE) projects of similar scope had gone (as they should)
to regional governments. This situation fueled a violent
protest that disrupted one of the country's main
thoroughfares for several days and resulted in at least two
deaths. (The national government has since decided to
transfer the project to the regional administration.)
Obstacles to Decentralization
-----------------------------
7. (U) Many analysts are further concerned about two related
obstacles to effective decentralization. The first is the
administrative incapacity of regional and municipal
governments. Regional President of Junin (and current head
of the National Assembly of Regional Presidents) Vladimiro
Huaroc recently told us he wanted the regional government to
assume greater responsibilities quickly because it understood
the region's priority needs much better than the central
government did. At the same time, he was wary about the
ability of the government's administrative apparatus, which
he characterized as dilapidated and dysfunctional, to handle
the additional load. Cusco Regional President Hugo Gonzales
Sayan echoed this view, and went on to describe his
government's permanent bureaucracy as unenthusiastic,
unmotivated and unlikely to want to assume greater
responsibilities in the future. (Comment: In support of
decentralization, the USG, through the USAID-funded PRODES
program, has been training regional and municipal government
officials to strengthen their capacity, including in the
design and implementation of developmental projects that meet
Ministry of Finance (SNIP) requirements. One challenge has
been administrative turnover at the regional and local
levels. End Comment.) To counter the pessimistic view, some
analysts emphasize that the administrative capacity of the
national government is no great shakes either, and that the
best way to develop local capacity is by trial and error.
8. (SBU) The second concern is that the central government
will transfer functions without transferring the financial
resources or providing the technical training needed to carry
them out -- implementing what amounts to an unfunded mandate.
Many believe that, without such support, moves to
decentralize will exacerbate strains on already overtaxed and
underfunded government mechanisms, and almost inevitably
result in failure. Finance Ministry official Carlos Casas
told us recently that the current decentralization plan does
not yet link functions to revenue streams, and that the
central government was still contemplating various approaches
to budgetary decentralization, including the transfer of
certain kinds of tax authority from the central government to
its regional counterparts. In response to concerns about the
lack of technical training, the Prime Ministers office has
pledged to contract ten experts per region to assist local
officials manage the increased administrative burdens that
effective decentralization will bring. The Economic and
Finance Ministry has also committed to opening offices in
each region to help regional government and municipalities to
develop projects. To date, seven such offices have been
established.
Success Depends on Economic Decentralization
--------------------------------------------
9. (SBU) The ultimate success of decentralization is likely
to vary from region to region, largely as a function of the
economic potential found there. President of Congress's
Decentralization Committee, UN Congressman Juan Carlos
Eguren, asserted to us recently that the government's primary
focus on administrative, vice economic, decentralization was
to put the cart before the horse. The trick, he said, was to
generate poles of economic development throughout the country
that can compete with Lima for investment, labor and human
capital. (Many claim that Lima alone offers the kind of
basic services network -- schools, hospitals etc. -- and
multifaceted lifestyle options demanded by Peru's
professional class.) Other analyst agree with this view, and
argue that transferring administrative functions without
fomenting economic development in the regions is like sailing
into the wind. Peru's emerging agro-industrial regions such
as Ica and the northern coast -- which have boomed
economically, enjoyed close to full employment and begun
drawing migrants away from Lima -- appear to bear this
analysis out, suggesting grounds for incipient optimism on
the decentralization of economic development. Other
observers say that transferring administrative functions
without building the larger structure of incentives needed
for a region to thrive more generally was an incomplete
strategy, particularly for politically vulnerable and
volatile areas such as Puno, Apurimac and Ayacucho -- the
heart of the southern sierras.
Comment: Decentralizing Blame
-----------------------------
10. (SBU) The demand for more and better services throughout
Peru's regions probably outstrips the ability of government,
at any level, to deliver -- at least in the short term. In
that sense, by pursuing accelerated administrative
decentralization, the Garcia government aims to minimize its
responsibility, and to share the blame, for persistent
discontent and inevitable social conflicts in newly
"decentralized" regions. But if recent experience provides
any indication, when the going gets tough regional and local
leaders will seek to pass the hot potato back to the central
government and quickly make themselves scarce. (Even Lima
Mayor Luis Castaneda, a presumed 2011 Presidential hopeful,
dropped conspucuosly out of public view when pressure mounted
around the Santa Anita market impasse -- Ref D). When that
happens, the central government will likely assume the
responsibility, or the blame, for whatever happens in the end.
STRUBLE
=======================CABLE ENDS============================