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DE RUEHPE #2026/01 1621519
ZNR UUUUU ZZH
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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
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RUEHCV/AMEMBASSY CARACAS PRIORITY 0450
RUEHGE/AMEMBASSY GEORGETOWN PRIORITY 0528
RUEHLP/AMEMBASSY LA PAZ JUN 4280
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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============================