Wikileaks. Cable

origin: Embassy Lima
classification: CONFIDENTIAL
destination: 06LIMA1064|06LIMA1197
header:
VZCZCXYZ0008
PP RUEHWEB

DE RUEHPE #1303/01 0951647
ZNY CCCCC ZZH
P 051647Z APR 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 9580
INFO RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2328
RUEHLP/AMEMBASSY LA PAZ APR 3186
RUEHQT/AMEMBASSY QUITO PRIORITY 0197
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 0371
RUEHCV/AMEMBASSY CARACAS PRIORITY 9265
RUEHBO/AMEMBASSY BOGOTA PRIORITY 3202
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

—————– header ends —————-

C O N F I D E N T I A L LIMA 001303

SIPDIS

SIPDIS

DEPT FOR WHA/AND, WHA/EPSC, EB/IFD
DEPT PASS TO USTR – BHARMAN
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR OASIA/INL

E.O. 12958: DECL: 04/05/2016
TAGS: ECON, PGOV, ETRD, EINV, PE

SUBJECT: CANADIAN INVESTORS WARY OF HUMALA

REF: A) LIMA 1197 QB) LIMA 1064
Classified By: Ambassador J. Curtis Struble for reasons 1.4 (b) and (d)
.
1. (C) Summary. During a March 31 meeting, Canadian
Ambassador Genevieve Des Rivieres provided Ambassador Struble
with a readout of the nearly two hour meeting she hosted the
day before between Ollanta Humala and Canadian investors.
Ambassador Des Rivieres shared two impressions: first, that
Humala had a shallow understanding of investment and trade
issues; and second, that Humala always spoke of doing things
within the law, even as he emphasized his determination to
change current legislation. Ambassador Des Rivieres stated
that nothing Humala said led her to believe he would govern
in an authoritarian manner. The Canadian Trade Commissioner,
who attended the same meeting, had a much bleaker outlook.
He informed us that Canadian investors remained worried about
a Humala government, as both Humala and his economic advisor
lacked specific knowledge about the oil, gas and mining
industries — Peru’s most important economic sectors. End
Summary.

Canadian Investors Meet with Humala
———————————–

2. (C) The Canadian Embassy hosted a meeting between
ultra-nationalist presidential candidate Ollanta Humala and
several Canadian investors on March 30. Economic Advisor
Felix Jimenez accompanied Humala and proceeded to answer most
of the economic questions. Canadian Ambassador Genevieve Des
Rivieres noted that Jimenez’s responses highlighted that
Humala lacked a clear understanding of economic and
investment issues. For example, Humala was flummoxed by one
question from an operator who has a 30 year
Build-Operate-Transfer (BOT) contract; the candidate had
never heard of a BOT arrangement and after a lengthy
explanation said he thought they would be alright with him.
Des Rivieres also pointed out that Humala always spoke of
doing things within the law, even as he emphasized his
determination to change current legislation.

3. (C) Ambassador Des Rivieres informed the Ambassador
that, due to the meeting, she was less anxious about a Humala
government. She highlighted Humala’s pledge to follow the
rule of law when making changes to the Constitution and
existing contracts. Ambassador Des Rivieres still has
reservations about Humala, however, as the majority of
Canadian investment in Peru is in the mining sector. (Note:
Canada is one of the largest investors in Peru, with
investment in the mining sector totaling an estimated $637.2
million in 2005. End Note.) Humala indicated several times
in the meeting that he would revise mining contracts.

Trade Commissioner Offers
Different Viewpoint
————————-

4. (C) Ed Jager, Senior Trade Commissioner at the Canadian
Embassy, met with Econoffs to discuss his views on the Humala
meeting. As noted in his report below, Jager emphasized that
while Humala said the right things to the investors,
including how he would respect the rule of law as President,
the meeting did little to alleviate the concerns of the
Canadian investors. During the meeting, Jager noted how
Humala’s answers to specific investor’s questions were vague,
offering little detail. According to Jager, Humala did most
of the talking, turning to Jimenez occasionally for a
technical answer. Jager observed that Jimenez did not come
across as knowledgeable about the details of the oil and gas
or mining industry royalty or tax arrangements, which
amplified concerns among some Canadian investors.

Canadian Ambassador’s Report
—————————-

5. (C) The following is Canadian Embassy report on the
Humala meeting, provided by Ambassador Des Rivieres. (Note:
It is not clear that the Ambassador had prior authorization
to share this memorandum, as well as the Trade Commissioner’s
report; addressees should act on the assumption that they
were provided extra officially. End Note.)

Begin Text:

6. (C) Nationalization: Humala was quick to point out that
many had misconstrued his use of the word “nationalization.”
People should not associate his ideas with the ideas of 40
years ago (presumably referring to the leftist General
Velasco, whose government expropriated and nationalized much
of the financial, industrial and resource sectors,
devastating the Peruvian economy in the process.) Humala
believes that the government should have a far greater role
in what he considers strategic sectors, but explicitly denies
the use of expropriation and “estatizacion” (nationalizing)
to achieve that role. Instead, he seeks to use the tools of
government investment and tighter regulation to increase the
role of the state in the economy. He would rewrite the
Constitution (through a Constituent Assembly) to drop the ban
on state participation in economic activity. He clearly
stated he does believe and recognize the rights and
contribution of private/foreign investment in Peru in terms
of job creation and infrast
ructure development. An increased state role is necessary to
ensure increased Peruvian participation in the economy.
However, Humala reiterated his belief in the right to private
property.

7. (C) Strategic Activities: On Humala’s list of strategic
activities are included the oil and gas sector (especially
the Camisea project), other energy industries (including
electricity), ports and airports. However, mining per se was
not a strategic activity. Moreover, he indicated that he
would respect existing concessions. He suggested that
international investors were important to Peru, bring not
only needed capital but also technology and know how. He
would like as well to diversify the base of the economy by
promoting, for example, the agrifood industry. In large
part, his view of strategic industries appears to be focused
on the part they play in providing goods and services to the
man in the street. In the vein, he wants the state to
protect prices so the poor can have access to the necessities
they need. LAN Peru (owned by LAN Chile) was cited as an
example of a monopoly which needed to be challenged by a
national carrier to reduce prices and increases choices for
consumers.

8. (C) Access to Finance: Humala argued that the Peruvian
market is small and fractured, making it difficult for
Peruvian companies to compete with international companies.
Therefore it was particularly important that reliable and
easy access to finance be available. In his view, there are
few banks in Peru and not enough competition. A Humala
government would seek to increase the size of the market and
access to finance for all Peruvian entrepreneurs, especially
for those in micro and small enterprises. One way to
increase the amount of local investment would be to ensure
that the amount that private pension funds are allowed to
invest abroad would be maintained at 10 percent, or even
reduced. Another approach would be to “de-dollarize” the
internal economy so that small and medium enterprises would
be able to borrow or repay loans in the national currency.

9. (C) Paying for Increased Government Participation: When
asked how he would pay for a significant government
investment in strategic activities, Humala outlined a number
of ways. By reforming the tax system so as to levy more
direct taxes and less indirect taxes, more revenue would be
collected. Similarly, a strong effort would be mounted to
reduce tax evasion and review all tax exonerations. A Humala
government would also seek to convert the national debt held
by foreigners into domestic debt, thus reducing the costs to
the government of exchange fluctuations. As the national
debt came up, it would be renegotiated, reducing interest
costs. On the other hand, he wishes to see longer repayment
terms for Peruvian debt, to allow more fiscal room for
short-term projects. Humala believes these steps will fund
his plans to significantly increase the government presence
in strategic activities. In any case, however, a Humala
government will recognize the necessity to limit the fiscal
deficit to 1.5 percen
t of GDP. For that reason, Humala would also be open to
other forms of participation, including PPPs and concessions.
Humala estimates infrastructure costs in the five years of
his government would average $3.9 billion per year, of which
he expects between $1.5 – $1.7 billion to come from the
Peruvian government.

10. (C) Working with Foreign Companies: Humala declared
that he was perfectly willing to work with foreign investors.
He added, he would only do so in an open and transparent
manner, always within the law. Alluding to the example of
discussions between Fujimori’s fixer Montesinos and an
American mining company representative, Humala stated that he
would not deal with foreign investors in a like manner.
Furthermore, he stated that in a situation where his
government had to choose between two investors, one Peruvian
and one foreign, all other things being equal, he would
always choose the Peruvian. He envisions a type of
affirmative action program which allows national industry to
be more active in the economy. He claims that in many cases,
national companies have been discriminated against in
international bids because criteria included levels of
capital which national industry did not have. However, he
repeated his belief that Peru needs foreign private sector
investments, particularly for infrastruct
ure projects where large amounts, modern technology and
“savoir-faire” are involved. He appears to be comfortable
with the PPP approach.

11. (C) Stability Agreements: It was pointed out to Humala
that in the mining industry in particular, long term
investments of 20-30 years were the norm. For that reason,
legal stability, especially tax stability, was essential.
Humala and his advisor responded that in 20 or 30 years of an
investment, conditions change. They argued that since many
of the current legal stability agreements in force in Peru
were signed in the mid-1990s under Fujimori, they need to be
reviewed and, if necessary, revised to reflect current
conditions (both internal and external to Peru). Such
revisions would not be unilateral, as a Humala government
will respect the law. However, it was clear that Humala
believes that legal stability agreements should not exempt
mining companies form paying royalties. He was insistent
that all companies should pay royalties and taxes. (In
another context, Humala specifically and explicitly stated
that those mining companies with stability agreements
exempting them from paying royalties w
ould have their contracts reviewed.)

12. (C) Mining Canon: The Canon Minero is the share of
mining taxes and royalties that is returned to the regions,
districts and municipalities surrounding the mines from which
that revenue is collected. Much of those funds remain in the
Treasury for lack of capacity to use them. Humala agrees
that this is an intolerable situation, and will work with the
various levels of government involved, including through
capacity building, to see that these funds are appropriately
spent on priorities of education, health and infrastructure.

13. (C) Constitutional Change: Humala believes that the
current Peruvian Constitution, “criminally” and
“delinquently” written and approved in the Fujimori years, is
a neo-liberal construct that doesn’t provide for the
development of the country. He has stated that he would call
for a constituent assembly to rewrite the Constitution.
However, to do so, he would need the support of Congress, and
Humala is unlikely to achieve sufficient support in Congress
to do so. He indicated that he would abide by the law, but
that Constitutional change was an absolute imperative for
him. When asked whether he would respect the principle of
not applying Constitutional or legislative changes
retroactively, he responded only indirectly, repeating his
pledge to stay within the law, and not to expropriate private
property.

14. (C) Narco-trafficking: Drug trafficking is a cancer. A
Humala government will take all necessary steps to combat
this cancer, including interdiction flights, fighting the
cartels and controlling the import of inputs. However, it
would be necessary to consider the negative effects of
fighting drug trafficking on the innocent coca grower. He
specifically rejected eradication campaigns. Profitable
alternatives would have to be found for the farmers, as well
as legal markets for coca leaves, process coca and
by-products. International cooperation was going to be
important in this regard.

15. (C) Corruption: A Humala government would investigate,
prosecute, and jail all those guilty of corruption. This was
a high priority for Humala. He agreed that a desire within
the judicial system to eliminate corruption as essential to
success. He had little to offer on how to create that
desire, but would intervene if necessary.

End Text.

Canadian Trade
Commissioner’s Views
——————–

16. (C) The following is the Canadian Economic Counselor’s
report on the Humala meeting with investors. This report
indicates that Canadian investors continue to be wary of a
Humala government, despite pledges to follow the rule of law,
and believe that Humala’s signals vary by audience. (Note:
This memorandum should also be protected. End Note.)

Begin Text:

17. (C) Summary: Ollanta Humala, the retired Peruvian army
“comandante” (Lieutenant Colonel) and populist candidate for
President currently ahead in the polls, met yesterday with a
group of Canadian investors at the invitation of the
Ambassador. Responding to questions for ninety minutes,
Humala set forth his vision of a national government that
would participate more significantly in “strategic
activities.” He was quick to deny that this participation
would entail expropriation or state-run enterprise, stating
instead that his government would use the tools of investment
and tighter regulation to ensure that the benefits of
economic activity in Peru flowed to those who had been
excluded in the past. His comments did not instill much
confidence in the investors present. Uncertainty and unease
were the order of the day, and will continue to be so should
Humala win.

18. (C) Report: On April 9, Peruvians will vote for a new
Congress and a new President. If none of the presidential
candidates receive more than 50 percent, as is expected, the
two top vote-getters will face each other in a run-off on May
7.

–Over the last several months, populist candidate Ollanta
Humala has been gaining in the polls, achieving the top
position in recent weeks. Lourdes Flores, his right of
center opponent, has fallen to second place, while former
President and left of center candidate Alan Garcia holds a
substantial third. Given the fluid nature of Peruvian
politics, all three must be considered capable of getting to
the second round.

–Given Humala’s rise in the opinion polls and Canadian
investors’ concerns, the Ambassador invited him to meet with
a group of Canadian investors at the Official Residence, to
allow them to ask him questions about the issues concerning
them. He agreed.

–In the nearly two hours that Humala sat with the Canadian
investors (representing mining, banking, information and
computer technology, engineering and energy sectors), he and
his economic advisor, Felix Jimenez answered a wide range of
questions.

–Canadian investors left the meeting little changed in their
view of Humala. Most came to the meeting concerned about
Humala’s public pronouncements relating to the revision of
legal stability agreements, the need to increase taxes and
royalties paid by mining companies, and his desire to enlarge
the role of the state in “strategic activities.” Their
concerns were not mollified by his statements at this meeting.

–Most attendees felt that Humala’s statements were often
vague and lacking in sufficient detail. They supported those
critics who suggest that Humala’s platform is largely
improvised and fails to comprehend the reality of
international business. They were not convinced by his
assurances that he would respect existing contracts and
concessions, and not unilaterally alter the rules of the game
in mid-match.

19. (C) Comment: The prospect of a Humala government is
generating much uncertainty in the investment community.
Like a Lima taxi driver, whose next move is entirely
unpredictable regardless of where he is presently on the
road, the only reasonable tactic appears to hang back a bit
and stay out of his way. The signals Humala gives vary
greatly depending on his audience. To the low income crowds
who will generate the majority of votes, he is quick to
denounce foreign control of Peru’s resources. To the
investment crowd his tone is considerably muted, with many
assurances that his government would respect the rule of law.
Would he talk to the left but govern to the right, as other
Latin American leaders are accused of doing? Of course, he
will have to win first and that is not yet guaranteed. If he
does, uncertainty and unease will be the prevailing mood
among investors for several years to come.

End text.
STRUBLE

=======================CABLE ENDS============================

Share via emailShare on Facebook+1Share on LinkedInShare on Twitter

Publicado el Domingo 03 de julio, 2011 a las 19:40 | RSS 2.0.
Última actualización el Domingo 03 de julio, 2011 a las 19:41

Deje un comentario

Web por: Frederick Corazao