Peru’s cabinet in turmoil over scandal
October 11, 2008 -

By Naomi Mapstone in Lima

Alan Garcia, Peru’s president, accepted the resignation of his prime minister and entire cabinet on Friday night in the wake of a scandal surrounding alleged corruption in the granting of oil concessions.

”The president has accepted the resignation of the cabinet as a whole and [will appoint] a new council of ministers,” Jorge del Castillo, prime minister, said, adding that they departed their roles ”clean and transparent”.

Mr Garcia said the cabinet had been a victim of political attacks and had made a ”noble” decision.

Among those being touted as possible successors to Mr del Castillo are Yehude Simon, governor of Lambayeque region, and Pedro Pablo Kuczynsky, a well respected economist and former prime minister during the Toledo administration, and Yehude Simon.

The resignations cap a difficult week for Mr Garcia, who had seen his approval ratings dip to 19 per cent even before the scandal broke, despite successive years of strong economic growth.

Uncertainty surrounding the impact of the global financial crisis and the slump in base metals prices sent a shiver through the local market this week and the central bank has moved to loosen reserve requirements for banks in relation to some international loans to create liquidity.

Luis Valdivieso, finance minister, has said that the crisis is worse than feared but that Peru is in a strong position, with $35bn (€26bn, £20bn) in foreign reserves and ”$2.6bn or almost $3bn that we could inject into the economy in order to counteract a short global recession”.

Mr Garcia also received the unwelcome news that the biggest attack in a decade by remnants of the leftist Shining Path movement had claimed the lives of 12 soldiers and up to seven civilians. The much reduced group has been largely dormant for years and has been linked with the narcotics trade.

The oil concession allegations arose after local television aired audio tapes of discussions between Alberto Quimper, a board member of the state energy agency Perupetro, and Rónaldo León, a member of Mr García’s Apra party, allegedly relating to kickbacks in the granting of oil concessions to Norwegian company Discover Petroleum. Mr Quimper has been arrested.

The government quickly suspended the oil lots, launched an investigation into all concessions granted since 2006, sacked Mr Quimper and Cesar Gutierrez, the president of state oil and gas company Petroperú, and accepted the resignation of Juan Valdivia, the mining and energy minister. Mr Valdivia and Mr Gutierrez deny any involvement.

But corruption is a key complaint of the opposition and striking workers who say the benefits of Peru’s recent economic success have not been passed on to its poorest people. The poverty rate in 2007 was 39.3 per cent, down from 48.7 per cent in 2005.

Discover Petroleum has denied paying any bribes. It said in a statement it had hired a law firm to pre-qualify to bid for the lots, and Mr Quimper, who they were told was ”the best tax lawyer in Peru”, had been subcontracted by the firm. Mr León had been hired as a consultant to assist with pre-qualification.

The company said it had paid $60,000 between May and October to the law firm that hired Mr Quimper and $63,750 to Mr León for the licence application process.

Copyright The Financial Times Limited 2008