Peru's Garcia to struggle for rest of term

By Terry Wade and Marco Aquino

LIMA, June 23 (Reuters) - Peru's weakened President Alan Garcia is under heavy pressure to make more concessions to opposition groups as socialunrest and a slower economy undermine his push to attract foreign investors.

Garcia's government mishandled protests by indigenous groups that turned deadly this month when it sent police to break up blockades of roads in the Amazon rain forest, killing at least 34 people.

It is the worst crisis of Garcia's presidency and his approval rating has plummeted 9 percentage points to 21 percent since the clashes, according to pollster Ipsos Apoyo.

Ninety percent of Peruvians say Garcia should have tried to win the tribes' support before passing controversial laws to open up ancestral lands to mining and petroleum companies. Congress ended up repealing the laws last week.

Garcia has lost support in the legislature, where his party lacks a majority, and in the countryside, where restive groups representing the poor are demanding he spend more on social programs and build roads, schools and hospitals.

"The next two years will be difficult because the economic crisis is now hitting us, and because the country is fractured," said Gino Costa, interior minister under former President Alejandro Toledo. "I think what Alan Garcia needs is a change of attitude ... more conciliatory and less arrogant."

Garcia faces pressure on several fronts. Peasant and indigenous groups say he has not done enough to cut the poverty rate from 36 percent and that they saw little benefit from the boom times enjoyed before the global economic crisis kicked in. The economy shrank in April for the first time since 2001.

Sensing the government is playing defense, opposition groups have mounted new protests this week, far away from those that started in the Amazon basin in April.

Demands of demonstrators in the highlands of Cusco and Andahuaylas include everything from raising wages for school teachers to revoking mine permits and blocking the construction of a hydroelectric plant.

"Don't threaten too much. Don't think that the state or the government is weak," Garcia's Cabinet chief Yehude Simon told protesters before agreeing to sit down with them on Tuesday.


But Simon himself is debilitated. He has promised to step down in a few weeks for failing to avert the deadly clashes in the Amazon, yet for the time being is hanging on as Garcia's lead negotiator with protesters.

Garcia cannot run for re-election in 2011 and though other Peruvian presidents have served out terms with lower approval ratings, they also struggled to advance their agendas. If Peru's economy continues to struggle, it would boost the chances of a left-wing candidate at the next election.

In Congress, indigenous groups have forced legislators to scrap two divisive laws that limited their control over natural resources in the Amazon, and they may demand seven other laws Garcia passed to attract investment be thrown out.

A financial meltdown at Doe Run Peru's La Oroya smelter has jeopardized thousands of jobs and the environmental clean up of one of the world's most polluted sites.

Union groups worried about losing the 3,500 direct jobs and 16,000 indirect jobs that the smelter generates blocked a key highway on Monday to demand the government solve a problem that has dragged on for months.

So far, Garcia has resisted calls he take over the smelter, as doing so would clash with his free-market platform.

Garcia's foreign policy is dominated by an ambitious free-trade agenda and occasional tussles with a new group of left-wing governments in South America led by Venezuelan President Hugo Chavez.

Peru's Congress approved a free-trade pact with the United States on Garcia's watch, but would still need to approve ones he wants with Canada, China, the European Union and Japan.

The U.S.-Peru trade agreement may need to be revised as the two laws Congress revoked last week, legislative decrees 1090 and 1064, were first passed to help bring Peru's regulatory framework into compliance with the deal.

More social protests, especially if they cause more deaths or are provoked by a sharper economic slowdown, would be especially troublesome for Garcia.

"What's important is that violence doesn't happen again. Otherwise, it would generate multiple negative impacts, not just in terms of investment," said Fabian Novak, a professor of international law at Lima's Catholic University.

Reporting by Terry Wade and Marco Aquino; Editing by Kevin Gray and Kieran Murray