Peru's Garcia shuffling cabinet after protests

[Judi Lynn]

UPDATE 2-Peru's Garcia shuffling cabinet after protests
Tue Jul 7, 2009 2:13pm EDT
* Worst crisis of Garcia's term

* Social tensions rising, approval rating 21 percent

* Finance minister seen staying

* Seeking to rebuild support for pro-business policies

(Adds quotes, elections, details)

By Marco Aquino and Dana Ford

LIMA, July 7 (Reuters) - Peruvian President Alan Garcia bowed to opposition pressure on Tuesday and said he will reshuffle his cabinet following deadly clashes last month between police and indigenous groups.

Garcia and his cabinet have been sharply criticized for botching negotiations with protesters who were demanding the government strike down laws designed to open their ancestral lands in the Amazon to foreign mining and oil companies.

At least 34 police and demonstrators died after the protests turned violent, marking the worst crisis of the former leftist's term.

Social tensions have also been rising in the run-up to Peru's 2011 presidential election, as the economy weakens, and Garcia's approval rating is just 21 percent.

"I can say that this weekend we will have a new cabinet," Garcia told reporters.

Prime Minister Yehude Simon had already said he would step down, which would require every cabinet minister to offer his resignation. Garcia will likely replace Simon and possibly the interior or defense ministers, but probably reappoint Finance Minister Luis Carranza, an investor favorite.

Presidents often change ministers in late July, around Peruvian Independence Day, and this year Garcia is struggling.

Garcia is trying to regain support for his pro-business policies, which critics say have done too little to lift incomes in a country where more than a third of the people live in poverty.

"He needs to choose a cabinet that would give him breathing room and put him in a better negotiating position," said political analyst German Munoz. "If he does the opposite, he will have more problems."

STALLED AGENDA

Now a fervent advocate of free trade and free markets, Garcia is pursuing an agenda including signing free-trade deals with major economies from China to Europe, luring private investment to Peru's vast mining industry, and trying to turn the Andean country into a net petroleum exporter.

But the global recession has stalled or delayed investments. After a 10 percent surge last year, Peru's economy will likely expand just 3 percent this year as its commodities exports fetch lower prices on global markets.

Congress threw out two laws designed to attract investment to the Amazon rain forest after indigenous leaders mobilized against them last month.

The country's largest labor confederation is organizing protests across the country for Wednesday to demand that the government switch course and focus more on workers and the poor.

With social discord increasing, analysts say a prolonged economic downturn could allow a left-wing candidate to make a strong run in the next presidential race.

Garcia cannot run for reelection in 2011, but he has told investors he wants to prevent a leftist from winning.

Two candidates leading early polls include Ollanta Humala, an ultranationalist who spooked financial markets when he nearly won the presidential race in 2006, and Keiko Fujimori, daughter of conservative former President Alberto Fujimori, who is now in jail for human rights crimes stemming from his fight against the Shining Path insurgency in the 1990s.

Garcia, who frequently trades barbs with leftist Bolivian President Evo Morales and Venezuelan President Hugo Chavez, has blamed "foreign interests" for instigating recent protests in Peru but offered little evidence.

"There is a political model in South America that imposes itself by force, first through agitation, then strikes," Garcia said.

In what appeared to be a swipe at Morales and Chavez, he said that once these groups elect their leaders, they try to keep them in office for years by rewriting constitutions or exerting more control over the press.

http://www.reuters.com/article/bondsNews/idUSN0732093420090707?rpc=401&

(Yeah, that's the answer. Get yet another cabinet, Two Breakfasts.)