July 21, 2011 / 12:53 PM / 9 years ago

UPDATE 4-Leftist Humala picks centrists for Peru Cabinet

* Humala names close adviser as prime minister

* Economic team worked in departing government

* Social conflicts pose difficult challenge (Adds comments from incoming mines and energy minister)

By Marco Aquino and Terry Wade

LIMA, July 21 (Reuters) - Leftist Peruvian President-elect Ollanta Humala picked more centrists for his Cabinet on Thursday as he tries to reassure investors he will govern as a moderate in one of the world’s fastest-growing economies.

To burnish the pragmatic image Humala sought to project during the campaign, he has hired two conservative economists who worked under departing President Alan Garcia and are respected on Wall Street to run the central bank and finance ministry.

Humala has convinced many voters he has shed his radical past and strident opposition to foreign investment, private capital and free trade — partly by distancing himself from his former political mentor, Venezuela’s fiery leader Hugo Chavez, to follow the path of moderate leftists like Brazil’s popular former President Luiz Inacio Lula da Silva.

“We are building a government of national unity,” Humala said. “This isn’t a Cabinet of the left or the right, but a Cabinet for all of Peru.”

Peru’s stocks and currency firmed on Thursday, after Humala said late on Wednesday former Deputy Finance Minister Luis Miguel Castilla would be finance minister, working alongside central bank chief Julio Velarde, who was reappointed on Sunday.

The former army officer, who takes office July 28, has vowed to do more to quell vexing social conflicts over natural resources that pit big mining and oil firms against poor rural towns left behind by a decade-long economic boom.

Humala, whose core base of support is in remote provinces, says a weak state, which only takes in tax revenues of about 15 percent of gross domestic product, must become more muscular and focus more funding on social programs to lift up the one-third of Peruvians mired in poverty.

He says that would help avert conflicts that often turn violent and marred the tenure of departing President Alan Garcia, who lacked credibility in the Amazon basin and Andes mountains where tribes and peasants are wary of mining, oil and natural gas projects.


Foreign companies have pledged $50 billion in mining and oil investments for the next decade in Peru, one of the globe’s top metals exporters. But companies are increasingly worried about conflicts over pollution, water and the share of local revenues from natural resource projects.

In an interview on local television that aired early on Thursday, Humala said he had named as foreign minister Rafael Roncagliolo, an academic and journalist who has worked on governance and media issues in international forums.

He chose Carlos Herrera, an engineer, to serve a second stint as Peru’s mines and energy minister. He held the post briefly after President Alberto Fujimori was ousted in 2000.

Herrera will face the delicate task of introducing a windfall profits tax on mining companies earmarked for social programs without discouraging new investment. He told Reuters many mining firms “agree with” the tax and said he will favor domestic consumption of natural gas over exports.

Humala’s latest picks followed an announcement on Wednesday that Salomon Lerner, a wealthy businessman who ran his campaign, would lead the Cabinet as prime minister and Castilla, a former World Bank official, would run economic policy instead of the left-wing economists who worked on Humala’s campaign.

Like Velarde, who will serve another five-year term, Castilla is associated with the country’s free-market economic model.

“We should recognize the good things they have brought us, in terms of macroeconomic stability and a monetary policy that has given tranquillity to the country and we are bringing these people with us,” Humala said of Velarde and Castilla. “What we are including is a project that is more ambitious that just giving economic growth to the country.”

While Humala’s choices could please investors, he risks alienating his core supporters on the left and has yet to say how he will persuade the conservatives he picked to head economic policy to increase spending on social programs. Humala still needs to name Cabinet officials who will run social welfare policy. They may be drawn from his Gana Peru party.

Peru’s economy grew 9 percent last year and is forecast to grow around 6 percent this year as domestic demand drives expansion after years of growth led by a commodities boom. However, the government is often hamstrung by a weak tax base that Humala wants to expand. (Additional reporting by Patricia Velez; Editing by Doina Chiacu and Eric Beech)

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