Peru's Garcia names leftist governor as new PM

LIMA (Reuters) - Peruvian President Alan Garcia chose a leftist provincial governor as his new prime minister on Saturday, a day after firing his entire Cabinet over a widening oil and gas contract scandal.

"I will ask the newly designated prime minister to establish a broad-based government which is as plural as possible ... and at the same time to incorporate regional actors in the running of the republic," Garcia told reporters.

By picking Yehude Simon, governor of the northern province of Lambayeque who was jailed a decade ago for links to a guerrilla group, the increasingly unpopular Garcia may be trying to place greater emphasis on social programs, neutralize critics on the left and regain support in the provinces.

"It means significant democratic renewal, and we will all help him in the fight to totally wipe out corruption," Garcia said after meeting with regional leaders.

Garcia's approval rating has fallen to 19 percent, a new low for his current term as president, as critics say surging economic growth of 9 percent a year has failed to lift millions out of poverty.

Garcia is a former leftist whose first term as president in the 1980s ended in economic disaster. He has since become a champion of mainstream economic policies and was elected to lead Peru for a second time in 2006.

He had faced calls from opposition leaders to reshuffle his Cabinet after audio tapes emerged that linked members of his APRA party to a plan to steer lucrative petroleum contracts to favored bidders in exchange for bribes.

Former Prime Minister Jorge del Castillo, Garcia's right-hand man, was mentioned in the taped conversations as someone who would provide favors in a plan to rig auctions of oil and gas concessions.

Del Castillo, who was dismissed along with the rest of the Cabinet on Friday, also had lengthy meetings with APRA party members who were working as lobbyists and involved in the auctions, but he has denied any wrongdoing.

FINANCE MINISTER TO STAY ON

Simon told Peruvian radio on Saturday that Finance Minister Luis Valdivieso, a former IMF official who recently joined Garcia's administration, would stay on, as would Foreign Minister Jose Antonio Garcia Belaunde and Foreign Trade Minister Mercedes Araoz.

"I want to build a great alliance, friendship between sectors of the left and the government, and I have no doubt that businessmen of the so-called right will also draw near," the 61-year-old Simon said. "The country needs a truce."

Members of his Peruvian Humanist Movement party say Simon is planning to run for president in 2011. Garcia is constitutionally barred from seeking re-election.

Before the dismissal of the Cabinet, former Mines and Energy Minister Juan Valdivia had already been forced to quit, along with two other energy officials.

Peru's Congress has voted to investigate all oil and gas concessions granted since 2006. It will scrutinize dozens of contracts signed between Peru and foreign oil companies for signs of irregularities in the country's growing petroleum sector.

"(Simon) is a valid, direct intermediary to discuss pending issues with President Garcia," said Carmela Sifuentes, a leader of Peru's largest labor confederation, the CGTP, which organized a strike and major protest against Garcia last year.

Voters cite corruption as one of their top complaints about Garcia's administration.

(With reporting by Terry Wade. Editing by Simon Gardner and Peter Cooney)