Peru's Garcia names party insider prime minister

LIMA (Reuters) - Peruvian President Alan Garcia named a member of his pro-business ruling party as prime minister on Saturday after bowing to opposition pressure to shake up his Cabinet in the worst crisis of his term.

Garcia picked Javier Velasquez, a member of the APRA party and the head of Congress, to take over leadership of his team of ministers at a time when the president's approval rating has plunged to 21 percent.

He also retained Finance Minister Luis Carranza, a favorite of investors who is in the middle of rolling out a $3.2 billion stimulus program to help the economy to grow 3 percent this year.

As prime minister, Velasquez will face growing calls from unions, indigenous groups and the poor for the government to increase social spending as unemployment rises and the economy slows from last year's 10 percent surge.

Opposition parties have demanded Cabinet changes since last month when at least 34 people died in clashes between police and indigenous groups in the Amazon rain forest.

Outgoing Prime Minister Yehude Simon was heavily criticized for botching negotiations with protesters, who were demanding the government strike down laws designed to open up their ancestral lands to foreign mining and oil companies.

Garcia also replaced the ministers of defense, justice, agriculture and the interior after demonstrators blamed them in part for failing to avert the deadly clashes.

A third of Peruvians live in poverty and critics say Garcia's agenda of pushing free-trade agreements and encouraging foreign investment in mines and energy projects has not lifted incomes enough.

"The country wants order and social inclusion and I am sure the Cabinet that Velasquez leads will meet these objectives," Garcia said at the presidential palace.

The opposition said that Garcia should have chosen an independent with a knack for building consensus among left-wing and right-wing parties in Peru's rocky political world.

"This nomination is disappointing," said Carlos Tapia, speaker of the Nationalist Party, whose leftist leader, Ollanta Humala, is a top contender for the 2011 presidential race. Garcia cannot run in the next election.

"We think it should have been somebody who was politically autonomous," Tapia said.

In the cabinet shuffle, Mercedes Araoz, who as trade minister helped implement a free-trade pact with the United States, was named minister of production and industry.

Martin Perez, a legislator from the conservative National Unity party, was named trade minister and Pedro Sanchez was retained as mines and energy minister.

(Writing by Terry Wade; Editing by Paul Simao)