Peru's Garcia to name party insider prime minister

LIMA, July 11 (Reuters) - Peruvian President Alan Garcia was to name a member of his pro-business ruling party as prime minister on Saturday, government officials said, amid nationwide protests over his handling of the economy.

Aides to Garcia said Javier Velasquez, a member of the APRA party who now is the head of Congress, would become prime minister and take over leadership of a shuffled Cabinet at a time when the president’s approval rating is at 21 percent.

Garcia also was expected to retain Finance Minister Luis Carranza, praised by investors for overseeing surging economic growth before the global slowdown, officials said.

Velasquez will face growing calls from unions, indigenous groups and the poor for the government to increase social spending as the economy, which is largely dependent on mining, slows and unemployment rises.

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.

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 government is rolling out a $3.2 billion stimulus program to enable the economy to grow 3 percent this year. It grew 10 percent in 2008.

“This nomination is disappointing,” said Carlos Tapia, speaker of the opposition Nationalist Party, whose leftist leader, Ollanta Humala, is a leading contender in the 2011 presidential election. Garcia cannot run in the next election.

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

Interior Minister Mercedes Cabanillas, who is in charge of the police and was sharply criticized over the violence in the Amazon, said Velasquez was an adept negotiator.

“Velasquez has political experience ... and the capacity to dialogue and the drive to reach solutions so that people can reach consensus,” she said on RPP radio.

As part of Garcia’s cabinet shuffle, Trade Minister Mercedes Araoz, who helped implement a free-trade pact with the United States, will likely become minister of production and industry, a government official said.

Martin Perez, a legislator from the conservative National unity party, will become trade minister.

Juan Valdivia, a member of APRA who was previously minister of energy and mines, was seen returning to the post in the cabinet changes, which were slated to be formally announced later on Saturday. (Writing by Terry Wade; Editing by Paul Simao)