He retained Luis Carranza, the finance minister and a favourite of investors, who is in the middle of rolling out a $3.2bn stimulus programme to boost the economy.

Amazon violence

As prime minister, Velasquez will face growing calls from unions, indigenous groups and the poor for the government to increase social spending.

In the cabinet shuffle, Mercedes Araoz, who as trade minister helped implement a free-trade pact with the US, 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.
   
Opposition parties had demanded cabinet changes since last month when at least 34 people died in clashes between police and indigenous groups in the Amazon rain forest.
   
Yehude Simon, the outgoing prime minister, was heavily criticised for botching negotiations with protesters, who wanted the government to scrap laws designed to open up their ancestral lands to foreign mining and oil companies.
   
Garcia also replaced the ministers of defence, justice, agriculture and the interior after demonstrators blamed them in part for failing to avert the deadly clashes.

Widespread poverty
   
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 have not lifted incomes enough.   
   
The opposition said that Garcia should have chosen an independent capable of building consensus among left-wing and right-wing parties in Peru's rocky political world.
   
"This nomination [Velasquez's] is disappointing," Carlos Tapia, speaker of the Nationalist Party, whose leftist leader, Ollanta Humala, is a top contender for the 2011 presidential race, said.

Garcia will not stand in the next election.
   
"We think it should have been somebody who was politically autonomous," Tapia said.