Just a thought about the cam, ask the mechanic what's up with it. It's common for engines that don't get used often to get rust on the cam lobes, which grinds them flat on later use. If that's the case, all it really needs is a new cam. This is a failure that can be fixed by welding / grinding (by a shop that does this). If you're coming back the the US anytime soon, or knows someone that is, you might consider sending it here for repair.

If you do change the engine out, the trick to getting it working on the generator is to get it to start unattended (most old gas motors won't just do this, but if you modify the idle circuits to be rich, it will probably work), and to adapt the throttle mechanism to the gas carb (probably not hard).