By Scott Wilson Washington Post Foreign Service Saturday, June 21, 2003; Page A12

VENTANILLA, Peru -- From impoverished Bolivia to politically fractured Venezuela, the countries of the Andean region are confronting a wave of popular discontent that is weakening their elected governments and challenging the U.S. strategy for fighting drugs and developing free trade in the region.

There have been violent protests here in Peru against President Alejandro Toledo and in Bolivia against President Gonzalo Sanchez de Lozada, each less than halfway through his term. In Venezuela, President Hugo Chavez, a populist leader, is facing the possibility of a midterm referendum that could remove him from office. And in Colombia, President Alvaro Uribe enjoys popular support, but faces a resilient armed conflict that threatens to spill across borders.

"In many cases, the only way for people in the region to contest the decisions made by the government is to take to the streets or pick up a gun," said Hernando de Soto, a development theorist who is president of the Institute for Liberty and Democracy in Lima. "They are excluded from the right to participate in the political and economic life of the country."

The common current running through the Andes is deepening poverty that has pitted an angry and disillusioned public against governments that have failed to deliver on promises of improvements in standards of living. Complicating matters, several deeply unpopular presidents have barely begun their terms, leaving frustrated voters with years to wait before the next elections.

A national poll released this week showed that only 11 percent of Peruvians support Toledo, who has hewed closely to Washington's favored economic policy of open trade, restrained public spending and public utility privatizations. He imposed the second state of emergency of his 23-month presidency last month in order to mobilize the military against teachers, farmers, doctors and judges demonstrating for better wages.

Peru is one of the few Latin American countries that has posted overall economic growth over the last year. But Toledo has been attacked fiercely by political opponents over a long string of gaffes. Last week, in the midst of the nationwide wage dispute, he lowered his presidential salary to $8,400 monthly. He started his term at $18,000 a month, the highest presidential salary in Latin America. He angered even his own supporters when he left the country in the middle of the crisis for a speaking engagement at Stanford University.

"There are no good reasons why we should be in this situation," said Alberto Adrianzen, a left-leaning political analyst in Lima. "We don't have the polarization of Venezuela, Colombia's guerrillas, Ecuador's fragile economy or Bolivia's ethnic radicalism. This is largely a matter of political management and Toledo's lack of capacity in that regard."

The Bush administration envisions the Andes as an important part of a free trade zone that it hopes to create by 2006 across the Western Hemisphere. But a thriving illegal drug industry, official corruption, high foreign debt and poverty are conspiring against the balanced economic growth and regional security necessary for such a system to succeed.

Bolivia was shaken by deadly riots earlier this year over the new president's proposed tax increases while Ecuador has been plagued by public worker strikes over wages. Popular at home after 10 months in office, Colombia's Uribe is being hampered in his fight against a powerful guerrilla movement by weak judicial institutions and drug money that helps fund a four-decade civil war.

Venezuela's Chavez, who has survived a coup attempt and four national strikes called to force him from office, is overseeing an economy that is predicted to shrink by as much as 25 percent this year. He and his largely middle- and upper-class opponents agreed in principle last month to hold a constitutionally permitted midterm referendum on his administration sometime after Aug. 19.

In Peru, where Toledo's term ends in 2006, some of the president's supporters say privately that they worry about a potential impeachment effort in Congress. Unlike Chavez, who counts on nearly fanatical support from 30 percent of the population, Toledo has no similar core constituency to defend him, and calls for his resignation have come from some members of Congress.

The military, once the arbiter of political standoffs in this part of the world, has remained on the sidelines in Peru despite enduring budget cuts, an ongoing review of its role in the country's civil conflict in the 1980s and '90s, and internal reforms. But the country's leaders have bristled over the army's unpopular role in quelling the recent protests during which a student in the southern city of Puno was killed by troops.

"Sadly, everything points in one direction: This is about the president," said Carlos Basombrio, a political analyst who resigned as Toledo's vice interior minister in January. "His credibility is at absolute zero, and three years is a long time for people to wait."

The current troubles began last month when public school teachers, who make an average monthly salary of $200, staged a strike for better pay. They were joined by farmers across Peru, who blocked major highways to demand water rights and protective tariffs to make corn, sugar and rice more competitive in the national market. Military intervention cleared highways, but the farmers are threatening to take up demonstrations again next week.

The roots of the protests reach into Toledo's presidential campaign, which followed his leadership of a civil resistance movement that toppled former president Alberto Fujimori after he won an illegal third term in 2000. Fujimori fled Peru for Japan ahead of charges of corruption and human rights violations.

To beat his principal opponent, former president Alan Garcia, a populist who nearly bankrupted the country in the 1980s, Toledo promised to create 1 million jobs over his five-year term, double teacher salaries, and build vast irrigation systems and housing. He has failed to keep many of those promises, partly because of Peru's dire financial straits, including foreign debt payments that consume nearly a quarter of its national budget.

Much of Peru's economic growth is the result of an expanded mining industry, which bring benefits largely to the foreign companies that own the copper and gold concessions and a relatively small number of Peruvian employees.

Ventanilla is a shantytown of 1 million people, 25 miles north of Lima, built on sand dunes overlooking the Pacific Ocean. Toledo's support here has withered to nearly nothing along with the hope that his campaign promises of a new fishing port and a local university would ever materialize.

Two model homes, part of the government's "Own Roof" housing program, sit at the foot of a fog-shrouded hill covered with shacks of bamboo, wood planking and overlapping scraps of corrugated tin. Job seekers line up outside the houses, the first of 1,500 to be built on the sandy slope. Their $400 price tag, however, is out of reach for the slum residents who are among the majority of Peruvians who live on less than $2 a day. The obstetrics clinic is made of thatched walls and has no running water or sewer service.

"He doesn't see the children or the number of us living like this," said Margarita Seron, a 35-year-old Toledo voter and mother of six, the oldest of whom would go to college in December if she could afford it. "Will the president comply? Won't he? I don't know. I know he has never helped so far."

Although Toledo blames his poor image on an overly critical press, he continues to confound even his supporters by his choices, including his decision to deliver the commencement address this week at Stanford University, where the former shoeshine boy earned a PhD in education. He traveled to California by presidential plane over fierce objections from Congress that the trip was frivolous at a time when the country is still under a declared state of emergency. The 30-day decree expires June 27.

Meanwhile, drug production is increasing in the eastern jungles, worrying U.S. officials who believe it is partly the result of Toledo's failure to confront the small farmers who make up the bottom rung of the industry. The Shining Path, a radical Maoist insurgency dormant for a decade, is regrouping with the help of drug money and the alleged coordination of Colombian middlemen.

Last week, guerrillas kidnapped 71 employees of an Argentine company building a section of a natural gas pipeline in Peru's eastern jungle. The guerrillas released the hostages a day later. Toledo's claim that the hostages were freed by "my military" was disputed by his own defense minister, prompting a new debate over his honesty.

Marciano Rengifo Ruiz, a congressman from Toledo's party, Peru Possible, said the protests should be seen as a sign of Peru's democratic health after the oppressive last years of Fujimori's administration.

"The social strife will continue, but not with the same force," Rengifo said. "It is bombardment right now. But I believe this will pass, and his support will begin rising again."

Reuters, 06.21.03, 12:01 PM ET

CARACAS, Venezuela, June 21 (Reuters) - Venezuela's government expects the economy to contract 10.7 percent this year, a worse outlook than previously forecast, according to an interview with Finance Minister Tobias Nobrega published on Saturday.

Nobrega, who earlier estimated the economy would slide about 8.9 percent this year, told El Nacional newspaper he believed the worst was over for the battered economy of the world's No. 5 oil exporter.

"For our projections and programming, we are working with a contraction of about 10.7 percent of gross domestic product. We have bad news in that it will be a year of contraction, but the good news is that we have to say the worst is over," Nobrega told the newspaper.

The finance minister was also quoted as saying the government could consider a devaluation of the local bolivar currency in the third quarter as the current fixed exchange rate was undercut by black market rates against the dollar.

Venezuela's economy contracted 8.9 percent last year and nearly 30 percent in the first quarter of this year after a two-month opposition strike severely disrupted vital oil output and shipments.

Most analysts paint a more pessimistic picture as political conflict over the government of leftist President Hugo Chavez undermines the economy. The International Monetary Fund has said it expects Venezuela to post a 17 percent economic contraction for the year.

In February, the government introduced strict currency controls to halt capital flight and shore up the bolivar. The local currency has been set at a fixed rate of 1,600 bolivars to the greenback, but on the black market the U.S. currency trades at about 2,600 bolivars.

"In the third quarter we could evaluate the possibility of modifying the regime, but without altering the currency controls," Nobrega said.

The government has said the currency curbs and price controls on basic goods will not be lifted in the short term. Private business leaders say the controls are sinking the economy deeper into recession by limiting access to dollars needed for imports and external debt payments.

Copyright 2003, Reuters News Service

Reuters, 06.20.03, 6:45 PM ET

CARACAS, Venezuela, June 20 (Reuters) - Venezuela's Siderurgica del Orinoco (Sidor), the largest steel maker in the Andean region, cut its debt by half to $700 million with a restructuring deal signed Friday with the government and private banks.

The Sidor deal increases the state's share in the steel maker from 30 percent to 40.3 percent to capitalize more than half of its debt with the government. The firm was privatized in 1997 and acquired by the Amazonia Consortium.

Under the agreement, the consortium -- including Mexico's Hylsamex <HYLSAMXB.MX> and Tamsa <TAMSA.MX>, Argentina's Siderar <SID.BA>, Usiminas <USIM3.SA> of Brazil and Venezuela's Sivensa <SVS.CR> -- reduced its share from 70 percent to 59.79 percent, state and Sidor officials said.

"Changes were made on the financing side to restructure the debt around 54 percent to $700 million and... also to reform the state's participation," Francisco Rangel, president of the state mining consortium Corporacion Venezolana de Guayana (CVG), told Reuters.

"This is manageable debt, debt that brings guarantees for shareholders, but that also allows for better technology, and allows for investment," he said.

Completing the debt restructuring for Venezuela's largest private exporter took 11 months from the signing of the deal in July 2002 between Amazonia Consortium, Venezuela's development bank, CVG, Citibank, Deutsche Bank and four local banks.

The president of Sidor board of directors Maritza Izaguirre told Reuters that the government capitalized half of Sidor debt with the state and refinanced the other half over 15 years with a interest rate Libor plus 1.75 points.

Izaguirre said banks had pooled Sidor debt and bought at a discount another $133.5 million in the company.

The state's participation will diminish later with the completion of the transfer of 20 percent of Sidor shares to employees as laid out in the privatization process.

Sidor's financing difficulties worsened with the slide in global demand and prices in steel and also the impact of the deep domestic recession. Venezuela's economy contracted by a record 8.9 percent last year.

The firm produces on average about 3.5 million tonnes of liquid steel every year and manufactures finished goods from pellets to sheet and long materials.

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Total oil production by the OPEC cartel dropped 212,000 barrels per day to 26.69 million bpd in May, the Middle East Economic Survey reports in its Monday edition.

The industry newsletter said without Iraqi production, output fell 362,000 bpd to 26.39 million bpd last month.

Barring Iraq, Nigeria and Venezuela, all members of the Organisation of Petroleum Exporting Countries saw a small decline.

Iraq's production, recovering from war, doubled to 300,000 bpd in May, but supplied only the domestic market, awaiting the resumption of exports, the Cyprus-based specialists say.

Caracas and Lagos both continue to boost production to normal levels of before the Venezuelan general strike and ethnic fighting in Nigeria, MEES says.

"MEES sources indicate that Iran's output comprised 2.11 million bpd of exports and deliveries of 1.45 million bpd to domestic refineries," the weekly adds.

On Friday, oil prices topped US$30 a barrel in New York, as traders reacted to an earlier report showing lower OPEC production.

New York's benchmark light sweet crude contract for July delivery was up 86 cents to US$30.82 a barrel in late deals.

CounterPunch By HAROLD A. GOULD

The great question that lingers in the aftermath of the war America waged against Iraq is: Where are the weapons of mass destruction over which the war was allegedly fought? This is clearly the topic of the moment. A recent Washington Post article (June 13th) is the latest of numerous articles and commentaries which suggest that hard evidence for the existence of WMDs was at best meager and at worst mostly speculative. In the end, the most that has been found are two tractor trailers that might have been mobile chemical laboratories (although a recent Guardian article says they were for inflating hydrogen balloons used for artillery deployments), and a scattering of rusty barrels that might have or may not have contained weaponizable substances. Such slim pickings do not a massive stockpile of WMDs make! Especially when none of the bulky and hard to conceal delivery systems needed to launch toxic or nuclear attacks have ever been found. If subsequent investigations fail to reveal anything more tangible than this--i.e., if it turns out that the UN inspectors whose judgements the Bush administration so cavalierly dismissed were in fact accurate, and that Saddam's assertions that Iraq no longer possessed WMDs were true--then Mr. Bush and his neoconservative entourage will have much to answer for down the road.

The Bush administration clearly knows in private that their original rationale for waging preemptive war on such a massive scale was based upon enhanced intelligence data. So much so that revelations of its extent may yet bring down Tony Blair's prime-ministership in England. This is attested by the fact that the White House spin-doctors, including Mr. Bush himself, are subtly--or not so subtly?--altering the premises of their original scenario. They are now flooding the airways and the printways with a torrent of claims that, after all, it doesn't really matter if the smoking gun (or should we say, the noxious odors!) which was their original justification for undertaking a war adamantly opposed. by the international community has never been found. It is sufficient, they are asserting, that Saddam Hussain was a bad guy who constituted a "threat" to his neighbors and a menace to his own people.

This is a point with which some us can agree. One devoutly wishes that if preemptive war were going to be waged its primary motivation was to liberate an oppressed people rather than this being a retrospective byproduct of a war which its perpetrators themselves had little intention of waging for any sort of humane or compassionate reasons. Obviously, there is no country in today's world, superpower or not, that will blanketly employ this criterion for determining who's good and who's bad, and who is deserving of a preemptive American strike and who is not. It could be after all just as well be applied to dozens of countries in every part of the globe! Why not North Korea? Why not Iran? Why not Venezuela? Why not even China, for that matter, considering their human rights record? The answer, of course, is self-evident. In international politics, idealism has precious little to do with who gets singled out for the moral retribution over their human rights record! The decision to wage war is rarely by shimmering morality; it is determined by naked self-interest and by what you think you can get away with. Certainly this was the case with Iraq.

Apart from the apparently wide gap between truth and wishful thinking which fueled the Iraq campaign, there is, however, a further, greater irony in all this. It is: Why Saddam, if indeed he no longer possessed the stores of WMDs which the Bushies said he did, was he willing to prevent this fact from becoming known to the satisfaction of Washington and the UN and thus avoid reaping the wild wind? Why, in short, was Saddam willing to risk the destruction of his regime and his country essentially in the name of a quixotic bluff?

The answer probably lies in a mixture of factors, and may contain some insights into other, similar crises that may come down the road.

One factor that might be taken into consideration is Saddam Hussein's personal mind set. He was always a political gambler who had enjoyed a remarkable run of luck. "The strongest suggestion that Hussein had a substantial WMD program," notes Richard Cohen (Washington Post, June 17th) was his refusal to come clean. But it is also possible that he wanted the world -- particularly his neighbors (Iran) and his domestic opposition (Shiites, Kurds, etc.) [not to mention the United States] to think that he did." He had survived the onslaught mounted against him in 1991 by President Bush's father when nothing seemed more improbable. In the intervening decade, Saddam adroitly held UN inspectors at bay; endured a missile strike ordered by President Clinton in 1998 after he kicked the inspectors out of the country, successfully circumvented economic sanctions, and sustained his image on the Arab street as a revolutionary Islamic hero. In the face of the major divisions that emerged among the great powers over the American call for an Iraq crusade, it would not be surprising if Saddam believed that he could remain intransigent, dodge the bullet one more time, and retain his military-economic apparatus intact. Such are the instincts of dedicated gamblers, especially when driven by ideological certitudes!

Another related factor which addresses Saddam's staying power was his apparent belief that history if not the gods were in his corner. He depicted himself as the modern incarnation of Saladin, the great medieval warrior whose military victories over the Christian world laid the foundations of an Arab imperium that eventually stretched from India to the Atlantic Ocean, from Central Asia to North Africa, and the Balkans. One must never dismiss the power of apocalyptic fantasies in the hands of charismatic political dreamers. History is littered with their exploits, and their tragedies, ranging from the Mahdi in the Sudan to Wovoka among the American Plains Indians. In Saddam's case his imageries and his short-term successes won him a wide following in the Arab world and fed his illusions of omnipotence and invincibility. This illusion of political omnipotence undoubtedly contributed to what can only be characterized as a fool-hardy gamble that he could somehow survive even if he could not avoid a direct military confrontation with the world's only superpower.

It is in this context that some observations which American CIA Director, George Tenet, made in a 2000 public briefing. He spoke of what he believed to be the driving force behind Saddam's pursuit of chemical weapons. Iraq, he said, sought a bioweapons capacity "both for credibility and because every other strong regime in the region either has it or is pursuing it."

If the WMDs are never found, then what has taken place must be understood as one of the more bizarre manifestations ever witnessed of mutual deceit being pursued on a truly international scale. On one side we have the Bush administration, determined to wage war upon Iraq and Saddam Hussein for a host of genuine and spurious reasons, willing to distort and embellish the intelligence data to whatever degree necessary to justify it, and prepared to take whatever sweat might follow once the dimensions of the deception become public in the aftermath.

On the other side we have the Saddam Hussein regime, willing to risk everything for the sole purpose of clinging to a mythologized political image of itself as the premier radical Arab power with the capacity and the guile to successfully defy the authority both of the American superpower and the United Nations.

If the facts as we currently know them hold up, the Iraq war will undoubtedly take its place as a classic case of a symbiotically intertwined danse macabre between two nation-states whose addiction to the trappings of political power and jingoistically driven self-importance outweighed all considerations of measured reflection on the costs and consequences of impulsive political behavior. Thousands of dead and wounded innocents and billions of dollars worth of ruined infrastructure are the price that has been paid for the free play of this dueling exercise in over-inflated national egos.

Harold Gould is a Visiting Scholar in the Center for South Asian Studies at the University of Virginia. Email: 102062.477@compuserve.com.

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