PERU: INTERIOR MINISTER RESIGNS AFTER PRESIDENT ALEJANDRO TOLEDO SUSPENDS PRIVATIZATION TO STOP ESCALATING RIOTS.

Peruvian President Alejandro Toledo reversed his stance and suspended the privatization of two state-run electric companies on June 20, after a state of emergency failed to quell spreading riots. His decision brought the resignation of Interior Minister Fernando Rospigliosi and jubilant celebrations in the southern cities of Arequipa and Tacna.

Vice President Raul Diez Canseco announced the president's decision in Arequipa, 1,000 km southeast of Lima, where he also read an open letter of apology from Toledo.

Toledo's decision followed an agreement between the presidential delegation sent to Arequipa and protest leaders. It called for freezing the sale of the electric companies until the courts rule on the sale's legality and lifting the state of emergency. It also called on Rospigliosi and Justice Minister Fernando Olivera to apologize to the people of Arequipa for offensive remarks made during the protests. Rospigliosi had said a minority of subversives had "terrorized" people to force them into the demonstrations.

While not referring to the apology in his letter of resignation, presented at a press conference hours after Diez Canseco announced the suspended sale, Rospigliosi said he did not agree with the president's response to the protests.

There is much speculation about what position Olivera will take, as well as how other ministers who energetically backed the privatization plan will react.

State of emergency fails to restore order

Toledo declared a state of emergency in the department of Arequipa on June 16, two days after riots broke out following the government announcement that it had sold the electric companies EGASA and EGESUR. In the clashes, one 23-year-old student, Edgard Pinto Quintanilla, was killed and at least 150 people were injured. One of them is on life support. Government estimates put material damages at more than US$100 million.

The state of emergency placed the region under military rule for 30 days, during which time public demonstrations and large meetings are outlawed and some constitutional rights suspended.

"The government is determined to protect democracy and will firmly and

energetically defend the rule of law," President Toledo said in a nationally televised address.

Protesters had gathered in the plaza in Arequipa on June 14 as the government announced in Lima that it had sold the companies to Tractebel, a Belgian-based company. The only firm to present a bid, Tractebel acquired EGASA in Arequipa and EGESUR in Tacna for US$167 million, slightly above the government-set base price of US$155 million.

After declaring the state of emergency, the government sent 1,700 police and soldiers to return order in Arequipa. Demonstrators had blocked roads and caused havoc at the airport, where they destroyed landing-strip lights and pelted the runway with rocks, forcing the cancellation of flights. The military imposed a 10 p.m. to 5 a.m. curfew. While armored vehicles patrolled the Pan-American Highway, armed police mounted the highway's overhead pedestrian bridges.

The demonstrations spread to the neighboring department of Tacna, on the border with Chile, where rioters blocked the Pan-American Highway with burning tires. The news agency Agence France-Press reported that between 3,000 and 4,000 rioters took over the local state-owned television station, the national tax offices, and the departmental government offices. Rioters broke windows at a branch office of Telefonica, the Spanish firm that bought Peru's state telephone company in 1994.

Opponents call for cancellation of sale

Despite the state of emergency, protests continued in Arequipa, Tacna, Cuzco, and other cities. On June 17, Luis Saraya, president of the Frente Amplio Civico de Arequipa (FACA), called for citizens throughout Peru to participate in "civic and peaceful resistance" to the sales of EGASA and EGESUR. He condemned the state of emergency and curfew imposed by Toledo.

In a press conference, Arequipa mayor Juan Manuel Guillen said, "We denounce before the country and the world a government that claims to be democratic but violates the state of law and now tries to reinforce that by suspending individual guarantees and [imposing] the state of emergency."

"We propose a referendum so that the government in Lima can verify that more than 90% of the population of Arequipa is against the privatization of EGASA and EGESUR. In the meantime, the sale must be stopped. There is no other road to reconciliation," said the mayor. "I fought with you for democracy. Now I ask you not to turn your back on [that democracy]."

Guillen was among those who forged the agreement that ended the protests. He told a jubilant crowd that the Lima government had finally been forced to listen to the people.

Longstanding opposition to sale of electric companies

The riots followed weeks of delays, demonstrations, and work stoppages in Arequipa, Tacna, and other parts of Peru, including Lima, as protesters demanded that the government call off the privatization (see NotiSur, 2002-05-17).

Privatization is one of the most controversial pieces of Toledo's economic policy, with more than 60% of Peruvians rejecting it in public opinion polls.

The reasons for their opposition vary by region and by case. But the arguments most often heard, certainly regarding EGASA and EGESUR, are that public services should be managed by the regional authorities, that the private companies pay less than the enterprises are worth, and that, when they take over, there are massive layoffs and prices increases.

Opponents also claim that privatization, begun by former President Alberto Fujimori (1990-2000), has not brought any benefits to the population. Congress is now investigating allegations that, in earlier sales, the Fujimori administration used privatization for personal enrichment.

Another factor that increased public anger toward Toledo is that, during his campaign, he signed a document in Arequipa promising not to sell the electric companies, and specifically not to sell them to Tractebel, which is being investigated for alleged bribery during the Fujimori administration.

"He who sows promises and does not keep them, reaps storms such as this," said opposition leader and former President Alan Garcia (1985-1990) on a local radio station.

But Toledo--a Stanford-educated economist--was determined to implement the privatization plan, which called for selling at least US$700 million in state-owned assets this year, as part of an agreement with the International Monetary Fund (IMF) to help cover budget needs. Peru has taken in more than US$380 million so far, a figure that does not include the US$167 million sale to Tractebel.

Government underestimates opposition to sale

Earlier in the month, the administration had been downplaying the extent of the opposition to the privatizations. On June 10, Toledo said he would meet with civic and political leaders and reach a national agreement, despite the pressure from labor organizations and regional grassroots groups for changes in his economic policies.

But the regional organizations withdrew from the dialogue to protest the planned sale of EGASA and EGESUR. The Frentes Regionales of Arequipa, Cuzco, Moquegua, Tacna, and Puno called a general strike for June 13.

Government officials said the strike "was partial" in many places and "did not achieve its objectives," and they said that the privatization process "will not be stopped."

During the strike, Judge Benny Alvarez in Arequipa ordered that the sale be halted, saying the companies belong to the departments not the national government. The government immediately appealed and Justice Minister Olivera said the government would file charges of malfeasance against Alvarez.

At a lunch with US business people, Toledo said he would continue privatizing public businesses and stimulating national and foreign investment "despite those who want to cause trouble." He added, "To grow, we need national and foreign private investment, and to attract investment we need to build a climate of political, economic, social, and above all legal stability, with clear and transparent rules of the game." [Sources: The Washington Post, 06/16/02; BBC News, CNN, 06/17/02; La Opinion (Los Angeles), 06/14/02, 06/15/02, 06/18/02; Clarin (Argentina), The Miami Herald, 06/18/02; Notimex, 05/23/02, 06/10/02, 06/13/02, 06/19/02; Spanish news service EFE, 06/13/02, 06/15-19/02; Associated Press, 06/14/02, 06/15/02, 06/17/02, 06/19/02; Inter Press Service, 06/18/02, 06/19/02; Reuters, 06/19/02; La Republica (Peru), 06/18-20/02]