Peru's Fujimori may fire chief advisor to contain growing scandal

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LIMA, Peru -- Peruvian President Alberto Fujimori faced a pivotal moment in his 10 years in power on Friday that could force him to sack his behind-the-scenes power broker and spy chief to save his own skin, analysts said.

Fujimori was put on the spot after a video revealed Vladimiro Montesinos, the intelligence chief officially described as a "presidential adviser," allegedly paying an opposition congressman to switch to the government ranks.

The scandal immediately whipped up a storm of protest among opposition deputies, and even Expreso newspaper, usually a staunch government stalwart, said it was "impossible to underestimate the seriousness" of the case and all it implied.

Fujimori and Montesinos "are like two shipwreck survivors clinging onto a plank of wood," Mirko Lauer, a commentator for opposition daily La Republica, told Reuters.

"There's only room for one. He'll have to throw him off."

Carlos Reyna of respected independent think-tank DESCO said this was "certainly the blackest hour for Montesinos, Fujimori and a regime for whom the intelligence adviser is a major -- perhaps the major -- cause of its deterioration."

"Now either Fujimori sacrifices this pawn to save the king or his government falls to bits," Reyna said.

Montesinos, a disgraced ex-army captain overshadowed by allegations of corruption and rights abuses, has been a key power behind the throne since Fujimori took office in 1990.

Dubbed Peru's "Rasputin," Montesinos swiftly made himself indispensable to Fujimori during that year's election campaign, helping him survive unproven allegations of tax-dodging.

With Fujimori installed as president, Montesinos was then credited with masterminding an alliance with the armed forces that shored up the new president's power base.

As Fujimori won a hardline reputation for stamping out the leftist MRTA and Shining Path guerrillas, the National Intelligence Service (SIN), with Montesinos in the driver's seat, became Peru's most powerful and feared institution.

Rights groups have linked Montesinos to drug traffickers and his intelligence services have been hounded by allegations of wiretapping and torture.

But times have changed. Fujimori won reelection in a runoff vote in May widely condemned as flawed and is under pressure to patch up his international image fast.

He had promised a public post for Montesinos. But, ever the pragmatist, he may now decide he has no alternative but to dump the man who has helped him so much.

The scandal over what the media dubbed the "video of shame" was likely to stir increasing jitters among investors.

Peru last week failed to pay an $80 million interest payment on its Brady bonds because of legal action by one of its U.S. creditors. Although the market knows Peru has the money to pay and it has promised a swift solution, Brady bonds dipped a little on Friday on that news, and the video scandal.

"This (Montesinos affair) will doubtless ... complicate a political situation that had improved with the dialogue between the government and the opposition," said Pablo Secada, an economist at Santander Investment in Lima.

The government and opposition parties have been meeting for a month under the auspices of the Organization of American States to thrash out an agenda to satisfy international demands to strengthen Peru's democratic institutions.

The talks, which at first looked as though they were going to collapse almost as soon as they began, last week made their first real breakthrough with a timetable for drafting proposals to reform the media, courts and spy service.

Peru last month also announced about-faces on two high-profile human rights cases, pledging to return citizenship to an Israeli-born media baron who was stripped of it in 1997 after his television station criticized the military and allowing a civilian retrial for a 30-year-old New Yorker, Lori Berenson, jailed for life in 1996 as a leftist rebel leader.

"Fujimori has to take action, but it will be hard because Montesinos is his strongman, and he once said he would put his hand in the fire for him," said DESCO's Reyna.

"The problem is, it now looks like a third-degree burn."

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