ARDUOUS TASK AHEAD FOR PERU'S NEW LEADER

LIMA, Peru -- Last July 28, Alejandro Toledo donned a gas mask, put his
life on the line and marched into street chaos. Peru's capital was ablaze
in protest of President Alberto Fujimori's third inauguration after a
rigged election.

Saturday, one year to the day later, Toledo donned the presidential sash as
the first elected Indian-blood president of an Andean nation, after
Fujimori resigned and left the country last fall.

"What we said in the campaign is true. After 500 years a person of this
ethnicity is elected to lead the destiny of Peru," Toledo said Thursday at
a news conference.

Toledo soon may discover that while bringing down a corrupt government was
difficult, building a new Peru is likely to be harder. The economy has
stagnated for four years, almost half the country lives in poverty and
nearly every institution of government was corrupt during Fujimori's decade
in power.

An interim government has brought spending under control. "We are starting
out, in financial terms, with a good slate," said Pedro Pablo Kuczynski,
Toledo's pick as economy minister. "The real thing we now need is to create
employment."

A Stanford-educated economist, Harvard lecturer and former World Bank
consultant, the 55-year-old Toledo is an unknown quantity in government. He
has never managed anything more complicated than a classroom and in
campaigning proved to be loose with the truth, with a Clinton-like ability
to inspire affection in some and hate in others. And diplomats privately
call his frequent changes of position maddening.

"We still don't know what the sash is going to do to him when he puts it on
and where he is going to go. His reactions have not been tested," said a
U.S. official who is familiar with Peru and spoke on condition of anonymity.

The United States hopes Toledo will continue his predecessor's close
relationship on anti-drug efforts. In the 1990s, Peru was a regional leader
in thwarting cultivation of coca, the plant from which cocaine is made. Its
success effectively pushed coca cultivation next door to Colombia. But with
more than $1.3 billion in U.S. military aid already spent on Plan Colombia
to combat drugs there, fears are that drug traffickers will be pushed back
into Peru unless the government has a plan and takes a tough stance.

In a campaign interview, Toledo told the Mercury News that he supports U.S.
anti-drug efforts. But he told farmers during his campaign that they were
not criminals for growing coca, a message U.S. officials thought was at
odds with high-profile goals to eradicate coca that the United States was
promoting.

"He must understand that the drug theme is a fundamental theme of our
foreign policy and relations with the United States," said Hugo Cabieses, a
Peruvian drug-policy expert.

U.S.-Peruvian drug relations became strained with the arrest last month of
Fujimori's former spy chief, Vladimiro Montesinos, who had close ties to
the U.S. Drug Enforcement Administration and the CIA. Montesinos is accused
of protecting drug traffickers, while the United States was praising Peru's
counternarcotics efforts.

Another obstacle to relations is that Peru's air force shot down a small
plane carrying U.S. missionaries earlier this year, believing there were
drugs aboard. The United States indefinitely suspended an airborne
drug-surveillance effort in Peru after learning that a company contracted
by the CIA had tracked the flight.

The chaos in the command structure of Peru's military, which plays a lead
role in the drug war, poses another problem for relations. Four heads of
branches of the armed forces are in jail, facing corruption and drug
charges. Numerous other top military officials also face charges.

Immediately after his election, Toledo took a conciliatory tone toward the
military, a powerful institution with a history of meddling in Peru's
politics. Military analyst Enrique Obando said Toledo understands that it
is easier to change the armed forces if he has their help.

"The first challenge is to create a system of control over the armed
forces," Obando said, saying campaign promises to cut military spending may
prove difficult, since Peru's caretaker government already cut spending on
the military 20 percent.

The most immediate challenge for Toledo is quickly making a difference in
the pocketbooks of the poor and disenfranchised. About 49 percent of Peru's
26 million people live below the poverty line, and 15 percent of them earn
less than $1 a day. Because Toledo campaigned with pride as a cholo, or
mixed-blood Peruvian, the simple fact that he looks Indian has furthered
already enormous expectations.

"I think anything he does will fall short of expectations," said Elmer
Cubas, a political and economic analyst in Lima. Toledo will have to
compensate for the lack of immediate gains by emphasizing symbolic gestures
that show the large mixed-race masses he has their interests at heart,
Cubas said.

Toledo decided on substance over symbolism in naming Kuczynski as his
economy minister and Washington lawyer Roberto Danino as prime minister and
Cabinet chief. Both men have spent years in the United States and are
unknown to most Peruvians.

Danino headed the Latin America practice of the Washington law firm Wilmer,
Cutler & Pickering. Kuczynski is a respected figure on Wall Street and in
Miami business circles. He was the only Cabinet member named shortly after
Toledo's election June 3, a move aimed at attracting international
investors who have soured on a troubled region.

Kuczynski has traveled extensively in recent weeks to promote Peru, and
Toledo also returned from a 12-day trip to Europe and the United
Statessaying he received pledges of $1.7 billion in aid. Some of that is
money from countries such as France and Germany that had been frozen after
Fujimori's fraudulent re-election last year. Toledo hopes the pledges will
allow him to bring immediate investment in roads and energy to poor areas.