REPORT: MONTESINOS TURNED PERU INTO 'NARCO STATE'

LIMA, Peru (Reuters) -- Fugitive former spy chief Vladimiro Montesinos
and his cronies turned Peru into a "narco state," a congressional
commission investigating his alleged web of corruption said after
completing seven months of work.

In its final report, excerpts of which were released late on Friday, the
panel said the previous regime had "turned Peru into a sort of narco
state, in which networks of support for this illicit activity were set
up, using the concentration of information that Montesinos had in the
SIN (intelligence services)" on local and international drugs figures.

The commission members said they still had more leads to chase but their
work officially ended with the close of the legislature on Friday. The
head of the panel, David Waisman, said he wants to continue in the new
Congress set to be sworn in on July 27.

"We have lived in a mafia-like system," one of the commission members,
Anel Townsend, told RPP radio on Saturday.

Official figures show a significant drop in drug production since Peru
handed the mantle of world cocaine capital to neighboring Colombia in
1998.

In March, in its annual report on global narcotics production and
trafficking, the United States said eradication efforts had led to a
dramatic reduction of drugs in Peru.

Peru, along with Colombia and Mexico, are among the countries that have
met the criteria to be "certified" as helping Washington stem the flow
of illegal drugs.

HUNDREDS IMPLICATED

The report charged 222 people -- including military chiefs, business
leaders and politicians -- with being implicated in Montesinos' network.

It charged the current head of the armed forces, Gen. Miguel Medina,
with falsifying information relating to a purchase of Russian MiG jets.
Medina has denied wrongdoing.

The panel says the spy chief himself, who was disgraced ex-President
Alberto Fujimori's right-hand man for a decade, should face charges of
treason.

Montesinos, last heard of in Venezuela where he is believed to have
changed his appearance with plastic surgery, is on the run from charges
ranging from stealing state funds to taking kickbacks from illegal drugs
and arms deals to running death squads and ordering torture of
opponents.

Fujimori fell from power last November amid a government corruption
scandal sparked by a video showing Montesinos apparently bribing a
congressman. The spy chief was later also revealed to have manipulated
Peru's courts, media and military.

The state attorney investigating Montesinos alleged web of corruption
said on Friday more than $200 million had now been frozen in bank
accounts linked to Montesinos.

Fujimori is in self-exile in Japan. He currently faces charges of
dereliction of duty but Peru's attorney general has also called for him
to be tried on the death squad charges.

La Republica newspaper reported this week that the commission's report
said Montesinos had run his own cocaine laboratory but there appeared to
be no mention of that in the report summary handed to the media.

Waisman said some of the panel's findings were top secret and could not
be released "for national security reasons."