DRUG WAR ALLEGATIONS IN PERU EMBARRASS WASHINGTON

LIMA, Peru -- American officials who earlier this year hailed Peru as
America's best ally in the drug war are having second thoughts amid
mounting allegations that the country's top intelligence official and
some high-ranking military officers were fighting for the wrong side.

U.S. officials are concerned that the charges, along with Peru's
imperiled democracy, may weaken U.S. anti-drug efforts in the Andean
region. Nearly all of the world's coca leaves, the key ingredient in
cocaine, are grown in Peru and neighboring Colombia and Bolivia. Peru
was acclaimed as a success for reducing the amount of land in coca
production from 319,000 acres in 1992 to 96,000 acres last year.

But new reports suggest that Peru and its disgraced spy chief,
Vladimiro Montesinos, may have been less loyal to the drug fight than
U.S. policymakers thought. They allege that high-level military and
intelligence officials had ties to illegal arms and drug
trafficking.

Retired Peruvian intelligence officer Francisco Loayza, a former
mentor to Montesinos, said Friday that the spy chief considers the
drug trade an important revenue source for Peru.

"Once Montesinos told me the world economy was becoming narco-ized and
Peru had to better its economic situation," said Loayza, who retired
from the intelligence agency in 1989, before Montesinos became the
power behind Peru's president.

Montesinos is also at the center of Peru's political meltdown. After a
videotape this month showed him allegedly bribing a lawmaker to join
the government's coalition in congress, President Alberto Fujimori
said he would hold new presidential elections and step down in July
2001. The tape followed reports that Montesinos and top military
personnel either participated in or covered up the sale of AK-47
automatic rifles from Jordan to anti-government guerrillas in Colombia.

The revelations about Montesinos' dealings are an embarrassment to
Washington. Peru's anti-drug efforts were cited as the reason the
Clinton administration recognized President Fujimori's third term,
even though election observers and opposition candidate Alejandro
Toledo boycotted the voting in May, alleging it was unfair.

"I think the Pandora's box has been opened, and more and more is going
to come out about high-level corruption in the Fujimori
administration," said Coletta Youngers, a senior associate with the
Washington Office on Latin America, a liberal think tank. "That is
going to create a problem for drug warriors on Capitol Hill."

Meanwhile, Fujimori's government sent the Congress urgent legislation
Friday to disband the now-disgraced National Intelligence Service, the
spy agency headed by Montesinos.

The move was contained in legislation that called for scrapping the
nationwide network of agents and informants within a 15-day period of
its passage. The Congress, where Fujimori supporters hold a majority,
was expected to quickly consider the measure.

A copy of the proposal praised the agency, known by its Spanish
acronym SIN, for helping defeat leftist insurgencies and keeping the
peace with regional neighbors. It called for a commission made up of
the country's prime minister and interior and defense ministries to
oversee the dismantling of the agency, which it said would bring
cost-cutting "benefits."

Montesinos' name was not mentioned in the document.