A Little War Chills South America's Hopes

THE month-old armed conflict over a remote, 48-mile section of the Peru-Ecuador border was considered an anomaly in a South America too busy with building market economies and democracies to resort to military confrontation.

But as a cease-fire agreement signed Feb. 17 by Peru and Ecuador continued to be violated this week, observers here question whether recent signs of change in the region are masking a continuing military grip - and potential for armed conflict.

``We thought we were progressing rapidly toward the 21st century, but below this surface of modernity are forces of the past that are alive and well,'' says Enrique Obando, research director at the Peruvian Center for International Studies in Lima.

Many diplomats throughout the hemisphere cite the troubling contrast between December's Summit of the Americas in Miami that called for strengthening the region's democratization and economic and political cooperation, and a border war that raises questions of tenacious military influence in civilian political life.

``All of us working toward a unified region and a stronger civil society are worried about the effect this conflict has on our image with the rest of the world,'' says a diplomat from a South American country. ``This is a setback.''

In Peru the primary concern is Ecuador. But a wary eye is also turning to Chile, where the military's role - led by former Chilean dictator Gen. Augusto Pinochet Ugarte - remains ambiguous. Arbitration of a border dispute decided in Argentina's favor last October caused weeks of emotional outbursts in Chile, leading the government to appeal the ruling.

Concerns about Ecuador appear well-founded. This year the armed forces were scheduled to lose a lucrative 20-year deal by which they received 12.5 percent of the 30 percent tax foreign oil companies pay on their profits from oil production in Ecuador. Privatization was also proceeding that would have affected the military's many company holdings.

Ecuador's about-face

Then - Peruvian analysts say not coincidentally - the border conflict was touched off, and Ecuador's congress extended the military's oil revenue guarantee into the next century, and the privatizations were put off.

The conflict's impact in Peru is also worrying. Peruvian President Alberto Fujimori never possessed stellar democratic credentials, especially since his dissolution of congress and suspension of the constitution.

Suspicions of Mr. Fujimori's dependence on the military have grown. And even though some ob-servers believe the hold of the Peruvian civilian government on the military is among the strongest in South America, others disagree. What they call the president's poor handling of the conflict will weaken his relationship with the military, they believe, and could influence his bid for reelection in April.

``If this conflict continues and widens, it could still be Fujimori's Waterloo,'' says Javier Gonzales Olaechea, a Peruvian political scientist and congressional candidate.

Fujimori's statement earlier this month that the conflict had cost about $11 million, or $1 million a day, ``has no basis in reality. Making a war movie costs more than that,'' says Mr. Gonzalez. He places the cost closer to $200 million, and says indirect costs - already rising interest rates and an inevitable reorientation of spending from social spending to defense - will begin to hit the public.

Some observers question Fujimori's insistence that the conflict will not lead to increased military spending. They say the poor performance of Peru's mostly Soviet-built military equipment will lead to a push for rearmament.

Replacing aircraft and arms will be a significant unanticipated cost, says Eduardo Devoto Acha, general manager of the Peruvian Confederation of Private Enterprises. Although he doubts the conflict, if it ends now, will have any major effect on Peru's recent impressive macroeconomic performance, he worries about the impact on Peru's trade with its Andino Pact partners - Colombia, Venezuela, and Ecuador. ``That trade has principally been by land through Ecuador, but now that's complicated,'' he says.

In the near term, negotiations between the four Andino countries and Mercosur - the customs union comprised of Brazil, Argentina, Paraguay, and Uruguay - are likely to be at least slowed by the border conflict.

Other countries cooperate

Cooperation at expanding levels between South American heavyweights Brazil and Argentina - from the economy to anti-drug-trafficking and environmental policies - is providing some counterbalance to Peru and Ecuador. But Chile exhibits how free-market reforms and even considerable democratic progress are not enough to remove doubts among neighbors caused by a strong military influence.

What worries Chile's neighbors is that General Pinochet does not hold his command at the discretion of any civilian leader, including the president, but is in his office for life. ``Pinochet could decide to do something without the agreement or knowledge of the civilian government, and who could stop him?'' says Mr. Obando. He notes that the country's chief state police official enjoys the same autocracy.

Still, others insist that while Latin America's jitters in the face of even a small border war are understandable, the negative impact on both regional cooperation and the region's image can still be minimized.

``It's not new in this world for two countries to have difficulties,'' Peru's Vice Minister of Foreign Affairs Eduardo Ponce Vivanco, said this week. The more important reality, he added, is that Latin America ``is a region with its future in cooperation,'' economic and political.

The irony of his statement became clear a day later, when controversy erupted over revelation of past business deals and jointly held property between Mr. Ponce and Ecuadoran Vice Foreign Minister Marcelo Fernandez de Cordoba. The men represented their warring nations at the signing of the cease-fire agreement.