Peru crisis deepens as ex-spy chief returns, Fujimori meets army chiefs

The head of the Organisation of American States, Cesar Gaviria, said he was "profoundly concerned" by the return of former spy chief Vladimiro Montesinos and urged Peru to exclude him from power.

Even government-appointed human rights ombudsman Jorge Santistevan said Fujimori’s "autocratic administration" had to go, while second Vice President Ricardo Marquez said Fujimori had to act fast.

"I think in the next few hours the president is going to take decisions and address the country," Marquez told CPN radio.

Meanwhile, OAS-brokered talks between the opposition and the government, which had been preparing the path to the elections with the amnesty plan on the agenda, fell apart. OAS mission chief Eduardo Latorre told reporters both parties had asked to renew talks at a later date.

Opposition leaders slammed the proposal as "blackmail," saying it was tailor made for Montesinos, who ran the feared intelligence service SIN amid charges of phone-tapping, ordering torture and authorising death squads.

The amnesty would shield military and government officials from charges they violated human rights in Peru’s fight against drug lords and rebels.

Gaviria released a statement scolding Fujimori for allowing Montesinos back into Peru as if it were "something natural and compatible with the country’s democracy and not something that seriously jeopardises democratic stability."

He added he planned to visit Peru but gave no date. The United States also expressed concern at Montesinos’ return.

Dozens of protesters demonstrating outside the presidential palace flanked by police in riot gear also demanded action. The uncertainty punished financial markets.

Fujimori was seen speaking into a mobile phone on his tour of special forces units, the SIN and a military academy.

It was not clear if he met with Montesinos or if his day out was an attempt to prove he had the military under his control.

Montesinos, Fujimori’s go-between with the powerful military for a decade, arrived in Peru hours after the government unveiled the amnesty plan. He was reportedly whisked away in a military aircraft – underlining the power he was still widely believed to wield. His whereabouts were unknown.

The latest twists on a day of high drama followed the abrupt resignation of Vice President Francisco Tudela, a former foreign minister who was held hostage in a siege of the Japanese ambassador’s residence in Lima for 126 days in 1996-97.

Tudela, widely tipped to be the government’s election candidate, was the highest-profile defection and it was clearest sign yet of the president’s crumbling support.

Cornered by a corruption scandal involving Montesinos, Fujimori last month announced he would step down after elections in July, four years before his term is due to end.

The deepening political turmoil – which opposition leaders say puts the elections at risk – punished financial markets, hitting Peru’s Brady bonds in New York and its sol currency.

"It looks like the politics in Peru is going to get worse," said Michael Henry, bond strategist for Latin America ABN-AMRO. Ratings agency Standard & Poor’s said Montesinos’ reappearance could trigger a chain of events leading to a downgrade.