arch/ive/ief (2000 - 2005)

LIMA, Peru (Reuters) - Scolding opponents with a wagging finger, Peru's President Alejandro Toledo on Sunday defended the privatization of two electricity generators that sparked days of bitter protests in the second city, Arequipa.
"It's not true that the privatization goes against the needs of the people of Arequipa," Toledo, wagging his finger, said in a televised address hours after his government imposed a 30-day state of emergency in Arequipa to restore order.

"As president and governor of all Peruvians, I appeal tonight for serenity, calm and responsibility," he said.

Urging an end to "hate" and vandalism, the president said 350 million soles ($100 million) worth of damage had been caused. His spokesman earlier put the damage in the graceful "white city" at $15 million.

Local authorities said seven people had been injured in clashes on Sunday -- including two police officers and one civilian with gunshot wounds -- and some 15 were arrested during the day. Protests -- the most serious challenge to Toledo in his 11-month rule -- have continued since Thursday.

Thousands crammed into the main square, where stone barricades had been set up, for weekend demonstrations that police broke up with tear gas. Protesters also vandalized the airport, smashing landing lights and stealing equipment so that all flights were grounded and scores of tourists were stranded. They were evacuated by police helicopter on Sunday. Arequipa, with its colonial architecture, draws throngs of tourists with its El Misti volcano and nearby Colca Canyon. It was hit last year by a big earthquake ( news - web sites). Airport officials said flights were expected to remain suspended on Monday.

Residents are bitterly opposed to Friday's sale of southern generators Egasa and Egesur, fearing higher bills and layoffs and accusing Toledo of backtracking on a pledge made during last year's election campaign not to sell them.

Opponents have urged Toledo to explain why he changed his mind but he made no mention of it in a message Arequipa Mayor Juan Manuel Guillen -- who has been on hunger strike for five days against the sales -- called "absolutely insufficient."

Locals fear they will see nothing of the $167.4 million paid by Belgian company Tractebel, a unit of French utility Suez, for Egasa and Egesur.

CASH FOR AREQUIPA THIS YEAR

But Toledo, who himself grew up in extreme poverty, said Arequipa would feel the benefit within months.

"As a result of this operation, we have managed to find $85 million immediately to start, this year, infrastructure projects in roads, electricity, education and health, as well as (Tractebel's) commitment to make new investment of $90 million in the department (of Arequipa)," he said.

All that would translate into giving 60,000 people electricity and creating 5,000 new jobs in Arequipa, he added.

Toledo said he would call local leaders to a meeting this week to decide which projects should be tackled first.

Arequipa police chief Gen. Eduardo Perez said 150 extra police would be on duty and Defense Minister Aurelio Loret de Mola arrived in Arequipa on Sunday night to oversee security. The state of emergency will restrict some civil liberties, such as movement in or out of the city but it was not immediately clear if that would inflame tensions further.

Police began dismantling barricades in the square after the state of emergency was imposed and a tense calm was returning, despite some isolated clashes.

Privatization -- a key plank of the government's economic policy -- has turned into the biggest headache for the already deeply unpopular Toledo, whose rating in polls is nearly 20 percent amid frustration at slow job and wealth creation in a country where half the people live on $1.25 a day or less.

The government, seeking cash to plug a budget deficit economists say could prove hard to tame this year, hopes to raise up to $800 million via state sales this year and says it will spend half the cash on infrastructure projects.

But it acknowledges it has failed to explain the merits of privatizations to a public wary after the experience of the 1990s, when then-President Alberto Fujimori ( news - web sites) raised some $9 billion but much of the cash was squandered.