June 16, 2002

LIMA, Peru (Reuters) - Peru declared on Sunday a state of emergency and sent extra security forces to its second city, Arequipa, to quell bitter protests against last week's privatization of two electricity generators Egasa and Egesur that officials say caused some $15 million in damages.

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 in protests that have been continuing since Thursday.

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

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.

Known as the "white city" for its pretty colonial architecture, Arequipa draws throngs of national and foreign tourists with its El Misti volcano and nearby Colca Canyon. It was hit last year by a powerful earthquake.

Toledo's spokesman, Carlos Urrutia, told Reuters the 30-day emergency measures would restrict some civil liberties -- police said no one would be allowed in or out of the city -- to restore calm after days of turmoil.

"A curfew is also likely," Urrutia said. "The idea is to control movement and violence. We have $15 million damages."

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.

Police began dismantling barricades in the square after the state of emergency was imposed and a tense calm was returning, despite some isolated clashes. "Things are relatively quiet," Roberto Carlos Denver, a local police spokesman, told Reuters.

MESSAGE TO WARY NATION

Toledo was due to make a televised address to the nation at 8 p.m. local time (9 p.m. EDT Monday).

The government on Friday sold the two utilities to Belgium's Tractebel for $167.4 million. Tractebel is a unit of French utility Suez .

Privatization -- a key plank of the 11-month-old government's economic policy -- has turned into the biggest headache for the already deeply unpopular Toledo, whose rating in opinion polls is down to nearly 20 percent amid frustration at slow job and wealth creation in a country where more than half the population lives 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 raised some $9 billion but much of the cash was squandered.

Interior Minister Fernando Rospigliosi said irresponsible local authorities -- local mayors have been on hunger strike for five days against the privatization -- had allowed vandals to overrun the city. Local officials appealed for calm.

"The damage to the airport runs into the millions. In addition, there has been huge damage to the image of Arequipa and to tourism, not just in this city but in the whole country. Really, there's no name for what they have done," he said.

Airport officials said flights were expected to remain suspended on Monday.

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