FACTBOX-Key political risks to watch in Peru

LIMA Jan 3 (Reuters) - The run-up to presidential elections, drug violence, strikes by miners and environmental disputes are all points to watch in Peru -- one of the world's fastest-growing economies.

THE RETURN OF TOLEDO?

Former President Alejandro Toledo has surged in polls ahead of the April 10 presidential election and is now tied for first with former Lima mayor Luis Castaneda at 23 percent, according to pollster Ipsos Apoyo. They are both several percentage points ahead of Keiko Fujimori, the daughter of jailed former President Alberto Fujimori.

Toledo is well-liked by the business community. He led Peru's first push into free trade pacts during his 2001-2006 term, and has progressive stances on social issues.

Despite solid economic growth while in office, his approval rating at times dropped into single digits and his Peru Posible party is relatively small.

Still, his active campaigning has set him apart from Castaneda, who has tried to avoid the limelight early in the race. Castaneda has hired mainstream economists as aides but has been reluctant to announce a detailed policy platform. Some critics have gone so far as to dismiss him as an empty suit.

Castaneda, who is well-liked in the capital of Lima but a virtual unknown in the provinces, comes from the tiny National Solidarity party and has faced corruption allegations linked to a slew of public works projects he carried out. He denies the allegations.

Keiko Fujimori, a popular conservative lawmaker, could benefit from a sizable party infrastructure left behind by her father. But her candidacy may be hurt by memories Peruvians have of her father, who was forced from office under a cloud of corruption and human rights scandals.

Instead of trying to present a kindler and gentler image of her party, the younger Fujimori has emphasized its law-and-order credentials and picked Rafael Rey, a former defense minister and staunch social conservative, as one of her vice presidential candidates. An Ipsos Apoyo poll showed more voters think Rey will hurt her than help her.

Meanwhile, left-wing nationalist Ollanta Humala, who nearly won the 2006 race but is now struggling in fourth place in polls, has tried to recast himself as a moderate. Business leaders say they are unconvinced. [ID:nN07254319]

So long as Humala struggles in polls, where he currently has about 10 percent support, the race will be fought between parties in the center or on the right. That would remove a potential source of downward pressure on Peruvian markets. .IGRAPEN=PE. [ID:nN04119250]

At this point in the race, it looks as if mainstream economic policies will be followed by the next president. Peru's economy is set to grow about 6 percent this year after surging about 9 percent in 2010. Orthodox economic policies have been in place in Peru for nearly two decades and helped Peru win investment grade ratings. [ID:nN23249523]

President Alan Garcia, who cannot run for re-election, says his APRA party has chosen former Finance Minister Mercedes Araoz as its presidential candidate, though she is far back in polls. [ID:nN06137879]

What to watch for:

-- A bigger drop, or a surge, by Humala in polls.

-- More gains by Toledo.

-- A corruption scandal that could hurt Castaneda.

SOCIAL CONFLICT

Peru is the world's No. 2 copper producer but social conflicts over natural resources are already a central theme in the presidential race. A third of Peruvians live in poverty and many have been left out of a commodities boom that fueled the past decade of strong economic growth. [ID:nN23113586]

Peru's ombudsman's office says more than 100 communities have organized to stop big mining or petroleum projects. It blames the government for failing to effectively mediate conflicts that pit poor towns in the Andes mountains or Amazon jungle against foreign companies. [ID:nN19447160]

Hundreds of millions of dollars in capital spending have been delayed. Farmers opposed to Southern Copper's (SCCO.N) $1 billion Tia Maria project have protested against it, saying it would hurt water supplies and cause pollution. [ID:nN23152239]

Garcia's push to lure foreign investors to build new mines in Peru has angered environmental and indigenous groups, which are increasingly assertive politically. Deadly clashes broke out several times last year and there is little evidence that tensions are easing. [ID:nN03112316]

In November, the government said it would ask a special U.N. agency to help prepare and evaluate environmental impact studies for large and complex projects that generate conflict.

More recently, some members of Congress have backed a bill that would increase royalty payments required of mining companies, though industry officials say it will likely fail after the election is over.

What to watch for:

-- Strikes that could halt mineral or natural gas exports.

-- Violence that prompts Garcia to lose support in Congress or pull bills he has backed.

-- The United Nations agency could help calm divisions and generate more credibility for big mining projects.

DRUGS TRADE, SHINING PATH REBELS

Garcia has struggled to capture a remnant band of left-wing Shining Path rebels who run drugs in a violent region rife with cocaine known as the VRAE, the most densely planted coca region in the world.

At least 50 soldiers or anti-drug police have been killed in the VRAE or other jungle areas controlled by Shining Path in the last two years.

More deaths or clashes could prompt the next president to overhaul anti-drug policies. The United Nations says Peru has surpassed Colombia as the No. 1 coca leaf producer.

Corruption in Peru's army could also be hindering the war on drugs, according to data in a U.S. embassy cable released by WikiLeaks that Peruvian officials have denied.

The drugs trade and the Shining Path are widely considered to be Peru's main domestic security challenge, though the group's Maoist leaders were captured in the early 1990s after waging a war against the state. [ID:nN15111638]

What to watch for:

-- Arrests of key leaders of the insurgency.

-- Any serious attacks against the army that undermine its ability to win control of the region. (Reporting by Terry Wade; Editing by Kieran Murray and Eric Walsh)