ANALYSIS-Peru clashes to oust ministers, force law revamp

By Simon Gardner

SANTIAGO, June 6 (Reuters) - Peruvian President Alan Garcia will likely have to fire senior ministers and modify or repeal laws aimed at enticing foreign investment in mining and energy to defuse a deadly stand-off with Amazon tribesmen over land and resources.

While two days of clashes between spear-wielding Indians and police in Peru's Amazon jungle that have killed up to 50 people are the lowest ebb of the centrist's current term, they are unlikely to sour investors in the medium-term or threaten his presidency.

"Garcia will definitely have to revamp his cabinet as a way to calm popular protests," said Ernesto Velit, a political scientist at Ricardo Palma University in Lima.

He expects Garcia to fire Prime Minister Yehude Simon, Interior Minister Mercedes Cabanillas and Defense Minister Antero Flores Araoz, blamed for allowing the violence.

"And if the government does not repeal the laws that are being rejected by the Amazonian tribes, it will stoke the protest movement and we will see social convulsion," he added, seeing a risk that labor unions could also join the protests.

Most of the laws angering the indigenous groups were passed last year as Garcia sought to bring Peru's regulatory framework into compliance with a free-trade agreement with the United States [ID:nN06294730].

Critics say Garcia, whose approval rating is just 30 percent, has not done enough to lower the 36-percent poverty rate, and that a 7-year economic boom before the current global financial crisis did not trickle down to the poor [ID:nN27170152].

MAJOR GOVERNMENT ERROR

A leftist who has shifted toward the right and embraces free markets, Garcia made a cardinal error by failing to take the Indians' demands into account when pushing through laws to encourage investment in pristine rainforest, critics say.

The indigenous groups consider that territory, considered one of the most biologically diverse areas on earth, their ancestral homeland and object to its exploration.

An editorial in Peru's La Republica newspaper called the violence the "most serious crisis of Garcia's government."

The violence underscores the fact that his government has been unable to heal deep divisions between wealthy elites in Lima and poor, rural indigenous groups, and has exposed the central government's lack of control over remote regions.

By cracking down -- the tribesmen say 30 protesters died -- Garcia would likely galvanize opposition groups.

"Changing ministers alone won't do the trick. The government needs to hold dialogue with the real intention of dealing with this very profound problem," said Manuel Saavedra, director of pollster CPI.

"This is the second uprising," he said, referring to road blockades a year ago that lasted a little more than a week and also hit energy installations in Peru. "Time has passed and the indigenous groups feel mocked because the government has done nothing."

Saavedra believes ultranationalist Ollanta Humala, whom Garcia narrowly defeated in a 2006 election and is a worry to investors, stands to benefit politically from the standoff.

But he notes that the next presidential election in 2011 is still a way off and does not see the latest clashes having a major impact on the political map for now.

Most of the deaths happened on Friday, when police cleared a roadblock on a highway in the Bagua region of Amazonas province, around 870 miles (1,400 km) north of Lima.

The death toll rose on Saturday after Peruvian security forces battled Indians to free dozens of police hostages in another area of the Amazon. Nine police died in the operation, 22 were freed and others were missing. The government did not say whether any protesters were killed in the rescue.

So far the government has shown little sign of bending, and blames protesters. It has also alluded to possible foreign involvement.

"I think there are political interests seeking to destabilize (the government) ... and God only knows if there is some other outside influence," Foreign Minister Jose Antonio Garcia Belaunde told CNN. "We don't yet have enough information to be more specific." (Additional reporting by Dana Ford in Peru, editing by Patricia Zengerle)