Hold the presses on that claim made by El Pais of Madrid to the effect that Assistant Secretary of State for Western Hemisphere Affairs Otto Reich included former Argentine President Carlos Menem in a list of "corrupt" regional ex-heads of state. The judiciously spoken Reich denies he said any such thing.

The dust-up started last Sunday, when a Miami-based correspondent of the Spanish newspaper published an interview with Reich that received wide comment throughout the Americas. The reporter, Rosa Townsend, asked Reich what headed the administration's priorities for the region. Reich replied, without hesitation: "Corruption, because it is the principle obstacle to democracy and economic development."

Noting that information about corruption was forwarded to him through U.S. embassies and by the intelligence agencies, Reich admitted that in years past misconduct by foreign officials in the region seeking to enrich themselves had taken a back seat to other U.S. priorities - such as winning the Cold War.

Asked to list some of the region's most venal officials, Reich replied that the hemisphere "provided fertile ground for the corrupt." He singled out former Nicaraguan President Arnoldo Aleman, who, Reich said, "supposedly stole more than $100 million dollars" in one of the poorest countries in the hemisphere. Reich has won the grudging respect of some of his most severe critics by his decisive support for current Nicaraguan President Enrique Bolaños' stern anticorruption stance. By openly supporting Bolaños, observers say, the 57-year-old former ambassador has helped outflank claims - however improbable - by former Sandinista leader Daniel ("La Piñata") Ortega to the anticorruption mantle. ("Reich was really out front on this one," one veteran State Department watcher told Insight.)

The El Pais interview went on to say that Reich also listed erstwhile Argentine and Mexican heads of state Carlos Menem and Carlos Salinas de Gortari, respectively, among the list of corrupt leaders. By reportedly singling out Menem and Salinas de Gortari - ironically both favorites of former president George H.W. Bush - Reich appeared to be boldly staking out new territory, maneuvering U.S. policy in the region away from the recent murky past of unseemly alliances with corrupt authoritarians. It was a policy zestily continued during the eight post-Cold War years of the Clinton administration.

Menem currently is seeking a third term as president of Argentina, and Reich's reported comments appeared to be a deftly applied right hook to the aspirations of a candidate whose strongest electoral suit was his claim of a supposed preferential relationship with the White House and Wall Street.

On Thursday, however, the Buenos Aires newspaper, La Nacion, published an interview with Reich in which he denied including Menem in the infamous list. "The statement is wrong and has caused damage to President Menem, and it's not fair," Reich said. "I didn't say that Menem was corrupt."

Sources close to Reich said that the misunderstanding occurred after the Spanish reporter "crashed" a small press event the diplomat held for a number of Miami-area newspapers. "The woman didn't speak fluent English," said one source. "Reich said that there were allegations against Menem, but he didn't accuse him of anything."

Asked why it took more than 72 hours to issue a denial about something that created a huge stir in Argentina's already rarified political atmosphere, the source said that the State Department had issued a "typically mealy-mouthed statement" early on that was not picked up by the press. Claiming that it normally takes three days to get a statement cleared through the Foggy Bottom bureaucracy, he said, Reich decided to speak directly to the Argentine media, calling at least three newspapers, including La Nacion.

The source carefully noted that Reich was not claiming that Menem or his government had not been guilty of corrupt practices, just that Reich did not say so to the Spanish journalist. He also denied that there had been pressure on Reich to back off, as some observers in Buenos Aires were claiming, given Menem's friendship with former president George H.W. Bush. "He did it because it was the right thing to do," said the source.

Efforts by Insight to contact Townsend in Miami were unsuccessful.

Ironically, as Reich and his supporters struggled to set the record straight as they saw it, the Argentine Anti-Corruption Office formally asked a court in Buenos Aires to prosecute Menem for maintaining a secret bank account in Switzerland. Menem admitted he possessed the account in July, despite never declaring it on financial disclosure forms, as he rebutted accusations carried in the New York Times.

The Times reported that Menem allegedly received $10 million from Iran while president of Argentina in exchange for helping cover up Tehran's alleged participation in a July 18, 1994, bombing of a Jewish community center in Buenos Aires. Eighty-five people were killed in the attack.

A New Element of Instability in Bolivia

The emergence of Evo Morales, an Aymara Indian and the veteran leader of Bolivia's coca farmers, as the strong second-place finisher in that country's recent presidential contest portends nothing but trouble for democratic rule in the region, a well-placed U.S. military official tells Insight.

On the face of it, the fact that about 30 percent of Bolivia's 154-member Congress now is of Indian origin - -in a country where more than two-thirds of the population is made up of long-suffering indigenous peoples - -is very good news indeed. However, many of these were elected as part of Morales' radical Movement Toward Socialism party.

The worry at the Pentagon is that some of Morales' followers have established working relationships with Colombia's vicious FARC guerrillas.
In September, U.S. offiicals said publicly that the Colombian insurgents have in recent months extended their contacts around South America,including in Peru, Venezuela and the conflictive tri-border area of Paraguay. Morales' own Colombian connections -- particularly the alleged financing of his campaign by foreign drug money -- was the object of considerable controversy during the presidential campaign, particularly
after the U.S. ambassador to Bolivia, Manuel Rocha, inartfully denounced Morales.

Now, those worries include military training the Colombian insurgents have given to some of Morales' most radical supporters. "What we're talking about here," the Department of Defense source says, "are basically correspondence courses between elements within Bolivia's coca-farmer community and the FARC -- a relationship that is growing rapidly. It adds a whole new element of instability in the region."

Meanwhile, in Brazil, geo-political strategists traditionally worried about security threats coming from the country's northern border -- particularly Colombia -- now are turning their attention, in dismay, to the south. The situation in Bolivia, together with Paraguay's rapidly failing government and the economic meltdowns in Argentina and Uruguay, have given rise to a whole new set of concerns, including increased migratory pressures and more cross-border crime.

Bad Blood Lingers Between Mexican, Brazilian Leaders

Look for increased tensions between regional powerhouses Brazil and Mexico if leftist candidate Luiz Inacio "Lula" da Silva wins, as many expect, the Brazilian presidency in the first-round vote held Oct. 6. As the elections entered their final week, polls showed Lula increasing his lead over former health minister Jose Serra, the candidate of the ruling Brazilian Social Democratic Party.

In a late September interview with the Reuters news agency, Mexican President Vicente Fox pointedly predicted that if Lula wins, he will modify his electoral platform under "the weight of responsibility."

"What I have learned is that everyone that campaigns -- once he is in power -- has to make some adjustments from his proposals and positions. And that happens everywhere," Fox said.

Sources tell Insight that bad blood between Fox and Lula dates to the Brazilian's vocal support in the last Mexican presidential contest for left-wing candidate Cuauhtemoc Cárdenas. Fox's close relationship with officials in Washington likely will add weight to his views on developments in Brazil, which boasts Latin America's biggest economy.

Fox's main message to Lula is one that Bush administration officials clearly hope the Brazilian will listen to: that despite the Brazilian's calls for radical redistribution of wealth, economic stability is the best way to improve the prospects of that country's desperately poor.

Martin Edwin Andersen is a reporter for Insight