Coming on the heels of Mexico's financial crisis, the Peru-Ecuador dispute has further damaged Latin America's image, causing large-scale capital flight, deflecting tourism and throwing cold water on hopes of welding the Andean Pact countries on to the North American Free Trade Agreement between the United States, Canada and Mexico.
"First, we had the tequila effect," said one Latin American diplomat here, referring to the name given to the fall-out in financial markets around Latin America from Mexico's problems. "Now we have to add what you might call the condor factor," he added."In actual fact, the economies of both Peru and Ecuador remain stable. But foreign investors see the television images of tanks, troops and flag-waving."
Representatives of five Latin American nations and the US had closeted themselves in the pink, neo-classical Foreign Ministry building in Rio de Janeiro for five straight days in an attempt to silence the guns.
But, in a two-page statement issued at a final news conference late yesterday, the mediators said the talks had broken up without a truce because they were taking too long. A suggested plan included an observer mission, the separation of forces, and the creation of a demilitarised zone.
Both Peru and Ecuador had accepted the observer mission, the statement said.
Among those at the meeting were representatives of Ecuador and Peru, together with the deputy foreign ministers of the four guarantor nations of the so-called Rio protocol - the US, Argentina, Brazil and Chile.
That 1942 protocol, which ended a Peru-Ecuador war, delineated the border, giving a victorious Peru almost halfEcuador's territory. Ecuador still disputes that line.
After an apparent ceasefire was reached on Friday night, Ecuador said Peruvian commandos, veterans of jungle warfare against Shining Path guerrillas, had attacked its border posts twice - on Saturday and yesterday. The Peruvian President, Alberto Fujimori, visiting the border yesterday, said his troops had surrounded the base of Tihuinza and were advancing on the post, which both countries say is in their territory. Ecuador said it had repelled the attack.
Peru's commandos were flown into the border zone over the past few days. Some troops looked distinctly out of place, their cast-off "Desert Storm" US uniforms standing out against the lush green jungle.
So far, casualties remain relatively low in 10 days of skirmishes. Ecuador admits eight men killed and two missing, while Peru admits losing 11 troops. Each country says it has killed dozens from the other side but there is no evidence to substantiate such claims.
However, the conflict is increasingly affecting civilians. One Peruvian was killed and another lost a leg at the weekend from mines placed by Ecuador. The closed border and roads, and a halt in shipping and flights between Lima and Quito, has blocked badly needed trade.
After a week in which nationalism was whipped up on both sides, with flag-waving women and children parading in the capitals, there were also groups in each country pressing for peace.