IN CUSTODY: Alberto Quimper, a former executive with the state oil company, is escorted by police in Lima, Peru.

Prime Minister Jorge del Castillo and 14 others quit over allegations that bribes were solicited from a European firm in exchange for energy contracts.

By Patrick J. McDonnell
Los Angeles Times Staff Writer

BUENOS AIRES — Peruvian President Alan Garcia accepted the resignation of his entire Cabinet on Friday amid a sweeping bribery scandal that has rocked the government of a major U.S. ally.

As the corruption case was unfolding, authorities also said Friday that an attack by leftist rebels on a rural military convoy killed at least 14 soldiers and civilians, the deadliest such strike in years.

Prime Minister Jorge del Castillo offered his resignation along with 14 other Cabinet officers as allegations emerged that officials of the ruling party had solicited bribes from a European firm in exchange for lucrative energy contracts. The case prompted Congress to launch an investigation of all concessions granted in the burgeoning gas and petroleum sectors.

"In no way will we be an obstacle for continued growth and all that is good for the fatherland," Del Castillo, Garcia's top aide, said in offering to step down.

It was not clear when Del Castillo and the other Cabinet members would be replaced or whether some would return to their posts. Del Castillo has denied any wrongdoing.

Leaked audiotapes detailing the alleged payoff scheme have forced the resignation of the former minister of mines and energy, Juan Valdivia, as well as two other officials.

Garcia, a onetime leftist who became a free-trade champion and darling of the Bush administration, was considering how to temper popular outrage over the scandal, the deepest crisis since Garcia took office in July 2006. It is his second turn as president, after a 1985-90 administration that ended in economic turmoil and rampant guerrilla warfare.

Even before the bribery scandal broke last weekend on a television news broadcast, polls showed Garcia's government dipping below 20% in popularity.

Many Peruvians are fed up with what they view as endemic corruption and the failure of the country's rapid economic growth to stem poverty, surveys show. Strikes and marches by teachers, farmers and doctors, among others, regularly paralyze public services and roads.

Peru, a major mining nation, has benefited from the worldwide boom in the demand for metals and other commodities. It saw economic growth last year of 9%, one of the highest rates in the hemisphere. But the current global economic crisis has prompted fears of a slowdown, and the Lima stock market suspended trading temporarily Friday.

Next month, Peru is scheduled to host the annual forum of the Asia-Pacific Economic Cooperation. President Bush is among 21 world leaders, including the heads of Japan and China, expected to attend.

Meanwhile, military officials said the guerrilla attack killed 12 soldiers and two civilians near a major cocaine-producing region where leftist rebels collaborate in the drug trade. Seventeen people were injured, including 14 soldiers, in the attack Thursday evening. Earlier reports put the death toll as high as 19.

The killings occurred when members of the Shining Path rebel group ambushed a military convoy near the Apurimac and Ene river valleys in southern Peru, authorities said. The sparsely populated valleys are a major cultivation zone for coca leaf, the raw material for making cocaine.

Peru is the world's second-largest cocaine producer, after Colombia.

Shining Path, once a major force in much of Peru, was crushed by the military in the early 1990s after a conflict that lasted more than a decade and left tens of thousands dead. But remnants of the group remain entrenched in subtropical coca-growing areas, where, like rebels in neighboring Colombia, they finance their activities through the cocaine trade.

Rebels have intermittently targeted the military and police near the coca fields. But Thursday's ambush was the deadliest since 13 police officers were killed in December 2005 in two attacks in the Upper Huallaga Valley, another coca-growing area.

In March 2002, two days before a visit by Bush, a car bomb near the U.S. Embassy in Lima killed 10 people and wounded 30.

Some Peruvian officials have warned of an upsurge in guerrilla violence as drug profits grow. About $50 million in annual U.S. aid helps subsidize a program to eradicate coca leaves and train and equip police to patrol remote coca-growing districts.