* Concerns drug gangs are undermining rule of law
* Three presidential candidates have faced questions
By Terry Wade
LIMA, March 10 (Reuters) - Peru's presidential election race has been rattled by allegations that cash from the drugs trade has made its way into campaigns and that traffickers are extending their political influence.
President Alan Garcia, two leading presidential candidates and senior members of a third candidate's party have all been linked by police or local media reports to suspected drug traffickers or coca growers.
In two of the cases, front-running candidate Alejandro Toledo and left-wing rival Ollanta Humala have denied any direct ties to traffickers or coca growers, and dismissed the reports as tenuous.
But President Alan Garcia, who cannot run for re-election in the April 10 vote, said he unwittingly accepted cash for his last campaign from people named in police investigations, and presidential hopeful Keiko Fujimori said she once took campaign money from people she says were framed on drug charges.
The United Nations says Peru is the world's top producer of coca, used to make cocaine, and although none of the presidential candidates is accused of working for traffickers or knowingly taking their money, the funding allegations that have emerged in recent weeks have caused a public outcry.
They seem to confirm what policy makers and diplomats have long feared: that traffickers or planters, who for years helped mayors win elections in rural coca-growing towns, would start trying to sway politics at the highest levels.
"I think there's no longer any doubt that drug trafficking has penetrated politics, and not just in the VRAE and Huallaga," Fernando Rospigliosi, a former interior minister, said in reference to Peru's main coca-growing valleys.
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The controversy reflects a sense that Peru could take one of two paths: one glorious, the other macabre.
After a decade of rapid economic growth, optimists say Peru could go on to lift millions out of poverty and emulate the example of neighboring Chile, one of Latin America's most successful and stable countries. [ID:n28262305]
But if it doesn't do more to rein in the drugs trade, Peru could be overrun by Mexican cartels or see a surge in violence like that which destabilized Colombia in the 1980s and is hurting Mexico now.
The reality is somewhere in between. Peru is unlikely to become as violent as Mexico or Colombia because its drugs trade is run by bosses who live abroad, meaning there is less room for turf battles to spin out of control. [ID:nN17281698]
Still, risks of unfettered corruption remain.
"I think it's possible that drug trafficking will continue to advance, mostly by breaking down institutions and politicians charged with combating it," Rospigliosi said. "We could get to a very critical situation."
The United States, according to at least three diplomatic cables obtained by WikiLeaks, is also concerned that drug traffickers in Peru could undermine the rule of law by buying protection from politicians, police, judges and army officers.
All of the presidential candidates have vowed to intensify anti-drug efforts, though that is easier said than done.
Peru's main coca-growing zones are protected by remnant bands of violent Shining Path rebels who went into the drug trade after their leaders were captured in the 1990s.
CANDIDATES DEFEND THEMSELVES
"We can't allow narco-politics or the narco-state to penetrate our national territory," Ollanta Humala, the Nationalist Party's presidential candidate said last week.
But Nancy Obregon, a prominent lawmaker who belongs to Humala's party, has had longstanding ties to coca growers and has been investigated in a broader judicial inquiry. She has denied any links to traffickers, but supports traditional uses of coca in food and ceremonies. Humala says she is innocent.
Toledo, a former president who leads election polls, was photographed at an elite horse club with Manuel Sanchez Paredes, who belongs to a family police are investigating for money laundering and drug trafficking.
Toledo has said it was a brief encounter at a public event held in 2006 and that he is the victim of a smear campaign with nothing to hide. Members of the Sanchez Paredes family insist they run legitimate mining and livestock businesses.
Keiko Fujimori says she received ${esc.dollar}10,000 for a 2006 Congressional campaign from two women whose father was jailed in 1993 for drug trafficking. The women were also sentenced, but Fujimori called it a witchhunt. "They have all been absolved. For me, they are innocent," she said on TV.
President Garcia last month gave back a ${esc.dollar}5,000 contribution he received in the 2006 presidential race from a lawyer who worked for the Sanchez Paredes family, saying he was unaware of where the money came from and had no links to the family.
After Garcia was elected, he launched an investigation into the family, although critics say it has made little progress.
"You can't buy the conscience of Alan Garcia with this amount, not even with ${esc.dollar}5 million," he told El Comercio newspaper, adding that drug gangs were not threatening Peru's stability. "A narco state is when the basic powers are taken over by lobbies. Thank God, this doesn't exist here." (Editing by Kieran Murray)
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