Peruvians love to tell visitors what's wrong with their country. Of course, if others find fault, it's a different story - particularly if they come from Chile, Peru's rival to the south.

So when it emerged last month that Lan, Chile's biggest airline, had shown an in-flight video depicting Lima as a squalid and dirty city with vagrants urinating in rubbish-strewn streets, the capital's residents were somewhat chagrined.

Lan claimed it had bought the video - meant to highlight "adventure" tourism - sight unseen from a company in California.

With an eye on next April's elections, Peruvian politicians lined up to express their indignation. Congress even hauled in Emilio Rodriguez Larraín, president of Lan's Peruvian subsidiary, to explain himself.

Lan apologised in full-page ads in Peruvian newspapers and sacked those responsible, but Ignacio Walker, Chile's foreign minister, aggravated tensions by saying Peru was whipping up a storm in a teacup.

Peru has called off trade talks with Chile, and a Congressional committee proposes to exclude Chile from investing in ports and airports. Carlos Ferrero, Peru's prime minister, has vowed to seek damages from Lan in court.

Lan is promising to make amends by making a new film that shows the colonial "City of Kings" in all its splendour. Observer suggests that this time any shots of tramps relieving themselves be edited out.