Eight months after socialists and former guerrillas became the government of this tiny South American country, the administration of Socialist President Tabare Vasquez is facing a tricky challenge: How do former anti-capitalists run a country that needs new jobs and foreign investment?

It's a question the leftist government of neighboring Brazil has been struggling with since former union leader Luiz Inacio Lula da Silva won the presidency three years ago. Last month, hundreds of activists left Lula's Workers' Party, denouncing what they said was its drift to the right.

So far, Vasquez and his Broad Front coalition of parties have kept intact the Washington-friendly economic policies they inherited.

The country, with a debt burden equal to 90 percent of its gross domestic product, is still paying foreign creditors. It is also still courting foreign investment -- most controversially, backing construction of a paper plant by Spanish and Finnish companies along the environmentally sensitive Uruguay River.

Government officials defend the paper mill, noting that with unemployment at 13 percent, the country, which is the size of Washington state, needs the thousands of jobs the plant would create.

Protecting workers and providing for the poor are still priorities, said Juan Fernandez, spokesman for popular agriculture minister Jose "Pepe" Mujica, who spent years as a Tupamaro guerrilla battling Uruguay's government.

One of the government's first acts after taking office in March was to launch a "social emergency" program that offers about $50 a month to the country's poorest 10 percent.

"We are working in the real world, but we are also being faithful to our political philosophy," Fernandez said. "We're playing the game and bringing in jobs that might not have the kind of labor standards we would like.

"But your choice is to either accept the jobs or not have any jobs. Which choice would you make?"

Many in Vasquez's Socialist Party, which for years denounced what it called the abuses of the international monetary system and warned against inviting foreign capital into the country, are asking how many hard choices the government will have to make over its five-year term.

"There are concerns about where this government is going," said party spokesman Jaime Daniel Aljanati, speaking at the party's headquarters in an old, dank house surrounded by portraits of leftist icons such as Karl Marx and ousted Chilean President Salvador Allende. "We have doubts about this hunt for foreign investment. And when will we see the redistribution of income among the country's poorest?"

Luis Hierro Lopez, the country's former vice president, said the Vasquez government has abandoned its old ideas and continued the free market policies that he and other past leaders developed.

He heads the Colorado Party, which along with the White Party, ruled the country exclusively for most of its 180-year history.

"They've put aside the rhetoric and assumed a practical economic line," Lopez said. "There's a sector within the Broad Front that is very disappointed."

Similar tensions have plagued Brazil's president, who, after years challenging his country's dictatorship and even going to jail for his activities, won the presidency in 2002.

This summer, Lula has been badly hurt by charges that top Workers' Party officers funneled money to illegal campaign accounts and bribed legislators from other parties for votes. The government has denied the charges.

Even before the scandal broke, however, party faithful were accusing Lula of betraying his radical roots by hewing to conservative economic policies that emphasized low inflation and budget surpluses over social programs and agrarian reform.

Aljanati said the Vasquez government is closely watching the Brazilian experience for tips on how to keep both the creditors and the grass roots happy.

"Don't separate the decision-makers from the rank and file," he said. "Don't end the social contract. That's what we've learned from the Brazil case."

Perhaps the issues were more clear-cut 40 years ago when many now in Vasquez's government belonged to the Tupamaro guerrilla group, which kidnapped, stole and killed in its struggle against a civilian government and then a military dictatorship.

Many Tupamaros would spend years in prisons -- some of them converted wells -- after the government squashed the movement.

The group's violent legacy is still making waves in Uruguay, especially with top Tupamaro leaders now filling high government posts. The country's military recently chafed at orders from Vasquez to take down pictures of four soldiers killed by the guerrillas in 1972 that were posted in a colonel's office.

Vasquez has also aggressively sought the prosecution of military officers accused of committing human rights abuses during the 1973-84 dictatorship, one of Latin America's most brutal.

Luis Rosadilla, a former Tupamaro guerrilla who spent nine years in prison and today is a federal deputy, said he and his colleagues resorted to armed confrontation because they had no viable mainstream vehicle for their leftist agenda.

Decades later, they are that vehicle, he said.

"Sure, there are tensions among us now," he said, "but I see it as a positive thing that helps develop our policies. Our government is the fruit of many years of social work. We can handle the criticism."

Former vice president Luis Hierro Lopez says the leftists have adopted economic policies he and others developed.