Abstract The countries of western South America are heavily dependent upon their water resources and are subjected to considerable interannual variability in precipitation and streamflow. Many of these extremes, both high and low, are shown to be associated with the various aspects of atmosphere–ocean behaviour in the eastern and central Pacific, which are collectively termed El Niño–Southern Oscillation (ENSO). ENSO itself constitutes a complex of environmental changes that have differing influences throughout the study area, but which are loosely associated, statistically and physically, with the major regional precipitation‐generating mechanisms. As the result of a non‐linear chaotic system, no two ENSO events are the same, nor are their interactions with other regional climatic factors and the state of the continental hydrologic system, both of which may act to dampen or amplify any changes. However, statistical evidence suggests that probabilistic forecasts are possible based either upon anticipated state of the atmosphere–ocean arbitrarily classified according to some a priori classification scheme or upon forecasted sea surface temperatures. Examples of the changing probability distributions of hydro‐climatological variables in the study area suggest that some practical information of value may be extracted. Copyright © 2002 John Wiley & Sons, Ltd.