A year after the landmark decision against Chevron, a panel working for The Hague’s Permanent Court of Arbitration told Ecuador last week to take all necessary measures to suspend enforcement of the award at home and abroad.

But in a ruling made public on Monday, the court that has been considering the case in the remote Amazon jungle region of Sucumbios said Ecuador should not comply with that order.

“A simple arbitral award … cannot force judges to infringe the human rights of our citizens,” said the court, adding that abiding by the panel’s order would be unconstitutional and would lead to the breach of international human rights conventions.

The court said it had accepted an appeal filed by Chevron, however, and referred it to the Supreme Court in the clearest sign yet that the litigation, which has already run nearly 20 years, could drag on for more years.

The plaintiffs say The Hague panel’s ruling will not affect their plans to collect on the $18 billion award in other countries where Chevron has assets.

“We intend to do everything in our power to ensure Chevron’s management team meets the company’s legal obligations and pays the full amount of the judgment,” said Pablo Fajardo, the lead lawyer for the plaintiffs.

CASE WATCHED CLOSELY

California-based Chevron inherited the case with its 2001 takeover of Texaco, which had left Ecuador nine years earlier.

The plaintiffs accused Texaco of causing illnesses in the local population by dumping drilling waste in unlined pits. They launched their case in 1993 in New York, before it was moved to the court in the town of Lago Agrio nearly a decade later.

Chevron denies the accusations. It says Texaco did not pollute the jungle, and that it properly cleaned up all the pits for which it was responsible. The case is being watched closely by the oil industry for precedents that could influence other claims by states accusing multinational companies of pollution.

Activists portray the long legal battle as a fight for justice, but Chevron says the proceedings have been driven more by opportunism and greedy lawyers. The saga has spawned lots of accusations of dirty tricks and bribery.

“In light of fraud that overtook the Lago Agrio litigation, and the decision rendered … by an international arbitration tribunal precluding enforcement, no court in the world that respects the rule of law will recognize this illegitimate judgment,” Chevron spokesman James Craig told Reuters.

Working under rules set by the U.N. Commission on International Trade Law, the panel must decide whether it has jurisdiction in the case and could also consider whether Ecuador violated an investment treaty with the United States, given Chevron’s allegations that it did not receive a fair trial.

Arbitration could then take years, if the last Chevron dispute with Ecuador is any guide. It took four years for the panel to order Ecuador to pay Chevron $96 million in connection with claims made in its courts in the 1990s.

(Editing by Daniel Wallis)

The combative Correa has been sparring with local media ever
since he took office in 2007 promising a strong government to
better redistribute wealth in the South American OPEC member.

He often accuses privately owned television networks and
newspapers of spreading lies to undermine his government and has
called them “the real opposition,” while news organizations say
Correa is trying to censor critics.

“This will lead to real freedom of expression, to real
democracy,” Correa said during a meeting with foreign reporters
on Thursday. He said it will “put an end to one of the worst
things in America: the abuses of the corrupt media, and the lies
that they constantly say.”

The original ruling last year sentenced columnist Emilio
Palacio and three publishers at El Universo to three years in
prison and set payment of $40 million in damages to Correa over
a column criticizing the way he handled a police revolt in 2010.

None of the four have been jailed while appeals proceed.

Palacio’s February 2011 opinion column titled “No To Lies”
referred to Correa as “the Dictator” and alleged he had ordered
troops to open fire “without warning on a hospital full of
civilians and innocent people.”

Thursday’s ruling by the Supreme Court was issued shortly
after midnight, and it applied only to the sentence against the
newspaper directors. It was the first high-profile sentence
issued by the newly appointed court, which was selected amid
complaints from opposition lawmakers that some of the chosen
judges had ties with Correa’s party.

SEEKING ASYLUM

El Universo reported on Thursday that Panama has granted
asylum to one of the three publishers, who was reported to be in
the Panamanian Embassy in Quito. Palacio also filed for asylum
in the United States, claiming he is the victim of political
prosecution.

Correa, 48, attended the hearing, which lasted over 14
hours, while outside the courthouse his supporters ripped up
copies of El Universo, and his critics held banners that read
“Say no to dictatorship.”

El Universo’s lawyers have argued the original sentence was
out of proportion and accused Correa of pressuring judges to get
a favorable ruling.

“It’s obvious that the president has a very clear goal, to
finish with independent media, not only in Ecuador, but he also
wants this to reverberate all over America,” Joffre Campana, a
lawyer for El Universo, told reporters.

The ruling drew strong criticism from rights groups, which
have slammed Correa’s hard stance against the media for months.

“This shortsighted ruling will only keep Ecuadorean
journalists from investigating powerful politicians; it
represents a serious setback for democracy in Ecuador,” the
U.S.-based Committee to Protect Journalists said in a statement.

A civil court judge last week sentenced two journalists to
pay $1 million each for libeling Correa in a book that alleged
that he was aware his older brother, Fabricio Correa, was
illegally awarded public contracts.

Correa is very popular thanks to high government spending on
roads, hospitals and schools. His government has not faced the
kind of widespread social protests that forced three presidents
to step down in the decade before he took office.

But he has come under fire for undermining Congress and the
judiciary to concentrate his power, as well as for his constant
attacks against the media and hardball governing style.

He still has not said if he plans to run for another term in
an election scheduled for January 2013.

(Additional reporting by Jose Llangari, Alexandra Valencia,
Editing by Andrew Cawthorne and Todd Eastham)

Chevron was ordered by an Ecuadorian judge to pay the damages after a fraught legal battle that has lasted nearly two decades and looks like it will run longer.

The California oil company inherited the case when it bought Texaco a decade ago. Its appeal on Friday argues the lower courts violated Ecuador’s constitution by refusing to take corrective action in response to what Chevron calls “extensive fraud and corruption” committed by the plaintiffs’ lawyers and representatives.

Chevron said the original judgment, delivered last February by a lower Ecuadorian court in Lago Agrio, was based on faulty evidence and retroactive application of a law, while ignoring releases of liability granted to Texaco by Ecuador in the 1990s.

“Today’s appeal gives the National Court of Justice an opportunity to correct the grave injustices that have occurred in this case,” Hewitt Pate, Chevron’s general counsel, said in a statement.

Plaintiffs have responded to the accusations by citing Chevron’s own test data in documenting the pollution and arguing that Ecuador’s release for Texaco did not prevent third parties from suing for damages.

In related litigation in New York, the plaintiffs also accuse the company of mishandling soil and water samples during the Lago Agrio trial by maintaining two different laboratories, based on testimony from a Chevron expert.

Along with the appeal in Ecuador, Chevron asked that it not be required to post a bond to prevent enforcement of the judgment during the appeal process, arguing that such a payment would violate Ecuador’s obligations under an order issued last February by an international arbitration tribunal.

Pablo Fajardo, a lawyer for the plaintiffs, said the next step would be to see whether the Lago Agrio appeals court requires Chevron to pay.

“If it asks (Chevron) to pay a bond, and if it pays the bond, then only the bond can stop us from carrying out the sentence,” Fajardo told Reuters.

Asked if the plaintiffs were looking at any country in particular where it could seek to collect the damages, he said they would first await the decision on the bond. “We haven’t done anything, we don’t have any plans yet,” Fajardo said.

The entire case may be reheard far from both Ecuador and the United States. The arbitration tribunal in The Hague, operating under a U.S.-Ecuador treaty, ordered Ecuador to take all measures at its disposal to suspend enforcement of the Lago Agrio judgment until the arbitrators have their say.

The tribunal is expected to rule any day on the question of whether or not it has jurisdiction in the case.

(Reporting by Braden Reddall in San Francisco, Swetha Gopinath in Bangalore and Eduardo Garcia in Quito; Editing by Andre Grenon, Gary Hill)

CORREA AND THE MINING SECTOR

Ecuador is set to sign contracts with two Canadian miners
planning to invest some $3 billion for gold and copper mines in
the mineral-rich Andean country. Negotiations for the contracts
have taken much longer than expected because Ecuador is trying
to reap high benefits from the nascent mining industry, which
would allow Correa to boost social spending.

Kinross Gold Corp. plans to develop Ecuador’s
largest gold project, Fruta del Norte, and Ecuacorriente – an
affiliate of Canada’s Corriente Resources – will work on the
Mirador copper mine.

Ecuador has said that the deals will be signed in late
December or in early 2012 and that the companies will be paying
royalties of between 5 percent and 8 percent, depending on
mineral prices.

According to the government, Kinross and Ecuacorriente have
agreed to make advance royalty payments before their mines
start producing.

Ecuador is also negotiating contracts with International
Minerals over its Rio Blanco gold-silver project, with
Ecuacorriente over its Panantza-San Carlos copper deposit and
with IAMGold , which plans to develop the Quimsacocha
gold-copper-silver mine.

If all the projects go ahead, Ecuador could receive some $7
billion in mining investments over the next seven years.

The five projects were initially delayed as the government
tightened regulations for the industry. Correa has had a
tumultuous relationship with foreign investors, revising oil
contracts to better favor the government and defaulting on the
nation’s debt.

He wants to diversify the economy from crude oil exports,
and has taken a softer approach with investors planning to
develop large mines than with oil companies with investments in
the OPEC member country.

What to watch:

– Kinross and Ecuacorriente signing contracts.

– More miners coming in to tap Ecuador’s resources.

CONGRESSIONAL TENSIONS

A decision by Correa to hike taxes despite a vote by
lawmakers rejecting the measure is likely to increase tensions
between the central government and Congress. Rivals have
accused Correa of wanting to undermine Congress and the
judiciary.

Correa has accused lawmakers and judges of being
inefficient and influenced by a political “elite”. He vows to
push ahead with an overhaul of state institutions with or
without support from lawmakers.

He said he may organize public votes to get the go-ahead
from supporters for his policies. Increased state spending has
made him popular among the poor and he won a referendum in May
on reforms aimed at shaking up the judiciary.

Correa is well placed to win re-election in January 2013,
although he still has not said whether he plans to run. Even
though his rivals are divided, the opposition has a thin
majority in Congress.

What to watch:

– Increasing tensions between Correa and Congress.

– Political jockeying ahead of 2013 national elections.

MEDIA FREEDOM AND THE ECONOMY

Lawmakers are set to debate a controversial bill that calls
for the creation of a media watchdog. Rights groups fear that
Correa will use the regulator to hamper media freedom in the
OPEC-member country.

Ecuador sentenced three newspaper directors and a former
columnist to jail in July, and fined them and the paper $40
million for libeling Correa, prompting widespread condemnation
from rights groups.

Correa often accuses the press of lying to undermine his
government and calls them “the real opposition,” while news
organizations accuse him of trying to silence critics.

Correa is part of a South American leftist alliance that
includes presidents Hugo Chavez of Venezuela and Evo Morales of
Bolivia, who have changed laws to boost their power and have
also been accused of stifling media freedom.

After excluding itself from debt markets by defaulting on
$3.2 billion in global bonds three years ago, Ecuador has met
funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June
and in October it signed a deal for a $571 million loan with a
Chinese bank, which took total debt commitments to China to
around $7.3 billion, including loans, advance payments for oil
sales, and energy project financing.

In November, Correa announced that his government is in
talks with a Chinese bank for a loan worth $1.7 billion. He
also vowed to deepen economic ties with China.

Ecuador is expected to grow 6.5 percent in 2011, well above
the government’s target for the year.

The construction of the mines should boost economic growth
next year. Before announcing that the contracts were almost
done, the government forecast economic growth in 2012 at 5.35
percent.

However, the economy is highly dependent on crude exports,
and could suffer badly if oil prices were to fall.

What to watch:

– Worsening tensions between Correa and the media.

– Ecuador signing a new loan deal with China.

OIL TALKS, CHEVRON AND REFINERIES

A judge ordered Chevron in February to pay $8.6
billion to clean up pollution at old drilling sites in the
Amazon. Chevron denies the charges, and the 17-year-old legal
saga looks far from over as both sides appeal.

A U.S. judge later froze the enforcement of the ruling
outside Ecuador, but in September an appeals court reversed the
order, although the plaintiffs promised not to seek enforcement
until their appeal process in Ecuador is done.

Oil companies including Schlumberger , Halliburton and Baker & Hughes are in talks over $1.5
billion in investments to increase output in four large mature
oil fields controlled by state-run oil company Petroecuador.

The Esmeraldas refinery, controlled by Petroecuador, is
being overhauled and will be off stream for eight months in
2012. With a production capacity of 110,000 barrels per day,
Esmeraldas is the largest refinery in Ecuador and the
government is investing some $850 million to revamp it.

What to watch:

– Further legal rulings and moves in the Chevron case.

– Talks with oil investors moving forward slowly.

Deputy Mining Minister Federico Auquilla told Reuters
earlier this week that Canadian-listed Kinross Gold Corp and Ecuacorriente would soon sign contracts
for two projects worth $3 billion in total.

The negotiations have been long and difficult, in part
because the government was asking companies to pay an 8
percent royalty share, whereas miners were offering 6
percent.

“We’re negotiating the contracts very hard … They will
be signed in the next few days,” said leftist leader Correa,
who has also renegotiated part of Ecuador’s foreign debt and
oil exploration contracts with foreign companies.

The government is demanding advance payments on royalties
before the miners start extracting, the president added in
comments on local radio.

The extra income from advance royalty payments would be
used for social projects, including schools and roads, Correa
said. In power since 2007, he has made resource nationalism a
centerpiece of his policies and may run for another term in an
election due in January 2013.

Kinross plans to develop Ecuador’s largest gold project,
Fruta del Norte, while Ecuacorriente – an affiliate of
Canada’s Corriente Resources – will work on the Mirador copper
mine.

ROYALTY NOT YET DETERMINED

Correa did not say how much royalty the miners would be
paying, but mining sources familiar with the negotiations say
the final percentage will likely be closer to the figure
demanded by the government.

“Mining companies have agreed to the demands of the
Ecuadorean state and we’re completely satisfied,” said
Auquilla, the government’s top mining official, during the
same radio show.

Correa has had a tumultuous relationship with foreign
investors throughout his rule, revising oil contracts to
better favor the government and defaulting on the nation’s
debt.

He is striving to diversify the Ecuadorean economy from
crude exports, and he has taken a softer approach to investors
planning to develop mines than the oil companies with large
investments in the OPEC member country.

Ecuador has a nascent mining industry. Some larger
projects were initially delayed as Correa’s government
tightened regulations for the sector.

Ecuador is also negotiating contracts with International
Minerals over its Rio Blanco gold-silver project,
with Ecuacorriente over its Panantza-San Carlos copper deposit
and with IAMGold , which plans to develop the
Quimsacocha gold-copper-silver mine.

High oil prices have allowed Correa to increase social
spending this year, which has fueled economic growth and
boosted his popularity among the majority poor.

Jeannette Sanchez was appointed as political economy
minister, the government’s top economic job. Until now she was
social development minister, and therefore in charge of
coordinating government efforts to fight poverty and improve
living standards.

New central bank head Pedro Delgado is said to be very
close to Correa and has long experience in the banking sector.

The appointments followed the resignation of whole the
cabinet in late October.

Correa has asked all his ministers and close advisers to
resign several times since he first took office in 2007. He
tends to reappoint most of them after assessing their
performance and the needs for changes in government policy.

In all, Correa made 15 appointments, including that of
Santiago Leon as minister for production to replace Nathalie
Cely, who has agreed to become Ecuador’s ambassador to
Washington.

Cely’s appointment signals the end of a diplomatic row with
the United States that started in April when Correa expelled
the U.S. ambassador over U.S. diplomatic cables released by
WikiLeaks that suggested Correa was aware of corrupt police
practices.

High oil prices have let Correa boost spending on
hospitals, roads and schools, which has improved his popularity
among the poor and put him in a good position for likely a
re-election bid in 2013.

The government’s 2012 budget bill forecasts economic growth
next year of 5.35 percent, slightly above the 5.24 percent
target for this year.

Increased investments helped Ecuador’s economy grow 8.9
percent in the second quarter versus the same period last year,
and the oil-producing country is on track to meet its 5.24
percent growth target for 2011. [ID:nS1E78S16R]

“The (economic) growth we forecast for next year is 5.35
percent,” Correa told reporters when asked about the 2012
budget bill.

The finance ministry said in a statement that the bill
forecasts annual inflation at 5.14 percent in 2012. Official
estimates forecast full-year 2011 inflation at 3.69 percent,
slightly higher than the 3.33 percent registered last year.

The budget bill states that public spending will increase
to $26.11 billion in 2012, up from $23.95 billion this year,
and that $1.46 billion will be used to pay public debt.

The bill will likely be approved by Congress, in which the
ruling Alianza Pais coalition and its allies have a majority.

PUBLIC SPENDING

The finance ministry said the budget forecasts a fiscal
deficit next year of $4.23 billion, but Correa said Ecuador has
already secured financing for the fiscal gap.

After excluding itself from debt markets by defaulting on
$3.2 billion in global bonds three years ago, Ecuador has met
funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June
and took a $571 million loan from a Chinese bank last month,
which pushed debt commitments to China to about $7.3 billion,
including loans, advance payments for oil sales, and energy
project financing. [ID:nN1E75Q1PC]

High oil prices have allowed Correa to boost spending on
hospitals, roads and schools, which in turn has improved his
popularity among the majority poor. Increased state spending
has also stocked economic growth.

The budget forecasts average oil prices at $79.70 per
barrel in 2012. Ecuador produces about 500,000 barrels of oil
per day and it is OPEC’s smallest member.

“Fitch considers that Ecuador’s growth performance is
vulnerable to a decline in international oil prices, since the
government has limited counter-cyclical policy options given
the country’s dollarization regime and limited financing
sources,” the rating agency said in a statement last week.
(Additional reporting by Yuri Garcia; Writing by Eduardo
Garcia; Editing by Eric Walsh)

Increased investments helped Ecuador’s economy grow 8.9
percent in the second quarter versus the same period last year,
and the oil-producing country is on track to meet its 5.24
percent growth target for 2011. [ID:nS1E78S16R]

“The (economic) growth we forecast for next year is 5.35
percent,” Correa told reporters when asked about the 2012
budget bill.

The finance ministry said in a statement that the bill
forecasts annual inflation at 5.14 percent in 2012. Official
estimates forecast full-year 2011 inflation at 3.69 percent,
slightly higher than the 3.33 percent registered last year.

The budget bill states that public spending will increase
to $26.11 billion in 2012, up from $23.95 billion this year,
and that $1.46 billion will be used to pay public debt.

The bill will likely be approved by Congress, in which the
ruling Alianza Pais coalition and its allies have a majority.

PUBLIC SPENDING

The finance ministry said the budget forecasts a fiscal
deficit next year of $4.23 billion, but Correa said Ecuador has
already secured financing for the fiscal gap.

After excluding itself from debt markets by defaulting on
$3.2 billion in global bonds three years ago, Ecuador has met
funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June
and took a $571 million loan from a Chinese bank last month,
which pushed debt commitments to China to about $7.3 billion,
including loans, advance payments for oil sales, and energy
project financing. [ID:nN1E75Q1PC]

High oil prices have allowed Correa to boost spending on
hospitals, roads and schools, which in turn has improved his
popularity among the majority poor. Increased state spending
has also stocked economic growth.

The budget forecasts average oil prices at $79.70 per
barrel in 2012. Ecuador produces about 500,000 barrels of oil
per day and it is OPEC’s smallest member.

“Fitch considers that Ecuador’s growth performance is
vulnerable to a decline in international oil prices, since the
government has limited counter-cyclical policy options given
the country’s dollarization regime and limited financing
sources,” the rating agency said in a statement last week.
(Additional reporting by Yuri Garcia; Writing by Eduardo
Garcia; Editing by Eric Walsh)

CABINET RESHUFFLE, REFERENDUM REFORMS

Leftist President Rafael Correa asked his cabinet in full
to resign in October, as he often does toward the end of the
year. He should unveil a new cabinet in early November.

Correa tends to reappoint most ministers, but this time he
will have to name a new political economy minister, the
cabinet’s top economic official, after Katiuska King quit in
October.

Correa won a May 7 referendum on 10 reforms to overhaul the
justice system and limit media ownership, as well as to ban
activities such as bullfighting and gambling in casinos.

He argues the judicial overhaul is key to tackling crime,
the number one worry of Ecuadoreans. But opposition leaders say
the reforms are designed to give Correa more control over
judicial appointments.

In early September, Correa declared a 60-day judicial
“emergency” to ensure legal services while the justice system
is overhauled.A new supreme court should be
elected before the end of the year.

Some of the 10 reforms have to be ratified by lawmakers,
and the ruling Alianza Pais coalition is scrambling to win
support for them since it does not hold a majority in
Congress.

Ecuador sentenced three newspaper directors and a former
columnist to jail in July, and fined them and the paper $40
million for libeling Correa, prompting widespread condemnation
from rights groups.

Correa often accuses the media of lying to undermine his
government and calls them “the real opposition,” while news
organizations accuse him of trying to silence media critics.

Congress is due to start debating a media reform bill in
mid-November. The bill calls for a media watchdog that critics
fear will be used to censor journalists.

Correa is part of a South American leftist alliance that
includes presidents Hugo Chavez of Venezuela and Evo Morales of
Bolivia, who have changed laws to boost their power and have
also been accused of stifling media freedom.

What to watch:

– Worsening tensions between Correa and the media.

– A heated debate in Congress over the media reform bill.

POLICE AND MILITARY

Violent police protests rocked Correa’s government last
year, reviving memories of Ecuador’s volatile history. He said
the protests were an attempted coup.

The government’s relations with the police remain tense and
it has announced a plan to subject hundreds of policemen to lie
detector tests to find out if they are involved in corruption
or criminal activities.

The government wants to implement reforms to clean up the
police force, such as setting up of an internal affairs unit,
and it is promoting the investigation of alleged human rights
abuses by police in the 1980s, which is stoking tensions.

Ecuador’s military calls the shots during crises and they
backed Correa during the police mutiny. The soldiers’
assertiveness may temper some of his policies, or undermine
stability.

Correa enjoys high popularity rates thanks in part to
increased social spending. However, three presidents were
ousted in the decade before Correa took office in 2007 and the
military often played a critical role by refusing to assist the
leaders being buffeted by protests.

What to watch:

– Government slowly forging ahead with police reforms.

– Police criticizing the reforms in the media.

PUBLIC FINANCE, MINING AND OIL TALKS

After excluding itself from debt markets by defaulting on
$3.2 billion in global bonds three years ago, Ecuador has met
funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June
and in October it signed a deal for a $571 million loan with a
Chinese bank, which took debt commitments to China to around
$7.3 billion, including loans, advance payments for oil sales,
and energy project financing.

The government has launched a bid to attract foreign
investment for a plan to spend $8 billion in infrastructure,
including roads, ports and airports.

Increased investments helped Ecuador’s economy grow 8.9
percent in the second quarter versus the same period last year,
and it is on track to meet its 5.2 percent growth target for
2011.

Ecuador may return to international debt markets with a
bond issue in 2012, but past defaults, instability and Correa’s
tempestuous relationship with the private sector mean it may
have to pay very high yields.

The government expects $7 billion in mining investments in
the next few years, and officials have been in talks for months
with four foreign miners aiming to develop large projects.

They should reach agreements before the end of the year.
Correa said in August the talks were “really hard,” because the
government was demanding an 8 percent royalty payment while
investors were offering to pay 6 percent.

Oil companies including Schlumberger , Halliburton and Baker & Hughes are in talks over $1.5
billion in investments to increase output in four large mature
oil fields controlled by state-run oil company Petroecuador.

Ecuador has offered $168 million to Brazilian oil company
Petrobras for its assets in the country, which were
nationalized after Petrobras refused to sign a new contract
giving the state a larger share of its revenue. Petrobras is
reportedly seeking $300 million for its Ecuador unit.

What to watch:

– Petrobras may seek international arbitration.

– Government and miners extending the deadline for talks.

CHEVRON, U.S. DIPLOMATIC SPAT

A judge ordered Chevron in February to pay $8.6
billion to clean up pollution at old drilling sites in the
Amazon. Chevron denies the charges, and the 17-year-old legal
saga looks far from over as both sides appeal.

A U.S. judge later froze the enforcement of the ruling
outside Ecuador, but in September an appeals court reversed the
order, although the plaintiffs promised not to seek enforcement
until their appeal process in Ecuador is completed.

Correa expelled the U.S. ambassador in April over U.S.
diplomatic cables released by WikiLeaks that suggested Correa
was aware of the corrupt police practices.

However, after months of talks aimed at patching up
relations, Ecuadorean Foreign Minister Ricardo Patino said in
September that both countries have appointed ambassadors who
should take their posts in the next few weeks.

Despite fears that U.S. lawmakers were not going to renew a
regional trade preferences deal that expired in February
because of the diplomatic row, the U.S. Congress extended the
agreement in October until 2013.

What to watch:

– Further legal rulings and moves in the Chevron case.

– U.S., Ecuador reestablish full diplomatic relations.

The arrests have been hailed as a success of cooperation between Colombia and the United States, which has contributed with billions of dollars in aid to help the Andean country fight drug smugglers with links to Marxist guerrillas.

“I want to sincerely congratulate … the public prosecutor’s offices (of Colombia and United States), the police, the army (and) the air force, because this shows that our fight against drug trafficking is delivering accurate blows,” President Juan Manuel Santos told reporters.

He said 36 people had been arrested in the operation, which followed on from the detention of 19 suspects last month that belonged to a gang that built submarines to smuggle cocaine out of Colombia, the world’s top producer of the narcotic. He did not disclose where the arrests took place.

Some 21 aircraft were confiscated in the latest operation, which crushed a smuggling ring that supplied cocaine to Mexico’s Sinaloa cartel, the most powerful organized crime gang in the Americas.

“This operation between the United States and Colombia has a direct impact that should relieve violence and drug trafficking in Central America and Mexico,” said General Oscar Naranjo, the head of the Colombian police.

The security forces seized 5 tonnes of cocaine, more than $1.5 million in cash, and arrested some “big shots” who worked for the ringleader, Daniel “Mad” Barrera, who remains at large.

“The United States and Colombia are fighting against a new threat, the narco-trafficking organizations, and we’ll dismantle them,” Wifredo Ferrer, U.S. Attorney for the Southern District of Florida, told reporters in Bogota.

Those organizations have tried to fill the void left by the fall in recent years of the Norte Valle Cartel and the dissolution of the Autodefensas Unidas de Colombia, a paramilitary group, the U.S. Department of Justice said in a statement.

They are becoming a leading supplier of cocaine to Mexican cartels, in particular the violent Sinaloa group, which experts say moves up to two-thirds of drugs into the United States.

GUERRILLA ATTACKS

The Andean country has attracted billions of dollars in foreign direct investment over the last decade, boosting oil and coal output after U.S. military aid helped it deal crippling blows to leftist guerrillas and cocaine cartels.

Santos’ economic policies have won Colombia investment grade status from the three leading rating agencies, but the achievements have been tarnished by a recent increase in violence by the Revolutionary Armed Forces of Colombia (FARC), including attacks on foreign oil companies.

The rebels remain strong in some remote areas of the nation of 46 million people, aided in part by involvement in the cocaine trade and alliances with other armed groups.

Santos vowed in early August to improve intelligence gathering, and said troops should break into smaller units for greater versatility in fighting the FARC.

He appointed a new defense minister earlier this week, among growing criticism that the armed forces are failing to thwart attacks from guerrillas.

(Additional reporting by Luis Jaime Acosta; Editing by Cynthia Osterman)