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The interim president of the central bank, Luis Campos, is confident that inflation in 2011 will be 6.3%.

Campos said that the central bank had been draining liquidity (about G$744bn, or US$160m) from the local financial system in the first couple of weeks of 2011. The bank had injected the money into the local money markets in December in order to help companies pay annual bonuses.

In 2010, inflation was 7.2%, just inside the central bank's target of 7.5%. This was a decent performance given the fact that local food prices increased by 16% in 2010 and the local economy grew by a staggering 14.5% thanks to the bumper soya crop.

The central banks' forecast is brave given that monthly consumer price inflation in December 2010 was 1.5%. In 2009, consumer price inflation was just 1.9%.

According to the central bank, the country's GDP increased from US$15.5bn in 2009 to US$17.8bn in 2010. What makes this staggering is that GDP has doubled since 2006 (when it was US$8.5bn) and trebled since 2003 (when it was US$5.3bn). Per capita GDP has jumped from under US$1,250 in 2004 to US$2,733 in 2010.

Essentially the country's GDP depends on the size of the soya crop. So GDP forecasts are little more than weather forecasts.

Bank credit: According to the central bank, bank credit to the private sector was G$24.8 trillion (US$5.3bn, so about a third of GDP). According to the central bank, non-performing loans (also in October 2010) were 1.5% of total loans.

Trade: In the first nine months of 2010 exports came to US$3.47bn, while imports came to US$6.6bn. International reserves stood at US$4.2bn at the end of 2010.

The sensitive issue of agriculture is finally being broached by Central American negotiators in advance of the seventh round of the US-Central American Free Trade Agreement (US-Cafta) in Managua on 15 September. Regional negotiators will hand US counterpart Jason Hafemeister their proposal for a specific compensation package in view of the US refusal to eliminate agricultural subsidies.  

The compensation package being discussed consists of a special agricultural safeguard (SAE) to stop subsidised US agricultural products from flooding the regional market. Under the SAE, Central American countries will apply tariffs and/or quotas equivalent to the subsidy applied by the US to distinct products. Mario Salaverrí­a, president of the regional farmers' association, Fecagro, explained that he expected the US to look favourably on the proposal as it would not budge on its own subsidies.

Central American negotiators might have more trouble selling the proposal to domestic producers. Several agricultural organisations have expressed serious concern at the threat of US subsidised products, and want a failsafe protective mechanism. The greatest impact of the US farm bill has been on products that the US is protecting domestically and that are already competing in Central American markets, such as pork, maize, soya, peanuts, milk and dairy products. Most of the important Central American agricultural exports to the US, namely sugar, peanuts and dairy products are already subject to specific import quotas.

Central American police chiefs are meeting in Guatemala to thrash out a regional plan to deal with the threat of juvenile street gangs, known as 'maras'. On the agenda is a detailed analysis of the different strategies being employed by the police across the region. By far the worst affected countries are Guatemala, El Salvador and Honduras. However, Hamin Gurdian, Nicaragua's police chief warned that 'there is a danger that this problem could spread to the rest of Central America to the same degree as in Guatemala and El Salvador.'

In August, the Honduran congress approved a key plank of the anti-crime war being waged by President Ricardo Maduro. It unanimously agreed to amend the penal code, so that being a member of a violent 'mara' is now punishable by up to 12 years in prison. The new law means that mara leaders face tough prison sentences of between nine and 12 years and a fine of between L10,000 and L200,000 (US$570 to US$11,430). Gang members will face sentences a third of this length. A similar law was rejected by El Salvador's legislature on human rights' grounds. A virtually identical law is currently under consideration in Guatemala.

The principal 'mara' groups operating in Central America are known as 'Mara 18' and 'Mara Salvatrucha', comprise in the main of Central American youths whose parents emigrated illegally to the US. Their disaffected children were deported back to their respective home countries where they had no base.

Yesterday was primary election day in the important northern state of Chihuahua. The state is currently run by the Partido Revolucionario Institucional, but has a long history of supporting the Partido Acción Nacional. The actual election for governor will take place in July next year. There are nine other major elections next year.

Both the PRI and the PAN primaries were marred by accusations of chicanery. Both Prií­sta candidates, Victor Anchondo Paredes and José Reyes Baeza Terrazas accused each other of overspending and fraud at the polls. Lots of polling stations opened late or failed to open at all and the candidates blamed each other for trying to skew the election. With 48% of the polling stations and 70% of the votes counted, Reyes Baeza was well ahead with 90,316 votes against Anchondo's 35,714.

The PAN primary was not much less tense. Last week, two candidates pulled out leaving the mayor of Ciudad Juárez, Jesús Alfredo Delgado, to square up to Javier Corral Jurada.

The IMF board formally approved an extension of 15 months and an increase of US$6.6bn in the contingency programme for Brazil. The decision was taken on Friday and announced yesterday, 15 December. The original IMF deal, for US$30bn, was done in September 2002. Simultaneously, the IMF completed and approved its fifth and final assessment under the existing programme. This approval meant that Brazil immediately became eligible for US$8.2bn. The IMF has also eased the repayment terms on the money Brazil has drawn down under the programme.

This means that Brazil now qualifies for IMF loans of US$14.8bn, should it need the money. The dramatic improvement in the country's balance of payments, thanks to a surge in exports and weak domestic demand which have depressed imports, means that officials are confident that they will not have to draw down this money. Under the original IMF programme, which made US$30.3bn available, Brazil drew down US$22.1bn.

The IMF was fulsome in its praise of Brazil's economic management. The IMF's managing director, Hörst Köhler, said that Brazil's performance under the agreement of 6 September 2002 continues to be exemplary and that it had met all the targets set. The main target is a primary fiscal surplus of 4.25% of GDP. The IMF said that the progress Brazil was making on lowering its domestic debt burden was impressive. The government has set itself rough targets under the new programme: it wants to reduce the proportion of domestic debt linked to the dollar even further and increase the proportion of fixed rate and inflation indexed debt.

President Lula da Silva changed his tune after having criticised the Brazilian business class on Tuesday (27 January) during a state visit to India. President Lula da Silva said he wanted the Brazilian export sector to be more 'aggressive' and to hear less 'crying' from businesses. By Wednesday, however, he had second thoughts, admitting he had been too harsh to his 'business comrades'. He commended the businessmen who travel in search for new business opportunities, but reproached the ones who 'wait for miracles to happen'.

His apology was well received by Brazilian businessmen. The vice-president of the Brazilian Industry Confederation, Robson de Andrade, said the government's criticisms were positive, and needed to shake up the private sector. While President Lula da Silva was visiting the Taj Mahal, the business committee that accompanied him was busy closing deals with the Indians. The Company of Alcohol-fuel (Coopesucar) discussed supplying alcohol-fuel to the Indian industry. The Indian group HBN closed a deal to import Brazilian fruit juices, and the Banco do Brasil will double its credit line for bilateral trade to US$200m.

President Lula da Silva stated the importance of an alliance with India. He also pointed to the similarities between Brazil and India, such as economic potential and social problems. He defended the creation of the G-3, the alliance between both countries and South Africa, in order to fight rich countries that impose barriers to imports from developing nations.

Yesterday (29 January) President Lula da Silva went off to Geneva. He is meeting investors to discuss economic development and his government's policies in the economic and social areas. President Lula da Silva is also scheduled to meet the UN Secretary-General, Kofi Annan, and the French President, Jacques Chirac. They will discuss the creation of an international fund to combat poverty.

Mexico's secretary of agriculture, Javier Usabiaga, landed in Tokyo yesterday to open the Mexican pavilion at the Foodex International Food Fair being held near Japan's capital this week. Despite last week's disagreements over the bilateral free trade agreement (FTA), Usabiaga remained optimistic that talks with Japan might be renewed during his five-day visit.

Mexico has had trouble negotiating the FTA with its principal trade partner in Asia. The negotiations were supposed to culminate with the signing of a deal during President Vicente Fox's visit to Japan in October 2003. This did not happen and since then the Japanese have stuck to (what the Mexicans argue are ridiculously low) import quotas for Mexican pork products and orange juice. Mexico and Japan also have to settle differences about Japan's car and steel exports.

Last Friday, the two countries finished another two weeks of inconclusive discussions about the treaty. Usabiaga is scheduled to meet with his Japanese counterpart, Yoshiyuki Kamei, tonight to consider the obstacles to the agreement. Mexico hopes that he will agree to make concessions, and reduce tariffs and increase import quotas for Mexican beef, pork, chicken, oranges and orange juice.

Mexico is standing by the threat, issued by trade and industry minister Fernando Canales Clariond, to give up talks if no results are achieved by the end of March. Japan, on the other hand, is willing to continue discussion until an agreement is reached.

The Rio de Janeiro's public security secretary, Anthony Garotinho, dispatched yesterday (14 April) a request to the ministry of justice asking the federal government to send in troops to fight drug traffickers in Rio's slums. However, at a press conference, Garotinho said the situation in the main Brazilian tourist destination is under control and that assistance from the army will not be necessary.

After receiving the request, the justice minister, Thomaz Bastos, announced he had received information from the intelligence and security services supporting Garotinho's declaration. However, Bastos said if the situation gets out of hand again, he will be ready to send in the troops to assist the police. In the senate, the defence minister, José Viegas said the army would only get involved if there was a clear concern that the local authorities could not guarantee the population's safety. At the moment there is a project in discussion in the upper house considering giving the army some of the police's tasks to fight organized crime and drug's trafficking.

Meanwhile, the police was busy killing two more drug dealers in the Rocinha slum. One of the killed, Luciano Barbosa da Silva, know as Lulu, is believed to be the leader of the traffickers in the slum. Lulu's four-store home was later shown to the press, revealing the life of luxury he enjoyed amongst the Rocinha's residents poverty. More than 19 people were arrested after an afternoon of heavy fire exchange between the police and drug militias. Since Easter, when the fighting between rival gangs to control the slum's drug business started, 12 people have died.

The Consejo Nacional Electoral (CNE) said that it would today (24 May). publish the results of its double-checking of signatures calling for the recall of 14 congressmen. Over the weekend, both the government and the opposition made claims about how the double-checking had gone.

The government claims that the one government-supporting deputy involved would not face a recall referendum, after the opposition backed down. The other 13 double-checks all involved opposition-supporting deputies. The double-checking was on a much smaller scale to that of the presidential double-checking, which will come on 27 to 31 May. The congressional process involved only 11 of the country's 23 states.

Congress has 165 members, and the government has a narrow majority over the opposition. Some commentators fear that the government will use its majority in congress to change the composition of the supreme court, which will then allow it to change the constitution to suit its requirements.

Development: The CNI/Ibope opinion poll published on 29 June, showed another fall in President Lula da Silva's support; this time to 51%. In March it had been 54% and in March 2003, 80%.

Significance: This is the second poll in as many weeks to show Lula's support falling to just over 50%. Worryingly for the president, his disapproval rating is climbing. It now stands at 43% up from 36% in March and 16% in March 2003.

Interestingly Lula's support among women is crumbling faster than his support from men. While Lula's disapproval rating among men climbed by only three points between March and June, it rose by nine points among women. 

The second worry for the government is that the line charting the percentage of people who believe that the government is doing well is perilously close to falling below the line for those who think its is doing badly: 29%:26%. In March 2003 the percentage of people who thought the government was doing well stood at 51% and those that thought it was doing badly stood at 7%.

Development: A leading Venezuelan opposition paper, El Universal, admitted on 5 August that it had been duped into publishing a poll which showed President Hugo Chávez trailing in the recall referendum.

Significance: The bogus poll was almost the only one which shows that President Hugo Chávez would not win the recall referendum on 15 August. El Universal is Venezuela's largest-selling national newspaper. On 5 August it published a front page apology saying that it had reported the poll in good faith. 

El Universal said that it received the poll from a person who claimed the tally had been compiled by Felix Seijas from polling firm Instituto Venezolano de Analisis de Datos. The poll purported to show that 50% of the respondents would vote 'yes' in the recall referendum, forcing Chávez out of office. The poll claimed that the 'no' vote (from Chávez supporters, was 44%. The editor of El Universal, Elides Rojas, said that the paper had made a mistake because it had not called the pollster to check the poll was genuine. 

Both sides will close their campaigns next week. The government's 'no' campaign will culminate with a march down the Avenida Bolí­var on 8 August. This will be capped by a Festival Bolivariano de la Música on 13 August in the Avenida Urdaneta.

Development: The Partido Acción Nacional (PAN) said on 9 September that it would complain formally about the result of the election in Veracruz on 5 September.

Significance: Veracruz is the third most important electoral area in the country. The official result of the gubernatorial election, released only on 9 September, showed that the PAN had lost narrowly to the incumbent Partido Revolucionario Institucional (PRI) in a close three-way fight. President Vicente Fox belongs to the PAN, so the federal government is likely to take an interest.

The PAN has asked the interior minister, Santiago Creel (another Panista), to press the PRI governor of Veracruz, Miguel Alemán Velasco, to overturn the result. If Alemán, who is son of a former president and a possible candidate for the presidency in 2006, does this he risks splitting the PRI further and alienating the PRI's leader, Roberto Madrazo.

The official result of the election showed the PAN candidate, Gerardo Buganza, less than 1% behind Fidel Herrera, a prií­sta running for the Fidelidad por Veracruz coalition composed of the PRI and the Partido Verde Ecologista de México.

Development: Deputies from Ecuador's smaller parties have warned of 'chaos' in the forthcoming municipal and regional elections, due on 17 October.

Significance: The election campaigns have already been marred by violence and accusations of influence-peddling. Now it looks as if the very legality of the electoral method, approved (unconstitutionally) by the supreme electoral tribunal (TSE) following the failure of congress to legislate on the issue, will be challenged long after Sunday's vote.

On 17 October 8m Ecuadoreans will elect 22 provincial prefects, 219 mayors, 91 provincial councillors, 893 municipal councillors and 3,970 members of community governments. Voting is obligatory for Ecuadoreans between 18 and 65.

Politicians from Ecuador's smaller parties, including President Lucio Gutí­errez's own Partido Sociedad Patriótica, are angry that the TSE has decided to switch from the D'Hont method of allocating votes to the Imperial method, which they argue benefits the larger parties in congress.

The D'Hont method attempts to allocate seats proportionally in a ratio of votes to seats. The first seat is given to the party which wins the most votes; that party's total is then divided by two and the second seat is again given to the party with the most votes. That party's votes are then divided by three and the third seat is given to the party with the most votes and so on until all the seats are distributed.

In the Imperial method, the divisors are 1; 1.5; 2; 2.5 etc (rather than the 1, 2, 3, 4, 5 of the D'Hont method); the smaller gap between the divisors benefits the majority parties while a larger gap (two or even three digits) favours the minorities. To use a simple example, if there are 100 votes to be shared over five seats and Party A wins 50, Party B wins 38 and Party C wins 12, Party A will win three seats, Party B two and Party C no seats. Under the D'Hont method Party C would still win one seat.

A total of 25,000 police will guard the polling booths on 17 October and it is unlikely the election will pass off without incident. Four candidates have already been killed in the last month.

Development: The World Bank said in its 'Global Economic Prospects' on 16 November that this year would be the best for developing countries since 1974. The world's developing countries will grow by 6.1% this year.

Significance: Growth in Latin America this year will lag the overall rate for emerging economies. The World Bank forecasts 4.7% growth for Latin America. This looks on the pessimistic side. Not only are the region's two biggest economies, Mexico and Brazil, enjoying their best growth for almost a decade (both are likely to grow around 4.5% this year) but second-tier economies such as Venezuela and Argentina are also bouncing back. Venezuela will probably grow by 12% this year and Argentina by 8%. 

Latin America's growth is overshadowed, however, by the surge from Asia. East Asia and the Pacific, thanks to China, will grow by 7.8%, the World Bank said, and Europe and Central Asia by 7%.

The World Bank is comparatively gloomy about Latin America in 2005 and 2006. It is forecasting that the region's growth rate will fall to 3.7% in both years. The World Bank forecasts the overall growth rate for developing economies will be 5.4% in 2005 and 5.1% in 2006. 

Putting this in perspective, the growth rate for developing countries has accelerated from 3.4% in 2002 to 5.2% in 2003. The main reason for the surge is the extraordinarily sustained growth in China of over 9% a year and the pick up in India, which grew by 8.2% in 2003 and 6% this year. Excluding China and India, developing economies would grow by 5.4% this year, the World Bank calculates. 

The World Bank argues that the faster growth rate is the product of an upswing in major industrial countries and domestic economic reforms. The World Bank said the growth in developing nations in 2003 and 2004 should help many of these poor countries achieve the United Nation's Millennium Development Goals of cutting global poverty in half by 2015. The Bank is forecasting that average real per capita growth will be 3.5% between 2006 and 2015. If this is achieved, it will be double the growth rate of the 1990s.

The World Bank report also discusses whether regional trade agreements are good for economic growth in developing countries. Its conclusion is that a better way to promote growth was through multilateral trade liberalisation, such as the Doha round of trade talks being conducted by the World Trade Organization.

The Bank is still fretting about Latin America and the Caribbean's debts. It argues that the region's economic progress will be affected by how successfully its policymakers deal with rising interest rates and higher foreign payments on debt. One hopeful sign is the growing interest across the region in promoting local capital markets. Colombia announced in early November that it would issue its first ever Eurobond (ie available to international investors) denominated in Colombian pesos. Brazil is now following suit. Both the Colombian peso and the Real are attractive because they have appreciated significantly (10% and 4% respectively) against the dollar this year. 

The region's biggest economy, Mexico, has already switched the focus of its borrowing to its domestic market. It is continuing with this policy, even though domestic rates have risen faster than dollar rates.

Development: On 19 December the office of President Vicente Fox announced a 4bn peso (US$358m) plan to control inflation by lowering electricity costs and reducing trade tariffs.

Significance: One of the main problems facing the Mexican economy is the appreciation of the peso against the US dollar. Since 1 November, the peso is up by about 3% against the dollar. This rise is making life more difficult for exporters who are up against competitors from China whose currency is pegged to the dollar. The reason why the Mexican currency has been so strong is that the central bank has been tightening monetary policy to squeeze out inflation. Arguably, the central bank failed to act decisively early in 2004, believing that seasonal factors (ranging from BSE in US cattle which pushed up the price of beef in Mexico to surges in tomato prices) were largely to blame.

Policymakers have now become so concerned about inflation (which is currently running at about 5.5% a year) that they are prepared to countenance cuts in the prices of goods and services whose charges are set by the government. The most important of these are electricity and fuel.

The government's plan, essentially, is to let the state-oil company, Pemex, absorb the cost of these price cuts. Starting from January, household customers will enjoy lower rates after buying the first 500 kilowatt-hours of electricity and industrial users will find their bill decreased with the readjustment of extra charges during peak hours. Countries that do not have trade agreements with Mexico will also benefit from the government's package as tariffs on their exports there will be reduced to pre-1998 levels. The government also plans to make liquid gas imports duty free.

Development: The Brazilian foreign minister, Celso Amorim, proposed a bilateral trade agreement between the Mercosur and the US on the weekend of 29-30 January.

Significance: Amorim made the proposal to Robert Zoellick, the US international trade representative, when they met in Davos to discuss the next round of the Doha agreement with Europeans and officials from other six countries. The group will meet again in Kenya in March to resume talks. Brazil and the US are working together to step up the pressure on the European Union to reform its heavily subsidized agricultural sector. Brazil was also searching for support to elect its candidate for the command of the WTO in April, Luiz Felipe Seixas Corrêa.

According to Amorim, the Mercosur-US agreement would be the fastest way to complete the Free Trade Area for the Americas (FTAA), after talks were brought to a halt last May. There are two sticking points: the US's rejection of the initial idea of completing the area's trade liberalization in three phases (immediate, five years and 10 years); and the issue of intellectual property.

After the meeting, Amorim told the Brazilian press that Zoellick's answer to the Brazilian proposal had been "hesitant". Asked by reporters, Zoellick said the FTAA negotiations had not been "abandoned" by the US administration, which has been completing bilateral trade agreements with Latin American countries since the Monterrey round in January last year. The US international trade representative also said the US "was looking for ways to resume the FTAA talks" with Brazil. A new FTAA meeting is scheduled for 23 February in Washington.

Development: The government announced the final results of the debt-swap process on 3 March. The economy minister, Roberto Lavagna, said that creditors holding 76.07% of Argentina's US$81.8bn in defaulted debt had accepted the deal.

Significance: The final acceptance rate is, if anything, slightly higher than the government's provisional figures, but lower than the market. Lavagna will now fly to Washington this weekend where he will meet Rodrigo Rato, the managing director of the IMF, to discuss the debt swap and a future IMF credit agreement. Addressing an assemblage of governors, trade-union leaders and top businessmen in the Casa Rosada, Lavagna said that the debt-swap meant that Argentina's overall debt, which climbed to US$191bn (113% of GDP) at the end of 2004, had been reduced to US$125bn (72% of GDP).

President Néstor Kirchner said that the deal was "hugely important for the recovery of Argentina" and demonstrated that "we can move forward by means of Argentine solutions to Argentine problems". He did, however, warn that "just because we have finished the debt restructuring does not mean that our problems will magically disappear." He added that it was necessary to take a long hard look at the causes which forced Argentina into default before criticising the "orthodox economics" of the 1990s.

Development: Francisco Flores, the former president of El Salvador pulled out of the race for the position of secretary-general of the Organization of American States (OAS) on 8 April, meaning that the contest is now between Chile's José Miguel Insulza and Mexico's Luis Ernesto Derbez.

Significance: The new secretary-general of the OAS will be decided by its 34 member states in a secret ballot today (11 April). Flores, the US's preferred candidate, had only six supporters and it is not yet clear which way their votes will now go, although the Chileans remain confident. Venezuela's President Hugo Chávez was overjoyed at Flores pulling out; this is the first time that the US's candidate has not won the OAS election.

Flores had endeared himself to the Bush administration through his decision to send troops from El Salvador to Iraq. Other than the US, however, he enjoyed little backing from the rest of the region. Costa Rica, Guatemala, El Salvador, Nicaragua and the Dominican Republic must now decide whether to back Insulza or Derbez. Flores said that he had decided to step down because even Central America was split over who to vote for, creating "a dangerous situation of dividing the region even more over a candidacy".

The withdrawal of Flores is a victory for Chávez . Venezuela had vehemently opposed his election because as president of El Salvador, Flores had recognised the short-lived government of Pedro Carmona, who took power for 48 hours in Venezuela following a coup in April 2002. Speaking on his weekly TV programme "Aló, Presidente!", a jubilant Chávez said, "someone once described the OAS as a syndicate of north American colonies. No, the OAS must be a free organisation that represents the true interests of our peoples".

To become the next secretary general, Insulza or Derbez will need the votes of at least 18 of the 34 member states. Insulza has 17 declared supporters: Chile, Antigua & Barbuda, The Bahamas, Barbados, Dominica, Guyana, Grenada, Jamaica, Saint Lucia, Suriname, Trinidad & Tobago, Haiti, Argentina, Brazil, Ecuador, Uruguay and Venezuela. Derbez can depend on seven votes from Mexico, Honduras, Belize, Bolivia, Canada, Paraguay and St Vincent & The Grenadines. However, there are four undecideds (Colombia, Panama, Peru, and St Kitts & Nevis), plus the six votes of those who were going to back Flores, meaning the contest could be tougher than Chile expects. Considering the ballot is secret, member states may not vote according to their professed intentions.

Regardless of who wins, Mexico-Chile relations have suffered as a result of the election. Talk of a "strategic alliance" between the two countries, following President Lagos's visit to Mexico in September 2004, fell silent after President Fox announced the candidacy of Derbez for the post at the OAS without consulting any of the other countries in the region. In the 2004 election, Insulza stood aside, persuaded by the argument it was the turn of a Central American to lead the OAS allowing Miguel Angel Rodrí­guez an easy victory. But just one month into the job the Costa Rican was forced to quit following allegations of corruption during his time as president.

Central American countries wished to retain the post, but before they agreed on a candidate, Fox put Derbez forward as a candidate in December. Chile was taken aback by the move, as Insulza had been quietly hopeful of Mexican backing. He had lived in the country for years as an exile from the Pinochet dictatorship in the 1980s and had put together a significant network while teaching at a number of prestigious Mexican universities. In an interview with Chilean newspaper La Tercera, Insulza expressed his "surprise" at the Mexican decision when the countries still had "pending conversations on the matter".

The new secretary-general will take over at a time when the OAS is adopting a higher profile in trying to solve regional conflicts, but is strapped financially. The acting secretary-general of the OAS, Luigi Einaudi, said recently the organisation needs to boost its US$75m budget by an extra US$17m in order to cover its spending shortfall.

Development: Colombian authorities seized 13.8 tonnes of cocaine on 13 May, with a value of some US$350m.

Significance: This is the largest-ever single seizure of cocaine. The drugs were found in a riverbank near the Pacific port of Tumaco in the south-western department of Nariño. Five people were arrested in the operation, which was carried out by the navy and the police. Eight speedboats were also seized. Police believe the drugs were about to be transported to Central America.

Authorities say that the drugs were the property of paramilitaries belonging to the Autodefensas Unidas de Colombia (AUC) and members of the Fuerzas Armadas Revolucionarias de Colombia (Farc) who have formed a commercial alliance in the region. While elsewhere in Colombia the two groups are locked in a bloody conflict, they work together in some areas of the Pacific coastal region in getting cocaine out of the country. The Norte del Valle cartel, Colombia's largest drug operation which was born out of the Cali cartel, is also thought to have been involved with the attempted shipment.

Development: The 28th meeting of the Mercosur trade bloc began in Asunción on 18 June.

Significance: This is a make-or-break meeting for Mercosur. Over the last year, relations between the four permanent members - Argentina, Brazil, Paraguay and Uruguay - have deteriorated even as the bloc has expanded to include other Latin American nations as associate members.

Top of the agenda at today's ministerial meeting will be the issue of trade imbalances between the four permanent members, especially between Argentina and Brazil. Argentina wants to be able to place restrictions on Brazilian imports in order to protect its domestic producers but Brazil believes this violates the free-trade ethos of Mercosur. Paraguay suggested earlier this month that it is coming down in favour of Argentina on the issue, but Uruguay's position is less clear.

Another thorny issue is the proposed Mercosur parliament. Little progress has been made on the idea since it was first put forward by Brazil in 2003, largely because the four countries have been unable to reach an agreement as to the composition of the parliament. Paraguay said at the start of June that it wanted equal representation for all four permanent members, thereby scuttling a deal whereby Brazil would have 36 seats, Argentina 31, and Paraguay and Uruguay 16 each.

Mercosur's external dealings appear to be in a far healthier state. The bloc is in discussions over free-trade agreements with Mexico, the EU, and Canada, and is today expected to announce trade talks with Panama and Israel. Over the first three months of 2005, Mercosur's exports rose 21.7% year-on-year to US$33.85bn.

The summit in Asunción will be attended by the four member states plus the six associate members, Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela. The governments of Mexico and Panama will also send representatives. Uruguay will take over the revolving one-year presidency of Mercosur at the summit.