Ecuador pays Brazil to resolve diplomatic spat

Ecuador has quietly made overdue payments to Brazil on a loan for the construction of a controversial hydroelectric project, possibly ending a monthslong diplomatic dispute, Brazil's foreign ministry said Saturday.

The payments on the $246.9 million loan were made on Thursday, the foreign ministry said in a statement. As a result, Brazil will now send back its ambassador to the Ecuadorean capital of Quito next week.

But the carefully worded statement also warned that Brazil "will continue to closely observe the evolution of its economic and financial relations with Ecuador."

Ambassador Antonino Marques Porto was called home in late November after Ecuadorean President Rafael Correa said his country would not pay the loan to Brazil's National Development Bank because of allegations of shoddy work.

Ecuador also expelled executives of Rio de Janeiro-based construction company Norberto Odebrecht SA last month because of allegedly faulty work on the San Francisco hydroelectric plant, considered key for Ecuador's future energy needs.

The dispute prompted heated exchanges between the two nations, and Brazilian Foreign Minister Celso Amorim angered Ecuador when he said last month that the nation had "shot itself in the foot."

In testimony before Congress in December, Amorim said Ecuador could suffer severe consequences for suspending loan payments, stating that Brazil is among the few sources of loans left for Ecuador because of the global credit crunch. Ecuador is projecting a $1.5 billion deficit in 2009 because of low oil prices and has defaulted recently on some of its general foreign debt.

Officials have suggested that the dispute could put other joint projects at risk, including a land-and-river trade route that Correa wants to establish to link Brazil's Amazon rain forest to Ecuador's Pacific coast.

Such infrastructure projects integrating Brazil with neighboring nations usually receive heavy funding from Brazil, which has Latin America's largest economy and much deeper state financing resources than most of the continent's other nations.

Correa said last month that the dispute with Brazil centered on "about $80 million, which is the capitalization of interest, which is illegal."