CARTAGENA, Colombia (Reuters) - A prostitution scandal involving U.S. security personnel in Colombia and an unprecedented regional push to end the isolation of Cuba threatened on Saturday to eclipse President Barack Obama's charm offensive to Latin America.
In a major embarrassment for Washington at the Summit of the Americas attended by more than 30 heads of state, 11 U.S. Secret Service agents were sent home and five military servicemen grounded over "misconduct" allegations in a hotel.
Prostitutes were taken to the hotel, according to a Colombian police source.
The widening controversy was overshadowing a host of weightier topics at the two-day summit that began on Saturday.
"I had a breakfast meeting to discuss trade and drugs, but the only thing the other delegates wanted to talk about was the story of the agents and the hookers," chuckled one Latin American diplomat in the historic city of Cartagena.
Locals were upset about the bad publicity for their city, and the scandal was raising eyebrows around the region.
"Obama's guards expelled in Colombia over prostitution - shame the gringos think that Latin America is a brothel and they act like it too," commented left-leaning Venezuelan political commentator Nicmer Evans via Twitter.
Obama's rapprochement with the region - already undermined by the titillating headlines from Cartagena - also faces a rare display of unity among both leftist and conservative-run nations in Latin America in allowing communist-run Cuba at the next summit.
Argentina's foreign minister said the final summit declaration was stalled over the issue of Cuba, with 32 nations supporting its inclusion in the next Summit of the Americas, but the United States vetoing that.
"We have decided not to participate in future 'Summits of the Americas' without the presence of Cuba," said the leftist ALBA block of nations, founded by Venezuela's theatrically anti-U.S. president, Hugo Chavez.
OAS UNDER STRAIN
Unlike at previous summits, backing for Cuba has also come from Colombia, Washington's strongest ally in South America.
Sunday's proceedings will add to strain on the Washington-dominated system of hemispheric diplomacy that is built around the Organization of American States but is struggling to evolve with changes in the region.
From Havana, Cuba's former president, Fidel Castro, weighed in with a withering newspaper column about the OAS and its "guayabera summit" - a reference to the loose-fitting Caribbean shirts being worn by many heads of state in Cartagena.
Making no reference to the scandal, Obama tackled head-on accusations he had neglected Latin America while dealing with conflicts in Iraq and Afghanistan and other faraway priorities.
"We've never been more excited about the prospect of working as equal partners with our brothers and sisters in Latin America and the Caribbean," he told business officials.
Obama also hailed the potential to boost trade between the "nearly a billion consumers" of North and South America.
The reality, though, is different: China has taken advantage of perceived U.S. neglect and is now the main trade partner for various countries, including regional powerhouse Brazil.
Running for re-election in November, Obama is also under pressure from domestic voters to show his foreign policies give priority to trade that creates American jobs.
Latin American leaders are also pressuring the United States for an overhaul of anti-drug policies, including possible narcotics legalization as a way to take profits out of the trade.
"Sometimes those controversies date back to before I was born," Obama said wryly.
"And sometimes I feel as if in some of these discussions, or at least the press reports, we're caught in a time warp, going back to the 1950s and gunboat diplomacy and Yankees and the Cold War, and this and that and the other."
OBAMA FIRM ON DRUGS
Many in Latin America feel a new approach is needed to the drug war - and a shift away from hard-line policies - after decades of violence, in producer and trafficking nations like Colombia and Mexico.
But Obama was firm in rejecting calls to legalize either growing or consuming drugs. "I don't mind a debate around issues like decriminalization. I personally don't agree that's a solution to the problem," Obama said.
Colombian pop star Shakira brought a splash of showbiz to the proceedings by singing her national anthem at the start of the summit.
Missing from the OAS' sixth such hemispheric gathering were Ecuador's Rafael Correa, who is boycotting the event over Cuba's exclusion, and Venezuela's Chavez, who is undergoing cancer treatment.
Brazilian President Dilma Rousseff gave Obama an earful on U.S. expansionist monetary policy that is sending a flood of funds into developing nations, forcing up currencies and hurting and other rich nations' competitiveness.
"The way these countries, the most developed ones, especially in the euro region in the last year, have reacted to the crisis with monetary expansion has produced a monetary tsunami," she said, as Obama listened.
"Obviously we have to take measures to defend ourselves. Note the word I chose - 'defend,' not 'protect,'" added Rousseff, whose government's actions to curb imports have been decried as protectionism by some in the region.
The host, President Juan Manuel Santos, is using the summit to showcase Colombia's new economic stability after decades of guerrilla and drug violence that scared off investors.
Although seeking to position himself as a regional mediator - particularly between conservative governments and the anti-American bloc led by Chavez - Santos nevertheless weighed in to support Brazil's position in front of Obama.
"In some way, (they) are exporting their crisis to us via the appreciation of our currencies," Santos said, referring to the damage done to local exporters as Latin American currencies gain strength. "I share President Dilma Rousseff's anxiety."
(Additional reporting by Caren Bohan, Laura MacInnis, Helen Murphy, Pablo Garibian, Mario Naranjo, and Luis Jaime Acosta in Cartagena and; Daniel Wallis in Caracas; Editing by Peter Cooney)
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