CONVERSATION WITH PRESIDENT DUARTE

C O N F I D E N T I A L SECTION 01 OF 03 ASUNCION 001177

SIPDIS

SOUTHCOM FOR POLAD DAN JOHNSON

E.O. 12958: DECL: 09/15/2015
TAGS: PREL PGOV PTER ETRD US PY
SUBJECT: CONVERSATION WITH PRESIDENT DUARTE

Classified By: Ambassador John F. Keane for reasons 1.4 (b)
and (d).


1. (C) Summary: On September 14, I called on President
Nicanor Duarte Frutos (NDF) to urge his involvement in
seeking enactment of an anti-money laundering bill, and he
concurred. We also talked about a September 16-18 workshop
to help the GOP develop national security strategies and a
State-funded (ATA) anti-kidnapping course for 24 Paraguayans.
NDF expressed concern about increased tensions with
Paraguay's neighbors and the possiblity of Brazilian economic
sanctions. NDF often makes reckless, populist or
nationalistic remarks, which are sometimes mimicked by his
subordinates. His Vice President (VP),Luis Castiglioni, has
made highly critical comments about Paraguay's neighbors and
suggested the GOP could seek a bilateral Free Trade Agreement
with the U.S., an idea which NDF has not endorsed and which
has never been discussed with us. The VP is going to be
reined in, NDF told me. We also briefly touched on other
trade topics. End Summary.

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Anti-Money Laundering Legislation (AML)
--------------


2. (C) In this one-on-one I told the President that I wanted
to discuss anti-money laundering (AML) legislation, a
forthcoming workshop sponsored by the Center for Hemispheric
Defense Studies (CHDS) to help Paraguay develop a "national
citizenship security and defense strategy", and recent
controversies over bilateral trade policy. I also mentioned
that we had just received notification that we could invite
24 Paraguayans to an anti-kidnapping course in the U.S.


3. (C) Duarte Frutos interrupted me before I got far
explaining the need for his forceful and urgent personal
involvement to secure Congressional enactment of stalled AML.
He broke in to say that he considers AML a vital tool to
curb impunity and corruption and had raised it with the
Congressional leadership the day before. Welcoming that step,
I urged him to raise the issue with key Chairmen of the
Senate Finance and Legislation Committees, as well as with
the Colorado Party Block leader.

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CHDS Workshop: President Feigns Surprise, but Agrees
to Endorse
-------------- --------------


4. (C) Participation by key decision makers in the CHDS
workshop was important, I stressed, if it was to be
successful in developing useful options endorsed by the
various government ministries for his consideration. I also
noted that it is an opportunity to overcome coordination
problems due to the tendency of the ministries toward
"stovepiping."


5. (C) NDF replied that he was surprised the day before to
hear about the workshop from the head of military forces,
General Kanazawa. NDF said that the Vice President had not
kept him informed about the workshop, which led to a fairly
lengthy, albeit soft-spoken complaint that the Vice President
has been doing and saying things lately that were not
coordinated with him and have caused Paraguay problems with
its neighbors Argentina and Brazil. (N.B. NDF was referring
to VP Castiglioni's public criticism in the last few days of
Brazilian and Argentine protectionism, the need for Paraguay
to sign a free trade agreement with the U.S. (sic) and
ill-considered remarks about the weaknesses, including moral
and ethical, of the political leaders of Paraguay's
neighbors. In fairness, NDF himself led the way in public
bashing of Brazil and Argentina recently, so possibly the VP
thought he had license. End Note.) NDF also claimed that
the VP did not get his concurrence before making commitments
or statements regarding the bilateral relationship with the
US, including the CHDS seminar.


6. (C) His preocupation showing, NDF noted that Brazil and
Argentina are upset. NDF volunteered that he wants a good
relationship with the U.S. (which the VP is fostering),but
Argentina and Brazil are right next door, are the principal
markets for Paraguayan products and, in the case of Brazil,
have a stranglehold on Paraguayan finances. "If Brazil
closes the border at Ciudad del Este or cuts off Itaipu
royalty payments to us, we are sunk!" While he wants to
export much more to the U.S., he said he does not believe the
FTAA is in Paraguay's interest, since the Paraguayan state
depends heavily on revenues from customs duties. Moreover,
it must stick with Mercosur because of its dependence on
Brazil and Argentina, and Mercosur membership precludes a
bilateral free trade agreement with the U.S. without a
Mercosur waiver, which is not likely under current
circumstances. He would like the U.S. to unilaterally reduce
trade barriers to Paraguayan products, and mentioned special
treatment of Bolivia as an example. He commented that
Mercosur could negotiate an agreement as a block with the
U.S., but I declined to pursue that topic since there were
more urgent and less hypothetical issues to discuss during
our limited time together just before his departure for New
York. (Comment: No U.S. official has mentioned a bilateral
free trade agreement; the only person to raise it is the
Paraguayan VP. End Comment.)

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Vice President Called to the Woodshed
--------------


7. (C) The Vice President has been called in, added NDF, to
be told he must coordinate properly and he must be judicious
in his public remarks. NDF said he wanted to know more about
the CHDS workshop before he approved it, noting that it was
sensitive. (Comment: He implied that he thinks Brazil and
Argentina, not to mention his domestic opposition and the
media, will be critical.) I explained to NDF that a number
of senior Paraguayan officials, including the VP and the
former Attorney General, believed the CHDS workshop would be
valuable, and I explained why, noting the confusion, turf
battles and indiscretions if not downright sabotage that
raged during the Cecilia Cubas hostage taking investigation,
and the implications of Paraguay not having clear and
coordinated national security priorities and strategies. I
described the purposes of the workshop.


8. (C) Not wanting to enter into a polemic, I did not
remind NDF that I had discussed these issues with him last
April, in the wake of the death of Cecilia Cubas and his trip
to Colombia on national security issues, and suggested both
the VP trip to Washington as well as the idea of a CHDS
workshop, which he had approved. The VP had requested the
workshop when he was in Washington and announced it publicly
on several occasions, and had assured us it had been
coordinated. I told NDF that I regretted that the VP had not
consulted satisfactorily with him, but that the CHDS workshop
facilitators were on the ground, the VP had already announced
it, and it would be a setback and waste of resources not to
proceed. Duarte concurred, and said he would ask the leaders
of the respective GOP entities to attend. (Comment: The
workshop was a success. Attendance included the VP,
Ministers of Defense and Interior, Supreme Court Justices,
Senators and Deputies, police and military leaders and many
heads of GOP agencies, indicating that NDF followed up. Full
report by septel.)


9. (C) The State Department had agreed to fund an
anti-kidnapping course for 24 Paraguayans at the FBI training
school in Virginia, I told him. NDF was pleased and agreed
that this should be publicized here, although he did not want
publicity for the CHDS workshop (presumably because of
Brazilian and Argentine sensitivities). I reiterated that
the VP had already commented on it publicly and the media
would be hungry for information. In that case, NDF replied,
it was ok to make a low key statement about it, but not
"overplay" it, as the VP tends to do, out of "lack of
experience and without awareness of the repercussions." He
repeated that he is going to ask the VP to tone down his
public remarks.

--------------
Trade Opportunities
--------------


10. (C) Returning to the trade theme NDF raised earlier in
the conversation, I noted the openness of the U.S. market, an
opportunity many other nations have seized and which Paraguay
has not. I added that the lack of new bilateral or
multilateral trade agreements with the U.S. were by no means
impediments to expanding bilateral trade, and I gave him the
example of Uruguay. We talked about how Uruguay achieved
record beef exports to the U.S. and I noted that Paraguay
could also sell beef to the U.S. if it fulfilled sanitary and
phytosanitary requirements. It would take a couple of years
or more of hard work by Paraguay, but the payoff could be
very big, as it was with Uruguay. NDF was intrigued and said
he would discuss with the Ministers of Agriculture, Industry
and Commerce and Foreign Relations. We talked about other
possibilities, such as exporting of value-added wood
products, instead of Paraguay merely exporting (often through
contraband) its hardwood logs for other countries to process
into finished products for export (e.g. China.)

--------------
Comments:
--------------


11. (C) Duarte Frutos once again is looking to blame others
for his problems; this time his target is the Vice President.
It's worth recalling that NDF himself initiated sharp public
criticism of Brazil and Argentina some weeks ago for their
alleged stinginess and failure to live up to the spirit of
Mercosur, a theme he has returned to often of late, and which
is echoed by the private sector and the media. On another
level, Brazilian and Argentine officials have outspokenly
criticized various developments of the U.S./Paraguay
bilateral relationship, particularly increased security
cooperation, military exercise agreements, and statements by
the VP that he wants a bilateral trade agreement with the
U.S.


12. (C) Paraguayan politicians, the media and other opinion
molders have expressed outrage at foreign, particularly
Brazilian, "lectures" or threats, some even recalling
Brazilian "imperialism" and occupation of Paraguay in the
1870's. The GOP has been very tough on Brazilian ranch
owners in Paraguay for environmental depredations, and the
illegal extraction of water from the Apa River, which the
nations share. The Brazilian Ambassador was called to Brazil
for consultations ten days ago, reportedly to discuss
bilateral tensions. Many observers here expect Brazil to
retaliate with disguised economic sanctions of some sort.


13. (C) The day of our meeting NDF attempted to draw the
poison from rising frictions by noting that Brazilian Foreign
Minister Amorim was correct in stating that Mercosur bans
bilateral trade agreements by its members with third parties
without a Mercosur waiver, although he would like to pursue
export markets outside Mercosur and hoped that Mercosur would
allow waivers. Indeed, there's no doubt that NDF's strategy
is to extract concessions from its two large neighbors and he
believes a closer relationship with the U.S. serves that
purpose, with the caveat that he cannot overplay his hand.


14. (C) Duarte conveyed genuine disappointment that VP
Castiglioni has not consulted adequately and been too
outspoken. It would be a setback for us if the VP's
influence diminishes. We may get a sense of whether NDF has
clipped his wings in the coming days. It also remains to be
seen if these developments will affect US/GOP security
engagement.
KEANE