MINISTER OF FINANCE REQUESTS BUDGET EXECUTION

UNCLAS SECTION 01 OF 02 ASUNCION 001215

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC
STATE PASS TO USTR FOR LYANG, MSULLIVAN
USAID FOR AA/LAC ADOLFO FRANCO
TREASURY FOR OSIA MAUREEN WAFER
TREASURY FOR OTA RICHARD BARTHOLOMEW
COMMERCE ITA SARAH COOK
NSC FOR MIKE DEMPSEY, SUE CRONIN
SOUTHCOM FOR POLAD
US SOUTHERN COMMAND MIAMI, FLORIDA

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PA
SUBJECT: MINISTER OF FINANCE REQUESTS BUDGET EXECUTION
ASSISTANCE


1. (U) This cable is Sensitive but Unclassified. Please
protect accordingly.

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Summary
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2. (SBU) Finance Minister Bergen has asked the Ambassador
for USG assistance with a major overhaul of the Ministry's
financial management function, as part of a general
restructuring of the ministry. He spoke in terms of a team
of experts, and suggested that perhaps a university, such as
the Kennedy School of Government or Columbia, could oversee
the program, in part to provide political cover for the
effort. Post and Treasury's Office of Technical Assistance
have been in contact about the proposal, and Minister Bergen
will meet with OTA on September 26 in Washington. The
InterAmerican Development Bank resident representative has
expressed a strong interest to us in working together to
support Minister Bergen's plan. End Summary.


3. (SBU) In early September, Finance Minister Bergen asked
the Ambassador for a meeting to discuss budget issues. Vice
Minister of Economy Jorge von Horoch and Econchief also
attended the meeting. The Minister requested USG assistance
in providing or recommending a source that could provide
help with overhauling the Ministry's budget execution
capacity.

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REQUEST FOR HELP WITH INSTITUTIONAL OVERHAUL
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4. (SBU) Minister Bergen requested USG assistance with a
major overhaul of the Ministry's financial management
function. Minister Bergen was aware and appreciative of the
work of the Resident Budget Advisor from Treasury's Office
of Technical Assistance (OTA) but he requested additional
assistance to bring about a rapid sea change in the
Ministry. The Minister is focusing on increasing the
transparency and effectiveness of budget execution, but he
has in mind a general restructuring of the Ministry.


5. (SBU) Both Minister Bergen and Vice Minister von Horoch
described various problems ranging from lack of capacity to
analyze the budget proposals of other ministries to
sabotage. The Vice Minister complained that, while working
on the 2006 budget, items deleted after some meetings would
reappear hours later in subsequent versions of the budget as
saved on the Ministry's information systems. They also
noted that while social spending as recorded by the overall
budget numbers has increased, there has been little visible
impact.


6. (SBU) What Minister Bergen has in mind is a "takeover,"
akin to a corporation hiring outside consultants to
reengineer the firm. He envisions a team of experts coming
in and virtually assuming control, either by giving over-the-
shoulder instructions to the current staff, or, if the
current staff resists, moving them aside and putting new
people in who will take the instructions and implement what
the experts dictate. He spoke in terms of a team of
experts, and suggested that perhaps a university, such as
the Kennedy School of Government or Columbia University,
could oversee the program, in part to provide political
cover for the effort.


7. (SBU) Subsequently, Econchief and the Resident Budget
Advisor contacted OTA. Minister Bergen, Vice Minister von
Horoch and possibly Central Bank President Monica Perez will
be meeting with OTA on September 26 while in Washington for
the World Bank/IMF meetings. Von Horoch has clarified that
they would welcome OTA leadership in the effort, but would
prefer the involvement of a university or think tank of some
kind to defuse any potential complaints of USG interference
in the Finance Ministry. Note: the recent visit of
Secretary Rumsfeld and press misinformation relating to

SIPDIS
future USG military operations in Paraguay has made USG
assistance to Paraguay in such a direct manner rather
sensitive. End note.

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IDB SEEKS TO COLLABORATE WITH USG
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8. (SBU) Econchief spoke with Alvaro Cubillos, Resident
Representative of the InterAmerican Development Bank (IDB),
as a follow-up to a previous conversation he had had with
the Ambassador and Minister Bergen. Cubillos expressed
strong interest in working together to support Minister
Bergen's plan for a general restructuring of the Ministry of
Finance (of which the budget process is the largest part).
Cubillos said that the IDB has up to $1.5 million in grant
funds that could be utilized for the project, and suggested
that bringing in the U.S. Trade and Development Agency
Evergreen Fund (a USTDA fund established to provide the IDB
with access to funds for US consultants) would provide
maximum flexibility in the use of the funds.


9. (SBU) Cubillos said the IDB has experience working with
entities such as the Kennedy School or Wharton, and welcomes
the involvement of Treasury's OTA. For next steps, he
suggested that, after the Bergen meeting with OTA in
Washington, we meet in Asuncion to devise a common plan and
agenda to most efficiently use our combined resources.
Cubillos suggested that the IDB could work with USTDA
directly on the funding, while OTA could define the
specifics of the program.


10. (SBU) Although Cubillos did not foresee a conflict with
the World Bank's "Ministry of Excellence" program, expected
to begin implementation in 2006, it will be important to
coordinate with the World Bank to ensure against overlap.

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COMMENT
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11. (SBU) Minister Bergen, displaying the pragmatic,
results oriented stance that made him a successful
businessman, has made an aggressive proposal to rework the
Ministry. Unlike his predecessor, who opted to initially
bypass the institutional problems of the ministry by
bringing in a large team of trusted advisors, Minister
Bergen clearly wants to overhaul the Ministry in hopes of
leaving a permanently strengthened institution when he
leaves. Minister Bergen is close to President Duarte and
has his strong support, and Bergen is also unlikely to waver
in his resolve. Post strongly believes that additional USG
investment to support Minister Bergen's request will pay
large dividends by strengthening one of the GOP's most
important ministries.

KEANE