PARAGUAY POLITICAL AND ECONOMIC UPDATE, MARCH 19-23

UNCLAS SECTION 01 OF 02 ASUNCION 000412

SIPDIS

STATE FOR WHA/BSC AND EB/IFD/OIA
STATE PASS TO USAID FOR LAC/AA
STATE PASS TO USTR FOR SCRONIN AND LYANG
NSC FOR KIM BREIER
TREASURY FOR OSIA MAUREEN WAFER
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR
COMMERCE FOR ITA SARAH COOK
SOUTHCOM FOR POLAD DAN JOHNSON

E.O. 12958: N/A
TAGS: PGOV PREL ECON PINR SNAR KCRM PA
SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, MARCH 19-23

REF: A. ASUNCION 385

B. ASUNCION 226

C. ASUNCION 179


1. SUMMARY:

-- Colorado Deputy Colman Stripped of Immunity; Will Face
Investigation
-- GOP Sells Brazilian Trafficker's Seized Assets
-- Crockett and Tubbs in Ciudad del Este?
-- Continued Crack Down in TBA Affects Local Economy

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Colorado Deputy Colman Stripped of Immunity; Will Face
Investigation
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2. On March 22, almost unanimously the Chamber of Deputies
voted in favor of stripping Congressional immunity from
Colorado Deputy Julio Colman, who was embroiled in a scandal
in early February involving a suspect load of timber and
threats to a prosecutor (refs A and B),allowing prosecutors
to investigate and possibly prosecute Colman for his
misconduct. Earlier that day, President Duarte caused a last
minute scramble among key Colorado legislators, set to back
Colman, by announcing that he would support lifting Colman's
immunity, a change from his previous statements of support
for the Colorado Deputy. The about face by the President and
Colorado legislators came under intense public pressure to
take action in this case of very public abuse of authority
and scandalous behavior.

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GOP Sells Brazilian Trafficker's Seized Assets
-------------- -


3. Seized assets from arrested Brazilian drug trafficker
Claudair Lopes de Faria were sold yesterday in a public
auction in which his home furnishings, real estate, and an
airplane grossed 1.1 billion Guaranis (USD 171,000). The
revenue will fund programs in the Supreme Court, the National
Counterdrug Secretariat (SENAD),the Prosecutor's office, and
several non-profit organizations. Paraguayan authorities
arrested Lopes de Faria in June 2003 and expelled him to
Brazil where he was sentenced to 480 years in prison for
narcotics trafficking, according to press.

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Crockett and Tubbs in Ciudad del Este?
--------------


4. Director Michael Mann (creator of the TV series) and
Producer Jan Pieter Brugge, currently working on the big
screen version of "Miami Vice," made headlines across
Paraguay this week. Mann and his team are contemplating
filming part of the movie in Ciudad del Este. They met with
the Ambassador, Ciudad del Este officials, and GOP leaders
such as Presidential Economic Advisor Walde and Minister of
Tourism Evanhy Gallegos. While most media and officials met
the prospect of a Universal Studios production being filmed
in Paraguay with enthusiasm, the Ciudad del Este
correspondent for leading daily "ABC Color" originally
painted the movie as bad for the city's image, since it might
link the city to terrorism. Mann and his team countered the
bad press head-on with a major interview in the same daily,
with a correspondent recommended by PAS Asuncion, in which
the full benefit to Paraguay was explained and the allegation
that the movie dealt with terrorism in Ciudad del Este
forcefully dispelled. The article even went so far as to
apologize for the misinformation printed earlier.

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Continued Crack Down in TBA Affects Local Economy
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5. Increased customs and immigrations enforcement on the
Friendship Bridge, connecting Ciudad del Este and Foz Do
Iguacu, Brazil to target piracy and contraband (ref C) has
greatly affected the local economy in Ciudad del Este.
Javier Zacarias Irun, Ciudad del Este mayor, told the press
that Paraguay's losses from the imposed restrictions amounts
to USD 11 million and Paraguayan Customs Director Margarita
Diaz Vivar revealed to the press that Brazil's control
measures are also affecting Paraguay's ability to collect tax
revenue in the region. Local shop owners in Ciudad del Este
have threatened massive layoffs of illegally employed
Brazilian nationals in reaction to the enforcement efforts.


6. Separately, Brazilian Political Counselor and Customs
Attach told PolOffs in a meeting on March 22 that the
crackdown on IPR violations and smuggling was a permanent
government-wide policy, not a month-long exercise like that
conducted in previous years over the December holiday season.
They pointed out though, that the Friendship Bridge is not
their highest priority as smuggling problems are worse along
the "dry" borders in Pedro Juan Caballero and Salto de
Guaira. The Brazilians also noted to PolOffs that there was
a certain momentum to increase the customs exemption for
Brazilian citizens returning from shopping excursions in
Ciudad del Este from the present US$150, but said that it was
not likely to go as high as the US$500 that many are seeking.
In addition, the Brazilians mentioned that this exemption
would only apply to items for personal use, not to commercial
imports. Brazilian Ambassador told Ambassador Keane on March
23 that a Paraguayan-Brazilian working group would meet on
March 31 to discuss ways to ameliorate the negative effects;
he stressed however, that the crackdown on smuggling and
other crimes in TBA would be sustained and increase.
KEANE