PARAGUAY POLITICAL AND ECONOMIC UPDATE, OCTOBER 14

C O N F I D E N T I A L ASUNCION 001066 SIPDIS SIPDIS STATE FOR WHA/BSC, INL/LP (JIM HIDES),AND EB/IFD/OIA STATE PASS TO USAID FOR LAC/AA STATE PASS TO USTR FOR LYANG NSC FOR SUE CRONIN TREASURY FOR OSIA MAUREEN WAFER TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR COMMERCE FOR ITA SARAH COOK SOUTHCOM FOR POLAD E.O. 12958: DECL: 10/20/2026 TAGS: PHUM PGOV PREL ECON EFIN MCAP MARR PINR SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, OCTOBER 14 - 20, 2006 REF: A. ASUNCION 0992 ¶B. ASUNCION 1000 Classified By: DCM Michael J. Fitzpatrick; Reasons: 1.4(b),(d). ¶1. SUMMARY: -- Hunger on the Rise -- Cubas' Mother Appeals for President Bush Support -- Human Rights Court Says GOP Should Pay Victims -- Bank Profits Surge -- Capital Goods Imports Increase -- Defense Spending lowest in Region, Bolivian Concern HUNGER ON THE RISE ¶2. (U) The Food and Agriculture Organization (FAO) released a report July 2006 showing the number of undernourished people in Paraguay has increased in recent years, reversing the positive trend FAO had observed during the 1990's. FAO found that Paraguay has a moderate level of undernourishment. The organization estimates that more than 900,000 persons were undernourished during the period 2002 through 2004, accounting for approximately 15 percent of the population. The most vulnerable areas are in the Departments of San Pedro, Caaguazu, Presidente Hayes, Caazapa and Canindeyu. Ongoing drought, plus the return of the El Nino phenomenon are expected to make matters worse still. CUBAS' MOTHER APPEALS FOR PRESIDENT BUSH SUPPORT ¶3. (U) Mirta Gusinky, the wife of ex-President Raul Cubas and the mother of Cecilia Cubas who was kidnapped in September 2004 and found murdered in February 2005, met with the DCM and PolCouns October 15 to pass a letter addressed to President Bush's daughter, Jenna Bush. (NOTE: Jenna Bush was in country at the time on a UNICEF mission. END NOTE.) Gusinky applauded U.S. leadership in the fight against international terrorism and urged the U.S. to support GOP efforts to investigate and prosecute her daughter's murderers. She described those linked to her daughter's case as leftists who advocated the overthrow of Paraguay's democratic government and were supported by the FARC. She stressed that the GOP had erred in disregarding the threat posed by these individuals and urged the U.S. to assist Paraguay to face up to it now. The DCM praised Gusinky for her courageous activities to keep the public eye focused on the investigation of her daughter's case and her support for the families of other kidnap victims. (NOTE: Post has forwarded Gusinky's letter to the White House for its consideration as appropriate. END NOTE.) HUMAN RIGHTS COURT SAYS GOP SHOULD PAY VICTIMS ¶4. (U) The OAS InterAmerican Court on Human Rights (IACHR) unanimously found Paraguay to be culpable September 22 of human rights violations during the Stroessner regime, specifically mentioning Operation Condor. (NOTE: Operation Condor was a jointly conducted intelligence operation by Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay in the mid-1970's to deter communist influence in the region as well as control dissenters against the military governments of those countries. END NOTE). The Court ordered payment of restitution to the victims and/or their families. The Court ruled that Carlos Jose Mancuello Bareiro, Agustin Goiburu Gimenez, and Rodolfo and Benjamin Ramirez Villalba were illegally detained and tortured, prior to their disapearances. The families of these victims and 23 other individuals received a judgement that the GOP must pay the sum of USD one million. Some of the funds were ordered to set aside for a monument in honor of the men that were tortured. BANK PROFITS SURGE ¶5. (U) Paraguay,s banks increased their profits for the year ended September 30 by 63 percent over the previous year according to data released by the Superintendent of Banks. In USD terms, profits increased by 84 percent due to the strengthening of the guarani over the past year, for a total of about USD 77.5 million. Nearly 80 percent of banking sector profits are concentrated in five banks, three of which are foreign and two of which are local. The main state-owned public bank (Banco Nacional de Fomento) registered the greatest increase in profits over the last twelve months, and Citibank the lowest. ¶6. (U) Despite the macroeconomic stability prevalent in Paraguay, the banks remain quite liquid, and a large share of bank income is derived from interest earned on notes issued by the Central Bank. With the vast majority of deposits maintained as short-term sight deposits, and with no discount window at the Central Bank available in case of a liquidity crunch, Paraguay,s banks remain exceptionally liquid. (NOTE: The profit figures are for the banks only, and do not include finance companies or the large (about 30 percent of system assets) cooperative sector. Overall, only 5 percent (sic) of Paraguayans put their money in banks. END NOTE). CAPITAL GOODS IMPORTS INCREASE ¶7. (U) Paraguay,s total imports surged 72.3 percent (USD 3.2 billion) in the first two-thirds of the year compared to the same period in 2005 (USD 1.8 billion). According to new data released by the Central Bank, from January through August 2006, imports of capital goods increased 164 percent while consumer goods imports only increased by 39.2 percent. The only category with a decrease in imports was milk and dairy products. The principal products imported during Jan-Aug 2006 were mechanical machinery and equipment (USD 830.31 million),electric machinery and equipment (USD 467.79 million) and fuel and lubricants (USD 424.68 million). Total imports for 2006 are expected to hit a new record, exceeding the 2005 record of USD 3,251 million, which surpassed the previous 1997 record of USD 3,099 million. (COMMENT: The strengthening of the guarani over the past year probably contributed to the rise of imports, but the large increase in capital goods imports likely points to higher investment and growing confidence in the economy. END COMMENT). DEFENSE SPENDING LOWEST IN REGION, BOLIVIAN CONCERN ¶8. (C) Paraguay's military spending is the lowest in South America. The GOP budgeted only USD 59 million in defense spending (0.86 percent of GDP) while Bolivia has budgeted more than USD 204 million (2.18 percent of GDP). Relations between Paraguay and Bolivia have been tense in recent months due to the agreement between Venezuelan and Bolivian to build three new military bases, including one within 70 miles of the Bolivian and Paraguayan border. In addition, Venezuela has committed to the sale and supply of new weapons to Bolivia. (COMMENT: Senior Paraguayan government officials, civilian and military alike, are increasingly troubled by the recent developments along their border with Bolivia. Anti-Evo and anti-Hugo suspicions are rising, however measured. The Paraguayan military, which has not received much support in the past from the Congress, are pressing for more assistance and arguing discreetly for more USG support, in terms of weaponry and training. (refs. A and B) END COMMENT). CASON