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