PARAGUAY SCENESETTER FOR STAFFDEL WALKER

UNCLAS ASUNCION 001242

SIPDIS

SIPDIS

FOR WHA/BSC KATHERINE READ

E.O. 12958: N/A
TAGS: PREL PTER KCRM SNAR PA
SUBJECT: PARAGUAY SCENESETTER FOR STAFFDEL WALKER



1. (SBU) Staffdel Walker: Embassy Asuncion warmly welcomes
your visit as an opportunity to highlight U.S. activities
focused on combating terrorist financing, disrupting criminal
organizations, strengthening democratic institutions, and
promoting sound economic policies and good governance. You
come at a particularly sensitive time, with President Duarte
feeling strong one moment (after his party,s strong showing
in November,s municipal elections) and buffeted the next (as
he is now in the wake of early December riots over judicial
corruption, the worst Asuncion has seen in years).
Bilaterally, significant actors call into question important
aspects of our security relationship. Many Paraguayans,
however, support closer U.S. ties, especially to offset their
uneasiness over the
Venezuela-Bolivia Military Agreement.


2. (SBU) An overview of the current situation in Paraguay
follows, highlighting key issues which may come up in your
scheduled meetings.

The Political Scene: President Duarte,s Efforts Under Fire


3. (SBU) Your visit comes three years into the presidency of
Nicanor Duarte Frutos. In that time, Duarte has taken steps
to deal with a pressing fiscal crisis, reviving the economy,
and fighting corruption. In the last year, however,
political support for Duarte has sagged, with polls
indicating the general population is not satisfied his
government has taken adequate measures to create jobs,
improve the economy and tackle corruption. In addition, he
has sought a Constitutional Amendment allowing for his
reelection. Much of the population as well as the opposition
parties and some within the Colorado Party (who seek to back
other candidates) strongly oppose his reelection bid.

Paraguay,s Public Security Challenges


4. (SBU) Twelve members of the Free Fatherland Party (PPL) )
a far-left, rural-based political movement -- were found
guilty this month in the kidnapping and murder of the
daughter of former president Raul Cubas. The body of Cecilia
Cubas was discovered in February 2005. Paraguay has been
able to gain the expulsion from Argentina, Brazil and Bolivia
of others implicated who took refuge abroad. Evidence ties
the PPL to the Revolutionary Armed Forces of Colombia (FARC).
The Cubas kidnapping has proven to be one in a series of
recent events that suggest the emergence of a political
movement bent on provoking instability through violence. A
culture of distrust, allowing for little inter-institutional
cooperation, hampers the ability of Paraguay,s law
enforcement community and military to tackle rising concerns
about public security; Paraguay,s National Police are widely
disparaged by the general population as incompetent and
corrupt, and the police and military are rivals, not
partners. The Cubas killing and clear evidence of FARC
involvement shocked Paraguay,s leaders and population into
assuming a more pro-active stance in dealing with potential
security threats.

International Crime and Counter Terrorism


5. (U) The Tri-Border Area (TBA),the region of Paraguay that
meets Brazil and Argentina near the city of Ciudad del Este,
is a primary USG concern. The area is notorious for drug and
other smuggling, including trafficking in persons,
trafficking in arms, intellectual piracy, document forgery,
counterfeit cigarette manufacturing and loose border controls
(especially at the Friendship Bridge connecting Paraguay with
Brazil).


6. (SBU) Paraguay has a well-deserved reputation as the
weakest link in combating the wide range of illicit
activities that occur in the TBA. Corruption at multiple
levels undercuts serious law enforcement efforts.
Nevertheless, Paraguay has taken serious steps to address its
institutional deficiencies by creating special units,
principally in Customs and the Ministry of Industry and
Commerce (MIC) to investigate more effectively IPR violations
and customs fraud. The MIC,s Specialized Technical Unit
(UTE) in particular has made a number of significant seizures
of counterfeit products. These units receive significant
assistance from the USG in the form of INL funds or the MCC
Threshold Program. Separately, Brazilian efforts to tighten
enforcement of customs restrictions, including regular
inspections and seizures, have contributed to a significant
decrease in the movement of contraband and pirated goods at
this border crossing.


7. (SBU) Paraguay,s Anti-Money Laundering Secretariat
(SEPRELAD) has also received technical assistance and
equipment from the U.S. Paraguay has subscribed to all 12 UN
counter-terror conventions but its anti-money laundering law
is lacking in that it does not allow for prosecution of money
laundering as an autonomous crime. Nor does Paraguay yet
have counter terrorism legislation. Paraguay seeks to meet
its international obligations through provisions in a series
of three bills. UNCTC Executive Ruperez approved of the
draft legislation text when he visited in July 2007. The
first bill establishing money laundering and terrorist
financing as crimes and setting out the consequent penalties
was delivered to Congress this October. The bill on
procedural tools for the prosecution of these crimes remains
under arduous debate before a Legislative Reform Commission
and could face much of the same when it is submitted to
Congress. The law establishing SEPRELAD,s regulatory
authorities has been drafted but not yet submitted to
Congress pending movement on the first bill. Paraguay,s
SEPRELAD could face suspension from the Egmont Group should
this bill not be adopted before June. In the absence of an
effective money laundering law, Paraguay has prosecuted three
alleged Hizballah terrorist financiers for tax evasion.


8. (SBU) Paraguay,s Anti-Drug Secretariat (SENAD) represents
the single-most effective law enforcement body in Paraguay.
Working closely with the U.S., it has effectively targeted
Brazilian trafficking groups that are run mostly out of Pedro
Juan Caballero (PJC) on Paraguay,s northern border with
Brazil. Within the last six months, SENAD has made a number
of significant arms seizures with evidence signaling links to
Brazil,s PCC and Colombia,s FARC. While these weapons were
seized in PJC and Asuncion, arms and drug trafficking also
occur out of CDE. Presently, SENAD is hard-pressed to meet
challenges in that region for lack of resources (its national
annual budget is just $2 million).


9. (SBU) Paraguay has signaled concern about potential
terrorist financing occurring out of the TBA but will be
reluctant to speak to this issue directly. We are working to
strengthen cooperation on the ground at the local level and
between governments in undertaking investigations and
prosecuting cases. To the extent we can speak to how this
effort rebounds to Paraguay,s benefit in fighting
corruption, promoting economic development and countering
crime and insecurity, Paraguay will likely be predisposed to
be supportive. We continue to monitor closely CDE and
government reactions to the December 6 OFAC designations of
TBA Hizballah financiers.


10. (SBU) Despite preoccupation with close-to-home terrorism
issues including kidnappings, local violent radicals, the
FARC, and fund-raising for Hezbollah, Paraguay is reluctant
to take a lead in the war on terrorism beyond its borders.
This is due to pressure from Brazil as well as domestic
concerns that an aggressive anti-terrorism policy (e.g.,
vis-a-vis the Middle East) will draw terrorist reprisals. In
addition, memories of abuses under the Stroessner
dictatorship (1954-1989) still cast a long shadow. In 2004,
President Duarte received JCS Chairman General Myers but then
made a public show of announcing that Paraguay would not send
a contingent to Iraq despite having volunteered to do so to
President Bush a year earlier. Given recent false
allegations that the U.S. wants to establish a military base
in Paraguay, we recommend tailoring any public remarks about
Paraguay,s role in the GWOT in a way that will not lend fuel
to these false claims. It is perhaps best to focus
interlocutors on attacking corruption and the combating
transational crime as ways to improve Paraguay,s
international image.


11. (SBU) Paraguay is a significant transit point for cocaine
and other narcotics by air from Colombia and Bolivia to
Brazil. Much of the northwestern part of the country is
barren and uninhabited, and the GOP has difficulties in
enforcing the law due to geography and the political (and
judicial) power some drug traffickers wield. SENAD, the
National Anti-Narcotics Secretariat, coordinates GOP
interdiction efforts, with significant assistance from the
DEA and training support from US Special Forces JCETS. In
2004, Paraguay and Brazil collaborated in a joint operation,
with DEA assistance that produced an historic seizure of over
260 kilograms of cocaine and the arrest of Brazilian drug
kingpin Ivan Carlos Mendes Mesquita, wanted in the U.S. on
drug trafficking charges. Paraguay cooperated with the USG
extradition request and Mendes Mesquita was taken into U.S.
custody in 2005, a dramatic and unprecedented step. Post
considers this case emblematic of the success we have been
able to achieve by working with the SENAD as an autonomous
unit.

Reforming the Economy, But Growth Insufficient


12. (U) Paraguay,s economy relies heavily on agriculture.
It features bloated but weak state institutions and the heavy
involvement of state-owned enterprises. There is
considerable activity involving the trading of imported
legitimate goods, contraband and counterfeit products, most
of which are destined for Brazil or Argentina. President
Duarte took office in 2003 inheriting a weak economy and
promising to attack widespread corruption and reform the
economy. He named a non-partisan, technocratic economic
cabinet and has supported their efforts. On a macroeconomic
level, Paraguay,s performance has been strong: economic
growth reached 2.9 and 3.0 percent in 2004 and 2005,
respectively, and inflation was held down to near 3 percent
in 2004 though it reached 9.9 percent in 2005. The IMF
expects 2006 growth near 4 percent and year-on-year inflation
near ten percent. However, whereas the government succeeded
early on in getting some significant economic reform laws
through Congress, progress over the two years has been slow.
The confrontation between Congress and the Executive has all
but frozen any reform efforts that require legislation; the
Congress has rejected several concessional loans (from the
IDB and Japan) and suspended for one year the application of
the previously authorized personal income tax. For Paraguay
to escape from the poverty affecting roughly half of its
population, the country needs to increase productivity by
attracting capital and raising annual growth rates to at
least 5 or 6 percent -- and sustaining them there. Success
will require the government to stay the course on
macroeconomic stability and undertake deeper structural
reforms.

Regional Concerns


13. (SBU) The political situation in Bolivia and the
activities of President Evo Morales are currently at the
center of the political radar screen in Paraguay. Some
Paraguayans have conveyed a concern about lingering
irredentist claims within some segments of the Bolivian
military to territory in the Chaco -- a vast region in
Western Paraguay that borders Bolivia and served as the site
of a war with Paraguay in the
1930s -- that could stir controversy and tension should
Bolivia suffer an extended period of instability. Brazil and
Paraguay rely on Bolivian infrastructure for land traffic
extending to the Pacific coast that could be jeopardized in
the event of instability in Bolivia. Recently, some Bolivian
commentators, including political officials, have signaled
concern that the U.S. sought to establish a military base in
the Chaco (sic) for the purpose of monitoring activities in
Bolivia or attempting to control energy resources in the
Bolivian and Paraguayan Chaco region. Paraguay and Bolivia
relations remain tense over the Venezuelan and Bolivian
Military Agreement announced this Fall. Some within the
Paraguayan government, civil society and the media have
expressed the desire for Paraguay to enter into a bilateral
security agreement with the United States.

U.S. Activities


14. (SBU) U.S. activities in Paraguay are focused on
strengthening democratic institutions, promoting sound
economic policies and good governance, disrupting criminal
organizations, and combating terrorist financing. Post
maintains bilateral assistance programs dealing with
combating narcotics trafficking, money laundering,
intellectual property violations, and trafficking in persons.
A Department of Justice Resident Legal Advisor and advisors
from Treasury,s Office of Technical Assistance worked
quietly behind the scenes over the last three years to assist
the Paraguayan Government in developing appropriate money
laundering and counter-terror legislation. In the wake of the
Cubas kidnapping, Vice President Castiglioni traveled to the
U.S. for meetings with VP Cheney, SECDEF Rumsfeld, and other
key officials to discuss a comprehensive approach to
Paraguay,s security challenges, including a high-level
seminar sponsored by the Center for Hemispheric Defense
Studies (CHDS) that was held in September 2005. Then SECDEF
Rumsfeld visited Paraguay in August 2005. CHDS has
followed-up with comprehensive meetings last week on
transformation and reformation of the military. Paraguay has
expressed interest in acquiring technical assistance in
development of its National Security Strategy and National
Defense Plan. USAID and the Peace Corps also have programs
in the country. Paraguay began to implement a USD 34 million
Millennium Challenge Account Threshold Program in May; its
poor historical record on corruption was the major reason it
did not qualify for full participation in the program. The
Threshold Program focuses on combating impunity and
informality.

CASON
CASON