PARAGUAY POLITICAL AND ECONOMIC UPDATE, DECEMBER 9

UNCLAS ASUNCION 001246 SIPDIS SIPDIS STATE FOR WHA/BSC, INL/LP (JIM HIDES) 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: N/A TAGS: PGOV PHUM PREL PA SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, DECEMBER 9 - 15 REF: ASUNCION 1113 ¶1. (U) SUMMARY: -- Banking Sector Reform Postponed -- UNICEF Releases Grim Report on Children -- Update on the Last Mile Initiative -- MCA Tax Component Established -- Mayors to Measure BANKING SECTOR REFORM POSTPONED ¶2. (U) The Central Bank, on December 8, formally postponed the implementation of banking regulations known as "Resolution 8" until August 30, 2008. Resolution 8 implements requirements that are common practice in much of the world and that are contained in the 1988 Basel Accord such as risk-based loan classification and certain documentary requirements for borrowers. Resolution 8 was issued in November 2003 and was to take effect on January 1, ¶2007. Despite the three-year adjustment period, and the fact that most banks already comply, President Duarte came under strong pressure from the private sector and agreed to the postponement. Central Bank President Monica Perez told Ambassador and Econ Chief that the postponement was preferable to weakening the resolution. The IMF favored implementation as planned, and told the Econ Chief that the resolution would have only brought Paraguay to about 25 percent compliance with Basel Accord recommendations. UNICEF RELEASES GRIM REPORT ON CHILDREN ¶3. (U) UNICEF recently released its "State of the World's Children 2007" report, ranking Paraguay 106th out of 190 countries for infant mortality rates of children under the age of five. The report notes that more than 80 percent of infant mortality and 60 percent of deaths of children less than the age of five could be prevented with better healthcare options for the mothers. The three main causes for those deaths are complications following (illegal) abortions (23 percent),hemorrhages (18.5 percent),and Sepsis (10.6 percent) - a severe infection of the bloodstream caused by toxin-producing bacteria. The report also noted that there are more than 40,000 criadas (domestic employees) between the ages of 6 and 12. According to Eduardo Gallardo, a Program Assistant at UNICEF Paraguay, the lack of government resources to improve conditions has worsened the already weak capacity of social services to protect children. UNICEF provided assistance through a major public campaign on early childhood development, which mobilized families to improve early childcare practices. UPDATE ON THE LAST MILE INITIATIVE ¶4. (U) Vice President Luis Castiglioni and the Ambassador officially launched a new USAID program December 14 to install internet access in schools, clinics, agricultural cooperatives and other NGOs in approximately 100 sites around the country. Vice President Castiglioni gave impassioned remarks about this new opportunity provided through U.S. assistance and Paraguay,s responsibility to make internet services much more accessible for all citizens. USAID and a leading private foundation, the Fundacion Paraguaya, also signed at the launch an agreement to administer the program and develop future sites for assistance. It is estimated that fewer than 13 percent of Paraguay,s youth have any access to internet - a clear obstacle to having a competitive workforce now and in the future (reftel). MCA TAX COMPONENT ESTABLISHED ¶5. (U) The GOP issued a presidential decree this week providing the legal basis for establishment of a program to encourage private business to pay value added taxes. The program is receiving support under one of the ten main components of Paraguay,s MCA Threshold Country Program, with the goal of substantially reducing value added tax evasion. The component is strongly supported by President Duarte and the Ministry of Finance, and is based on similar programs in other countries such as Ecuador and Peru. Yet, the GOP had received much criticism earlier this year from the business community which maintained that aspects of the approach would be unconstitutional. The new presidential decree resolves these legal concerns and paves the way for the program to move forward. MAYORS TO MEASURE ¶6. (U) Over 100 newly-elected mayors participated in a workshop this week to learn about a local government performance measurement tool (MIDAMOS) developed under USAID,s democracy program. USAID and two local NGO partners -- Alter Vida and the Center for Information and Development (CIRD) -- developed the program to allow mayors and municipal councils to assess and candidly evaluate citizen services, identifying both strengths and areas that need improvement. Municipalities, which are competitively selected for the assistance, have shown considerable interest in participating. CASON