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