PARAGUAY POLITICAL AND ECONOMIC UPDATE, FEBRUARY

UNCLAS ASUNCION 000209

SIPDIS

SIPDIS

STATE FOR WHA/BSC 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: N/A
TAGS: PGOV PREL PINR PA
SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, FEBRUARY
18-24, 2006



1. (U) Summary:
-- Prosecutors Open Investigations on President and Tax
Minister
-- President Duarte Seeks Proposes Reelection Referendum
-- Duarte to Meet with Foreign Leaders

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Prosecutors Open Investigations on President and Tax Minister
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2. On February 21, Paraguayan press reported that
prosecutors within the Public Ministry's Anti-Corruption Unit
will investigate President Duarte and his Vice Minister of
Revenue, Andres Neufeld, for illicit enrichment. President
Duarte is being investigated based on 2001-2003 declarations
of assets which suggest he owns property valued far higher
than his presidential salary would allow him to afford. Under
Paraguayan law, Duarte is only required to declare his assets
at the beginning and end of his term, and not during. Andres
Neufeld is being investigated for taking a percentage of
fines collected in tax evasion cases although the tax
overhaul legislation passed in 2004 included provisions to
allow for officials to share in fine revenues as a
performance incentive. Corruption prosecutor Arnaldo Giuzzio
has been assigned to both cases. Giuzzio told Poloffs that he
believes Neufeld has done nothing outside the parameters of
the law, and at most may have acted unethically. We are
inclined to agree. Neufeld has a reputation for being honest.
He has come under attack for implementing a new and unpopular
personal income tax; it is likely the allegations are
politically inspired by opponents of the law, including
Osvaldo Dominguez Dibb (ODD) who lambasted Neufeld during the
recent Colorado election. It is unlikely charges will be
brought against either Duarte or Neufeld --at least while
Duarte is in office-- given the political stakes.

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President Duarte Proposes Reelection Referendum
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3. On February 21, President Duarte publicly proposed
holding a referendum during this year,s November municipal
elections to allow a popular vote on an amendment to the
Constitution allowing his reelection. Several of his
detractors objected to the President's reelection amendment
proposal, insisting it would be unconstitutional for the
president to pursue approval for reelection by any means
other than a Constitutional amendment secured through a
Constituent Assembly. Comment: Duarte would need to draw
considerable opposition party support to produce the
two-thirds majority in both Houses of Congress that he needs
to pursue a Constituent Assembly. The opposition parties
continue to reject a Constituent Assembly prompting Duarte to
explore other avenues. End Comment.

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Duarte to Meet with Foreign Leaders
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4. On February 22 Paraguayan Foreign Minister Leila Rachid
announced that President Duarte will travel to meet multiple
foreign leaders over the next several months. His first stop
will be Santiago, Chile to attend the March 10 inauguration
of Chilean President-Elect Michelle Bachelet. On May 13, he
will attend the meeting of Latin American presidents and EU
leaders in Vienna, and follow up with a meeting with French
President Jacques Chirac on May 17. A visit to Spain late in
June is also planned, but the GOP will first have to appoint
an ambassador to Spain before the trip.
CASON