PARAGUAY POLITICAL AND ECONOMIC UPDATE, APRIL

UNCLAS ASUNCION 000446

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC, INL, 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
NAIROBI FOR MICHAEL FITZPATRICK

E.O. 12958: N/A
TAGS: PGOV PREL PINR PHUM KCRM SNAR KWMN SMIG PA SP
SUBJECT: PARAGUAY POLITICAL AND ECONOMIC UPDATE, APRIL
22-29, 2006

REF: A. ASUNCION 0371

B. ASUNCION 0348

C. ASUNCION 0296

D. ASUNCION 0200

E. ASUNCION 0445


1. (U) SUMMARY:
--AMB Meets with Colorado Leadership
--UTE Seizes Pirated Goods
--Ten Generals Retired, Galeano Delayed
--TIP Traffickers Arrested in CDE
--OTA Meets with Minister Bergen
--President Replaces Agriculture Minister

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AMB Meets with Colorado Leadership
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2. (U) On 4/24, Ambassador accompanied by A/DCM, PolCouns and
EconCouns met key Colorado Party leaders including Party
President Jos Alberto Alderete, Third Vice-President Senator
Nelson Argaa, Executive Board Party Secretaries -- Roberto
Gonzlez, Minister of Defense and Deputy Arstides Da Rosa,
and Executive Board Members (from opposition to Duarte within
Party): Alfredo (Goli) Stroessner, Mario Abdo Bentez, and
Doctor Rubn Melgarejo Lanzn. (Note: Colorado Party Second
Vice-President Juan Carlos Galaverna, implicated in numerous
corrupt activities and considered by many observers as the
most powerful individual within the Party, declined to attend
the meeting. End Note.) The Ambassador took the opportunity
to:

-- reenforce the importance we attach to movement on the AML
law as part and parcel of the fight against corruption and
the effort to attract investment;
-- describe the different forms of assistance we are
providing Paraguay - MCA, USAID, PC, military exercises,
efforts to create more U.S. study opportunities for poor
Paraguayans and more export opportunities for Paraguayan
products to the U.S.;
-- share concern about PPL activity and stress the need for
Paraguay to act now;
-- appeal for support for new agreement on military exercises
including MEDRETES in 2007;
-- support Anti-Drug Secretariat,s (SENAD) CN efforts
stressing the need for Congress to provide funding for 50 new
agents.


3. (U) Alderete conveyed appreciation for U.S. assistance and
affirmed his Party,s desire for continued collaboration from
us in promoting economic development and tackling the threat
posed by the PPL. He criticized the opposition for
obstructing its initiatives within Congress but insisted the
Party leadership was capable of dealing with this problem on
its own.

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UTE Seizes Pirated Goods
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4. (U) On 4/21, Prosecutor Luis Maniagurria and agents of the
USG-supported Specialized Technical Unit (UTE) raided four
labs in Ciudad del Este seizing 13,550 pirated CDs, 7,184
pirated DVDs, 5,750 virgin CDs, and 32,550 cases for CDs, all
with an estimated value of approximately 75,000 USD. The
agents also seized 58 boxes containing pirated Nintendo and
GameBoy software from two businesses, which are believed to
be a front for Lebanese businessman Ali Zaioun. One of the
businesses is registered under the name of Ali Hassan
Hamaied, a naturalized Paraguayan citizen, and the other
under Walli Abdulamir Atwi.

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Ten Generals Retired, Galeano Delayed

--------------


5. (U) On 4/27, the Duarte administration released its
revised military promotions list and announced that ten
general officers would pass into retirement. They include
Army Commander Lieutenant General Alviso and Air Force
Commander General Roberto Vera, but not Military Forces
Commander General Jose Kanazawa or Navy Commander Rear
Admiral Miguel Caballero, who was reassigned to the Logistics
Command. The announcement followed Duarte,s 4/23 attempt to
placate the opposition by replacing the three military
service commanders and the controversial commander of the
Presidential Escort Regiment, Colonel Heriberto Galeano (ref.
E). Galeano,s name did not appear on the revised promotions
list. However, the opposition continues to call for
Kanazawa,s removal as well as Galeano's retirement as a sine
qua non for consideration of the rest of the list.


6. (SBU) Comment: Once the ten general officers are retired,
if their replacements are not promoted because of the
impasse, the military brass will be left light at the top.
There will be no active duty (three-star) lieutenant generals
between the (four-star) Military Forces Commander and the
remaining crop of (two-star) brigadier generals. While
Galeano,s absence from the revised promotion list is a
welcome development, Duarte may attempt to promote him again
next year, after the dust settles. End Comment.

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TIP Traffickers Arrested in CDE
--------------


7. (U) In two raids in Ciudad del Este, authorities
apprehended and detained three human traffickers. The
detainees are Delsey Eva Garcete, Yeni Sosa Barrios and
Noelia Aquino Sosa. According to the prosecutor, Nelson
Ruiz, the women had been advertising jobs in Spain to young
women, including modeling jobs. Before the trip to Spain,
the women were told they had to sign a contract and pay fees,
which would have committed them to pay back the contract
debts. Ramon Gonzalez, the boyfriend of one of the victims,
brought the case to the attention of authorities.

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OTA Meets with Minister Bergen
--------------


8. (U) On April 26, the visiting Deputy Director of
Treasury,s Office of Technical Assistance, Michael Ruffner,
who is also the head of OTA,s budget team, met with Finance
Minister Ernst Bergen to discuss the budget team,s work and
explore future opportunities. The Finance Minister revived
an idea raised in September 2005 for OTA to collaborate with
the IDB (some funds are already available) to produce a major
intervention - "an assault" on the budget process. Bergen
emphasized his focus on results rather than continued study.
He also discussed the need to better coordinate with Congress
so that budget deliberations would stay within the fiscal
limits set by the Finance Ministry. In the past few years,
Congress has inflated the executive,s budget proposals
beyond what can be financed, forcing the Ministry to use a
special provision to hold spending in line with revenues.
This has helped produced excellent fiscal results, but has
resulted in disproportionate cuts to much needed social and
capital investment.


9. (U) Bergen asserted that the economic team has continued
to work independently, free from pressure from the President.
Partially as a result, revenues have increased 27 percent
year-on-year in the first three months of 2006, much more
than expected by either the GOP or the IMF, and 22,000 new
taxpayers have registered. These developments are a direct
result of the implementation of the fiscal adjustment law
which is leading to increased formalization.


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President Replaces Agriculture Minister
--------------


10. (U) On Saturday, April 22, Minister of Agriculture
Gustavo Ruiz Diaz resigned following a meeting with President
Duarte Frutos. The outgoing minister noted "outside
pressures" that contributed to his decision. The new
Minister of Agriculture, Carlos Abel Santacruz, is the former
head of the GOP,s Agriculture Credit Bureau. According to
media reports, Santacruz is often portrayed as a technocrat,
yet he functions more as a politician. Claudia Russer,
President of the Soy Producers Association told Econoff that
the choice of Santacruz was "a disaster." Russer continued,
"The Ministry is being filled with politicians instead of
technical experts, and this Minister is a step down from his
predecessor." Maris Llorens, President of the beef producers
association, was more optimistic, telling Econoff that no
change had been made in the Vice Minister of Livestock, and
that her industry did not anticipate any changes in the
Ministry,s key technical personnel.
CASON