Identifier
Created
Classification
Origin
06ASUNCION495
2006-05-10 18:16:00
CONFIDENTIAL
Embassy Asuncion
Cable title:  

PARAGUAY: PRESIDENT DUARTE SUPPORTS CENTRAL BANK

Tags:  ECON PREL EFIN PINR PA 
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VZCZCXYZ0042
PP RUEHWEB

DE RUEHAC #0495/01 1301816
ZNY CCCCC ZZH
P 101816Z MAY 06
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC PRIORITY 4233
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHNR/AMEMBASSY NAIROBI 0228
RUEKJCS/USSOCOM WO WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHEHNSC/WHITE HOUSE NSC WASHDC
C O N F I D E N T I A L ASUNCION 000495 

SIPDIS

SIPDIS

STATE FOR, WHA/BSC, WHA/EPSC, EB/IFD/OMA
NAIROBI FOR MICHAEL FITZPATRICK
TREASURY FOR CKUSHLIS AND OTA
STATE PASS USTR FOR MARY SULLIVAN
USAID FOR AA/LAC ADOLFO FRANCO
NSC FOR SUE CRONIN
SOUTHCOM FOR POLAD BARBARA MOORE

E.O. 12958: DECL: 05/10/2016
TAGS: ECON PREL EFIN PINR PA
SUBJECT: PARAGUAY: PRESIDENT DUARTE SUPPORTS CENTRAL BANK
PRESIDENT AGAINST OLD GUARD

REF: A. A) ASUNCION 258

B. B) ASUNCION 29

Classified By: ECON Patrick R. O'Reilly for reasons 1.4 (b) and (d).

-------
SUMMARY
-------

C O N F I D E N T I A L ASUNCION 000495

SIPDIS

SIPDIS

STATE FOR, WHA/BSC, WHA/EPSC, EB/IFD/OMA
NAIROBI FOR MICHAEL FITZPATRICK
TREASURY FOR CKUSHLIS AND OTA
STATE PASS USTR FOR MARY SULLIVAN
USAID FOR AA/LAC ADOLFO FRANCO
NSC FOR SUE CRONIN
SOUTHCOM FOR POLAD BARBARA MOORE

E.O. 12958: DECL: 05/10/2016
TAGS: ECON PREL EFIN PINR PA
SUBJECT: PARAGUAY: PRESIDENT DUARTE SUPPORTS CENTRAL BANK
PRESIDENT AGAINST OLD GUARD

REF: A. A) ASUNCION 258

B. B) ASUNCION 29

Classified By: ECON Patrick R. O'Reilly for reasons 1.4 (b) and (d).

--------------
SUMMARY
--------------


1. (C) President Duarte has demonstrated with action his
rhetoric supporting economic reform by forcing the
resignation of three members of the Board of Directors of the
Central Bank (BCP),handing a major victory to Monica Perez,
BCP President, in what had been a bitter struggle between her
and the Board of Directors. Perez had told the Ambassador in
early March that she would resign if the impasse were not
resolved. Perez will now run the bank with the one remaining
Board member until new members are appointed, significantly
improving her ability to manage the BCP. The end-game
remains unclear, though, as one of the members may remain
with the BCP where he might cause problems for Perez, and
some in the opposition are clamoring both for Perez,s
resignation and for the appointment of new Board members to
counter her. Perez praised Duarte,s continued support for
her, and told the Ambassador that he has kept to his promise
never to ask her for special favors. As noted in ref B,
Perez believes that public support by the CDA at a critical
moment in early January was "decisive" in solidfying Duarte's
support, which has fortunately played out with a win for a
key reformer. End Summary.

-------------- -
CRISIS OVER - FOR NOW - AND BCP PRESIDENT WINS
-------------- -


2. (C) The institutional crisis at Paraguay,s Central Bank
described in reftels and previous reporting has been at least
temporarily resolved with the late April resignation of the
three Board members most at odds with Central Bank President
Monica Perez. The resignations were offered based on
pressure from President Duarte, a significant positive signal

of his commitment to economic reform, and a follow through to
an early January decision to support Perez following the
CDA's well-publicized call on Perez (ref B). The
President,s recent actions in support of Perez come in the
face of bitter recriminations against Perez on the part of
some within the opposition, as well as more nuanced
opposition to her reforms from certain factions of the
Colorado Party. As noted in ref A, Perez told the Ambassador
in early March that she had told the President that she would
resign if the impasse were not resolved quickly. Three of
the Board members had been openly attacking Perez in the
press, and hindering her reform efforts by blocking
initiatives she presented to the Board for approval.


3. (C) The departure of the three Board members leaves only
two: Perez as the President and Venicio Sanchez as the sole
remaining regular Board member. Perez told the Ambassador in
prior meetings and again on April 20 that Sanchez, who is a
long-time BCP employee, was someone with whom she could work.
She told Econcouns on April 27 that with the resignation of
Fernando Silva Facetti (the last to go ) Raul Ayala and
Diego Martinez resigned a week earlier),she was relieved and
felt that she should be able to move forward now much more
easily. After the three resignations, the ex-Directors and
the press claimed that without the required three-member
quorum, the BCP could not function. Perez, however, cited
Article 21 of the BCP,s organic law, which allows the
President, in times of emergency or expediency, to issue
decrees unilaterally with only the requirement that the Board
be notified after the fact. She pointed out that before she
arrived, most resolutions were issued under that Article
since the Board did not regularly meet.

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END-GAME UNCLEAR
--------------



4. (C) The end-game remains unclear, though. One of the
Board members resigned from the Board, but not from the BCP
itself, and if he continues to walk the halls at the Bank,
Perez expressed concern he could stir up trouble. The
history of using jobs at the BCP for patronage purposes and
the current political impasse between the Colorado Party and
the opposition creates questions with respect to the caliber
of the individuals who will eventually be appointed the
Board. Some opposition members have been saying they want
new Board members who can counteract Perez. For now,
President Duarte has said he will not negotiate those
nominations with the opposition, but with the Congress not
meeting regularly, the final outcome is in question.


5. (C) According to Perez, one of the Board members who
resigned, Diego Martinez, is angling for a reward such as a
posting as Paraguay,s representative to ALADI, where he
could pull in a six-figure USD salary. She expressed her
opposition to and frustration with the long-standing practice
of rewarding opponents with cushy jobs. She noted, though,
that Martinez has as cousin who is very close to President
Duarte,s sister-in-law, who supports him in many things, and
complicates the situation. Raul Ayala is very close to
influential Colorado Senator Jose Galaverna, which could
complicate an attempt to removing him completely from the
bank. Perez told the Ambassador that all three ousted Board
members had been involved with theft related to past bank
failures. They all were in favor of handling the liquidation
of seized assets in house, but Perez said she would much
rather outsource such asset management and sale to an
international firm.

--------------
STRONG SUPPORT FROM PRESIDENT DUARTE
--------------


6. (C) Perez told the Ambassador that President Duarte has a
good heart and fully supports her. She repeated the story
that when Duarte asked her to take the job, he asked her to
keep his offer a complete secret so he wouldn,t have to
&negotiate8 her nomination. She said that even her family
didn,t know until the President announced that she would be
the next BCP President. Perez claimed that Duarte has never
asked her to take specific actions on his or the Colorado
Party,s behalf. She dismissed press allegations that
relatively high inflation was somehow linked to the Colorado
Party internal elections earlier this year.

--------------
COMMENT
--------------


7. (C) Monica Perez,s efforts to eliminate the widespread
practice of employees permanently receiving pay bonuses
associated with certain jobs even after leaving those jobs,
as well as her insistence that the monetary policy budget
should be made transparent and included in the BCP,s annual
budget submitted to Congress quickly earned her enemies on
the Board of Directors and with certain members of Congress,
both within the Colorado Party and the opposition. Post
continues to believe she is truly committed to reform. A
legal expert from Treasury,s Office of Technical Assistance
conducted a legal analysis that fully supported Perez,s view
regarding the monetary policy budget. President Duarte,s
unflagging support for Perez despite the ongoing political
impasse with the opposition is a strong indicator of his
commitment to reform, at least on the economic front. As
noted in ref B, Perez believes that public support by the CDA
at a critical moment in early January was "decisive" in
solidfying Duarte's support, which has fortunately played out
with a win for a key reformer.

CASON
CASON