PARAGUAY POLITICAL AND ECONOMIC UPDATE FEBRUARY 17

UNCLAS ASUNCION 000146 SIPDIS SENSITIVE 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 FEBRUARY 17 - 23, 2007 ¶1. (U) SUMMARY: -- Conviction Against Gonzalez Maachi Overturned -- Supreme Court Rules Congress Not To Oversee Dam Funds -- CAPSTONE Class in Paraguay -- Ambassador Visits Cooperatives -- MCC Brings Investors to Paraguay -- Fostering Competitiveness CONVICTION AGAINST GONZALEZ MAACHI OVERTURNED ¶2. (U) The Supreme Court overturned former President Luis Gonzalez Macchi's conviction on charges of illegal use of funds February 19. On June 5, 2006, Gonzalez Maachi was convicted and sentenced to six years in prison for his involvement in the illegal transfer of USD 16 million from the liquidated Oriental Bank in 2000. An Apellate Court reversed the conviction forcing the Attorney General's office to seek final judgement by the Supreme Court. (NOTE: In a separate case, Gonzalez Maachi was convicted and sentenced to 8 years in prison for illegal enrichment and providing false documents on December 4, 2006. This case remains under appeal. End Note). SUPREME COURT RULES CONGRESS NOT TO OVERSEE DAM FUNDS ¶3. (U) The Supreme Court temporarily suspended several articles in the 2007 Budget Law, February 16, that established Congressional control over the social funds provided by the Itaipu Dam and Yacyreta Dam Binational Corporations. According to reports, Itaipu officials requested that the Supreme Court declare the articles unconstitutional because Itaipu is a binational enterprise and its funds are not part of the national budget. (NOTE: There are no public records that identify the assets of either Dam. End Note). CAPSTONE CLASS IN PARAGUAY ¶4. (SBU) Seventeen members of CAPSTONE arrived in Asuncion from Ecuador on February 21 for two-days of meetings as a part of their regional orientation. CAPSTONE is a mandatory 6-week course for officers that have attained the rank of General/Flag Officer (one-star). During their visit, the CAPSTONE members met with Gen. Bernardino Soto Estigarribia, Commander of the Armed Forces and a number of other senior military officers. Paraguayan press was relatively minimal and innocuous. AMBASSADOR VISITS COOPERATIVES ¶5. (U) In a two-day trip to the Departments of Caaguazu, Guaira, and Caazapa, the Ambassador and USAID staff visited several agricultural cooperatives (Coopafiol, Ycua Bolanos, Capiibary) that are focal points for USAID-funded assistance provided through ACDI-VOCA. The USAID program provides highly-skilled U.S. technical experts who work on a volunteer basis with the cooperatives to improve production techniques, diversification efforts, and access to markets. By working through these cooperatives, USAID assistance is expected to reach 11,000 producers. The Ambassador and USAID staff also discussed with regional and community leaders possible opportunities to benefit from other USAID assistance, including our ongoing municipal governance activity, the Last Mile Initiative (providing internet access in rural areas), and MCA investment promotion efforts. (NOTE: Peace Corps volunteers are also assisting these cooperatives. End Note). MCC BRINGS INVESTORS TO PARAGUAY ¶6. (U) The Shoe Manufacturers Association of Brazil visited Paraguay from February 14 to 16 under Component 10 of the MCC Threshold Program aimed at increasing maquila activity in Paraguay. The Ministry of Industry and Commerce and the related Parguayan Maquila Council took the lead in promoting the trip. The 2 Brazilian representatives were well received and were provided all the information necessary to make a decision regarding investments in Paraguay. The Association represents more than 8,000 Brazilian shoemaker companies. The representatives said that as many as 80 manufacturers have expressed interest in investing in Paraguay. The business trip included a meeting with Vice-President Luis Castigioni as well as visits to port and warehouse facilities in Asuncion and Ciudad Del Este. FOSTERING COMPETITIVENESS ¶7. (U) The Paraguayan Chamber of Commerce and Services initiated negotiations with the National Customs Office and the Merchant Marine to provide information and foster competitiveness on the global market. The Chamber is lobbying for the elimination of tariffs related to container shipments, rescinding required waivers to ship on Paraguayan flag ships, and eliminating multiple charges for registering businesses at the National Customs Office. The elimination of these fees and charges is expected to increase the competitiveness of Paraguayan exports. The information provided to the government is based on technical analyses performed by a USAID based contract with CARANA Associates (a U.S. contractor) aimed at increasing trade in South America. FITZPATRICK