PARAGUAY: DUARTE TILTS LEFT LOOKING FOR

C O N F I D E N T I A L ASUNCION 000250 SIPDIS SIPDIS NSC FOR JOSE CARDENAS; SOUTHCOM FOR POLAD E.O. 12958: DECL: 03/26/2027 TAGS: PREL PGOV ECON VE PA SUBJECT: PARAGUAY: DUARTE TILTS LEFT LOOKING FOR SCAPEGOATS, SUPPORT Classified By: PolCouns James P. Merz; Reasons 1.4(b),(d) ¶1. (C) SUMMARY. President Duarte's statements applauding Chavez' "overdose of democracy," attacking "neoliberalism," and criticizing U.S. policies could be characterized as representing a substantive shift further to the left. However, they also reflect as much if not more Duarte's growing malaise over his own declining prospects to win reelection and a desire to steal some thunder from leftist priest Fernando Lugo. As Duarte realizes his 2008 reelection aspirations will likely not be realized, he will likely seek out convenient scapegoats for the perceived "failure" of his own government. U.S. trade policies, neoliberalism, and "selfish" business and farmers will likely serve convenient targets in the year ahead. We can expect other candidates in the race for the Paraguayan presidency to similarly attack these straw men as they tilt rhetorically to the left. The USG challenge will be to stress the importance we place on free and fair elections as well as to remind Paraguayans of what we are doing through the MCA program and other policies to strengthen Paraguayan institutions, combat corruption, and foster prosperity. END SUMMARY. "Neoliberalism" Takes Hit for Duarte's Failed Dreams ¶2. (C) Duarte defended Chavez' record on democracy during a March 14 television interview pointing to the number of elections and referendums Chavez has won over recent years. (NOTE: Duarte is bitter that the Paraguayan Congress has denied him the votes he needs to call a referendum on his own bid to amend the Constitution to allow for reelection. END NOTE) No doubt, Duarte is also tilting left in an attempt to peel support away from leftist priest Fernando Lugo, who is leading the polls and encroaching on much of the Colorado Party's traditional base among the agricultural poor. Conversely, Duarte has attacked "neoliberalism" and discriminatory U.S. trade policies for impoverishing Latin America. He complained about not being extended the kind of access to U.S. markets Andean countries enjoy, suggesting sarcastically Paraguay would be better off it were a producer of cocaine so that it similarly would be granted such access. In ensuing days, he announced that he supported Chavez' proposal for a South American Bank and was instructing his Finance Ministry to look into the issue. (NOTE: As we understand it Chavez' proposal is still very much notional. In any case, Paraguay's comparatively small economy would not figure a major player if the proposal were to become more than a pipedream. END NOTE.) ¶3. (C) Duarte is naturally predisposed to the left. He grew up poor and is resentful of the rich. His learning curve when it comes to the economics and politics of trade remains very steep. He, like many Paraguayans, defines Paraguay's success in the foreign arena by the concrete benefits in the form of direct assistance it obtains from its partners. Paraguay receives millions in cash from Taiwan annually, money it pours into housing projects, schools, hospitals and, in all likelihood, Colorado Party campaign coffers. These funds come with few or no strings attached. Separately, Mercosur recently announced it would provide Paraguay millions in structural support funds. For his part, Duarte cannot appreciate nor understand why the U.S. cannot overcome Congressional opposition and just "give" Paraguay what it deserves in the way of preferential trade practices -- not to mention technological transfers and more visas (also flagged in Duarte's speech). ¶4. (C) Of course, Duarte's gripe with U.S. trade policies is not novel. What is new is his dawning realization that he will likely not be able to pursue reelection -- and the fact that a leftist priest has captured the imagination of much of the Colorado Party's traditional base. To his credit, Duarte's government has embraced generally responsible macroeconomic policies that have delivered relatively low inflation rates and a good record on meeting debts and building up reserves. However, it is not unlikely Duarte blames these same policies for producing low economic growth rates and insufficient new jobs. As he looks for scapegoats to blame and observes, conversely, the popularity of leftist priest Fernando Lugo, "neoliberalism," discriminatory U.S. trade policies, and "selfish" businessmen and farmers become easy targets. Framing the Debate ¶5. (C) While Duarte is prone to dramatic shifts in rhetoric, we should not be surprised if attacks of this kind become a common theme in the months ahead leading up to next year's Presidential election. While Lugo's popularity has as much to do with his emerging from outside the political class as to his falling on the left side of the ideological spectrum, it is not unlikely other aspirants for the presidency will draw the lesson that they too need to shift left to compete and attract voters. Vice-President Castiglioni, probably the Colorado Party's strongest candidate should Duarte not win his reelection bid, has long evidenced a genuine appreciation for fiscal restraint, state reform, and responsible trade and investment policies. Nevertheless, in recent days, he too has announced that he rejects "neoliberalism" in favor of social policies consistent with the Catholic Church. Castiglioni has yet to define what all of this means, but his statements, clearly tailored to the dictates of electoral politics, herald the kind of shift we can expect in terms of rhetoric in the coming year ahead. U.S. Implications ¶6. (C) We need to continue to educate the public about the benefits of free trade as well as what Paraguay needs to do to attract more foreign investment. But this is a long-range strategy that will take time and Paraguayan partners to turn the tide of public opinion. In the meantime, we need to remind Paraguayans of our overarching commitment to free and fair elections and what we are already doing to strengthen institutions, combat corruption, and promote prosperity through our Millennium Challenge Account ($35 million) and other USAID programs ($10 million),our Peace Corps program (over 160 volunteers),and other microscholarship program (200 recipients). The Ambassador continues traveling throughout the country visiting programs sites and the press regularly covers these visits. We would look to stress these same themes for high level visitors who travel to Paraguay in the coming months. CASON