A/S SHANNON'S VISIT TO PARAGUAY

C O N F I D E N T I A L ASUNCION 000646 SIPDIS E.O. 12958: DECL: 09/10/2028 TAGS: PREL ECON PGOV PA SUBJECT: A/S SHANNON'S VISIT TO PARAGUAY REF: ASUNCION 606 Classified By: DCM Michael J. Fitzpatrick; reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: WHA Assistant Secretary Shannon visited Paraguay August 28-29 to meet President Lugo (reftel) and -- as he articulated to Paraguay's press -- to discuss ways the United States and Paraguay can work together to combat corruption, strengthen democratic institutions, improve health care, and create economic opportunity for all Paraguayans. During Shannon's August 28 meeting with Commerce Minister Heisecke, Heisecke said the GOP's priorities for the annual Joint Council on Trade and Investment (JCTI) include increasing access to U.S. markets; gaining U.S. support for bio-fuels; and using U.S. technical assistance to maximize trade under the Generalized System of Preferences (GSP). Shannon underscored the importance of closer commercial and trade relations with Paraguay as evidenced by Secretary Gutierrez's August 15 visit for President Lugo's inauguration. Economic sector representatives shared with Shannon their optimism about the Lugo administration, as well as concerns that political conditions could undermine private sector growth. Representatives from think-tanks and NGOs told Shannon the population's high expectations might clash with the government's limited and often inefficient implementation capacity. Shannon also visited a USAID-supported health clinic in one of more than 50 municipalities implementing a decentralized health care system. Shannon and Ambassador Ayalde also awarded 151 English micro-scholarships to academically gifted but financially challenged students from under-served communities. END SUMMARY. -------------- PRESS ROUNDTABLE -------------- ¶2. (SBU) On August 28, A/S Shannon told six leading journalists from Paraguay's major print and radio outlets that he was in Paraguay to meet President Lugo and to discuss ways in which the United States and Paraguay can work together to address Lugo's priorities, including combating corruption, strengthening democratic institutions, improving health care, and creating economic opportunity for all Paraguayans. The journalists seemed most interested in discussing Venezuelan President Hugo Chavez and how the United States views Chavez' &close8 relationship with Lugo. The A/S explained that Secretary Rice has made clear that the United States does not care if governments are left, �00A;right or centrist, but that a country is committed to democracy and economic development. Shannon also said that he thought the governments in the region, including Colombia, Mexico, Peru, and Brazil, are much stronger democratically and economically than in the past, leaving Chavez less room to maneuver. -------------- COFFEE WITH COMMERCE MINISTER HEISECKE -------------- ¶3. (C) WHA Assistant Secretary Tom Shannon met with Minister of Industry and Commerce Martin Heisecke August 28 to discuss commercial, trade, and investment issues. Heisecke said the GOP's priorities for the annual JCTI include increasing access to U.S. markets; gaining U.S. support for bio-fuels (citing our current cooperation with Brazil); using U.S. technical assistance to maximize trade under the Generalized System of Preferences (GSP); deepening Paraguay's capital markets; promoting beef exports to the U.S.; and improving the registration of trademarks and patents. Noting the GOP's reluctance to use the term privatization, Heisecke said state-owned enterprises would benefit from U.S. investment and technology transfers. He asserted that Paraguay has a trade deficit with the U.S., and many unexplored export opportunities exist for Paraguay. Heisecke was concerned about recent foreign assistance to Paraguay's Petropar and alluded to the need for closer relations with the U.S. to balance Paraguay's foreign relations. (NOTE: Heisecke was referring to PDVSA's July shipment of diesel provided on consignment. END NOTE.) Heisecke enthusiastically spoke about his July IVLP trip to the United States and confided that he has spoken to President Lugo about the importance of close relations with the U.S. ¶4. (C) A/S Shannon said that closer commercial and trade relations with Paraguay are important for the USG, as evidenced by Secretary Gutierrez's August 15 visit for President Lugo's inauguration. A/S Shannon highlighted President Bush's invitation to President Lugo as a strong signal of how interested the U.S. is in strengthening relations with Paraguay. Paraguayan Ambassador to the United States James Spalding, who also attended the meeting, praised several USG assistance programs, including MCC's Threshold Program, USAID assistance, and OPIC loans. -------------- EXCHANGE WITH PRIVATE SECTOR -------------- ¶5. (SBU) Economic sector representatives gathered August 29 at the Paraguayan-American Chamber of Commerce (AMCHAM) to share their optimism about the Lugo administration, as well as concerns that political conditions (and specifically populist policies) could undermine private sector growth. They were satisfied with Lugo,s technocrats in the economic cabinet, and noted that Minister of Industry and Commerce Heisecke was a good choice to represent the private sector commercial interests. Participants stressed the need for greater public-private sector dialogue in the design of economic policies. They also expressed concern about the possibility of Venezuela's growing influence, especially in state-owned enterprises. Participants highlighted the need for greater access to U.S. markets via trade preferences, increased levels of U.S. investment, and commercial trade missions in order to expand markets and attract U.S. investment. They encouraged A/S Shannon to continue to support Paraguay's efforts to re-gain certification to export beef to the U.S. and inquired about assistance to maximize trade opportunities under the General System of Preferences (GSP). -------------- THINK TANKS ON LUGO -------------- ¶6. (SBU) Representatives from think-tanks and NGOs told A/S Shannon that the population's high expectations might clash with the government's limited and often inefficient implementation capacity. They noted that congressional alliances are problematic and that Lugo,s political capital is vested in an aura of honesty that he needs to maintain. They explained that the operational and functional design of many executive branch institutions is inadequate to support reform, and that Lugo was approaching reform with a prudent bishop-like approach. Noting that he was impressed with the political understanding of Paraguayan young diplomats in the Youth Ambassadors Program he met in Washington, A/S Shannon observed that youth involvement in politics could be a strong catalyst for change. ¶7. (SBU) Though participants recognized the absence of any serious ideological discussions in Paraguay, they worried that Lugo,s administration could move in the wrong ideological direction. Several expressed concern about an increasing influence from Venezuela as an immediate funding source for public and social expending. They view the Liberal Party as institutionally weaker than the Colorados, and the recent Congressional disputes as necessary adjustments to balance power. Noting that Lugo,s failure is the worst case scenario, they raised the possibility of a power vacuum where some political actors could justify the need for a more authoritarian state. Participants opined that some of Lugo's close advisors are less pragmatic than Finance Minister Borda and the economic cabinet, and described a scenario of increasing confrontation between Lugo,s technocrats and ideologues. They observed that high expectations regarding immediate social/economic results could generate pressure for populist policies. Participants also stressed that judicial system reform should be balanced between constitutional means and simply appointing the right judges. They said the private sector is anxious due to mixed signals and a lack of dialogue. -------------- HEALTH CLINIC VISIT -------------- ¶8. (SBU) A/S Shannon also visited a USAID-supported health clinic in Itagua, which is one of more than 50 municipalities implementing a decentralized health care system. This system, which reaches over 300,000 Paraguayans, is now being looked by Health Minister Esperanza Martinez as a model for national replication to improve public access and improve health care quality -- a top priority for President Lugo. Liberal Mayor Luis Salinas, who oversees the local health council, greeted A/S Shannon and Ambassador Shannon and gave them a tour of one of the local clinics. A/S Shannon's visit served to highlight $2.5 million of overall USAID assistance being provided to health sector this year, with the Ambassador also announcing $60,000 of immediate small project assistance from Embassy's Milgroup (Office of Defense Cooperation) in support of the Health Minister's 100 Day Plan to improve visibly health/sanitary infrastructure in needy municipalities. -------------- ENGLISH MICRO-SCHOLARSHIPS -------------- ¶9. (SBU) A/S Shannon and Ambassador Ayalde also awarded 151 English micro-scholarships to academically gifted but financially challenged students from under-served communities August 28 (NOTE: 672 scholarships have been awarded to date). While most of the funding came from Asuncion's public diplomacy section, ten private sector enterprises contributed to this public-private partnership, including Citibank, ABC Color, and Esso. The Ambassador, A/S Shannon, and Minister of Education Horacio Galeano Perrone spoke to an audience of over 500 persons at the well-attended event. All three major dailies and several radio outlets covered the ceremony. -------------- IN-HOUSE MILITARY BRIEFING -------------- ¶10. (C) Post's Office of Defense Cooperation (ODC),Defense Attached (DATT),TAT, and SOCFWD representatives briefed A/S Shannon on Paraguayan defense and security issues. ODC Chief outlined post's Security Cooperation Plan, which includes: 1) developing the Paraguayan military's capability to address transnational threats and illicit activities in support of National Police; 2) enhancing the Paraguayan military's peacekeeping operations (PKO) capability by assisting with the development of three Paraguayan PKO units; 3) working with Paraguayan agencies such as the military, voluntary firefighter corps, the Health Ministry, and the National Emergency Secretariat through post's Humanitarian Assistance Program (HAP); and 4) assisting the Paraguayan government with the development of a National Security Strategy and National Military Strategy. ¶11. (C) SOCFWD mentioned its training and equipment for Paraguay's Rapid Response Unit (DCEI); a Civil Affairs team that enhances the Embassy's Humanitarian Assistance Program with additional manpower, know-how, and funding; and a Military Information Support Team (MIST) that works directly with counter-drug police (SENAD),anti-money laundering units, and customs in support of Country Team initiatives. TAT Chief noted that in addition to large-scale cocaine transshipments and marijuana production, Post noted a increase in ephedrine transshipments via Paraguay to Mexico. The DATT categorized access to the Paraguayan military as "phenomenal" at all levels. A/S Shannon did not have an opportunity to clear this message. Please visit us at http://www.state.sgov.gov/p/wha/asuncion AYALDE