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.

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PRESS ROUNDTABLE
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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,
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.

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COFFEE WITH COMMERCE MINISTER HEISECKE
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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.

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EXCHANGE WITH PRIVATE SECTOR
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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).

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THINK TANKS ON LUGO
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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.

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HEALTH CLINIC VISIT
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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.

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ENGLISH MICRO-SCHOLARSHIPS
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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.

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IN-HOUSE MILITARY BRIEFING
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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.

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AYALDE