PARAGUAY'S THRESHOLD PROGRAM WORKING TO FORMALIZE

UNCLAS ASUNCION 000847

SIPDIS

PASS TO MCC MLONGI AND MKARBELING, STATE FOR WHA/BSC
MDASCHBACH

E.O. 12958: N/A
TAGS: PGOV PREL EAID ECON PA
SUBJECT: PARAGUAY'S THRESHOLD PROGRAM WORKING TO FORMALIZE
CIUDAD DEL ESTE


1. (U) Ambassador and Paraguayan Minister of Industry and
Commerce Martin Heisecke visited December 10 manufacturers in
Ciudad del Este (CDE) supported by USAID's Millennium
Challenge Corporation (MCC) Threshold Program. Ambassador
and Heisecke visited Qin Yi America and Cortinerias del
Paraguay, two manufacturers that exemplify the success of
phase one of the Threshold Program in formalizing Ciudad del
Este's economy and creating local job opportunities. Qin Yi
America's owners -- who previously imported goods from China
and re-exported to Brazil via commercial brokers -- legally
registered the company this year, and opened a new facility
that will employ over 200 workers and export up to USD eight
million in bedcovers to Argentina and Brazil next year.
Cortinerias, a Brazilian curtain manufacturer that registered
with the government this year, will employ 120 workers and
export approximately USD two million to Brazil next year.


2. (U) The Threshold Program helped Paraguay promote
economic formalization by streamlining its business
registration process and strengthening the Paraguayan Maquila
Council's (CNIME) ability to attract foreign investment.
(NOTE: CNIME, part of the Ministry of Industry and Commerce,
governs the "Maquila" system. The "Maquila" system is a
Mercosur-recognized tax incentive regime that stimulates
domestic job growth through the value-added production of
goods for export. END NOTE.) Qin Yi America and Cortinerias
incorporated this year under Paraguay's One-Stop Shop for
Business Registration (SUAE),and obtained approval from
CNIME to operate under Paraguay's "Maquila" system.
Component 9 of the Threshold Program helped the Paraguayan
government establish SUAE, an inter-governmental agency that
reduced the cost and number of days (from 74 days in 2006 to
less than 15 this year) required to establish a business.
Paraguay's increased ease of doing business gives informal
businesses an incentive to formalize. (NOTE: Paraguay rose
from 138th in 2006 to 66th this year in the World Bank's
Doing Business Report's "Ease of Starting a Business"
indicator. END NOTE.) Component 10 enhanced Paraguay's
capacity to export by contributing to the establishment of 23
new manufacturing facilities (maquiladoras),increasing the
total value of maquiladora exports from USD 68 million in
2006 to USD 178 million this year (an increase of 260
percent),and creating as many as 4,000 new jobs. The
Threshold Program also provided the CNIME with training,
promotional materials, and computing resources needed to
assist new manufacturers. (NOTE: Threshold Program spending
on components 9 and 10 was USD 3.1 million, less than 10
percent of total funding for the program. END NOTE.)


3. (U) COMMENT: Ambassador's visits to Qin Yi America and
Cortinerias demonstrated the USG's continued support for
Paraguay in its efforts to formalize its economy. These
manufacturers illustrate that Paraguay can convert informal
enterprises into legal businesses, stimulate job growth,
increase exports, and shrink the informal economy. The
Paraguayan government has made strides in formalizing CDE's
economy with the help of the Threshold Program. However, it
still faces immense challenges formalizing the area's large
informal economy. Alto Parana Governor Nelson Aguinagalde,
CDE Mayor Sandra McLeod, and Javier Zacarias Irun, CDE's
previous mayor, told Ambassador during her December 9-10
visit that economic formalization is a top priority for their
governments but that businesses often face disincentives to
formalize such as bureaucratic red tape, corruption, and
insufficient infrastructure. The Threshold Program is
helping to formalize CDE's economy, but the Paraguayan
government still needs to tackle many issues in this area.
END COMMENT.

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