AMBASSADOR IN CIUDAD DEL ESTE: REFORMS STILL

C O N F I D E N T I A L ASUNCION 000857

SIPDIS

STATE FOR WHA/BSC MDRUCKER AND MDASCHBACH

E.O. 12958: DECL: 12/31/2033
TAGS: PGOV ECON SNAR PTER PHUM PA
SUBJECT: AMBASSADOR IN CIUDAD DEL ESTE: REFORMS STILL
NEEDED

REF: ASUN 847

Classified By: Charge d'Affaires, a.i. Michael J. Fitzpatrick for reaso
ns 1.4 (b) and (d).

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SUMMARY
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1. (C) Political, law enforcement, and private sector
representatives told Ambassador in Ciudad del Este December
9-10 that the Paraguayan government needs significant
political, economic, and judicial reform. Prosecutors,
business leaders, and activists expressed concern over
political corruption, criminality, and a lack of political
will, and told Ambassador that economic crimes are a major
concern even as they focus their reform efforts on
formalizing the underground economy. Ambassador's first
official trip to Ciudad del Este touched on many Mission
objectives, including helping Paraguay combat transnational
crime, corruption, and informality. END SUMMARY.

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AMBASSADOR MEETS LOCAL OFFICIALS
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2. (C) Ambassador made her first official trip to Ciudad del
Este (CDE),Paraguay's second-largest city, and situated in
the Tri-Border Area, December 9-10. She discussed regional
politics with Colorado Governor of Alto Parana, Nelson
Aguinagalde; Colorado CDE Mayor Sandra McLeod; and her
husband, former Colorado vice presidential candidate and
former CDE mayor, Javier Zacarias Irun. The local chapter of
the Paraguayan-American Chamber of Commerce (AmCham) hosted a
lunch in Ambassador's honor, and she met with local
prosecutors and members of the anti-trafficking in persons
(TIP) community. She also interacted with students at the
Paraguayan-American Cultural Center (CCPA) who had received
microscholarships from the U.S. Embassy, and met with
American citizens living in the area. Ambassador visited two
new manufacturing facilities in CDE with Minister of Industry
and Commerce Martin Heisecke that benefited from the first
phase of the Millennium Challenge Corporation Threshold
Program (reftel).

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REFORM, REFORM, REFORM
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3. (C) Many interlocutors told Ambassador that the
Paraguayan government needed significant political, economic,
and legal reform. Aguinagalde, McLeod, and Irun said that
they favored political reform and decentralization. However,
Irun and McLeod cautioned that both the Colorado and Liberal
parties are divided internally and that these divisions would
hinder the government's ability to reform itself. Irun said
that Paraguay needed a "serious" government to implement true
reforms -- reforms he said his Colorado faction could
provide. (NOTE: Irun is a member of former Vice President
Luis Castiglioni's Colorado Vanguard Movement dissident
faction. END NOTE.) Irun played up his faction's support
for the USG and its pro-American orientation, noting that
local newspapers often depicted Castiglioni wearing an "Uncle
Sam" hat. Irun said the national government failed to live
up to its commitments to provide adequate services such as
health care. He lamented that nearby Itaipu Dam generates
ample resources that are monopolized by the national
government. Irun stated that the national government budgets
just USD 900,000 to CDE per year -- one-tenth of what
sister-city Foz do Iguacu receives from the Brazilian
government -- limiting CDE's ability to implement change.
CDE has some authority to levy local taxes independent from
the national government.


4. (C) Prosecutors told Ambassador that Paraguay's revised
penal code lacked key statutes such as terrorism financing,
hindering their ability to prosecute transnational crime.
AmCham members advocated institutional strengthening,
including reforming the Constitution, reducing bureaucracy,
and nothing short of totally transforming "Paraguay's
geo-political, economic, and social spheres." They
emphasized that change would take time but that politicians
lacked the will to implement reform. AmCham members told
Ambassador that the area needed improved education
opportunities, and that CDE could transform itself from a
place with a reputation for lawlessness and informality into
a services sector hub. They suggested that the Paraguay
government achieve formality by raising taxes to fund
economic reforms.

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CORRUPTION AND CRIMINALITY
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5. (C) Prosecutors, local business leaders, and activists
shared with Ambassador their concerns about corrupt
officials, criminality, and a lack of political will. They
noted that many local politicians are corrupt.
Anti-narcotics Prosecutor Adelaida Vasquez singled out
national Congressmen Nelson Segovia of the Liberal Party --
whom they claimed is tied to drug traffickers -- as corrupt.
CDE District Attorney Eber Ovelar expressed his frustration
with the corrupt judicial system. He stated that he brought
several strong cases before the courts for prosecution only
to have corrupt judges dismiss them or overturn convictions.
Prosecutors stated that the local police are very corrupt and
that the prosecutors rely on agents from the U.S.-assisted
Anti-Drug Secretariat (SENAD) rather than the local police
for law enforcement. Vasquez told Ambassador she feared the
police -- who protected those she tried to prosecute -- and
reported that she had once been suspended for six months
without pay for prosecuting a politically-connected
individual. Prosecutor Manuel Rojas confirmed that he
feigned illness once to avoid following an order that would
have required him to commit an illegal act. All prosecutors
reported that they relied on judges outside CDE to adjudicate
their cases.


6. (C) Prosecutors told Ambassador that drugs and illegal
contraband continue to be major problems in CDE. They noted
an increase in the availability of cocaine locally and that
demand continued to increase. Rojas stated that many CDE
police either protected drug traffickers or trafficked drugs
themselves. Prosecutors also said that pirated goods
frequently pass through the border with Brazil with little
customs controls and that customs rarely intercepts illicit
shipments. Prosecutors told Ambassador that because most
local judges and prosecutors are corrupt, they believed
Customs should seize and destroy the contraband on the spot
rather than risk having it released by corrupt judges.


7. (C) International Organization for Migration (IOM)
Consultant Cynthia Bendlin and members of the Tri-Border
Anti-Trafficking in Persons (TIP) Network described human
trafficking as a serious problem perpetuated by politicians
and law enforcement officials in Paraguay, Argentina, and
Brazil. They stated that officials in all three countries --
including public officials, judges, prosecutors and the
police -- are involved in or condone human trafficking. They
noted that the magnitude of the problem is difficult to
assess because many trafficking victims willingly allow
themselves to be trafficked based on false promises.
However, members of the anti-TIP network told Ambassador that
the problem is widespread and that police found Paraguayan
victims in virtually every brothel they raided in Argentina.
They thanked Ambassador for the USG's support of the IOM
anti-trafficking project funded in 2006 and concluded in
2007, and looked forward to launching the second phase of the
project with USG next year. They noted that the 2006-07
project was effective in promoting TIP awareness, although
they expressed concern that they would continue to meet
resistance from local politicians and law enforcement
officials.

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THE UNDERGROUND "INFORMAL" ECONOMY
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8. (C) Local officials told Ambassador that economic
"informality" is a major concern, and that they are focusing
their reform efforts on formalizing the extensive underground
economy. Governor Aguinagalde noted that his government
lacked resources to implement substantial economic reform
because the national government remits just USD 10 million to
the department annually -- despite the fact that Alto Parana
is one of Paraguay's wealthiest departments. He told
Ambassador that the department strongly supports formalizing
the local economy through projects such as "Mercosur Park,"
an industrial park where manufacturers take advantage of tax
breaks (reftel). He noted that the department is grateful
for the support provided by the USG through the MCC Threshold
Program, noting that the program funded a department
administrator who has been instrumental in promoting
transparency and reducing informality in Alto Parana.


9. (C) CDE Mayor McLeod and former Mayor Irun told
Ambassador that their administrations prioritized economic
formalization, and had initiated several projects to "clean
up" the city, including creating partnerships with local
businesses, supporting "Mercosur Park," and tackling the

illegal arms trade. They said that much work still needed to
be done, including improving accountability at customs and
working more closely with Brazil to monitor the border in
lieu of Brazil's periodic crackdowns and military exercises.
(NOTE: Irun resigned as CDE mayor in 2007 to seek the
Colorado vice presidential nomination as Castiglioni's
running mate. Irun named his wife, McLeod, as his
replacement, and now serves as her personal advisor. McLeod
has limited political experience, and Irun's commanding
presence during the meeting -- overshadowing his wife --
showed that he wields considerable influence in the CDE
mayor's office. END NOTE.)

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LOCAL OUTREACH
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10. (C) The Ambassador also reached out to local students
learning English and to American citizens living in the
region. The Paraguayan-American Cultural Center (CCPA),with
Embassy support, has helped improve the English-language
skills of hundreds of students, including two chosen to study
abroad as Fulbright scholars. The Ambassador met with 17
American citizens living in the area in a town hall forum to
express the Embassy's support for the local community and
listen to their concerns. The Amcits expressed some concern
about an increase in violence and diminished security in the
Tri-Border Area. They also expressed interest in having a
U.S. presence post in the Tri-Border Area.

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COMMENT
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11. (C) Ambassador's first official trip to Ciudad del Este
exposed her to the complexity of this city known for its
transnational crime and economy lacking enforcement of the
law, and characterized by lax, bureaucratic systems that have
traditionally been geared towards fomenting illegality. At
the same time, she was struck with positive experiences in
fighting corruption, fostering a climate of transparency, and
promoting business models demonstrating that there is more
value to being part of the formal economy. Much remains to
be done in the Tri-Border Area, and we will continue to work
with those actors in Ciudad del Este who are working to
further our mutual interests in fighting corruption and
transnational crimes. END COMMENT.

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FITZPATRICK