TAIWAN-PARAGUAY TIES APPEAR STABLE, BUT UNDERSCORE

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001434

SIPDIS

E.O. 12958: DECL: 10/03/2018
TAGS: PGOV PREL TW CH
SUBJECT: TAIWAN-PARAGUAY TIES APPEAR STABLE, BUT UNDERSCORE
FRAGILITY OF "DIPLOMATIC TRUCE"

REF: TAIPEI 1429

Classified By: AIT Director Stephen M. Young, Reasons: 1.4 (b/d)


1. (C) Summary: While the facts are murky, indications and
perception in Taiwan are that the PRC has thus far
discouraged Paraguay's efforts to establish diplomatic ties
with China in the interest of reducing cross-Strait tensions.
More clear is that Paraguay is dissatisfied with strings
currently attached to an aid package offered by Taiwan. For
now, Taiwan's Latin American alliances seem stable. While
Paraguay may not be the only Taiwan ally in the region
contemplating switching diplomatic allegiance to China, the
cold shoulder Asuncion appears to have received from Beijing
may discourage other Taiwan allies from following the same
path. Nevertheless, the situation underscores the fragility
of the unilateral "diplomatic truce" declared by Taiwan
President Ma Ying-jeou. With the Ma government facing
plummeting approval ratings, a lagging economy and criticism
even from within the ruling KMT party, the loss of a
diplomatic ally would cast doubt on the President's ambitious
plans to improve ties with the PRC. Thus much is riding on
China's responding positively to Ma's overtures on
"international space" and the "diplomatic truce." End
summary.

Paraguay: Deal or No Deal for $71 million
--------------


2. (C) While Paraguay-Taiwan diplomatic ties are stable for
the moment, there continues to be pressure within the
governing coalition in Asuncion to recognize China instead of
Taiwan, Paraguay's Ambassador to Taiwan Ramon Diaz Pereira
told POLOFF during a September 17 meeting. While campaigning
for office, Paraguay President Lugo hinted publically of
plans to establish diplomatic ties with China. At his August
inauguration, however, Lugo reassured visiting President Ma
that his country would maintain relations with Taiwan. While
Lugo had, indeed, made this "promise," Pereira explained,
the Paraguayan President remains interested in strengthening
ties with China. China now is Paraguay's second-largest
trading partner, and Pereira suggested his country may set up
a commercial office in China. He expressed frustration with
Taiwan's Ministry of Foreign Affairs (MOFA) comments to the
press in early September, suggesting that Paraguay offered to
recognize the PRC in exchange for USD 71 million in
assistance. Pereira lamented MOFA's press remarks and said
its failure to respond to his requests to discuss the issue
"did not help" Paraguay-Taiwan relations. Pereira cautioned
that he would "set the record straight publically" if he
continued to get the cold shoulder from Foreign Minister
Francisco Ou. That he has not done so suggests FM Ou reached
out to him and Paraguay-Taiwan ties are stable for now.


3. (C) The details of the aid package at the heart of the
episode are sketchy. According to Pereira, Paraguay's and
Taiwan's former leaders reached a deal last fall in which
Taiwan would provide Paraguay with USD 71 million in aid, a
proposal subsequently confirmed in writing last December by
Taiwan's Ambassador to Paraguay. After the Paraguayan Senate
recently approved the deal, Taiwan's MOFA denied its
existence, saying it would not allocate foreign aid without a
detailed proposal on how funds would be used. Pereira
suggested such a proposal was never provided, noting that
Paraguay was a poor country that needed money for "various
projects." He also appeared frustrated with reports
suggesting Paraguay attempted to play diplomatic roulette
with both China and Taiwan and would not confirm that
Paraguay tried to establish ties with the PRC.


4. (C) In a September 24 meeting with poloffs, Tamkung
University Professor Kung Kuo-wei reaffirmed the outlines of
diplomatic intrigues and said it was clear that Paraguay had,

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indeed, made an offer to China. While the timing of
Paraguay's overture to China is uncertain (it could have
occurred anytime after Paraguay President Lugo was elected
last April),China rejected Paraguay's bid. China would not
reap much benefit from winning over small allies such as
Paraguay and would, for now, continue to fend off such offers
in recognition of President Ma's efforts to reduce
cross-Strait tensions. Like Pereira, Kung deemed
Paraguay-Taiwan ties stable for the time being - a question
in which he has a strong personal stake. Kung, one of a
small fraternity of scholars who specialize in
Taiwan-Paraguay relations, plans to take a break from
academia and serve a three-year stint in Taiwan's Embassy in
Asuncion. When the Taiwan government asked him to move to
Paraguay earlier this year, he demurred, uncertain that ties
would remain intact. Now, though, he was confident that
Taiwan's embassy would remain open.

What About The Rest of Latin America?
--------------


5. (C) Paraguay probably is not the only Latin American ally
of Taiwan considering switching sides, Kung surmised. While
Panama was likely safely in Taipei's camp, Kung pointed to
Haiti's and Honduras' strong interests in China and suggested
they would be keen on switching ties. For now, though, he
predicted, China would give these efforts the cold shoulder.
MOFA Deputy Director General for Latin America and the
Carribean Diego Chou was more upbeat, telling POL Chief
September 23 he was optimistic Taiwan would not lose any of
its Latin American allies. Asked if a possible switch by the
Vatican would encourage catholic Latin American countries to
follow suit, Chou said religion would not necessarily play a
decisive role in Latin American countries' decisions. In any
event, in a farewell call by Taiwan's departing Ambassador to
the Holy See, Pope Benedict XVI had said Vatican-Taiwan
relations were solid. The new Vatican charge to Taipei
echoed these sentiments to the Director in September,
indicating a breakthrough with Beijing on bishop appointments
seems far away.

Comment: Stakes are High for Cross-Strait Ties
-------------- -


6. (C) Speculation about Paraguay shifting diplomatic
allegiance illustrates the risks involved in Taiwan President
Ma Ying-jeou's effort to seize the initiative in relations
with China and reduce cross-Strait tensions. His unilateral
call for a "diplomatic truce" - in which Taiwan and China
would end their efforts to poach each other's diplomatic
allies - offers the prospect of ending the two sides'
zero-sum competition throughout the world. Because Ma did
not vet this proposal with Beijing and has been vague about
its exact meaning, success requires China - not to mention
the countries in question, who undoubtedly feel they ought to
have a say in the matter - to continue to play a game whose
rules are not entirely clear. For now, Ma is counting on
China understanding the need to support his approach,
including by fending off would-be diplomatic suitors, to
prevent a return to the more confrontational approach of his
predecessor. Meanwhile, the Taiwan MOFA's press comments may
have been aimed at warning Taipei's allies against attempts
to switch ties but, in the long run, irritating allies is not
the best way to maintain ties. As with Taiwan's bid for WHO
observership (reftel),a setback for Ma could, indeed, make
it politically impossible to continue to pursue
rapprochement. If Taiwan and China cannot institutionalize
progress on cross-Strait political issues, the two sides may
find themselves on increasingly shaky ground. It is unclear
to interlocutors here whether Beijing fully understands the
pressure Ma is under in democractic Taiwan politics to
demonstrate real results in his cross-Strait gambit. These
sources say failure to obtain an adequate response from Cbina

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could play into domestic politics and force Ma to adopt a
less accommodating stance on issues like sovereignty and his
current unilateral "diplomatic truce."
YOUNG