MIXED REVIEWS OF LUGO AT THE ONE YEAR MARK

C O N F I D E N T I A L ASUNCION 000521

SIPDIS

WHA/FO CMCMULLEN, WHA/BSC MDRUCKER, BFRIEDMAN, MDASCHBACH

E.O. 12958: DECL: 08/19/2029
TAGS: PREL ECON PGOV SNAR PA
SUBJECT: MIXED REVIEWS OF LUGO AT THE ONE YEAR MARK

Classified By: Ambassador Liliana Ayalde; reasons 1.4 (b) and (d).

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SUMMARY
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1. (C) President Fernando Lugo had several successes in his
first year in office, including improvements in health care
and an improved deal from Brazil regarding electricity from
the Itaipu dam. However, Lugo's failings (increased
insecurity, slow response to the financial crisis, lack of
agrarian or judicial reform, and perceptions of increased
corruption) outnumber successes, mostly due to his weak
management style, lack of political party support, and poor
choice of inexperienced and corrupt advisors. While Lugo
appears to resist pressure to move to either the extreme
ideological left or right, his slow-moving government scores
points with no one and must react to a constant drumbeat of
criticism from political actors and the press. Lugo's foreign
policy has likewise kept us guessing: He keeps the United
States close while maintaining open ties to Paraguay's
"neighbors" including Bolivia and Venezuela, but is not
afraid to speak his mind if he disagrees with any of his
apparent allies. By simply surviving his first year in
office, Lugo has proven some of his early critics wrong. In
spite of paternity scandals and policy blunders, he maintains
a 50 percent-plus approval rating. However, Lugo's time for
"learning curve" excuses has expired. Now he will have to
start governing and delivering results. END SUMMARY.

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LUGO SUCCESSES
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2. (C) President Fernando Lugo had several successes in his
first year in office, including improvements in health care
and an improved deal from Brazil regarding electricity
generated by the bi-national Itaipu dam. Health Minister
Esperanza Martinez is widely viewed as Lugo's best minister.
Martinez put into place a program to provide free health care
to all Paraguayans, which has been widely acclaimed. A
highly accomplished technocrat, Martinez also got high marks
for Paraguay's response to the dengue fever and H1N1
outbreaks. Likewise, Paraguayans across the board recognize
that Lugo did something that none of his predecessors could
in getting a better deal from Brazil on Itaipu. The
increased price for electricity, Paraguay's ability to sell
its surplus on the open market in Brazil, and the
transmission line that Brazil will construct in Paraguay
constitute a major victory for Paraguay, particularly given
Paraguay's ingrained inferiority complex with respect to its
larger neighbor. (NOTE: So far, this is a success on paper
since both the Paraguayan and Brazilian congresses must
approve the deal. END NOTE). While security issues and
police corruption remain top citizen concerns, many also
credit Interior Minister Filizzola with important police
reforms to date. Faced with a budget steeped in secrecy for
years, Minister Filizzola began spending significant
resources in the heretofore neglected National Police. The
Ministry purchased 260 new vehicles, began significant
investment in the "911" emergency system, and began to
digitize its radio communication equipment. The Ministry
also focused on anti-corruption; it released 21 police
officers from service and has 73 open investigations against
police officials.


3. (C) Lugo has also had some recent successes in reaching
out to other political players and the private sector. In
Lugo's first few months in office, he made little effort at
political negotiation or dialogue. After a few hard
political knocks which resulted from his failure to build
consensus, Lugo is now meeting more regularly with
Congressional leaders and the private sector. Lugo insiders
reported that the cabinet met infrequently in Lugo's first
six months in office; several ministers have told the
Ambassador (and Lugo has confirmed this) that they are now
meeting regularly and debating policy issues without
excessive infighting. While Lugo refused August 14 to sign a
basic "democratic pact" proposal drafted by Senate President
Carizzosa and signed by the major political parties, his
staff indicates that he will sign, with modifications.

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LUGO'S CHALLENGES
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4. (C) On the other side of the balance sheet, Lugo's
failings are many. There is increased insecurity and the
perception of increased corruption in the past year. As
Lugo's administration works to unravel the Colorado Party
structure from government, power vacuums allow other, new
actors to move in to take advantage of weak or non-existent
controls in the system. (NOTE: Many believe that some of
Lugo's closest advisors, ministers, or family members are
some of these new actors. Most do not believe that Lugo is
personally involved in any corrupt activities, but that he
does not have the capacity to control it. END NOTE). For
example, customs revenues are down as compared to President
Duarte's last year in office, and the perception is that
corruption across the board is worse than under the
Colorados. (NOTE: Ambassador has discussed corruption in
customs with President Lugo; he recognizes the problem but
has not taken any action. END NOTE). Lugo's government has
been slow in responding to the financial crisis, and has been
unable to deliver any progress on two key campaign promises:
agrarian or judicial reform. (COMMENT: At this writing,
changes are afoot for the Supreme Court (septel). END
COMMENT).


5. (C) Lugo is his own worst enemy as many of his problems
are primarily attributed to his own management style (or lack
thereof),his lack of political party support, and his poor
choice of inexperienced and corrupt advisors. Lugo's
experience as a Catholic bishop has not served him well as
president. He patiently listens to all but does not take
final policy decisions. Lugo often holds meetings without
including his ministers, leaving nobody to execute his
policy. His ministers are hesitant to act without express
direction from the president, and his chief of staff does not
seem to play the traditional role. Likewise, without a
political party of his own, Lugo does not have the
infrastructure to support his policies, particularly in
Congress, where the Liberal Party (the biggest in his
coalition) waffles back and forth on a weekly basis about
whether it supports Lugo. Lugo also remains at odds with his
Liberal Party Vice President Federico Franco. Additionally,
Lugo is surrounded by a group of questionable advisors, many
of whom he has known for years. At best, they are
inexperienced and driven by their own self-interests; at
worst they are corrupt and manipulative. However, because
Lugo trusts few people, he appears to be hesitant to replace
any of the persons in his inner circle, perhaps preferring
the devil he knows to the devil he doesn't.

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A SHAKY CENTER LINE, LOTS OF STALEMATE
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6. (C) While Lugo appears to resist pressure to move to
either the extreme ideological left or right, his slow-moving
government scores points with no one. Some of Lugo's closest
advisors are from the "romantic" left, and regularly push him
to implement policies that are not in step with the times.
Lugo's attempts to implement an agricultural subsidy program
in the San Pedro Department, his alleged blessing of a
leftist political party's use of military barracks for a
conference, and his advisors' attempts to ban the use of all
pesticides, for example, generated several political storms
which Lugo himself had to undo. Likewise, Liberal Party
actors close to Lugo tug him in the opposite direction,
urging him to implement more conservative policies that might
not be palatable with his more radical, leftist base. Lugo's
early attempts at both agrarian and judicial reform failed,
leading to stalemate on both issues, and to great
dissatisfaction from the campesino left. In order to pacify
them, Lugo occasionally shares the political stage with
radical campesino leaders like Elvio Benitez. One Lugo
insider told Pol/Econ Chief August 19 "not to worry" about
Lugo's meetings with Benitez, who is only "one more"
campesino leader with whom Lugo occasionally meets. The
insider said Lugo almost enjoys the ideological
push-and-pull, openly laughing at his leftist advisors when
they suggested he decline to meet with "the empire's
congressional leaders" in the form of Codel Price. (NOTE:
Lugo in fact received the delegation August 20. END NOTE).
Lugo's rhetoric in the past week has focused on a
"participative democratic model" involving both social
movements and political parties, which Lugo asserts is
consistent with the Paraguayan constitution's provisions for
a "representative and participative democracy."


7. (C) Lugo's political blunders generate a constant drumbeat
of criticism from political actors and the press.
Politicians complain that Lugo has failed to negotiate or
dialogue, particularly with Congress. His lack of
decisiveness produces a political vacuum in which policy
decisions are neither made nor executed. While Lugo narrowly
avoided impeachment charges this year, many believe that
political actors (most likely UNACE or the Colorados) are
waiting for Lugo to make a big mistake that could serve as
grounds for impeachment sometime in the next four years. In
addition to political actors, the press lies in wait on a
daily basis to exaggerate Lugo's missteps. Leading daily
newspaper ABC Color is openly anti-Lugo (and anti-Chavez,
anti-Morales, etc.).

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PRAGMATIC FOREIGN POLICY TO DATE
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8. (C) Lugo's foreign policy has sometimes kept us guessing:
He keeps Chile and the United States (privately) close while
also maintaining open ties to Paraguay's "neighbors"
including Bolivia and Venezuela. Pragmatism still seems to
be the defining characteristic of his foreign policy to this
point. Lugo understands he needs support from the
international community, and particularly the United States.
He seems to understand the importance of development
assistance and tells us that he wants to maintain close ties
to the United States and attract increased investment.
(COMMENT: The Lugo government's handling of the Crescent Oil
dispute sends mixed messages in this regard. Lugo himself
claims not to understand the dispute. END COMMENT). However,
Lugo steers his own path and speaks his mind when/if he
disagrees with any of his allies. He has criticized the USG
on Cuba and recently distanced himself from Venezuelan
President Chavez following the closure of Venezuelan radio
stations. (NOTE: Lugo's criticism of Chavez earned him
several reprimands via written messages and phone calls from
Chavez advisors. END NOTE). Both Lugo and Foreign Minster
Lacognata have said that the United States' bilateral
military relationship with Colombia is for those two
countries to decide, although there is speculation that
Venezuela and others will be successful in pressuring
Paraguay to "join them" in opposing a U.S. military presence
in Colombia.

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COMMENT: TIME TO SHOW REAL RESULTS
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9. (C) By simply surviving his first year in office, Lugo has
already proven some of his early critics wrong. In spite of
paternity scandals and numerous policy blunders, he maintains
a 50 percent-plus approval rating. However, Lugo's general
policy direction continues to be a mystery. Contrary to
predictions from conservative political actors, Lugo has not
proven to be a radical leftist of the Bolivarian persuasion;
none of his policies reflect that orientation. Instead, he
has been moderate across the board. But he does lean left
and is compelled to play to his "home" San Pedro campesino
audience from time to time. Over the past year, many
(including this Embassy) have tried to empathize with this
inexperienced president facing significant challenges. Now,
with a year in office behind him, Lugo's time for "learning
curve" excuses has expired. He will have to build on what he
has learned in his first year and actually start governing.
He needs to hold his moderate, center line, and start giving
the Paraguayan people tangible results. As we continue to
support this fledgling democratic government and its
well-intentioned (but inexperienced) president, we will need
to keep our eyes wide open. END COMMENT.
Ayalde