WHA A/S VALENZUELA TELLS PARAGUAYANS TO WORK TOGETHER TO

C O N F I D E N T I A L ASUNCION 000703

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

E.O. 12958: DECL: 2034/12/31
TAGS: PGOV PREL ECON PA
SUBJECT: WHA A/S VALENZUELA TELLS PARAGUAYANS TO WORK TOGETHER TO
STRENGTHEN DEMOCRATIC INSITUTIONS

CLASSIFIED BY: Perry Holloway, DCM; REASON: 1.4(B),(D)

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SUMMARY

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1. (C) WHA Assistant Secretary Arturo Valenzuela visited Paraguay
December 17-18. Congressional leaders from major political parties
expressed frustration with their failed attempts to initiate
dialogue with President Lugo on building a national agenda. They
commented on swirling rumors of presidential impeachment, but
consensus was that interrupting the democratic process was not in
Paraguay's best interest. Several cited Lugo's lack of political
experience as an enormous challenge. A/S Valenzuela encouraged
congressional leaders to identify areas of consensus to advance
Paraguay's national interests. In a separate meeting,
private-sector representatives told A/S Valenzuela that Paraguay
was wasting an historic opportunity for change. They were
disappointed that Lugo had not implemented stronger economic
policies, but agreed that he should finish his term. In a
one-on-one meeting with the Assistant Secretary, President Lugo
said Paraguay's relationship with the U.S. was important and
"special." In the following meeting with the foreign minister and
Ambassador Ayalde, Lugo said he has continued Paraguay's tradition
of strong relations with the United States and expressed admiration
for President Obama. FM Lacognata explained how important the
Andean Trade Preferences Development Act (ATPDEA) was to Paraguay
and the GOP's priority of creating jobs and attracting investment.
While many are frustrated with the lack of progress under Lugo's
government, a muted optimism regarding Lugo's potential should
safeguard him against impeachment in the immediate future. But
Lugo needs to take action and deliver results if he wants to finish
his term, or the volume on impeachment rumors will rise again.
END SUMMARY.



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LUNCH WITH CONGRESSIONAL LEADERS

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2. (C) Congressional leaders told A/S Valenzuela that they had
made several unsuccessful attempts to initiate dialogue with
President Lugo to build consensus on a national agenda. Senate
President Miguel Carrizosa reported that Congress was working to
improve governability and the credibility of the political class,
as well as to define a national agenda, but that progress was
difficult in the absence of presidential leadership and political
dialogue. Participants said President Lugo's own advisors blocked
many reform initiatives, and that his leftist advisors and allies
are the root of many of his problems. One noted that the Liberal
Party, the anchor of Lugo's governing coalition, is in reality his
strongest opposition (as evidenced by the daily conflict between
Lugo and his Liberal Party Vice President Federico Franco).




3. (C) Congressional leaders commented on swirling rumors of
presidential impeachment, but consensus was that interrupting the
democratic process was not in Paraguay's best interest. One
underscored that the discussion centered on impeachment by
constitutional means, not a coup. The Beloved Fatherland party did
not think that impeachment was the right path at this moment.
UNACE (Lino Oviedo's party) did not want to obstruct the democratic
process, but noted that the people voted for change. Colorado
Party representatives said they did not have a formal position on
impeachment, but would discuss the issue within the party (one
Colorado faction believed if the status quo continued, they would
move to impeach Lugo). All purported to want Lugo to finish his
term, but insisted that he lead a national dialogue. In general,
there was optimism that Lugo could still turn the situation around.





4. (C) Several participants cited Lugo's lack of political
experience as an enormous challenge. Senator and former Foreign


Minister Miguel Abdon Saguier said he was not sure if Lugo
understands that he needs Congress to govern. Several noted that
Lugo frequently blamed Congress for his government's lack of
progress, but said they had passed all of the reform bills the
executive branch presented to Congress. Two participants
mentioned that Lugo refused to sign a democratic pact drafted by
Congress, instead participating in an event where social movements
called for Congress' dissolution. Senator Alberto Grillon of
Lugo's coalition recognized the government's errors to date, citing
inefficiency as the primary cause of GOP missteps. He said the GOP
had to work to capitalize on its resources (soy, beef, energy) and
reduce poverty. In that context, he hoped that the U.S. Congress
would pass ATPA trade legislation to benefit Paraguay.




5. (C) A/S Valenzuela told the Paraguayans that they had a
daunting task to build democratic institutions that are bigger
than individuals. He encouraged them to work together on 4-5
topics of national interest. A/S Valenzuela said that
strengthening democratic institutions is the only way to immunize
the country against the myopic political motivations of populist
leaders. He underscored the Obama government's interest in a
stable, prosperous Latin America and the importance of identifying
themes of mutual interest. A/S Valenzuela understood that a
constitutional impeachment process is not equal to a coup, but
warned that Paraguay should not use impeachment as a mechanism to
resolve short-term political problems without carefully thinking
through the consequences. Senate President Carrizosa welcomed
Valenzuela's message about dialogue and collaboration, but implied
that he should deliver the same message to President Lugo.



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ROUNDTABLE WITH PRIVATE SECTOR & CIVIL SOCIETY

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6. (C) Private sector representatives told A/S Valenzuela that
Paraguay was on the brink of wasting an historic opportunity for
change. They wished for a stronger economic policy from the Lugo
administration, but were grateful that Lugo's economic policy had
at least been moderate to date. Two participants said Lugo's
early discourse as president had not encouraged investment, and
that he had pitted the poor against the rich, leaving the business
sector uneasy and with low levels of confidence in government. One
noted that Lugo's participation at a recent USG-sponsored business
forum had sent the right signals. (NOTE: Lugo also had dinner with
the private sector to follow-up on the forum. END NOTE). They
expressed interest in a pragmatic, modern state, and cited several
concrete initiatives - implementation of the personal income tax
and investment in infrastructure - which could help achieve
economic goals. Participants said Paraguay's poverty rate (around
38 percent) was unsustainable, and noted that ATPA benefits would
be beneficial to Paraguayan producers. They acknowledged the
country's weak democratic institutions, and that neither the
president nor his cabinet were prepared for the challenges that
face them. Still, they said, if Lugo does not finish his term, it
would be a giant step backward for the country. The country's
problems were not impossible, but required leadership and civil
society participation and contributions.




7. (C) One academic noted that Paraguayans elected a president
with virtually no representation in Congress, indicating that the
voters wanted a weak executive. He said Lugo doesn't understand
his power or his place in history. Lugo must, he said, define his
ideology and his foreign-policy goals, and negotiate or leave
office. He thought Congress preferred to throw Lugo out rather than
work with him. Another academic noted that the 61-year-old system
had imploded, but that there was not a new system to replace it.
She said Paraguay was not ready to hear the new voices that were
expressing themselves from the poor and the left. She noted that
in spite of high expectations and increasing criticism of Lugo, his
approval rating is higher than his predecessor's at the same point
in his term. The Archbishop of Asuncion noted that Lugo had not


been a great leader in the Catholic Church, and had "not even the
minimum capacity to govern." He, like several others, believed the
country was disoriented, confused and conflicted following Lugo's
election.



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VISIT TO USAID HEALTH SECTOR PROJECT

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8. (U) A/S Valenzuela met with the Minister of Health Esperanza
Martinez and Vice Minister of Health Edgar Gimenez at the Health
Ministry's Central Warehouse for medicines and supplies. Martinez
recounted corruption and accountability challenges in the public
health sector, where overvaluation, theft, inventory control, and
breaches of contract standards are significant problems. She
discussed how USAID, in part through Millennium Challenge
Corporation funding under the Threshold Phase II Program, is
supporting her ministry's efforts to strengthen logistics supply
system, improve internal controls, and increase transparency in the
procurement of medicines and supplies. A/S Valenzuela
congratulated the minister for her efforts and emphasized that the
work is important not only because it increases the quality and
availability of medicines, but because it increases the strength of
government institutions. He noted that by seeking to improve its
procurement practices and mechanisms through more transparent and
responsive systems, the health ministry will improve rule of law
within the Paraguayan State.




9. (U) A/S Valenzuela also visited a health clinic of the
Paraguayan Center for Population Studies (CEPEP),which has
received USAID support since 1999. CEPEP has expanded its
provision of services and established a social pharmacy to provide
low cost medicines to its clients. The A/S met with Dr. Cynthia
Prieto, CEPEP's Director, who was also the health minister from
1989- 1993, the first woman minister in the Paraguayan government.
CEPEP presented A/S Valenzuela with a copy of the 2008 Demographic
and Health Survey, which provides important data on access to and
use of reproductive health services, as well as other public health
data. The Survey was prepared by CEPEP with USAID funding and CDC
technical assistance.



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MEETING WITH PRESIDENT LUGO

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10. (C) In a 15-minute, one-on-one meeting at the presidential
residence, Lugo told A/S Valenzuela that Paraguay's relationship
with the United States was important and "special." Lugo wanted
A/S Valenzuela to know this personally, since there are many rumors
to the contrary. He confided that before taking the job of
president he knew there would be challenges, but he never knew it
would be so difficult. A/S Valenzuela responded that he recognized
Lugo's challenges. He told Lugo that everyone wanted his
government to succeed for the good of Paraguay and the two agreed
that for success to happen, Paraguay needs to develop strong
democratic institutions, greater social justice, and employment
generation. A/S Valenzuela recommended that Lugo "reach out more
to others" and "build alliances." He told Lugo that some would
reject such offers, but that he needed to be perceived as seeking
solutions and not promoting failure as some characterize his
presidency. The president agreed.




11. (C) Lugo then invited Foreign Minister Hector Lacognata, Vice
Foreign Minister Caceres, and Director of Bilateral Relations
Roberto Benitez to join the meeting. In addition to A/S
Valenzuela, the U.S. side included Ambassador Ayalde, Executive
Assistant to the Assistant Secretary Juan Gonzalez, and DCM


(notetaker).




12. (C) Lugo opened by saying that he has continued Paraguay's
tradition of strong relations with the United States. He expressed
admiration for President Obama and said he enjoyed seeing him at
the last Summit of the Americas in Trinidad and Tobago. He said
that he and Obama share a number of challenges: They both
campaigned on change and they both are attempting to reform health
care. He hoped that he would have the chance to meet with
President Obama privately before the end of his term. FM Lacognata
chimed in saying that they had already requested such a meeting.
A/S Valenzuela thanked Lugo for receiving him and stressed that he
was in Paraguay to listen and learn.




13. (C) Lugo told A/S Valenzuela that he had been travelling in
rural Paraguay and that he had just attended the inauguration of
the construction of a highway that the Government had been
promising to build for 20 years. Lugo said that they normally get
about 200 people at an event like this, but that 5,000 people were
in attendance. Lugo then talked about the solicitation process for
road construction, and the work that was being done to make the
bidding process more open and transparent. A/S Valenzuela used this
opportunity to talk about competition and investment. He stressed
that a successful democracy needs a working justice system, good
investment infrastructure, investment in people, and clean
institutions that respect the rule of law. He acknowledged that
even the United States struggled with these issues in the midst of
the recent economic crisis.




14. (C) The foreign minister gave a brief overview of Paraguay's
macroeconomic situation, describing it as positive in spite of some
challenges. He explained that Paraguay has an abundance of
electricity, but the infrastructure to deliver the electricity is
lacking. Lacognata mentioned a potential Canadian investment in
the steel sector and how the company was willing to build the
infrastructure it needed to connect to Paraguay's electrical
production facilities. Lugo then stressed the importance of the
20,000 plus jobs that this investment would create and how it would
be the largest investment ever in Paraguay after the binational
dams. A/S Valenzuela interjected that Paraguay had tremendous
potential, but would have to work hard. Lugo then talked about
investment potential in the overlooked Paraguayan Chaco. (Embassy
Comment: The Chaco is the western 60% of Paraguay and much of the
area is hot, sparsely populated, flat, and undeveloped. There is
little infrastructure of government presence and attracting
investment will be difficult unless mineral resources were found,
which has not happened to date. End Comment).




15. (C) A/S Valenzuela shifted the discussion to his earlier visit
to a health ministry warehouse and an NGO-sponsored clinic,
complimenting Lugo on the systems that were being installed to
increase efficiency and limit corruption, particularly in the area
of procurement. He stressed how important it was for Paraguay to
develop its institutions. Ambassador Ayalde explained that this
was something we were working on under the Millennium Challenge
Corporation (MCC) Threshold II program. She noted that we are
trying to increase efficiencies and combat corruption with
different institutions such as the health ministry, the police,
customs, the public ministry and the IPR office. A/S Valenzuela
stressed that we need to see how we could do more.




16. (C) At the president's behest, Lacognata explained how
important the Andean Trade Preferences Development Act (ATPDEA) was
to Paraguay. He said that the trade preferences would help create
jobs, which is one of the GOP's top priorities. He thought that
the textile industry would be the biggest benefactor if ATPDEA were
to pass, noting that the textile industry employees women and
single mothers who are a very vulnerable group in Paraguay. A/S
Valenzuela told the group that he had met with Representative Engel
and that while he recognized that trade preferences would be good
for Paraguay, he did not know the bill's current status. He
described the deficit situation with the United States and the high
unemployment and how there was a perception in our Congress that


this would be difficult to pass without the direct support of the
Obama Administration. Lacognata said that they would lobby for
ATPDEA and Ambassador Ayalde stressed that the GOP should ensure
coordination of its efforts with Paraguay's private sector and
Congress.




17. (C) Lacognata told the A/S that the GOP wanted the United
States to be the primary investor in Paraguay. (Note: The United
States is the largest source of foreign investment in Paraguay with
over $600 million). Lugo interjected that countries like China had
promised to invest in Paraguay, but rarely delivered. Ambassador
Ayalde stressed that the Embassy helps U.S. companies seek out
investment opportunities in Paraguay, but that the GOP needed to
continue working on ensuring that there is a level playing field
for all with transparent, consistent rules of the game. She noted
that situations like that of Crescent Oil did not help. Lugo
looked puzzled and Lacognata explained that the case involved
litigation between an American oil company and the Paraguayan
government. A/S Valenzuela added that institutions that respected
the rule of law were the key to successful investment, citing the
experience of Chile. Lugo said that his government was talking
with Chile and that they would see what parts of the Chilean
experience could help them. He said the GOP was particularly
interested in Chile's experiences with concessions. Ambassador
Ayalde mentioned that the USG was working with Trade Development
Assistance (TDA) to help Paraguay in the area of preparing large
solicitations (i.e. airport concession) that would guarantee
transparency and provide equal protections to all.




18. (C) Lugo thanked A/S Valenzuela for the visit and encouraged
him to come back. He told the A/S that when he returned they would
do a trip to the Chaco so he could see another part of Paraguay.
A/S Valenzuela thanked Lugo for his hospitality and assured the
president that he could count on U.S. support for democracy and
developing institutions.



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POSITIVE PRESS COVERAGE

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19. (U) Paraguayan media extensively reported on A/S Valenzuela's
meeting with President Lugo, private lunch with congressional
leaders, and visit to CEPEP. The print press alone published 21
stories with the common theme being the Assistant Secretary's
recommendation that all political, economic and social actors
engage in a national dialogue. After their closed press meeting
with the Assistant Secretary, Senators Orlando Fiorotto (Colorado
Party) and Alberto Grillon (Progressive Democratic Party),and
Deputy Carlos Liseras (Colorado Party) conveyed their impressions
of possible presidential impeachment, comparisons of Paraguay to
Honduras, and deterioration of political dialogue. The Assistant
Secretary's message of U.S. support for Paraguay's democratic
institutions reached key media outlets, and was overwhelmingly
positive.



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COMMENT

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20. (C) The message delivered by both congressional and private
sectors actors to A/S Valenzuela was that they want Lugo to reach
out to them in the national interest. While frustrated with the
lack of progress under Lugo's government, most remained somewhat
optimistic. This muted optimism, it seems, should safeguard Lugo
against impeachment for the immediate future. A/S Valenzuela's
visit came at a moment when tensions seemed to be dissipating, and
his encouragement for Paraguayans to focus on common ground and


democratic institutions was timely. But as we have said before,
Lugo needs to take action and deliver results. If he does so, he
could survive politically and tame his many political opponents
(including some factions of the Liberal Party). If he does not,
the volume on impeachment rumors will rise again. END COMMENT.



This message was cleared by A/S Valenzuela.



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