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C O N F I D E N T I A L ASUNCION 000574 
 
SIPDIS 
 
SIPDIS 
 
USAID; AA/LAC PAUL BONICELLI; MCC MARIA LOUGI 
 
E.O. 12958: DECL: 11/08/2026 
TAGS: PGOV PREL KDEM PHUM PA VZ
SUBJECT: DUARTE UPDATE 
 
 
Classified By: AMB James C. Cason; Reason 1.4(b), (d) 
 
 ¶1.  (U) Summary. Shortly after President Nicanor DUARTE 
Frutos took office in 2003, he forged an accord with the 
opposition centered on promoting reform and combating 
corruption.  His embrace of sound macroeconomic policies 
brought Paraguay back from the brink of bankruptcy; his 
promise of reform inspired hope that Paraguay might turn the 
page on corruption.  His poll numbers soared over 70 percent. 
 
¶2.  (C) One year from the end of his term in office, Duarte 
is no longer regarded as the answer to Paraguay's problems, 
but rather just another example of failed promise and 
leadership - a tired product of the perverse culture of 
corruption that pervades Paraguay.  His predecessors fled 
office hounded by claims of corruption.  Duarte, no doubt, 
will similarly face corruption charges upon leaving office. 
However, unlike his predecessors, Duarte is not ready to bow 
off stage quietly.  He appears determined - bordering on 
obsessed and to the detriment of the country,s institutions 
and perhaps the Colorado Party's staying power - with 
remaining Paraguay's most dominant political figure. 
 
¶3. (C) And yet for all Duarte's failings - personal and 
political - Paraguay has limped forward under his tenure. 
Despite widespread dissatisfaction with democracy for 
"failing" to deliver prosperity and security, no segment of 
society, including the military, proposes publicly and 
seriously that Paraguay should abandon its commitment to 
democracy.  While Paraguay's growth numbers are unimpressive, 
it has been able to keep inflation under control and resisted 
the temptation to borrow beyond its means.  And Paraguayan 
institutions have registered some measured success in the 
fight against organized crime and corruption, thanks in large 
measure to U.S. policies and programs which have proven to be 
transformational. 
 
¶4.  (C) The coming year through to elections in April 2008 
promises much dishevel as the fragmented opposition  seeks to 
forge a united effort to end 60 years of uninterrupted 
Colorado Party rule.  Duarte and the Colorado Party are 
pulling out all the stops - including tapping into funds 
derived from criminal activities - to stave off defeat.  We 
will not want to pick sides in what promises to be a messy 
electoral season.  However, we will want to demonstrate the 
importance we attach to a free, fair and transparent 
electoral process.  And we should be prepared to support the 
investigation and prosecution of individuals involved in 
organized criminal activity - including money laundering and 
drug trafficking and regardless of political affiliation - as 
part of our efforts to turn back the culture of impunity and 
advance prospects for democracy.  END SUMMARY. 
 
THE HONEYMOON 
 
¶5.  (U) Duarte's election in 2003 inspired unprecedented hope 
that Paraguay could combat corruption and embrace a more 
prosperous future.  Duarte quickly signed an agreement with 
the leaders of the opposition political parties committing 
himself to enacting measures of state reform.  He appointed 
several serious non-political technicians to head key 
ministries such as Finance and Industry.  He won agreement to 
remove six Supreme Court judges as part and parcel of his 
plan to combat corruption at the highest levels.  He won 
passage of a bill to introduce a national income tax. 
 
¶6.  (U) The U.S. stepped up assistance in the form of experts 
from the Treasury's Office of Technical Assistance, USAID 
democracy and anti-corruption programs, and INL funds to 
counter IPR violations and drug trafficking.  Thanks to the 
OTA's program, we have five experts embedded in key 
Paraguayan ministries and institutions, including Ministry of 
Finance (Hacienda), Customs (Aduanas), and the Central Bank. 
Our USAID programs: 1) fostered democracy at the grassroots 
level by working directly with municipalities and local 
citizen groups; and 2) strengthened the ability of the 
Controller General's office to support the investigation of 
corruption within the government.  USAID's rule of law 
assistance has also established protected "whistleblower" 
systems at the Ministry of Finance (Hacienda) and at the 
Public Ministry which we are helping to expose internal 
corruption cases.  Our INL funds contributed to the creation 
of a new unit within the Ministry of Industry and Commerce 
(MIC) dedicated to fighting IPR violations and underwrote the 
construction of a new facility for the Anti-Drug Secretariat 
(SENAD) in a region of Paraguay notorious for drug 
trafficking. 
 
DUARTE UNDONE BY OWN AMBITION, CULTURE OF CORRUPTION 
 
¶7.  (C) Duarte's fiscal policies produced good macroeconomic 
numbers - low inflation, low debt - but could not attract the 
investment nor produce the jobs to stimulate the kind of 
growth numbers Paraguay needs to escape its long-standing 
economic malaise.  His failure to deliver on promises to turn 
back corruption has proved a key factor in his undoing.  Many 
continue to regard the beleagured justice sector as a 
critical component for turning Paraguay,s  reputation and 
political fortunes around.  Yet, all of the components of 
Paraguay's law enforcement and judicial process evince 
clearly that they are influenced and controlled by political 
officials.  Paraguay's police force is considered corrupt to 
the core with many officials - senior as well as rank and 
file - implicated in serious crimes including kidnapping, 
auto theft, and drug trafficking.  Police chiefs are 
effectively appointed by politicians who seek to protect many 
of their own corrupt activities.  Some of Paraguay's 
prosecutors appear committed to doing the right thing in 
prosecution of senior officials for corruption.  But they and 
the country's corps of judges are held hostage to a selection 
system that requires them to curry favor with political 
officials to stay in office.  And when prosecutors are able 
to overcome all obstacles and win a key conviction against 
the power structure, Paraguay's Supreme Court, shamelessly 
subservient to political and economic interests, regularly 
overturns those convictions on appeal. 
 
¶8.  (C) Duarte himself has spoken publicly and privately 
regarding the pressure he faces in seeking to effect reform 
within his party and the overarching political culture.  It 
is no accident the Colorado Party has retained the upper hand 
over Paraguay's political system for the last 60 years.  It 
boasts a remarkable party structure that extends across the 
entire country, delivering goods, services, and jobs on the 
basis of party affiliation.  Friends of the party win major 
contracts and work out sweetheart deals on public works 
projects.  When elections roll around the party collects on 
debts in raising campaign funds from all quarters - including 
funds derived from illegal activities.  And when its members 
are implicated in criminal activities, they are protected by 
a system that responds directly to personal appeals by senior 
political officials. 
 
¶9.  (C) If Duarte genuinely sought to reform the system - and 
that is increasingly questionable especially given evidence 
he has handsomely profited personally from it - this 
objective clearly lost out to his own personal ambition. 
Duarte was regarded as relatively soft-spoken and reserved 
before he took office.  In the four years since, though, his 
ego - and some might suggest his delusions of power - have 
grown immensely.  He has proven insistent at staying at the 
fulcrum of the political scene - ironically to his own 
detriment.  In early 2006, he could not cede the party 
presidency to someone else - eventually forcing the Supreme 
Court to rule in his favor - and in the process inciting the 
opposition to unite in condemnation of the Supreme Court and 
him.  He spent the better part of the last two years 
maneuvering in vain to secure the votes necessary to amend 
the constitution so that he could seek reelection.  He still 
has not given up, but in the meantime, he has had the 
audacity to not only handpick the Colorado Party's official 
candidate for President but also her running mate whose only 
noteworthy claim to fame is having served as Duarte's private 
secretary over the last year and a half.  In the process, his 
 
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reform agenda has taken a back seat, and the fortunes of some 
of the Colorado Party's more corrupt elements have risen. 
 
THE GLOVES COME OFF 
 
¶10.  (C) With elections scheduled for April 2008, Paraguay's 
institutions are coming under increasingly visible  stress as 
the Colorado Party seeks to consolidate its allies to retain 
its hold on office. 
 
--Historically, the Supreme Electoral Tribunal (TSJE) has 
been considered one of the more reputable institutions in the 
course of Paraguay's transition to democracy.  Over the past 
year, however, its reputation has taken a beating with two of 
its three members under attack by the opposition for favoring 
Colorado Party interests.  The opposition seeks to impeach 
them and has called upon the Attorney General's office to 
investigate charges of malfeasance, but it is unlikely these 
concerns will be resolved to the satisfaction of the 
opposition before the upcoming elections. 
 
--Supreme Court could assume a critical role in resolving key 
political issues in the run-up elections - including 
determination of the eligibility of leftist priest Fernando 
Lugo to be president.  Members of the Court are confirmed to 
office for five year years and are to retire when they turn 
¶75.  The Colorados presently control six of the nine seats. 
However, one Colorado judge's term ran out last November, 
another's expires this coming November, and a third just 
turned 75 on July 4.  Traditionally, the incumbents stay on 
until a replacement is confirmed.  One of the Colorados whose 
term has already expired is the Vice-President of the 
selection committee which is controlled by a Colorado Party 
majority.  To date, over the strong objections of the 
opposition, this committee has refrained from announcing the 
Supreme Court vacancies effectively preventing the selection 
process from going forward. 
 
--The opposition secured the presidency of both houses of 
Congress in late June but not before the Colorados came to 
fisticuffs with the opposition in the House of Deputies over 
attempts by the former to delay the inevitable.  Colorado 
Party Senate leader Carlos Galaverna has proclaimed "a 
climate of war" in the Congress in response to what he 
described as the opposition's obstructionist approach. 
Should Vice-President Castiglioni step down from public 
office in October as stipulated by the Constitution - six 
months before general elections as required of candidates for 
the presidency - the Congress will have the right to elect 
his replacement - a right it did not exercise in 2003 when 
faced with a similar circumstance in the run-up to the 2003 
elections. 
 
--Duarte has made it clear to civil servants from minister 
ranks on down - either support former Eduction Minister 
Blanca Ovelar as my hand-picked candidate for the Presidency, 
or hit the road.  Over the last month, Duarte has removed the 
Minister of Works and the Director of Aviation for favoring 
other candidates.  Meanwhile, over U.S. objections, he has 
appointed Aristides Cabral - a senior police official 
implicated in corruption and forced into retirement last year 
- to a newly created advisory position and allowed the 
suspect director of Paraguay's Secretariat for the Prevention 
of Money Laundering (SEPRELAD) to stay on. 
 
TINY POINTS OF LIGHT 
 
¶11.  (C) And yet despite the dimming light, Paraguay 
continues to promise some hope for the future. 
 
--Notwithstanding disappointment with democracy for "failing 
to deliver the goods," there appears a general recognition 
that a return to the authoritarianism of the past promises 
only greater despair and exclusion.  Paraguay's military is 
headed by a highly respected official trained in the U.S. 
dedicated to strengthening the military as an institution but 
evincing no desire to enter into politics.  Paraguay's 
Congress is one of the least respected institutions and 
regularly fails to muster a quorum as one or the other side 
seeks to undermine the other's agenda.  Yet, just when it 
appears on brink of implosion in the wake of a fight on the 
floor of the Congress, the two opposing sides are able to 
come together to make it work - if just barely. 
 
--For all the problems that exist at the core of Paraguay's 
law enforcement system, several autonomous investigation 
units have proven effective - thanks in large measure to U.S. 
assistance.  SENAD, which works very closely with DEA, just 
made the largest cocaine seizure ever and has arrested major 
drug traffickers over the last two years.  Meanwhile, the 
Specialized Technical Unit (UTE), largely funded by U.S. INL 
funds to combat IPR violations, made significant seizures 
over the course of its three years of existence.  MCA 
Threshold Program funds have contributed to the creation of 
vetted investigation units in Public Ministry, Treasury, 
Customs, and the Controller General's Office that make it 
more difficult at each turn for Paraguay's politicized 
judicial process to sweep away strong cases without calling 
the attention of the press or general public. 
 
--Paraguay's House of Deputies did pass a very worthy Penal 
Code Reform bill that includes provisions to criminalize 
terrorist financing, although the bill still faces final 
approval hurdles.  The progress thus far would not have been 
possible without the unique contribution of post's Resident 
Legal Advisor and USAID technical experts who participated as 
active members of the commission drafting the legislation.  A 
draft Procedural Code Reform bill will come under 
consideration by the Congress in short order. 
 
--Paraguayan civil society has not long distinguished itself 
for actively engaging on political matters.  However, 
frustrated with the failure of its elected officials to 
deliver on their promises, NGOs are becoming increasingly 
more outspoken in denouncing corruption and demanding 
accountability.  USAID funds contributing directly to the 
creation of citizen watch groups have accelerated this 
process.  Last year, the opposition produced a surprisingly 
large and peaceful turnout to condemn the Supreme Court and 
register general dissatisfaction with the government.  NGOs 
are just starting to hit their stride, and all signs suggest 
this trend will continue. 
 
CHOOSING BATTLES 
 
¶12.  (C) The upcoming election promises to be ugly.  Duarte 
has attacked the manhood of the acting Colorado Party 
President - a lifelong friend - and has taken to accusing the 
opposition's candidate, leftist priest Fernando Lugo, of 
involvement in kidnappings.  This is a reflection of Duarte's 
own questionable mental state of health, a concern widely 
talked about in political and journalistic clircles - but 
also reflects heightened Colorado Party concern over the 
threat posed by the united opposition.  We will want to speak 
to the importance we place on free and fair elections but 
stay clear of choosing sides in the contest. 
 
¶13.  (C) U.S. policy and programs have contributed directly 
to the strengthening of Paraguayan institutions on a variety 
of fronts.  The MCA Threshold Program carries much potential 
in terms of creating new systems and strengthening 
institutions to combat impunity and foster formality.  The 
Paraguayan government knows our assistance comes with strings 
attached and that future resources are reliant on concrete 
performance.  Of course, the government's disposition to 
cooperate in the fight against impunity goes only so far - 
namely to the point it starts impacting significant political 
interests. 
 
¶14.  (C) Corruption is rife in Paraguay.  This is no secret. 
As we enter the election season, political players become 
increasingly less concerned about the source of electoral 
funding.  Duarte has already signaled his readiness to sign 
up to Chavez' program in a bid presumably to win Chavez' 
political and financial backing.  He also embraced 
disreputable figures, including Deputy Magdaleno Silva, long 
accused of involvement in drug trafficking, and has 
instructed SENAD's Operation Director to steer clear of 
investigating political figures - like the tainted Silva - 
involved in the upcoming election. 
 
OUR COURSE 
 
¶15.  (C) We have subtly signaled our concerns about the 
involvement of government figures or other senior business 
leaders in criminal activity including money laundering and 
drug trafficking, but our cautious approach means our 
concerns may not be grasped clearly by many Paraguayans.  We 
need to be direct in producing concrete consequences for 
involvement in criminal activities - visa revocations, 
funding holds, and support for criminal investigations - both 
locally and in the United States.  The U.S. will use all the 
tools to further the political will for anti-corruption laws, 
but the reality is that in this we can only to so far in 
stiffening the already white hot election scene of a 
government wholly focused on securing its own political 
advantage and positioning the coming Presidential election. 
CASON