VZCZCXYZ0551
PP RUEHWEB

DE RUEHAC #0978/01 3312002
ZNR UUUUU ZZH (CCY ADX033992A MSI4713 611)
P 272002Z NOV 07
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC PRIORITY 6383
INFO RUCNMER/MERCOSUR COLLECTIVE

UNCLAS ASUNCION 000978 
 
SIPDIS 
 
C O R R E C T E D  C O P Y (ADDED TAGS) 
 
PASS TO: WHA/BSC (MDRUCKER, KREAD, CCROFT, BFRIEDMAN), MCC (MLONGI, 
MKLADAKIS), USAID (DAA/LAC TCORNICK, LAC/SA SLYNCH; RBRINKLEY), ODP/MCC 
(PDELP, BKURTZ), TREASURY 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ECPS PREL PGOV PA
SUBJECT: STATUS REPORT ON PARAGUAY MCA THRESHOLD PROGRAM 
 
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SUMMARY 
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¶1. (U) Paraguay was the first country in the Western Hemisphere to 
begin implementation of a Millennium Challenge Account (MCA) 
Threshold Program.  Under a bilateral agreement signed in May 2006 
and due to conclude November 30, 2008, Paraguay's Threshold program 
provides $34.6 million in U.S. assistance for ten integrated 
objectives, or components, all designed to combat the country's 
systemic corruption problems.  The program achieved impressive 
results in several components and performance as measured by MCA 
scorecard indicators.  Paraguay has significant hurdles still, both 
within the Threshold Program and beyond on other key anti-corruption 
bellwethers, if it is to one day qualify for an MCA Compact. Post 
will report Septel our support for proposed Stage II Threshold 
program for Paraguay. 
 
 
 
------------------------------- 
IMPRESSIVE RESULTS AT MID POINT 
------------------------------- 
 
¶2. (U) Paraguay is now 18 months into its 30 month long MCA 
Threshold Program designed to formalize the economy and combat 
corruption.  Among its most tangible achievements, Paraguay 
substantially streamlined its business registration process, cutting 
costs and time for the entrepreneur and leapfrogging over 74 
countries in the World Bank's 2008 Doing Business survey.  With MCA 
technical assistance, the Supreme Court developed and approved five 
comprehensive reform measures that when implemented in early 2008 
should substantially improve judicial accountability and efficiency. 
 Paraguay also continued its strong macro-economic management, 
providing support to its highly-visible business tax compliance 
campaign, which is now in full swing. Additionally, two key internal 
investigation units at the Ministry of Finance (set-up through the 
MCA program and the Treasury's Office of Technical Assistance) have 
already met and exceed program-end targets for developing and 
prosecuting corruption cases. 
 
¶3. (U) As a quantitative and qualitative measure that compares the 
performance of 95 countries eligible to compete for Millennium 
Challenge Corporation (MCC) assistance, the FY 2008 MCC Performance 
Scorecard validates Paraguay's strong results for the Threshold 
Program's first year.  Paraguay is now above the median ("green 
category") for 13 of the 17 MCC Score Card performance indicators. 
The strongest performance is in the indicators for Economic Freedom, 
where Paraguay scores "green" in all six indicators (Business 
Start-Up, Fiscal Policy, Regulatory Quality, Land Rights and Access, 
Trade Policy, and Inflation).  In the critical control-of-corruption 
indicator, Paraguay demonstrated concrete progress, though it still 
is in the "red" due to the significant challenges remaining.  It 
ranks in the 30th percentile, well ahead of its percentile on the FY 
2007 scorecard (17 percent), and markedly better than its 
cellar-dwelling standing in 2003 of 8 percent. 
 
------------------- 
STATUS BY COMPONENT 
------------------- 
 
¶4. (U) Within the Threshold Program's focal points of fighting 
impunity and formalizing the economy, there are ten program 
components.  Post internal measures of results and performance in 
each of these components are "Green" for exceeding or meeting 
targets to this point; "Yellow" for on-track but with some issues or 
time delays; and "Red" for major issues.   Six components have 
"Green" status, and four components are judged to be "Yellow" 
 
FIGHTING IMPUNITY 
 
COMPONENT 1 - Increasing investigative capacity of the Public 
Ministry (Attorney General's Office). 
 
-- Objective: Improve investigation and internal control capacity of 
the Public Ministry. 
 
-- Activities: Facilitate appropriate penal investigation processes 
through the modernization and strengthening of technical, 
scientific, and human resources offices in the Public Ministry; 
produce more reliable evidence through specialized analysis; and 
strengthen safeguards for the handling and storage of evidence. 
Strengthen the Public Ministry's internal control and disciplinary 
system by installing effective systems and mechanisms for handling 
accusations, oversight, supervision, and sanctions that will foster 
increased impartiality of prosecutors and staff as they carry out 
their work. 
-- Indicator:  Number of investigations carried out by the Economic 
Crimes Unit. 
 
-- Beneficiary Institution: Public Ministry 
 
-- Status: This component has "Yellow" status.  The legendary Public 
Ministry bureaucracy has been slow to comment on or approve needed 
reforms, but in general the Public Ministry has supported 
implementation.  The refurbishing of the lab building and the 
procurement of the lab equipment are about six months behind 
schedule, affecting implementation and training of personnel. 
 
COMPONENT 2 - Improving effectiveness of judicial oversight and 
disciplinary system. 
 
-- Objective: Improve the capacity of the internal control and 
disciplinary systems in the judiciary 
 
-- Activities: Strengthen the Supreme Court's Superintendence 
Council through the creation of an effective system for 1) internal 
controls to deter judges, judiciary branch public employees, and 
related legal professionals from engaging in corrupt activities; and 
2) disciplinary measures to make those involved in corruption and 
misbehavior accountable for their actions. 
 
-- Indicator: Time to process cases (reduction) and number of cases 
 
-- Beneficiary Institution: Supreme Court/judiciary 
 
-- Status: This component has "Green" status.  The internal control 
area of this component suffered from several months of initial 
delays due to the contractor, and the approval of the new 
disciplinary framework was delayed by the Supreme Court for three 
months.  However, lost time has been recuperated and the Supreme 
Court has approved new comprehensive frameworks for both 
disciplinary issues and internal controls.  Full implementation of 
the new systems will begin in February 2008.  Additionally, the 
Supreme Court has established and is supporting new offices linked 
to transparency and accountability.  Training of administrative 
personnel is on-going. 
 
COMPONENT 3 - Strengthening internal control systems and citizen 
oversight. 
 
-- Objective: Strengthen internal control systems and increase civil 
society oversight that supports the Controller General's Office 
(CGR) 
 
-- Activities: 1) Adopt an efficient and transparent internal and 
external control system based on standard operations management 
systems and access to improved Integrated Financial Management 
System; 2) create necessary organizational infrastructure to 
implement a standard internal control model in the five most 
important ministries; and 3) strengthen the external control 
functions carried out by the CGR, incorporating standardized 
financial performance into the management culture. 
-- Indicator: Number of public entities implementing new procedures, 
which mandate implementation of Controller General's 
recommendations. 
 
-- Beneficiary Institutions: CGR, Auditor General, and Ministries of 
Finance, Education, Public Works, Health, and Agriculture. 
 
--Status: This component has "Yellow" status. Many aspects of this 
component are ahead of schedule.  However, the implementation of a 
standard model for internal control in five pilot ministries is 
eight months behind schedule due to apparent resistance from the 
Presidency to approve necessary reforms with sufficient teeth.  The 
GOP provided a new facility for the Auditor General's Office. 
Extensive training has been completed and ethics and good governance 
models have been established in four ministries. 
 
COMPONENT 4 - Improving the integrity of public records and registry 
processes. 
 
-- Objective: Improve the integrity of public registries and 
implement an integrated virtual management & registry system. 
 
-- Activities: Network and integrate the databases of the Automobile 
Registry, the Criminal Records Registry, and the Identification of 
Persons Registry.  Strengthen the Identification of Persons Registry 
to maintain a more reliable system of personal identification. 
 
-- Indicator:  Number of agencies networked and percentage of 
accessible information. 
 
-- Beneficiary Institutions: Identifications (ID) and Supreme Court 
(Auto Registry and Criminal Records Registry) 
 
--Status: This component has "Green" status. It is supporting 
several areas outside its original scope: the Civil Registry, 
strengthening both the Auto Registry and Criminal Records registries 
(not just integrating the databases), and incorporating a new 
passport system.  Progress has occurred in the Auto and Criminal 
Records registries.   A new ID/passport system was delayed six 
months due to difficulties in reaching consensus with the GOP on the 
scope of the effort.  However, the parties finally the terms and a 
major competitive procurement to install the new system is now 
underway. 
 
 
COMPONENT 5 - Increasing legislative oversight of budget execution. 
 
 
-- Objective: Improve capability of Congressional oversight of 
public budget expenditures 
 
-- Activities: 1) Improve the efficiency and transparency of 
Congress to analyze and oversee budget expenditures by public 
entities; 2) make information more accessible to the public in order 
to promote citizen oversight; and (3) establish mechanisms that 
promote coordination between Congress, other branches of government, 
the CGR's Office, and interest groups from civil society on public 
budget oversight. 
 
-- Indicator:  Number of public agencies utilizing new budget 
expenditure reporting structure subject to Congressional oversight 
 
-- Beneficiary Institutions: Congress, CGR and 5 ministries 
 
-- Status: This component now has "Green" status. It started five 
months late due to a lack of Congressional participation; USAID 
issued a stop-work order and a change in some of the congressional 
leadership has since markedly improved political will and 
participation. Since June 2007, the Congress has significantly 
improved its performance.  Training of Congressional staff and 
design of budget expenditure reporting format is underway. 
 
FORMALIZING THE ECONOMY 
 
COMPONENT 6 - Improving the efficiency of tax collection. 
 
-- Objective: Increase operational efficiency and transparency of 
government tax authority 
 
 
-- Activities: Simplify, standardize, and expand use of documents 
verifying sales and relocation of goods in order to reduce informal 
business transactions and increase tax payment compliance. 
 
-- Indicator: Reduce to 35 percent the shortfall in value-added tax 
 
-- Beneficiary Institutions: Ministry of Finance- Tax Authority 
 
-- Status: This component has "Green" status. Tax compliance teams 
have been selected and trained and have been actively implementing 
activities such as simulated purchases to determine compliance with 
tax regulations. Court-ordered temporary suspensions of 
non-compliant businesses began in early October. 
 
COMPONENT 7 - Strengthening border control and customs enforcement; 
 
 
-- Objective: Strengthen border and customs controls 
 
-- Activities: Aid Customs in the development of an agile border 
patrol unit that will deter the smuggling of goods and disrupt the 
supply chain that keeps the corrupt and informal economy going. This 
will be accomplished by improving (1) land and river border 
patrolling, and (2) the monitoring of goods being transported within 
the national borders, through a system of surveillance, control, and 
repression that will deter the smuggling of contraband. 
 
-- Indicator: Increase value of Customs' seizures to USD 6.5 
million 
 
 
-- Beneficiary Institutions: National Police, Armed Forces, Customs, 
Public Ministry 
 
-- Status: This component has "Yellow" status. The MCA-supported 
special customs unit has conducted over 150 operations this year, 
seizing approximately $5 million worth of contraband.  Since July, 
activities have been slowed, and per diem payments suspended pending 
results of an internal GOP investigation of travel voucher fraud. 
This component has also suffered from poor functioning of the 
Customs Investigative Unit (CGIA). 
 
COMPONENT 8 - Improving internal investigation capabilities in 
Finance, Tax, and Customs 
 
-- Objective: Increase the Ministry of Finance's internal 
investigative capacity 
 
-- Activities:  Develop and strengthen: 1) the Internal 
Investigative Unit of the Ministry of Finance tasked with 
investigating alleged acts of corruption within the ministry; 2) the 
Investigative Unit of the Tax Authority tasked with investigating 
tax evasion and fraud; and 3) the Investigative Unit of Customs. 
This will be done by assuring that they have clearly defined roles 
and responsibilities, as well as all necessary operations manuals 
(i.e. personnel, policies, procedures, etc). The Program provides 
support in training, equipping units with adequate office equipment, 
investigation systems, computer hardware and software, vehicles, 
technical assistance for initial investigative activities, public 
awareness campaigns to encourage compliance with the law and 
reporting of corrupt actions and establishing a hotline for receipt 
of anonymous reports of internal corruption. 
 
-- Indicator: Submit 13 corruption cases correctly to the Public 
Ministry for prosecution 
 
-- Beneficiary Institutions: Ministry of Finance, Tax 
Sub-secretariat, Customs 
 
-- Status: This component has "Green" status. Two of the three units 
are working well and have already surpassed program end targets in 
terms of cases investigated, properly prepared and sent to the 
Public Ministry's office for prosecution. The performance of the 
Customs Investigative Unit, however, has lagged and given the number 
of Unit personnel who have not passed re-vetting, will likely need 
to be re-constituted. 
 
COMPONENT 9 - Easing legal business registration. 
 
-- Objective: To facilitate the legal establishment of new 
businesses, and the regularization of unregistered businesses, by 
reducing the time, cost, and complexity of registering a business. 
 
-- Activities: Facilitate the legal establishment of new businesses, 
and the regularization of unregistered businesses, by reducing the 
time, cost, and steps of registering a business. 
 
-- Indicator: The number of days it takes to register a business. 
Baseline is 74 days and target is 36 days. 
 
-- Beneficiary Institutions: Institute of Social Services, Ministry 
of Justice and Labor, Ministry of Finance, Ministry of the Interior 
(Migrations), Supreme Court, Ministry of Industry and Commerce, and 
Asuncion City Hall 
 
-- Status: This component has "Green" status. The program-end 
objective of this component has been met. Average time to open a 
business has been cut by more than half, now 25 days on average, and 
costs have been reduced significantly. Efforts now focus on 
encouraging greater use of the system, making use of the system 
mandatory. The GOP has its own resources for this although the 
contractor is still providing technical advice. 
 
COMPONENT 10 - Promoting investment in "Maquilas". 
 
-- Objective: To promote the installation of maquilas and the 
formalization of Paraguayan firms through the maquila regime. 
 
-- Activities: The objective of this component is to promote the 
installation of foreign maquiladoras and the formalization of 
Paraguayan firms through the maquila regime. The activities for this 
component will revolve around setting up a system to promote 
investment to replace informal economic activities. An elite corps 
of promotional agents working under CNIME's direction is deployed to 
seek potential investors. 
 
-- Indicator: Number of Maquila enterprises installed (with approved 
programs). Baseline is 38 and end target has been established at 
¶53. 
 
-- Beneficiary Institutions: Ministry of Industry and Commerce 
(Maquila Council/CNIME) 
 
-- Status: This component has "Yellow" status. Two maquilas have 
been approved and are in the process of installation, four are 
registered, and six are preparing a proposal. An additional 15 have 
shown solid interest.   The process to get approval is cumbersome. 
We are talking with the GOP to provide assistance to streamline the 
process. 
 
 
¶5. COMMENT: Paraguay's program performance and its steady progress 
on key MCA scorecard indicators is commendable.  The gains are all 
the more impressive given the degree of difficulty inherent in 
tackling Paraguay's systemic corruption challenges, and that the 
country is in the midst of national elections scheduled for April 
¶20.  However, much more remains to be accomplished, both within the 
Threshold Program and beyond on other key anti-corruption 
bellwethers if Paraguay is to qualify in the future for a possible 
an MCA Compact.   The current MCC and interagency discussions on a 
possible Stage II for Threshold Country Programs is vitally 
important to Paraguay and strongly linked to our mutual interest in 
MCA Compact qualification.  Post will share its views Septel in 
support of a proposed Stage II Threshold program for Paraguay.  END 
COMMENT.