VZCZCXYZ0000
PP RUEHWEB

DE RUEHAC #1011/01 3441422
ZNR UUUUU ZZH
P 101422Z DEC 07
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC PRIORITY 6434
INFO RUCNMER/MERCOSUR COLLECTIVE

UNCLAS ASUNCION 001011 
 
SIPDIS 
 
PASS TO: WHA/BSC (MDRUCKER, KREAD, CCROFT, 
BFRIEDMAN), MCC (MLONGI, MKLADAKIS, MHARRINGTON), 
USAID/LAC/AA (PBONICELLE), USAID/LAC/DAA 
(JCARDENAS), USAID/LAC/SA, USAID/ODP (PDELP, 
KTUNER), TREASURY DAS (LMACDONALD), NSC (DFISK) 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PA
SUBJECT: MAINTAINING MCC MOMENTUM IN PARAGUAY 
 
 
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SUMMARY 
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¶1. (U) US Embassy Asuncion Country Team endorses 
Ambassador Danilovich?s recommendation to the MCC 
Board that Paraguay be considered for a proposed 
Stage II MCC Threshold Program.  Our support is 
based on progress made under Paraguay?s current 
Threshold program, its empirical advances on the MCC 
Performance Scorecard, and our view that both the 
Threshold program and the future prospect of a MCC 
Compact are powerful medicine in a country that is 
both seeking to reform and modernize, and is 
markedly open to US partnership.  With national 
elections taking place in April 2008, a Stage II 
Threshold Program would present a vital opportunity 
for both the USG and a new Government of Paraguay 
(GOP) to directly address mutual interests and key 
constraints that continue to hamper Paraguay?s 
development and democratic consolidation, as well as 
enhance long-term regional security. 
 
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Progress on the Threshold 
------------------------- 
 
¶2. (U) Approved in 2006 as Latin America?s first 
Threshold program, Paraguay?s MCC effort (known 
locally as ?Programa Umbral?) is a highly ambitious 
anti-corruption initiative directed at reducing 
rampant impunity and economic informality.  Halfway 
through its life (the bilateral grant agreement 
expires in November 2008), Paraguay has demonstrated 
tangible progress in addressing its systemic 
corruption.  In one of the most salient examples of 
how the MCC program has helped promote economic 
formalization, Paraguay has significantly 
streamlined its business registration process, 
slicing costs and time to the entrepreneur, and 
leapt over 72 countries in the latest Doing Business 
survey.  The Threshold program also assisted the GOP 
in taking the unpopular but necessary steps to 
identify and suspend temporarily businesses that 
have been evading taxes.  More than 30 companies 
have been suspended via judicial order to date.  GOP 
follow-through on the suspensions appears to be 
changing behavior; based on the Tax Ministry?s 
initial analysis, collections of value-added taxes 
of surveyed businesses have increased by an average 
of 21 percent. 
 
¶3. (U) The program has catalyzed unprecedented 
inter-institutional cooperation among the 28 public 
ministries and branches of government that 
participate in and benefit from the Threshold 
Program. These includes forcing coordination among 
seven ministries and the judiciary to simplify 
business registration; the first-ever protocol 
between the Public Ministry and Customs on how to 
handle contraband seizures for evidence in 
prosecution; and, improved  services resulting from 
integration of effort between ministries that manage 
separate public registries. 
 
¶4. (U) With MCC assistance, nearly USD 5 million has 
been seized in contraband by specialized units. 
These results reflect the GOP?s desire to formalize 
economic activity in the country. As part of its 
Threshold commitments, the Supreme Court developed 
and approved a series of comprehensive internal 
reform measures that include new methods for 
improving efficiency, increasing transparency, and 
ultimately holding judges accountable for their 
actions.  Finally, two specialized units supported 
by MCC have developed and investigated nearly 300 
suspected incidents of internal government 
malfeasance or corruption resulting in 80 cases 
submitted to the Attorney General?s office for 
further investigation and possible prosecution. 
 
¶5. (U) Paraguay has also made appreciable gains on 
its position on the MCA Performance Scorecard. 
Paraguay is ?green,? or above the median in 
comparison with 95 other countries, on 13 of 17 
policy indicators.  On many of these indicators, 
Paraguay ranks in the 80 or 90th percentiles. 
Paraguay?s advances are particularly significant in 
Economic Freedom, due to its solid macro-economic 
management and Threshold-supported business climate 
improvements, which are reflected in Paraguay moving 
fully to green on all six indicators in this 
category.  On the high hurdle of ?Control of 
Corruption,? Paraguay has also progressed steadily, 
moving from its 8th percentile place in FY2005, to 
its current position of 30th.  While Paraguay still 
has much work to do and many challenges remaining to 
get above the mean on Control of Corruption, in 
effect their lone MCC Compact deal-breaker, it is 
clear that they are moving in a positive direction. 
The Threshold Program has provided clear leverage 
for those many Paraguayans actively working to 
combat corruption. 
 
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What's Next? 
---------- 
 
¶6. (U) The MCC discussions about possible Stage II 
Threshold assistance for countries that have 
performed well but are not yet eligible for MCC 
Compacts will be critically important to Paraguay, 
and central to our ability to pursue and attain our 
highest priority foreign policy and development 
goals ? democratic consolidation and regional 
security. 
 
¶7. (U) The MCC Threshold Program, and the question 
of what?s next for Paraguay if not a Compact, become 
all the more important as we consider that Paraguay 
will hold national elections for President, Vice 
President, governors and all members of Congress in 
April 2008, and a new government will take power in 
August.  The current Threshold Program for Paraguay 
ends in November 2008; however, many of the 
activities will be finished by June 2008.  Stage II 
Threshold assistance will be vital to consolidate 
gains being made under the program now and to pave 
the way for continued reform by the next 
administration.  The timing is such that a Stage II 
Threshold program would play a pivotal role in the 
USG?s ability to constructively engage and assist 
the new government with its reform and development 
agenda. 
 
¶8. (U) While a Stage II Threshold program should be 
shaped by the priorities of whichever candidate or 
party wins the April elections, Threshold II should 
address the major fault lines that continue to 
affect Paraguay?s score on the Corruption Control 
indicator.  Based on the in-depth MCC indicator 
analysis of Paraguay?s Control of Corruption that 
MCC prepared and provided to the GOP earlier this 
year, a Threshold Stage II program could have 
considerable impact by tackling key corruption 
issues that are not a direct part of our current 
Threshold I assistance.  These include items such 
as, greater reforms of the criminal justice system 
(including criminal procedure code improvements), 
ensuring non-political selection of judges, and 
promoting better access to information (FOIA 
reform). Paraguay?s waning competitiveness and 
economic prosperity prospects would also be 
substantially boosted by attention to additional 
business policy climate improvements.   Threshold 
Stage II could also have significant impact with 
assistance to solidify and deepen the adoption of a 
few select Threshold I objectives that will likely 
require more time to take hold, such as 
strengthening anti-corruption prosecution capacity, 
improving GOP budget transparency/internal controls, 
and strengthened customs enforcement capabilities. 
 
¶9. COMMENT: The MCC Threshold program and the 
promise of a future Compact have provided 
significant leverage and incentive for Paraguay to 
modernize and reform.  Post firmly believes that 
Paraguay?s performance and policy progress provide a 
persuasive case for a Stage II MCC Threshold. 
Paraguay?s path has been lit in part with support 
from the MCC Threshold Program.  The torch will be 
passed to a new administration with new priorities 
and a new agenda next few months.  Continued MCC 
Threshold assistance will be a critical part of our 
ability to help the new administration keep the 
torch lit, and leading down a path to democratic 
consolidation and broader-based prosperity for 
Paraguayans. END COMMENT 
 
FITZPATRICK