VZCZCXYZ0000
OO RUEHWEB

DE RUEHAC #0584/01 2351833
ZNR UUUUU ZZH
O 221833Z AUG 08
FM AMEMBASSY ASUNCION
TO RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 7178
INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY

UNCLAS ASUNCION 000584 
 
SENSITIVE 
SIPDIS 
 
WHA/FO CKELLY, WHA/BSC MDRUCKER, FOR COMMERCE SECRETARY 
GUTIERREZ, AMB LGUTIERREZ 
 
E.O. 12958: N/A 
TAGS: ECIN PGOV EIND ECON EINV ETRD PREL PA
SUBJECT: SEC GUTIERREZ MEETS WITH US COMPANIES 
 
REF: ASUNCION 
 
¶1. (SBU) SUMMARY: U.S. companies operating in Paraguay met 
with Secretary Gutierrez and the U.S. delegation for 
President Lugo's inauguration at the Chamber of Commerce 
August 14. The companies indicated that insecurities in the 
judicial system undermine Paraguay's capacity to attract 
foreign investment.  Companies in the agriculture sector 
worried about becoming targets of Lugo's administration via a 
tax on their production.  Exxon Mobil shared its concerns 
about PDVSA's support to Petropar.  The companies were 
cautiously optimistic, with mixed expectations of the 
direction that Lugo's administration might take.  All 
participants expressed concerns with the government's 
thus-far limited engagement with the private sector.  END 
SUMMARY. 
 
¶2. (SBU) The Chamber of Commerce (AMCHAM) hosted August 14 a 
working group meeting with key US companies for Secretary 
Gutierrez and the U.S. delegation to President Lugo's 
inauguration. Cargill, ADM, Continental Grains, Citibank 
Paraguay, PriceWaterhouseCoopers, Exxon Mobil Paraguay, and 
Sheraton represented the group of U.S. companies. Secretary 
Gutierrez opened the meeting by describing a growing tendency 
toward pragmatic economic policies in Latin America, and 
indicated that private sector investment is critical to 
growth and job creation.  He asked the participating 
companies to share their views about the business 
environment, their expectations of Lugo,s administration, 
and the role that the U.S. can play.  Secretary Gutierrez 
emphasized that the U.S. views Paraguay as a partner, and 
that the U.S. seeks to maintain trade and commercial ties 
with Paraguay. 
 
-------------------------------- 
THE AGRICULTURE SECTOR COMPANIES 
-------------------------------- 
 
¶3. (SBU) Cargill, which has over 125 million USD invested in 
Paraguay (mostly in the soy business), accounts for over 35 
percent of all Paraguayan exports and over 70 percent of the 
country,s industrial capacity in the agro-sector, employs 
460 people, and is one of the largest corporate tax payers in 
the country (over 1 billion USD paid in taxes).  Cargill has 
a joint-venture with Coca Cola to commercialize the natural 
sweetener &stevia8 and has provided small producers with 
over 60 million USD in cash advances for inputs.  The Cargill 
representative asserted that Lugo's idea of taxing 
commodities exports could create problems for the sector. 
Continental Grains agreed, arguing that the government could 
expand its tax-base by taxing net earnings instead of 
production. 
 
¶4. (SBU) ADM, which has 1.5 billion USD in sales and employs 
650 people, said it was cautiously optimistic about Lugo's 
administration, but worried about the lack of serious 
engagement from the government on economic policy. ADM echoed 
the other agriculture companies' concerns about taxing 
production instead of earnings, and explained that Lugo,s 
administration runs the risk of hurting the country's most 
productive economic sector. The ADM representative noted the 
agro-sector needs an active campaign to inform the public 
about the economic and social benefits that it brings to 
Paraguay in order to reduce the sector's risk of becoming 
targets of aggressive economic policies.  The companies 
explained that in the past, the US Embassy supported public 
information campaigns and asked for additional Embassy 
collaboration. 
 
¶5. (SBU) The Continental Grains (Conti) representative 
encouraged the U.S. to continue its support of economic 
formalization, complaining that the informal sector 
free-rides at the expense of the formal sector.  He indicated 
that Lugo's administration should look to expand its tax-base 
to include the informal sector, not narrow it by increasing 
the tax burden on existing formal enterprises.  The Conti rep 
also contended that a production tax could be 
unconstitutional. Finally, he said the new government should 
apply stricter phyto-sanitary standards to guarantee the 
quality of fresh produce. 
 
-------------------- 
THE FINANCIAL SECTOR 
--------------------- 
 
¶6. (SBU) Citibank (Citi) Paraguay, with over 400 million USD 
in assets, described its partnership with the Overseas 
Private Investment Corporation (OPIC), under which OPIC has 
committed 95 million USD in credit guarantees. Citi was 
moderately optimistic about the incoming administration but 
warned that President Lugo faces significant challenges in 
maintaining a cohesive front in a coalition government.  Citi 
said that inflation has remained at single digits, and that 
dollar loans are on average priced at 7 to 9 percent, with 
fixed rates as low as 9 percent. 
 
¶7. (SBU) PriceWaterhouseCoopers (PWC), the (self-proclaimed) 
number one auditing firm in country, asserted that Paraguay's 
international image as a less-than-serious country plagued by 
judicial insecurity is one of the main reasons why serious 
foreign investors invest elsewhere.  The PWC official 
indicated that Paraguay does not have a certifying accounting 
body, and that the quality of audits is inconsistent. 
 
----------------------------- 
OIL AND CONSTRUCTION COMPANIES 
----------------------------- 
 
¶8. (SBU) Exxon Mobil, which recently celebrated its 100 year 
anniversary in Paraguay, operates in the commercialization of 
oil, gas and diesel.  Exxon,s market share is 14 percent, 
making it the third largest distributor in Paraguay with over 
120 gas stations and over 300 employees.  Exxon pays over 13 
million USD in taxes, and is the only private company 
operating in the sector in Paraguay.  Exxon's General Manager 
said it is difficult for Exxon to maintain a long-term 
investment plan because of judicial insecurity.  Exxon 
Paraguay gets a good amount of its supply from Petropar, and 
the rest is procured in the open market.  The Exxon 
representative expressed concern regarding Petropar's 
intentions to upgrade its small local refinery with PDVSA's 
support, saying the project makes little economic sense.  He 
also commented that PDVSA,s diesel is expensive and of poor 
quality. 
 
¶9. (SBU) The Sheraton Hotel's director emphasized the need 
for the new government to maintain a close dialogue with the 
private sector.  He described Paraguay's need to improve its 
competitiveness and infrastructure and opined that 
infrastructure upgrades can only occur with private sector 
participation.  While the government has signaled its 
interest in public-private partnerships, he said, there are 
not concrete indications of the direction these partnerships 
will take.  The Sheraton representative agreed that judicial 
insecurity severely hinders Paraguay,s prospects for foreign 
investment.  Other AMCHAM Directors argued that lasting 
judicial reform is only possible with an accompanying change 
in attitudes towards corruption.  Secretary Gutierrez noted 
that a strong judicial system was key to the economic success 
of several Asian countries, where clear rules attracted 
foreign direct investment. 
 
------ 
COMMENT 
------- 
 
¶10. (SBU) COMMENT: The companies identified Paraguay's weak 
judicial system as the Lugo administration's main challenge. 
Their expectations of Lugo,s presidency were cautiously 
optimistic, with mixed expectations of the direction that 
Lugo might take.  Their frustration with their limited 
engagement to date with the new administration is legitimate. 
 If Lugo is to successfully implement his economic policies, 
he will need to reach out to the private sector, and soon. 
END COMMENT. 
 
¶11.  Secretary Gutierrez did not have an opportunity to clear 
this cable before departure. 
 
Please visit us at     http://www.state.sgov.gov/p/wha/asuncion 
 
AYALDE