VZCZCXYZ0000
OO RUEHWEB

DE RUEHAC #0532/01 2371942
ZNR UUUUU ZZH
O 251942Z AUG 09
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8074
INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY
RUEABND/DEA HQS WASHDC
RHEHNCS/NSC WASHDC
RUEAWJB/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUEKJCS/SECDEF WASHDC

UNCLAS ASUNCION 000532 
 
SIPDIS 
SENSITIVE 
 
TO WHA/BSC MDASCHBACH, CCROFT, H JBULGRIN 
 
E.O. 12958: N/A 
TAGS: PGOV SNAR PREL OVIP PA
SUBJECT: CODEL GRANGER SCENESETTER 
 
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SUMMARY 
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¶1. (SBU) Embassy Asuncion warmly welcomes Codel Granger 
September 2-5.  Your visit follows President Fernando Lugo's 
one-year anniversary in office, and will find the Lugo 
government grappling with the challenges of day-to-day 
governing.  A corrupt judiciary and national police, 
under-funded law enforcement institutions, and a large, 
informal economic sector make Lugo's fight against corruption 
difficult.  Your visit offers the United States an 
opportunity to reaffirm support for Paraguay's democratic 
institutions, and in particular, its law enforcement 
institutions. END SUMMARY. 
 
--------------------------- 
LOCAL AND REGIONAL POLITICS 
--------------------------- 
 
¶2. (SBU) Fernando Lugo's administration represents the first 
interruption in Colorado Party rule in 61 years. By voting 
overwhelmingly for change, the Paraguayan people gave former 
Catholic bishop Lugo a mandate for political, economic, and 
social reform.  However, they also have high expectations. 
Lugo took office on August 15, 2008 and just completed his 
first year in office.  He appears to be committed to reform, 
but is discovering that real change is difficult to bring 
about. 
 
¶3. (SBU) Lugo is a leftist at heart, but a pragmatist of 
mind. He maintains close relations with Venezuela, Bolivia, 
and Ecuador, but also with the United States, Chile, Brazil, 
Colombia and others.  He said in late July that Paraguay's 
"first circle" is MERCOSUR, and that Paraguay does not seek 
to join the Bolivarian revolution.  Lugo met with President 
Bush in Washington in October 2008; he saw President Obama as 
well as a congressional delegation led by Congressman Engel 
at the Summit of the Americas in Trinidad and Tobago.  Codel 
Price (HDAC) visited Paraguay August 19-20. 
 
¶4. (SBU) Lugo's challenges are many:  His inexperienced team 
must overcome endemic corruption in order to achieve its 
goals of strengthening democratic institutions, promoting 
economic growth, and brining about judicial, police, and land 
reform.  Lugo's Patriotic Alliance for Change (APC), a loose 
coalition of political parties, won a large block of seats in 
Congress but does not have a majority.  The Liberal Party, 
one of Paraguay's major political parties, waffles 
back-and-forth in its support for Lugo, and Lugo has distant 
(at best) relations with his Liberal Party Vice President, 
Federico Franco. 
Lugo's own inner circle continues to jockey for power and 
ideological influence.  So far, Lugo has weathered the storms 
he has faced (including several paternity scandals), but he 
has yet to develop a clear national agenda, or to engage in 
the daily political brokering which will be critical to his 
administration's success. 
 
-------------------- 
THE ECONOMIC REALITY 
-------------------- 
 
¶5. (U) Although Paraguay's macroeconomic indicators show the 
country is reasonably positioned to face the financial 
crisis, the economy is expected to contract at least three 
percent this year, and will continue to shed jobs in the 
process.  Exports markedly slowed in the first half of 2009 
as a result of lower prices and weaker external demand for 
Paraguay's main export commodities (soy, grains, cattle). 
Unemployment is over 20 percent, and with a population growth 
rate above 2 percent per annum, the economy is not creating 
enough jobs to meet demand. Paraguay boasts vast 
hydroelectric resources, including the massive Itaipu 
hydroelectric dam built and operated jointly with Brazil, but 
fails to capitalize on those resources.  The new government 
purports to welcome foreign investment, but widespread 
corruption and a weak judicial system are deterrents. There 
is significant commercial activity involving the import of 
goods from Asia and to a lesser extent the United States for 
re-export to neighboring countries, mainly Brazil. The 
underground economy, which is not included in the national 
accounts, is probably twice the formal economy in size. 
 
¶6. (U) Bilateral trade with the United States has increased 
over the last six years.  The U.S. imported from Paraguay 
about USD 80 million in 2008, and exported over USD 1.6 
billion, up from USD 1.2 million in 2007.  Paraguay withdrew 
its objection to U.S. trade preferences in the WTO last 
March, thus opening the door for future trade discussions. 
U.S. Representative Engel introduced trade preference 
legislation (ATPA) in the U.S. Congress in April which would 
give Paraguay increased access to U.S. markets, and a USTR 
expert is visiting Paraguay the week of August 24 to help the 
private sector take full advantage of existing GSP benefits. 
More than a dozen U.S. multinational firms have subsidiaries 
in Paraguay, and some 75 U.S. businesses have agents or 
representatives in Paraguay.  Cargill, ADM, Coca Cola, and 
Exxon Mobile are the largest U.S. companies operating in 
country.  With over USD 650 million in private investment 
stock, the U.S. is Paraguay's largest investor. 
 
------------------------ 
PUBLIC SECURITY ISSUES 
------------------------ 
 
¶7. (SBU) Security and social issues are top concerns of 
Lugo's constituents.  Violent crime is increasing in urban 
and rural areas, and the public generally believes that 
Paraguayan security forces (particularly the corrupt police) 
do not meet their security needs.  The "landless" farmer 
movement -- active for many years in Paraguay -- has 
organized protests and land invasions, calling for reform by 
illegally occupying large, privately-held ranches.  On some 
occasions, protests and land invasions have resulted in 
deaths or injuries. 
 
¶8. (SBU) The Tri-Border Area (TBA) of Paraguay, Argentina and 
Brazil is a hub for transnational criminal activity including 
drug trafficking, trafficking in persons (TIP), arms 
trafficking, intellectual piracy, and money laundering. 
Paraguay is a major transshipment point for cocaine from 
Colombia and Bolivia to Brazil; it is the top marijuana 
producer in South America and the second largest in the 
world.  Paraguay remains a regional haven for money 
laundering.  Paraguayan authorities often experience 
difficulties enforcing the law because of hostile geography, 
corruption, chronic understaffing, and the political and 
judicial power some drug traffickers wield. Paraguay took a 
giant step forward on money laundering, intellectual property 
violations, and trafficking in persons by passing a tougher 
penal code that went into effect in July. 
 
¶9. (SBU) Paraguay's Anti-Narcotics Secretariat (SENAD) is a 
strong partner on counternarcotics.  DEA works closely with 
SENAD's Sensitive Investigative Unit (SIU).  DEA's efforts 
intensified this year via an increased presence in country. 
State's International Narcotics and Law Enforcement (INL) 
program, although modest, multiplies DEA's efforts in country 
(USD 253,000 in FY2009; USD 500,000 requested for FY2010). In 
addition to counternarcotics, the INL program also supports 
other Paraguayan institutions in combating narcotics 
trafficking, money laundering, IPR violations, and 
trafficking in persons. 
 
--------------------------------- 
OTHER U.S. ASSISTANCE TO PARAGUAY 
---------------------------------- 
 
¶10. (U) U.S. assistance in Paraguay in consistent with many 
of Lugo's goals. The centerpiece of our assistance is Phase 
Two of the Millennium Challenge Corporation's Threshold 
Program, which the Paraguayan Congress approved July 31.  The 
Threshold Program, worth USD 30 million, focuses on 
anti-corruption. USAID/Paraguay's FY09 budget is USD 17.15 
million and focuses on Economic Growth; Health Care; 
Sustainable Management of Natural Resources and Protected 
Areas; and Democratic Strengthening.  USG support for the 
Paraguay Military Forces is limited but robust.  One 
highlight is the U.S. Armed Forces' USD 4.1 million donation 
of Global Peace Operations Initiative (GPOI) funds and 
technical assistance to Paraguay's United Nations Global 
Peace Keeping Operations Program (UNPKO). 
 
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COMMENT 
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¶11. (SBU) Your visit offers the United States an opportunity 
to reaffirm support for Paraguay's democratic institutions, 
and in particular, its counternarcotics and law enforcement 
agencies.  Lugo has stated that he seeks to strengthen 
democratic institutions. We hope his administration's first 
budget (which is being finalized now) will invest additional 
resources into Paraguay's law enforcement institutions, so 
Paraguay can continue to build upon U.S. support in these 
areas.  END COMMENT. 
Ayalde