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DE RUEHAC #0703/01 3651704
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O R 311704Z DEC 09
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0350
INFO MERCOSUR COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCQSAB/USSOCOM INTEL MACDILL AFB FL
RUEAIIA/CIA WASHINGTON DC

C O N F I D E N T I A L ASUNCION 000703 
 
SIPDIS 
WHA/FO CMCMULLEN, WHA/BSC MDRUCKER, BFRIEDMAN, MDASCHBACH 
 
E.O. 12958: DECL: 2034/12/31 
TAGS: PGOV PREL ECON PA
SUBJECT: WHA A/S VALENZUELA TELLS PARAGUAYANS TO WORK TOGETHER TO 
STRENGTHEN DEMOCRATIC INSITUTIONS 
 
CLASSIFIED BY: Perry Holloway, DCM; REASON: 1.4(B), (D) 
 
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SUMMARY 
 
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¶1. (C)   WHA Assistant Secretary Arturo Valenzuela visited Paraguay 
December 17-18.  Congressional leaders from major political parties 
expressed frustration with their failed attempts to initiate 
dialogue with President Lugo on building a national agenda.  They 
commented on swirling rumors of presidential impeachment, but 
consensus was that interrupting the democratic process was not in 
Paraguay's best interest.  Several cited Lugo's lack of political 
experience as an enormous challenge.  A/S Valenzuela encouraged 
congressional leaders to identify areas of consensus to advance 
Paraguay's national interests.  In a separate meeting, 
private-sector representatives told A/S Valenzuela that Paraguay 
was wasting an historic opportunity for change.  They were 
disappointed that Lugo had not implemented stronger economic 
policies, but agreed that he should finish his term.  In a 
one-on-one meeting with the Assistant Secretary, President Lugo 
said Paraguay's relationship with the U.S. was important and 
"special."  In the following meeting with the foreign minister and 
Ambassador Ayalde, Lugo said he has continued Paraguay's tradition 
of strong relations with the United States and expressed admiration 
for President Obama.  FM Lacognata explained how important the 
Andean Trade Preferences Development Act (ATPDEA) was to Paraguay 
and the GOP's priority of creating jobs and attracting investment. 
While many are frustrated with the lack of progress under Lugo's 
government, a muted optimism regarding Lugo's potential should 
safeguard him against impeachment in the immediate future.  But 
Lugo needs to take action and deliver results if he wants to finish 
his term, or the volume on impeachment rumors will rise again. 
END SUMMARY. 
 
 
 
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LUNCH WITH CONGRESSIONAL LEADERS 
 
--------------------------------------------- -------- 
 
 
 
¶2. (C)  Congressional leaders told A/S Valenzuela that they had 
made several unsuccessful attempts to initiate dialogue with 
President Lugo to build consensus on a national agenda.   Senate 
President Miguel Carrizosa reported that Congress was working to 
improve governability and the credibility of the political class, 
as well as to define a national agenda, but that progress was 
difficult in the absence of presidential leadership and political 
dialogue.  Participants said President Lugo's own advisors blocked 
many reform initiatives, and that his leftist advisors and allies 
are the root of many of his problems.  One noted that the Liberal 
Party, the anchor of Lugo's governing coalition, is in reality his 
strongest opposition (as evidenced by the daily conflict between 
Lugo and his Liberal Party Vice President Federico Franco). 
 
 
 
¶3. (C)  Congressional leaders commented on swirling rumors of 
presidential impeachment, but consensus was that interrupting the 
democratic process was not in Paraguay's best interest.  One 
underscored that the discussion centered on impeachment by 
constitutional means, not a coup. The Beloved Fatherland party did 
not think that impeachment was the right path at this moment. 
UNACE (Lino Oviedo's party) did not want to obstruct the democratic 
process, but noted that the people voted for change.  Colorado 
Party representatives said they did not have a formal position on 
impeachment, but would discuss the issue within the party (one 
Colorado faction believed if the status quo continued, they would 
move to impeach Lugo).  All purported to want Lugo to finish his 
term, but insisted that he lead a national dialogue.  In general, 
there was optimism that Lugo could still turn the situation around. 
 
 
 
 
¶4. (C)  Several participants cited Lugo's lack of political 
experience as an enormous challenge.  Senator and former Foreign 
 
 
Minister Miguel Abdon Saguier said he was not sure if Lugo 
understands that he needs Congress to govern.  Several noted that 
Lugo frequently blamed Congress for his government's lack of 
progress, but said they had passed all of the reform bills the 
executive branch presented to Congress.   Two participants 
mentioned that Lugo refused to sign a democratic pact drafted by 
Congress, instead participating in an event where social movements 
called for Congress' dissolution.  Senator Alberto Grillon of 
Lugo's coalition recognized the government's errors to date, citing 
inefficiency as the primary cause of GOP missteps.  He said the GOP 
had to work to capitalize on its resources (soy, beef, energy) and 
reduce poverty.  In that context, he hoped that the U.S. Congress 
would pass ATPA trade legislation to benefit Paraguay. 
 
 
 
¶5. (C)  A/S Valenzuela told the Paraguayans that they had a 
daunting task to  build democratic institutions that are bigger 
than individuals.  He encouraged them to work together on 4-5 
topics of national interest.  A/S Valenzuela said that 
strengthening democratic institutions is the only way to immunize 
the country against the myopic political motivations of populist 
leaders.  He underscored the Obama government's interest in a 
stable, prosperous Latin America and the importance of identifying 
themes of mutual interest.  A/S Valenzuela understood that a 
constitutional impeachment process is not equal to a coup, but 
warned that Paraguay should not use impeachment as a mechanism to 
resolve short-term political problems without carefully thinking 
through the consequences.  Senate President Carrizosa welcomed 
Valenzuela's message about dialogue and collaboration, but implied 
that he should deliver the same message to President Lugo. 
 
 
 
--------------------------------------------- ---------------------- 
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ROUNDTABLE WITH PRIVATE SECTOR & CIVIL SOCIETY 
 
--------------------------------------------- ---------------------- 
--- 
 
 
 
¶6. (C)  Private sector representatives told A/S Valenzuela that 
Paraguay was on the brink of wasting an historic opportunity for 
change.  They wished for a stronger economic policy from the Lugo 
administration, but were grateful that Lugo's economic policy had 
at least been moderate to date.   Two participants said Lugo's 
early discourse as president had not encouraged investment, and 
that he had pitted the poor against the rich, leaving the business 
sector uneasy and with low levels of confidence in government.  One 
noted that Lugo's participation at a recent USG-sponsored business 
forum had sent the right signals. (NOTE: Lugo also had dinner with 
the private sector to follow-up on the forum.  END NOTE).  They 
expressed interest in a pragmatic, modern state, and cited several 
concrete initiatives - implementation of the personal income tax 
and investment in infrastructure - which could help achieve 
economic goals.  Participants said Paraguay's poverty rate (around 
38 percent) was unsustainable, and noted that ATPA benefits would 
be beneficial to Paraguayan producers.  They acknowledged the 
country's weak democratic institutions, and that neither the 
president nor his cabinet were prepared for the challenges that 
face them.  Still, they said, if Lugo does not finish his term, it 
would be a giant step backward for the country.   The country's 
problems were not impossible, but required leadership and civil 
society participation and contributions. 
 
 
 
¶7. (C)  One academic noted that Paraguayans elected a president 
with virtually no representation in Congress, indicating that the 
voters wanted a weak executive.   He said Lugo doesn't understand 
his power or his place in history.  Lugo must, he said, define his 
ideology and his foreign-policy goals, and negotiate or leave 
office. He thought Congress preferred to throw Lugo out rather than 
work with him.  Another academic noted that the 61-year-old system 
had imploded, but that there was not a new system to replace it. 
She said Paraguay was not ready to hear the new voices that were 
expressing themselves from the poor and the left.  She noted that 
in spite of high expectations and increasing criticism of Lugo, his 
approval rating is higher than his predecessor's at the same point 
in his term.  The Archbishop of Asuncion noted that Lugo had not 
 
 
been a great leader in the Catholic Church, and had "not even the 
minimum capacity to govern."  He, like several others, believed the 
country was disoriented, confused and conflicted following Lugo's 
election. 
 
 
 
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VISIT TO USAID HEALTH SECTOR PROJECT 
 
--------------------------------------------- --------- 
 
 
 
¶8. (U) A/S Valenzuela met with the Minister of Health Esperanza 
Martinez and Vice Minister of Health Edgar Gimenez at the Health 
Ministry's Central Warehouse for medicines and supplies.  Martinez 
recounted corruption and accountability challenges in the public 
health sector, where overvaluation, theft, inventory control, and 
breaches of contract standards are significant problems. She 
discussed how USAID, in part through Millennium Challenge 
Corporation funding under the Threshold Phase II Program, is 
supporting her ministry's efforts to strengthen logistics supply 
system, improve internal controls, and increase transparency in the 
procurement of medicines and supplies.  A/S Valenzuela 
congratulated the minister for her efforts and emphasized that the 
work is important not only because it increases the quality and 
availability of medicines, but because it increases the strength of 
government institutions.  He noted that by seeking to improve its 
procurement practices and mechanisms through more transparent and 
responsive systems, the health ministry will improve rule of law 
within the Paraguayan State. 
 
 
 
¶9. (U)  A/S Valenzuela also visited a health clinic of the 
Paraguayan Center for Population Studies (CEPEP), which has 
received USAID support since 1999.  CEPEP has expanded its 
provision of services and established a social pharmacy to provide 
low cost medicines to its clients.  The A/S met with Dr. Cynthia 
Prieto, CEPEP's Director, who was also the health minister from 
1989- 1993, the first woman minister in the Paraguayan government. 
CEPEP presented A/S Valenzuela with a copy of the 2008 Demographic 
and Health Survey, which provides important data on access to and 
use of reproductive health services, as well as other public health 
data. The Survey was prepared by CEPEP with USAID funding and CDC 
technical assistance. 
 
 
 
--------------------------------------------- -- 
 
MEETING WITH PRESIDENT LUGO 
 
--------------------------------------------- -- 
 
 
 
¶10. (C)  In a 15-minute, one-on-one meeting at the presidential 
residence, Lugo told A/S Valenzuela that Paraguay's relationship 
with the United States was important and "special."  Lugo wanted 
A/S Valenzuela to know this personally, since there are many rumors 
to the contrary.  He confided that before taking the job of 
president he knew there would be challenges, but he never knew it 
would be so difficult.  A/S Valenzuela responded that he recognized 
Lugo's challenges.  He told Lugo that everyone wanted his 
government to succeed for the good of Paraguay and the two agreed 
that for success to happen, Paraguay needs to develop strong 
democratic institutions, greater social justice, and employment 
generation.  A/S Valenzuela recommended that Lugo "reach out more 
to others" and "build alliances."  He told Lugo that some would 
reject such offers, but that he needed to be perceived as seeking 
solutions and not promoting failure as some characterize his 
presidency.  The president agreed. 
 
 
 
¶11. (C)  Lugo then invited Foreign Minister Hector Lacognata, Vice 
Foreign Minister Caceres, and Director of Bilateral Relations 
Roberto Benitez to join the meeting.  In addition to A/S 
Valenzuela, the  U.S. side included Ambassador Ayalde, Executive 
Assistant to the Assistant Secretary Juan Gonzalez, and DCM 
 
 
(notetaker). 
 
 
 
¶12. (C)  Lugo opened by saying that he has continued Paraguay's 
tradition of strong relations with the United States.  He expressed 
admiration for President Obama and said he enjoyed seeing him at 
the last Summit of the Americas in Trinidad and Tobago.  He said 
that he and Obama share a number of challenges: They both 
campaigned on change and they both are attempting to reform health 
care.  He hoped that he would have the chance to meet with 
President Obama privately before the end of his term.  FM Lacognata 
chimed in saying that they had already requested such a meeting. 
A/S Valenzuela thanked Lugo for receiving him and stressed that he 
was in Paraguay to listen and learn. 
 
 
 
¶13. (C) Lugo told A/S Valenzuela that he had been travelling in 
rural Paraguay and that he had just attended the inauguration of 
the construction of a highway that the Government had been 
promising to build for 20 years.  Lugo said that they normally get 
about 200 people at an event like this, but that 5,000 people were 
in attendance.  Lugo then talked about the solicitation process for 
road construction, and the work that was being done to make the 
bidding process more open and transparent. A/S Valenzuela used this 
opportunity to talk about competition and investment.  He stressed 
that a successful democracy needs a working justice system, good 
investment infrastructure, investment in people, and clean 
institutions that respect the rule of law.  He acknowledged that 
even the United States struggled with these issues in the midst of 
the recent economic crisis. 
 
 
 
¶14. (C)  The foreign minister gave a brief overview of Paraguay's 
macroeconomic situation, describing it as positive in spite of some 
challenges.  He explained that Paraguay has an abundance of 
electricity, but the infrastructure to deliver the electricity is 
lacking.  Lacognata mentioned a potential Canadian investment in 
the steel sector and how the company was willing to build the 
infrastructure it needed to connect to Paraguay's electrical 
production facilities.  Lugo then stressed the importance of the 
20,000 plus jobs that this investment would create and how it would 
be the largest investment ever in Paraguay after the binational 
dams.  A/S Valenzuela interjected that Paraguay had tremendous 
potential, but would have to work hard.  Lugo then talked about 
investment potential in the overlooked Paraguayan Chaco.   (Embassy 
Comment:  The Chaco is the western 60% of Paraguay and much of the 
area is hot, sparsely populated, flat, and undeveloped.  There is 
little infrastructure of government presence and attracting 
investment will be difficult unless mineral resources were found, 
which has not happened to date.  End Comment). 
 
 
 
¶15.  (C) A/S Valenzuela shifted the discussion to his earlier visit 
to a health ministry warehouse and an NGO-sponsored clinic, 
complimenting Lugo on the systems that were being installed to 
increase efficiency and limit corruption, particularly in the area 
of procurement.  He stressed how important it was for Paraguay to 
develop its institutions.  Ambassador Ayalde explained that this 
was something we were working on under the Millennium Challenge 
Corporation (MCC) Threshold II program.  She noted that we are 
trying to increase efficiencies and combat corruption with 
different institutions such as the health ministry, the police, 
customs, the public ministry and the IPR office.  A/S Valenzuela 
stressed that we need to see how we could do more. 
 
 
 
¶16. (C) At the president's behest, Lacognata explained how 
important the Andean Trade Preferences Development Act (ATPDEA) was 
to Paraguay.  He said that the trade preferences would help create 
jobs, which is one of the GOP's top priorities.  He thought that 
the textile industry would be the biggest benefactor if ATPDEA were 
to pass, noting that the textile industry employees women and 
single mothers who are a very vulnerable group in Paraguay.  A/S 
Valenzuela told the group that he had met with Representative Engel 
and that while he recognized that trade preferences would be good 
for Paraguay, he did not know the bill's current status.  He 
described the deficit situation with the United States and the high 
unemployment and how there was a perception in our Congress that 
 
 
this would be difficult to pass without the direct support of the 
Obama Administration.  Lacognata said that they would lobby for 
ATPDEA and Ambassador Ayalde stressed that the GOP should ensure 
coordination of its efforts with Paraguay's private sector and 
Congress. 
 
 
 
¶17. (C)  Lacognata told the A/S that the GOP wanted the United 
States to be the primary investor in Paraguay. (Note: The United 
States is the largest source of foreign investment in Paraguay with 
over $600 million).  Lugo interjected that countries like China had 
promised to invest in Paraguay, but rarely delivered.  Ambassador 
Ayalde stressed that the Embassy helps U.S. companies seek out 
investment opportunities in Paraguay, but that the GOP needed to 
continue working on ensuring that there is a level playing field 
for all with transparent, consistent rules of the game.  She noted 
that situations like that of Crescent Oil did not help.   Lugo 
looked puzzled and Lacognata explained that the case involved 
litigation between an American oil company and the Paraguayan 
government.  A/S Valenzuela added that institutions that respected 
the rule of law were the key to successful investment, citing the 
experience of Chile.  Lugo said that his government was talking 
with Chile and that they would see what parts of the Chilean 
experience could help them.  He said the GOP was particularly 
interested in Chile's experiences with concessions.  Ambassador 
Ayalde mentioned that the USG was working with Trade Development 
Assistance (TDA) to help Paraguay in the area of preparing large 
solicitations (i.e. airport concession) that would guarantee 
transparency and provide equal protections to all. 
 
 
 
¶18.  (C)  Lugo thanked A/S Valenzuela for the visit and encouraged 
him to come back.  He told the A/S that when he returned they would 
do a trip to the Chaco so he could see another part of Paraguay. 
A/S Valenzuela thanked Lugo for his hospitality and assured the 
president that he could count on U.S. support for democracy and 
developing institutions. 
 
 
 
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POSITIVE PRESS COVERAGE 
 
-------------------------------------- 
 
 
 
¶19. (U)  Paraguayan media extensively reported on A/S Valenzuela's 
meeting with President Lugo, private lunch with congressional 
leaders, and visit to CEPEP.  The print press alone published 21 
stories with the common theme being the Assistant Secretary's 
recommendation that all political, economic and social actors 
engage in a national dialogue.  After their closed press meeting 
with the Assistant Secretary, Senators Orlando Fiorotto (Colorado 
Party) and Alberto Grillon (Progressive Democratic Party), and 
Deputy Carlos Liseras (Colorado Party) conveyed their impressions 
of possible presidential impeachment, comparisons of Paraguay to 
Honduras, and deterioration of political dialogue.  The Assistant 
Secretary's message of U.S. support for Paraguay's democratic 
institutions reached key media outlets, and was overwhelmingly 
positive. 
 
 
 
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COMMENT 
 
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¶20.  (C)  The message delivered by both congressional and private 
sectors actors to A/S Valenzuela was that they want Lugo to reach 
out to them in the national interest.  While frustrated with the 
lack of progress under Lugo's government, most remained somewhat 
optimistic.  This muted optimism, it seems, should safeguard Lugo 
against impeachment for the immediate future.  A/S Valenzuela's 
visit came at a moment when tensions seemed to be dissipating, and 
his encouragement for Paraguayans to focus on common ground and 
 
 
democratic institutions was timely.  But as we have said before, 
Lugo needs to take action and deliver results.  If he does so, he 
could survive politically and tame his many political opponents 
(including some factions of the Liberal Party).  If he does not, 
the volume on impeachment rumors will rise again. END COMMENT. 
 
 
 
This message was cleared by A/S Valenzuela. 
 
 
 
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