US embassy cable - 05ASUNCION158

C O N F I D E N T I A L SECTION 01 OF 03 ASUNCION 000158 
 
SIPDIS 
 
STATE WHA/BSC 
STATE PASS TO USAID LAC/AA 
NSC FOR KIMBERLY BREIER 
SOUTHCOM FOR POLAD DAN JOHNSON 
 
E.O. 12958: DECL: 01/31/2015 
TAGS: PGOV, PREL, KJUS, ECON, KIPR, PINR, SNAR, PA 
SUBJECT: PARAGUAY,S PRESIDENT ON REFORM, DRUGS, AND 
CORRUPTION 
 
 
Classified By: CDA Kevin M. Johnson for reasons 1.4 (b) and (d). 
 
SUMMARY 
--------- 
1. (C) Ambassador followed up with President Nicanor Duarte 
Frutos (NDF) January 28 recent calls on the Ministers of 
Finance and Industry (septels) to push reform and emphasize 
U.S. priorities.  Explaining drug certification in detail and 
praising significant success by SENAD, Ambassador stressed 
the need for continued progress on enforcement (including 
resources for SENAD), prosecution, and improved legislation, 
including on money laundering.  Ambassador decried increasing 
pressures to stall major economic reforms and reverse fiscal 
discipline, noting that a constitutional convention this year 
would accelerate the political calendar and undermine reform. 
 Duarte vehemently reconfirmed his commitment to reform, 
noting he recently ordered budget reductions sufficient to 
meet IMF targets ($70 million.)  Audits of state enterprises 
were underway and the GOP would continue reforms and preserve 
the macroeconomic conditions needed for international 
confidence and economic growth. 
 
2. (C) Duarte seconded the Ambassador on the need to delay 
the electoral season to concentrate on reforms, 
anti-corruption, and economic growth.  Calling the enemies of 
reform myopic, Duarte said he would do what is right for the 
country, and added that this will also be in the long-term 
interests of his party.  Alleging ambivalence about 
reelection, he said VP Castiglioni would win (easily) in 2008 
if Duarte couldn't run, and that "I will manage his campaign 
as party president".  He reported telling Colorados resisting 
reform and clinging to corruption that change was the only 
way to avoid defeat, and that they should be smart if they 
can't yet be moral.  Calling himself pragmatic and a student 
of history, he said the future belongs to democratic, 
market-oriented societies, and no ideology can erase that. 
 
3. (C) Duarte stressed that "Paraguay needs the confidence of 
the USG" and thanked the Ambassador for his support. NDF 
could not have been stronger in confirming support for 
reforms and fiscal discipline in the face of increasing 
pressures.  His command of budget and reform details 
indicates commitment to a plan, not just rhetoric, although 
challenges remain.  Expansive and forward looking on both 
policy and politics, NDF appeared confident and confirmed a 
reform agenda in line with major U.S. interests.  End Summary. 
 
DRUG CERTIFICATION 
------------------ 
4. (C) January 28 the Ambassador praised to President Duarte 
(NDF) CD achievements under his administration, especially 
the work of SENAD chief Ibarra.  Ambassador noted the need to 
build on SENAD's success through more resources, stronger 
prosecutions, and improved legislation.  The Ambassador also 
praised narcotics fiscal Vergara, and suggested another 
prosecutor dedicated to narcotics cases would be useful.  NDF 
asked if we had anyone in mind, and the Ambassador mentioned 
Fiscal Giuzzio as a good candidate.  The Ambassador pointed 
to unprecedented Brazil-Paraguay cooperation in recent major 
cases, such as Mendes Mesquita, adding that this was the 
direct result of professionalization of SENAD (with DEA/INL 
assistance) and the ability to prevent intelligence leaks. 
Ambassador left a letter explaining our CD priorities and 
certification, adding that he would separately approach 
Attorney General, Ibarra, and the Supreme Court President. 
Duarte said he was proud of Paraguay's CD progress, 
acknowledged much remained to be done, and signaled 
determination to move forward. 
 
CORRUPTION IN COURTS, FISCALIA, POLICE 
-------------------------------------- 
5. (C) NDF lamented serious corruption problems, both 
institutional and personal, in all these areas.  Police Chief 
Zelaya is honest, he said, but the police as a whole were a 
mess.  Duarte admitted the Ambassador was right about 
specific police officers (implying Aristides Cabral) and 
broader problems.  Personally following the Cubas kidnapping 
case, Duarte said he had seen terrible actions by police, 
including leaking vital information.  NDF lamented nepotism 
and improper behavior by Supreme Court Magistrates, saying 
that even some of the best fail to live up to their 
positions.  Calling himself a bit of a puritan, he said he 
had asked the Magistrates to avoid drinking and carousing in 
public to restore respect and regain authority. Future 
Supreme Court President Antonio Fretes, his friend (and ours, 
traditionally), needs to get more serious, he added.  He 
praised future Court VP Puchetta as the toughest and cleanest 
of all Magistrates (she was his candidate), saying many of 
the rest could not be trusted. 
 
PRESSURES Vs REFORMS, FISCAL DISCIPLINE 
---------------------------------------- 
6. (C) The Ambassador laid out concerns shared by the 
international community that political pressures could weaken 
or reverse key reforms, including the Public Banking law, 
pension restraint, and fiscal discipline.  NDF said he was 
determined to push reform, retain sound macroeconomic 
policies, and preserve fiscal discipline.  He said the Public 
Banking law had been stopped by the opposition, but would be 
passed February 28.  He recently confirmed dramatic spending 
cuts ($ 70 million, or 2.8 percent of GDP), using executive 
spending authority after attempts to limit the budget itself 
failed in congress.  This would keep the GOP within IMF 
targets, he stressed.  The President added his determination 
to go forward with restructuring of state enterprises, with 
international audits the starting point.  The state oil 
monopoly (Peteropar), telecommunications, and other entities 
would see major restructuring, he predicted, while the 
national cement company would be more problematical for a 
series of reasons.  Duarte stressed a pragmatic model that 
would raise efficiency and promote growth to allow him to 
help the poor while maintaining stability; solutions were 
what mattered, he said, not ideology, whether "progressive or 
neo-liberal." 
 
POLITICAL CALENDAR 
----------------- 
7. (C) The Ambassador said a possible constitutional assembly 
this year would accelerate the political calendar and 
undermine reform.  NDF agreed, saying he told Colorado 
Senators in January he wants this to be a year of reforms, 
anti-corruption, and economic growth; "in 2006, we'll see 
about constitutional reform."  He is not burning for 
reelection, he said, although his party is pushing him. 
(Comment: His key allies are among those pushing for his 
reelection, something he could stop if he wished; the 
opposition might block constitutional reform this year or 
simply demand unacceptable favors in return, so he may be 
reluctant to openly pursue this.  End Comment.)  NDF said he 
argues with members of his Colorado party that reform is 
needed to win again, in addition to being the right thing for 
the country.  He won with just 37 percent of the vote while 
his party lost seats in Congress and lost key municipal and 
departmental elections.  The old "carnival" would destroy the 
party as well as the country, and he'll have no part of that, 
he said.  If he cannot run for reelection, his plan is to 
become Colorado party president and push VP Castiglioni for 
president, saying "I'll run his campaign and he'll win 
easily."  He denigrated Liberal party leaders, saying Patria 
Querida (PQ) could come in second.  Acknowledging that PQ was 
the most responsible opposition party, he nevertheless warned 
that PQ Deputy Lacognata was engaged in extortion with 
Assembly President Salomon (a Colorado). 
 
NDF's HISTORICAL AND PRAGMATIC VISION 
------------------------------------- 
8. (C) Duarte emphasized his historical vision of progress 
contingent upon leadership.  The world is headed toward 
increased democracy, liberty, and free markets with 
protection for the poor, he said.  This isn't inevitable, but 
it is desirable and possible and where he seeks to lead 
Paraguay.  Latin America needs a larger international voice, 
but not through speeches and ideology, but through actions 
and achievements.  "I disagree with ideologues in the region" 
he added, partly referring to Chavez (septel).  "I'm 
pragmatic and need international and USG support", he 
concluded. 
 
COMMENT: CONFIDENT REFORMER LOOKING FORWARD 
------------------------------------------- 
9. (C) We remain concerned about certain appointments 
(septels) and pressure Vs reform is unrelenting, but NDF 
couldn't have been clearer or stronger in supporting key 
reforms, with plans in addition to rhetoric.  Relaxed and 
confident and looking forward on both policy and politics, he 
gave no/no indication that pressures were shaking his 
resolve.  Admitting that terrible corruption continues, it 
was interesting to hear him expand on why his plan is good 
for the Colorados politically (even if many can't see that or 
don't care) as well as the right thing for the country.  He 
expressed frustration with the slowness of reforms under a 
democracy, but said that was the price for liberty, which was 
the wave of the future.  Ambassador stressed key US 
priorities on reform, CD, CT, etc., urging NDF not to lose 
his momentum or hard-won credibility; the default setting for 
most about Paraguay is not/not positive, the Ambassador 
stressed, making Duarte's reform credentials that much more 
valuable ) and perishable.  Duarte said his administration 
wasn't perfect, but it would not turn back from the reform 
path. 
 
BIO NOTES 
--------- 
10. (C) President Duarte had planned to attend the national 
prayer breakfast in Washington, but on January 30 his mother 
suffered a serious stroke and he canceled his travel to stay 
with her. Duarte was also set to travel to Houston for 
specialists to examine his chronic back problem (5th 
vertebra.)  When the Ambassador ordered a typical brewed 
beverage (curtado), NDF said "a poor man's breakfast; I grew 
up having one of those and three crackers for breakfast."  He 
said Paraguayans to this day think of poverty whenever they 
have curtado.  Describing his own poor childhood, he noted 
his mother had raised the family alone, since his father was 
a policeman stationed elsewhere and, as was typical, "had 
many women."  Joking about his efforts to discourage nepotism 
in the Supreme Court, he said "becoming President was 
terrible for my family, since no one can claim a job in 
government now.  Then again, my brother only has a 6th grade 
education, like our father, so there's no place for him to 
work!" 
 
11. (U) The Ambassador did not have the chance to review this 
message before departing post on leave. 
JOHNSON