US embassy cable - 05ASUNCION675

UNCLAS SECTION 01 OF 02 ASUNCION 000675 
 
SIPDIS 
 
STATE FOR WHA/BSC, WHA/EPSC, EB/IFD/OMA 
STATE PASS TO USTR FOR SCRONIN, LYANG 
USAID FOR AA/LAC ADOLFO FRANCO 
TREASURY FOR OSIA MAUREEN WAFER 
COMMERCE ITA SARAH COOK 
NSC FOR MIKE DEMPSEY 
SOUTHCOM FOR POLAD 
US SOUTHERN COMMAND MIAMI, FLORIDA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, PREL, PGOV, PINR, PA 
SUBJECT: PARAGUAY'S FINANCE MINISTER RESIGNS 
 
REF: 05 Asuncion 670 
 
1.  (U) Sensitive but unclassified - protect accordingly. 
 
2.  (U) Summary: President Duarte accepted the resignation 
of Finance Minister Dionisio Borda today, and shortly 
thereafter named current Minister of Industry and Commerce 
Ernst Bergen as Borda's replacement.  In naming Bergen, the 
President praised Borda and said he expected Bergen to 
maintain fiscal discipline.  Prior to the announcement, a 
contact close to the Vice President assured us that there 
would be no significant changes to economic policy.  The 
President named Raul Vera, a former President of the Central 
Bank who had been highly regarded by IMF staff at the time, 
to replace Bergen.  Borda resigned over a longstanding debt 
dispute between the Ministry of Finance and the Central 
Bank.  End Summary. 
 
3.  (U) On May 19, President Duarte Frutos accepted the 
resignation of Finance Minister Dionisio Borda.  After a 
meeting with the President, Borda told the press that he 
resigned over a longstanding dispute between the Finance 
Ministry and the Central Bank (BCP) regarding 
recapitalization of the BCP.  Prior to Borda's press 
conference, a contact close to Vice President Castiglioni 
provided us with advance warning of the impending 
resignation, and assured us that there would be no 
significant change in economic policy. 
 
4.  (U) Less the 45 minutes after Borda's announcement, 
President Duarte announced that the current Minister of 
Industry and Commerce, Ernst Bergen, would be the new 
Minister of Finance.  Duarte praised Borda for his 
contributions and listed a number of them, including 
legislative successes and macroeconomic stability.  He 
specifically said that he expected Bergen to maintain fiscal 
discipline, and added that he thought Bergen might be better 
able to promote job creation.  At the MIC, Bergen has 
strongly supported Paraguay's efforts to improve its IPR 
enforcement and legal regime.  He is a Mennonite known for 
his honesty and close relationship with the President; he is 
an engineer and not an economist. 
 
5.  (U) President Duarte also announced that he had named 
Raul Vera to be the new Minister of Industry and Commerce. 
Vera was the President of the BCP in 2002 when Paraguayan 
Ambassador to the US, James Spalding, was Finance Minister. 
The two were highly regarded by the IMF at the time as 
reformers with solid technical skills.  It was only a lack 
of political support under the former government that kept 
their efforts from bearing fruit, and which ultimately led 
both men to resign.  We understand that Vera currently lives 
in the Dominican Republic doing consulting work for one of 
the IFIs. 
 
6.  (U) The dispute that allegedly precipitated Borda's 
resignation involves bonds issued by the Ministry of Finance 
to recapitalize the BCP in the mid-1990s.  In 1999, the 
Ministry gave $100 million of the proceeds of a loan from 
Taiwan to the BCP to help pay depositors affected by the 
banking crises of the late 1990s.  The Ministry and the BCP 
signed an agreement by which that payment also canceled the 
Ministry's debt to the BCP.  Former President Gonzalez 
Macchi issued a Presidential Decree two days before leaving 
office in August 2003 affirming the agreement.  All 
subsequent BCP Presidents have claimed the agreement was 
illegal.  The President has reportedly sided with the BCP, 
at the behest, according to the press, of Monica Perez, the 
new President of the BCP.  Borda resigned rather than take 
part in administrative procedures that would recreate the 
Ministry's debt. 
 
Comment 
------- 
 
7.  (SBU) With the naming of Bergen and Vera, it seems 
likely that the change at the Ministry of Finance will not 
represent a step backward in terms of reform efforts.  A 
local World Bank contact told us they are not concerned 
about the change from Borda to Bergen.  Bergen may do a 
better job of earning the trust and support of the private 
sector than Borda, whose style tended to be more rigid than 
Bergen's.  Since he is not an economist, though, his 
effectiveness may depend, in part, on the advisors he 
appoints. 
 
KEANE