US embassy cable - 05ASUNCION714

UNCLAS SECTION 01 OF 03 ASUNCION 000714 
 
SIPDIS 
 
STATE FOR WHA/BSC, WHA/EPSC 
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 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, ETRD, EAGR, EIND, PA 
SUBJECT:  Ambassador Sees Positives During Visit To 
Paraguays Tri-Border Region 
 
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Summary 
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1. Ambassador traveled to the departments of Alto Parana, 
the capital of which is Ciudad del Este, and Itapua May 14- 
15.  During his visit, he attended the Santa Rita Expo, a 
major regional agricultural fair, and helped to inaugurate 
a USAID-funded municipal tax collection system in Ciudad 
del Este.  He also toured one of the countrys largest 
commercial fruit juice factories and met with leaders of 
the local business community.  With much of the current 
focus on the tri-border region concentrated on smuggling 
and other illegal activities, this visit highlighted some 
of the positive economic developments taking place in the 
area.  End Summary. 
 
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Fair Scenes 
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2.  Located approximately one hour southwest of Ciudad del 
Este, the farming community of Santa Rita is a center of 
soy cultivation in Eastern Paraguay.  Its prosperous 
commercial farmers, most of them immigrants from 
neighboring states in Southern Brazil, began arriving in 
the area in the early 1970s.  Expo Santa Rita, the areas 
annual agricultural fair, is a showcase for both local 
companies and internationally known agro-businesses, 
including ADM and Cargill.  According to the Expos 
organizers, roughly 80 percent of Santa Ritas residents 
are either Brazilians or of Brazilian descent.  This 
his 
connection manifests itself through music, food, and 
language, with Portuguese being the mother tongue of the 
vast majority of inhabitants. 
 
3.  The fair included exhibits of the latest in world-class 
farm machinery, with exhibits from John Deere and New 
Holland.  Combines, sprayers and tractors, most with 
comfortable, air-conditioned cabins and onboard computers, 
are a stark contrast to the mule-powered farm implements 
still common on small subsistence farms in rural Paraguay. 
Aided by technologically advanced implements, the 
commercial farmers of Eastern Paraguay are able to reap two 
harvests of soy per year, plus an additional crop of winter 
wheat.  Many commercial farmers also diversify into corn 
and other feed crops, providing them with a standard of 
living high above the average Paraguayan, and lending towns 
like Santa Rita a measure of prosperity. 
 
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Municipal Tax System Reform 
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4.  Ambassador attended the inauguration of a new tax 
administration system powered by software provided to the 
municipality of Ciudad del Este (CDE) by USAID.  The new 
software aided CDE, the second largest municipality in 
Paraguay, to reform its chaotic and inefficient tax system. 
The tax project, which began in March 2004, has already 
helped CDE increase property tax collections by 24 percent, 
resulting in USD $400,000 in additional revenue for the 
municipality.  The tax collection software should augment 
the programs effectiveness.  Among the more visible signs 
of the windfall are public works projects, including the 
illumination of one city square, as well as street 
improvements.  During the inauguration ceremony, CDEs 
mayor renewed his promise to use additional funds for 
public works programs aimed at improving the quality of 
life in the city. 
 
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Private Sector Perspectives 
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5.  During a private meeting with representatives of the 
local business community, Ambassador discussed the current 
t 
business and regulatory environment in CDE.  In contrast to 
the exuberant attitude of the mayor and other municipality 
officials, the business leaders were cautious in their 
optimism.  Several shared personal anecdotes of 
difficulties navigating local bureaucracy.  Local business 
leaders are also concerned about the new border area law 
that prohibits foreigners from purchasing land within 50- 
kilometers of Paraguays borders.  The law, aimed mainly at 
Brazilian agriculturalists, is also a seen as a political 
retaliation against the strict border controls recently 
instituted by the Brazilian authorities.  The law could 
discourage potential foreign investment.  It also makes it 
difficult for Brazilian farmers to get access to credit for 
agro-business, as it calls into question the succession of 
land ownership. 
 
6. Despite pessimism from some in the business community, 
CDE does seem to be attracting outside investment. 
Brazilian firm Mega Plasticos, which has two plants in Sao 
Paulo state under the name Industrias de Plasticos Bariri 
Ltds., is opening a synthetic leather factory just outside 
CDE.  According to Embassy sources, the USD 18 million 
investment is one of the largest in Paraguay in recent 
years.  The factory will operate under Paraguays maquila 
regulations, allowing it to take advantage of numerous 
fiscal exemptions, such as a tax exemption on all 
machinery, equipment, parts, raw materials and components. 
The plant will also benefit from Paraguays low labor costs 
and low electricity tariffs.  By satisfying preferential 
MERCOSUR rules of origin obtained by Paraguay in 2003, with 
which only 40 percent of production costs have to originate 
in Paraguay for the products to qualify as MERCOSUR 
products (versus 60 percent in other members), the 
factorys final products will be exempt from all taxes and 
duties in the regional market.  Paraguays preferential 
status begins to phase out in 2008. 
 
7.  Mega Plasticos entry into CDE was facilitated by 
ed by 
Paraguay Vende, the USAID-funded program whose object is to 
create legal jobs in legitimate commercial activities. 
Paraguay Vende is providing information and guidance to 
Mega Plasticos to reduce transaction costs, including 
helping the company sidestep requests for bribes, and to 
establish trusting business relationships in Paraguay. 
Paraguay Vende has helped Mega Plasticos meet maquila 
requirements, provided input during discussions with 
national environmental authorities, and has helped with 
various administrative matters ranging from security to 
utilities.   Other Paraguay Vende successes include 
increased production and exports by Xtreme, a local wood 
molding company, which currently exports all of its 
production to the US. 
 
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Labors Fruits 
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8. Ambassador concluded his trip by visiting Frutika, a 
successful grower, packager, and marketer of fruits and 
fruit juices.  Frutika owners, Mrs. Beate de Kress, is a 
a 
German national who arrived in Paraguay with her husband in 
the late 1970s.  Originally intending to farm soy, the 
couple eventually expanded into commercial citrus 
production and packaging.  Today the Frutika factory 
supports several hundred families in the community of 
Kressburger.  Its production methods and machinery are 
world-class, and no part of its produce is wasted.  Even 
rind and excess pulp, both byproducts of the juice 
production process, are sold to local farmers as an 
additive for livestock feed. 
 
9. Frutika sells much of its production domestically, but 
also exports concentrate to Holland and Korea.  The company 
continues to expand its product line, with tomatoes its 
latest addition.  It is in the preliminary stage of growing 
strawberries, which it uses to produce jam.  Both 
production and product development take place under the 
watchful eye of Kress, who exhibits tireless drive and 
determination, and who has invested both time and money in 
product research and technology.  In addition to its 
impressive production line, Frutikas inventory control is 
also world-class, allowing the factory to track each 
consignment of juice to its final destination.  Frutika has 
also entered into a relationship with Paraguay Vende to 
identify Brazilian importers interested in its products. 
 
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Comment 
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10.  With most of the focus on Eastern Paraguay centered on 
contraband and other illegal activities, the Ambassadors 
recent visit gave a glimpse of the regions potential. 
Blessed with rich farmland, a strategic geographic position 
and a favorable investment climate for both agriculture and 
manufacturing, such potential must be encouraged and 
occasionally prodded if it is to provide a lasting 
alternative to illegal activity.