US embassy cable - 05ASUNCION1177

C O N F I D E N T I A L SECTION 01 OF 03 ASUNCION 001177 
 
SIPDIS 
 
SOUTHCOM FOR POLAD DAN JOHNSON 
 
E.O. 12958: DECL: 09/15/2015 
TAGS: PREL, PGOV, PTER, ETRD, US, PY 
SUBJECT: CONVERSATION WITH PRESIDENT DUARTE 
 
Classified By: Ambassador John F. Keane for reasons 1.4 (b) 
and (d). 
 
1. (C) Summary:  On September 14, I called on President 
Nicanor Duarte Frutos (NDF) to urge his involvement in 
seeking enactment of an anti-money laundering bill, and he 
concurred.  We also talked about a September 16-18 workshop 
to help the GOP develop national security strategies and a 
State-funded (ATA) anti-kidnapping course for 24 Paraguayans. 
 NDF expressed concern about increased tensions with 
Paraguay's neighbors and the possiblity of Brazilian economic 
sanctions.  NDF often makes reckless, populist or 
nationalistic remarks, which are sometimes mimicked by his 
subordinates.  His Vice President (VP), Luis Castiglioni, has 
made highly critical comments about Paraguay's neighbors and 
suggested the GOP could seek a bilateral Free Trade Agreement 
with the U.S., an idea which NDF has not endorsed and which 
has never been discussed with us.  The VP is going to be 
reined in, NDF told me.  We also briefly touched on other 
trade topics.  End Summary. 
 
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Anti-Money Laundering Legislation (AML) 
--------------------------------------- 
 
2.  (C) In this one-on-one I told the President that I wanted 
to discuss anti-money laundering (AML) legislation, a 
forthcoming workshop sponsored by the Center for Hemispheric 
Defense Studies (CHDS) to help Paraguay develop a "national 
citizenship security and defense strategy", and recent 
controversies over bilateral trade policy.  I also mentioned 
that we had just received notification that we could invite 
24 Paraguayans to an anti-kidnapping course in the U.S. 
 
3.  (C)  Duarte Frutos interrupted me before I got far 
explaining the need for his forceful and urgent personal 
involvement to secure Congressional enactment of stalled AML. 
 He broke in to say that he considers AML a vital tool to 
curb impunity and corruption and had raised it with the 
Congressional leadership the day before. Welcoming that step, 
I urged him to raise the issue with key Chairmen of the 
Senate Finance and Legislation Committees, as well as with 
the Colorado Party Block leader. 
 
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CHDS Workshop:  President Feigns Surprise, but Agrees 
                to Endorse 
--------------------------------------------- --------- 
 
4.  (C) Participation by key decision makers in the CHDS 
workshop was important, I stressed, if it was to be 
successful in developing useful options endorsed by the 
various government ministries for his consideration.  I also 
noted that it is an opportunity to overcome coordination 
problems due to the tendency of the ministries toward 
"stovepiping." 
 
5.  (C) NDF replied that he was surprised the day before to 
hear about the workshop from the head of military forces, 
General Kanazawa.  NDF said that the Vice President had not 
kept him informed about the workshop, which led to a fairly 
lengthy, albeit soft-spoken complaint that the Vice President 
has been doing and saying things lately that were not 
coordinated with him and have caused Paraguay problems with 
its neighbors Argentina and Brazil.  (N.B.  NDF was referring 
to VP Castiglioni's public criticism in the last few days of 
Brazilian and Argentine protectionism, the need for Paraguay 
to sign a free trade agreement with the U.S. (sic) and 
ill-considered remarks about the weaknesses, including moral 
and ethical, of the political leaders of Paraguay's 
neighbors.  In fairness, NDF himself led the way in public 
bashing of Brazil and Argentina recently, so possibly the VP 
thought he had license.  End Note.)  NDF also claimed that 
the VP did not get his concurrence before making commitments 
or statements regarding the bilateral relationship with the 
US, including the CHDS seminar. 
 
6.  (C) His preocupation showing, NDF noted that Brazil and 
Argentina are upset.  NDF volunteered that he wants a good 
relationship with the U.S. (which the VP is fostering), but 
Argentina and Brazil are right next door, are the principal 
markets for Paraguayan products and, in the case of Brazil, 
have a stranglehold on Paraguayan finances.  "If Brazil 
closes the border at Ciudad del Este or cuts off Itaipu 
royalty payments to us, we are sunk!"  While he wants to 
export much more to the U.S., he said he does not believe the 
FTAA is in Paraguay's interest, since the Paraguayan state 
depends heavily on revenues from customs duties.  Moreover, 
it must stick with Mercosur because of its dependence on 
Brazil and Argentina, and Mercosur membership precludes a 
bilateral free trade agreement with the U.S. without a 
Mercosur waiver, which is not likely under current 
circumstances.  He would like the U.S. to unilaterally reduce 
trade barriers to Paraguayan products, and mentioned special 
treatment of Bolivia as an example.  He commented that 
Mercosur could negotiate an agreement as a block with the 
U.S., but I declined to pursue that topic since there were 
more urgent and less hypothetical issues to discuss during 
our limited time together just before his departure for New 
York.  (Comment:  No U.S. official has mentioned a bilateral 
free trade agreement; the only person to raise it is the 
Paraguayan VP.  End Comment.) 
 
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Vice President Called to the Woodshed 
-------------------------------------- 
 
7.  (C) The Vice President has been called in, added NDF, to 
be told he must coordinate properly and he must be judicious 
in his public remarks.  NDF said he wanted to know more about 
the CHDS workshop before he approved it, noting that it was 
sensitive.  (Comment:  He implied that he thinks Brazil and 
Argentina, not to mention his domestic opposition and the 
media, will be critical.)  I explained to NDF that a number 
of senior Paraguayan officials, including the VP and the 
former Attorney General, believed the CHDS workshop would be 
valuable, and I explained why, noting the confusion, turf 
battles and indiscretions if not downright sabotage that 
raged during the Cecilia Cubas hostage taking investigation, 
and the implications of Paraguay not having clear and 
coordinated national security priorities and strategies.  I 
described the purposes of the workshop. 
 
8.  (C)  Not wanting to enter into a polemic,  I did not 
remind NDF that I had discussed these issues with him last 
April, in the wake of the death of Cecilia Cubas and his trip 
to Colombia on national security issues, and suggested both 
the VP trip to Washington as well as the idea of a CHDS 
workshop, which he had approved.  The VP had requested the 
workshop when he was in Washington and announced it publicly 
on several occasions, and had assured us it had been 
coordinated.  I told NDF that I regretted that the VP had not 
consulted satisfactorily with him, but that the CHDS workshop 
facilitators were on the ground, the VP had already announced 
it, and it would be a setback and waste of resources not to 
proceed.  Duarte concurred, and said he would ask the leaders 
of the respective GOP entities to attend.  (Comment:  The 
workshop was a success.  Attendance included the VP, 
Ministers of Defense and Interior, Supreme Court Justices, 
Senators and Deputies, police and military leaders and many 
heads of GOP agencies, indicating that NDF followed up.  Full 
report by septel.) 
 
9.  (C) The State Department had agreed to fund an 
anti-kidnapping course for 24 Paraguayans at the FBI training 
school in Virginia, I told him.  NDF was pleased and agreed 
that this should be publicized here, although he did not want 
publicity for the CHDS workshop (presumably because of 
Brazilian and Argentine sensitivities).  I reiterated that 
the VP had already commented on it publicly and the media 
would be hungry for information.  In that case, NDF replied, 
it was ok to make a low key statement about it, but not 
"overplay" it, as the VP tends to do, out of "lack of 
experience and without awareness of the repercussions."  He 
repeated that he is going to ask the VP to tone down his 
public remarks. 
 
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Trade Opportunities 
------------------------- 
 
10.  (C)  Returning to the trade theme NDF raised earlier in 
the conversation, I noted the openness of the U.S. market, an 
opportunity many other nations have seized and which Paraguay 
has not.  I added that the lack of new bilateral or 
multilateral trade agreements with the U.S. were by no means 
impediments to expanding bilateral trade, and I gave him the 
example of Uruguay.  We talked about how Uruguay achieved 
record beef exports to the U.S. and I noted that Paraguay 
could also sell beef to the U.S. if it fulfilled sanitary and 
phytosanitary requirements.  It would take a couple of years 
or more of hard work by Paraguay, but the payoff could be 
very big, as it was with Uruguay.  NDF was intrigued and said 
he would discuss with the Ministers of Agriculture, Industry 
and Commerce and Foreign Relations.  We talked about other 
possibilities, such as exporting of value-added wood 
products, instead of Paraguay merely exporting (often through 
contraband) its hardwood logs for other countries to process 
into finished products for export (e.g. China.) 
 
--------- 
Comments: 
--------- 
 
11.  (C) Duarte Frutos once again is looking to blame others 
for his problems; this time his target is the Vice President. 
 It's worth recalling that NDF himself initiated sharp public 
criticism of Brazil and Argentina some weeks ago for their 
alleged stinginess and failure to live up to the spirit of 
Mercosur, a theme he has returned to often of late, and which 
is echoed by the private sector and the media.  On another 
level, Brazilian and Argentine officials have outspokenly 
criticized various developments of the U.S./Paraguay 
bilateral relationship, particularly increased security 
cooperation, military exercise agreements, and statements by 
the VP that he wants a bilateral trade agreement with the 
U.S. 
 
12.  (C) Paraguayan politicians, the media and other opinion 
molders have expressed outrage at foreign, particularly 
Brazilian, "lectures" or threats, some even recalling 
Brazilian "imperialism" and occupation of Paraguay in the 
1870's.  The GOP has been very tough on Brazilian ranch 
owners in Paraguay for environmental depredations, and the 
illegal extraction of water from the Apa River, which the 
nations share.  The Brazilian Ambassador was called to Brazil 
for consultations ten days ago, reportedly to discuss 
bilateral tensions.  Many observers here expect Brazil to 
retaliate with disguised economic sanctions of some sort. 
 
13.  (C) The day of our meeting NDF attempted to draw the 
poison from rising frictions by noting that Brazilian Foreign 
Minister Amorim was correct in stating that Mercosur bans 
bilateral trade agreements by its members with third parties 
without a Mercosur waiver, although he would like to pursue 
export markets outside Mercosur and hoped that Mercosur would 
allow waivers.  Indeed, there's no doubt that NDF's strategy 
is to extract concessions from its two large neighbors and he 
believes a closer relationship with the U.S. serves that 
purpose, with the caveat that he cannot overplay his hand. 
 
14.  (C) Duarte conveyed genuine disappointment that VP 
Castiglioni has not consulted adequately and been too 
outspoken.  It would be a setback for us if the VP's 
influence diminishes.  We may get a sense of whether NDF has 
clipped his wings in the coming days.  It also remains to be 
seen if these developments will affect US/GOP security 
engagement. 
KEANE