US embassy cable - 05ASUNCION1218

C O N F I D E N T I A L SECTION 01 OF 08 ASUNCION 001218 
 
SIPDIS 
 
NSC FOR 
 
E.O. 12958: DECL: 08/19/2015 
TAGS: PGOV, PREL, ECON, PINR, PA, PTER, KCRM, PAC 
SUBJECT: PARAGUAY: THE DUARTE ADMINISTRATION AT TWO YEARS 
 
Classified By: PolCoun James P. Merz for reasons 1. (b) and (d). 
 
------------------------------------- 
Progress Justifying Continued Support 
------------------------------------- 
 
1. (U) President Nicanor Duarte Frutos remains the dominant 
figure on the political scene.  Earlier this month, he 
announced his candidacy for his Party's presidency; he and 
his supporters continue to explore prospects for amending the 
Constitution so as to allow him to run for reelection in 
2008.  In the course of the past year, he has taken 
significant strides to consolidate power, particularly within 
Congress.  Many key Ministers either resigned or were fired; 
on the positive side, most were replaced by technocrats not 
beholden to narrow, partisan interests.  Duarte's 
administration boasts delivering unprecedented political and 
macroeconomic stability.  It arrested and extradited a major 
drug trafficker and collected more taxes.  With U.S. 
assistance, it has created a number of valuable investigation 
units; it seeks USAID assistance on some reforms. 
Nevertheless, the public gives the government low marks for 
not meeting expectations in the area of job creation, public 
security and the fight against corruption.  The kidnapping 
and murder of Cecilia Cubas, the daughter of a former 
Paraguayan President, by a leftist group with ties to the 
FARC, and overarching rising crime levels have contributed to 
security concerns.  Low growth and high rates of 
unemployment, despite macroeconomic stability, continue to 
generate discontent. 
 
2. (C) Duarte's foreign policy lately has been marked by a 
perceived shift away from MERCOSUR, Brazil in particular, and 
towards the U.S.  We are exploring ways to respond to shared 
concerns about security issues arising from the Cubas 
kidnapping; earlier in the year, Paraguay qualified for 
participation in the Millennium Challenge Account Threshold 
program which could lead to significant funding of 
anti-corruption efforts.  However, it would be premature to 
suggest Paraguay has made a paradigm shift in terms of its 
foreign policy orientation.  Duarte is open to improved 
relations with the U.S. to the extent it will redound to 
Paraguay's benefit in terms of economic gains and security. 
At the same time, Paraguay must maintain a close relationship 
with its MERCOSUR partners, especially Brazil, and the 
President has indicated he intends to continue cooperative 
relations with Cuba and Venezuela. 
 
3. (C) Duarte still has three more years in office, yet he is 
already eyeing a possible reelection bid.  The opposition is 
fragmented; his decision to run for the party's presidency 
reflects a bid to bring together the disparate movements 
within his own party.  As he enters the midway stage in his 
term, there is the concern he will adopt irresponsible 
spending policies out of a desire to win greater popular 
support.  Despite the fact that he continues to say the right 
things in terms of fighting corruption, he has proven 
reluctant to adopt state reform, probably due to resistance 
within his own party that such measures would undermine its 
claim to political power and spoils.  Duarte listens and 
cares what we think; we will continue to use our consequent 
leverage to prod his government to hold the line on economic 
reforms, respond to rising security concerns, and intensify 
measures to fight corruption and transnational crime.  End 
Summary. 
 
--------------------------------------------- ---- 
Duarte Ratings Down but a Giant Among Pigmies 
--------------------------------------------- ---- 
 
4. (U) While Duarte's approval ratings have gone down 
dramatically from the levels of 85 percent registered in 
April 2004, he benefits from the non-emergence of any 
significant opposition figure and the public's general 
perception that if conditions have not improved under his 
government, then at least they have not become worse -- a 
low, but understandable standard given the poor performance 
of recent governments.  In one August opinion poll, 49 
percent of those polls described the performance of Duarte's 
government as "so-so," 11 percent as good, and 28 percent as 
bad.  In a separate poll, 41 percent of those polled said 
they thought the economic situation would be the same a year 
from now, 31 percent thought it would improve a little, 18 
percent thought it would worsen a little, and 8 percent 
thought it would worsen a lot.  These numbers hardly qualify 
as a ringing endorsement but they are also not damning given 
the failure of any opposition figure of significance to 
appear and challenge Duarte. 
 
--------------------------------- 
Consolidating Control of Congress 
--------------------------------- 
 
5. (C) Duarte has taken significant strides to consolidate 
his claim to power.  Capitalizing on division within and 
among opposition parties, Colorado Party leaders and their 
allies succeeded in taking control of both houses of 
Congress, for the first time in Duarte's administration, in 
June 2005, when the Colorado Party forged a coalition with 
the socialist Country in Solidarity Party (PPS) and 
dissidents from the opposition Liberal Party (as well as the 
lone National Encounter Party (PEN) Senator).  (Note: The 
coalition was one of convenience rather than principle; as 
such, its foundation was never very solid.  To gain the 
support of the opposition, the Colorados agreed to support 
election of a PPS Senator as President of the Congress, 
appoint a candidate supported by the dissident Liberals to be 
Controller General and support legislation to expropriate 
land owned by the Unification Church endorsed by PPS. Two of 
the dissident Liberal Senators announced on 9/22 that they 
would leave the coalition and realign themselves with the 
Liberal Senators, leaving the coalition short of a majority 
in the Senate. End note.)  In August, Duarte gained Senate 
election of his hand-picked candidate for Attorney General 
over the virulent objections of the opposition.  And he 
retained Colorado party dominion over the Supreme Court, the 
influential Magistrate Council which oversees the selection 
of judges and prosecutors, and the Judicial Review Council 
charged with responsibility for disciplining judges and 
prosecutors. 
 
----------------------------------- 
Duarte for Colorado Party President 
----------------------------------- 
 
6. (C) On 9/7, Duarte announced his candidacy for the 
Colorado Party Presidency elections scheduled for next year. 
A number of Duarte loyalists had been prepared to run against 
each other for Party leadership but lined up behind Duarte 
once he declared his candidacy.  At the same time, Duarte's 
candidacy may galvanize those within the Colorado ranks 
opposed to him to unite behind a single candidate and lodge a 
serious challenge to his bid.  Not a few commentators, 
including most prominently members of opposition parties, 
have qualified his bid for the Colorado Party leadership as 
inconsistent with his obligation as the country's President 
to dedicate himself entirely to those presidential 
responsibilities.  Duarte has defended his decision claiming 
essentially that "as the Colorado Party goes so goes Paraguay 
and thus I must lead the Party to continue to lead 
effectively the country." (Note: If he wins the Party 
Presidency, NDF would step aside formally in favor of a Party 
VP for the duration of his period as President of the 
Republic. End note.) 
 
------------------------ 
Presidential Reelection? 
------------------------ 
 
7. (U) Under Paraguay's constitution, the President cannot 
run for reelection.  On several occasions, Duarte and his 
supporters have signaled a desire to amend the constitution 
to allow reelection.  Currently, Duarte does not have the 
two-thirds support within the Senate it would take to 
initiate the process.  Members of leading opposition parties 
have said they would only consider an amendment allowing for 
a second term if the Colorados agreed to a second round in 
elections when the leading candidate did not receive a 
majority of the votes.  (Note: Duarte won the Presidential 
election in 2003 with 37 percent of the vote.  End Note). 
The Colorados are not prepared to make that concession. 
However, it would be premature to write off Duarte's bid for 
a second term.  Rumors that Lino Oviedo's Union of Ethical 
Citizens (UNACE) was discussing its support for a Constituent 
Assembly in exchange for his early release from prison serve 
as reminder that in politics all things are possible. 
 
---------------------------------- 
Erratic with Autocratic Tendencies 
---------------------------------- 
 
8. (C) Duarte's personal style is a bit erratic with some 
autocratic tendencies.  Recently, when a fruit producer in 
the interior called on Duarte to ensure the State paid for 
private land Duarte was proposing be used to construct 
warehouses for small time merchants, Duarte scoffed in reply, 
akin to Louis XIV, &The State, it is I.8  Duarte respects 
all democratic forms but often succeeds in influencing the 
"independent" judicial system.  In an effort to advance his 
own political agenda, he spends an inordinate amount of time 
"campaigning" and giving out pork/patronage.  He's forged 
pacts with political parties on the basis of expediency 
rather than principle.  His ambition drives him to work 
harder than anyone else but its an ambition driven as much by 
his desire to expand his power for power itself as it is to 
pursue specific objectives for the country.  Duarte's 
populist autocratic tendencies often endear him to 
Paraguayans accustomed to strong leaders while unnerving the 
opposition. 
 
------------------------------- 
Reform: A Few Steps Forward ... 
------------------------------- 
 
9. (C) Duarte continues to denounce corruption ) both 
private and public -- and convey his own frustration with the 
lack of progress his government has been able to achieve.  On 
occasion, it sounds as if he were a member of an NGO with no 
immediate ability to address concerns.  Several senior 
members of his government have told us, though, that Duarte 
makes it clear in private that he will support the 
prosecution or removal of any corrupt official at any level, 
as long as solid evidence is produced.  The public continues 
to suspect the government of widespread corruption and 
complains about impunity.  Nevertheless, a number of 
achievements and reforms, either undertaken or under 
consideration )- several with USG support -- reflect well on 
the government's reform record and intentions including inter 
alia: 
 
-- strong U.S.-Paraguayan counter-drug cooperation, building 
on DEA support and INL funding, highlighted by the arrest of 
Mendes Mesquita, a notorious Brazilian drug trafficker from 
the Beira Mar organization, in November 2004, and his 
extradition to the U.S., in June 2005, in the face of 
significant political pressure for his release; 
 
-- UTE, the anti-piracy unit supported by INL funding has a 
strong track record of seizures of counterfeit goods.  The 
unit's leader, after being offered USD 40,000 to release some 
containers of merchandise, worked the case that culminated in 
the 9/15 arrest of a politically connected (Colorado) customs 
official from the Cuidad del Este area who has been an 
important player in facilitating trade in contraband and 
counterfeit goods in the region; 
 
-- establishment of a respectable and well trained FIU thanks 
in large measure to the support of a Treasury Department 
Office of Technical Assistance (OTA) Resident Enforcement 
Officer (REA) and INL funding used for training and 
equipment; 
 
-- creation of three new investigative units ) in customs, 
the tax administration and an anti-corruption, inspector 
general unit within the Ministry of Finance, all under the 
guidance of OTA REA and trained and equipped in part with INL 
funds; 
 
-- the first-time conviction of individuals, in late 2004, 
for involvement in trafficking in persons (unfortunately the 
two convicted were released on appeal but we remain 
reasonably confident the Supreme Court will reinstate their 
six year sentences); 
 
-- the first-time conviction of a customs employee for 
illicit enrichment earlier this year on the basis of a law 
adopted in late 2004; 
 
-- a continued increase in year-on-year tax and customs 
revenues, sustaining momentum following huge gains realized 
in the government's first year; 
 
-- reforms by the Judicial Council, supported by USAID, to 
reduce political factors in the selection of judges and 
prosecutors, through the introduction of more objective 
selection criteria, including a written examination; 
 
-- requests by the Ministry of Finance and the Supreme Court 
for USAID assistance in the development of whistle blower 
protection programs; 
 
-- announcement of a new tax regime to encourage 
formalization of some of the leading commercial sectors in 
Ciudad del Este, a haven for contraband, piracy, and other 
illegal activity. 
 
-- continued strong macroeconomic management, supported by 
the President Duarte, that has led to strong performance 
under Paraguay's IMF program, a public commitment to seek a 
follow-on program long enough to last through Duarte's term, 
and continued fiscal restraint expected to achieve a balanced 
budget this year. 
 
------------------------ 
... And A Few Steps Back 
------------------------ 
 
10. (C) Critics fault the government for not doing more, 
particularly to combat impunity and introduce state reform. 
 
-- The judicial sector is widely viewed as one of the most 
corrupt institutions subject to influence peddling by 
powerful interests.  Many criminal cases involving some form 
of customs fraud are opened but few produce convictions as 
most involve wealthy businessmen or politicians, many with 
Colorado or Liberal Party connections. 
 
-- The government has been slow to move on state reform, to 
include privatization or rationalization of the many 
state-owned enterprises and civil service reform.  Many 
government ministries have scores of "employees" on their 
rolls who don't work and whose only virtue is enjoying the 
support of a prominent politician.  The Colorado Party is 
notorious for relying on this patronage system to maintain 
its political base, leaving the state both bloated and absent 
in terms of services.  The government has proven reluctant to 
reform a system that has redounded to its own success at the 
polls. 
 
-- Both houses of Congress each gutted in different ways an 
important piece of reform legislation intended to modernize 
Paraguay's state-owned banks.  The Lower House did so despite 
lobbying by the President urging the body to pass the 
executive version of the law.  To his credit, Duarte has said 
he would veto the law when it reaches his desk (it must first 
be reconsidered by the Senate).  A veto would be politically 
difficult and a positive sign of his continued seriousness 
with respect to economic reform. 
 
-- In July, the Congress passed a law to expropriate a large 
tract of land owned by the Unification Church in the northern 
part of the country.  Originally against the expropriation, 
the President reversed his position, raising concern about 
the country's respect for foreign investment and property 
rights.  (Note: It is worth recalling Colorado agreement to 
support expropriation in exchange for PPS participation in 
its coalition, although some prominent Colorados also 
supported it.  End Note.) 
 
-- Congressional efforts to pass anti-corruption legislation, 
such as a financial disclosure bill, lagged as political 
infighting and competition between draft bills impeded 
further progress. 
 
-- We remain frustrated with the Congress' failure to move on 
key anti-money laundering legislation that has remained in 
Committee since May 2004.  Duarte has come out publicly in 
support of the law but we also know key Colorado Senators 
oppose its adoption out of concern over the impact it could 
have on their personal financial and/or political interests. 
 
-- We also had to weigh in heavily with Duarte on several 
occasions to prevent the promotion of Aristides Cabral, a 
senior police official linked to drug traffickers.  Most 
recently, Duarte admitted that he was under heavy pressure by 
politicians, presumably Colorados, to promote Cabral but 
backed down when warned of potential negative consequences on 
our relationship. 
 
----------------------------------- 
Cabinet Retains Important Reformers 
----------------------------------- 
 
11. (C) No fewer than six Ministers as well as the Central 
Bank President, resigned or were fired over the course of the 
last year.  Most prominently, Dionisio Borda, respected for 
his independent and professional management of Paraguay's 
finances, resigned as Finance Minister in May on grounds he 
was coming under pressure by powerful Colorado politicians to 
ease up on fiscal discipline.  Concerns about his 
resignation, however, were allayed when he was replaced by 
Ernst Bergen, similarly respected for the independence and 
commitment he demonstrated as Minister of Industry and 
Commerce in stepping up the campaign against contaband and 
IPR piracy.  Separately, Duarte asked his ministers of 
Health, Justice and Labor, and Agriculture to resign, as the 
first two were devoting a significant amount of time to 
campaigning for the Colorado Party (ANR) internal elections 
and the third was alleged to be involved in corruption.  Both 
the Health and Agriculture ministers were replaced with 
technical experts vice politicians.  Duarte resisted pressure 
to remove the Director of Customs and the Director of Tax 
Revenue, both of whom were put in place by former Finance 
Minister Borda and come under attack from powerful business 
interests, many tied to the Colorado Party, hurt by the 
Directors' fortitude in seeking to improve the effectiveness 
of both of their agencies.  He appointed a respected 
technocrat as President of the Central Bank, clashing with 
Colorados resisting her efforts at transparency and 
efficiency at the expense of patronage. 
 
--------------------------------------------- -- 
Macro Economic Progress, But Persistent Poverty 
--------------------------------------------- -- 
 
12. (U) The Duarte administration can rightly boast of its 
achievements on the macroeconomic front, including clearing 
arrears, strong performance on its IMF program, and achieving 
and maintaining low inflation.   However, in the face of high 
rates of unemployment, underemployment, and overall poverty, 
most polls consistently register the need for more jobs as 
the most important challenge facing his government.  Annual 
growth rates around three percent over the last two years 
have not made a significant dent in addressing concerns over 
employment.  (Note: The GOP was disadvantaged by a rare 
two-year drought over the same period, without which growth 
would have been higher.  End Note.)  A recent UNDP survey 
identifying Paraguay as the country in Latin America with the 
worst level of wealth distribution (and fourth overall in the 
world) only reinforced the notion that the government is not 
doing enough to combat poverty and create economic 
opportunity for the large impoverished segment of the 
population. 
 
-------------------------- 
Security a Growing Concern 
-------------------------- 
 
13. (U) Most polls also consistently register concerns about 
public security as the second most important challenge facing 
Duarte.  In September of last year, Cecilia Cubas, the 
daughter of a former Paraguayan President, was kidnapped. 
The subsequent investigation led to the discovery of Cubas' 
body in February; it also produced evidence implicating the 
leftist Free Fatherland Party and revealing that group's ties 
to the FARC.  This murder, taken together with a number of 
other prominent criminal cases, overall rising levels of 
crime, and an overriding lack of confidence in a police force 
viewed as corrupt and incompetent, have brought the 
government under attack for its performance. 
 
--------------------------------------------- -------- 
GOP Looks to Colombia, U.S., Chile for Security Ideas 
--------------------------------------------- -------- 
 
14. (C) As part of its response, particularly in connection 
to its concern over the Cubas kidnapping and apparent links 
with the FARC, Paraguay entered into close consultations with 
and received some training from Colombia.  Paraguayan 
Vice-President Castiglioni has also been keen to appeal for 
U.S. assistance.  He traveled to the U.S. in June to address 
security concerns, meeting with Vice President Cheney, SECDEF 
Rumsfeld and other senior officials from the FBI and other 
agencies.  On 9/16-9/18, DOD's Center for Hemispheric Defense 
Studies (CHDS) facilitated a workshop designed to assist 
senior Paraguayan officials in developing a national security 
plan based on closer inter-institutional coordination.  In 
December, we will sponsor the participation of 24 Paraguayan 
policemen and prosecutors in a DS/ATA funded course in 
conducting kidnapping investigations.  In FY 2007, we expect 
an FBI legal attach to begin working at the Embassy.  Chile 
has also provided police training and the GOP has proposed a 
new Urban Police Force modeled partly on Chile's urban police. 
 
------------------------------ 
GOP Absence in the Countryside 
------------------------------ 
 
15. (C) Recently, the murder of a policeman in the interior 
and the subsequent discovery of a high caliber weapon and a 
firing range, and rumors of the possible involvement of a 
Colombian, resparked concern about the possible existence of 
violent leftist groups in the countryside.  Deployed military 
units investigating the crime have not made any further 
noteworthy discoveries.  While some commentators cite a 
concern about large tracts of land under the control of 
campesino groups where the government has no real presence, 
others consider the problem overplayed.  Due to a lack of 
resources both for security forces and social benefits, 
Duarte will remain hard pressed to establish a visible and 
lasting government presence in many of these regions in the 
interior. 
 
-------------------------------- 
Brazil is Paraguay's Super Power 
-------------------------------- 
 
16. (C) It is difficult to overemphasize Brazil's political 
and economic sway over Paraguay.  Brazil dominates MERCOSUR 
and is far and away Paraguay's most important trading 
partner.  The Itaipu dam provides 25 percent of Paraguay's 
budget and represents nearly 40 percent of its GDP. 
Brazilians own large tracts of land in Paraguay that export 
soy.  Poor Brazilians cross into Paraguay each day in Ciudad 
del Este as mules to purchase large quantities of licit and 
illicit )- contraband, pirated )- goods for resale on the 
Brazilian market.  Most of the major drug traffickers who 
operate out of Pedro Juan Cabellero on the northern border 
with Brazil are Brazilians.  Paraguay's sense that it gets a 
raw deal from MERCOSUR in terms of tariffs and non-tariff 
barriers for its exports has sharpened over the past year 
with some business leaders calling upon Paraguay to quit the 
organization. 
 
----------------- 
Seeking U.S. Help 
----------------- 
 
17. (U) Paraguay qualified for participation in the MCA's 
Threshold Program late last year and we are working closely 
with Paraguayan experts on their broad and ambitious program 
to combat the problems of impunity and informality.  Earlier 
this year we negotiated an Open Skies agreement with 
Paraguay, an effort driven by Paraguay's outward-oriented 
Vice President.  Duarte regularly appeals to the U.S. to open 
its market to Paraguayan goods, particularly textiles and 
meat, a common refrain of his in relations with many 
countries.  He sometimes implies that the U.S. owes Paraguay 
greater market access given the progress the GOP has made 
combating IPR piracy and drug trafficking.   Paraguay 
benefited again this year from the increase in the quota for 
organic sugar, and we have told the President the U.S. is 
open to import of Paraguayan beef should it meet health 
safety standards.  GOP rhetoric often ignores the need for 
Paraguayan actions in order to increase exports to the U.S., 
preferring to allege that U.S. markets are closed. 
 
------------------------------------------- 
Valuable, but Vulnerable Military Relations 
------------------------------------------- 
 
18. (C) Paraguay avails the U.S. a permissive environment to 
conduct military exercises.  While we don't have an Article 
98 agreement with Paraguay, Paraguay has regularly extended 
our soldiers immunities on a year-to-year basis. In May of 
this year, the Paraguayan Congress approved a range of 13 
exercises ) generally involving the participation of 10-20 
soldiers in country for 2-6 weeks at a time -- to take place 
over 18 months from July 2005 to December 2006.  Shortly 
after the Senate approved the exercises in May, rumors began 
to circulate that Paraguay had agreed to the U.S. deployment 
of over 400 soldiers for an uninterrupted stay of 18 months 
with the ultimate purpose of constructing a large U.S. 
military base.  When SECDEF Rumsfeld accepted Vice-President 
Castiglioni's invitation to visit Paraguay in August, this 
only bolstered the concerns of some Paraguayans hostile to 
the U.S. as well as Paraguay's neighbors in Argentina and 
particularly Brazil. 
 
19. (C) Ironically, Brazil's heavy-handed and indelicate 
request that Paraguay explain the SECDEF visit and its 
cautioning that Paraguay not enter into trade arrangements 
with the U.S. that violate its MERCOSUR commitments only 
galvanized Paraguayan resentment of Brazil from all quarters, 
including those normally critical of U.S.-Paraguayan 
cooperation.  On 9/15, the Paraguayan Senate passed a motion 
rejecting the Brazilian FM's criticism of Paraguay's 
relationship with the U.S. 
 
----------------- 
Courting the U.S. 
----------------- 
 
20. (C) Pulling out of MERCOSUR is not under realistic 
consideration by the government.  Duarte has indicated he 
intends to curtail the Cuban doctor program at year's end but 
has no intention of terminating the Cuban Scholarship program 
for over 600 Paraguayans studying in Cuba nor turning down 
Venezuelan offers of subsidized fuel.  Duarte is clearly open 
to closer ties to the U.S. to the extent it redounds to the 
economic benefit of Paraguay in terms of increased trade or 
security.  Vice-President Castiglioni is genuinely 
well-disposed to the U.S. and actively promotes closer 
economic, political and security ties to the U.S.  However, 
all perceptions to the contrary aside, it is premature to 
conclude Paraguay is embarking on a paradigm shift with 
regard to its foreign policy.  There is clearly an element of 
courting the U.S. to extract concessions from Brazil. 
 
--------------------------------------------- --- 
Political Stability ) The Unspoken Success Story 
--------------------------------------------- --- 
 
21. (C) Paraguay's transition to democracy, beginning with 
the overthrow of Stroessner in 1989, has been riddled with 
significant detours in the form of two coup attempts in 1996 
and 1999, the assassination of a Vice-President in connection 
to the second coup-attempt and subsequent civil unrest, and 
repeated impeachment threats.  Its last three Presidents face 
corruption charges.  With this backdrop, the level of 
political stability that prevails in Paraguay as Duarte 
enters his third year is noteworthy.  Duarte is hardly above 
sharp criticism, including allegations of corruption, by both 
opposition parties and opponents within his own party.  Late 
last year, he had to deal with widespread land invasions by 
poor landless peasants.  However, these attacks on his 
government's policies have not translated into an effort to 
seek his removal either by impeachment or some 
extra-constitutional means.  Instead, opposition parties have 
taken their campaigns to the public or have sought alliances 
with other parties.  Duarte effectively put an end to the 
land invasions by bringing the military out of the barracks 
as a show of force, and by changing his public rhetoric to 
support property rights. 
 
---------------------------- 
No Threats from the Military 
---------------------------- 
 
22. (C) In May, after two failed attempts, Duarte finally 
gained the Senate's support to award Gen. Jose Kanasawa his 
fourth star as Commander of the Armed Forces.  Kanasawa is 
widely viewed as being unquestionably faithful to Duarte, 
availing him a luxury enjoyed rarely by Paraguay's presidents 
in recent history.  At the same time, Duarte has continued to 
enhance the role of the Presidential Escort Regiment, a 
uniformed VIP protection detail that falls under direct 
Presidential authority, outside the usual military chain of 
command.  It's commanding officer, Col. Heriberto Galeano, 
has ambitiously sought to strengthen his unit through 
equipment acquisition, acquisition of some of the best 
soldiers from other military units, and involvement in 
intelligence.  Galeano's tactics have spurred some resentment 
and distrust in military circles.  There are serious concerns 
about Galeano's involvement in corrupt activities.  However, 
it appears that Duarte has come to rely on Galeano to protect 
him against any coup attempts. 
 
------------- 
The Way Ahead 
------------- 
 
23. (C) Duarte's second year in office did not produce the 
same scope of changes we witnessed in his first year, but 
there still were a number of key achievements ) many with 
U.S. assistance ) in important areas such as combating drug 
trafficking, creating investigation units, and embracing some 
judicial reform measures.  To date he's held the line on 
economic reform.  The public is impatient for improvements on 
the job and public security fronts.  On the corruption front, 
he often appears held back by his own party and its 
determination not to lose the spoils of power. 
 
24. (C) Duarte has taken significant strides to consolidate 
his power; the political stability that prevails in Paraguay 
as he enters his third year is noteworthy.  Duarte is already 
eyeing a possible reelection bid as he runs to be his Party's 
President.  He is unquestionably the most dominant politician 
in the country.  Yet, he appears, on occasion, overly 
concerned with his popularity, tailoring his speeches to the 
audience he is addressing.  There exists the concern he may 
begin to compromise reforms, particularly in the economic 
arena, as he steps up his campaign for the Colorado Party 
election likely scheduled for next February. 
 
25. (C) Paraguay is increasingly resentful of Brazil.  Duarte 
is open to strengthening Paraguay's relationship with the 
U.S. to the extent it redounds to Paraguay's benefit, 
particularly in the areas of trade and security.  We should 
seek ways to respond constructively as a more prosperous, 
safer, more stable and law abiding Paraguay is in the U.S. 
interest.  We are working closely with senior advisors on 
developing a strong MCC program to combat impunity.  Our 
influence is significant but not categorical.  Whereas the 
government arrested and extradited a major trafficker in 
Mendes Mesquita, we've twice had to go to the mat to block 
promotion of a senior police commissioner with drug ties.  We 
will need to continue to track closely Duarte's words and 
actions to guard against any possible slippage in commitment 
to reform in the bid to stay in office.  Paraguay's 
transition toward being a more "normal" and "serious" 
country, to use Duarte's words, is not complete.  The 
progress made justifies continued USG investment, however, 
while we avoid exaggerated expectations and remain vigilant 
for slippage. 
KEANE