President-elect Nicanor Duarte has started to spell out his policy agenda for when he assumes power on 15 August. First up, he is planning a major overhaul of the social security system. The institute is notorious for being one of Paraguay's most corrupt and badly run institutions. Next, a 'profound fiscal and tax reform'. His finance minister Dionisio Borda has already been in Washington spelling out his intentions to the IMF and negotiating a new deal (see above).
Multibanco collapse. Duarte's announcement that he intends to purge the social security institute was triggered by the revelation that the welfare agency's funds were trapped in Multibanco, which went bankrupt earlier this month. The social security agency had US$13.5m in the bank.
Multibanco is the latest in a long line of Paraguayan banks to collapse amid accusations of irregular dealings. The demise of the bank follows the same pattern as the fall of Banco Alemán, which was rescued by the central bank one year ago, following a run on deposits and revelations of illegal transfers of money to a branch in the Cayman Islands.
The 32,000 Multibanco account holders will benefit from a law passed last year aimed at easing fears of contagion from the financial crises in Argentina and Uruguay. The law enables central bank funds to be used to reimburse depositors in troubled local banks. It was passed in response to an incipient run on banks after the collapse of Banco Alemán.
A number of local commentators said the policy of withdrawing government money from private banks in order to prop up the struggling guaraní, contributed to the collapse of Multibanco. Duarte called for an 'orderly and programmed' schedule of withdrawals of state money from private banks. 'Today the situation has become quite turbulent, and quick-fire measures were taken with the media impact in mind,' he said.
US free-trade deal? Vice-President-elect Luis Castiglioni, who visited Washington with Borda for talks with the IMF, came back heralding an agreement with the US to set up a bilateral trade commission in September. This, he said would be the first step towards a free-trade agreement (something which, incidentally, Paraguay is currently committed to pursuing within the Mercosur trading bloc).
One of the reasons, Castiglioni said, was that 'Paraguay has earned excellent marks against terrorism and its financing network'. This might be overstating the case somewhat. While the US has praised Paraguay for its co-operation, it is dubious about the country's ability to confront corruption and illegal trade in the notorious triple border area.
Terrorism. Last week, the commander of the Pentagon's Southern Command, General James Hill, said that Paraguay was unlikely to be able to quash corruption and illegal trafficking in Ciudad del Este, a town on the triple border. This he said was damaging Washington's ability to hunt for suspected Middle Eastern militants there. Speaking at a Miami conference, Hill was asked whether Paraguay would get on top of corruption in the area. 'The answer to that is, I suspect no,' he said.
Hill elaborated a time-honoured theory that groups based in the triple border area continue to serve as support and logistics staff, recruiting and proselytizing for the Islamic groups Hamas, Hizbollah and Al Gamaat. Contributions to Hizbollah are no secret: they have been openly acknowledged by businessmen of Lebanese extraction in Paraguay.
Last March, at another Miami conference, Hill aired similar views, saying that Middle Eastern communities in Latin America were sending 'hundreds of millions of dollars' to Islamic 'terror' organisations.
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