Paraguay's new president woos foreign investment

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Associated Press

Posted on August 15, 2013 at 7:00 AM

Updated Thursday, Aug 15 at 4:36 PM

ASUNCION, Paraguay (AP) — Multimillionaire Horacio Cartes made a play for more foreign investment on Thursday as he assumed the presidency of impoverished Paraguay and tried to move past accusations about business dealings that have made him a target of U.S. criminal investigations.

As his Cabinet chief, Cartes named a man with U.S. ties, including degrees from major American universities and a top post at Coca-Cola Company in Paraguay. Juan Carlos Lopez Moreira Borgognon studied at Stanford and George Washington universities and also attended the American University in Paraguay.

"I'm not in politics to make a career of it or become wealthier," the 57-year-old Cartes said in his inauguration speech, promising to strengthen Paraguay's international relations and its commitment to human rights. "I'm in politics to serve my people, make the future better for new generations and build up our identity as a free, independent and sovereign people."

Inaugural organizers said Cartes' most important encounter at the swearing-in was not with fellow presidents but with foreign executives he hopes will invest in the infrastructure of this country of 6.2 million, where 39 percent live in poverty.

Wearing a red-white-and-blue presidential sash, the tobacco magnate said he intends "to win every battle in the war we're declaring today against poverty in Paraguay." The country is among the most unequal nations in South America.

Cartes, whose term runs through August 2018, built a family fortune with two dozen companies that dominate industries from banking to tobacco to soft drinks to soccer, making it difficult to make a move as president without generating complaints of conflicts of interest.

He's is a political neophyte who never voted for president before running for office, and often faced accusations that his wealth was fed by money laundering, cigarette smuggling and drug trafficking.

Paraguayan voters overlooked the allegations, focusing on hopes that the businessman from the dominant Colorado Party can help the country benefit more from soy profits that are projected to boost the economy by 10 percent this year.

Cartes won April's election with 46 percent support by promising to create many more jobs. His elected predecessor, the sandal-wearing former bishop Fernando Lugo, was impeached and ousted by Congress last year.

Accusations involving Cartes became widely reported after WikiLeaks published a 2010 U.S. State Department cable that labeled him the head of a drug trafficking and money laundering operation.

He denied this in his only news conference with foreign media during the campaign.

"I wouldn't want to be president if I had ties to drug traffickers," he said. "Go to the courts and check. There's nothing, not a single charge against me."

Smuggling, corruption and tax evasion are endemic in Paraguay, and analysts believe it's difficult for executives not to come into some contact with criminals. The corruption watchdog group Transparency International ranks Paraguay 150th out of 176 countries. The U.S. Congressional Research Service in 2010 called corruption "a major impediment to consolidating democratic institutions" in the nation.

Cartes did spend 60 days in jail in 1986 during a currency fraud investigation. He was accused of making millions of dollars on a central bank loan obtained at a preferential exchange rate and then moving it through his money exchange business before buying farm equipment in the U.S. The case was dropped.

The region's well-documented trade in contraband cigarettes, smuggled over borders and resold without paying taxes, also made his tobacco companies a target of congressional and criminal investigations in Brazil.

His family's total wealth is unknown; Paraguay doesn't enforce transparency laws and Cartes avoided providing detailed answers as he campaigned.

But U.S. officials said they were concerned enough to infiltrate his companies with undercover Drug Enforcement Administration agents to disrupt what they believed was an organized crime operation that banked drug profits made in the Tri-Border Area, or TBA, a smuggling hotbed where Paraguay meets Argentina and Brazil.

"Agents have infiltrated Cartes' money-laundering enterprise, an organization believed to launder large quantities of United States currency generated through illegal means, including the sale of narcotics, from the TBA to the United States," the 2010 U.S. cable said.

Another cable, sent in 2007, reported that Paraguay's anti-drug chief, Hugo Ibarra, had told a U.S. Embassy official that the country's anti-money laundering chief was really working for Cartes and his bank.

Cartes drew more attention once he began selling Palermo cigarettes across the United States in 2008, at prices the company said were 20 percent below the competition.

Phillip Morris, British-American, Reynolds and Imperial tobacco company officials met with agents from the DEA, the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives and the Justice and Treasury departments in a Panama City hotel in December 2009 to coordinate an undercover attack on Cartes, code-named "Operation Heart of Stone," the 2010 cable said.

Former CIA agent Frank Holder, whose mission included Paraguay, sees Cartes' political career as an effort to buy a sort of insurance policy against interference in his businesses.

"He had zero involvement in politics until 2008, when he goes into it in a big way," Holder said. "And that's when the Operation Heart of Stone case, which came out in WikiLeaks, starts going full swing."

U.S. Embassy spokesman Christopher Istrati said he can't discuss classified documents or investigations.

But a current law enforcement official in the United States said Cartes has been under scrutiny by U.S. and international law enforcement for years. The law enforcement official, speaking on condition of anonymity, was not authorized to speak on the record about the matter.

Cartes insists he sought the presidency to improve Paraguay's economy, and has no criminal ties.

After opponents complained about conflicts of interest, Cartes said he transferred his ownership in all his companies. His sister Sarah Cartes now runs Grupo Cartes.

Lugo's 2008 victory interrupted more than five decades of Colorado Party rule, which included the 35-year reign of dictator Alfredo Stroessner, but he lacked the money and votes to accomplish much.

"Before, you had Lugo who had no support," said Holder, the former CIA agent. "This guy can say, 'You're in, you're out' and make it stick. This guy will have real power in Paraguay."

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Associated Press writers Pedro Servin in Asuncion, Michael Warren in Buenos Aires, Argentina, and Pete Yost in Washington contributed to this report.

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