DEA BOOSTS ITS ROLE IN PARAGUAY

Since January, the U.S. Drug Enforcement Administration has doubled the
size of its office in Paraguay's capital, Asuncion.

U.S. Special Forces are training Paraguayan soldiers in anti-drug
operations that closely resemble counterinsurgency operations, while
hundreds of U.S. soldiers recently spent four months in Paraguay on an
official "training exercise" in an area heavily used by Colombian,
Brazilian and Bolivian drug traffickers.

The moves are part of a U.S. effort to expand its counterdrug, intelligence
and military presence in Paraguay, an increasingly lawless state with a
fragile economy, wobbly democratic institutions and deeply ingrained
corruption.

But Washington will not be able to stop the spread of international
criminal groups in Paraguay and may face increased attacks not only from
criminal gangs, but also from Arab extremists living in Paraguay, if the
Israeli-Palestinian conflict escalates into all-out war. Paraguay has long
been a home to Arabs linked to the Hezbollah and Islamic Jihad militias.

The goal of the Bush administration is to build an effective surveillance
and interdiction fire wall across a major southern route in Paraguay that
Colombian and Bolivian drug traffickers use to export cocaine to the United
States and Europe. But the U.S. effort comes as Paraguay's political
institutions are increasingly at risk of being overwhelmed by powerful
international criminal organizations.

Crime syndicates from Colombia, Brazil, China, Lebanon, Italy, Russia,
Nigeria, Ivory Coast and Ghana are known to be operating in Paraguay. Many
of these groups are believed to be associated with corrupt Paraguayan
business executives, politicians and military officers tied to the ruling
party, according to U.S. law enforcement and intelligence sources.

Paraguay has been a democracy in theory since Gen. Alfredo Stroessner's
35-year military dictatorship was toppled in a 1989 coup led by then-army
chief Gen. Lino Oviedo. But the same political party that backed Gen.
Stroessner, the Colorado Party, continues to rule Paraguay today.

The past 12 years have been the longest period of civilian rule in
Paraguay's 190-year history. But economic growth has not improved under
democracy, and political instability and corruption have intensified.

Since 1989, there have been four failed coup attempts against Paraguay's
civilian governments, including another led by Gen. Oviedo in 1996. He has
been a central protagonist in bloody internal power struggles within the
Colorado Party that threaten the country's weak political institutions and
that could trigger a fifth military coup attempt at any time. He is now
under house arrest in Brazil and is resisting efforts to extradite him to
stand trial in the assassination of Vice President Luis Maria Argana in 1998.

Gen. Oviedo could likely expect more lenient treatment on his return to
Paraguay if Vice President Julio Cesar Franco succeeds in forcing out
unpopular and ineffectual President Luis Gonzalez Macchi and installing
himself as the country's leader.

Mr. Franco was elected with the backing of Oviedo supporters in a breakaway
faction of the Colorado Party.

Meanwhile, Brazil's government is anxious to be rid of Gen. Oviedo because
of his suspected involvement in drug trafficking and other organized
criminal enterprises, as well as his reported leadership of corrupt
military officials.

Over the past decade, Paraguay's entrance into the global economy has
attracted international criminal syndicates and terrorist organizations
that view the country as a safe location from which to conduct illegal
operations.

As a result, Paraguay today is a strategic South American hub for
international drug trafficking, arms smuggling, money laundering and
counterfeiting, among other crimes. Most of the crimes take place in Ciudad
del Este, a lawless city of between 150,000 and 300,000 residents located
at the confluence of Paraguay's borders with Argentina and Brazil, in an
area called the triple frontier. Ciudad del Este is also a regional center
for drug trafficking and arms smuggling.

The U.S. State Department estimates that Paraguay moves 10 metric tons of
cocaine annually to Europe and the United States. Other estimates, however,
range up to 40 metric tons annually.

Paraguay also produces some of the highest-grade marijuana on the continent
and exports most of it to Brazil, which now ranks as the largest consumer
market in Latin America for cocaine, heroin, marijuana and so-called "club
drugs" like Ecstasy.

Criminal gangs in Paraguay also have ties to Colombia's largest rebel
group. Paraguayan officials arrested a Colombian citizen in Ciudad del Este
last year as he tried to arrange a cocaine-for-weapons swap on behalf of
the Revolutionary Armed Forces of Colombia (FARC). Links between crime
syndicates in Ciudad del Este and the FARC date from the mid-1990s at
least, when Gen. Oviedo protected Brazilian drug trafficker Fernandinho
Beira Mar, who was captured in southern Colombia last April while
accompanied by FARC rebels.

In addition to the prevalence of international gangs, the Bush
administration also has reason to be concerned about the longtime presence
in Paraguay of Arabs linked to Hezbollah and Islamic Jihad. Last year,
Paraguayan officials arrested a Lebanese national in Ciudad del Este who
was subsequently linked to a Hezbollah cell believed to have bombed
Israel's embassy and a Jewish community center in Argentina in 1992 and 1994.

In April, the State Department warned that the governments of Paraguay,
Brazil and Argentina are not capable of preventing Islamic terrorist
actions that could originate from Ciudad del Este. If the
Israeli-Palestinian conflict escalates into all-out war, these groups could
start attacks against Israeli and U.S. targets in South America.

The growing U.S. security presence in Paraguay may provide U.S. officials
with more timely intelligence about drug trafficking, terrorist activities
and other illegal activity in that country. But it won't safeguard
Paraguay's economy and political institutions from being hijacked by
international crime syndicates.

As Paraguay becomes increasingly lawless, organized criminal gangs and
terrorists will find it easier to operate with impunity and will pose a
growing threat to regional stability.

* Jack Sweeney is a senior analyst at STRATFOR, the global intelligence
company. Its Web site is www.STRATFOR.com/wt_join.htm