PARAGUAY DRUG TRADE AND U.S. AMERICAN FACILITIES, PERSONNEL AT GREATER RISK

Strafor Global Intelligence Update

The United States is bolstering its counter-drug, intelligence and military
presence in Paraguay, a country that has become a smuggling center for
Colombian and Bolivian drug traffickers. But the increased U.S. presence
makes American facilities and personnel there vulnerable to attacks not
only from criminal gangs but also from Arab extremists living in Paraguay.

Since January, the U.S. Drug Enforcement Agency 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
counter-insurgency 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 counter-drug,
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 Arab extremists linked to Hezbollah and Islamic Jihad.

The goal of the Bush administration is to build an effective surveillance
and interdiction firewall 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 when 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.
Officially, Washington's dispatch of billions of dollars in
counter-narcotics aid to Colombia is designed to avoid direct U.S.
involvement in Colombia's civil war. There are supposed to be just 500
military and 300 civilian U.S. personnel in Colombia. But in reality, the
U.S. government is circumventing the limit; by autumn there will probably
be about 2,000 Americans stationed in the Andean region. The influx of
Americans calls into question the potential success of U.S. aid and poses
risks for these personnel.

The rebel conflict in Colombia is escalating, as insurgents have responded
with some of their heaviest resistance to date to the U.S.-supported Plan
Colombia counter-drug offensive. U.S. military and civilian personnel have
become a primary target for the increasingly aggressive guerrillas, who
have threatened retaliation against the United States inside and outside
Colombia. 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 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 Oviedo in 1996.

Oviedo has been a central protagonist in bloody internal power struggles
within the Colorado Party that threaten the country's weak political
institutions and which 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 for the assassination of then Vice President
Luis Maria Argana in 1998.

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.

Franco was elected with the backing of Oviedo's supporters in a breakaway
faction of the Colorado Party. Meanwhile, Brazil's government is anxious to
be rid of Oviedo because of his suspected involvement in drug trafficking
and other organized criminal enterprises, as well as his alleged leadership
of corrupt military officials.

Over the past decade, Paraguay's insertion into the global economy has
attracted international criminal syndicates and terrorist organizations
that view the country as a safe location from which to conduct their
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 global 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" such as Ecstasy.

Criminal gangs in Paraguay also have ties to Colombia's largest rebel
group. Paraguayan officials last year arrested a Colombian citizen in
Ciudad del Este 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 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 Arab extremists linked to Hezbollah and Islamic Jihad.

Last year Paraguayan officials arrested a Lebanese national in Ciudad del
Este who was subsequently linked to a clandestine Hezbollah cell believed
to have bombed Israel's Embassy and a Jewish community center in Argentina
in 1992 and 1994.

In April this year, 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
terrorist groups could launch 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.