Paraguay

Courtesy of Yluux @yluux

The greatest Paraguayan writer: Augusto Roa Bastos once described his country as “an island surrounded by land,” defining the character of a landlocked country located in the interior of South America. A nation almost the size of Spain or California but with a population of fewer than seven million inhabitants with almost two million living outside the country. One of the youngest countries in the world with three out of four citizens under 30 years old, Paraguay has notable potential in hydroelectric power, geographic location, arable land and a livestock herd of more than 15 million cattle. Since 1989, the country began to open up from the times of the dictator Alfredo Stroessner when Paraguayan passports had written that they could not enter countries with communist regimes and when leaving and entering the country was a real odyssey.

The republic first became isolationist when the dictator José Gaspar Rodríguez de Francia (1814-1840) sealed off the country, preventing the entry and exit of people and books. The great French scholar Aime Bonpland, who had accompanied Alexander Humboldt on his adventures in the Amazon and Orinoco, was arrested under suspicion of being a spy and exiled to Santa Maria Misiones for more than a decade. The country lost one of the most lucid men of his time and a friend of mathematics guru Carl Friederich Gauss, among others. He was released when, with his medical knowledge, he helped cure the tyrant’s gout in his joints.

Since 1989, the country has undertaken the great task of building democracy. A task undertaken without plans, without references, without a memory of democracy and without history. A coup-monger general, Andrés Rodríguez, first opened the country’s doors to the world, drafting of the first and only Constitution of the five written in freedom and democracy. His contribution has been immense in the construction of renewed institutions and an enormous respect for fundamental freedoms. The constitution has six articles dedicated to freedom of expression and of the press, which had been frontally persecuted by the dictatorship.

Demonstrations, meetings and free movement of people and ideas have greatly refreshed a country that in 1989 was experiencing a unique historical period at a global level with the end of the Cold War and the fall of the Berlin Wall in November of that year. Latin America was experiencing a democratic effervescence that concluded with the end of Pinochet’s tyranny in Chile the following year.

The task of undertaking democracy was done by looking at the European experience after the Second World War and especially with the integration processes that ended with the European Union. In 1991, Mercosur or the Southern Common Market was created among the four countries (Brazil, Argentina, Uruguay and Paraguay) that had been the protagonists between 1864 and 1870 of the biggest war that this part of the subcontinent can remember. Eight out of every ten Paraguayans perished in a little-publicized genocide.  The Treaty of Asunción in 1991 nevertheless opened a new horizon in the relationship among these four countries. encouraging promising prospects in the short term.

However, customs barriers and the recurring crises in Brazil and Argentina have not been able to deepen these ties to emulate the achievements made in these fields by the European Union. If France and Germany managed to be the driving forces of this process, neither Brazil nor Argentina were able to achieve these goals due to their recurring economic and political crises from that time until now.

The achievements of Paraguayan democracy have been enormous when compared to the dictatorship in the same amount of time (35 years) in all fields. The development of infrastructure, the increase in the budget for education and health, the notable increase in the Gross Domestic Product (GDP) that today reaches 44 billion dollars or the per capita income of US $7,000 compared to $1,000 at the end of the dictatorship are evident achievements for a country that has been mired in backwardness and underdevelopment for many years. However, the task of building a citizenship with solid institutions still has a long way to go. The levels of poverty and inequality are notably high,  generating a high social cost that encourages organized crime to impose itself on state institutions, as recognized by the ministers of the interior and defense of the current government. The opening to a complex world of globalization has caught the country off guard on several issues.

Courtesy of Yluux @yluux

Paraguay is the only country that maintains diplomatic relations with Taiwan, called a “rebel province” by China, which means that national products cannot be directly exported to that Asian country, but China manages to trade with Paraguay through third parties, selling a value of three billion dollars annually. This fact generates tense situations with its Mercosur partners who want free trade agreements between the bloc and China. Trade with Taiwan has increased in recent years and the Paraguayan position is applauded by the United States, which views with concern the Chinese landing in trade and the control of the waterway, the preferred channel for the commercialization of products through the Paraguay and Paraná rivers to the maritime ports of Argentina and Uruguay.

The clear conflict between the United States and China on several issues has led the general of the South American Command to meet with President Santiago Peña  four times in less than a year of government, discussions in which the strategic position of Paraguay was ratified along with the need to improve the fight against organized crime. In the last three years, cocaine shipments worth more than three billion dollars were seized in the ports of Hamburg and Antwerp that left Paraguayan ports through the waterway.

In 2024, fifty years will have passed since the Treaty of Itaipu, which marked the beginning of the construction of the world’s largest hydroelectric plant,  generating millions of megawatts with its twenty turbines on the border between Brazil and Paraguay. The agreements signed during the dictatorship of both countries were not favorable to Paraguay, which failed to receive more than 72 billion dollars for the sale of energy, values of generation and not of contracting from Paraguay to Brazil. The contract price was around US$42 per megawatt and the generation price was US$8. The agreement stated that Paraguay could only sell the energy it did not contract to Brazil at a much lower price than the contracted price. In addition, the interest agreed with Brazilian banks for the construction was based on a fixed value of 11% when in fifty  years the fluctuation of street interest rates was around 5%. Columbia University economist Jeffrey Sachs, hired by the government of Federico Franco (2012-13), recognized in his report that at those values Paraguay should have honored the debt 15 years before the limit was set, receiving annually more than one billion dollars of income from the sale of energy. The 2024 agreements with Brazil stated that, after the debt was paid, the largest consumer country wanted the value of energy to drop to 10 dollars, and Paraguayans who do not consume all their energy wanted it to be at 21. Finally, a value of US$19.28 dollars was established for three years, when the agreement will end and the cost of the energy generated by Itaipu will be US$10. Paraguay has three years to use these resources and has decided to do so in social programs, including feeding children in schools.

In Argentina, home to two million Paraguayans, first exiled for political reasons (the 1947 civil war) and later for economic reasons, Milei’s arrival raises serious questions about immigration policy. More Paraguayans live in Buenos Aires than in any Paraguayan city.  

Argentina and Brazil are Paraguay’s major commercial partners and historically have had great political weight in the country’s decisions. Northern Paraguay borders Bolivia in a western territory called Chaco sparsely populated and with a great geography that is beginning to awaken for trade, logistics and the connection between the Atlantic and the Pacific. The bio-oceanic route under construction will allow the ports of São Paulo and Santos to connect with those of Antofagasta and Iquique in Chile, passing through Argentina. This will also link the rich soybean producing regions in Mato Grosso do Sul in Brazil with the livestock and agriculture regions of Paraguay, added to the lithium territories in the provinces of Salta and Jujuy in Argentina.  It is probably the most promising of the integration projects in America after the one achieved with the construction of the Panama Canal.

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Compared to several countries in the region, the macroeconomy shows solid numbers. With a 10% VAT tax, profits and business income have attracted investment along with a controlled inflation of 5% annually. For Argentines who have experienced high inflation for many years and a loss of the value of their currency, Paraguay is a model to follow and there are many who have been investing several million dollars in the countryside and in the skyscrapers that are beginning to emerge in several cities in the country.

The government of Santiago Peña (2023-2028) has a majority in both chambers of Congress, but it bears the burden  of the party’s most important political figure, former President Horacio Cartes, who has been described as “significantly corrupt” by the U.S. government, which cancelled his entry visa to that country along with his entire family and prohibited him from carrying out commercial activities in dollars. He was accused of links with the Hezbollah guerrilla and large-scale global smuggling of cigarettes globally, among other issues.

The high levels of organization of criminal groups and the global demand for cocaine and other drugs have led to an enormous level of conflict. In Brazil alone, 60,000 people die every year due to criminal acts by groups such as the Primer Comando Capital (PCC).

The United States, an important power factor in the region threatened by organized crime and weak institutions, repeatedly has emphasized the need to control these groups time and again, even going so far as to sanction several prominent Paraguayan political figures with visa cancellations and commercial operations. The lack of a strong justice system capable of punishing criminal acts has prevented Paraguay from reaching the investment grade that would bring large investments to the country.

The so-called “crime economy” developed by economist and Nobel Prize winner Gary Becker is quite prevalent in the country because according to data from the prosecutor’s office, if someone commits a crime in Paraguay, they only have a 5% chance of being tried and 1% of being convicted. The rest: no. The high levels of impunity do not favor creating the conditions for long-term investments due to the so-called legal unpredictability that the country suffers.

Courtesy of Yluux @yluux

Politically, the lack of a solid and united opposition has led to the Colorado party remaining in power for more than 70 years, a unique phenomenon in the region where parties of a similar nature such as the Mexican PRI, the Peruvian APRA and even Peronism in Argentina have gone through deep crises that in some cases even threatened their continuity. Paraguay does not have a runoff election. In the last elections (2023) 60% of the electorate voted against the Colorado party, but divided into two groups they facilitated the victory of the same party.

Paraguay, a country that lived isolated for a long time, is fighting, like the character of its people, a battle between its great possibilities and the reality that keeps it at levels that do not match its potential.

When former Canadian minister Trudeau was asked about the large common border with the United States that his country has, he replied: “It is like sleeping with an elephant every night. It moves and hits you, hugs you and breaks your ribs or kisses you and smashes your cheeks.” Paraguay sleeps every night with two elephants, somewhat smaller than the one in the United States, but their effects are similar in an island country that has a lot to fix up inside to benefit from the opportunities that are opening up in the world.

If more were invested in education, things could change radically. The Stroessner dictatorship did so with a meager 1% annually in 35 years, democracy: 3.4%. UNESCO speaks of a minimum of 7% needed to take advantage of the demographic bonus to achieve what the Koreans did in similar circumstances in 1964.

Opening up to the world has brought great changes to the country. Foreign investments have multiplied, the macroeconomy looks vigorous but the social problems of a large part of the population need to be adjusted to avoid the high costs of organized crime that discourage investment and generate certain fears for the future.

The island surrounded by land is building links to a new and unknown world from which it lived far away and closed for a long time. The first generation of Paraguayans born outside tyrrany  is the majority but has not yet managed to have power and change the equation of years and history. But it is close to doing so.