The Paraguay Imbroglio: A Disconcerting Endgame – Analysis

By Eric Stadius

The June 15 clash between police and campesinos in the Paraguayan region of Curuguaty sparked a political crisis that resulted in Fernando Lugo’s impeachment, Paraguay’s removal from both the Mercosur trade bloc and the Unasur customs union, as well as international condemnation. That violent encounter, which left 11 campesinos and six policemen dead, threatened to destabilize the traditional land tenure regime that had been in place in Paraguay since the War of the Triple Alliance in the 1800s. But instead of enacting change, the Curuguaty affair has enabled a return to the traditional power structure of Paraguayan politics, with the historically powerful, but corrupt, Colorado and traditional Liberal parties overthrowing the left-leaning Lugo. For the average Paraguayan, the country is no better off after the impeachment then before: corporations remain more important then the citizenry, political power remains concentrated, and corruption remains culturally ingrained. Regionally, the impeachment has jeopardized Paraguay’s economic standing; Brazil and Argentina removed Paraguay from Mercosur, replacing the soybean-producing country with the oil rich Venezuela. Internationally, the United States has failed to even comment on the impeachment, and by doing so, has implicitly supported the de facto government that was comprised of almost entirely primarily pro-U.S. politicians. For Paraguayans their political crisis nears its end as one more story of arrested development.

Land Reform, Curuguaty, and Lugo

Paraguayan society is clearly split between those who possess land and those who do not. As detailed in previous COHA reports, the drastically unequal land concentration dates back to the 1800s and continues today, as roughly 2 percent of the Paraguayan populace still owns 80 percent of the land.(1) For years, the campesinos have attempted to campaign for greater rights, but in recent years “King Soybean” reigned over the Paraguayan government, preventing any reform through corrupt clientele networks. On June 15, this fight turned violent. The political crisis began soon after, sweeping the land tenure issue under the rug.

Tactically, Lugo waited far too long to vigorously address the situation and the nature of the opposition majority, that had searched for any reason to remove the untraditional president from the onset of his term, used the galvanized public opinion to quickly begin an impeachment trial that took all of 48 hours. Nervous about a similar streak of authoritarianism that General Stroessner had applied over the country for 35 years, the Paraguayan constitution condoned such a speedy process. But as many detractors would later argue, the impeachment failed to uphold democratic legitimacy in a country where the populace already has little input in the political process. But indeed, Lugo had failed to live up to his electoral promises of land reform and anti-corruption measures. Current president Federico Franco was known for his non-political roots and sterling reputation for reform, and thus had enjoyed relative popularity during the Lugo administration. As a result, the Paraguay citizenry remained silent after the impeachment, even with their recently acquired knack for protests, and its severely constructive role in Paraguayan politics.

Almost immediately, however, neighboring governments condemned this de facto transfer of power. Argentine President Cristina Fernández de Kirchner declared it a golpe suave (smooth coup), Venezuela withdrew its ambassador and cut off oil supplies, and Brazil’s Dilma Rousseff called the process undemocratic and that it warranting diplomatic sanctions.(2) Not a single Latin American government has recognized Franco’s presidency. Moreover, without allowing Paraguay to justify its dubious actions, Mercosur and Unasur systematically suspended Asunción from the regional trade blocs. Despite this international turbulence, Franco stated he simply hopes to focus on waging war over domestic issues while leaving diplomacy in the background.(3)

Paraguay Under Franco

After the impeachment, Franco consolidated his power over the Paraguayan government. Within a month of the impeachment, waves of government layoffs began throughout Asunción. The Union of Journalists of Paraguay (SPP) reported that Franco’s government had dismissed many colleagues who worked for the State during Lugo’s administration in an alleged ideological clean sweep.(4) Protests in downtown Asunción by groups such as Guasu Front, a pro-Lugo coalition of political parties and social organizations, resulted in the submission of evidence about the irregular dismissal procedures to the European and South American delegations that were traveling in Paraguay to analyze the domestic political situation. A large round of layoffs also occurred at the massive bi-national Itaipú and Yacyretá Dams, with 1,500 layoffs at Itaipú alone.(5) While the bloated bureaucracy at Itaipú required downsizing, the targeting firing of Lugo supporters is an alarming trend, but unfortunately one that is based in Paraguayan history.

Furthermore, Franco, who hails from the enigmatically conservative Liberal party, has reached out to multinational corporations in extractive industries that often work against the Paraguayan people’s will. Río Tinto Alcan (RTA), a Canadian mining company, had proposed the construction of an aluminum smelting plant on the Paraná River, but the approval process was held up during the Lugo administration due to concerns over RTA’s environmental record as well as how much the company was willing to pay for the usage of electricity from the Itaipú Dam.(6) Various Paraguayan social groups lobbied Lugo to prevent the project, which RTA claimed would invest $4 billion USD into the Paraguayan economy but not without widespread environmental degradation.(7) While RTA believes the project will create 1,300 jobs, the company would use the equivalent amount of electricity annually as 9.6 million people, nearly 2 million more people than the Paraguayan populace itself.(8)

However, since Franco took office, he has turned to RTA and attempted to fast track negotiations. According to Paraguayan engineer Ricardo Canese, the proposed deal with RTA would disproportionately benefit the Canadian firm because the government, via limited tax revenue, would be subsidizing RTA’s electricity cost over the 30-year lease.(9) Electricity from hydroelectric dams, Paraguay’s most lucrative export, has become an increasingly contentious point; therefore it comes as no surprise that former president Lugo has called the renewed deal a betrayal of the “energetic sovereignty and interests of [Paraguay].”(10) Lugo was often criticized for kowtowing to foreign interests, as he made more international trips than any previous Paraguayan president. But Franco has continued to amplify this policy while disregarding the well being of the Paraguayan citizenry.

Franco entered the presidency with a reputation of a reformer; however, his handling of the “listas sábana” has upheld the wretched and fraudulent electoral system. These voting lists have forced voters to choose one party list, denying them the right to vote for individual candidates in Congress. Lugo had attempted to pass a law removing the voting lists, thus facilitating a direct vote, but the Colorado-controlled majority in the Senate blocked its implementation in the forthcoming 2013 general elections. This ruling sparked massive protests in front of Congress only a month before the impeachment. However, on July 19, Franco met with the head of the highly corrupt Supreme Court of Electoral Justice, and confirmed that the lists would not be removed until the 2015 election.(11) This system is perceived as guaranteeing the election of party caudillos that control the voting as well as favoring the historically strong parties, otherwise, squelching electoral legitimacy in the process. Considering the importance of the 2013 election in determining Paraguay’s democratic future and the fact that Franco has explicitly stated his support for unblocking the lists, his move appears as a political concession to the Colorado party, who entered into a historical coalition with Franco’s Liberal party upon his rise to presidency.

Although Franco has tended to side with the conservative power base during his first month as president, he has also pushed forward on reforming the land tenure issues that eventually sparked the Curuguaty incident. Whereas Lugo only distributed three property titles in the six months before his impeachment, Franco handed out 74 in a 15-day period.(12) Moreover, he has implemented a 10 percent income tax for Paraguayans earning more than $4000 USD per month and has approved a $125 million USD loan from the Inter-American Development Bank to build a trolley system in Asunción.(13) Indeed, these reforms address major areas of concern that superficially led to Lugo’s ousting. But Franco’s policies have coyly mimicked those that the politically unpopular Lugo also attempted to push through Congress to no avail. Therefore, Franco has brought to the table the political will that Lugo lacked.

But Paraguay has hardly progressed under Franco’s leadership. Asunción continues to pay little attention to its citizens’ desires, making them the true losers in the impeachment ordeal. Lugo’s removal has simply been accompanied by political jockeying in the domestic arena before of the 2013 general elections. Paraguay rather switched from a politically unpopular centrist government under Lugo to a conservative administration that with Franco, follows the historic Paraguayan traditions to a fault, catering to caudillos, foreign corporations, and special interests.

The Oil Bonanza

The ramifications of Lugo’s impeachment stretch far beyond Paraguay’s borders. Ironically, in continuously denying Venezuela’s application into the regional trade bloc Mercosur, Asunción’s legislative body claimed that Venezuela did not meet the standards laid out in the organization’s democracy clause in its initiating documentation. Asunción moreover felt that Venezuela would most likely attempt to spread its socialist revolution throughout the Southern Cone, threatening the Paraguayan government that had relied on traditional conservatism to maintain its power. After Lugo’s impeachment, Argentina, Uruguay, and Brazil used this same clause to suspend Paraguay until the 2013 elections, while admitting Venezuela into Mercosur at the same meeting.(14) In a largely symbolic move, Paraguay, angered over its suspension and unable to contest Venezuela’s entrance, has threatened to bring a case against Mercosur in the International Court of Justice on grounds of the Ouro Preto Treaty, which states, “No country can be sanctioned when one of the signatories is absent.”(15)

Brazil and Argentina’s affinity for Venezuela is a natural pairing. For these economic powerhouses, Mercosur has ceased to be only a trade-integration organization and instead has become a vehicle through which to put in effect regional protectionism. Thus, adding a country such as Venezuela that provides an important commodity in oil, as well as large government contracts for outsourced work and a growing market for Brazilian and Argentine goods—partially due to the contracting supply of agricultural and manufactured goods in Venezuela—would aid this goal. This move, in effect may have had little to do with free trade, a principle that Chavéz has denounced and Buenos Aires has recently shied away from, as exemplified by the 168 harmful barriers to trade imposed by the Fernández government over the past five years.(16) But rather, Venezuela’s admittance results from a mixture of economic pragmatism and strategic planning.

Mercosur, despite its original promise as a trade-based organization, has turned into a political alliance. This function, which spills into the realm of Unasur, the continent-wide customs union, could be parlayed further to benefit the strategic interests of several of the local players. For his part, Chavéz already has stated his wish that Mercosur resemble a defense pact, a structure that the remaining members most likely would not accept due to its ramifications for international relations.(17) This particularly rings true for Paraguay, a staunch supporter of U.S. interests in South America. Thus, while Venezuela gained strategic allies and Argentina and Brazil gained oil as well as a new market, Paraguay lost its hope for serious regional integration, which could seriously stall its developmental process.

International Players in the Southern Cone

Although Venezuala’s admission into Mercosur counters Washington’s interests in the region, Lugo’s impeachment overall benefitted U.S. strategy. Washington has a strong, positive trading relationship with the Pacific Alliance countries of Chile, Peru, and Colombia and an amicable but vacillating relationship with Brazil, yet lacks a viable security partner to help counter the growing anti-Americanism in the region. Although Paraguay provides neither a large nor advanced army, its strategic position in the middle of South America with access to both ALBA countries and the Southern Cone makes Asunción a natural U.S. ally. However, during Lugo’s presidency, he turned against the U.S. military presence in the country by rejecting Washington’s “New Horizons” program.(18) But with the pro-U.S. conservatives now back in power, Washington may look to rekindle military training in Paraguay, which allegedly harbors both the lucrative Andean drug smuggling route as well as local terrorist connections.

Both the Paraguayan political crisis and the Mercosur transition, generally driven by trade, only furthered international implications beyond South America. Because the Southern Cone, when treated as a single entity, is the world’s largest soybean producer, which has been helping to feed the Asian population boom, the trend against international integration could present troubling concerns. China in particular relies on Argentina, Brazil, and Paraguay to supply soybeans for domestic crushing during the U.S. off-season, later used for animal feed.(19) Therefore, protectionism in Mercosur, only accentuated by Venezuela, which has the third least open economy in the world—one which threatens the massive investment that the Asian tigers have made in the region.(20)

Conclusion

A month after Lugo’s impeachment, the long-term effects from Paraguay’s protracted political crisis have begun to emerge. Franco’s presidential mandate has been strong, but his policies have drawn on traditional conservatism, while sprinkling in social reforms Lugo was unable to push through Congress. But for the Paraguayan people, the government has returned to business as normal, leaving them out of the decision on the Canadian-owned RTA aluminum smelting plant, extending the fixed electoral lists, and overseeing a removal of pro-Lugo governmental employees. Mercosur, particularly Argentina and Brazil, seized upon the hasty transfer of power to suspend Paraguay’s membership and usher Venezuela into the trade pact, thereby delegitimizing Mercosur’s mission of international trade integration in exchange for a large market as well as unfettered access to oil. The United States, although unhappy to see Caracas in Mercosur, saw the return of pro-U.S. conservative Paraguayan bloc, which will likely rekindle the historic military relationship. But internationally, the nations that depend on Mercosur for commodities witnessed a further regression into protectionism by the once promising trade bloc. Thus, Paraguay’s political crisis has arrested development not only in the already impoverished country, but also in the region as a whole.

Eric Stadius, Research Associate at Council on the Hemispheric Affairs

Citations

(1) Setrini, Gustavo. “Paraguay’s Nascent Occupy Movement Cut Short by Political Crisis.” Council on Hemispheric Affairs, June 22, 2012. http://www.coha.org/paraguays-nascent-occupy-movement-cut-short-by-political-crisis/; Tana, Kyle. “Soybean Wars.” Council on Hemispheric Affairs, May 11, 2010. http://www.coha.org/soybean-wars/; Stadius, Eric. “En Route to a Failed Stated—Corruption in the Paraguayan Legal System, the Illicit Market, and Transnational Security.” Council on Hemispheric Affairs, July 10, 2012. http://www.coha.org/en-route-to-a-failed-state-corruption-in-the-paraguayan-legal-system-the-illicit-market-and-transnational-security/

(2) Margolis, Mac. “Power Shift: Venezuela’s Chavez is Gaining Ground.” Newsweek (July 20, 2012). http://www.thedailybeast.com/newsweek/2012/07/29/power-shift-venezuela-s-chavez-is-gaining-ground.html

(3) “Franco diz que relação internacional não é prioridade do Paraguai.” Globo, June 26, 2012. http://extra.globo.com/noticias/mundo/franco-diz-que-relacao-internacional-nao-prioridade-do-paraguai-5323881.html

(4) “SPP denuncia despidos del Estado a comunicadores por persecución ideological.” Ultima Hora, July 26, 2012. http://www.ultimahora.com/notas/548161-SPP-denuncia-despidos-del-Estado-a-comunicadores-por-persecucion-ideologica

(5) “Repudiarán despido en Itaipú.” ABC Color, July 26, 2012. http://www.abc.com.py/nacionales/repudiaran-despido-en-itaipu-430791.html

(6) “Contra Rio Tinto Alcan e ‘invasión’ extranjera.” ABC Color, July 23, 2012. http://www.abc.com.py/edicion-impresa/politica/contra-rio-tinto-alcan-e-invasion-extranjera-429293.html

(7) “Paraguay: Ciudadanos contra el proyecto de Río Tinto.” Interparaguay, July 24, 2012. http://interparaguay.blogspot.com/2012/07/paraguay-ciudadanos-contra-el-proyecto.html

(8) Dangl, Benjamin. “Paraguay’s Bitter Harvest: Multinational Corporations Reap Benefits from Coup Government.” Toward Freedom, July 26, 2012. http://www.towardfreedom.com/home/americas/2909-paraguays-bitter-harvest-multinational-corporations-reap-benefits-from-coup-government

(9) González, Jorge. “El gobierno de Franca habla de cobrar 60US$ mgw/h a Río Tinto solo para edulcorar críticas.” Base-IS, July 3, 2012. http://www.baseis.org.py/base/leermas.php?noticia=571

(10) “Contra Rio Tinto Alcan e ‘invasión’ extranjera.” ABC Color, July 23, 2012. http://www.abc.com.py/edicion-impresa/politica/contra-rio-tinto-alcan-e-invasion-extranjera-429293.html

(11) “Paraguayan Government Prohibits Direct Citizen Vote Next Year.” Bernama News, July 19, 2012. http://www.bernama.com/bernama/v6/newsworld.php?id=681762

(12) “Anuncian asentamiento modelo en Curuguaty.” ABC Color, August 2, 2012. http://www.abc.com.py/nacionales/anuncian-asentamiento-modelo-en-curuguaty-433559.html

(13) Bogado, Belen. “Paraguay’s new president proving effective.” AP, July 25, 2012. http://www.google.com/hostednews/ap/article/ALeqM5iLiMZkoVXDsxXp4K3jV3loIfoQRg?docId=d7e16d7a687a4222a87cac801110467c

(14) Ecuador and Bolivia, the other two South American members of the Bolivarian Alliance for the Americas (ALBA), have also expressed interest in joining this common market.

(15) “Paraguay could appeal Mercosur sanctions before the International Court of Justice.” Mercopress, July 23, 2012. http://en.mercopress.com/2012/07/23/paraguay-could-appeal-mercosur-sanctions-before-the-international-court-of-justice

(16) “Argentina.” Global Trade Alerts, August 2012. http://www.globaltradealert.org/taxonomy/affected-trading-partner/argentina

(17) “Venezuela sees Mercosur as defense pact.” UPI, July 16, 2012. http://www.upi.com/Business_News/Security-Industry/2012/07/16/Venezuela-sees-Mercosur-as-defense-pact/UPI-92791342474224/

(18) Kozloff, Nikolas. “Behind the Paraguayan coup.” Al Jazeera, July 8, 2012. http://m.aljazeera.com/Story/201278122117670811

(19) “Soybean Production in the Southern Cone of the Americas.” GenOk, July 2012. http://www.genok.com/news_cms/2012/july/report-soybean-production-in-the-southern-cone-of-the-americas-update-on-land-and-pesticide-use/158

(20) Woods, Randall. “Chavez’s Diplomatic Coup Deepens Rift in Brazil-Led Trade Pact.” Bloomberg News, July 30, 2012. http://www.bloomberg.com/news/2012-07-31/chavez-s-diplomatic-coup-deepens-rift-in-brazil-led-trade-pact.html