Paraguay: political and economic conditions and U.S. relations.(Congressional Research Service)(Report)

 Contents  Introduction Political Background    Lugo's 2008 Election    Prospects for the Lugo Administration    Foreign Policy Economic Situation Relations with the United States    U.S. Assistance    Counternarcotics Cooperation Tri-Border Area and Terrorism 

February 1, 2010

Summary

Paraguay, a landlocked nation in the center of South America, has friendly relations with the United States and has been a traditional ally. Paraguay's turbulent political history and tradition of political authoritarianism have resulted in international isolation that the country is seeking to overcome. The population of 6.9 million people is one the most homogenous mestizo populations in the hemisphere. Paraguay's largely agrarian economy has grown well in recent years on the strength of global commodity prices. However, in 2009, a severe drought and the impact of the global economic recession sharply reduced growth, but a recovery is anticipated in 2010.

The April 2008 election of Fernando Lugo, a former Roman Catholic bishop and leader of the Patriotic Alliance for Change, as President ended 61 years of one-party rule by the still-dominant Colorado Party. The United States has encouraged the strengthening of democracy in Paraguay, and hailed the peaceful transition of power. Known as the "bishop of the poor" after a decade of work in an impoverished rural diocese, Lugo pledged to introduce land and agrarian reform, improve education and health services to better serve Paraguay's poor majority, and combat widespread corruption. Yet, as he entered his second year in office, there were more frequent calls for his impeachment. His loose electoral alliance had splintered, and he faced broad opposition in the opposition-dominated Paraguayan Congress that had stymied his center-left agenda at nearly every turn. At the end of 2009, polls indicated that Lugo had one of the lowest popularity ratings of any leader in the region.

The United States and Paraguay cooperate in a number of areas but especially in the fight against corruption, and on anti-drug, counterterrorism and anti-smuggling initiatives. In 2006 and 2009, the United States and Paraguay signed two Millennium Challenge Corporation threshold agreements totaling more than $60 million dollars to combat corruption and strengthen the rule of law. Paraguay is a major transit country for cocaine and produces the largest crop of marijuana in South America. The United States remains concerned about illegal activities in the loosely controlled tri-border region with neighboring Brazil and Argentina, such as money-laundering, drugs and arms trafficking, and trade in counterfeit and contraband goods.

The 111th Congress has expressed growing interest in Paraguay. In April 2009, two bills were introduced entitled the "U.S.-Paraguay Partnership Act of 2009" (H.R. 1837 and S. 780). On September 14, 2009, the ATPDEA Expansion and Extension Act of 2009 (S. 1665) was introduced in the Senate. Each of these bills would amend the Andean Trade Promotion and Drug Eradication Act (Title XXXI of the Trade Act of 2002, P.L. 107-210) to extend unilateral trade preferences to Paraguay. Indicating additional interest in Paraguay, the House Democratic Partnership (formerly the House Democratic Assistance Commission) made a study trip to Paraguay in August 2009. Members of the eight-member delegation had discussions with the bicameral Congress and the executive about the need to work together to support democracy in Paraguay.

This report examines recent political and economic developments in Paraguay and issues in U.S.-Paraguayan relations.

Introduction

On April 20, 2008, a former Roman Catholic bishop, Fernando Lugo, was elected President of Paraguay, a land-locked South American nation critically wedged between Brazil, Argentina, and Bolivia. The Lugo victory was hailed as a step toward strengthening Paraguay's fragile democracy, ending six decades of one-party rule. In many ways, the election of President Lugo raised hopes for a historic break with Paraguay's past and its tradition of authoritarian leadership, political isolation, and widespread corruption.

Political Background (1)

The current political environment in Paraguay has been shaped by the country's turbulent political history. Paraguay was defeated in the War of the Triple Alliance (1864-1870) against Argentina, Brazil and Uruguay and lost 25% of its territory and over half of its population. This defeat led to an extensive period of political instability, with three civil wars in the first half of the 20th century. In the late 19th century, a two-party political system emerged with the formation of the Colorado Party and the Liberal Party, but the Colorado Party soon became the dominant political force, ruling between 1887 and 1904. The Liberal Party captured control of the government and ruled from 1904 until 1940. A war with neighboring Bolivia between 1932-1935, the Chaco War, further weakened political institutions and hindered economic development until the military assumed control in 1940 and governed through a succession of authoritarian leaders.

The Colorado Party returned to power in 1946, consolidating its control through the military, dominant economic groups, and the state bureaucracy. In the late 1940s, the party assumed greater control over state institutions to the point where party membership was a prerequisite for civil service positions and promotion in the military. General Alfredo Stroessner, a member of the Colorado party, staged a coup in 1954, and consolidated power in a repressive military dictatorship. Stroessner, who engineered his "election" to complete the unexpired term of his predecessor, was subsequently re-elected seven times, ruling almost continuously under the state of siege provision of the constitution, with support from the military and Colorado Party. (2) Nominally governed by a constitution approved in 1967, Stroessner's rule increased the isolation of Paraguay from the world community. During Stroessner's 35-year rule, (known as the Stronato), political opponents were systematically harassed and persecuted, accused of communist sympathies or posing a threat to state security. (3)

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The demise of the Stroessner military dictatorship in 1989 initiated a challenging political transition over the next 20 years. Due in large part to the country's authoritarian past, Paraguay's state institutions had remained weak while corruption continued to undercut democratic consolidation and economic development. In 1992, a new …