Paraguay - International Factors and the Economy

International factors and the economy

During the 1960s and 1970s, the main foreign influences on Paraguay were Brazil and the United States. Both countries aided Paraguay's economic development in ways that enhanced its political stability. A 1956 agreement with Brazil to improve the transport link between the two countries by building roads and a bridge over the R�o Paran� broke Paraguay's traditional dependence on Argentine goodwill for the smooth flow of Paraguayan international trade. Brazil's grant of duty-free port facilities on the Atlantic Coast was particularly valuable to Paraguay.

Brazil's financing of the US$19 billion Itaip� Dam on the R�o Paran� between Paraguay and Brazil had far-reaching consequences for Paraguay. Paraguay had no means of contributing financially to the construction, but its cooperation--including controversial concessions regarding ownership of the construction site and the rates for which Paraguay agreed to sell its share of the electricity--was essential. Itaip� gave Paraguay's economy a great new source of wealth. The construction produced a tremendous economic boom, as thousands of Paraguayans who had never before held a regular job went to work on the enormous dam. From 1973 (when construction began) until 1982 (when it ended), gross domestic product (GDP) grew more than 8 percent annually, double the rate for the previous decade and higher than growth rates in most other Latin American countries. Foreign exchange earnings from electricity sales to Brazil soared, and the newly employed Paraguayan workforce stimulated domestic demand, bringing about a rapid expansion in the agricultural sector.

There were, however, several drawbacks to the construction at Itaip�. The prosperity associated with the major boom raised expectations for long-term growth. An economic downturn in the early 1980s caused discontent, which in turn led to demands for reform. Many Paraguayans, no longer content to eke out a living on a few hectares, had to leave the country to look for work. In the early 1980s, some observers estimated that up to 60 percent of Paraguayans were living outside the country. But even those people who were willing to farm a small patch of ground faced a new threat. Itaip� had prompted a tidal wave of Brazilian migration in the eastern border region of Paraguay. By the mid-1980s, observers estimated there were between 300,000 and 350,000 Brazilians in the eastern border region. With Portuguese the dominant language in the areas of heavy Brazilian migration and Brazilian currency circulating as legal tender, the area became closely integrated with Brazil. Further, most of Paraguay's increased wealth wound up in the hands of wealthy supporters of the regime. Landowners faced no meaningful land reform, the regime's control of labor organizers aided businessmen, foreign investors benefited from tax exemptions, and foreign creditors experienced a bonanza from heavy Paraguayan borrowing. Although the poorest Paraguayans were somewhat better off in 1982 than they were in the 1960s, they were worse off relative to other sectors of the population.

Closer relations with Brazil paralleled a decline in relations with Argentina. After Per�n's expulsion, Paraguay slipped from the orbit of Buenos Aires as Argentina declined politically and economically. Argentina, alarmed by Itaip� and close cooperation between Brazil and Paraguay, pressed Stroessner to agree to participate in hydroelectric projects at Yacyret� and Corpus. By pitting Argentina against Brazil, Stroessner improved Paraguay's diplomatic and economic autonomy and its economic prospects.

Stroessner also benefited from the 1950s and 1960s Cold War ideology in the United States, which favored authoritarian, anticommunist regimes. Upon reaching Asunci�n during his 1958 tour of Latin America, Vice President Richard M. Nixon praised Stroessner's Paraguay for opposing communism more strongly than any other nation in the world. The main strategic concern of the United States at that time was to avoid at all costs the emergence in Paraguay of a left-wing regime, which would be ideally situated at the heart of the South American continent to provide a haven for radicals and a base for revolutionary activities around the hemisphere. From 1947 until 1977, the United States supplied about US$750,000 worth of military hardware each year and trained more than 2,000 Paraguayan military officers in counterintelligence and counterinsurgency. In 1977 the United States Congress sharply cut military assistance to Paraguay.

Paraguay regularly voted in favor of United States policies in the United Nations (UN) and the Organization of American States (OAS). Stroessner, probably the United States' most dependable ally in Latin America, once remarked that the United States ambassador was like an extra member of his cabinet. Relations faltered somewhat during the administration of President John F. Kennedy, as United States officials began calling for democracy and land reform and threatened to withhold Alliance for Progress funds (an amount equal to about 40 percent of Paraguay's budget) unless Paraguay made progress. Although pressure of this sort no doubt encouraged Stroessner to legalize some internal opposition parties, it failed to make the Paraguayan ruler become any less a personalist dictator. Regime opponents who agreed to play Stroessner's electoral charade received rewards of privileges and official recognition. Other opponents, however, faced detention and exile. Influenced by Paraguay's support for the United States intervention in the Dominican Republic in 1965, the United States became friendlier to Stroessner in the mid-1960s under President Lyndon B. Johnson. New United States-supported military governments in Brazil and Argentina also improved United States-Paraguay ties.

Relations between Paraguay and the United States changed substantially after the election of President Jimmy Carter in 1976. The appointment of Robert White as United States ambassador in 1977 and the congressional cut-off of military hardware deliveries in the same year reflected increasing concern about the absence of democracy and the presence of human rights violations in Paraguay.

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