By Nancy Menges* and Nicole M. Ferrand.*
Paraguay is increasingly considered of great geo-political importance to the United States due to its borders with Brazil, Bolivia, Argentina and Uruguay, whose governments are frequently critical of some aspects of U.S. foreign policy. Significantly, Paraguay also shares part of the so-called “Triple Frontier” with Argentina and Brazil, an area under suspicion for possible involvement in drug trafficking and terrorism.
Map of the Tri-Border region between Paraguay, Brazil and Argentina. Source: Abovetopsecret.
Hezbollah, Hamas, Colombian extremists, Chinese Triads, Russian Mafia groups and Al-Qaeda operate in this area. In Ciudad del Este, Foz do Iguaçu and Puerto Iguazú which is located in this area, the illegal activity is immense. The turnout for the region is roughly estimated at more than 20 billion dollars annually.
Facts about Paraguay
Paraguay is a poor, landlocked country of 5.6 million people in the heart of South America. According to Paraguay’s Secretary of Technical Planning, 38 percent of the population is unemployed or under-employed, and half of the country lives in poverty. Paraguay’s Colorado Party is the world’s longest-ruling party still in power. The Colorado’s have governed for more than 60 years, backing the 35 year long dictatorship of General Alfredo Stroessner from 1954 until he was overthrown in 1989. A transition to democracy began that year but every President in office since has been investigated for corruption. The world’s fourth-largest soybean exporter, Paraguay relies mainly on agriculture and hydroelectric power. However, the underground economy includes contraband in drugs and weapons. The US Government has warned of money-laundering and terrorist financing in the tri-border area, where Paraguay, Argentina and Brazil meet near the Iguaçu waterfall. Paraguay is also a major smuggling center, known as a transit point for weapons and drugs.
Political violence has tarnished Paraguay’s recent history, with military coup attempts in 1996 and 2000. Paraguay’s business freedom, labor freedom, property rights, and freedom from corruption are weak. Opening a business is difficult, and regulations are enforced by an opaque bureaucracy. The government significantly influences the rule of law, and corruption is widespread. Because of endemic judicial corruption, protection of property is extremely weak, while restrictive labor regulations hinder employment opportunities and overall productivity growth. The unfavorable business environment has been a major deterrent for foreign investors and has placed Paraguay amongst the countries in Latin America receiving the lowest rates of foreign direct investment.
The President – elect: Who is Fernando Lugo
Fernando Armindo Lugo Méndez was born on May 30, 1951 in San Solano, San Pedro del Paraná, district, in the Itapúa department, Paraguay and became a priest in 1977, serving as a missionary in Ecuador for five years. In 1992 he was appointed head of the Divine Word order in his native country, was ordained a bishop in 1994, and then served for 10 years in the region of San Pedro. There, his support for landless peasants earned him the reputation of being “the bishop for the poor.” The more conservative Catholic Church leaders accused Lugo of betraying the church’s supposed non-political role in Paraguayan society while the more moderate and progressive churchmen rapidly rallied to his support.
Bishop Fernando Lugo came to national prominence in March 2006 when he helped lead a rally against the government in the capital, Asunción. He resigned from the priesthood in December, 2006, but the Vatican refused to accept this, arguing that serving as a priest was a lifetime commitment and instead suspended him from his duties. The Paraguayan constitution prohibits ministers of any faith from standing as a political candidate. However, Mr. Lugo headed a coalition called the Patriotic Alliance for Change, made up of several parties and organizations and became a candidate for the presidency. Lugo defeated the Colorado Party candidate Blanca Ovelar in the presidential elections on April 20, 2008, breaking the Colorado’s sixty one year grip on power. He is associated with the Socialist International through the APC-coalition’s Revolutionary Febrerista Party.
According to the Christian Science Monitor, Mr. Lugo’s opponents have painted him as Latin America’s newest leftist candidate, sure to follow in the footsteps of Venezuela’s Hugo Chávez or Bolivia’s Evo Morales. While he does favor center-left policies – something that plays well with pockets of society here – his main draw comes from having no political attachments in a nation rife with corruption. Lugo himself refuses to be pigeonholed as part of the left-wing trend in South American politics. “There are people on the left who say I am from the right. There are people on the right who say I’m from the left,” Lugo says. “I am a person of the center who has a certain distance from left and right, but with the capacity to unite both.” His opponents have warned that he will imitate radical leftists elsewhere and claim that there were reports of Venezuelan and Ecuadorian agitators, posing as election observers, who created chaos and committed acts of violence on Election Day. 
Fernando Armindo Lugo Méndez, Paraguay’s President-elect. Source: El Pais.
His proposals include reassertion of national sovereignty in the utilization of energy, opposition to the immunity of U.S. troops in Paraguay, and the possible naming of a woman as vice-presidential candidate. (President Nicanor Duarte Frutos and the Paraguayan Congress authorized immunity for U.S. troops operating in the county, as part of joint military exercises). The U.S. military presence in the area has been interpreted by some as a maneuver to monitor the Triple Frontier area, often accused of housing suspected Islamic terrorists. Due in part to popular opposition, the military immunity agreement will probably not be renewed. He also promises to redistribute income and undertake land reform. The political class is wary of him, but Lugo has broad support among the country’s poor, who were drawn to his populist rhetoric about the evil rich and the promise of property to all of the country’s landless peasants. The fact that the land has to be taken from somebody to redistribute could be a very troubling sign, if we consider that Chavez and Morales did exactly that. 
In addition, the new Paraguayan president may clash with neighboring Brazil, as his campaign platform included a pledge to get this country, Latin America’s biggest, to pay more for the energy it imports from the jointly owned Itaipu hydroelectric plant, located on the border between the two nations. Analysts have warned that Paraguay must learn from the Bolivian experience: Paraguay, as Bolivia, can’t consume all the energy they produce and given its landlocked geography can only sell it to Argentina and Brazil.
His victory represents a break with the political tradition of Paraguay, where the Colorado Party had ruled for 61 years. The Colorado’s have ruled for six decades so there are generations of people who have not known any other reality. No single party will dominate the country’s congress, so Lugo will have to make deals with other groups. Some people are preparing for the worst and firmly believe that Lugo could become a dictator like Chávez.
Chavez’s reaction might give us a clue. After Lugo’s victory, the web site of the Bolivarian Republic of Venezuela read: “President Chavez congratulates the new president of Paraguay, Fernando Lugo” saying that Chavez wanted to have a “friendly telephone conversation” to congratulate the new President-elect. Chavez referred to Lugo as “brother” and praised Paraguay for its “political maturity.” Lugo, who takes office August 15, 2008, is called the “Red Bishop” by foes. Chavez’s site continued to say that both he and Lugo were eager to “meet as soon as possible” to make plans for their “cooperation.” Lugo expressed the same sentiments about Chavez. Ecuador’s president Rafael Correa was just as happy about Lugo’s election saying that the “the triumph of comrade Fernando Lugo is yet another stone in the foundation of this new Latin America that is just, sovereign, independent and, why not, socialist.”
Relationship with Chavez, Correa, Morales and Ortega
US officials have voiced concern about our diminishing influence in Latin America after apparently another country in the region fell under the influence of Hugo Chavez. While the Paraguayan President-elect has repeatedly denied any alliance with the Venezuelan President, Lugo is expected to benefit from lower priced oil from Venezuela. An official at the US State Department said that Mr. Lugo’s victory had left Washington worried about its waning influence in Latin America, where Nicaragua, Ecuador, Bolivia and, to a lesser extent, Argentina have joined Cuba in declaring their loyalty to Mr. Chavez. The outgoing President, Nicanor Duarte has worked closely with the US government, which is concerned about the financing of terrorist groups in Paraguay’s Ciudad del Este region, which hosts a large Arab population allegedly with links to Hezbollah and Al-Qaeda.
While we won’t know Lugo’s true colors until August 15th when he formally becomes President of Paraguay, some analysts assert that his victory signals a continuing left-wing shift in Latin America and that Mercosur, the regional Latin American trade group between Argentina, Brazil, Uruguay and Paraguay, plus associate countries Chile and Bolivia as well as Venezuela which is in the process of joining, is now mostly made up of leftist leaders. Up to now, Lugo is showing signs of wanting to distance himself from radical leaders such as Chavez and Bolivia’s Morales.
From a security standpoint, documents reveal that there are illicit networks that supply substantial funds to Middle East terrorist groups. Intelligence experts have been warning since the late 1990s that they had noticed a tendency among Islamic terrorists to operate from Paraguay. Financial terror cells operate in the country for the purpose of supporting terrorist groups such as Hezbollah and Hamas. The current government has been cooperating with the United States on this front and it is imperative that this effort continues.
There will be a great temptation for President-elect Lugo to join the Chavez camp as he takes the reins of a small impoverished country with weak institutions and a poorly functioning economy. He also has no former experience in the affairs of state. Chavez will try to woo him with economic handouts and cheap oil. Yet we will have to wait and see if he wisely follows the right path and chooses what is best for his country. He doesn’t need to look far to analyze the disastrous political and economic situations of Venezuela, Bolivia, Nicaragua and Ecuador. He can implement successful policies similar to Brazil’s Lula and Chile’s Bachelet. Instead of nationalizing and closing Paraguay’s economy, he should privatize and aim at open markets. Let’s hope that Lugo understands that Paraguay’s poverty is not due to capitalism but to the lack of a free market economy.
*Nancy Menges, Editor in Chief of the Americas Report. Mrs. Menges, the co-founder of the Menges Hemispheric Security Project, is in charge of the weekly edition of CSP’s Americas Report. She holds a degree in International Relations from the University of Wisconsin-Madison and has studied at the University of the Americas in Mexico City. Her postgraduate degree has been earned from the University of Maryland.
*Nicole M. Ferrand is a research analyst and editor of “The Americas Report” of the Menges Hemispheric Security Project. She is a graduate of Columbia University in Economics and Political Science with a background in Law from Peruvian University, UNIFE and in Corporate Finance from Georgetown University.
 Former Catholic Bishop Enters the Political Arena. February 22, 2008. WorldPress.org.
 Paraguay winner means more leftist leaders in Latin America. April 21, 2008. Mercury News.
 ‘Red bishop’ Fernando Lugo wins Paraguay election. April 22, 2008. The Telegraph.
 Facts about Paraguay. April 20, 2008. Reuters.
 Index of Economic Freedom: Paraguay. 2008 The Heritage Foundation.
 Paraguay election: Key candidates. April 17, 2008. BBC News.
 Paraguay could shift left in Sunday’s presidential polls. April 18, 2008. Christian Science Monitor.