Political confusion and violent protests have recently
rocked the small nation of Paraguay. The situation
has been steadily growing out of control, rendering
increasingly vulnerable the position of the current
president, Gonzalez Machhi. Protestors have been demanding
his resignation and reversal of the free market policies
that the government has been trying to push through.
The intensity of the protests in July brought on a
declaration of internal emergency. President Machhi
has alienated members of his own Colorado Party as
well as those of the opposition parties with whom
he had formed an alliance of 'National Unity' in 1999.
If the protestors have their way, Vice President Julio
Cesar Franco may become the next president of Paraguay.
Franco, representing the liberal party that sits in
opposition to Machhi's Colorado Party, was democratically
elected to this office after former Vice President
Luis Mario Argana was assassinated. Franco has expressed
his support for the anti-government protests and has
denied Machhi's allegation that General Oviedo, a
powerful ex-army chief who is in exile and Machhi's
avowed opponent, is behind them.
General Oviedo, who was accused of masterminding the
assassination of former Vice President Argana, is
in exile in Brazil. A colourful figure in Paraguayan
politics, he has been responsible for many of the
armed coups and violent protests that the country
has witnessed since 1989, and still commands strong
support from sections of the Paraguayan people and
the Paraguayan army. He led the 1989 coup that ousted
the dictator, General Alfredo Stroessner. Later, power
conflicts with President Wasmosy led to his imprisonment
in 1998 on charges of an attempted coup in 1996, but
he was freed by the next president Raul Cubas, who
was his allay. However, the assassination of Vice
President Argana roused widespread resentment among
the people and violent protests rocked the city of
Asuncion, forcing Cubas to resign in 1999. Oviedo
and Cubas took exile in Argentina and Brazil, respectively.
Subsequently, in a bid to improve diplomatic ties
with the Machhi government, the new president of Argentina,
Fernando de la Rua, threatened to withdraw his support
to Oviedo, following which Oviedo disappeared from
Argentina in December 1999. After moving around in
Paraguay for months, he was finally apprehended in
2000 in Brazil, close to the Paraguay border. He has
stayed there in exile since. He is rumoured to have
been behind an attempted coup, though unsuccessful,
in May this year.
Whether or not Gonzalez Macchi is forced out of office,
fresh presidential elections are due in Paraguay next
year, and General Oviedo's UNACE Party is likely to
make a strong showing at the polls. Franco, too, remains
a strong candidate.
Machhi has become increasingly unpopular in the wake
of an illegal investment scandal that he had an alleged
role in. He has also been embroiled in several other
controversies, and charges of corruption and unfair
treatment to former President Cubas have been widespread.
But it is his economic policies that have been the
protestors' main target. An informal alliance of rural
workers, trade unions, left-wing groups and other
organizations staged repeated demonstrations throughout
the country, calling for the free-market policies
to be scrapped. As a result, an earlier statement
declaring the policies 'non-negotiable' because the
government needs to meet IMF targets in order to access
up to $400 million in loans from the World Bank, Gonzalez
Macchi has now agreed to backtrack on various measures,
including the privatization of the telecommunications
company Copaco.
Meanwhile, the economic crisis in Paraguay which has
lasted seven years shows no concrete signs of receding.
Paraguay's economy is chiefly dependent on agriculture
which, despite slow but steady growth since the early
1990s, remains fragile. About 40 per cent of the population
is dependent on agriculture and 24 per cent of the
GDP comes from this sector (2000 figures). More than
200,000 families depend on subsistence farming activities
and maintain marginal ties with the larger productive
sectors of the economy. However, weather-related effects
due to El Niño and declining demand have led
to a fall in agricultural output, while commercialization
of agriculture, the vagaries of weather, high population
growth and clearing of forests have triggered off
a dramatic increase in the number of landless families.
This, in turn, has boosted migration to urban areas,
causing a rapid growth of shanty towns. Thus, the
already large income inequality has widened, with
an estimated 60 per cent of urban and 80 per cent
of rural dwellers living below the poverty line.
Paraguayan industry, on the other hand, has been traditionally
backward. The country possesses hydroelectric potential,
including the world's largest hydroelectric generation
facility built and operated jointly with Brazil (Itaipú
Dam), but it lacks significant mineral or petroleum
resources. Despite its advantages in energy production,
transmission and distribution facilities remain highly
underdeveloped.
The economy has a large informal commercial sector
which depends on re-export of goods that are imported
from Asia and the US, and sold to the neighbouring
countries. Almost half of the population is employed
by this sector. The recorded activities of this sector
have declined significantly in recent years due to
the trouble in Mercosur countries, thus placing a
strain on government finances which depend heavily
on tariffs from this trade. In general, Paraguayans
prefer imported goods and local industry relies on
imported capital goods. A large part of this sector
is involved in underground activities, which centres
around the unregistered sale of imported goods—including
cars, computers, sound equipment, cameras, liquor,
and cigarettes—to Argentina and Brazil. More
than half the cars driven in the country, especially
luxury cars, are brought in illegally. But rising
consciousness has put pressure on this sector. Even
the president was involved in a controversy in March
2001, when he was seen to be driving in a stolen car.
Drug trafficking is another underground activity that
has been reduced by the recent US efforts to bring
down such trade in the Latin American region.
Neoliberal economic reforms began in 1989 in Paraguay
and gathered impetus under the Wasmosy government
during 1993-98, but the pace has been relatively slow
compared to many of its neighbours. Price stability
was attempted through fiscal and monetary discipline,
involving the introduction of a value-added tax in
1993, cuts in capital spending and a turnaround in
the finances of public enterprises. Attempts at the
redirection of expenditure towards education and health
have not met with much success. Privatization of state-owned
enterprises by domestic and foreign capital is another
major IMF proposal that has been attempted in recent
times. The sale of public enterprises began with LAPSA
( the state-owned airline) in 1994, and continued
with CAPASA (sugar and alchohol company), FLOMERPASA
(merchant shipping fleet), and ACEPAR (the steel mill),
among others. The government recently declared plans
to privatize the last of the big public enterprises,
the telephone company COPACO, (formerly ANTELCO),
which has been postponed after the protests, the health
system ESSAP, ANDE and CORPOSANA (in the electricity
and water sector), the post office and social security.
This will throw open all areas of society to the direct
dictatorship of 'capital'. Trade liberalization and
increasing integration with neighbouring countries
in the form of the 'Mercosur' trade bloc was also
undertaken during the 1990s.
As part of the financial reforms, the multiple exchange
rate system of the 1980s was replaced by a unified
exchange rate, interest rates were freed, and restrictions
on foreign currency-denominated local loans were eased.
From 1998, the central bank adopted a fully floating
exchange rate in place of the managed float. Strengthening
democratic institutions was another feature on the
IMF list, perhaps one among the few really necessary
ones, but Paraguay has not been very successful at
it. A chaotic political situation and widespread corruption
have been its persistent weaknesses.
Since the introduction of the structural adjustment
programme, economic growth has been slow. The country
has no personal income tax and tax generation has
been poor. Also, the fact that most tariffs on trade
with its Mercosur partners have to be eliminated by
2005 has added to its troubles. Since 1995, the economy
has been plagued by repeated banking crises that have
affected industry and the construction sector, poor
harvests induced by the vagaries of nature, and the
Asian crisis that has adversely affected agricultural
exports, which comprise 80 per cent of total registered
exports. More recently, problems in major Mercosur
countries like Brazil and Argentina, that were brought
about by blindly following US-led policies, have affected
Paraguay, which depends heavily on them for trade
and other forms of economic co-operation. At the same
time, despite following IMF policies, private investment
has not picked up enough, but the political environment
and the uncertainty it projects are partly to blame
for that.
Urban unemployment, not surprisingly, increased steadily
over the 1990s, reaching 16 per cent by mid-2000,
and underemployment is estimated at more than 20 per
cent of the labour force. Since 1985, with the exception
of one year, Paraguay has registered current account
deficits of 3 per cent or more of GDP, which are increasingly
being plugged by 'hot money' and contraband flows
in place of direct foreign investment, unlike the
case in neighbouring Argentina and Brazil. GDP growth
in 2001 was a dismal 1.5 per cent, though slightly
higher than the negative 0.6 per cent of 2000. Paraguay's
GDP of $7.7 billion makes it the fourth poorest economy
in Latin America and it ranks among the lowest in
the region also in terms of GDP per capita, which
stands at $ 1,400.
Privatization moves by the government, which have
resulted in major job losses, have added to the woes
of the already poor people. The shrinking economy
has been unable to absorb workers thrown out of previously
government-owned sectors. Simultaneously, the move
towards free trade means that local industries, which
are not very efficient at the moment, will be denied
the protection from international competition that
they badly need. A growing anti-US feeling is manifested
in, an increasing number of people objecting to the
adoption of the international agenda of free trade
when it seems to be doing so little to counter the
rising poverty on the street.
In addition to privatization, the Machhi government
plans to increase the value-added tax on fishing,
to 'reform' the national bank and to adopt an 'anti-terrorism
law'. Rising corruption in the political top-rung
in the face of increasing poverty and unemployment
has added to the people's anger. The recent weakening
of Argentina's economy and Brazil's currency have
only compounded the problem. Paraguay was forced to
devalue its currency early this year, and fears of
contagion from Argentina and Brazil also triggered
off a bank run in the country. The IMF's response
to the deepening recession and rising unemployment
has been to demand more reforms, claiming that 'less'
reforms are the cause for Paraguay's problems.
It is against this background that the recent upsurge
in protests has taken place, leading to the formation
of the Democratic Congress of the People (CDP)—a
broad coalition of social movements, farmer's organizations
and left forces. The CDP comprises among others, of
the Movement for a Free Fatherland (Movimiento Patria
Libre), the Front against the Abuse of Public Property,
the National Coordination of Farmers' Organizations
and the National Farmers' Federation. The regime thus
finds itself between a rock and a hard place. The
farmers' leader Belarmino Balbuena, whose trade union
did not participate in the major day of protests in
June, has announced new protest actions; likewise
Luis Villamayor, a leader of the UNACE a party aligned
to the ex-general Lino Oviedo.
If the distress among Paraguay's people is not mitigated
soon, it is but natural that the country will see
more of violence and protests in the days ahead. For
the US, Paraguay is heading towards being another
embarrassing blot on their map of neo-liberal policies,
although their claim is that the slow pace of reforms
is the real cause of Paraguay's economic chaos. While
some streamlining may be necessary, Paraguay has to
start afresh and look elsewhere for an end to its
miseries. It will do better to learn a lesson from
its beleaguered neighbours in the rest of Latin America
where such policies have been tried and found wanting.
A regional support system coupled with a stable political
regime, which is only possible with people's support
for and satisfaction with government policies, would
seem to be the right answer at the moment.
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