Likely Ill-fated
President-elect Takes
Office Tonight at Ceremony in Paraguay
• President-elect Nicanor Duarte
Frutos’ Colorado Party has already acquired a tattered
image after searing corruption scandals blistered its last two
presidencies.
• Finance Minister, Dionisio Borda,
may be the ticket to real reform in Paraguay and, if given the
freedom to pursue effective economic policy, his continued presence
will be a test of Duarte Frutos’ seriousness in enacting
reform.
• Facing a deficit of over $200
million, around 39 percent of the country’s GDP, the president-elect
doesn’t have the necessary budget to get the country through
the rest of the year.
• The
new cabinet is confident that with the help of Borda, the International
Monetary Fund and other foreign lenders will approve of Duarte
Frutos’ economic reforms, thus providing desperately needed
disbursements.
Given that the dominating Colorado Party
of Paraguay has spent the last fifty-five years emptying the
National Treasury, mixing party with public funds and hatching
scores of corruption scandals, one would assume that the electorate
would have chosen an opposition party candidate for their country’s
highest office in the most recent election. Apparently not,
as the Colorados are about to successfully install yet another
president, despite the party’s corrupt and violence-ridden
history. Although the last two presidents — both Colorados
— were impeached, the candidate of this dominant but deeply
divided party has triumphed once again, despite the fact that
he played a crucial role in prolonging the administration of
his predecessor, the second president in a row to face impeachment
on corruption charges. The Colorados have held on to their hegemonic
power in part because the state is the biggest employer in Paraguay;
thus, these workers vote to keep the Colorado Party in power
mainly so that they can keep their jobs. However, despite the
checkered past of incoming president Nicanor Duarte Frutos,
his anti-corruption campaign rhetoric and his assertions that
“Paraguay must break with its political past,” have
raised modest hopes that he will stand up to the tradition of
dishonesty and fixed courts which preceded him. Duarte Frutos
has also won popular approval for his frequently expressed distaste
for privatization and “Washington Consensus” structural
adjustment policies, which are axiomatically imposed upon economically
struggling poor countries as a prerequisite for receiving loans
from the World Bank and the IMF. But although Duarte Frutos
mounted such sentiments during his campaign, his zeal for big
reform initiatives in a corruption-ridden country whose economy
is based largely on an illegal commodity import/export market
has raised doubts about the feasibility that conditions will
rapidly change. Skeptics feel that Duarte Frutos may be performing
the same song and dance as did the leaders before him and that
soon his broad-ranging commitments will get the cane.
THE GIANT LEAP OF FAITH
Tonight, Paraguay’s political and economic elite as well
as several high profile South American and Asian political leaders
will celebrate Duarte Frutos’ triumph in Asunción,
the country’s capital. A new president and an apparent
new hard-line approach to the country’s most pressing
problems theoretically could represent an open door to a reformed
Paraguay. But after the inaugural ceremony is over, the new
head of Latin America’s most corrupt country and South
America’s second poorest nation must get to work, and
Duarte Frutos will immediately be under intense pressure to
act on the reform promises he made during his campaign. Outgoing
President Luis González Macchi was one of Paraguay’s
most corrupt leaders and without doubt, one who has done some
of the worst damage to the Colorado Party’s image. Fervent
in making commitments to change, Duarte Frutos has created high
expectations, but now he will be forced to try to meet them.
Previously, he had asserted, “We’re going to fight
so that Paraguayans can feel proud of their leaders and their
country.” Now the battle begins.
Although the ceremony will center around
Duarte Frutos, another man may actually be the most important
figure in determining the fate of this administration. Finance
Minister Dionisio Borda’s status in the cabinet will be
the yardstick by which Paraguayans and the international community
should judge the new president. Borda is one of the leading
experts on the Paraguayan economy and a hugely important contributor
to academic debates on the democratization of Paraguay. Because
the nation’s politicians do not change their stripes easily,
Duarte Frutos’ bringing Borda on might suggest one of
two things: Borda is either meant to be a temporary window dressing
to help the machine survive yet another onslaught, or more optimistically,
Duarte Frutos is serious. Borda’s presence and freedom
to pursue effective policy will be a key indicator of the probity
and intentions of Duarte Frutos’ government. If the administration
constrains Borda, it is likely he will resign in frustration;
if Borda leaves, his departure will indicate that Duarte Frutos
is indeed giving Paraguay the same obnoxious Colorado mauling
as did his predecessors.
THE ELECTION SHOWS SOME DEPARTURE FROM THE PAST
In the April 27 general elections, Duarte Frutos, a former sociology
professor, lawyer, journalist, and education minister, won 37
percent of the vote and defeated four other candidates, including
Julio ‘Yoyito’ César Franco, a former vice
president who resigned last October and then ran as the candidate
for the main opposition party, the PLRA. The 64 percent of registered
voters who turned out at the polls also elected 45 new Senate
members and 80 new deputies, but for the first time in its leadership,
the long-time ruling Colorados fell just short of a majority
in Congress. Though half of the 2.4 million registered voters
are Colorado members, only 37 percent voted for Duarte Frutos,
the lowest percentage for one of its presidential candidates
in the party’s history. This hardly resounding victory,
coupled with a low voter turnout, indicates that Paraguayans
are becoming increasingly disillusioned with their country’s
oligarchy, as the country sinks deeper into recession and more
corruption and tax fraud cases surface — most of them
involving ranking government officials. According to several
sources, the tax evasion rate lies somewhere between 60 and
70 percent. There is no personal income tax except for highly
paid executives, so tax revenue comes from value-added taxes
and corporate taxes. As a consequence, many Paraguayans, in
desperation, turn to the informal economic sector to make a
living.
Cigarettes and counterfeit Nintendo games
are among thousands of smuggled products imported and exported
illegally through Paraguay’s notoriously porous borders.
Paraguay is a convenient transshipment site for cocaine and
for precursor chemicals because of its proximity to Bolivia
and its many small airstrips found in the eastern part of the
country. Officials in Brasília also express considerable
concern that Paraguay is becoming a major source of illegal
firearms for the drug gangs terrorizing São Paulo and
Rio de Janeiro. Contraband traffic now accounts for around one
fifth of economic activity in the country. Acquiring reliable
figures for official GDP and per capita income is no small task.
Duarte Frutos has included in his proposed reforms the rebuilding
of a lawful economic system, considered a crucial measure by
major domestic and foreign corporations which are sustaining
severe losses as a result of the contraband economy. If he welcomes
Borda’s counsel on this, he can succeed, and foreign investment,
which has practically ceased in recent years, may return to
give the economy a much-needed jumpstart. In addition to seeking
a new tax collection system, Duarte Frutos has vowed to root
out the official corruption that, according to many sources,
costs the country roughly $5 billion each year. The bottom line
is that the corruption and the economic slump are mutually reinforcing;
thus, campaign promises by yet another Colorado president become
difficult for the average Paraguayan to take at all seriously.
A SLOPPY PAST
Although opposition to the Colorados among Paraguayan legislators
is growing, Duarte Frutos’ opponents were nonetheless
too divided on election day to clinch the executive position.
Thus, Paraguay’s PRI-like Colorado Party, long the vehicle
of the authoritarian Stroessner regime, will continue its multi-decade
leadership for another five-year term. The Colorados have maintained
themselves in office through a mixture of military coups, dictatorships,
state employment control, political patronage, and corruption
cover-ups. The party gained power from the Liberals in 1948
following the successful coup that drove out military dictator
General Higinio Morinigo. An armed territorial conflict with
Bolivia — the horrendous War of the Chaco (1932 –
1935) — created an enormously powerful war veterans movement
which rebelled against the ruling liberal elite over the handling
of the war and the poor treatment meted out to veterans. A civil
war caused disaffection with the Liberal Party’s handling
of the conflict, which consequently breathed new life into the
Colorados, opening space for General Alfredo Stroessner to take
over in 1954. Stroessner was an important officer in the Chaco
War, and it was not difficult for him to slide into the presidency
after displacing President Federico Chávez via a military
coup. Chávez was elected, although one should recall
that there was a tradition in Paraguay of the Colorados and
Liberals arranging limited election contests. With an ever-solicitous
Colorado Party defending him, which included senior military
officials who were required to join, Stroessner was able to
maintain his repressive, highly centralised and isolationist
rule from 1954 to 1989. During his reign he created the so-called
“iron triangle” in which the dictator allied the
ruling Colorado Party, the military and the state apparatus
into a commanding entity. The “iron triangle” secured
and prolonged his dictatorship and allowed Stroessner to transform
the office of the president into a position with nearly complete
power over political and economic developments. The Colorado
monopoly over the state gave birth to the crippling political
patronage still flourishing in Paraguay today.
In 1989, Stroessner was ousted in a palace
coup headed by his son-in-law, General Andrés Rodríguez,
who won the presidency for the Colorados in a hastily held election
to satisfy pressures from democratizing Argentina and Brazil.
But political and constitutional reform did not come until 1992
in the form of a new constitution that radically decentralized
the country's system of government, establishing a clear division
of executive, legislative and judicial responsibilities and
vastly improving protection of civil rights.
In addition, a clause that previously
allowed the ruling party to control two thirds of the legislative
seats, was eliminated. This clause has been put to more use
since the divisions in loyalty regarding General Lino Oviedo,
the outsider political boss of former president Raúl
Cubas Grau. Oviedo had staged a coup in April 1996, the goal
of which was to oust then president Juan Carlos Wasmosy. The
public staunchly rejected this military general’s actions,
yet the event illustrated that even after Stroessner was kicked
out of leadership, the military remained very much a part of
Paraguayan politics. Oviedo continued to arm wrestle Wasmosy
for power over national policy and various appointments to political
offices, but Wasmosy struck back with military backing and a
mandate that the general resign. This incited public demonstrations
centered around support for the president and a desire to sustain
what progress had been made in the post-Stroessner period toward
democracy. In 1997, through nationalistic speeches that fell
in line with traditional Paraguayan politics, Oviedo was able
to secure the presidential candidacy from the Colorado Party
members for the 1998 presidential election. However, after a
1998 military court conviction made Oviedo ineligible for elected
office, his running mate Raúl Cubas Grau assumed the
Colorado candidacy, going on to win the election with the slogal
“Cubas in office, Oviedo in power.” Oviedo remained
a powerful presence as Cubas’ political boss. Cubas efforts
to pardon the general were overturned, but they led to significant
divisions in the Colorado Party, which, in large part, is what
led to the intra-party warfare and supposedly to then vice president
Luis María Argaña’s assassination. The Oviedo
factor continues to destabilize Paraguay and its politicians,
and it led to the loss of a legislative majority for the Colorados
in this year’s election. Oviedo’s National Union
Movement of Ethical Colorados (UNACE), split from the Colorados
and formed its own party. Oviedo’s splinter party is the
missing element of the Colorado vote. Without a majority in
Congress, the Colorado Party and Duarte Frutos, its standard
bearer, will be limited in their ability to employ the political
cronyism rampant under the previous administration.
MACCHI: A PIG IN SLOP
Luis González Macchi, the outgoing president, managed
to evade a Senate conviction in his impeachment trial, but not
without smearing the party’s image and causing further
internal factionalism. He was accused by his own party of illegally
purchasing a stolen BMW and siphoning $16 million in public
funds from the Central Bank, depositing the money in his own
New York Citibank account. Such revelations infuriated the Paraguayan
population, one third of which lives under the poverty line.
Although the Senate voted 25 to 18 in favor of removing President
Macchi from office, they lacked the two thirds majority —
30 votes — necessary to secure a conviction. One of the
reasons the Colorados maintained Macchi in office was their
desire to prevent a Liberal Party member from rising to the
presidency. Julio César ‘Yoyito’ Franco would
have replace Macchi had the Senators voted him out. Their reluctance
to do so indicates the degree to which the Colorado Party has
turned into a highly consolidated industry, willing to suffer
their leaders’ dishonest behavior before being pressed
to relinquish any power.
Congress had appointed President Macchi
on March 28, 1999, to replace President Raúl Cubas Grau,
who had resigned from office just before the Senate was expected
to convict him on charges of moral culpability in the death
of then vice president Luis María Argaña. Argaña,
one of Oviedo’s political enemies, cooperated with Wasmosy
(who both Oviedo and Argaña hated) to make sure Oviedo
was disqualified. Deadly street protests had erupted following
the assassination of Cubas’ vice president. Cubas, along
with the infamous General Oviedo, was suspected of plotting
the murder. Although Macchi turned out to be a poor replacement
for Cubas, the country was already suffering from years of economic
mismanagement, an expanding contraband economy, and the backlash
from economic hardships experienced by its bigger neighbors
— Argentina to the west and Brazil to the east. The constitution
was unclear on who should take over in the event of the death
of the vice president and the resignation of the president.
Macchi obtained an incredibly fast ruling from the Argañista-dominated
Supreme Court, saying that the president of the Senate should
take over — creating constitutional precedent on the fly.
Naturally, the PLRA and PEN weren’t pleased. Neither were
those who used their bodies as bullet shields for the congressmen
impeaching Cubas. The Brazilians put pressure on Macchi to calm
things down. Subsequently, Macchi’s administration had
to confront a series of destabilizing efforts, including repeated
demonstrations and work stoppages, when it shortchanged payments
to public employees. Macchi was threatened twice with impeachment
proceedings that never materialized. However, the third occasion
did not prove to be a charm for the president, and on December
5, 2002, Macchi had to face formal impeachment charges. He was
acquitted by a narrow margin in the Senate, but not without
the help of a key party leader.
DUARTE: A WORDSMITH OR A CAN-DO MAN?
“I want to be a president that recovers the country's
credibility, a president that is respected by the international
community,” said the new president-elect the day after
the results came out. While President Nicanor Duarte Frutos
has made promises to clean house, the last four incoming presidents
have said the same thing and failed through incompetence, corruption,
and a lack of caring. In addition, Duarte Frutos’ support
for Macchi’s remaining in office during the latter’s
impeachment proceedings has raised suspicions within his own
party and certainly with the opposition. After other Colorado
legislators brought impeachment allegations, Duarte Frutos continued
to be one of Macchi’s closest allies, in spite of the
latter’s shaky allegiance to the administration as a whole.
Duarte Frutos had spoken out frequently against corruption and
the havoc it has wreaked on Paraguay’s economy and political
system, but as the Party’s president, he led the squad
to prevent the Liberal vice president, Yoyito, from becoming
de facto president. He gathered up enough extra votes and Macchi
survived, but not without raising considerable doubts concerning
the overall intentions of those leading the country, which has
acquired the dreadful status as the world’s third most
corrupt country. Duarte Frutos acknowledged in a BBC interview
that the Colorado Party had corrupt members, but he argued that
they were democratically elected and thus had a legitimate role
to play. “Either we all lift up this country with the
oxen we have on hand, or nobody will lift it up.”
ECONOMIC WOES
Last year, Paraguay’s GDP fell 2.2 percent, the worst
year for the economy since 1983, when GDP fell three percent,
a development that reflected nearly a decade of economic instability.
Corruption, tax evasion, bank defaults and closings, unsuccessful
attempts to acquire loans from international financial institutions,
and the residual effects of Argentina’s 2001 financial
debacle as well as Brazil’s currency devaluation, have
greatly hindered efforts to get the economy moving again. The
Ministry of Finance, using data from Paraguay’s Central
Bank, has confirmed that the recession Paraguay entered in fiscal
year 2002, is the worst in 20 years. Last year, Paraguay’s
currency lost one third of its value, fiscal debt reached $140
million or 3.2 percent of GDP, and the trade deficit soared
to $606.7 million. The government can barely finance public
works or pay the salaries of its own 230,000 civil servants.
It also has yet to pay out pensions which are due to the veterans
of the Chaco War and their families.
Duarte Frutos’ choice for finance
minister, the well respected, Dionisio Borda, has said that
external and internal government debts must be paid in order
to restore confidence, therefore the administration must pursue
an agreement with the IMF. Just last November, Paraguayan Economy
Minister James Spalding and Central Bank President Raúl
Vera resigned during heated negotiations between Asunción
and the IMF over a $200 million loan needed to repay part of
its debts due this year and pay the salaries of government employees.
The IMF accused the Paraguayan authorities of failing to push
through the “necessary adjustments” required to
attract more IMF funds. Although Paraguay’s loan request
remains on a “stand-by” basis on the grounds that
the government has not yet proven to the agency that it can
safeguard a large loan from being mishandled, Duarte Frutos’
well-advertised fight on corruption, as well as Borda’s
presence in the Cabinet, may serve to persuade the IMF that
the country is credit-worthy. In fact, the new administration
has already staged the first attack in this battle. President
Macchi had appointed new officials to the Social Security Institute
and the National Development Bank to aid his successor in his
anti-corruption efforts, and already five people have been charged
with defrauding the Paraguayan government of roughly $500,000.
This may seem to be a smallish amount, but, when put into the
context of the annual deficit, it is in reality quite a noticeable
percentage. In addition, the vice president, Luis Castiglioni,
has asserted that the judiciary will back the administration
on anti-corruption actions and a special Auditor’s Office
will be set up to track government spending.
TRADE AND LOANS
Paraguay’s diplomatic and economic allies will likely
play a large role in spurring economic reform. Taiwan, for example,
has had strong diplomatic relations with and financial ties
to Paraguay for almost half a century, but a $400 million loan
the Asian country made to Paraguay has been virtually exhausted.
Given Taiwan’s interest in granting aid in exchange for
Paraguay’s maintaining diplomatic relations with Taiwan
instead of the People’s Republic of China, the country
is likely to continue its strategic lending. Duarte Frutos’
new foreign minister, Leyla Rachid de Cowles attested to the
importance of this relationship, saying that Paraguay will continue
to pursue political and economic openings as well as establish
a strong presence in East Asia.
Perhaps even more important than overseas
allies are Paraguay’s regional allies, specifically the
fellow members of the Common Market of the Southern Cone, also
known as MERCOSUR. Foreign Minister Cowles has said that MERCOSUR
is a top priority for Paraguay, for both strategic as well as
economic reasons. Argentina and Brazil’s large economies
have experienced recent upswings, exhibiting enhanced prospects
for closer, more beneficial regional integration. Duarte Frutos
plans to focus on negotiations concerning the Free Trade Area
of the Americas as well, but he will have to do this with care,
since his fellow MERCOSUR members would prefer to discourage
a dominant U.S. role in the region’s movement to improve
economic integration.
Finance Minister Borda, who expresses
confidence that the IMF and other multilateral organizations
will endorse the actions of Duarte Frutos’ administration,
has stated that the administration was “determined to
engage in an all-out fight on evasion and informal trade, both
in the public and the private sectors.” But should the
record of patronage and the misuse of public funds continue,
Paraguay will never even see that multimillion-dollar carrot
that the IMF is dangling before its eyes. To the contrary, the
IMF or other lenders will only consider financing a loan to
Paraguay if Duarte Frutos follows through with his commitments
to “restoring trust in the country in order to make this
a predictable state.” Because political card games and
misuse of public funds have been so intertwined in the past,
Duarte Frutos’ supposed heavy-handed approach to economic
reform and to massive corruption will be checked and observed
as it is carried out. The last thing Paraguay needs is more
of the same economic contractions and political sleaziness,
but in recent years Colorado presidential campaigns have always
featured and emblazoned an anti-corruption banner. Once political
victory was assured, however, the flag was always quickly lowered.
_______________________________________________________________________________________
This analysis was prepared
by Courtney Kistler, COHA Research Associate.