Paraguay grows under Peña, but politics seem uncertain

Reading time: 5 minutes

ASUNCIÓN — Every winter, Paraguayans gather to burn effigies known as Judas Kaiof people they don’t like. This year, among the usual names of corrupt senators and scandal-ridden local officials, a new mannequin was making a big appearance: President Santiago Peña.

Peña, a telegenic 45-year-old economist who worked for the IMF and was Paraguay’s finance minister, won the April 2023 election against a divided opposition. As leader of the conservative Colorado Party, which has governed Paraguay for all but five of the past 77 years, Peña promised more police on the streets, 500,000 new jobs, cheaper gasoline and to continue filling government posts with loyal Colorados. With his slogan Let’s get better (“It will get better”), winning over a weary public that gave his party a majority in both houses of Congress, with a flood of defectors further swelling the size of the governing bloc.

With Peña celebrating a year in office on August 15, polls suggest Paraguayans are divided over his presidency, with 48.5% of respondents in June giving him a positive rating, compared to 48.3% opposed. Supporters praise his handling of the economy – Paraguay’s GDP is expected to grow by almost 4% this year, one of the highest growth rates in Latin America – and his moves to tackle organized crime. But critics charge that Peña has failed to outline a strategy to tackle corruption or a fragile social safety net, while the rule of law and democratic guarantees have also come under renewed pressure.

They also allege that Horacio Cartes, one of the country’s richest men, leader of the Colorado Party and president of Paraguay from 2013 to 2018, continues to play too large a role in the country’s politics. The U.S. sanctioned Cartes last year, accusing him of bribing lawmakers and other forms of corruption, and of doing business with Hezbollah, all of which Cartes denies. Last week, the Treasury Department’s Office of Foreign Assets Control (OFAC) followed up with sanctions against Tabacalera del Este SA (Tabesa), a cigarette manufacturer, for paying millions of dollars to Cartes, its former owner.

“This government clearly has two heads: the president of the republic and the president of the party,” said Dionisio Borda, a former finance minister in both Colorado and center-left governments. Cartes, he argued, “is de facto the president of Paraguay” and is trying to consolidate “an authoritarian project that goes back ten years.”

Measured profits

Peña has played down such talk. “Horacio Cartes is a hugely important person in Paraguay and in the political movement in which we are active,” Peña said in a radio interview, “but that doesn’t mean I’m not my own person.” The latest edition of the Economist Intelligence Unit’s closely watched Democracy Index upgraded Paraguay from a “hybrid regime” to a “flawed democracy.”

On the economic front, the president can take some credit for Moody’s recent decision to upgrade Paraguay’s sovereign credit rating to investment grade, citing institutional reforms, stable fiscal policy and public investment in infrastructure under successive governments. Peña has appointed experienced and relatively independent figures to the Finance and Economy Ministries and the Central Bank.

Moody’s also praised Peña’s merger of the tax and customs services, which helped boost tax revenues by 24% year-on-year in the first half of 2024. Yet the debt-to-GDP ratio still climbed to 38% of GDP in April, up from 23% in 2019, largely because taxes – levied on just 10% of personal and corporate income – generate just 15% of GDP, the lowest share in South America. Meanwhile, inequality in Paraguay remains stubbornly high, and Moody’s warned that inadequate schools and essential services could hold Paraguay back.

“The biggest challenge for the government is mobilizing resources to meet social demands such as health care and education,” Borda said. water. That’s easier said than done. In June, for example, an opposition bill to raise tobacco taxes to 2% from 22% — one of the lowest in the world — to help fund Paraguay’s ailing National Cancer Hospital was defeated by lawmakers loyal to Cartes, whose fortune rests on cigarette production.

Peña has moved quickly against drug cartels. In December, security forces stormed Tacumbú, a notoriously lawless prison in the capital, and seized drugs and weapons, killing 11 inmates and a police officer. Prisoners were stripped naked and filmed at gunpoint in the style of El Salvador’s President Nayib Bukele, an acknowledged influence on Peña, before being distributed to other maximum-security prisons. The raid was “an undeniable achievement” and a serious blow to organized crime, said Mabel Rehnfeldt, a veteran investigative journalist for ABC colorThe Brazilian PCC and the local Clan Rotela have long used Tacumbú as a recruiting center, operations center, and even a luxury retreat.

Unpopular movements

Peña is also courting the international community, having spent a fifth of his time as president abroad with a series of 24 foreign trips. But they do not appear to have brought significant new investment to Paraguay, Johanna Ortega, a center-left opposition lawmaker, told reporters. water. “When presidents travel abroad, they have to bring results,” she said. Key negotiations with Brazil over profits from the massive Itaipú hydroelectric plant, for example, have so far been inconclusive and held behind closed doors, Ortega added.

While Peña projects the image of a modernizing technocrat abroad, controversies are mounting at home. In February, the pro-Cartes bloc in the Senate ousted Senator Kattya González, a well-known critic of corruption. Her ouster, which Peña reportedly privately opposed, sparked street protests and concerns from European diplomats. In March, leaked WhatsApp conversations appeared to show prosecutors working with Cartes’ lawyer before filing charges against former President Mario Abdo Benítez (2018-2023). In April, Peña passed his flagship Hambre Cero law, sparking the largest protests against his government yet. The law ostensibly tackles hunger in schools, but it also strips local governments of funding decisions and gives his administration sweeping control over education subsidies that students fear could be cut.

Perhaps the most controversial move came in June, when Cartes allies introduced a bill that would impose tough reporting requirements on NGOs, along with heavy financial penalties. The opposition, business groups, the Catholic Church and UN experts have condemned the proposal as similar to the repression of civil society in Nicaragua and Venezuela. Borda, the former minister, fears that his think tank CADEP – which has found that nearly all cigarettes produced in Paraguay are smuggled abroad – and many others will be shut down.

Cartes, meanwhile, appears to be growing in power. In July, the Colorado faithful lined up to wish him a happy birthday, a throwback to the Stroessner era, with Peña first in line. “Peña may be the formal president, but everyone knows the real president holds court around the grill on Avenida España,” said Rehnfeldt of ABC colorreferring to Cartes’ princely residence.

“Public frustration can take us down a dark path,” she added. Last year, radical former senator Paraguayo Cubas, who promised to close Congress and shoot corrupt politicians, won 24% of the vote.

Ortega, the congresswoman, warned of a Chile-style social uprising unless Peña raises enough taxes and spends enough to modernize Paraguay’s struggling schools and hospitals. “When people have nothing left to lose,” she said, “it’s a bomb that can explode at any moment.”

ABOUT THE AUTHOR

Reading time: 5 minutesBlair reports from Paraguay for The guard, The economistAnd The New York TimesHis book Fatherlandan alternative history of South America, will be published by Bodley Head/Vintage in November 2024.

Keywords: Horacio Cartes, Paraguay, Santiago Peña

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