Paraguay

Bureau of Western Hemisphere Affairs                                          
May 2007                                                                      
                                                                       
  Background Note: Paraguay                                                   
                                                                       
  Paraguay flag is three equal, horizontal bands of red (top), white, and blue
  with an emblem centered in the white band; unusual flag in that the emblem is
  different on each side; the obverse (hoist side at the left) bears the      
  national coat of arms (a yellow five-pointed star within a green wreath     
  capped by the words REPUBLICA DEL PARAGUAY, all within two circles); the    
  reverse (hoist side at the right) bears the seal of the treasury (a yellow  
  lion below a red Cap of Liberty and the words Paz y Justicia (Peace and     
  Justice) capped by the words REPUBLICA DEL PARAGUAY, all within two circles.
                                                                       
  PROFILE                                                                     
                                                                       
  OFFICIAL NAME:                                                              
  Republic of Paraguay                                                        
                                                                       
  Geography                                                                   
  Area: 406,752 sq. km. (157,047 sq. mi.); about the size of California.      
  Cities: Capital--Asuncion (pop. 539,000). Other cities--Ciudad del Este,    
  Concepción, Encarnación, Pedro Juan Caballero, Coronel Oviedo.              
  Terrain: East of the Paraguay River--grassy plains, wooded hills, tropical  
  forests; west of the Paraguay River (Chaco region)--low, flat, marshy plain.
  Climate: Temperate east of the Paraguay River, semiarid to the west.        
                                                                       
  People                                                                      
  Nationality: Noun and adjective--Paraguayan(s).                             
  Population (2006 est.): 6,506,464.                                          
  Annual population growth rate: 2.45% (2006 est.).                           
  Ethnic groups: Mixed Spanish and Indian descent (mestizo) 95%.              
  Religions: Roman Catholic 90%; Mennonite and other Protestant denominations.
  Languages: Spanish (language of business and government), Guarani (spoken and
  understood by 90% of the population).                                       
  Education: Years compulsory--9. Attendance--92%. Literacy--94%. (UNICEF)    
  Health: Infant mortality rate--29/1,000. Life expectancy--69 years male; 73 
  years female. (Population Reference Bureau)                                 
  Work force (2002, 2.5 million): Agriculture--45%; industry and commerce--31%;
  services--19%; government--4%.                                              
                                                                       
  Government                                                                  
  Type: Constitutional Republic.                                              
  Independence: May 1811.                                                     
  Constitution: June 1992.                                                    
  Branches: Executive--President. Legislative--Senate and Chamber of Deputies.
  Judicial--Supreme Court of Justice.                                         
  Administrative subdivisions: 17 departments, 1 capital city.                
  Political parties: National Republican Association/Colorado Party (ANR),    
  Authentic Radical Liberal Party (PLRA), Beloved Fatherland (PQ), National   
  Union of Ethical Citizens (UNACE), National Encounter Party (PEN), The      
  Country in Solidarity Party (PPS), and numerous small parties not represented
  in Congress.                                                                
  Suffrage: 18 years of age; universal and compulsory by law up to age 75.    
                                                                       
  Economy (2005 Central Bank and IMF data)                                    
  GDP: $8.06 billion.                                                         
  Annual growth rate (2005): 2.9%.                                            
  Per capita GDP: $1,288.                                                     
  Natural resources: Hydroelectric sites, forests.                            
  Agriculture (25.5% of GDP): Products--soybeans, yucca, cotton, beef, cereals,
  sugarcane.                                                                  
  Arable land: 9 million hectares, of which 30% is in production.             
  Manufacturing (14% of GDP): Types--sugar, cement, textiles, beverages, wood 
  products.                                                                   
  Trade (2005): Exports--$1.68 billion: soybeans, meat, cotton, soybean oil,  
  wood, animal hides, vegetable oil, tobacco, and sugar. Major markets--Uruguay
  (28.23%), Brazil (19.10%); the United States is 8th place with 3%.          
  Imports--$3.25 billion: fuels and lubricants, machinery, electric materials,
  transportation and accessories, industrial chemicals, fertilizers, plastics 
  and manufactures, paper and manufactures. Major suppliers--Brazil (27.6%),  
  Argentina (20%), China (19.7%), U.S. (5.5%).                                
                                                                       
  PEOPLE                                                                      
  Paraguay's population is distributed unevenly throughout the country. The   
  vast majority of the people live in the eastern region, most within 160     
  kilometers (100 mi.) of Asuncion, the capital and largest city. The Chaco,  
  which accounts for about 60% of the territory, is home to less than 2% of the
  population. Ethnically, culturally, and socially, Paraguay has one of the   
  most homogeneous populations in South America. About 95% of the people are of
  mixed Spanish and Guarani Indian descent. Little trace is left of the       
  original Guarani culture except the language, which is understood by 90% of 
  the population. About 75% of all Paraguayans speak Spanish. Guarani and     
  Spanish are official languages. Brazilians, Argentines, Germans, Arabs,     
  Koreans, Chinese, and Japanese are among those who have settled in Paraguay 
  with Brazilians representing the largest number.                            
                                                                       
  HISTORY                                                                     
  Pre-Columbian civilization in the fertile, wooded region that is now Paraguay
  consisted of numerous seminomadic, Guarani-speaking tribes, who were        
  recognized for their fierce warrior traditions. They practiced a mythical   
  polytheistic religion, which later blended with Christianity. Spanish       
  explorer Juan de Salazar founded Asuncion on the Feast Day of the Assumption,
  August 15, 1537. The city eventually became the center of a Spanish colonial
  province. Paraguay declared its independence by overthrowing the local      
  Spanish authorities in May 1811.                                            
                                                                       
  The country's formative years saw three strong leaders who established the  
  tradition of personal rule that lasted until 1989: Jose Gaspar Rodriguez de 
  Francia, Carlos Antonio Lopez, and his son, Francisco Solano Lopez. The     
  younger Lopez waged a war against Argentina, Uruguay, and Brazil (War of the
  Triple Alliance, 1864-70) in which Paraguay lost half its population;       
  afterward, Brazilian troops occupied the country until 1874. A succession of
  presidents governed Paraguay under the banner of the Colorado Party from 1880
  until 1904, when the Liberal party seized control, ruling with only a brief 
  interruption until 1940.                                                    
                                                                       
  In the 1930s and 1940s, Paraguayan politics were defined by the Chaco war   
  against Bolivia, a civil war, dictatorships, and periods of extreme political
  instability. Gen. Alfredo Stroessner took power in May 1954. Elected to     
  complete the unexpired term of his predecessor, he was re-elected president 
  seven times, ruling almost continuously under the state-of-siege provision of
  the constitution with support from the military and the Colorado Party.     
  During Stroessner's 35-year reign, political freedoms were severely limited,
  and opponents of the regime were systematically harassed and persecuted in  
  the name of national security and anticommunism. Though a 1967 constitution 
  gave dubious legitimacy to Stroessner's control, Paraguay became            
  progressively isolated from the world community.                            
                                                                       
  On February 3, 1989, Stroessner was overthrown in a military coup headed by 
  Gen. Andres Rodriguez. Rodriguez, as the Colorado Party candidate, easily won
  the presidency in elections held that May, and the Colorado Party dominated 
  the Congress. In 1991 municipal elections, however, opposition candidates won
  several major urban centers, including Asuncion. As president, Rodriguez    
  instituted political, legal, and economic reforms and initiated a           
  rapprochement with the international community.                             
                                                                       
  The June 1992 constitution established a democratic system of government and
  dramatically improved protection of fundamental rights. In May 1993, Colorado
  Party candidate Juan Carlos Wasmosy was elected as Paraguay's first civilian
  president in almost 40 years in what international observers deemed fair and
  free elections. The newly elected majority-opposition Congress quickly      
  demonstrated its independence from the executive by rescinding legislation  
  passed by the previous Colorado-dominated Congress. With support from the   
  United States, the Organization of American States, and other countries in  
  the region, the Paraguayan people rejected an April 1996 attempt by then-Army
  Chief Gen. Lino Oviedo to oust President Wasmosy, taking an important step to
  strengthen democracy.                                                       
                                                                       
  Oviedo became the Colorado candidate for president in the 1998 election, but
  when the Supreme Court upheld in April his conviction on charges related to 
  the 1996 coup attempt, he was not allowed to run and remained in confinement.
  His running mate, Raul Cubas Grau, became the Colorado Party's candidate and
  was elected in May. The assassination of Vice-President Luis Maria Argana and
  the killing of eight student anti-government demonstrators, allegedly carried
  out by Oviedo supporters, led to Cubas' resignation in March 1999. The      
  President of the Senate, Luis Gonzalez Macchi, assumed the presidency and   
  completed Cubas' term. Gonzalez Macchi offered cabinet positions in his     
  government to senior representatives of all three political parties in an   
  attempt to create a coalition government that proved short-lived. Gonzalez  
  Macchi's government suffered many allegations of corruption, and Gonzalez   
  himself was found not guilty in a Senate impeachment trial involving        
  corruption and mismanagement charges in February 2003.                      
                                                                       
  In April 2003, Colorado candidate Nicanor Duarte Frutos was elected         
  president. He was inaugurated on August 15. Duarte's administration has     
  established a mixed record on attacking corruption and improving the quality
  of management. In his first year, Duarte worked constructively with an      
  opposition-controlled Congress, removing six Supreme Court justices suspected
  of corruption from office and enacting major tax reforms. While Duarte      
  remains the most dominant political figure, he faced stiff opposition       
  mid-term from the opposition strongly opposed to his efforts to amend the   
  Constitution to allow him to run for reelection. Macroeconomic performance  
  has improved significantly under the Duarte administration, with inflation  
  falling significantly, and the government clearing its arrears with         
  international creditors. Unemployment remains stubbornly high and the living
  standard of most households has not improved. The administration has placed a
  strong emphasis on participating in international institutions and has used 
  diplomacy to promote the opening of international markets to Paraguayan     
  products. In June 2004, Oviedo returned to Paraguay from exile in Brazil and
  was imprisoned for his 1996 coup-plotting conviction.                       
                                                                       
  GOVERNMENT AND POLITICAL CONDITIONS                                         
  Paraguay's highly centralized government was fundamentally changed by the   
  1992 constitution, which provides for a division of powers. The president,  
  popularly elected for a 5-year term, appoints a cabinet. The bicameral      
  Congress consists of an 80-member Chamber of Deputies and a 45-member Senate,
  elected concurrently with the president through a proportional representation
  system. Deputies are elected by department and senators are elected         
  nationwide. Paraguay's highest judicial body is the Supreme Court. A        
  popularly elected governor heads each of Paraguay's 17 departments.         
                                                                       
  Principal Government Officials                                              
  President--Nicanor Duarte Frutos                                            
  Vice-President--Luis Castiglioni Soria                                      
  Minister of Foreign Affairs--Rubén Ramirez Lezcano                          
  Ambassador to the U.S.--James Spalding Hellmers                             
  Ambassador to the OAS--Manuel Maria Caceres                                 
  Ambassador to the UN--Eladio Loizaga Caballero                              
                                                                       
  Paraguay maintains an embassy in the United States at 2400 Massachusetts    
  Avenue, NW, Washington, DC 20008 (tel. 202-483-6960). Consulates are in     
  Miami, New York, and Los Angeles.                                           
                                                                       
  ECONOMY                                                                     
  Paraguay has a predominantly agricultural economy, with a struggling        
  commercial sector. There is a large subsistence sector, including sizable   
  urban unemployment and underemployment, and a large underground re-export   
  sector. The country has vast hydroelectric resources, including the world's 
  largest hydroelectric generation facility built and operated jointly with   
  Brazil (Itaipú Dam), but it lacks significant mineral or petroleum resources.
  The government welcomes foreign investment in principle and accords national
  treatment to foreign investors, but widespread corruption is a deterrent. The
  economy is dependent on exports of soybeans, cotton, grains, cattle, timber,
  and sugar; electricity generation, and to a decreasing degree on re-exporting
  to Brazil and Argentina products made elsewhere. It is, therefore, vulnerable
  to the vagaries of weather and to the fortunes of the Argentine and Brazilian
  economies.                                                                  
                                                                       
  According to International Monetary Fund (IMF) data, Paraguay's real GDP in 
  2005 of $8.06 billion (in 2000 dollars) represented an increase of 2.9% from
  2004. The per capita GDP rose 1.02% to $1,288 in current U.S. dollar terms in
  2005, but it is still below the peak of $1,793 in 1996. Given the importance
  of the informal sector, accurate economic measures are difficult to obtain. 
  In 2005, Paraguay had a current account deficit of $190 million, with a large
  deficit in the trade of goods, but with a surplus in services, reflecting   
  exports of electricity from Paraguay's two large hydroelectric dams shared  
  with Brazil and Argentina. In 2005, official foreign exchange reserves rose 
  to $1.29 billion, an increase of 10.8% over 2004, and an increase of more   
  than 100% from 2002 ($582.8 million). Foreign official debt rose slightly to
  $2.73 billion. Inflation in 2005 rose to 9.9 %, up from 2.8% in 2004 which  
  was the lowest rate since 1970.                                             
                                                                       
  Agriculture and Commerce                                                    
  Agricultural activities, most of which are for export, represent about 25.5%
  of GDP and employ just under half of the workforce. More than 200,000       
  families depend on subsistence farming activities and maintain marginal ties
  to the larger productive sector of the economy. In addition to commercial   
  sector with retail, banking and professional services, there is a significant
  activity involving the import of goods from Asia and the United States for  
  re-export to neighboring countries. The recorded activities of this sector  
  have declined significantly in recent years, largely in response to tighter 
  controls on imports and contraband on the part of Brazil. The underground   
  economy, which is not included in the national accounts, may equal the formal
  economy in size, although the greater enforcement efforts by the tax        
  administration are having an impact on the informal sector.                 
                                                                       
  DEFENSE                                                                     
  The constitution designates the president as commander in chief of the armed
  forces. Military service is compulsory, and all 18-year-old males--and 17   
  year olds in the year of their 18th birthday--are eligible to serve for one 
  year on active duty. However, the 1992 constitution allows for conscientious
  objection. Of the three services, the army has the majority of personnel,   
  resources, and influence. With about 7,000 personnel, it is organized into  
  three corps, with six infantry divisions and three cavalry divisions. The   
  military has two primary functions: national defense (including internal    
  order) and engaging in civic action programs as directed by the president.  
  The navy consists of approximately 2,000 personnel and in addition to its   
  fleet, has an aviation section, a prefecture (river police), and a contingent
  of marines (naval infantry). The air force, the smallest of the services, has
  approximately 1,200 personnel.                                              
                                                                       
  FOREIGN RELATIONS                                                           
  Paraguay is a member of the United Nations and several of its specialized   
  agencies. It also belongs to the Organization of American States, the Latin 
  American Integration Association (ALADI), the Rio Group, INTERPOL, and      
  MERCOSUR (the Southern Cone Common Market). Paraguay is closely aligned with
  its MERCOSUR partners on many political, economic, and social issues. It is 
  the only country in South American that recognizes Taiwan and not the       
  People's Republic of China.                                                 
                                                                       
  U.S.-PARAGUAY RELATIONS                                                     
                                                                       
  U.S. Interests in Paraguay                                                  
  The United States and Paraguay have an extensive relationship at the        
  government, business, and personal level. Paraguay is a partner in          
  hemispheric initiatives to improve counternarcotics cooperation, combat money
  laundering, trafficking in persons, and other illicit cross-border          
  activities, and adequately protect intellectual property rights. The United 
  States looks to Paraguay, which has tropical forest and riverine resources, 
  to engage in hemispheric efforts to ensure sustainable development. The     
  United States and Paraguay also cooperate in a variety of international     
  organizations.                                                              
                                                                       
  Paraguay has taken significant steps to combat terrorism-financing activity 
  in the tri-border area it shares with Argentina and Brazil. It participates 
  in antiterrorism programs and fora, including the Three Plus One Security   
  Dialogue, with its neighbors and the United States.                         
                                                                       
  The United States strongly supports consolidation of Paraguay's democracy and
  continued economic reform, the cornerstones of cooperation among countries in
  the hemisphere. The United States has played important roles in defending   
  Paraguay's democratic institutions, in helping resolve the April 1996 crisis,
  and in ensuring that the March 1999 change of government took place without 
  further bloodshed.                                                          
                                                                       
  Bilateral trade with the United States has increased over the last four     
  years, after a steady decline over several years due to a long-term recession
  of the Paraguayan economy. Although U.S. imports from Paraguay were only    
  $51.28 million in 2005, down from $58.58 million the previous year, U.S.    
  exports to Paraguay in 2005 were $895.53 million, up from $622.87 million in
  2004, according to U.S. Customs data. (Not all exports and imports are      
  reflected in Paraguayan government data.) More than a dozen U.S.            
  multinational firms have subsidiaries in Paraguay. These include firms in the
  computer, agro-industrial, telecom, banking, and other service industries.  
  Some 75 U.S. businesses have agents or representatives in Paraguay, and more
  than 3,000 U.S. citizens reside in the country.                             
                                                                       
  U.S. Assistance                                                             
  The U.S. Government has assisted Paraguayan development since 1942. In 2006,
  Paraguay signed a $34.9 million Millennium Challenge Corporation's (MCC)    
  Threshold Country Program (TCP) with the U.S. focused on supporting         
  Paraguay's effort to combat impunity and informality. Also in 2006, Paraguay
  signed and ratified an agreement with the U.S. under the Tropical Forest    
  Conservation Act that provides Paraguay with $7.4 million in relief and     
  zeroing out its remaining bilateral debt in exchange for the Paraguayan     
  Government's commitment to conserve and restore tropical forests in the     
  southeastern region of the country. Separately, the U.S. Agency for         
  International Development (USAID) supports a variety of programs to         
  strengthen Paraguay's democratic institutions in the areas of civil society,
  local government and decentralization, national reform of the state,        
  rule-of-law, and anti-corruption. Other important areas of intervention are 
  economic growth, the environment and public health. The total amount of the 
  program was approximately $10 million in fiscal year 2006.                  
                                                                       
  The U.S. Department of State, the Drug Enforcement Administration, the      
  Department of Justice and the Department of Treasury provide technical      
  assistance, equipment, and training to strengthen counter narcotics         
  enforcement, combat trafficking in persons, promote respect for intellectual
  property rights, and to assist in the development and implementation of money
  laundering legislation and counter terrorism legislation.                   
                                                                       
                                                                       
    * On December 19, 2003, U.S. and Paraguayan officials signed a new        
      Memorandum of Understanding to strengthen the legal protection and      
      enforcement of intellectual property rights in Paraguay. The MOU was    
      extended in 2006 through the end of 2007.                               
    * Since 2003 the U.S. Government has had a Resident Justice Advisor in    
      Paraguay to support efforts to combat money laundering and terrorist    
      financing and other financial crimes as well as organized crime and     
      corruption.                                                             
    * In 2006, the State Department's Bureau of International Narcotics and Law
      Enforcement Affairs (INL) provided Paraguay with $494,000 in assistance 
      to support its efforts to combat narcotics trafficking, money laundering,
      and violations of intellectual property rights.                         
    * Starting in 2004, a Resident Public Debt Advisor, a Resident Budget     
      Advisor, and a Resident Tax Advisor from the Department of Treasury have
      been working with Paraguayan counterparts to implement essential reforms.
                                                                       
  The U.S. Department of Defense (D0D) provides technical assistance and      
  training to help modernize and professionalize the military, including by   
  promoting respect for human rights and obedience to democratically elected  
  civilian authorities. DOD also provides assistance to impoverished          
  communities through its Humanitarian Assistance Program.                    
                                                                       
  The Peace Corps has about 160 volunteers working throughout Paraguay on     
  projects ranging from agriculture and natural resources to education, rural 
  health, and urban youth development.                                        
                                                                       
  The Office of Public Diplomacy also is active in Paraguay, funding Fulbright
  and other scholarships to the U.S., U.S. scholars to Paraguay, other short- 
  and long-term exchanges, English scholarship programs, donations of books and
  equipment, and a cultural preservation project to restore Paraguay's National
  Library.                                                                    
                                                                       
  Principal U.S. Officials                      &nbs