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Paraguay’s Presidential Election is a Referendum on China’s Dollar Diplomacy in Latin America

Paraguay, the landlocked South American country bordering Brazil and Argentina, is bracing for an upset in this Sunday’s presidential contest, with the country’s diplomatic relationship with Taiwan at stake.

The latest polls show Santiago Peña, the candidate for the ruling right-wing Colorado Party candidate—which has seen almost 75 years of uninterrupted rule—in a statistical dead heat with the country’s main opposition figure, centrist Efrain Alegre. One key difference in their platforms? The status of the One China policy.

Paraguay is currently the only country in South America that recognizes Taiwan as a sovereign state. If he is elected, Alegre is open to changing that policy, arguing that the cost of Paraguay missing out on exports to China, specifically from the country’s soybean and beef industries, is a bad fiscal decision for the country.

He challenged Taiwan to invest more in his country, saying that Paraguay needs to be rewarded for the political and economic cost of icing out China.

“We don’t see that Taiwan is doing the same for Paraguay. Taiwan needs to recognize and compensate Paraguay for what it’s losing from this relationship. It’s only fair,” Alegre said in a recent press conference.

Local farmers’ unions have thrown their support behind Alegre. Paraguay’s Pedro Galli, the head of the Paraguayan Rural Association, told Reuters that he is frustrated that Paraguay is “a food-producing nation that is not selling to the world’s biggest buyer of food.”

Despite its relatively small trade relationship, Paraguay’s support is high stakes for Taiwan, as it is one of only thirteen countries with formal diplomatic ties to the island nation.

Taiwan’s foreign minister Joesph Wu said he was “perplexed” by Alegre’s comments, and a spokesperson for the Taiwanese Ministry of Foreign Affairs cautioned Paraguay against believing in “China’s superficial promises.”

How Much does China Invest in Latin America?

While China has not made any promises to Paraguay, there is a clear reason for Taiwan’s dwindling presence in Latin America: China’s unprecedented investment in the region.

Honduras is a recent example of how China’s dollar diplomacy can affect geopolitical headwinds. The small Central American nation switched alliances from Taiwan to China last month, not long after a Chinese company built a $300 million hydroelectric damn in the country, fully funded by the Chinese government.

Over the last few decades, China has invested more than a hundred billion dollars in the region. Already South America’s top trading partner, Chinese companies invested $11.3 billion in regional infrastructure projects in 2021 alone, funded by China’s Belt and Road initiative.

Most of China’s investment has been in the region’s mining sector. Between 2000 and 2018, China invested $73 billion in Latin American raw materials. More recently, China has been betting big on lithium—a key material for electric vehicle batteries—with major investments in Chile, Bolivia, and Mexico.

It makes sense that some policy-makers in Paraguay—one of the poorest countries in South America—would be interested in getting in on this windfall, regardless of the impact on an island 12,000 miles away.

Brief History: Paraguay’s Anti-Communist Alliance with Taiwan

The Colorado Party’s strong alliance with Taiwan dates back to Paraguay’s former right-wing dictator Alfredo Stroessner, who ruled the country from 1954 to 1989, and saw Taiwan as a bulwark against communism during the Cold War.

Relations began after Stroessner saw a natural ally in fellow anti-communist Chiang Kai-shek, the authoritarian ruler of Taiwan, soon after his exile from mainland China. In fact, Stroessner built a statue of Kai-shek in the capital shortly after the two countries began diplomatic relations.

In the decades since—with Stroessner’s Colorado Party remaining the country’s dominant political force—the two nations have remained close. Taiwan has provided hundreds of millions of dollars in economic investment, as well as deferred loans, in the same time period.

In 2008, Paraguay’s president Fernando Lugo—who broke 65 years of Colorado Party rule—floated the idea of establishing diplomatic relations with China, citing economic limitations to Paraguay’s Taiwan policy.

This idea never got off the ground, however, and Lugo was impeached part way through his term, an act neighboring countries deemed a coup d’etat. His elected successor, former president Horacio Cartes—a member of the Colorado Party—reestablished close ties with Taiwan.

Source : Quartz