564. Country Analysis and Strategy Paper for Paraguay, February 7, 1969.1 2

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COUNTRY ANALYSIS AND STRATEGY PAPER FOR PARAGUAY

I. Statement of Rationale and Basic Strategy

There are two predominant US interests in Paraguay. We are primarily concerned with its continuing support for US positions on international policy matters, an interest increasingly important given the well-known proliferation of nations whose actions in international forums are often irresponsible and subject to manipulation by our adversaries. Secondly, we are interested in Paraguay’s successful development under conditions of internal security and political stability. These primary interests are closely related since a stable and relatively prosperous Paraguay is more likely to maintain its present pro-US orientation than would be the case if the country were to relapse into political instability and serious economic depression.

In the view of the Country Team, we can advance these interests--as in the recent past--by a modest input of US resources, both in terms of personnel and of money. Paraguay is surrounded by larger neighbors with whom it has, during the last hundred years, engaged in bitter conflict--the disastrous War of the Triple Alliance against Brazil, Argentina and Uruguay (1864–70) and the exhausting Chaco War with Bolivia (1932–35). Given our predominant position in the Western Hemisphere, Paraguay’s own interests require that it look to us as a counterweight against any undue political and economic pressures from these larger neighbors. The GOP also recognizes that the US--either directly or indirectly--is the major source of development capital for Paraguay. Nevertheless, to achieve maximum effectiveness in the deployment of our resources in Paraguay, we must be adroit and give full recognition to the sensibilities of the Stroessner government, which will be in power during the time frame (FY 1971–73) under consideration.

The Country Team fully recognizes that Paraguay occupies a position of limited importance on the Latin American scene. It has, however, consistently supported US positions in international forums and this support has not only been welcomed but repeatedly sought.

In the long run, Paraguay has appreciable economic potential as a supplier of foodstuffs, especially meat, for the growing population of both South America and the world. Geographically situated in the “heartland” of South America and forming part of the River Plate basin, Paraguay also offers important possibilities for the development of transportation, communication, and hydroelectric power networks in an economically integrated region. It could be of major importance to the US as a potential staging area or safe haven during crises in neighboring countries. In addition, Paraguay is a likely contributor of a military unit to any future “Inter-American Peace Force,” as it was during the Dominican crisis.

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There are several secondary US interests in Paraguay. We are interested in maintaining the gradual and cautious movement toward liberalization which has been noticeable in Paraguay during the past few years. Given the importance of regional economic development in Latin America, we should encourage the hesitant and cautious movement toward the regional sub-grouping of LAFTA involving Paraguay which appears to have some prospects of successful growth--i.e., the Cuenca del Plata. It would also appear to be in our interest to show Paraguay as an example of a small country with very modest physical and human resources which is making considerable progress in exploiting these resources--i.e., as an example of what can be accomplished under conditions of “paz y estabilidad.”

In the period under consideration, we shall most likely be primarily involved in Paraguay’s over-all internal development. This over-all development is, in turn, a prerequisite to longer-term prospects for significantly-increased US trade and investment.

There are factors which could influence and limit the capability of the US to promote its primary interests in Paraguay. The GOP might be tempted to moderate its usual support for US positions in the international political sphere if areas sensitive to President Stroessner are not handled in a tactful manner. Specifically, the GOP will be particularly sensitive if Bolivia is one of the few Latin American countries singled out to receive grant military aid after the currently-planned termination of MAP materiel assistance at the end of FY 1970. The GOP would certainly regard such action as an example of an alleged US proclivity to disregard the needs and interests of its true friends while helping less deserving governments. Finally, the sudden removal of President Stroessner from the political scene would raise the distinct possibility of a period of political instability and economic uncertainty pending the resolution of the succession to his present unquestioned leadership. This is a major imponderable in any consideration of US strategy toward Paraguay: given the present political and institutional structure of Paraguay, Stroessner appears to be the only man indisputably capable of holding the country together during the period under consideration.

In the economic sphere, the fluctuating demand for Paraguayan export products, reluctance to mobilize internal resources and Paraguay’s relative lack of sophistication in responding to world market opportunities, seriously complicates the generation of financial resources necessary to underwrite development.

Nonetheless, there are grounds for reasonable optimism about the possibilities of furthering our predominant and secondary interests in the time frame under consideration. It should be stressed, however, as noted in the last approved CASP: “it remains evident that gradual progress will more likely he lasting progress.”

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The Country Team is pleased to note that significant progress has been achieved in the fiscal and budgetary area since the approval of the last CASP in June 1968. The long-deferred “Organic Reform” of the Paraguayan Budget Law has been enacted, and the Congress has passed a number of sorely-needed revenue measures. These encouraging developments in the fiscal field have been brought about by direct and continuous US pressure exercised primarily through CIAP and by the increasing coordination of policy lines between State/AID and appropriate international agencies (i.e. IDB/IBRD/IMF). The momentum already generated by the US in the direction of reforms under a CIAP umbrella should be maintained and accelerated since the US is not--and will not be in the period under consideration--the major direct provider of external development assistance to Paraguay.

Finally, we should concentrate USAID’s limited direct resources in the two key areas of agriculture and education plus, to the extent possible, population control. Prospects for efficient use of these resources are somewhat brighter with the appointment last Spring of new Ministers of Agriculture and of Education.

As of now, there is no visible security threat to the GOP, either from abroad or internally, nor is any such threat likely in the period under consideration. Nonetheless, given the importance of the military in the Paraguayan political scene, the Country Team believes it is in our interest to maintain the current excellent relationships between the US and Paraguayan Armed Forces. To this end, we recommend that a substantial US military presence (i.e. the USMILGP) be retained here during the time frame under consideration. In the event that present plans for the termination of grant assistance are revised, Paraguay should receive an equitable share, taking into special account grants to Bolivia.

In conclusion, the Country Team reiterates the importance of flexibility as a key element in our strategy toward Paraguay. When GOP support is solicited, particularly in a major crisis situation, we should recognize that such requests require in Paraguayan eyes a certain quid pro quo. While we should continue to relate our development assistance to the GOP’s self-help efforts and not hesitate to require reasonable reforms, the US should also take into account Paraguay’s relative underdevelopment and its limited debt-servicing capacity and administrative capabilities. In this latter connection, we should be prepared to give serious consideration to some form of “stretch-out” in some of Paraguay’s debt-repayment schedules. Finally, looking toward the eventual passing of Stroessner from the political scene, we should continue seeking--to the maximum extent possible without incurring the regime’s displeasure--to maintain and further good relations with personalities and groups of potential importance in the post-Stroessner era. If present internal trends continue, it should be increasingly easy to follow this particular strategy without damaging effects upon our predominant interests in Paraguay.

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[Omitted here are Section II, “Assessment of Current Situation;” Section III, “Objectives;” Section IV, “Options;” and Annexes A and B.]

  1. Source: National Archives, RG 59, Central Files 1967–69, POL 1 PAR–US. Secret. Transmitted to the Department of State as an attachment to Airgram A–14, February 7, 1969.
  2. The Embassy stated that the main interest of the United States in Paraguay was to maintain a stable, pro-U.S. Government. A secondary interest was to promote the liberalization of the Paraguayan economy.