While most of Brazil’s foreign policy analysts are debating the political and economic consequences of Venezuela’s recent accession to Mercosur, a smaller neighbor’s plight requires Brazil’s attention. Paraguay is still chafing at what many Paraguayans consider an unfair suspension from Mercosur, following President Lugo’s impeachment that leaders in the region have called a ‘parliamentary coup’. Swiftly accepting Venezuela without consulting Paraguay has added in to unease in South America’s poorest nation, and Paraguay’s new foreign minister says he faces public pressure at home to unilaterally retreat from Mercosur. While calls for a retreat have indeed dominated the public debate in Asunción recently, such a radical step is unlikely. Paraguay strongly depends on its giant neighbor, and disrupting commercial ties would spell disaster for the new government in Asunción. The Brazilian economy is more than one hundred times larger than that of Paraguay, and President Franco is aware of his nation’s vulnerability.
Yet Paraguay presents a more fundamental problem to Brazil, and the government in Brasília should seriously take on the challenge of helping Paraguay transform into an economically and politically stable neighbor and partner. Instead of applying a political quick fix, a broader strategy is necessary to avoid unforeseeable disruptions that could pose strategic threats to Brazil’s national interest: Approximately 350,000 Brazilian citizens live in Paraguay and Brazilian investments, mostly in the agricultural sector, are growing. As Matias Spektor points out in a recent op-ed, a vulnerable neighbor could turn into a hub of drug and arms trafficking, undermining efforts in Brazil to reduce urban violence. In addition, 20% of Brazil’s energy is generated at the Itaipú dam, irreversibly tying Brazil and Paraguay together.
The Brazilian government should therefore use the time of political transition in Asunción to prepare for sustained multi-level cooperation with the government that will be elected in 2013 (President Franco has already announced that he will not be a candidate). Paraguay should turn into one of the principal recipients of Brazilian development aid. Brazil’s Development Agency (ABC) should finance and work with local Paraguayan authorities to help them replicate the successful Bolsa Familia (Family Stipend) and Fome Zero (Zero Hunger) programs which have transformed Brazil. Reducing poverty and inequality and improving education is likely to contribute to higher economic growth and political stability in Paraguay.
Now that Brazil’s peacekeeping troops are slowly retreating from Haiti, Paraguay could turn into Brazil’s next showcase of its growing development and humanitarian aid programs. This could go hand in hand with a systematic effort to improve Brazil’s reputation in Paraguay, considering that many Paraguayans feel they benefit too little from Brazil’s rise. Aside from financing cash-transfer programs across Paraguay, the Brazilian government could finance Portuguese language classes in Paraguay's high schools, establish Brazilian cultural centers, and scholarships for Paraguayan students to study at Brazilian universities. Considering that Paraguay has only 6.5 million inhabitants, the initiative’s long-term strategic benefits for Brazil are likely to far outweigh its costs.