When the Paraguayan Senate approved the “political judgment” against Fernando Lugo on June 22, it unleashed the biggest political crisis in the Mercosur in the last 20 years. The dust still hasn’t settled, but it’s clear that nothing will be the same since the shake-up.
In Paraguay the most backward political and economic forces have gained ground, opening up the possibility of a closer alliance with the United States, which gains an ally in a place where it can do much harm to Brazil. The suspension of Paraguay by Mercosur and Unasur allowed Venezuela’s entry into Mercosur, which the Paraguayan legislature had blocked since 2006 despite the approval of Brazil, Argentina and Uruguay.
China took advantage of the moment to advance relations with the region by proposing a free trade treaty with Mercosur. Paraguay had not only blocked Venezuela’s membership in Mercosur, but it also is one of the few countries in the world that has diplomatic relations with Taiwan and not China, which reveals the nature of its political leadership.
A Lesson for Paraguay
The conservative Brazilian paper Folha de São Paulo was the first international media outlet to headline the similarities between the Paraguayan coup and the Honduran coup in 2009. In Brazil, even conservatives view with concern the changes taking place in the region.
The removal of Lugo took the Brazilian government by surprise. The main ministers in Dilma Rousseff’s cabinet were attending to the Rio+20 Summit at the time. When the Paraguayan congress decided on June 21 that the next day they would hold a political trial of Lugo, Rousseff decided that the response should be collective and come from Unasur and Mercosur. At 7 p.m. foreign minister Antonio Patriota left for Paraguay, along with the foreign ministers of Argentina, Colombia, Uruguay and Venezuela.
The next day more joined. What they heard and saw after meeting with Paraguayan members of parliament and political leaders, who practically refused to listen to their arguments, convinced them of the need to “teach Paraguay a lesson” in politics.
The research center BASE Social Studies states that the Paraguayan right is “one of the most backward, reactionary and subservient in Latin America, product of the particular form of capitalist development in Paraguay and its authoritarian past.” It goes on to say that the massacre in Curuguaty “was a plan hatched well beforehand, implemented when they could scrape together the votes necessary in Parliament.”
One of the huge changes Paraguay during the Lugo presidency is that the Radical Authentic Liberal Party (PLRA) that had been an important center of resistance to the dictatorship of Alfredo Stroessner (1954-1989), betrayed its members and its history and became a party at the service of a corrupt business elite linked to contraband, drug trafficking and illegal land grabs.
The dictatorship facilitated the fusion between a business class tied to illegal activities and the Colorado Party, which was the State-Party under Stroessner that governed Paraguay for 60 years straight (from the civil war of 1947 to 2008 when Lugo won) in alliance with the military and much of the time under a state of siege.
The issue of land is the best example of what kind of elite exists in Paraguay. According to the FAO, concentration of land in that country is the most unequal in the world, with 80% in the hands of 2% of owners. The dictatorship maintained itself by handing out land to military officials, businessmen and members of the Colorado Party, as noted in the final report of the Truth and justice Commission delivered in 2008.
The report establishes that between 1954 and 1989 some 6.7 million hectares were illegally distributed, plus another one million handed out between 1989 and 2003. The report calls these lands “misappropriated land” that totals 32.7% of the arable surface of the country and 20% of the total surface area of Paraguay.
A large part of these lands, especially in the border departments, was given to Brazilian landlords, the brasiguayos, who today hold around 5 million hectares according to researcher Marcos Glauser. In the department where the massacre of Caraguaty occurred, in Canindeyú, the brasiguayos own 40% of the land and 80% of it is sown in soybeans. 
This business class and this rightwing forced the destitution of Lugo, demanding an iron fist against the peasants who occupied “misappropriated lands” so that they could be used in agrarian reform. Mercosur and Unasur decided at the summit in Mendoza June 29 to put a stop to the model of “constitutional coups” that was rolled out in Honduras in 2009 and continued in Paraguay.
It is true, as some media have stated, that the multinational Monsanto pressured to liberate genetically modified cotton that another multinational, Rio Tinto Alcan, wants to plant in Paraguay, taking advantage of abundant and cheap energy. Monsanto was also encouraged by the fact that the US government has been promoting the destitution of Lugo since 2009. But these external pressures could not have succeeded without a corrupt political class in Paraguay.
Mercosur at a its most difficult hour
All the governments of the region, including rightwing governments in Chile and Colombia, managed to arrive at a joint agreement: Unasur and Mecosur suspended Paraguay until elections in April of 2013. They showed consensus and distanced themselves from Washington, faced with a complex situation since this was a new kind of coup d’état.
Neither Unasur nor Mercosur applied economic sanctions to Paraguay. This was for two reasons: First, Paraguay is a major energy provider to Brazil, through the Itaipú hydroelectric plant, and to Argentina through Yacyretá. Moreover, its neighbors did not want Paraguay to withdraw definitively from these organizations for fear that that could push it closer to signing a free trade agreement with the United States and allowing the installation of U.S. military bases in its territory.
The new president Federico Franco insinuated as much when he said that the sanctions “ended the rule of neighboring countries” and now “Paraguay is freed to make decisions”. This is why Brazil convinced Hugo Chavez not to interrupt the flow of oil to Paraguay.
It won’t be easy for Paraguay to turn its back on the region. It has an enormous dependence on its neighbors; 55% of its exports go to the Mercosur, with Brazil as the main market, particularly for soybeans, meat, grains and oilseed.  Being a landlocked nation, all Paraguay’s production goes out through Brazilian and Argentine ports on which it depends completely along with its neighbors’ highway systems.
The coup in Paraguay does not cover up the difficulties of Mercosur, buffeted by the global crisis and the rise of China. There are major disputes between Argentina and Brazil, and between the two smaller countries (Uruguay and Paraguay) and the two large ones. The alliance is paralyzed because what is good for some is bad for others.
One reflection of these difficulties was the resignation of ambassador Samuel Pinheiro Guimarães, High Representative of the Mercosur, in the recent summit in Mendoza. In his letter of resignation he offers a lucid analysis of the reality of the bloc.
He notes that the economic crisis in Europe and the United States and the rise of China generate a huge flow of capital toward the south that “erodes the commercial ties among Mercosur countries that are the main foundation of the integration process.” De-industrialization derives from these policies and should be confronted by using resources from commodity exports, he states.
Pinheiro maintains that Unasur “cannot be the cornerstone for the construction of a South American economic bloc” because Chile, Colombia and Peru signed free trade agreements with the United States, making it impossible to build regional policies to promote development.
He thinks the bloc should be formed “based on the gradual expansion of Mercosur”, including Venezuela, Ecuador, Bolivia, Surinam and Guyana. The last should be given special conditions for entry owing to their low level of development and the political interest to the region of their incorporation.
To move forward, the ambassador says, the block should significantly broaden the political coordination and economic cooperation. “The central characteristic of Mercosur are the asymmetries,” he explained, which causes political tensions. He suggests a strong infusion of resources into the Fund for Structural Convergence to favor the smaller countries. The Fund currently has an annual budget of only 100 million dollars.
Perhaps the most insightful point of the letter is paragraph 2: “in a multipolar world in crisis with huge changes of power it is not in the interests of any bloc or large power to build or strengthen a new bloc of nations, especially if they are on the periphery. Any large power considers it more convenient to negotiate agreements with isolated states, especially if they are underdeveloped countries that are weaker politically and economically.”
Only the members of the Mercosur are interested in their bloc. However, when it was created in 1991 it was not conceived of as an organization to promote development but as a customs union to promote free trade. Pinheiro’s proposal consists of building capacity to promote harmonious and balanced regional development, eliminating the asymmetries and gradually building common legislation.
This new direction is necessary because the responses of the industrialized countries to the crisis are “a suspension in practice of the WTO agreements negotiated in the era of hegemony of the neoliberal thought.”
If Mercosur does not take these steps, “it will survive but always in a limited way and it will not transform into a bloc of nations capable of defending and promoting their interests in this new world that will emerge from the crisis we are living today.” This evaluation by one of the most prominent intellectuals in Brazil seems accurate. The next years will tell if there is political will to change course.
China steps up
Chinese prime minister Wen Jiabao visited the region when the coup took place in Paraguay. The culminating moment of his visit to Brazil, Uruguay and Argentina was the videoconference he held from Buenos Aires on June 25 with presidents Dilma Rousseff, Cristina Fernandez and José Mujica.
According to the Chinese agency Xinhua, the prime minister made three proposals: to strengthen mutual confidence and strategic communication with Mercosur; to double trade by 2016to 200 billion dollars, in addition to investments and financial and technological aid; and to foment bilateral relations in the areas of education and culture.
Wen Jiabao’s proposal was interpreted by his counterparts as what it really was: a vast strategic alliance that includes a free trade agreement between China and the Mercosur, taking advantage of the fact that Paraguay–the only country without relations with China– was suspended from Mercosur. The next day, he gave an important speech in Economic Commission for Latin America and the Caribbean (eCLAC) in Santiago, Chile.
There he announced the proposal to Latin America and the Caribbean consisting of “fighting protectionism”, “deepening strategic cooperation” and opening new markets with the objective of lifting bilateral trade “ to above 40 billion dollars in the next five years.” He proposed the creation of a cooperation fund for which China would provide with an initial five billion dollars and a line of credit from the Chinese Development Bank to build infrastructure.
Furthermore, he proposed broad agricultural cooperation and establishing a mechanism of emergency food reserves of 500 thousands tons destined to cover natural disasters and food aid, including the installation of centers of investigation and development in science and technology.
The Chinese offer looks tempting in moments in which the Mercosur faces enormous difficulties. The ECLAC did a study entitled “Dialogue and cooperation faced with new global challenges”. Alicia Barcenas, ECLAC executive sectretary, noted in the prologue that the region is faced with an historic opportunity to make major progress in infrastructure, innovation and human resources, that is, “to translate the profits generated by natural resources in various forms of human, physical and institutional capital.”
To do this it must attract direct investment from China that allows it to diversify exports. Of the more than 40 sections of the document, one could is particularly important to the South American countries: by 2030 two-thirds of the population of the middle class will live in the Asia-Pacific region compared to just 20% that will do it in Europe and North America.
As a consequence, the Asian middle class will become a “key market for food, high-qulaity products, toruism, medical services, retail goods and luxury items”, which will allow Latin America to diversity exports and increase value added.  It adds that internationalization of the renminbi can benefit the region that China became its second trade partner.
Among the conclusions is that China’s rise permits the South America region to prolong the favorable cycle of terms of trade that it has since 2003. “If we don’t take advantage of the moment, it could be accentuate the process exporting prime materials, establishing modalities renovated of the link between the center and the periphery.”
To achieve this, the ECLAC points to the need of establishing a “regional agenda concerted of priorities” that goes beyond unilateral initiatives. That is, the decisive is what is called “internal challenges”. On this decisive point, the analysis of Samuel Pinheiro and the ECLAC coincide completely. However, the grade war between members of the Mercosur remains a destabilizing factor.
The divisions often spread from the economic to the political. The entry of Venezuela decided at the Mendoza summit caused opposite reactions. According to Uruguayan foreign minister Luis Almagro, Rousseff pressed to make the decision that Mujica wanted to postpone because he did not agree with the procedures.  Marco Aurelio García, Brazilian advisor on international affairs, affirms that the decision was made by consensus and that the style of diplomacy of his country is not to pressure anyone. 
This is the type of problems that Pinheiro alludes to–the lack of mutual confidence and strategic vision, the predominance of local questions over general ones, and short term over long term, the incapacity to comprehend global changes. In the words of Italian Antonio Gramsci, it is the predominance of “small politics”. What is at stake is too important and not all are seem to understand it.
Raúl Zibechi is an international analyst for the weekly Brecha of Montevideo, professor and researcher on social movements in the Multiversidad Franciscana of Latin America, and advisor to several grassroots organizations. He writes the monthly “Zibechi Report” for the CIP Americas Program www.americas.org.
Translation: Laura Carlsen