Asunción’s opportunity cost

Paraguay-Taiwan relations hold firm, for now. 

Paraguay and Taiwan? An unlikely bilateral love story perhaps, but mutually beneficial the relationship continues to be. Whilst president Abdo Benitez has signalled his administration’s willingness to pursue more amicable relations with the People’s Republic of China (“PRC”), Paraguay is unlikely to reverse its recognition of Taiwan anytime soon. High-profile Taiwanese investments including a recent announcement of a new university in Paraguay continue to sweeten the bilateral deal.     

Observers of the region have long struggled to decipher the logic behind Asunción’s resistance to establishing diplomatic ties with the PRC. With economic and political clout that dwarfs that of Taiwan, an endless appetite for commodities and the prospect of cheap credit lines, you might think the switch would be a no-brainer. Not so.  

An executive of the Paraguay-Chile Chamber of Commerce and director of a Paraguayan asset management firm explained, “Paraguay is an important bilateral partner for Taiwan which is diplomatically isolated on the world stage. Taipei will invest heavily in Paraguay prior to presidential elections scheduled for 2023. Once a new administration is in power, Taiwan always lobbies the new administration and puts forward new investment projects to secure its favour.”

“Paraguay is an important bilateral partner for Taiwan which is diplomatically isolated on the world stage. Taipei will invest heavily in Paraguay prior to presidential elections scheduled for 2023.”

An executive of the Paraguay-Chile Chamber of Commerce

Paraguay is the only South American nation to maintain bilateral ties with Taiwan. Last year, Nicaragua shifted its allegiance to the PRC. Investments such as the Taiwan-Paraguay University investment plan must be understood as part of these efforts to influence the administration and hammer home why Taiwan is a valuable partner in a region that has switched allegiance to the PRC. The investment can be viewed as Taiwan displaying a soft-diplomacy strategy, more systemic to its interests by enhancing its presence in the country through an academic centre which will outlive Paraguayan governments and administrations.  

No doubt, Paraguay pays large opportunity costs for its Taiwan policy in the form of foregone Chinese investment and loans. Over the last decade, the annual average value of aid, investment and financial flows from China for Latin American countries with diplomatic relations with the PRC represented around 1% of their GDP. For Paraguay, this was not offset by flows from Taiwan. Broadly, investment and loans from Taipei have been minimal in comparison to inflows from North America and Europe.  

“There is this theory widely undisputed among the Paraguayan political class that it will be easier to seal a free trade agreement with the US than trying to revert the damaged bilateral relations with China,” opines the executive. Realistically, Asunción cannot build bridges with Beijing overnight. Should the country wish to pivot its bilateral relations, it will take several years for Paraguay to show that it is committed to consolidating diplomatic ties with the PRC.  

“There is this theory widely undisputed among the Paraguayan political class that it will be easier to seal a free trade agreement with the US than trying to revert the damaged bilateral relations with China.”

An executive of the Paraguay-Chile Chamber of Commerce

Politics matters, naturally, but so too does capital. “Taiwanese companies have participated in several public tenders in the country. They are supported by diplomats and some local businessmen who have business interests in Taipei. However, Taiwanese companies have failed to land any major contract so far,” added the executive. Infrastructure remains a key concern for businesses, especially in the countryside where the political influence of the agricultural lobby matters – they are increasingly viewing the PRC as a more viable political partner given the size of its export market.  

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