The Lugo victory was hailed as a step toward strengthening Paraguay's fragile democracy, ending six decades of one-party rule. Political Background1

The current political environment in Paraguay has been shaped by the country's turbulent political history. Due in large part to the country's authoritarian past, Paraguay's state institutions had remained weak while corruption continued to undercut democratic consolidation and economic development. Lugo's 2008 Election

There were three major candidates in the presidential election of April 20, 2008. They were the former minister of education Blanca Ovelar of the long-ruling Colorado Party; Fernando Lugo, then known in Paraguay as the "bishop of the poor," backed by the Patriotic Alliance for Change; and former military commander Lino Oviedo, the leader of a failed 1996 coup who was released from prison in early September 2007, running as a candidate of the party that he founded, the National Union of Ethical Citizens (UNACE). In July 2009, the entire PLRA split from the electoral alliance and joined the opposition in criticizing Lugo. In his first year in office, President Lugo had very limited success in working with an opposition congress. Lugo's reform agenda is stymied by a number of challenges: his electoral coalition has splintered; he is a political novice and has not acquired the political skills to build bridges with a constitutionally mandated strong Congress; and he faces a political and administrative culture reportedly riddled with corruption, clientelism, and a sympathy for and habituation to authoritarianism. As Lugo entered his second year in office, calls for impeachment became more frequent. His focus on increasing social and health expenditures to reduce inequality has resulted in modest reforms of education and healthcare. The United States has supported anti-corruption and democratization programs in Paraguay including providing more than $60 million in funding from the Millennium Challenge Corporation (see " U.S. Assistance "). Economic Situation

Paraguay, approximately the size of California, has a population of about 6.9 million people who are concentrated in and around the capital city of Asunción. It is one of the poorest countries in Latin America, however, and has suffered significantly from a recent drought and the global economic downturn. Poverty rates have dropped slightly from 61% of the population in 2001 to 58.2% in 2008. Relations with the United States

Paraguay and the United States have good relations, cooperating extensively on counternarcotics and counterterrorism efforts. Counternarcotics Cooperation

Paraguay is a major transit country for illegal drugs destined primarily for neighboring South American states and Europe. It produces over half of the marijuana grown in South America. In April 2009, bills entitled the "U.S.-Paraguay Partnership Act of 2009" were introduced in the House ( H.R. 1837 ) and Senate ( S. 780 ). On September 14, 2009, the ATPDEA Expansion and Extension Act of 2009 ( S. 1665 ) was introduced in the Senate. Each of these bills would amend the Andean Trade Promotion and Drug Eradication Act (Title XXXI of the Trade Act of 2002, P.L. 107-210 ) to extend trade preferences to Paraguay. Tri-Border Area and Terrorism

The United States is particularly concerned about illicit activities in the tri-border area (TBA) of Paraguay, Argentina, and Brazil, where money laundering, drug trafficking, arms smuggling, and trade in counterfeit and contraband goods are prevalent. The United States has worked closely with the governments of the TBA countries on counterterrorism issues through the "3+1" regional cooperation mechanism, which serves as a forum for discussions, and the United States has provided anti-terrorism and anti-money-laundering support to Paraguay. Paraguay made some progress on counterterrorism legislation in 2009.
Paraguay, a landlocked nation in the center of South America, has friendly relations with the United States and has been a traditional ally. Paraguay's turbulent political history and tradition of political authoritarianism have resulted in international isolation that the country is seeking to overcome. The population of 6.9 million people is one the most homogenous mestizo populations in the hemisphere. Paraguay's largely agrarian economy has grown well in recent years on the strength of global commodity prices. However, in 2009, a severe drought and the impact of the global economic recession sharply reduced growth, but a recovery is anticipated in 2010.
The April 2008 election of Fernando Lugo, a former Roman Catholic bishop and leader of the Patriotic Alliance for Change, as President ended 61 years of one-party rule by the still-dominant Colorado Party. The United States has encouraged the strengthening of democracy in Paraguay, and hailed the peaceful transition of power. Known as the "bishop of the poor" after a decade of work in an impoverished rural diocese, Lugo pledged to introduce land and agrarian reform, improve education and health services to better serve Paraguay's poor majority, and combat widespread corruption. Yet, as he entered his second year in office, there were more frequent calls for his impeachment. His loose electoral alliance had splintered, and he faced broad opposition in the opposition-dominated Paraguayan Congress that had stymied his center-left agenda at nearly every turn. At the end of 2009, polls indicated that Lugo had one of the lowest popularity ratings of any leader in the region.
The United States and Paraguay cooperate in a number of areas but especially in the fight against corruption, and on anti-drug, counterterrorism and anti-smuggling initiatives. In 2006 and 2009, the United States and Paraguay signed two Millennium Challenge Corporation threshold agreements totaling more than $60 million dollars to combat corruption and strengthen the rule of law. Paraguay is a major transit country for cocaine and produces the largest crop of marijuana in South America. The United States remains concerned about illegal activities in the loosely controlled tri-border region with neighboring Brazil and Argentina, such as money-laundering, drugs and arms trafficking, and trade in counterfeit and contraband goods.
The 111th Congress has expressed growing interest in Paraguay. In April 2009, two bills were introduced entitled the "U.S.-Paraguay Partnership Act of 2009" (H.R. 1837 and S. 780). On September 14, 2009, the ATPDEA Expansion and Extension Act of 2009 (S. 1665) was introduced in the Senate. Each of these bills would amend the Andean Trade Promotion and Drug Eradication Act (Title XXXI of the Trade Act of 2002, P.L. 107-210) to extend unilateral trade preferences to Paraguay. Indicating additional interest in Paraguay, the House Democratic Partnership (formerly the House Democratic Assistance Commission) made a study trip to Paraguay in August 2009. Members of the eight-member delegation had discussions with the bicameral Congress and the executive about the need to work together to support democracy in Paraguay.
This report examines recent political and economic developments in Paraguay and issues in U.S.-Paraguayan relations.