The political culture has remained a product of the country's authoritarian past with pervasive corruption and clientelism. Corruption

Observers maintain that corruption remains a major impediment to the emergence of stronger democratic institutions and sustainable economic development in Paraguay. There were three major candidates in the presidential race: former minister of education Blanca Ovelar of the long-ruling Colorado Party; Fernando Lugo, the former Roman Catholic Bishop of an impoverished rural diocese, running on an electoral coalition known as the Patriotic Alliance for Change (APC); 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 party that he founded, the National Union of Ethical Citizens (UNACE). The election indeed was historic, and will end more than 60 years of Colorado Party rule when Lugo is inaugurated on August 15, 2008. While triumphant at the polls, President-elect Lugo will face tough challenges when he takes office in August. Most significantly, his ability to government effectively could be affected by his coalition's lack of a majority in Paraguay's Congress. Another potential difficulty for President Lugo is his ability to deal with entrenched government bureaucracy that essentially been controlled by the long-ruling Colorado Party. Other observers, however, stress that Lugo's victory as a chance to further strengthen Paraguay's democratic transition and break its link with the authoritarian past of the Stroessner dictatorship. Most analysts expect that Lugo will govern as a moderate. While Venezuela's Hugo Chávez and other leftist leaders in the region such as Nicaragua's Daniel Ortega and Ecuador's Rafael Correa welcomed Lugo's victory, most observers contend that Lugo will have to govern more moderately than these leaders since the electoral alliance that brought him to power is dominated by a center-right party. After the elections, U.S. Ambassador to Paraguay James Cason congratulated Lugo and the APC on their victory and expressed a commitment to work and strengthen bilateral relations. The protection of intellectual property rights (IPR) has been a U.S. concern, especially piracy, counterfeiting, and contraband. U.S. Aid

The United States provided about $12.5 million in aid to Paraguay in FY2007 and an estimated $11.6 million in FY2008. In addition to regular foreign assistance funding, Paraguay signed a $34.65 million Threshold Program agreement with the Millennium Challenge Corporation in May 2006, with the funds targeted specifically at programs to strengthen the rule of law and build a transparent business environment. The Chaco region in the northwestern part of the country is a major transshipment point of illegal drugs, along with the tri-border area (TBA) with neighboring Argentina and Brazil. TBA and Terrorism

The United States is particularly concerned about illicit activities in the TBA, where money laundering, drug trafficking, arms smuggling, and trade in counterfeit and contraband goods are prevalent.
The demise of the long-ruling Stroessner military dictatorship in 1989 initiated a political transition in Paraguay that has been difficult at times. Current President Nicanor Duarte Frutos has implemented some reforms that have addressed corruption and contributed to economic growth. Yet, due in large part to the country's authoritarian past, Paraguay's state institutions remain weak while corruption remains ingrained in the political culture, impeding democratic consolidation and economic development.
In Paraguay's April 20, 2008, presidential election, former Roman Catholic bishop Fernando Lugo, running on an electoral coalition known as the Patriotic Alliance for Change (APC) won with 41% of the vote. He defeated the candidate of the long-ruling Colorado Party, Blanca Ovelar, who received 31%, and former military commander Lino Oviedo, who ran as the candidate of the National Union of Ethical Citizens (UNACE). The election was historic, and will end more than 60 years of Colorado Party rule when Lugo is inaugurated on August 15, 2008. For some observers, Lugo's victory is a chance for Paraguay to further strengthen its democratic transition, breaking a link with its authoritarian past.
While victorious at the polls, President-elect Lugo will face tough challenges when he takes office in August. Most significantly, his ability to govern could be affected by his coalition's lack of a majority in Congress. Another potential difficulty for President Lugo is his ability to deal with entrenched government bureaucracy that essentially been controlled by the long-ruling Colorado Party. Most observers expect that Lugo will govern as a moderate since the electoral alliance that brought him to power is dominated by a center-right party.
U.S.-Paraguayan relations have been strong, with extensive cooperation on counterterrorism and counternarcotics efforts. After Lugo's victory, U.S. Ambassador to Paraguay James Cason congratulated Lugo and the APC on their victory and expressed a commitment to work and strengthen bilateral relations. The United States remains concerned about illegal activities in the tri-border area with neighboring Argentina and Brazil, such as money-laundering, drugs and arms trafficking, and trade in counterfeit and contraband goods. The protection of intellectual property rights has been a U.S. concern, especially piracy, counterfeiting, and contraband. The United States provided about $12.5 million in aid to Paraguay in FY2007, an estimated $11.6 million in FY2008, and an FY2009 request for $11.8 million, including $3.4 million for a Peace Corps program. In addition to regular foreign assistance funding, Paraguay signed a $34.7 million Threshold Program agreement with the Millennium Challenge Corporation in May 2006, with the funds targeted specifically at programs to strengthen the rule of law and build a transparent business environment.
For additional information, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by [author name scrubbed], and CRS Report RS21049, Latin America: Terrorism Issues, by [author name scrubbed]. This report will be updated as events warrant.