Is Paraguay about to dump Taiwan for China? Landlocked Paraguay and a leading exporter of soybeans and beef, plus an ample surplus of hydroelectric energy, is the only country in South America, and Mercosur member, that still has full diplomatic relations with Taipei, and continues to give its back to Beijing, but this could be changing or in a transition process.
In an interview with the Financial Times when president Mario Abdo Benitez was in New York for the annual UN General Assembly, the Paraguayan president admitted he was under immense pressure from the farmers and the meat industry to divert and expand markets, particularly opening to the People's Republic of China.
We are working with the president of Taiwan so that the Paraguayan people feel the real benefits of the strategic alliance, Marito as he is known in Paraguay, told the FT while in New York. There is Taiwanese investment of more than US$ 6 billion in countries which don't have diplomatic relations with Taiwan, we would like to see a billion of that sum invested in Paraguay.
The Paraguayan president comments raise concerns in Taiwan about potentially losing yet another ally to China. Since 2016, four countries in Latin America have switched diplomatic recognition from Taiwan to China, reducing the number of Taipei's diplomatic allies to only 14 worldwide.
China views self-governing democratic Taiwan as part of its territory, a rebellious province, and vows to annex it by force if necessary. Taipei rejects Beijing's claim, insisting Taiwan is already a de facto sovereign nation. Currently Paraguay is the largest ally that still recognizes Taiwan as a sovereign county. Beijing often poaches Taipei's diplomatic allies by promising increased trade, loans and investment.
Marito's comments could be an anticipation of what may happen. Although both countries have since made the most to normalize the situation, particularly that Paraguay is not conditioning its Asian ally. But the fact is that the agriculture businesses lobbies are indeed putting much pressure for a diplomatic switch, so as to have access to a much larger market.
Francisco Urdinez a Paraguayan economist and political analyst published a paper in the Foreign Policy Analysis journal last year, in which it was estimated that Paraguay's diplomatic relationship with Taiwan may have cost aid, trade and investment from China the equivalent to 1% of its GDP between 2005 and 2014. Paraguay received nil from China, and this was not offset by flows from Taiwan.
The situation is a headache for Taipei since compared to China, the Taiwanese government doesn't have the leverage over private sector to force Taiwanese companies to invest US$1 billion in Paraguay.
Beijing does have leverage over their state-owned enterprises and through government-to-government deals, they can make sure that some capital flows, besides the trade attraction, soft loans and overall cooperation
Trade between Taiwan and Paraguay (GDP of US$ 39 billion), hit a record US$ 196 million in 2021, but it represented less than 1% of the South American nation's total trade that year.
Paraguay farmers always have had the desire to gain access to the Chinese market, one of the largest in the world and where beef consumption is also high, said Kung Kwo-Wei, Head of the Graduate Institute of Latin American Studies at Tamkang University in Taiwan.
While both governments say the bilateral relationship between Taiwan and Paraguay remains strong, Urdinez believes that if there is a change of guard in Paraguay after next year's presidential election, it is very likely that the topic of switching diplomatic recognition will resurface.
The left-wing coalition in Paraguay is very clear about their intention of switching diplomatic recognition to China, even though Taiwan has been doing its best to stop that from happening, he said. Add to this the agri-business and exporters' sector and the switch could take place.
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