Paraguay had traditionally been aligned with Argentina, as the port of Buenos Aires provided the only access to external markets, thus determining the direction of Paraguayan trade. Paraguay depended heavily on Argentina for trade throughout the twentieth century, although many Paraguayans chafed at their dependence. Even before taking power in 1954, Stroessner criticized Argentine hegemony. Soon after becoming president, Stroessner joined with sectors in the Colorado Party and the armed forces to explore ways to limit the influence of Buenos Aires in Paraguayan affairs.

Stroessner's interests coincided with those of Brazil, which desired to increase its influence at the expense of Argentina and to establish transportation linkages with countries to the west. In the 1950s, Brazil funded the construction of new buildings for the National University in Asunción, granted Paraguay free-port privileges on the Brazilian coast at Paranagua, and built the Friendship Bridge over the Río Paraná, thereby linking Paranagua to Asunción. The signing of the Treaty of Itaipú in April 1973 symbolized that Paraguay's relationship with Brazil had become more important than its ties with Argentina.

The Stroessner regime benefited politically and economically from its relationship with Brazil, and the diplomatic and moral support given to Stroessner enhanced his prestige. Because of the tremendous infusion of money and jobs associated with Itaipí, the Paraguayan economy grew very rapidly in the 1970s. Brazilians moved in massive numbers into the eastern border region of Paraguay, where they helped change the nature of export crops to emphasize soybeans and cotton. Observers reported that 60 percent of Paraguayan economic activities derived from agriculture, industry, commerce, and services were in the hands of Brazilians, working as partners with Paraguayans. Brazilian tourism and purchases of contraband and other goods at Puerto Presidente Stroessner also brought in substantial revenue. Military equipment and training in the 1980s also were provided overwhelmingly by Brazil. In addition, Brazilian banks financed a growing share of Paraguay's external debt in the 1980s (see Balance of Payments and Debt , ch. 3).

The intimacy of Paraguayan-Brazilian relations generated a variety of problems. First, Paraguayan opposition groups charged that Brazil had become Paraguay's colonial warder. For example, PLRA leader Laíno wrote a book denouncing Brazil's designs on Paraguay. The opposition pointed to Paraguay's mounting debt problem in the late 1980s and attributed much of it to unnecessary and inefficient Brazilian construction projects. Some US$300 million of this debt resulted from the controversial Paraguayan Steel (Aceros Paraguayos--Acepar) mill that the Brazilians financed and built. Acepar was completed after the demand from Itaipú had passed, its steel could not be consumed by Paraguay, it imported raw materials from Brazil, and its product was too expensive to be sold abroad. The Itaipú project itself also represented a sourc 1513 ce of embarrassment for the Stroessner regime. ABC Color, among others, pointed out that the Treaty of Itaipú authorized Paraguayan sales of excess electricity to Brazil at a price highly advantageous to Brazil. Opposition pressure forced a renegotiation of the rate in 1986 (see Electricity , ch. 3).

For its part, Brazil also objected to several actions of the Stroessner government. In the late 1980s, a number of public and private Paraguayan institutions failed to pay their debts to Brazilian creditors. As a result, Itaipú electricity payments were withheld, and several Paraguayan accounts were frozen in Brazil. Brazil also contended that Paraguayan officials were involved in smuggling a wide array of products into or out of Brazil. In 1987 analysts estimated that US$1 billion of electronics equipment was smuggled into Brazil, primarily through Puerto Presidente Stroessner. In the same year, Brazilian farmers reportedly smuggled over US$1 billion of agricultural products into Paraguay for reexport, thereby avoiding payments of Brazilian taxes. Analysts also estimated that up to half of all automobiles in Paraguay were stolen from Brazilian motorists. Brazilian teamsters threatened to block the Friendship Bridge between Brazil and Paraguay to protest the alleged murders of truckers whose vehicles were taken to Paraguay.

Despite Brazil's transition to a civilian government in 1985 and the appointment in 1987 of its first nonmilitary ambassador to Asunción in twenty years, Paraguayan-Brazilian relations remained good. Given its substantial investments in Paraguay, Brazil valued the political stability offered by the Stroessner regime. Brazilian officials refrained from criticizing Stroessner publicly and generally avoided specific pressures for a political transition in Paraguay. In 1986, however, the president of Brazil met with his counterpart from Argentina to discuss increasing commercial and industrial cooperation in the Río de la Plata region. The presidents made it clear that only democratic countries were eligible to join this new regional economic integration program. Thus Bolivia, democratic but distant from the Plata, could participate, whereas Paraguay was excluded. Although participation in this program could help the Paraguayan economy, Stroessner was not prepared to change the nature of his regime in order to gain membership. Indeed, Stroessner did not hesitate to challenge Brazil if he believed that Paraguayan internal stability was at stake. In 1987, for example, police attacked several visiting Brazilian congressmen who were meeting in Asunción with National Accord leaders.

Diplomatic relations between Paraguay and Argentina were somewhat strained in the late 1980s. During the 1983 Argentine presidential elections, PLRA leader Laíno actively campaigned among the thousands of Argentine citizens of Paraguayan descent for the Radical Civic Union (Unión Cívica Radical--UCR) ticket headed by Raúl Alfonsín Foulkes. With the election of Alfonsín, Laíno's party was accorded considerable prestige by the Argentine government. Although Alfonsín refrained from public criticism of Stroessner, he did send letters of support to opposition politicians, including the imprisoned Hermes Rafael Saguier of the PLRA. In addition, Alfonsín allowed Laíno to stage anti-Stroessner rallies in Argentina. A PLRA demonstration in 1984 in the Argentine border town of Formosa resulted in the Paraguayan government's decision to close that border crossing for three days.

In the late 1980s, Paraguay refused to respond to Argentina's requests for extradition of former Argentine officers accused of human rights abuses during the so-called Dirty War of the late 1970s. Paraguay also ignored queries regarding the illegal adoption of children of disappeared Argentines. As a result, the Argentine ambassador was recalled for three months. Argentine congressmen also visited opposition politicians in Paraguay to demonstrate their support.

Paraguayan opposition leaders expressed dismay at the selection of Carlos Menem as the Peronist candidate for the May 1989 Argentine presidential elections. During the campaign for his party's nomination, Menem met with Stroessner and reminded voters that the Paraguayan president had given asylum to Perón after the 1955 military coup in Argentina. In late 1988, Menem held a wide lead in the polls over his UCR opponent.

Data as of December 1988