As Paraguay picks president, ties with Taiwan loom large

The neck-and-neck race to determine Paraguay’s next president has thrown the spotlight on the future of the landlocked South American country’s ties with Taiwan, with China vying to swipe yet another country from the island’s dwindling list of nations that recognize it.

On Sunday, nearly 4.8 million eligible Paraguayans will cast their votes to choose the country’s next president, with the two leading candidates promising to take completely different directions over relations with democratic Taiwan.

Santiago Pena, of the powerhouse conservative Colorado Party, has doubled down on his support for Taiwan, pledging to extend the country's decadeslong support for bilateral ties. However, his rival — Efrain Alegre from the opposition Authentic Radical Liberal Party — has hinted that he is open to revisiting the relationship, and could seek to establish diplomatic ties with Beijing.

Depending on the election’s results, Taiwan — which has seen its number of diplomatic partners dwindle in recent years — may be in danger of losing yet another one, this time its last in South America, as China’s footprint on the continent continues to grow.

Claiming that Paraguay’s relationship with Taipei has cost it dearly, Alegre campaigned on a platform that forging ties with Beijing would help bolster the country’s agriculture-based economy amid challenges such as inflation, extreme weather and rising public debt.

“Paraguay must have relations with China,” Alegre told Reuters in January.

“Our interests in livestock and grain sectors are currently suffering a major loss," he said. "We hold this critical position towards relations with Taiwan because we don't think we get enough back from this relationship.”

The “One China” principle — that Beijing has sovereignty over the mainland, Hong Kong, Macao and Taiwan — has created a dilemma for smaller countries such as Paraguay, which has connections and interests with Taiwan but also desires access to Chinese markets and capital.

Beijing views self-governed Taiwan as an inalienable part of China, and says it has no right to forge diplomatic ties with other governments. Taipei, for its part, has sought to maintain diplomatic ties where it can, but has also been building robust quasi-official relations over the years.

Lorenzo Maggiorelli, a professor of international relations at the Pontifical Javeriana University in Bogota, Colombia, said that even though Taiwan is making efforts to retain diplomatic partners through foreign aid, the significance of this aid has diminished in comparison with the opportunities provided by Beijing's growing trade and investment in the region.

In a 2021 study in Foreign Policy Analysis, it was estimated that South American countries with diplomatic ties to China benefited from its aid, investment and financing to the tune of around 1% of their gross domestic product. Paraguay, meanwhile, had gained nothing — something the authors called the “Taiwan cost.”

Ties with Beijing potentially yield huge economic windfalls, from infrastructure projects and investments to loans and trade deals. Even more attractive for Paraguay, China is the world’s biggest beef and soybean importer — two of the country's primary exports.

As a result, local beef producers and farmers favor ties with Beijing in order to gain “direct access to the world's largest market for Paraguayan agricultural products,” said Tom Long, a Latin America specialist at the University of Warwick who is the co-author of 2021 study.

Recognizing Beijing, he added, would help ease trade talks between China and the Mercosur bloc that includes Argentina, Brazil, Paraguay and Uruguay. Paraguay’s ties with Taiwan have hindered the bloc’s efforts to consolidate any trade deals with China.

For China, luring away Taiwan’s largest diplomatic partner would be yet another substantial, albeit symbolic, diplomatic victory.

Isabel Bernhard, assistant director of the Atlantic Council's Latin America Center, said that Beijing stands to see few material gains from any diplomatic switch, since the exports Paraguay specializes in are already being sent to China by Brazil, Argentina and Uruguay.

Nevertheless, any move by Paraguay to cut ties with Taiwan would provide a boost to China’s diplomatic initiatives and expand its global influence, while also strengthening its ties with other regional nations and providing it with a potential gateway for further investment and economic development, said Maggiorelli.

Although allying with Beijing could bring sizable economic prospects, analysts warn this might also come with risks — economically and diplomatically.

“China’s promises to new allies do not always materialize,” Bernhard said. “Infrastructure projects in countries like Panama and Nicaragua illustrate the gap between China’s past promises and current performance.”

That includes China’s investment in the Panama Colon Container Port, in which authorities say Beijing has only invested about one-fifth of the promised amount. For Nicaragua, a $50 million project by a Chinese billionaire’s company to build the country’s interoceanic canal was scrapped in 2019 after being in limbo for six years. Beijing previously denied any affiliation with the project.

Ian Chong, an international relations expert at the National University of Singapore, said that questions also remain about how much money China is able to put into new projects in Paraguay as Beijing faces down its own “maturing economy, serious aging and also local debt.”

Ultimately, even if Paraguay does diplomatically recognize China, Long said it would not enjoy the same pride of place in Beijing that it currently does with Taipei.

“With Taiwan, Paraguay gets to be a big fish in a small pond,” he said. “With China, it will be one of many small fish.”