1942: Paraguay

Although Paraguay joined most of the Latin American nations in severing diplomatic relations with the Axis, the dictatorial nature of the Government and the strength of the resident German business community reduce the vigor of this small country's support of the United Nation's cause. During the year, however, certain definite measures have been taken against the Axis powers: Japanese balances to the amount of $67,000 have been frozen; the three Axis news agencies, the German Transocean, the Italian Stefani and the Japanese Domei, have been closed; and warning has been given to Axis nationals not to engage in political activity. Moreover, economic support from the United States has been a strong consideration in promoting some measure of cooperation in hemisphere defense. Lend-lease aid to the amount of possibly $7,000,000 is reported to have resulted in permission to the United States to improve airfields north of Asunción. A modern highway, connecting the country's two principal cities, is being constructed with North American capital. On May 8 a 'defense sanitation' and public works loan from the United States of $4,000,000 was reported. The elevation of the United States diplomatic mission in Paraguay from rank of legation to that of embassy was announced on Jan. 5, 1942.

Presidential elections were slated for 1943 but in September it was announced that 'high officers of the Army' had requested General Higinio Morínigo to remain as Provisional President for the next five years. Thus the military dictatorship which has governed Paraguay since 1940 under the strictest censorship in South America will be continued. The dissolution of the Liberal party in April on grounds of 'high treason' and the exile or imprisonment of its leading figures and of labor leaders and rebel students have effectively silenced the opposition and removed all traces of democratic government. The Morínigo regime depends on an army clique for support. Armed clashes between the factions within the army have been reported but the opposition of the older officers is not united enough to be effective. Persistent rumors of a revolt against the Government in December have been officially denied.

Paraguay's improved exchange position is reflected in the proposal in the autumn to resume service on the nation's external debt. The offer, made to holders of its £ sterling bonds, provides for interest payments at the full 3 per cent rate agreed upon under the 1921 settlement with the British bondholders. Paraguay has no dollar debt, although it recently secured a $4,000,000 public works loan from the United States. Brazil has also agreed to lend Paraguay about $5,000,000 to carry out its six-year public works program. In an attempt to recover its lost influence in Asunción, Argentina has cancelled the war debt incurred by Paraguay under the peace treaty of 1876.

1941: Paraguay

In spite of a close censorship on political developments in Paraguay, indications of chronic unrest under the Morínigo régime have leaked out from time to time. The dictatorial methods of the President and a return to the intervention of the Army in politics have made his administration unpopular. The Army itself is divided, the younger officers, led by Lt.-Col. Dámaso Sosa Valdés, opposing the veterans of the Chaco War. Rumors are repeated of a public demand for the return of Col. Rafael Franco, President of Paraguay during the Chaco War; and the unsuccessful coup d'état in April was believed to be an attempt to put him in General Morínigo's place. The tenor of the present administration can be judged from the pledge required of the officers of the armed forces. The oath of loyalty, binding them to President Morínigo 'until completion of the 3-year plan,' reads: 'The liberal, individualistic system is the principal cause of the nation's political anarchy and economic misery.' A nationalist cult, lauding the 19th century dictators, Francia and López, as heroes, is being officially promoted.

The rapid decline in value of the paper peso led to the adoption, in March, of new foreign exchange regulations, one of them requiring the settlement of all internal transactions in the national currency, thus putting a stop to the free circulation of the Argentine peso in Paraguay. Means of stabilizing the Paraguayan peso, under a bilateral agreement between Argentina and Paraguay growing out of the River Plate Conference (see URUGUAY), are under consideration. Reports that Paraguay is shifting its orientation from Argentina to Brazil are supported by a number of economic agreements with the latter country signed this year: one authorizes a branch office of the Banco do Brasil in Asunción, which will serve to increase Brazilian-Paraguayan trade; another covers a railroad from the Brazilian-Bolivian frontier to Concepción, of which Brazil undertakes to pay the costs; and a third provides for the establishment of a free port for Paraguay at Santos, a concession of prime importance to this land-locked country.

A lend-lease agreement of undisclosed amount was signed with the United States in September for the purchase of defense materials. See also PAN-AMERICAN AFFAIRS.

1940: Paraguay

Gen. Higinio Morínigo, Minister of War at the time of President José Félix Estigarribia's death in September 1940 and then chosen Provisional President, on Nov. 30, assumed full powers and established virtually a military dictatorship. Although he had agreed to hold elections within two months of the President's death, he later announced their postponement until February 1943 and his intention to stay in office until Aug. 15 of that year. The resignation Oct. 1 of four Cabinet members, all of the Liberal party, left the Army in control of the political situation. On Christmas morning 180 members of the Liberal Party were arrested on rumored charges, officially denied, of plotting to overthrow this military régime. Indications point clearly, however, to the tightening of Army control and the rising prominence of Lt. Col. Dimaso Sosa Valdés, Minister of the Interior.

Following the voluntary dissolution of Congress, President Estigarribia had himself assumed dictatorial powers in February, when what he termed a condition of 'anarchy' prevailed. There was at the time considerable political unrest, due, in part, to the problem of reincorporating the demobilized Chaco War veterans into civilian life. President Estigarribia was forceful and highly respected, and enjoyed wide popularity as commander of the Paraguayan troops in the Chaco War. At the time of his death he was undertaking a broad and liberal reconstruction program, with the aid of tariff, banking and engineering experts from the United States. He had, moreover, pushed the question of constitutional reform and had approved a new Constitution which, on Aug. 4, was submitted to a national plebiscite. In a manifesto to the nation he had declared that the new basic law followed the fundamental lines of the 1870 Constitution, which provided for a democratic, representative system of government, but that a new conception of democracy, social and economic, was now needed; hence, the government would keep control of the economic life of the Republic, at the same time guaranteeing an extensive list of civil liberties. From a social and economic view the new Constitution is said to be one of the most advanced in Latin America.

Paraguay has operated for nine years under a one-party system, the Congress including representatives of the Liberal Party alone. The chief opposition, the Colorados (known also as National Republicans), was not participating in political life when the present Congress was elected, and had announced its intention to boycott the elections, scheduled for February, which were never held.

A mixed Paraguayan-Bolivian boundary commission, authorized by the boundary treaty of 1938, has completed its task with the erection of a boundary marker at Esmeralda, thus finally liquidating the Chaco dispute.

The 100-mile Asunción-Villarica highway, undertaken with Export-Import Bank funds by a North American firm and to be completed in two years, was officially dedicated on Oct. 7. The new transportation routes should stimulate agricultural production.

On June 23 the President signed a decree ordering a drastic curtailment of the budget and setting up a Budgetary Commission, to be presided over by the Minister of Hacienda.

1939: Paraguay

General José Felix Estigarribia, commander of the Paraguayan forces in the Chaco War, was inaugurated president on Aug. 15, to serve a four-year term. The presidential election, indirect in Paraguay, which took place April 30, was the first since the outbreak of the Chaco War in 1932. The new president, a Liberal, was the only candidate, since the National Republican Party boycotted the election.

On June 13, the United States Export-Import Bank agreed to extend credits to Paraguay, not to exceed $500,000 at any one time, to support the peso and to liquidate Paraguay's commercial obligations to United States citizens. The agreement provided for additional credits, in amounts not yet determined, to finance the purchase of North American materials for road-building and other public works. This credit arrangement is in line with those already made with other Latin American countries with the dual object of stimulating trade and industry in the Western Hemisphere and of thwarting German and Italian economic penetration and influence. Earlier in the month a German offer to build an automobile road across Paraguay to the Brazilian frontier was reported. In addition, a number of industrial enterprises and colonies were to be established along the way, the entire project to be paid for by a surtax on gasoline and other petroleum products handled by a projected State petroleum monopoly to handle Bolivian oil (see BOLIVIA.). The German project met with strong opposition in the Paraguayan Congress. The new president's supporters are also opposed to the oil agreement with Bolivia, which requires ratification by the Congress, because of the exclusive right it grants the Bolivian State Petroleum Board to exploit for thirty years any oilfields discovered in Paraguay.

By a decree issued June 2, import quotas are to be allocated by countries and will amount, as a minimum, to three-quarters of the amount of Paraguay's exports to each individual country. A commercial treaty between Paraguay and Bolivia is reported to be under negotiation.

1938: Paraguay

Paraguay returned to a normal constitutional régime on Oct. 10, when Dr. Felix Paiva, who had been provisional president since August 1937, was elected president. A week later the Congress, elected Sept. 25, held the first business session since the beginning of the Chaco war. The Cabinet resigned Oct. 12, to give the President a free hand in reorganizing the government. A serious political crisis threatened when the Liberals, led by Jerónimo Zubizarreta, refused to enter a coalition cabinet or to cooperate with the Paiva government. Disquieting political reports around the end of October were associated with the problem of occupying the young army officers who would be out of work when the Paraguayan forces were withdrawn from their advanced positions in the Chaco. Danger of a serious military uprising was considerably lessened, however, by the ultimate reconciliation of the Liberals to the Paiva government, for without the backing of any important political party, any such move would probably prove abortive. Early in November the new Cabinet was announced. Political peace in the reconstruction period following the close of the Chaco war seems particularly desirable.

The settlement of the Chaco controversy, finally consummated by the arbitral award made Oct. 10 fixing the boundaries between Paraguay and Bolivia, was hailed by Secretary Hull as an 'outstanding triumph for the spirit of peace and the principles of order based on law over the doctrine of force and aggression.' There is no doubt that it has strengthened inter-American solidarity. A treaty of peace and friendship was signed July 21 by Bolivia and Paraguay and was ratified Aug. 10, in Paraguay by a plebiscite and in Bolivia by a Constituent Assembly. It was the result of three years' efforts on the part of the Chaco Peace Conference, made up of the representatives of the two parties to the dispute and of six neutral nations, the United States, the ABC powers (Argentina, Brazil and Chile), Peru and Uruguay. It was thus literally 'a triumph for New World diplomacy.' Much of the credit for the settlement is attributed to Spruille Braden, United States delegate to the Peace Conference.

The treaty specifically delineates one part of the frontier and leaves the remainder for arbitration. The frontier delineated recognizes Bolivia's title to a triangle of land granted to Bolivia by Brazil in the Treaty of Petropolis but not recognized by Paraguay on the ground that the waterfront on the upper Paraguay River involved in it belonged to Paraguay. The treaty and the subsequent arbitral award grant Paraguay more than three-quarters of the entire Chaco, and add 69,000 sq. mi., to its territory. Bolivia, on the other hand, gets access to the Atlantic Ocean by the guarantee of free transit through Paraguayan territory for Bolivian exports and imports and by the use of a free port at Puerto Casado, where Bolivia may set up customs agencies and construct warehouses. Puerto Casado is Paraguay's second port and is the center of an important timber and cattle district. It is too remote from Bolivia's economically significant area to be of much more than psychological value to that country, however. Bolivia also retains possession of its oil fields, which lie well to the west of the proposed frontier; so, likewise, does the international road from Villa Montes to Santa Cruz de la Sierra. Furthermore, it gets security against military attack from the east since the boundary runs through sheer desert. Nevertheless, the settlement was received apathetically by Bolivia, which feels that its interests were sacrificed.

The negotiations were strained till the very end, and early in June looked deadlocked. Their threatened breakdown, and persistent rumors of active rearming for an early renewal of the Chaco war, which had already cost 100,000 lives in its three years of fighting, caused extreme pessimism among the mediators. Since the armistice of June 12, 1935, both countries had violated pledges not to increase their armed forces in the Chaco and had been receiving arms and munitions from abroad; Bolivia from the United States and Europe, Paraguay from Italy. On June 27 Paraguay announced its withdrawal from the World Court, an action intended to eliminate the possibility of arbitration by the Court.

Diplomatic relations with Bolivia were formally resumed on Nov. 26, the new Paraguayan minister to Bolivia being a Liberal and former Foreign Minister, Dr. Justo Pastor Benitez; the Bolivian minister to Paraguay is Dr. Fabian Vaca Chavez, Foreign Minister during the Chaco war. A new treaty of commerce and navigation will be negotiated, as provided in the peace treaty.