State Capture and Elite Resistance to the Sustainable Development Goals in Paraguay

Abstract

This article examines Paraguay’s lack of progress in meeting the UN Agenda 2030 Sustainable Development Goals (SDGs) through the conceptual framework of state capture. It argues that the current model of economic development, based primarily on soya and meat production, is unsustainable in economic, social, and environmental terms and almost exclusively serves the interests of a small elite. The example of three interrelated SDGs is used to show how elites have used state capture to defend this model and block the structural reforms required to attain Paraguay’s SDGs. Conceptually, it argues that i) the incorporation of state capture, currently absent from analysis of SDGs, is fundamental to understanding the relationship between agricultural elites and sustainable development; and ii) that a broader definition of state capture, to include legal as well as illegal methods, is needed to understand the reality of its operational mechanism and the extent of its impact.

This article examines Paraguay’s lack of progress in meeting the UN Sustainable Development Goals (SDGs) through the conceptual framework of state capture. The article analyzes aspects of three inter-linked SDGs: i) climate action and environmental protection; ii) inequality; and iii) peace, justice, and strong institutions, focusing on personal security. These examples suggest two things. First, the current model of economic development is unsustainable in economic, social, and environmental terms, is based almost exclusively on the interests of a small elite, and runs counter to the national interest. Second, progress in meeting the SDGs is undermined by state capture and the influence of these elites who have blocked, delayed, and watered-down reforms and policies that might threaten their interests but are essential to inclusive development in the country. In this sense, state capture undermines sustainable development, national security, and democratic governance.

Paraguay is a particularly interesting case of state capture for four reasons. First, despite some outstanding recent research on soya production and state capture in Paraguay, ¹ there has been very little discussion of wider implications of state capture. Given that “expressions of state capture are visible on a daily basis at all levels of government” (Serafini, 2017: 34), it is extraordinary that “an issue as important to the functioning of the state as is the role of elites in the design and implementation of public policies lacks appropriate research” (Rivarola, 2021: ix). Second, despite its extremely high levels of institutionalized corruption, the case of Paraguay challenges a key argument that runs through much of the literature, namely that state capture is intrinsically related to corruption. Instead, it suggests that a focus solely on corruption may distract from the analysis of pernicious but legal or semi-legal mechanisms of capture. Third, state capture and elite behavior have not been used as a conceptual framework for understanding the lack of progress in meeting the SDGs. Finally, linking state capture with SDGs underlines its impact not only in terms of economic development, which has dominated much of the literature, but also its profound social, environmental, and political consequences.

Land ownership and power have long been closely related in Paraguay, with politics traditionally characterized by clientelism and the dominance of interests associated with landed elites. The dictatorship of Alfredo Stroessner (1954-89) was essentially a neo-sultanistic regime, in which Stroessner cultivated support through a system of favors and rewards including access to illicit activities (contraband and corruption), often portrayed as “the price of peace” (Riquelme, 1992). Access to land was a key element of this system of rewards. During the 1960s and 1970s, the regime distributed land to political and military elites, often under the fraudulent guise of land reform, to secure their support (Nickson, 1981). These so-called tierras malhabidas (ill-gotten lands) were often sold on to Brazilians, stimulating a gradual colonization of some of the most productive agricultural land in Paraguay. Following the overthrow of Stroessner and a slow process of democratic transition dominated by the Colorado Party, the boom in soybean production from the 1990s further concentrated land, production, and power in the hands of a new class of predominantly Brazilian agricultural barons who forged an informal alliance with traditional large landowners (Turzi, 2017). This paper argues that the political power and influence of the landowning elite and their extent of state capture have developed far beyond the endemic corruption under the Stroessner regime and represent the greatest threat to sustainable development in Paraguay.

The article begins with a review of relevant literature on state capture to establish a theoretical framework and working definition. It then addresses three inter-linked SDGs covering environmental protection, inequality, and security, arguing that Paraguay is highly unlikely to meet the targets that the government has committed itself to achieving by 2030 due to structural obstacles posed by elite state capture. The final section links country-specific conclusions with wider theoretical and global application, which we believe will be of use in further studies of state capture in Paraguay and beyond.

State Capture

The concept of state capture was developed in the context of transitions from highly centralized political and economic systems to democratic and free market economies in ex-Soviet states. Studies focused on the key role of private companies in “shaping the formation of the basic rules of the game (i.e., laws, rules, decrees and regulations) through illicit and non-transparent private payments to public officials” (Hellman, Jones, and Kaufmann, 2000: 3). Analysis has since broadened to regions in the Global South, including Latin America, with a primary focus on state capture as a problem of governance, corruption, and economic development.

The twin processes of economic and political liberalization in Latin America from the 1980s onwards also had a major impact on the ownership of resources, the structure of the state and the economy, and the distribution of political power. Economic stabilization and structural adjustment led to significant expansion of the private sector, deregulation, and export-led growth, while democratization, as in the case of Paraguay, was generally elite-dominated, pacted, and designed to win over and accommodate rather than alienate elites (O’Donnell and Schmitter, 1986). This dual process of economic transformation and electoral politics led to an increased concentration of wealth and power and the growth of state-tolerated corruption by emerging and established elites (Green, 2003) in a process that is widely seen to have facilitated the growth of state capture (Castrejón and Pineda, 2021).

The initial focus of the analysis of state capture has also broadened to include its nature and processes, its relationship to corruption, its features and typologies, and its agents and institutions. Within this literature, analysis has focused on the capture of key governmental institutions (legislative, executive, judicial, regulatory, and ministerial) and the varying nature and extent of that capture – from a single state entity (“local” capture) to “global” capture of all related government departments (Fazekas and Toth, 2016).

Much of the literature has focused on outcomes, namely how individuals or groups may use state capture to restrain or distort economic or political reform and develop mechanisms to safeguard their own influence. In this sense, state capture can lead to a tendency to prioritize short-term benefits pertaining to the interests of a small group or sector rather than benefits that are conducive to longer term national economic development (Hellman, Jones, and Kaufmann, 2000). This is especially the case in economies with a weak state, poor rule of law, and higher levels of corruption and impunity (Rice and Patrick, 2008; Le Clercq and Rodríguez, 2020). In such an environment, elites may more easily create networks of influence within the state apparatus.

More recent studies have argued that higher levels of state capture are also likely to create strong economic, political, and social distortions with negative effects not only on laws and regulations, but ultimately on a vast range of areas, from the provision of public services, to the independence of the judicial system, to the nature and success of key reforms (Fuentes-Nieva and Galasso, 2014). In addition, state capture may take the form of impeding policy initiatives that threaten to reduce imbalances of power, income, or influence. In this sense, state capture has a paralyzing effect, creating a vicious circle in which the policy and institutional reforms needed to improve democratic and economic governance and welfare are undermined, blocked, or watered down so as to be ineffectual (World Bank, 2017).

A growing literature on state capture in Latin America has focused on the impact of corrupt activities on state institutions. Garay Salamanca, Salcedo-Albarán, León-Beltrán, and Guerrero Primera (2008) start from the premise that state capture is a form of large-scale corruption that undermines the development of laws, norms, decrees, rules, and regulations, while Crabtree and Durand (2017) show how democratization in Peru was accompanied by the penetration of the state by traditional and new elites who have used corrupt practices to further their own interests within a democratic framework. Whitehead (2021) argues that organized crime and corruption have led to “democratic delinquencies,” organized activities geared specifically to the distortion or even capture of targeted democratic institutions for illicit gain across Latin America. These “delinquencies,” ranging from money laundering to illicit funding of politicians to corruption of security services, are used to colonize vulnerable enclaves within a democracy rather than to subvert the entire system or create a failed state.

In parallel, there has been a growing focus on criminal activity and state capture. Alda (2015) examines the links between criminal organizations, impunity, corruption, weak rule of law, and state capture. Analysis of Mexico, Guatemala, and Colombia in particular highlights cases where illegal armed groups, drug traffickers, and large-scale “violent corruption” have penetrated state institutions on a local and national level (Pearce, 2018; Garay Salamanca, Salcedo-Albarán, Léon-Beltrán, and Guerrero Primera, 2008). Furthermore, in the Colombian case, the exceptional scale and complexity of criminal activity, violence, and corruption have led to the capture of political parties, the media, and ultimately the state by illegal and legal organizations (including paramilitaries and drug trafficking groups) and the subsequent “reconfiguration of the co-opted state” from within for the long-term economic, judicial, political, and social benefit of elite groups (Garay Salamanca and Salcedo-Albarán, 2015).

In this sense, corruption has been posited as central to the understanding and definition of state capture, whereby “powerful individuals, institutions, or groups . . . use corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests” (Martini, 2014: 2). While analyses of clientelism, patrimonialism, and patronage focus on state institutions (or the “output” side of corruption), state capture focuses on the “input” side of corrupt practices that distort the “rules of the game” through their influence on state institutions (Dassah, 2018).

However, while corruption may often be at the heart of state capture, it is not necessarily the sole explanatory factor (Sitorus, 2011). Indeed, it may not even be a contributing factor. Corruption may be an indication of state capture and there may be a strong relationship between them, but as this paper argues on the evidence from Paraguay, it is not a necessary nor sufficient condition. Instead, elites may use asymmetries in power, resources, and influence as well as legal mechanisms to pursue their own sectoral interests (Serafini, 2017). As Cañete (2018) has shown, elites employ a wide variety of such mechanisms in order to influence government policy-making, including their control and influence over online, television, radio, and print media, the switching of high ranking posts between public and private sectors (termed “the revolving door”), extraordinary regulatory measures (such as fast-tracking or delaying legislation), exploiting influence within weak party systems (such as party funding), lobbying, and the use of influence over regulatory and judicial decisions. In fact, “bribery, influence peddling and conflicts of interests” is only one of the 11 “capture mechanisms” identified by Cañete, the others all being legal in nature. In short, a sole focus on corruption and illegal methods may limit our understanding of the complexity of state capture.

Therefore, a broader working definition of state capture is required. For the purposes of this article, state capture is defined as the unbridled exercise of power over the behavior of the state by unelected non-state groups or individuals, through a variety of legal or illegal mechanisms to promote, block, or shape policies, regulations, and their implementation for the benefit of their own group or personal interests over the national interest.

Such a definition underlines the breadth of the impact of state capture on economic development, inequality, and the stability, legitimacy, and quality of democracy. In terms of inequality, the ability of elites to play a key role in policy implementation in pursuit of their own narrow interests not only mirrors but also reinforces existing asymmetries of power. As Cañete (2018:14) has argued, there is a relational cycle between inequality, capture, and democracy as “the higher the concentration of power, the higher the capacity of the elites to create or shape laws, policies and institutions that enable their privileges.”

In terms of stability and legitimacy, state capture provokes political disenfranchisement and instability by feeding the perception that a particular government administration, democratic institutions, or democracy itself represent the interests of a small elite rather than the majority, thereby eroding levels of public trust in democratic legitimacy. Finally in terms of the quality of democracy, state capture undermines the ability of democratic governments and state institutions to implement policies, laws, rules, and regulations in the national interest and exacerbates inequalities in the exercise of democratic rights and representation.

Elite Power In Paraguay

The economic model pursued in Paraguay since the 1990s is based on the unregulated export of low value-added agricultural commodities to the global market. ² It is highly exclusionary, with one of the highest levels of inequality in the distribution of income, wealth, and land ownership in Latin America (Guereña and Rojas, 2016; Borda and Caballero, 2020). Economic power is increasingly concentrated in the hands of a tiny Spanish or Portuguese-speaking elite wedded to “extractive monoculture.” This has been primarily due to the rapid expansion of soybean production, which has grown from 2,771,000 tons in 1996-1997 to 10,251,000 tons in 2019-2020, ³ and to a boom in meat exports, transforming Paraguay into the third largest exporter of soya in the world in 2021-22 ⁴ and the eighth largest meat exporter in the world in 2017 (La Nación, 2018).

The main body that represents the interest of this economic elite is the Unión de Gremios de La Producción (Union of Productive Guilds, UGP), a confederation of 15 private sector associations involved in farming, cattle-ranching, and timber, of which the most important are the Asociación Rural del Paraguay (Rural Association of Paraguay, ARP) – large cattle-ranchers, the Cámara Paraguaya de Exportadores y Comercializadores de Cereales y Oleaginosas (Paraguayan Chamber of Exporters and Traders of Cereals and Oilseeds, CAPECO) and the Asociación de Productores de Soja, Oleaginosas y Cereales del Paraguay (Association of Soya, Oilseeds, and Cereals Producers of Paraguay, APS). ⁵ Together their membership comprises less than one percent of the population and accounts for around 60 percent of total merchandise exports.

The ethnic composition of the elite has changed considerably in recent decades. From the mid-1960s, Brazilian farmers began to settle in Paraguay, motivated by lower land prices, minimal taxation, and the availability of cheap agricultural credit from Brazilian banks (Nickson, 1981). These immigrants and their descendants, known in Paraguay as brasiguayos, often purchased tierras malhabidas and expanded their holdings by buying up land from impoverished small farmers. In response to growing international demand for animal feed in the 1990s, they spearheaded the rapid expansion of soya, today accounting for over 90 percent of total soybean production in Paraguay. Of 15 members of the board of directors of the APS elected for the period 2021-2023, all were brasiguayos. ⁶

The UGP has not shied away from overt political intervention. It was an outspoken critic of President Lugo (2008-2012), accusing him of fomenting invasions of plantations by landless peasants and lobbying the Brazilian government to apply pressure on the Paraguayan government to defend brasiguayos against land invasions. This included active involvement of its ambassador in land disputes, a debate on the issue in the Brazilian Congress, and a planned Congressional delegation to Paraguay to investigate alleged accusations that was suspended following the impeachment of Lugo in June 2012 (Nickson, 2019a: 8).

Trafficking of influence is rife in the agricultural sector. A 2016 study revealed the gross overrepresentation of elite organizations such as ARP and UGP on the board of directors of five state agricultural bodies, in sharp contrast to the minimal or non-existent representation of small farmer organizations (Guereña and Rojas, 2016: 65). A 2017 study identified 35 state bodies in which representatives of the economic elite were formally represented, with ARP the most often represented. The most striking example was the state land reform agency, Instituto Nacional de Desarrollo Rural y de la Tierra (National Institute of Rural and Land Development, INDERT), on which the ARP – the association of landowners bitterly opposed to land reform – is a member of the board of directors (Serafini, 2017). In another striking example of this revolving door mechanism, four heads of state corporations and one minister who occupied posts in the Cartes administration were subsequently employed by companies belonging to his Grupo Cartes conglomerate (Serafini, 2022).

It is important to question the view that state capture by domestic elites has less relevance in a small, developing country such as Paraguay, as it is so deeply linked to the global economy through the export of unprocessed and semi-processed agricultural products. According to this “dependency” view, the key actors that influence the behavior of the state are the local representatives of predominantly U.S. transnational agribusiness firms and agrochemical companies that purchase and market these products on the world market, as well as supplying agrochemical inputs to growers (Palau, 2011). While recognizing the considerable power of such external factors in Paraguay, analysis of these is outside the scope of this paper. Instead, we focus on internal dynamics since the actions, policies, and responses of the Paraguayan state cannot be understood without reference to the interests and pressures applied by endogenous actors, as manifested by the considerable degree of “agency” of domestic elites. Furthermore, we note that Cofco (China) and Sodrugestvo (Russia) are now among the largest exporters of Paraguayan soybean, contesting the power of the so-called ABCD multinationals (Archer, Bunge, Cargill, and Dreyfus). Syngenta, a subsidiary of ChemChina, a Chinese state-owned company, is the leading supplier of agrichemicals to Paraguay, and a significant share of meat exports are now marketed directly by Paraguayan companies. This enhanced international competition both reduces the power of oligopolistic cartels and strengthens the agency of domestic elites.

The Un Sustainable Development Goals In Paraguay

In September 2015, President Horacio Cartes, together with the heads of state of 192 countries of the UN General Assembly, committed Paraguay to the 2030 Development Agenda titled “Transforming our world: the 2030 Agenda for Sustainable Development.” At its core are 17 interlinked Sustainable Development Goals (SDGs) with 169 associated targets and 232 indicators that aim to be a “blueprint to achieve a better and more sustainable future for all” and are intended to be achieved by 2030. ⁷ This official commitment to the SDGs was reiterated at a high profile September 2017 public meeting when the heads of the executive, legislature, and judiciary signed a joint agreement to support the implementation of the 2030 Agenda. ⁸ In May 2020, two presidential decrees reiterated this official commitment with the creation of a high-level inter-ministerial commission for achieving the SDGs. ⁹

Key to meeting the SDGs is Paraguay’s long-term national development plan, Plan Nacional de Desarrollo 2030 (PND), also published in 2015. However, with no input from civil society organizations, no financial data nor link to the annual government budgetary process, nor any proposal to reverse Paraguay’s commitment to an exclusionary agro-export development model, the Plan represented a wish list with no teeth and was primarily addressed to international donors. ¹⁰ Despite renewed executive commitments to the implementation of the SDGs and a presidential decree to establish an inter-institutional commission for addressing them, tangible progress has been minimal and an updated PND in 2020 still lacked any organic link to the national budget. As a result of such lack of commitment, the Sustainable Development Report 2021 ranked Paraguay 92nd out of 165 in progress towards meeting the 2030 Agenda goals, the lowest ranking in South America. ¹¹

In the same year, a report by the national association of non-governmental organizations into implementation of the SDGs concluded that the 2030 Agenda goals were unlikely to be achieved (POJOAHU, 2021). The same conclusions were reached by two further reports, the first by an international agency, hired by the UNDP (Fuller, Rodríguez Heredia, Camperi, and McCord, 2021) and the second by two academic analysts (Martínez and Serafini, 2021). However, surprisingly, none of the three reports made any reference at all to the social actors responsible for impeding progress, referred to in the political economy literature as “spoilers.”

On the contrary, the main explanatory factor for the extreme lack of commitment and progress in meeting the Agenda 2030 SDGs is state capture by such “spoilers” grouped within the UGP. Evidence suggests that powerful opposition by the economic elite grouped in the UGP is fundamental in explaining why the current growth model, which is inimical to meeting the SDGs, remains so resilient to reform that would support Agenda 2030. We illustrate our argument by examining how state capture impacts three basic and inter-linked aspects of sustainability that are embedded in several of the SDGs: i) climate action and environmental protection; ii) inequality; and iii) peace, justice, and strong institutions, focusing on personal security. In each case, the current model of economic development is unsustainable and counter to the public good and the national interest, and it is underpinned by the dominance of economic and political elites grouped within the UGP.

Environmental Protection

In terms of environmental protection (SDG 13 – Climate Action) the main driver of unsustainable development is the negative contribution of the agricultural export development model to climate change in the form of CO2 emissions caused by the extremely high rate of deforestation. In eastern Paraguay, a region that comprises 39 percent of the national territory, soybean and cattle production have already decimated the Atlantic Forest. A law for zero deforestation in the region, first introduced in 2004, failed to protect the ecosystem and by 2022, 90 percent of the virgin forest cover had disappeared. Highly mechanized cultivation of soybean now covers 24 percent of its total land area, while only three crops – soybean, rice, and wheat –account for over 90 percent of the area under cultivation.

The same fate threatens the Paraguayan Chaco, which comprises 61 percent of the national territory, an inhospitable region for agriculture and which has a delicate and legally protected ecosystem. Current deforestation of the Chaco is overwhelmingly propelled by meat production for export. The national cattle herd has increased rapidly in recent years, rising from 10 million in 2008 to 14 million in 2020, fueled by development of the Chaco which now contains over half of the national herd. Plans are also advanced for the introduction of drought-resistant varieties of soybean in the Chaco despite the warnings of scientists that this could lead to desertification caused by wind erosion of soil.

The rate of deforestation as a share of Chaco forest cover is one of the highest in the world. From January to June 2018 (more recent data is no longer available), it averaged 324 hectares per day; at the current speed, the Chaco forest cover will disappear by 2050. According to Global Forest Watch, Paraguay suffered 6,550,000 hectares of tree loss from 2001 to 2021, the second highest in Latin America, equivalent to a 27 percent decrease since 2000, and causing 1.61 gigatons of CO₂ emissions. ¹² The rapid rate of deforestation has also contributed to climate change through the greater incidence of forest fires, droughts, and flooding since 2010. Extreme flooding across lower reaches of the Paraguay River in 2019 led to the evacuation of 70,000 people from low lying areas around the capital, Asunción, while in 2024 the Paraguay River experienced its lowest ever recorded water level, leading to the paralysis of river-borne cargo traffic from Argentina to Paraguay (Última Hora, 2024).

Although legislation exists to protect the forest cover, enforcement by the state environmental agency, the Ministerio del Ambiente y Desarrollo Sostenible (Ministry of Environment and Sustainable Development, MADES), is virtually non-existent and the body currently receives only 0.06 per cent of the national budget. In 2017 it had a staff of 258 – of whom no more than 15 were based in the Chaco. Protection by MADES of national parks, most of which are in the Chaco, is also minimal. From 2000-2020 the total area of protected national parks fell by 345,000 hectares as a result of illegal land sales and associated logging (Última Hora, 2020a). A 2019 review by the National Audit Office, Contraloría General de la República, revealed that 35 of the 49 the officially designated Protected Forest Areas still had no officially recognized boundaries (Última Hora, 2020b).

The stance of the Paraguayan government towards the 2021 COP26 global climate conference in Glasgow provides a striking example of elite capture of state policy toward climate change and environmental protection. The official delegation included three representatives of the soybean lobby (two from the UGP and one from the APS) but none from organizations of peasant farmers or Indigenous peoples. ¹³ Initial plans to send a delegation without ministerial representation were only changed at the last minute due to strong pressure from the US government. Even then, Ariel Oviedo, Minister of the Environment, stated that Paraguay had no intention of signing the international commitment to reduce deforestation, commonly known as the Glasgow Declaration. Although the government feared a strong backlash from the agro-industrial lobby if it signed the declaration, it finally backtracked and signed, following strong pressure from the U.S. ¹⁴ Nevertheless, the eventual position paper presented by the official delegation was notable for its entrenched support for large-scale commercial agriculture (Comisión Nacional de Cambio Climático, 2021), a position criticized in an open letter signed by 39 non-government organizations working in the agricultural sector (World Wildlife Fund Paraguay, 2021).

The elite continue to argue that Paraguay’s contribution to global CO2 emissions is tiny, and that the current agro-industrial model is fully compatible with sustainable development and environmental protection. In July 2021, the Minister of Agriculture, Santiago Bertoni, stated that there was no contradiction between high agricultural productivity and environmental protection. He also maintained that agro-industrial farming methods in Paraguay reduced the carbon footprint, by reducing emissions and capturing CO2 (UGP, 2021). In May 2022, Pedro Galli, president of the ARP and one of Paraguay’s most prominent elite lobbyists, stated: “Our country should not talk about climate change mitigation, it is an absurdity imported from industrialized countries” (ABC Color, 2022).

In a surprising official admission, a “key finding” of the first Sustainable Development Report for Paraguay to measure progress towards the goals of Agenda 2030 stated bluntly that: “Today's agricultural practices are not sustainable. Soybean production and cattle ranching generate high nitrogen emissions (harmful to humans and ecosystems) and massive destruction of its forests, which is harmful to the country’s rich terrestrial biodiversity” (Fuller, Rodríguez Heredia, Camperi, and McCord, 2021: vi). Yet despite clear evidence to the contrary, the agro-industrial lobby grouped in the UGP continue to express hostility and vociferous opposition to any public policy reforms, from environmental protection to reforms to enhance economic sustainability, which might harm their financial interests.

Inclusiveness And Equality

State capture also largely explains the minimal commitment to inclusiveness and equality, two fundamental and closely related components of sustainable development, as encapsulated in both SDG 11 – Reduced inequality, and SDG 8 - Decent Work and Economic Growth. The main driver for the maintenance of this inequitable growth is virulent elite opposition to progressive tax reform and land reform.

The current agro-industrial development model underpins extreme social exclusion, as confirmed by a range of official data on the growing inequality of income, wealth, and land ownership in Paraguay. According to the annual household survey of the National Statistical Institute (INE), 24.7 percent of the population was still living in poverty in 2021, one of the highest levels in Latin America, and 5.6 per cent were in extreme poverty (INE, 2023). Paraguay has one of the highest Gini coefficients of income inequality in Latin America, oscillating around 0.45 over the past 20 years (INE, 2021a). A Staff Mission report by the International Monetary Fund (2018) concluded that “policies to make growth more inclusive will be needed to address income and wealth inequality, still among the highest in Latin America.”

Despite this, the economic elite and its spokespersons inside the finance ministry and central bank remain wedded to the GDP growth rate as the sole focus of macroeconomic policy, based on adherence to the outdated argument that growth reduces unemployment and underemployment and increases overall living standards through the so-called “trickle-down” effect. However, the expansion of the highly capital-intensive agricultural model continues to concentrate land ownership, leading to landlessness, rural unemployment, migration, and high levels of participation in a precarious informal sector. Despite a decade of higher economic growth than the regional average, in 2020, 65 percent of the labor force, the same as in 2012, was still working in the informal sector, one of the highest proportions in the world for a middle-income country (INE, 2021b: 17).

Two crucial areas for reducing inequality are tax reform and land reform.

Tax Reform

Although tax reform efforts were first drawn up in 2003 under pressure from the IMF, over the subsequent two decades elites have waged a successful campaign to delay, impede, and water down the reforms (Fogel, Costa, and Valdéz, 2018). As a result, the overall tax burden in 2021 was still only 9.6 percent of GDP – by far the lowest rate in Latin America. The tax system remains extremely inequitable, with an overdependence on regressive indirect taxation, such as the value-added tax accounting for 51 percent of total tax receipts in 2021. ¹⁵ In contrast, progressive direct taxation contributes one of the smallest percentages of total tax receipts in Latin America, with no inheritance tax or tax on assets held outside the country.

Furthermore, because of elite lobbying over successive administrations since 2003, the level of personal income taxation is extremely low, with an extraordinary range of expenditures that are eligible for deductibility covering all professional and family expenditure, ranging from food and clothing to education, pets, and items of luxury such as jewelry. As a result, in 2021 only half of the 206,000 high-income tax-payers liable for the tax actually paid any, and income tax contributed a paltry 2.3 percent of total tax receipts in that year. ¹⁶ The municipal tax on rural land is also minimal. Due to decades of lobbying by large landowners through the ARP, the 1 per cent annual levy is calculated on the basis of the official value (valor fiscal) of land, which is kept way below its market value. A 2019 study of six municipalities where soya is grown showed that the official value of land was 2-4 percent of the market value. As a result, the rate of property taxation averaged only USD 3.40 per hectare (Última Hora, 2019).

Although commercial agriculture and cattle ranching is the mainstay of the current economic model, accounting for around 75 percent of merchandise exports and 30 percent of GDP, the direct contribution of the sector to total tax receipts remains disproportionately low, at just 3.6 percent in 2014 (Villalba, 2015: 25). Furthermore, there is no export taxation on unprocessed grains (soybean, wheat, maize, and sunflower), which typically account for around 30 percent of total merchandise exports. This extraordinarily low tax burden on the sector is maintained thanks to powerful lobbying by the associations of rural producers within the UGP, with attempts to introduce even low levels of direct taxation being strongly opposed, watered down, and blocked. In 2013 Héctor Cristaldo, president of the producer association, Coordinadora Agrícola del Paraguay (Agricultural Association of Paraguay, CAP), a member of the UGP, said that a proposed tax on unprocessed grains would represent a “declaration of war” against producers (ABC Color, 2013). In a similar vein, in response to the Covid-19 pandemic, a proposal by the independent think tank CADEP ¹⁷ for an emergency 5 percent tax on the record soybean exports in 2020 was again rejected by Congress and condemned by Cristaldo as “insane” (Última Hora, 2020c).

Land reform

The current exclusionary model is situated within the wider regional dynamics of extractive monoculture with strong links to multinational agribusiness corporations (Palau, 2011; Ezquerro-Cañete, 2016; Hetherington, 2020; Palau, 2021). Indeed, there is a strong emerging literature on the impact of the boom in GM soya production in Paraguay since the 1990s in terms of rural inequality, rule of law, and environmental degradation. This has been fueled, and at the same time strengthened, by a powerful alliance of brasiguayo soya producers and traditional Paraguayan land elites, which has exploited power asymmetries and institutional weakness to further the interests of the soya sector (Turzi, 2017; Ezquerro-Cañete, 2016; Filomeno, 2014).

The extractivist model is underpinned by one of the most extreme levels of inequality in the distribution of land in the world, and the highest Gini index on land ownership in Latin America (0.94). Some 79 per cent of all productive land in use is owned by just 1.6 per cent of landowners (Ezquerro-Cañete and Fogel, 2017: 281). Despite this, there is no state-led initiative to promote economic and social inclusion in land tenure nor any serious proposal for land reform. The PND, the key instrument for achieving sustainable development, includes only one passing reference to land reform. On the contrary, it overtly prioritizes large-scale export-oriented agriculture, which has spread rapidly from the 1990s. Already by 2013-2014, it accounted for 94 percent of all cultivated land, with 70 percent dedicated to just one crop – soybean. This extreme concentration of land was reflected in a drastic decline in production of food crops by small producers, which accounted for only 6 percent of the total cultivated land. ¹⁸ Concentration of land and production is further exacerbated by a state policy of extensive access to subsidized credit and tax breaks for large agribusiness companies, while technical and credit support from the Ministry of Agriculture for small farmers remains extremely limited. As a result, the average production of small farmer units (2-20 hectares) fell from USD 3,121 in 1990 to only USD 981 in 2013 (Birbaumer, 2017).

The extremely unequal distribution of land for farming and cattle-ranching is largely the consequence of the illegal transfer of enormous tracts of land to members of the elite. Throughout the Stroessner dictatorship (1954-1989) the land reform agency, Instituto de Bienestar Rural (Institute for Rural Wellbeing, IBR), awarded large tracts of state-owned land to leading members of the armed forces and the Colorado Party, as well as to Brazilian land companies, under the guise of land reform for the benefit of landless families. In 2008, the post-dictatorship Comisión de Verdad y Justicia (Truth and Justice Commission) revealed the enormous extent of these tierras malhabidas. It found that 4,232 plots covering 7,806,369 hectares (out of a total of 12,229,594 hectares distributed) had been illegally awarded, equivalent to 32.7 percent of the arable land in the country (Comisión de Verdad y Justicia, 2008: Tomo IV). After Stroessner was overthrown in 1989, intensive lobbying by the spokespersons of the land-owning elite, many of whose members were descendants of beneficiaries of the tierras malhabidas, ensured that no initiatives progressed to recoup land illegally awarded for redistribution to landless farmers.

It was not until 33 years later that in March 2022 Congress finally approved a commission to investigate and “find solutions to” the illegal land sales that had been clearly laid out in the 2008 report. However, shortly before this, Congress passed the Zavala-Riera law (named after the two senators and leading members of the ARP who proposed it) that expressly prohibits peasant occupations of tierras malhabidas. This criminalization of land invasions led to a new wave of arrests of small farmer activists throughout eastern Paraguay and clearly indicated the systemic barriers to future land reform (Última Hora, 2021).

These barriers have been exacerbated by the lack of strong, coherent, and effective civil society opposition. Multiple peasant organizations at the district, department, and national level, coordinated primarily by the Federación Nacional Campesina (National Peasant Federation, FNC), have been at the forefront of the opposition to the dominant model of production. However, a lack of unity between Indigenous peoples and peasant organizations, as well as regional and ideological differences, have limited their effectiveness in building a united opposition (Fogel, Costa, and Valdéz, 2018; Turzi, 2017). In sharp contrast, from the late 1990s, demonstrations, street protests, roadblocks and tractorazos (slow moving road protests with tractors) organized by members of the UGP have been highly visible and effective in preventing government legislation that would adversely affect its members.

The Rule Of Law And Personal Security

State capture in Paraguay largely explains the minimal commitment to the rule of law and personal security, fundamental components of sustainable development, as encapsulated in SDG 16 - Peace, Justice, and Strong Institutions. The 1992 Constitution provided for a strong separation between the executive and the legislature. However, the judicial system lacks independence, with limited separation from both the legislature and the executive. It is strongly influenced by partisan political considerations and remains extremely corrupt at all levels. As a result of endemic corruption, impunity is rife for members of the economic elite who have violated the law. A state anti-corruption body, Secretaría Nacional Anti-Corrupción (National Anti-Corruption Secretariat, SENAC), was created in 2012, but its actions have not yet led to the trial of any senior official. On December 14, 2022, United States Ambassador Marc Ostfield gave a speech at the SENAC headquarters in which he called upon Paraguayans to challenge corruption and impunity, which he identified as a “great weight that slows down the country” and undermines the rule of law. ¹⁹

In contrast, highly-paid lawyers contracted by organizations such as the ARP and UGP have ensured the criminalization of social protest by the rural poor in favor of land reform and against the use of illegal herbicides (Hetherington, 2020). Under pressure from the UGP, freedoms of assembly and association are restricted in rural areas by the activities of the elite police unit Fuerza de Operaciones Policiales Especiales (Special Police Operations Force, FOPE). Given the lack of access to justice and equal treatment before the law for most Paraguayans, violence against rural workers and activists is rarely investigated. From 1989 to 2019 a total of 124 rural activists were assassinated (Última Hora, 2020d), yet despite Paraguay signing 18 UN human rights agreements since 1989, these deaths have not been investigated. However, the Coordinadora de Derechos Humanos del Paraguay (Association of Human Rights Organizations of Paraguay, CODEHUPY) which has been lobbying for such investigations, has been the target of a smear campaign by members of Congress directly linked to the UGP and ARP, including being labeled as “supporters of terrorism” (CODEHUPY, 2021: 571).

Failings in the legal system and the absence of robust state institutions that underpin peace, justice, and security are highlighted by a sharp rise in two areas in particular: political insurgency and the growth of narcotics trade. Since the mid-2000s there has been a slow growth of political insurgency in northern Paraguay. In particular, a small, nominally Marxist guerrilla movement, the Ejército del Pueblo Paraguayo (Paraguayan People’s Army, EPP), began to operate in the departments of Concepción, San Pedro, and Amambay, three of the poorest and most unequal areas of Paraguay. The insurgency arose in the context of growing peasant opposition to rapid agro-industrial development and in particular to the expansion of soybean production, dominated by brasiguayo commercial farmers, which exacerbated already high levels of poverty, inequality, and landlessness (Nickson, 2019b).

The leadership of the economic elite has been vociferous in its condemnation of the EPP as “terrorists” and blocked any attempts to modify the highly militarized response to the insurgency or address the underlying socioeconomic causes of the conflict. Denunciations of human rights abuses committed by the counter-insurgency Fuerza de Tarea Conjunta (Joint Task Force, FTC), have not been investigated (Nickson, 2019b) in part due to its strong backing from the UGP, while state regulation of the activities of private security firms, widely used by members of the UGP, remains non-existent. Furthermore, an effective campaign by agricultural elites to link peasant demands for land to the EPP insurgency has led to further harsh repression of peasant activists (Pereira, 2015).

Further undermining personal security and the rule of law, Paraguay is now the major exporter of marijuana to the Southern Cone of Latin America and an international transit route for cocaine to Europe. The drugs-related murder rate in the Department of Amambay is now among the highest in the Americas, while the prison system is central to recruitment to organized criminal groups, with some 1,000 Paraguayan inmates baptized as members of the Brazilian gang, Primer Comando do Capital (PCC) by 2020 (ABC Color, 2020). Narcotics activity has spread to almost all 17 departments of the country, leading to the infiltration of criminal groups in the political system at the municipal, departmental, and national level. This has led to a dramatic growth in narcotics-related political corruption, including money-laundering (Charles, 2022).

Although the narcotics trade poses a growing threat to national security, undermining judicial, security, and political institutions on a local and national level, elite organizations have adopted an ambivalent attitude towards it. Narcotics-related deaths far outnumber those caused by the insurgency, yet the ARP and other members of the UGP consistently press for the deployment of far greater state resources in combatting the small EPP rather than narcotics gangs. Mirroring that of the ARP, the state’s response to the growth in narcotics-related crime has also been weak to the point of ambivalence. Despite considerable financial and logistical support from the US government, Paraguay has been unable to counter the rapid growth of marijuana cultivation and cocaine trafficking, explained to a large extent by high levels of corruption among the police force, the prison service, the FTC, and the anti-narcotics agency (SENAD). The 2020 Capacity to Control Corruption Index of Control Risks, a specialized global risk consultancy company, highlighted that the infiltration of drug cartels into every sphere of government makes the prospect of improvement unlikely in the foreseeable future (Simon and Aalbers, 2020).

Conclusion

From the above analysis, it is evident that state capture is crucial to an understanding of power dynamics, state institutions, development policy, and democratization in Paraguay. State capture by traditional and new elites grouped within the UGP has had a profound and negative impact in each of the three above areas of analysis, with elites consistently opposing, delaying, and blocking key reforms and oversight regarding climate change and environment, inequality, and personal security. Behind this lies a strong commitment to the extractivist export model which is unsustainable in political, social, economic, and environmental terms.

There are several further conclusions from this case study which have a relevance beyond Paraguay. First, if the definition of state capture is limited to illegal methods, such as bribery and corruption, this risks a failure to recognize the adverse effects of legal mechanisms of state capture employed by elites. Paraguay is indeed characterized by extremely high levels of political corruption, as exemplified by its poor ranking in the annual Corruption Perception Index of Transparency International. ²⁰ However, in all the cases analyzed above, corruption has not been a major factor and elites have generally used legal methods to ensure that laws, regulations, and policies protect rather than threaten their interests. This has been facilitated in areas of tax and land reform by a shared cultural affinity between senior politicians (most of whom are large landowners) and UGP concerns. Indeed, our analysis suggests that even if major advances were made in reducing corruption, this would have little impact on the extent of state capture and the obstacles to meeting the SDGs.

Second, the mechanisms of state capture are more structural than instrumental (i.e. directly related to key individuals) in nature. Elites grouped in the UGP have maintained a low public profile and rarely operate directly through the political system or control of the media. Ex-president Horacio Cartes (2013-2018), one of the richest people in the country, is a major exception to this norm, but generally elite members have kept out of the spotlight and used their influence over all major political parties and within state structures to ensure desired outcomes, generally related to the ‘input’ side of policy and regulation design, rather than simply undermining existing laws. This partially explains why the pernicious influence of state capture on progress to the SDGs has not been more deeply analyzed; indeed, it is noticeable for its almost complete absence in current political debate around obstacles to meeting SDGs. While the mechanisms used in state capture broadly align to the 11 cited by Cañete (2018), further detailed analysis of how each one is developed and exploited in relation to SDGs represents a rich field for future research.

Third, while the role of transnational corporations in maintaining the status quo in terms of the current unsustainable model of economic growth should not be underestimated, this article has focused on the importance of domestic elites both in maintaining that model and in the failure of Paraguay to make progress on its SDGs. Indeed, some of the examples we have analyzed, including tax reform, rule of law, and personal security, do not necessarily correspond to the interests of transnational corporations and have a local rather than international impact. In this sense, the case study of Paraguay highlights the value of using state capture and elite behavior as a conceptual framework for analysis. Despite the extremely positive assessment of progress towards Paraguay’s SDGs in the 2021 government report (Comisión ODS Paraguay, 2021), our analysis suggests that it is unlikely Paraguay will be able to meet its SDGs or address the longer-term issues of sustainability. Evidence suggests that this in great part due to the profound social, environmental, and political consequences of state capture, which, we argue, represents the greatest single threat to sustainable development in Paraguay.

Finally, our analysis of SDGs is indicative of a far deeper problem of state capture in Paraguay. Latinobarómetro (2021) reveals how it undermines perceptions of the quality of democracy, trust in democracy, and the legitimacy of democracy. Support for democracy in Paraguay has an average of just 44 percent since 1996, with the current level of disillusionment second only to Brazil. Indeed, 24 percent believe authoritarianism could be preferable under certain circumstances, the highest level in Latin America. Similarly, Paraguay had the lowest confidence in the judiciary (13 percent) and in progress in reducing corruption (13 percent). It was amongst the lowest in the region for satisfaction with democracy (15 percent), confidence in parliament (10 percent), and confidence in political parties (9 percent). Most revealing of all, however, is the possible explanatory factor; only 5 percent of Paraguayans believe that the government rules for the good of the people and 93 percent believe it rules for the benefit of powerful groups, the highest such ranking in Latin America and a striking indication and indictment of the power and prevalence of elite state capture.

State capture in Paraguay has served to reproduce and deepen social inequalities, block progressive public policies, prioritize sectorial over national interests, and prevent elected governments from seriously challenging the existing development model. In doing so, it has undermined the quality, effectiveness, and legitimacy of democratic governance. Unless, it is recognized, challenged, and addressed, there is a real danger not only that Paraguay will fail to meet its Agenda 2030 commitment to SDGs, but that the country will continue the gradual and almost imperceptible slide in the direction of heightened environmental degradation, inequality, social conflict, and democratic decay.