Paraguay has long been a strong ally of Taiwan. It has the second-largest economy of all of Taiwan’s official diplomatic allies, highlighting its economic significance. However, as Paraguay evolves and the People’s Republic of China’s (PRC) influence in Latin America grows, Taiwan must update its soft power playbook to ensure Paraguay does not shift its recognition to the PRC within the next decade.
Since 2000, the PRC’s influence in the region has grown rapidly, raising concerns about Beijing’s sway in the region. In 2000, Latin America’s exports to China comprised less than 2 percent of the market. Over the next eight years, trade expanded at an average annual rate of 31 percent, reaching US$180 billion by 2010. By 2021, trade hit a record US$450 billion and Latin America held a partner share of 14.47 percent. China now ranks as South America’s top trading partner, surpassing the US.
Today, Paraguay is Taiwan’s only reliable ally in South America and has remained steadfast in its partnership. Over the years, the PRC has whittled away at the number of countries that maintain formal diplomatic ties with Taiwan, leaving them with only 12 diplomatic allies. However, many in Paraguay have been consistently calling for closer ties to the PRC. The agricultural sector has been especially vocal about this since they must export through Brazil to access the Chinese market. In their view, direct trade would be economically transformative for their industry.
During the COVID-19 pandemic, it was reported that Paraguay might switch recognition to the PRC due to delays in receiving Western vaccines. Fortunately, despite China’s offer of low-quality Sinovac vaccines in exchange for recognition, former Paraguayan president Mario Abdo Benitez upheld Paraguay’s policy of recognizing Taiwan, thanks to excellent Taiwanese engagement and diplomacy. However, it is arguably more important than ever for Taiwan to demonstrate value to Paraguay.
Additionally, Taiwan has been fortunate to count on Colorado Party support over time. Although the party has been steadfast in its political support for Taipei for many years, its continuation is not guaranteed. The last election was a close one, and Taiwan-Paraguay relations are very much on the ballot. It is critical that Taiwan not rest on its laurels when it comes to strategic engagement.
Taiwan has been an exceptional friend to Paraguay, contributing generously to development cooperation. Taiwan-Paraguay trade hit a record US$196 million in 2021. Taiwan has also welcomed numerous Paraguayan students. Since 1991, Taiwan has provided more than 600 scholarships to study at Taiwanese universities. Taiwan has also sent some of its most able diplomats, including former ambassador Alexander Yui (俞大?) and Ambassador Jose Han (韓志正), to Paraguay in the past decade. This longstanding relationship has significantly benefited Paraguay’s development.
However, Paraguay is at a pivotal moment in its history and now requires different support from its friends and allies. It arguably has the most prepared government, marking an era of unprecedented stability and prosperity. As Paraguay grows, its interests and needs will evolve. Taiwan must be flexible and responsive, adapting its strategies and support to meet Paraguay’s changing needs.
Paraguay needs increased investment and technology from its allies, including Taiwan. With enormous excess electricity, Paraguay could become a regional tech hub for artificial intelligence, and Taiwan’s expertise in AI and technology could significantly benefit Paraguay. Additionally, Paraguay should aim to be a major producer of green hydrogen and a leading manufacturer of fertilizer. However, the nation remains disconnected from Asia and North America via air links and needs enhanced human capital capacity.
Paraguay understands Taiwan’s challenges. In the 19th century, it was nearly destroyed by its neighbors — Argentina, Brazil and Uruguay — in the War of the Triple Alliance. Paraguay also has a strong anti-communist tradition, shares democratic values with Taiwan and feels genuine solidarity with Taiwan’s plight.
However, as I wrote in the Taipei Times in 2022, Taiwan needs to see foreign aid and its soft power engagement with allies and non-allies as a strategic instrument of power, and a key component of its foreign policy. For a country with a GDP about the size of the Netherlands or Switzerland — which spent US$7.4 billion and US$5.2 billion on foreign aid respectively last year — Taiwan only spent US$430 million on foreign assistance. Taiwan’s foreign aid should be reviewed and scaled up to meet the changing needs of Paraguay and other partners.
Education has been a cornerstone of Taiwan’s soft diplomacy. While 300 Paraguayans are currently studying in Taiwan, and the nation generously offers many scholarships to Paraguayan students annually, Taiwan should increase this number. It also has an excellent partnership in higher education through the joint Taiwan-Paraguay Polytechnic University. This institution plays a critical role in addressing Paraguay’s human capital challenges by providing high-quality education and raising the next generation of leaders and innovators.
To further cement its relationship with Paraguay, Taiwan should consider offering additional tax incentives to Taiwanese companies investing in the country. Incentivizing businesses to explore these opportunities can help drive Paraguay’s economic growth while also securing its own strategic interests in the region.
Commercial diplomacy is another crucial area where Taiwan can play a significant role. Taiwan should consider expanding the role of its development finance institutions, the Overseas Investment Development Corporation and the Overseas Engineering and Construction Corporation. These institutions have helped develop key infrastructure, including a US$22 million hospital in Guatemala and a US$16 million investment in Belize. Additionally, the US Agency for International Development and Taiwan’s International Cooperation and Development Fund are jointly funding small business centers in Paraguay. Increasing such engagement in Paraguay through their international development institutions would provide much-needed financial backing for development projects in the nation, facilitate trade and investment, and showcase Taiwan’s commitment to its ally’s economic prosperity.
One of the most impactful ways Taiwan can strengthen its ties with Paraguay is by establishing direct flights between the two countries. While a direct flight from Asuncion to Taipei might not be feasible due to distance and airport limitations, supporting a connecting flight to North America or Europe via a Taiwanese airline would be an excellent step. Enhanced connectivity would facilitate greater economic interaction and foster closer cultural and academic ties with Taiwan, and allies such as the US. Currently, there is no direct flight between the US and Paraguay.
Taiwan should update its “offer” to Paraguay. If it does not, within the next decade, there is a high risk that Paraguay might turn to the PRC. By enhancing its development aid, promoting connectivity, strengthening economic and educational ties, and advancing commercial diplomacy, Taiwan can be seen as a key partner of choice for Paraguay as it reaches new heights of development. This can also serve as a shining example for other potential diplomatic partners, in sharp contrast to the countries that bought into the PRC’s false promises.
Daniel F. Runde is a senior vice president at the Center for Strategic and International Studies. He is also the author of The American Imperative: Reclaiming Global Leadership Through Soft Power.
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