The ex-leader, the bribery claims and the threat to Paraguay’s star economy

Paraguay’s former president has been accused of orchestrating the expulsion of a prominent senator, as worries rise that the influence of the ex-leader sanctioned by the US for corruption is dragging down Latin America’s star economy.

Centre-left senator Kattya González, an outspoken critic of politicians’ ties to organised crime, was expelled from the senate last month. She claims her removal was illegal and was ordered by former president Horacio Cartes — one of the main targets of her corruption claims.

At least a dozen business associations have warned that the expulsion will hurt Paraguay’s burgeoning image as a haven for investors in South America. 

Cartes, a cigarette tycoon and one of Paraguay’s wealthiest people, led the country from 2013 to 2018 but has since been placed under sanctions by the US for “significant corruption”. He still holds vast influence as president of the ruling rightwing Colorado party and the owner of several media outlets.

“Horacio Cartes had the deciding vote in [my expulsion], despite not being a legislator,” González told the Financial Times. “They wanted to send a very strong signal to the rest of the opposition that those who denounce wrongdoing will be censured.”

Current president Santiago Peña, a technocrat lacking his own legislative base, is reliant on Cartes, his mentor, analysts said. Peña has declined to comment on González, citing the independence of the legislature.

“Cartes makes the decisions, there’s no two ways about it,” said Sebastián Acha, a political analyst and former congressman for a centre-right opposition party, adding that González’s expulsion was a “show of force” by pro-Cartes legislators. 

González has become known for calling out lawmakers she says are corrupt in social media videos and in congress. 

Cartes’ lawyer Pedro Ovelar denied González’s claims that the former president was behind her ousting, saying senators cast their votes “absolutely freely” and that she was “diverting attention towards [Cartes]” to evade scrutiny.

Yet she is not the only person accusing Cartes of undue influence. Sanctioning him in January 2023, the US said he “continued to influence legislative activities after leaving office, targeting political opponents, and bribing legislators to direct votes in his interest, with top supporters receiving as much as $50,000 monthly”.

Ovelar rejected the claims, saying they were designed to discredit Cartes’ movement prior to Paraguay’s elections last April.

González was expelled after Colorado party senators accused her of “abuse of influence” in managing and hiring staff. She said the allegations were “absolutely false” and has filed a complaint with Paraguay’s supreme court hoping to reverse her expulsion. She argues the move, approved by a simple majority of 23, violates rules requiring 30 votes to remove senators.

Her plight has drawn international attention. The ambassadors of the EU, UK, Spain, France, Italy and Germany met González in late February, along with a US diplomat. The Europeans shared a photo of the meeting captioned: “Always [standing] with the rule of law and democracy in Paraguay.”

Businesspeople said they were worried that the attention would jeopardise investment. “It sends the message that we are not a serious country,” said David Caballero, president of the Paraguayan Entrepreneurs’ Association. “We ask that legislators think more about the image that we are building abroad.”

The episode has become a headache for Peña, a former IMF official who portrayed himself on the campaign trail as a moderniser for Paraguay and the party, which has governed for 65 of the last 69 years, including during a lengthy military dictatorship.   

His critics say key decisions are made not in the presidential palace but “in the gazebo” — a reference to Cartes’ mansion in Asunción.

“Peña . . . presents a very good, professional image of Paraguay,” said Mariano Ortiz, senior economist at investment bank BancTrust. “But when the perception is that the power in the shadows is Cartes, there’s a limit to what he can do.”

Over the past two decades, despite severe inequality, Paraguay’s low inflation and disciplined public finances have helped create one of the region’s fastest-growing economies.

Last month S&P upgraded Paraguay’s rating to BB+, one rung below investment grade, bringing it in line with Moody’s and Fitch. Days later Paraguay held its first international auction of sovereign bonds in the local guaraní currency.

But Ortiz said Paraguay could not continue that climb without strengthening its institutions.

Corruption is “systemic” and “a way of doing politics” in Paraguay, said Luciana Torchiaro, Latin America adviser to Transparency International, the anti-corruption organisation.

Over the past decade regional gangs — which have increasingly transported drugs and weapons through the landlocked country’s lightly policed rural areas — have used graft as a door into politics, gaining “protection to expand their illegal activities with impunity”, Torchiaro said.

In 2022 Marcelo Pecci, Paraguay’s top anti-mafia prosecutor, was assassinated while on honeymoon in Colombia.

The US has accused Cartes of links with the Lebanese militant group Hizbollah, while the head of a congressional commission in Paraguay said its research identified Cartes “as the head of a broad network of cigarette smuggling and alleged money laundering”.

Ovelar said the US had never presented evidence for its allegations, and that Cartes’ tobacco companies “have always abided by all of Paraguay’s laws and regulations”.

He added that it was “absolutely baseless to blame [Cartes] for contraband or trafficking, because once sold legally in Paraguay the company loses all control over what happens to the product”.

González’s expulsion may be an inflection point for Cartes’ influence in Paraguay, said Acha, the analyst, noting that it had worsened tensions between his supporters and rivals within the Colorado Party that could damage the former president.

David Riveros García, founder of anti-corruption campaign reAcción, said he feared other lawmakers could be targeted for expulsion.

“A lot of us feel this is [the start] of a more aggressive authoritarianism from ‘Cartismo’,” he said. “The fate of our democracy is being decided in the Colorado Party’s internal negotiations.”