At one end of the desolate park that stretches down from the public buildings of Asunción to the bay adjacent to the Paraguay River, where conquistadors first found refuge in the 16th century, stands a strange construction of concrete and metal that looks more like a contemporary artwork than a memorial. Scrambled within the cement are bronze hands sticking out and an upturned human face, crushed beneath an immense cube of concrete: the destroyed remains of the statue of General Alfredo Stroessner, one of the infamous dictators of the second half of the 20th century. He ruled here for 34 years, from a coup in 1954 until his overthrow in 1989, an annus mirabilis in Paraguay as well as in Eastern Europe.

Stroessner was both the first and the last of the dictators in dark glasses who ruled in Latin America in those years, his regime largely protected from inquiring eyes by its inaccessibility and its secret police. Graham Greene’s The Honorary Consul, published in 1973, was set among the exiles in Corrientes, across the Argentine frontier, but it caught very well the claustrophobic atmosphere of 20th-century Paraguay. The country’s greatest novelist, Augusto Roa Bastos, long exiled in France, wrote the definitive novel about a Latin American dictator, evoking the perversities of the Stroessner era. I the Supreme, published in 1974, was ostensibly a biography of José Gaspar Rodríguez de Francia, El Supremo, the austere independence leader of the 19th century, but no Paraguayan reader could miss its contemporary references.

In the two decades since the overthrow of Stroessner (who died in 2006, in well-funded exile in Brasilia), not much news has percolated out of Paraguay, but many people will have imagined (or hoped) that the old dictator was replaced by some kind of democracy and that everyone lived happily ever after. Not so, alas. Among the few news items that did reach the outside world were the conviction of two civilian presidents for corruption and fraud; the assassination of a vice-president; the kidnap and murder of a president’s daughter; and two coups d’état (one successful, the other less so). Behind a veneer of free market prosperity, most people are worse off today than in the days of dictatorship. Neoliberal economic policies and privatisation, encouraged by Washington, replaced the state paternalism of the Stroessner years and tens of thousands were thrown out of work. Those once driven into exile for political reasons have been replaced by those who leave from economic necessity. Some two million Paraguayans (out of a population of nearly seven million) now live in Argentina, Spain and the United States.

Most journalists have given Paraguay a wide berth, and the few who penetrate its defences tell a depressing story. Yet many left-wing intellectuals (Eric Hobsbawm, Perry Anderson), as well as several novelists aside from Graham Greene, have been drawn to this isolated and landlocked country, intrigued by its heroic 19th-century history, by the survival of Guaraní, its Indian lingua franca, by the ruins of the 18th-century Jesuit missions, and by its utopian settlements, including the one established briefly by Nietzsche’s sister, Elisabeth. Three recent novels have told the story of Eliza Lynch, an Irish adventuress who lived with Francisco Solano López, the president who in the 1860s led the country’s unsuccessful defence against an invasion by the forces of Argentina, Brazil and Uruguay, in the War of the Triple Alliance, which was fomented and encouraged by the British, who needed a new source of cotton because of the American Civil War and also wanted to get rid of Paraguay’s protectionist regime.

My own enthusiasm for Paraguay was first aroused forty years ago, when I drove on a dirt road across the Chaco, the vast and then almost trackless waste of scrub and marsh that extends westward from the Paraguay River to Bolivia. At that remote frontier, unguarded, there stood cast-iron markers, erected in 1939 by a team from the moribund League of Nations, at the end of Paraguay’s Chaco War with Bolivia. This brutal war was fought over oil, and entire regiments died of thirst when the opposing side prevented their access to such water holes as there were. Paraguay claimed victory; but Bolivia secured the oil. Inhabited only by free-ranging groups of Indians and by Mennonite settlers from Russia and Canada, and punctuated by huge cattle ranches and occasional military forts (and more recently by a US satellite-tracking station at Mariscal Estigarríbia), the empty Chaco occupies half the land space of Paraguay, an enduring symbol of the country’s underdevelopment.

I have made many subsequent visits, but I returned late last year, drawn by the possibility of imminent political upheaval. I drove into the country from Brazil, crossing the Paraná River frontier from the tourist resort of Foz do Iguaçu to Ciudad del Este (the largest free port shopping centre in Latin America outside Panama), and then on for five hours to Asunción. A few miles upstream from the frontier crossing lies one of the two principal sources of Paraguay’s income. The gigantic hydro-electric dam at Itaipú jointly owned by Brazil and Paraguay, is one of the manmade wonders of the world, supplying electricity to the insatiable industrial belt of São Paulo. Its first generator started operating in 1984 and the last (of 20) opened last year.

A few days later, I drove six hours south of Asunción to the Argentine frontier, to look at the other great dam at Yacyretá, finished in 1994, where Paraguay has a similar electricity deal with Argentina. An immense lake created by the dam spreads over southern Paraguay, although it has reached only 80 per cent of its eventual size. The lower streets of the town of Encarnación have already been flooded and thousands have lost their homes.

The future of the income produced by these dams is a central issue in the presidential election scheduled for April. Will it continue to be shared out among the country’s wealthy or might it be made available to improve the conditions of the poor? And might a new president have the courage to secure a larger income for the country by renegotiating the existing energy agreements with Brazil and Argentina? In Venezuela, Bolivia and Ecuador, the signing of fresh treaties with foreign companies investing in oil and gas has been a defining feature of the new governments’ radicalism.

Another important issue is the revival of ancestral agrarian struggles, exacerbated by the current world demand for soya and by the arrival of hundreds of Brazilian landowners and their attendant workforce. (More than half a million Brazilians, known as Brasiwayos, now live as squatters in Paraguay.) In many areas, soya fields stretch for miles on either side of the road, and soya (genetically modified) can also be found growing in seemingly impenetrable forest regions. These developments have brought violent conflicts between ousted local farmers and rapacious landowners, and the emergence of new political players in the countryside. Since no recent land survey exists, and few peasants have title to their farms, they can be dislodged with relative ease.

There is hope. The winds of change sweeping through Latin America in the past decade have also been blowing in Paraguay, reviving indigenous movements and ancient peasant struggles against the landlords. The process that began with the election of Hugo Chávez in Venezuela nearly ten years ago, and continued with the emergence of leftist presidents at the head of indigenous movements in Bolivia and Ecuador, may yet produce a surprise result in Paraguay’s elections. Fernando Lugo, a 58-year-old former bishop, emerged two years ago as the unexpected candidate of the freshly minted left-wing opposition, and has been leading in the opinion polls ever since. With a doctorate in sociology and a continuing enthusiasm for liberation theology, Lugo is known to his supporters as El Bueno, ‘the good one’.

What makes Paraguay different from other Latin American countries is the scale of the corruption that undermines the structures of the state. In most other countries the workings of corruption are hard to trace: in Paraguay they are crystal clear. Everyone is on the take and everything has its price. This is especially the case when it comes to voting. An acquaintance told me of a scam in his own neighbourhood in Asunción during the primary elections in the ruling Colorado Party. His uncle, who was in charge of a local precinct and had ten voters in his immediate family, went to the party authorities and asked them for an air-conditioner, worth perhaps $150. This was the going rate, each vote being priced at between $10 and $20. A day later, on the front page of ABC Color, a daily paper often critical of the government, a photograph showed potential voters emerging from a party office with outsize bags of groceries. The paper also reported that Nicanor Duarte, the outgoing president, had sought to ensure the victory of Blanca Ovelar, the Colorado candidate he had selected to succeed him, by publicly insisting that every employee of the civil service vote for her. The media expressed their outrage at this, but the president defended his remarks with vigour. (You can’t join the bureaucracy unless you have a party card.)

The Colorado Party, the most powerful political organisation in Latin America, has ruled Paraguay without interruption for more than sixty years. Although Stroessner had the backing of the armed forces, he needed the party’s electoral machine to reinforce his control. The party came into existence long before he seized power and it retains huge influence. The military may have taken a back seat since his downfall, but his civilian heirs have used the party to entrench themselves in power. With its assistance they have directed the country’s wealth, derived largely from the export of electricity from the hydroelectric schemes, as well as from agriculture (cattle and the ubiquitous soya bean), into the bank accounts of a tiny middle class. Fierce battles take place every four years within a handful of elite families to seize control of the party, the key to the subsequent presidential election and the state treasury. Yet this year the Colorado candidate might just lose to a radical outsider.

The Colorado Party has in the past explored the discourse of right and left according to the demands of the moment. Sometimes appearing as the protagonist of reform, at others as a bastion of stability and conservatism; yet it has always identified itself successfully with the cause of Paraguayan nationalism. President Duarte calls it ‘a civil religion more than a political organisation’. To be Paraguayan is to be a Colorado. But this year the party bosses are not so confident. Duarte is singularly unpopular, and Blanca Ovelar suffers by association. Severe internal divisions in the primary elections have undermined the party’s appeal as a national unifier. Two external candidates have emerged with serious popular support. On the left is Lugo; on the right, General Lino Oviedo, once a young officer at Stroessner’s right hand, who later helped organise the coup against him. Both are charismatic figures with a mass following.

Oviedo, now 64, was the head of the armed forces until 1996, when he sought unsuccessfully to organise a further coup. In the subsequent decade, he attempted to stand as a presidential candidate and spent time in exile in Argentina and Brazil. He also served several years in prison on charges of plotting a coup, and has been accused of slaughtering unarmed civilians, and involvement in the murder of a vice-presidential candidate. This has done nothing to lessen his popularity, among the poor especially, though some say that his appeal is waning. A fluent Guaraní speaker, he has often been perceived as a potential saviour from outside a corrupt system, and was released from prison last October by presidential decree, to help sabotage the bishop’s prospects by dividing the protest vote.

I went to meet Lugo at his headquarters in the northern suburbs of Asunción. With greying hair and white beard, he has an authoritative air. His advisers say they have had to persuade him to leave out the traditional episcopal blessing at the end of his speeches, and his manner is certainly benign and avuncular. With a huge throaty laugh, he asks me if I want a short sermon or a long one.

Lugo comes from a political family. His uncle was Epifanio Méndez Fleitas, who became the leader of a radical faction inside the Colorado Party in the 1950s, and was police chief and then president of the central bank in the government that preceded Stroessner’s coup in 1954. He later lived in exile in Argentina, presiding over the Movimiento Popular Colorado, the political focus for Paraguayans in exile. Three of Lugo’s elder brothers, influenced by their uncle, were politically active in the 1950s in the Partido Colorado Auténtico, a group opposed to Stroessner, but they too were forced into exile – to Argentina, Sweden and France.

Fernando was the youngest boy, and, after what had happened to his uncle and his brothers, his parents tried to protect him from too intense an interest in politics. He didn’t join any political group and taught for a year in a primary school before coming under the influence of the Misioneros del Verbo Divino, a missionary organisation of German origin that had long been active within settler communities in South America. (Like Argentina and southern Brazil, Paraguay has been host to waves of settlers from Germany for more than a century, notably at the end of the First and Second World Wars.) To the surprise of his family, who had hoped he would become a lawyer, Lugo decided to join the missionary order. He studied at the Catholic university in Asunción, where he soon followed in the family tradition and became a leading student activist. Enrolled as a priest, he worked in a parish in Asunción before leaving in 1978 for mission service in Ecuador. There he lived with peasants and in indigenous communities, meeting for the first time the exponents of liberation theology.

Returning to a parish in Encarnación in 1982, he was soon in trouble with military intelligence. Eventually, the local bishop was told that Lugo should be sent abroad ‘for the security of the country’. He went to study social science in Rome, returning to Paraguay in 1987 as a professor of theology. He then became head of the Verbo Divino missionaries in Paraguay, their first Paraguayan leader. In 1994, he was chosen to be the bishop of San Pedro, which is in the poorest area of the country. He lived there for 11 years, working with the peasants and campaigning alongside them in their struggles for land. He gained their confidence, but soon lost that of the local landowners, who accused him of protecting guerrilla cells and supporting kidnappers.

Feeling that he was getting nowhere, Lugo resigned from his bishopric in April 2004. He discussed with friends the possibility of going into politics, and in March 2006 was the main speaker at a huge demonstration in Asunción, protesting against Duarte’s plan for re-election. By December, he had helped to create a new political movement, Tekojojá, a word meaning ‘life and equality’ in Guaraní. More than 100,000 people signed a petition requesting him to abandon the priesthood and to stand as a presidential candidate – under the existing constitution, a priest can’t be elected president.

Lugo embarked on negotiations with the existing opposition groups, and formed a broad electoral alliance with a progressive programme. The Alianza Patriótica para el Cambio was created in August 2006 from a wide spectrum of social movements, trade unions and a dozen small political parties – including the Christian Democrats, socialists of various hues and radical splinters from the Colorado Party. The Alianza also established a vital strategic relationship with the old Partido Liberal Radical Auténtico, the largest of the traditional opposition parties. Lugo became the presidential candidate of this alliance, with Federico Franco from the Liberals as his vice-president. Their six-point programme includes land reform (and a land survey), reform of the judiciary and ‘recovery of sovereignty’ – taken to mean a revision of the unequal treaties with Brazil and Argentina that govern the use of the Itaipú and Yacyretá dams. This might seem a reformist programme, but in Paraguay it is not far short of revolutionary.

The appeal of the new radical governments in Latin America is based in part on their revisionist readings of the past. In Paraguay this has entailed a reappropriation of the country’s rich nationalist tradition, up until now exploited by the right, but using the word ‘patriotic’ to replace ‘nationalist’, which remains identified with the Colorados. I asked Lugo to provide his own account of Paraguayan history. Like Evo Morales, the Bolivian president, he wanted to concentrate on the matter of indigenous resistance:

Paraguay was originally a country of aboriginal peoples who define our culture to this day. We are proud that we still maintain our indigenous language, and we have much to learn from them, in terms of organisation and resistance and life in general . . . When the Spaniards arrived in Paraguay, the Guaraní offered considerable opposition, but many stories were circulated, by the conquistadors of course, to suggest that they were very submissive and handed over their women and the men too, but of course this was not so. They were always mistrustful, and many rebellions were never recorded; and many had women leaders.

When the Paraguayans freed themselves from the Spanish in the 19th century, Lugo said, ‘the independence struggle was supported by very simple people, by people from the provinces, not from Asunción. In San Pedro, where I was the bishop, the participation of women was exceptional.’ But unfortunately, ‘new forms of slavery appeared, the English arrived with their capital, their companies, their people. The real development of Paraguay was destroyed by the genocidal struggle of the War of the Triple Alliance, and again by the Chaco War of the 1930s.’

Paraguayan history has been marked by external domination, ‘but Paraguayans have always searched for something different, for an alternative of liberty and equality . . . for a “Land Without Evil”, for spaces or territories where evil is not present.’ This, he explains, lies at the centre of the Guaraní religion. Lugo believes that the values of the indigenous peoples must be recovered and upheld, to provide a serious challenge to a society in which the legends of the conquistadors, and those of the huge influx of German settlers in the 20th century, have been predominant for so long.

Can this almost religious rhetoric, and the huge personal following that Lugo has acquired, be translated into victory at the polls? Conventional wisdom would suggest not. ‘If this were a conventional election campaign we would not have a chance,’ I was told by one of Lugo’s close advisers. ‘The Colorado machine has become ever more powerful; it has the organisation, the discipline, the resources and the support. We cannot compete at that level.’ Yet the atmosphere this year has been different. ‘There is a tremendous sense of restlessness among the people,’ his campaign adviser said. ‘They are feeling their way towards Fernando, and at public meetings they stick to him like bees to honey . . . if the people really decide to move, they will be unstoppable.’

Oviedo, the populist general, may be more of a threat to the bishop than the Colorados, but Lugo’s adviser explains that ‘ten years ago people saw Oviedo as the only option, but he is not the same man today.’ He has allied himself with the Brazilian landowners, the financial backers of his campaign, and he has been photographed with President Lula. With such friends, he has lost a lot of support.

Earlier attempts in the post-Stroessner decades to put forward outsider candidates received considerable attention, but they all failed on election day, largely because their base was the Liberal Party, a movement with much smaller appeal than the Colorados. Lugo has a much better chance because he is campaigning from within the Colorado tradition, and has family links to the progressive movement within the party going back more than fifty years. With Liberal and some Colorado support, plus that of the social movements that are less easy to quantify, he might do well.

The US Embassy meanwhile has taken over two floors of the Sheraton hotel to house its CIA contingent, pending the refurbishment and extension of the embassy itself, while James Cason, the Guaraní-speaking ambassador, has been brought in from a posting in Cuba, where his funding of members of the local dissident movement led to their arrest and imprisonment. And what of the British? They decided that other parts of the world were more interesting and closed their embassy in Paraguay permanently three years ago. They are now represented by an honorary consul.

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