Brazil & Southern Cone - December 2013 (ISSN 1741-4431)

In his determination to strengthen Paraguay’s domestic economy, President Horacio Cartes has turned his attention to the local contraband industry. While the government’s efforts have been applauded by the local private sector; they also have resulted in social unrest, with local paseros, small scale cross border peddlers, staging demonstrations.

Smuggling across Paraguay’s highly porous borders became an important economic activity under the Alfredo Stroessner dictatorship (1954-1989), when it was widely tolerated by the regime and often even controlled by government officials, who used it to line their own pockets. This gave rise to a large and deeply entrenched informal economy based around the contraband goods trade in and out of Paraguay. The sector persists to this day. However, in recent years local entrepreneurs from the formal sector, ranging from electrical goods suppliers to small-scale agri producers, have complained about the negative impact of this still-large smuggled goods sector.

Perhaps in a bid to finally put to rest the longstanding accusations that he himself managed to amass a sizable business fortune by smuggling large quantities of cigarettes to Brazil and Argentina, Cartes has moved to clamp down on the contraband sector.

Picking on the little guy

As the politically weakest group in the informal economy, the paseros were easy pickings for the first stage of the official crackdown. Through the newly-created inter-institutional ‘contraband prevention and repression unit’ (UIC in the Spanish acronym), on 28 November the government announced the launch of ‘Operation Hendy’, deploying extra customs officials, supported by armed forces contingents, to various border crossings to ensure the strict implementation of customs rules and regulations.

For years, the repatriation of goods purchased abroad by individuals has been virtually unregulated. Under current rules, any goods purchased for personal consumption are exempt from any taxes (except for those included in a regularly updated list of restricted products that, for example, currently includes sugar, beef and poultry meat, eggs and cooking oil). The same goes for goods purchased for re-sale, as long as individuals do not attempt to bring in ‘large quantities’ - the exact definition of which is open to interpretation on any given day. One of the first objectives of Operation Hendy is to clarify these criteria.

On 2 December, Deputy Trade Minister Pablo Cuevas, who heads up the UIC, announced that the government aimed to regularise imports by individuals in order to limit the impact on local businesses. Cuevas said the government was considering asking all those importing goods for re-sale to register, either as small importers or as micro enterprises, which would make them liable for taxes (of between 10%-15%). In addition, Cuevas proposed setting a limit of US$2,500 on the value of goods that these micro-enterprises can import in any one month.

Unrest

These proposals were rejected immediately by the paseros. Their main association, Federación de Trabajadores Comerciantes Fronterizos (Fetracomfro), stated that these small time importers were being used as scapegoats by the government, arguing that the authorities should focus instead on tackling large-scale smugglers and the ‘big fish’ that regularly flaunt the rules with the help of corrupt customs officials. There were remonstrations against the proposals across the country, but these were particularly loud in the South, where local residents complained that the proposed changes would kill off economic activity in those border areas where trade in cheap imported goods from Argentina fuels the local economy.

In places like Nanawa, José Falcón (in Presidente Hayes department) and the port of Itá Enramada in the capital Asunción, protesting paseros succeeded in partially blockading border crossings and main roads. There were violent clashes on 3 and 4 December, as the police attempted to clear the blockades. In Itá Enramada, the protestors retaliated by launching a fire-bomb attack on the local police station. The violence prompted President Cartes to reach out to the paseros and he called for talks with Fetracomfro in a bid to find a concerted solution.

Cuevas has been put in charge of the negotiations with the paseros. So far, he has struck a deal with protestors in Nanawa and also in José Falcón, where they were blockading the San Ignacio de Loyola international bridge linking Falcón port to the town of Clorinda in Argentina (see sidebar). These paseros have agreed to the creation of a registry of small importers and to the US$2,500 monthly import limit, as long as they are able to also bring in US$150 worth of imports for personal consumption a month. However, there are doubts as to whether the partial deal will be accepted by the rest of the protestors, many of whom say they object to having to pay taxes while larger importers still face lax import controls.

Bi-national demo

The San Ignacio de Loyola international bridge was blockaded by José Falcón paseros but also by merchants from the Argentine town of Clorinda, in Formosa province, who complained that they also would be affected by the measures proposed by the Cartes government. José Posse, spokesman for the Clorinda merchants’ association, complained that since the start of Operation Hendy business had plummeted, as the thousands of Paraguayans that cross the border on a daily basis to do their shopping appear to have been deterred. “Our products are all sitting on the shelves... fruits and vegetables are rotting”, Posse complained, warning that trucks carrying Argentine liquefied natural gas (LNG) would only be allowed across the bridge “if we permit it”.

Security forces continue to be embarrassed in the North

Even as the Cartes government called upon the armed forces to assist in its new crackdown on cross border smuggling, the military-led operation against the insurgent Ejército del Pueblo Paraguayo (EPP), launched earlier this year, shows no sign of progress.

On the contrary, despite the fact that the so-called EPP area of influence, which comprises the departments of San Pedro, Concepción and Amambay, is being patrolled by a large military contingent, the EPP continues sporadic armed attacks against the security forces, with a spate of incidents attributed to the EPP in September and October. In one such attack, a local police chief was shot dead near Horqueta, Concepción, on 24 October.

General Mario Restituto González, who is in charge of the operation against the EPP, said that troops would redouble their efforts in the area, admitting that the EPP appeared to be “routing” the security forces. On 8 December, the military reported that a group of soldiers had engaged in a shootout with armed EPP members in an operation in a rural area near Horqueta. According to an official statement, a military patrol discovered what it believed to be an EPP camp, but as officers prepared to raid the camp, the presumed criminals were alerted to their presence by dogs. In the ensuing shootout one soldier was shot dead while another is said to have been seriously wounded.

The victim is the first member of the armed forces to be killed by presumed EPP members. None of the camp’s residents were officially reported arrested, wounded or killed.

• Counter demo

On 4 December agri producers and business leaders from the south-central Paraguarí department staged a demonstration in support of the Horacio Cartes government and its efforts to tackle smuggling. The demonstration was led by Paraguarí governor, Miguel Cuevas, who said that his department was one of the worst affected by the contraband of products like potatoes and onions from Argentina, leaving many local producers close to ruin, as they are unable to sell their products in a saturated market. “If President Cartes needs support, he has Paraguarí’s 50,000 [agricultural] producers on his side”, Cuevas declared, adding that the fight must also be against “the powers that run the smuggling”.