Paraguay is a flat, humid, landlocked country, and one of the most geographically isolated nations in the Western Hemisphere. Home to the indigenous Guarani people, the country had become the most industrially and technologically advanced nation in South America by the second half of the 19th century. By 1863, under the presidency of Marshal Francisco Solano Lopez, the Republic of Paraguay had developed the first iron foundry, railways and telegraph communication lines in South America and had built the continent's first steam-powered iron ship. All of these things were achieved with virtually no recourse to slavery or private ownership of land.
Paraguay is located in the center of the Platine River Basin — a vast area that defines the region. The Platine River Basin, known locally as the Rio de la Plata Basin, is one of the most expansive river basins in the world, comprising parts of Bolivia, Brazil, Paraguay, Uruguay and Argentina. The Platine was also the most capital-intensive and productive region in South America, comparable to the Mississippi and Ohio river basins in the United States.
Brazil, Argentina and the Outbreak of War
Brazil's inlands are rich in resources, but they are on a plateau whose only outlets to the Atlantic are the Paraguay and Uruguay rivers. Argentina, meanwhile, needed to secure the lower end of the two rivers to protect shipments of its growing timber and agricultural exports to Europe. With the collapse of the medieval Treaty of Tordesillas, which drew the lines between Spanish and Portuguese colonial territories in the New World, the newly independent nations of Brazil and Argentina had no regulations or European arbitration to limit their interests. Brazil and Argentina, natural rivals with each other as well as Paraguay, then sought to dominate the Platine River Basin — a situation that would not tolerate the emergence of a third party.
Uruguay, a longtime ally of Paraguay, requested Paraguay's aid after Brazil and Argentina intervened to enforce a regime change during the civil war of late 1863. The intervening powers shared the goal of controlling the natural choke point where the Paraguay and Uruguay rivers converge, at the delta of the Rio de la Plata. Whoever controlled that point would be able to supervise, tax or plunder inbound and outbound shipments and thus control most of the wealth and trade from South America's Southern Cone.
Meanwhile, the growing tension between Brazil and Argentina over the Paraguay River gradually strangled the Paraguayan economy by severely limiting navigation routes. Solano Lopez feared that Paraguay's neighbors would take complete control of the river routes by seizing the Rio de la Plata delta, fully isolating Paraguay from the Atlantic export routes. Fearing a fate similar to that of Uruguay, Solano Lopez sought to help his ally and invaded Brazil's Mato Grosso upriver, taking over gold mines and armories in an attempt to convince Brazilian Emperor Pedro II to abandon Uruguay. The emperor refused, and the Paraguayan army marched south. On the way to Uruguay, Paraguayan troops crossed Argentine territory, giving the country an excuse to get involved in the conflict. Despite Solano Lopez's efforts, the Uruguayan government was ousted, and the new leaders joined Brazil and Argentina in a Triple Alliance to move against Paraguay.
The War's Aftermath
The conflict lasted until 1870, costing Paraguay nearly half of its territory and almost 90 percent of its men of fighting age. Estimates differ, but Paraguay's overall population is thought to have dropped from 1.3 million to less than 250,000. The conflict was probably the closest thing to Clausewitzian "total war" ever fought in Latin America. After the war, Paraguay never managed to recover its previous position. Meanwhile, the war efforts of the Triple Alliance nations pushed them to the brink of bankruptcy, which is why the bulk of these countries' first sovereign debt was acquired during this period.
Ever since the war, Paraguay and Uruguay have been buffer states between Argentina and Brazil and, between about 1870 and 1970, the two moved from Argentina's economic orbit into Brazil's. Having assured the free flow of goods, a geographically advantaged Argentina was able to fully exploit the agricultural potential of the Platine Basin and quickly build up capital to develop its industries, maintaining a broad lead over Brazil in such development until the middle of the 20th century. However, economic mismanagement and an unresolved imbalance between Argentina's core and periphery jeopardized its growth. Brazil, however, resolved its inner divisions by the middle of the 20th century and was then able to concentrate its development efforts, rapidly surpassing Argentina.
Although war is an improbable option, the geopolitical forces that gave rise to the Paraguayan War still play a fundamental role in the region. Paraguay and Uruguay still serve as trustees of their respective rivers, as non-contesting parties, to avoid the monopolization of crucial choke points along the navigable waterways. They thus buffer the tensions between the two naturally opposed giants, Brazil and Argentina. Paraguay serves as a checkpoint upriver, where the Paraguay and Parana rivers converge, while Uruguay serves the same function downriver, where the Uruguay and Parana rivers converge at the intersection of the Rio de la Plata delta and the exit to the Atlantic. These rivers are the arteries of the Southern Cone and are key sources of electricity for Brazil and Argentina: The Itaipu and Yacyreta hydroelectric dams are positioned on the Parana and Paraguay rivers, and the Salto Grande dam is on the Uruguay River. Paraguay and Uruguay serve as meek guarantors, ensuring that the flow of water and electricity continues without truly being able to challenge the stronger powers upstream or downriver.
Brazil and Argentina historically have not been able to strike a sustainable balance through war. However, the presence of two weaker buffer states along their contested rivers and a healthy income from trade can dampen the tensions between them. This was the geopolitical purpose of Mercosur: to tie the natural rivals' interests together and leave little room for animosity to grow. However, as regional trade declines, economic cooperation between Brazil and Argentina will erode and the reasons for Mercosur's creation will cease to exist. With the wealth that tied its members together absent, the ideologically sympathetic relations within Mercosur will be inevitably offset by pragmatism and suspicion — a reminder that geopolitical imperatives and the conflicts they create never entirely fade. The Platine River Basin and the Paraguay and Uruguay rivers will remain the axis around which the Southern Cone's economics and politics turn.