Oftentimes when we think about the Southern Cone, we think only of Brazil and Argentina. The mammoth countries have historically competed with each other to control trade and infrastructure in the Rio de la Plata Basin. But Uruguay and Paraguay play an important, if often overlooked, role in that dynamic, acting as a buffer between Argentina and Brazil.
Wanting to better understand the geopolitical realities of Uruguay and Paraguay and how they have affected the countries' citizens, I headed to the capitals of each. I expected that Uruguayans and Paraguayans would be equally wary of Argentina and Brazil — the powerful neighbors that dwarf them on either side. What I found, however, was that when it comes to Argentina, Uruguayans and Paraguayans admit that their rivalry tends to be more about football than about anything else. But when it comes to Brazil, Uruguayans expressed resentment that they were so economically dependent on the country; Paraguayans expressed a profound mistrust of Brazil and a reluctance to forgive past offenses.
Paraguay's historical mistrust and fear of Brazil begins with the War of the Triple Alliance, which pitted Brazil, Uruguay and Argentina against Paraguay. The conflict, which started in 1864, was essentially over access to key waterways that are important trade routes through the region and to the Atlantic Ocean. The war solidified national divisions in the Southern Cone and laid the foundation of mistrust that persists, evident in conversations I had with high-level Paraguayan security officials. Paraguay lost more than half its territory in the war and around 90 percent of its able-bodied male population, bringing the total population from roughly 1.3 million to less than 250,000. It is unsurprising then that Paraguayans would harbor resentment. One Paraguayan government official told me:
"The thing about Brazil is that up to this day, it continues to view the rest of the region as if it were still an empire. The same can be said about its foreign policy. Paraguay, trust me, is no exception. The problem with this mentality is that when Brazilians come to Paraguay, they act as if they own the land — and as if Paraguay is only an extension of their territory."
Territorial disputes between Paraguayans and Brazilians persisted even after the War of Triple Alliance ended in 1870. The conflict left Paraguay's agrarian economy in shambles, and the country lacked the population needed to reconstruct the industry. Traumatized by the war, Paraguay isolated itself for nearly 80 years. In 1967, dictator Gen. Alfredo Stroessner modified the Paraguayan Constitution to allow foreign ownership of land. From the 1970s to roughly 1985, Brazilians migrated to Paraguay to buy land and develop the country's agribusiness industry. The group — an estimated 400,000 people — came to be known as Brasiguayos. However, Paraguayans not of Brazilian origin are highly suspicious of Brasiguayos, doubting whether their economic gain is helping Paraguay or Brazil more. According to a former high-ranking security official:
"Brasiguayos have no loyalty to Paraguay. Their loyalty, at the end of the day, is to Brazil. And if you consider the fact that they control important tracts of land in the country... Brazil never really needed to annex part of our lands, because they have the Brasiguayos to do that."
Energy is another point of contention. The Itaipu Dam, which is jointly owned by Paraguay and Brazil, provides Paraguay with 75 percent of its electricity, but in the process it also makes Paraguay dependent on Brazil. One official explained it thus:
"Although Paraguay theoretically controls 50 percent of Itaipu Dam with Brazil, in reality, it is Brazil who calls the shots. If Paraguay attempted to do something for its own benefit through Itaipu that would hurt Brazilian interests, rest assured that we would become a military target. This is how important Itaipu is for Brazil and how it is just another way to squeeze Paraguay if Brazil really wanted to."
It is in Paraguay's interest to diversify away from Brazil, using economic ties with Argentina and the United States to balance its dependence. The United States is the top investor in Paraguay and has significantly increased its military ties with the country. However, diversification is easier said than done. Brazil is Paraguay's top trading partner and the destination for more than 35 percent of Paraguayan exports. It is also the second source of investment into Paraguay, injecting millions of dollars into the Paraguayan economy since 2013. Moreover, Paraguay, as a landlocked country, cannot easily replace the value it derives from access to Brazilian ports.
In Uruguay, mistrust toward Brazil is almost completely economic. Uruguayans, I found out, have a generally positive view of Brazilian citizens but feel bound by Brazil's economic strength. Uruguayans feel they have few options for economic independence and resent their reliance on Brazil, and to a lesser extent on Argentina.
This is especially true in the tourism industry, which accounts for almost 7 percent of Uruguay's gross domestic product. Argentines and Brazilians make up the bulk of the tourists who visit Uruguay. In 2015, more than 2 million Argentines and more than 470,000 Brazilians visited the country. Combined, that accounts for slightly more than 85 percent of total visits to the country. A colleague of mine in the tourism industry said:
"The problem with Uruguay is that we are stuck between two giants whose economies are not performing very well over the past couple of years. And because most of the tourists we receive are either from Argentina or Brazil, if the economy is not good there, then, that means less money and jobs for us."
The drop in tourism is not the full extent of the problem. A lack of markets in Uruguay pushes young people to emigrate in search of better opportunity, leaving behind an older population. According to the National Institute of Statistics, almost 20 percent of Uruguay's population is older than 60, and by 2025, birth rates are forecast to fall from 15 to 13 percent. Meanwhile, Uruguayans are leaving at a higher rate than almost anywhere else in the world. In a country of only 3.3 million, it is estimated that 600,000 people have left Uruguay for good. A Uruguayan expat told me:
"There are not many options for us. If I am a business owner and I want to expand my market, Montevideo is not big enough to consume my products, while Punta del Este is a tourism-driven city. In turn, Argentina and Brazil are just as bureaucratic as Uruguay, when it comes to opening a business, including market expansion. So because it is expensive to become a business owner here, I decided to try my luck elsewhere. Us Uruguayans would rather go to the United States or Europe to improve our livelihoods, even if we have high-quality infrastructure and security here."
This demographic reality — an aging population and little incentive for young Uruguayans to stay — will lead to falling tax revenue and increased strain on Montevideo. That, in turn, will lead the country to rely even more heavily on Argentina and Brazil. This means that agriculture and tourism will remain the two main economic drivers for Uruguay. Agribusiness accounts for 13 percent of GDP; more than 60 percent of Uruguayan export revenue derives from agricultural goods, and 20 percent of that goes to China, 16 percent to Brazil, less than 7 percent to Venezuela and less than 5 percent to Argentina.
Factoring in Mercosur
Paraguay and Uruguay's modern geopolitical realities cannot be understood without the context of Mercosur, the South American trade bloc that unites Southern Cone countries. Because Mercosur is one of the most restrictive trade blocs in the world thanks to its import substitution and industrialization policies, Asuncion and Montevideo's leverage will continue to be limited. According to Mercosur rules, full member states cannot negotiate free trade agreements without the approval of the other Mercosur members — in short, Argentina and Brazil must approve any free trade deal Uruguay or Paraguay wants to enter, which they have little interest in doing. Though the presidents of both Brazil and Argentina have expressed a desire to liberalize their economies, they are constrained in actually doing so. They have also shown restraint when it comes to loosening Mercosur regulations.
Thus it is clear that despite the resentment and sour feelings Uruguay and Paraguay might feel toward Brazil and Argentina, they have little option but to remain under their economic thumbs. The geographic reality is that neither Uruguay nor Paraguay can ever escape its position as a small country sandwiched between two much larger, much more powerful nations. And that will necessarily lead to suspicion and mistrust.