The Paraguayan People’s Army, a burgeoning terrorist organization, is attacking Paraguayan agribusiness and the country’s rural police. In an economy that depends heavily on ranching and agriculture, this particular group could disrupt economic growth and investor confidence in 2014.
In the post-crisis years since 2008 Paraguay has experienced highly volatile business cycles. Economic growth in this landlocked country ranged from a 4 percent contraction in 2009 to a 13 percent expansion the following year. The following two years tell a similar story—the Paraguayan economy contracted 1.2 percent in 2012 and rebounded in 2013 to double-digit growth range.
Paraguay’s unsteady economy could do without political and social instability. But the reverse is true. Politically, Paraguay has suffered drastic setbacks in the past two years—the democratically elected president, Fernando Lugo, was ousted hastily in June 2012, creating a regional diplomatic discussion over the legitimacy of the incoming government.
Paraguay has one of the highest income inequality ratings in the world (measured by the Gini index). Even with such high levels of inequality, the Paraguayan government has avoided having to deal with violent popular movements common in many countries in the region—until now. A small but violent Agro-Marxist organization called the Paraguayan People’s Army (the E.P.P.) has begun a highly effective terrorist campaign and has ramped up attacks in the past two months.
The E.P.P. poses a serious threat for two reasons: (1) it is targeting the heart of the Paraguayan economy, and (2) it uses terrorist tactics that the state is not equipped to mitigate.
1) Paraguay is a country of 6 million people with a dominant informal sector and peasant class that works in agriculture and ranching. There are international and domestic implications of the E.P.P.’s honing in its attacks on the countryside as opposed to the cities. The E.P.P. focuses on attacking large land owners controlling the bulk of Paraguayan agribusiness. If the group continues to attack these large farms by destroying infrastructure, killing livestock and driving away labor, then the supply of beef, feed, cotton and soybeans will decrease, and commodity prices will increase in the region.
Domestically, a decrease in production of the mentioned commodities will leave the vast Paraguayan countryside idle, slowing down economic growth and increasing unemployment. The E.P.P. is very tactical in its fighting strategy and has stayed within the countryside where it can do the most damage to the economy.
2) The E.P.P. structure, ideology and fighting scheme are almost an exact replica of the model employed by the FARC, a Colombian Marxist rebel group that has fought the Colombian state for 50 years. Throughout the years, the FARC has been extremely successful in preventing economic growth by driving away foreign direct investment, destroying infrastructure, displacing peasants and discouraging investment in rural lands and agribusiness.
The E.P.P.’s violent attacks could lead to a similar scenario. The problem at hand, however, is that the small and fragmented Paraguayan state is much less equipped to deal with social instability and terrorism than its larger regional neighbors.
2014 will be a telling year for the Paraguayan economy and political system. If the government is successful in quelling social unrest and minimizing support for the E.P.P., then the economy might continue growing robustly at 10 percent. If, however, the ruling party does not prioritize adopting smart counter-terrorism measures to prevent attacks, then we can only expect the E.P.P. to expand across the countryside and halt economic activity.
In a small economy so dependent on its land, the government should be thinking about how to preserve a safe and stable environment for agribusiness. Without incentivizing rural stability for landowners, improved FDI is highly unlikely in 2014.
