Paraguay’s business-friendly leader urged to veto ‘black mark’ law

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Paraguay’s conservative president Santiago Peña faces pressure from investors and diplomats to veto a contentious law backed by allies of the country’s most powerful man, who helped propel Peña himself to power.

The competing pressures over the bill to sharply increase government controls on non-profit organisations have presented business-friendly Peña with his toughest dilemma since he came to power last year, as he struggles to modernise an economy challenged by widespread corruption.

Critics say the bill, approved by congress last month, would be used to target opponents of the ruling Colorado Party and its leader Horacio Cartes, a cigarette tycoon and former president. Cartes said in July that he supported increased oversight of NGOs: “There’s no need to be afraid of monitoring if you’re doing things well.”

The US imposed sanctions on Cartes in 2022 over what it called “significant corruption”, and accuses him of extensively bribing lawmakers for their loyalty. Cartes has denied any wrongdoing and dismisses the accusations as politically motivated.

The Colorado Party says the law — which would require organisations to report minute details about their funding and employees, and would allow authorities to temporarily shutter organisations or block their payments — is needed to prevent money laundering and foreign interference.

Peña, a 45-year-old US-educated technocrat who ran on a pledge to attract international investment, has been urged by business groups, foreign embassies and the UN to veto the bill. They argue it would weaken institutions and the rule of law in Paraguay, deterring investors.

Rating agency Fitch cited the NGO bill and the country’s “weak governance” in its decision last month not to follow Moody’s in upgrading the country to investment grade — a key goal of Peña’s administration.

Peter Hansen, president of the American-Paraguayan chamber of commerce, said the law was “an intrusion on private organisations and private flows of money” and “a black mark on the image of Paraguay [for foreign investors].” 

But analysts say vetoing the bill would be risky for Peña, who lacks his own legislative base and relied on Cartes’s endorsement to become the Colorado party’s candidate in last year’s elections.

“Peña finds himself at a crossroads with his friends on Wall Street and his party,” said Sebastián Acha, founder of think-tank Pro Desarrollo Paraguay. “He knows what he ought to do in institutional matters, the economy and democracy, but if he does it he will have internal problems.”

Peña defended the law in an interview with the Financial Times in August as “a mechanism for transparency”.

Paraguay’s constitution gives the president 20 working days from when the bill reaches his office to veto or sign it into law, after which point it automatically becomes law. A Colorado lawmaker said this week it had not yet been delivered because of an “administrative error”.

Peña introduced amendments to scale back the bill earlier this year, including exempting some groups such as political parties and churches.

Before the senate approved the changes in October, local media published WhatsApp audio of pro-Cartes senator Gustavo Leite describing the changes as “silly things that Santi [Peña] asked for”. Leite has confirmed its authenticity.

Hugo Valiente, legal co-ordinator for Amnesty International in Paraguay, said Peña’s amendments did not change the substance of the law.

“It will be used to sanction a few of the most visible [organisations] to intimidate everyone and have a chilling effect on [criticism of the government],” Valiente said.

Civil society groups said the law would be used to disrupt the work of local organisations that challenge corruption in Paraguayan politics — which Transparency International has referred to as “systemic” — along with those that receive cash from foreign donors such as the US and the EU. 

Paraguay’s relationship with western governments has been strained by the US sanctions and the Colorado Party’s opposition to an EU-funded education programme seen as promoting LGBTQ rights in the deeply conservative country.