Dilma Rousseff visits Paraguay for Mercosur summit and meetings with president Fernando Lugo

The presidents of Brazil and Paraguay, Dilma Rousseff and Fernando Lugo, met yesterday and discussed a wide range of subjects during private conversations at the 41st Mercosur Summit (Southern Cone Common Market). Paraguay, occupying the rotating presidency of the economic block, hosted the summit. With a GDP of slightly over $33 billion, a landlocked area of a little over 400,000 square kilometers and a population of almost 6.5 million, Paraguay is Latin America’s second poorest country, behind only Bolivia. For the sake of comparison, Brazil has a GDP of $2 trillion, an area of 8.5 million square kilometers and a population of close to 190 million. At the end of the summit, Paraguay passed the rotating Mercosur presidency to Uruguay.

The origins of Mercosur date back to 1985, although it was officially established by treaties only in 1991 and 1994. The founding members were Argentina, Brazil, Paraguay and Uruguay. Venezuela signed a membership agreement in 2006, but awaits ratification by Paraguay before it can become a full-fledged member. Bolivia, Chile, Colombia, Ecuador and Peru are associate members. Mexico participates as an observer nation. Mercosur has free trade agreements with Egypt and Israel.

Dilma Rousseff and Fernando Lugo decided, at the request of Paraguay, to modify a bridge (the second) that would connect the two countries, spanning the Paraná River at Presidente Franco and Foz de Iguaçu. The bridge was originally planned for only vehicles, but will now also have train tracks.

During the conversations with Lugo, Dilma requested an expedited solution for the problem of some 300,000 so-called “brasiguaios,” Brazilians who live in Paraguay and have land ownership difficulties.

Another topic was the situation of so-called “sacoleiros brasilieiros,” who cross into Paraguay and bring goods back in sacks for resale in Brazil. It is estimated that Brazil loses R$5 billion in tax revenue due to smuggling on the border.

The question of Itaipu and its surplus energy, a subject that has recently been highlighted in the Paraguayan media, was also discussed by the presidents. Paraguay, one of the poorest countries in the world, with little industry, has a right to 50% of the electricity, but uses only a small percentage. The two countries have a contract that requires Paraguay to sell its surplus energy to Brazil until 2023 at a fixed price (Brasilia just recently agreed to triple what it pays for Paraguay’s surplus Itaipu electricity from $120 million to $360 million annually). Paraguay seeks to obtain the right to sell surplus energy at market prices to any buyer when the present contract expires. Uruguay, for example, has expressed an interest in buying electricity from Paraguay.

Brazil wants to maintain the status quo. Presidential aide for international affairs, Marco Aurelio Garcia, expressed the Brazilian position by pointing out that Paraguay does not need other markets citing the construction of a transmission line from Itaipu to the metropolitan region of Asuncion. “This will eliminate a paradox: Paraguay as the country with the highest electricity generation per capita in the world, but parts of the country have frequent blackouts,” Garcia said, adding that the new transmission line will attract Brazilian firms to Paraguay and boost the local economy.

In his speech at the close of the Brazil-Paraguay summit, Lugo seemed to say that he is not interested in maintaining the status quo, calling for “free transit” (“livre trânsito”) of energy and goods.