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Paraguay Swears in Franco After President Lugo Impeached

Latin American governments are stepping up pressure on Paraguay after Congress ousted Fernando Lugo from the presidency, with Argentina and Brazil withdrawing their ambassadors and Venezuela halting oil supplies.

Lugo, a former Roman Catholic bishop, was removed from office in a 39-4 vote on June 22 by the opposition-controlled Senate for encouraging land seizures and fomenting violence, 24 hours after the lower house voted to impeach him. Vice President Federico Franco, a one-time ally turned critic of Lugo, was sworn in as president.

Leaders of the Mercosur trade block that includes much of South America will coordinate their response to the crisis at a previously-scheduled summit on June 29 in Mendoza, Argentina. Paraguay, a founding member of the bloc, was banned yesterday from taking part in the summit, while Lugo has said he will attend.

“We don’t think Federico Franco -- I’m not calling him President Franco -- has political authority to ask President Lugo to mediate international conflicts,” Lugo told reporters today in images transmitted on Chilean television. “The majority of the international community recognizes we had an institutional breakdown in the democratic process here.”

Lugo said he has asked to speak at the Mercosur meeting to explain what happened in Paraguay. Neighboring Argentina has withdrawn its ambassador to Paraguay, while Brazil, Mexico and Chile called their ambassadors back for consultations. Venezuela, Ecuador and Bolivia have all said they won’t recognize the new government.

Hugo Chavez

“We won’t support a coup d’etat directly or indirectly,” Venezuela’s President Hugo Chavez said yesterday after announcing the end to oil shipments. “That was an express trial, illegal, unconstitutional, invalid and worthless. The president of Paraguay continues to be President Fernando Lugo.”

Venezuela delivered 7,500 barrels of oil and oil products a day to Paraguay in 2011, according to the state-owned Petroleos de Venezuela SA. The shipments are part of the Caracas Energy Cooperation Accord, signed in 2000, which helps finance oil for Caribbean, Central American and some South American countries. Under the accord, countries have as many as 15 years to pay for oil purchases, including a one-and-a-half-year grace period at an annual interest rate of 2 percent.

April Elections

Franco, whose Authentic Radical Liberal Party partnered with its arch-rival the Colorado Party to remove Lugo, said that he’ll lead a transitional government until elections scheduled for April 2013 take place.

“I know that Unasur will be able to understand the situation of crisis that Paraguay was going through,” Franco, 49, said in a press conference June 23, referring to the Union of South American Nations.

Lugo yesterday called for peaceful protests against what he called a “congressional coup” and the “fake government” led by Franco.

Since ending six decades of Colorado Party rule in 2008, Lugo had failed to build support for his policies of redistributing land in the world’s fourth-largest soybean exporter and was blamed by the opposition for mounting violence. The final straw came on June 15, when a shootout between landless peasants and police left 17 dead, including six police.

Lugo, 61, had called on the Supreme Court to declare the impeachment process unconstitutional and demanded more time to prepare his defense against charges of negligence and incompetence in the shootout deaths. He was blamed for a rise in crime, humiliating the country’s once-dominant military and ceding Paraguay’s energy sovereignty to its neighbors.

Stroessner Dictatorship

Since General Alfredo Stroessner’s three-decade dictatorship as the head of the Colorado party ended in 1989, Paraguay has been marred by political turmoil including assassination, a coup attempt and a previous presidential impeachment. The army, hours before Lugo was removed, vowed to respect whoever was named his replacement.

The U.S. State Department said that it was watching the situation closely.

“We urge all Paraguayans to act peacefully, with calm and responsibility, in the spirit of Paraguay’s democratic principles,” Darla Jordan, a spokeswoman for the State Department, said in an e-mailed statement after the trial.

While Lugo struggled throughout his presidency to build alliances, and saw his credibility shaken after he acknowledged fathering, as a priest, two of four children named in paternity suits against him, he oversaw a period of economic prosperity.

Economic Growth

Spurred by strong demand for its beef and soy, especially from China, gross domestic product expanded 3.8 percent last year and 15 percent in 2010, the fastest in Latin America, according to the United Nations’ economic unit for the region, known as Cepal for its initials in Spanish. Strong growth and better public finances helped the country win two credit rating upgrades since 2010 by Standard & Poor’s.

The central bank had taken steps to emulate Brazil and begin targeting inflation, and the government even considered selling its first-ever international bond.

Paraguay suffered a drought in the first quarter and will see its GDP contract 1.5 percent this year -- the only economy in the region to shrink, according to forecasts published by Cepal this month.

Economic Challenges

“It’s incredible that this is happening to a president who has achieved economic growth of more than 25 percent in the last four years,” pro-Lugo Senator Alberto Grillon told Buenos Aires-based Todo Noticias television channel on June 22.

Still, the Germany-sized country remains one of Latin America’s poorest, with land concentrated in the hands of a few farmers and a large segment of the economy dependent on the smuggling of imported goods to Brazil and Argentina. Despite attempts by Lugo to impose a levy on personal income to fund infrastructure investments, the country’s tax rate remains one of the lowest in Latin America and more than 20 percent of the population lives in poverty, according to the IMF.

Franco, a former surgeon, told Congress he’ll continue with Lugo’s government plan until his successor takes office in August next year. The government hasn’t yet named anyone to replace Lugo’s Finance Minister Dionisio Borda.

“The social problem will be fundamental for this government,” Franco said.

To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net; Randall Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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