A Paraguayan proposal to boost cross-border retail sales has been rejected by the Brazilian authorities. With the coronavirus (Covid-19) pandemic forcing border closures and paralysing usually vibrant cross-border economic activity, border cities like Ciudad del Este in Paraguay are taking a hit.
Paraguay has one of the best records in Latin America for containing the coronavirus pandemic. Brazil has one of the worst. In mid-June Paraguay’s mortality rate from the virus was two per million inhabitants, the lowest in the region, ahead of Uruguay with six. In contrast mortality in Brazil was one of the highest, at 210 per million. Paraguay’s success has been attributed to various factors, among them an early and stringent lockdown, relative geographic isolation, low population density, an early decision to close its frontiers (taken on 24 March), and strict medical protocols for Paraguayans coming home, including 14-day quarantines in approved shelters. A gradual reopening of the Paraguayan economy is now underway.
From Asunción’s point of view, the big threat has been contagion from Brazil. Juan Carlos Portillo, a health ministry official, says “If Brazil sneezes, Paraguay catches pneumonia”. The fact that these two countries are immediate neighbours, sharing a 1,300km common border as well as being close economic partners, makes things particularly difficult from an economic as well as sanitary point of view.
Last year Paraguay’s commodity trade with Brazil was worth US$5.16bn (exports of US$2.527bn, imports of US$2.635bn). Brazil is Paraguay’s second largest export market, taking 16.4% of all exports after Argentina, which takes 24.2%. The main exports are insulated wire, rice, maize, wheat, and beef. Brazil is also a key buyer of electricity from the giant jointly owned Itaipú hydroelectric complex. So, even if Paraguay manages to keep relatively coronavirus-free, an economic hit this year is unavoidable. In early July President Mario Abdo Benítez said the country’s foreign trade had dropped 21% so far this year. The International Monetary Fund (IMF) has forecast that Paraguay’s economy will shrink by 5% in 2020, while it expects Brazil to contract by 9.1%. The central bank in Asunción predicts a less dramatic drop of 2.5% for Paraguay.
There is a specific problem facing Paraguayan cities on the border with Brazil, such as Ciudad del Este and Pedro Juan Caballero. These have traditionally sold electronic and consumer goods including wines and whisky to Brazilian tourists, attractively priced because of exchange rate and tax disparities or simply sales tax evasion (contraband and drug trafficking are also long-standing cross-border features). With no Brazilian tourists able to cross the border, these sales have plummeted.
Closed frontiers disrupt drug smuggling
The illicit economy has also been affected by Covid-19. Brazilian police say that the closure of the border with Paraguay has allowed them to double seizures of marijuana in March-June this year, to more than 200 tonnes. The marijuana is smuggled by Brazilian drug trafficking organisations, who then ship most of it to Europe. The increase in seizures is attributed to a 40% increase in available border police staffing (because units have been reassigned) and a sharp reduction in cross-border traffic because of the formal travel ban now in place. The net result is that more border police scrutinise fewer travellers, and the stepping up of surveillance of the isolated pathways and river transport routes favoured by the smugglers.
In response, in mid-June Paraguayan officials proposed a border ‘recovery plan’, reported to include online purchases, reduced border taxes and tariffs, and value-added tax (VAT) exemptions for electronics, mobile phones, and whisky. Although the details remained sketchy, one idea seems to have been to allow Brazilians to enjoy a duty free shopping quota of up to US$500, without them actually entering Paraguay. The purchases would be delivered by cross-border courier. Brazil did not respond positively, however.
Brazilian treasury officials did not accept the concept of duty free allowances without physical travel. From their point of view goods delivered in this way would be subject to confiscation on the Brazilian side of the border as contraband. Talks on opening up retail transactions may also be placed on hold because of concern over rising contagion. On 26 June Paraguay’s health minister, Julio Mazzoleni, said the border department of Alto Paraná should be considered a ‘red zone’ due to new Covid-19 cases. The authorities were particularly worried by an outbreak of some 140 cases in the main prison in Ciudad del Este. There has also been a new lockdown in Foz do Iguaçu, the Brazilian city across the river from Ciudad del Este. As a result, it may take some time before the two countries agree to reopen the border.