Paraguay in Latin America, Its Role, Weight and Alliances

Paraguay is a small, landlocked country in South America with a population of around 6.5 million people. Despite its size, it holds significant influence in the region. Paraguay co-owns two hydroelectric dams, Itaipú and Yacyretá, with Brazil and Argentina respectively. These energy resources contribute to the country's economy, which is projected to reach US$56.5 billion in 2026, with a per capita GDP of about US$8,740.

The country is led by Santiago Peña, an economist from the conservative Colorado Party, who has been in office since August 2023.

Brazil is Paraguay's most important partner, both economically and politically. Peña has described Brazil as "our biggest trade partner" and noted that half of the foreigners seeking residency in Paraguay come from Brazil. The Itaipú treaty, signed in 1973, requires revision after 50 years, and a tariff of US$19.28 per kilowatt-month was agreed upon for 2024-2026.

However, Brazil has proposed reducing the tariff to about US$9, which would benefit Brazil but potentially reduce Paraguay's income from the dam. Relations have been strained due to disputes over the tariff, with Paraguay suspending negotiations in April 2025 after allegations of Brazilian intelligence agency spying on Paraguayan officials.

Paraguay is also a founding member of Mercosur, the South American trade bloc, along with Argentina, Brazil, and Uruguay. The bloc signed a partnership and interim trade agreement with the EU in January 2026. Meanwhile, Mercosur members are debating the allocation of EU tariff-free quotas, with Paraguay seeking 25% of all product lines.

In terms of foreign policy, Paraguay has strengthened its security ties with the United States, signing a Status of Forces Agreement with the US in December 2025. This agreement allows for US military personnel and civilians in Paraguay to engage in training, humanitarian aid, and disaster response.