Nowadays, Paraguay is the poorest country in Latin America. Earlier the country that local patriots love to call "the heart of America," claimed to be the economic leader. But the war predetermined its place among the outsiders of the world economy. Now the country's economic role is limited to the supply of soybeans.
It is difficult to overestimate the role of the Paraguayan War of 1864-1870 in the history of the country sandwiched between Brazil, Argentina and Bolivia and having no access to the sea. It was a national catastrophe.
Despite the fact that economic progress was hindered by the objective obstacles caused by the geographical location, the government, led by the dictator Francisco Solano Lopez, came into the conflict as the most dynamically developing power in the region. After the defeat of the troops of the Triple Alliance of Brazil, Argentina and Uruguay, Paraguay had lost nearly half of its territory and over 80 percent of the population. Only 220,000 of 1.35 million residents of the "heart of America" have survived.
Advanced by the regional standards industry of the country was completely destroyed. Paraguay became the underdeveloped state whose economy is based on agriculture. This is the state of affairs to this day. The power in the country went to landowners. For the first time since independence in 1811 the government in Asuncion was forced to resort to external borrowing to smooth out the war damage to the economy and borrowed a million pounds sterling from the UK.
It was the British Empire, the then world leader, that came out as the big winner in the conflict, rather than the Triple Alliance members. To win over Paraguay, the governments of the South American states have been forced to take huge loans from British banks. For a few decades payments on these loans hampered their economic development. London has managed to avoid the unification of the strategically important region of La Plata under the authority of one country that Argentina has hoped for. Finally, the British gained access to the economy of Paraguay, whose cotton plantations have become a new source of raw materials for British textile mills. Before the war, due to political isolation of the regimes of de Francia and Lopez, "the heart of America" for several decades was developing in the autarkic way.
Incidentally, this forced isolation was largely the reason of the successes of the industrial development of Paraguay. Cut off the world trading system controlled by the British, it was forced to support itself by manufacturing goods. Once British products entered the Paraguayan market, the need to develop their own production in the "heart of America" has disappeared. The resources were not there either. Due to the fact that the local landowners were focused on the British market and depended on the British loans, the British quickly gained a huge impact in the economy of the Latin American country. This dependence on foreign capital continues to this day, the only difference is that after the First World War the Americans replaced the British.
The influence of Washington became particularly strong under the dictatorship of Alfredo Stroessner. The Americans, interested in Paraguayan cotton as well as in preventing the amplification of the region position of the Soviet Union, sponsored the openly fascist regime of the General. At the same time, active implementation of the agricultural complex of the country's new culture - soybeans - had started. Foreign, particularly American, agricultural holding companies quickly switched from growing conventional soybeans to genetically modified ones.
On the one hand, the success of soybean production has changed the face of Paraguay in the international division of labor. Being a major supplier of cotton, the country has become one of the largest producers of soybeans and is now the fourth largest soybeans exporter in the world. On the other hand, the expansion of the new culture caused serious damage to the traditional Paraguayan agribusiness industries - sugar cane, rice, corn and livestock farms.
The dependence of the Paraguayan economy from the export of agricultural products, especially soybeans, is particularly evident today. Now the "heart of America" is calculating the losses from the most severe drought in the past quarter-century. If last year the gross soybean harvest was 8.3 million tons, this year the farmers expect only five million. This casts doubt on their ability to pay back the loans they received, which, in turn, will cause a serious blow to the already fragile financial system.
If it had not been for the terrible defeat half a century ago, it could have been quite different.
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