In
late March, the government of Brazilian President Lula da Silva
confirmed media reports that Lula’s predecessor, former President Jair
Bolsonaro, had spied on neighboring Paraguay. Specifically, Bolsonaro
had ordered the Brazilian intelligence agency to hack into Paraguayan
government computer systems to gather confidential information as the
two sides renegotiated energy tariffs and electricity pricing from the
Itaipu Dam. Paraguay had hoped the new negotiations over the dam—a
jointly owned hydroelectric facility on the Parana River that forms the
two countries’ border—would provide it with greater revenue now that the
debt to finance its construction was fully paid off.
Paraguay’s Pena Is Using One Dam Scandal to Hide Another
In confirming the reports, Brazil also apologized, stressing that the spying was carried out by the previous administration and that Lula ended it as soon as he learned of it. But the damage had been done.
Paraguayan President Santiago Pena reacted with outrage. He withdrew the country’s ambassador from Brazil, called in the Brazilian ambassador in Ascuncion for talks, accused Brazil of violating international law and suspended the still-ongoing negotiations over the Itaipu Dam while the incident is investigated. In playing to his conservative base, Pena even invoked memories of the 19th-century War of the Triple Alliance, in which Paraguay lost a large portion of its population.
Pena’s outrage is understandable. Spying for the purposes of economic negotiations, rather than national security, remains a major faux pas in the region. For that reason, Latin America does not see many interstate espionage scandals, at least publicly. So this one between Paraguay and its much larger and more powerful neighbor is newsworthy.
The revelation that Brazil carried out such an operation should lead analysts and other governments to question who else it targeted with espionage. If the right-wing Bolsonaro spied on Paraguay, led then and now by a right-wing Colorado Party government, he almost certainly did the same against Argentina under the left-wing Peronist government of then-President Alberto Fernandez, with whom Bolsonaro had a publicly conflictive relationship. If so, it’s a scandal just waiting to be revealed at some point in the future.
Pena’s government would have been offended under any circumstances. But his over-the-top reaction was likely shaped by a separate but related scandal closer to home that also emerged in March, when Paraguay’s political opposition accused the government of quietly procuring sophisticated spyware technology through an opaque bidding process.
The government claimed that the technology—which included surveillance equipment, phone tapping capabilities and facial recognition software—was necessary for combating drug cartels. But that didn’t explain why it channeled the $12 million tender through the Itaipu Dam’s budget, thereby bypassing normal congressional oversight. Worse, the bidding process was tailored to favor a company previously linked to Pena. Despite his claims that he had divested any shares in the company, the news created the appearance that the president enriched associates while acquiring tools to monitor not drug cartels, but political rivals.
Pena’s over-the-top reaction to Lula’s revelations of past Brazilian espionage was likely shaped by a separate but related scandal closer to home.
That’s because accusations of some sort of spyware targeting opponents’ phones had been swirling in Ascuncion even before the latest scandal broke. In February, local media published what have become known as the “Lalo Chats,” named after Lalo Gomes, a member of congress who was accused of links to drug cartels and fatally shot during a police raid on his apartment last year. The published WhatsApp conversations from Gomes’ phone showed elected officials from the political opposition seeking corrupt favors and making backroom deals. But the chats also implicated figures—including a sitting senator—from a rival faction within Pena’s ruling Colorado Party, which is split between those who support former President Horacio Cartes, a party powerbroker who was Pena’s political mentor and patron, and those who oppose him, in part due to Cartes’ own alleged corruption.
The publication of the chats suggested that a domestic spying operation was targeting Pena’s political opponents. And since the recent revelation of the spyware scandal, several opposition politicians have spoken out to claim they are convinced their personal communications have been read or listened to by the government. If Brazil’s spying raised memories of a 19th-century conflict, the domestic spying scandal harkened to the era of the Strossner dictatorship in Paraguay, when political opponents were heavily surveillled and repressed.
That means there are two sides to Pena’s domestic scandal. The one that consists of shady procurement practices and budget manipulation plays into the public’s concerns about corruption. That’s the sort of thing that can drive down Pena’s approval ratings, especially since it adds to the economic challenges, inflation and currency devaluation that are at the top of Paraguayans’ minds.
Meanwhile, the spyware and espionage side of the scandal, even though they are for now just allegations, have damaged Pena’s relationship with the opposition, but also with the rival faction within the Colorado Party. Indeed, even Cartes has begun to distance himself from his erstwhile protégé, which could undermine Pena’s ability to govern the country for the three years he has remaining in his term.
Lula’s revelations about Brazilian espionage against Paraguay, though damaging in the short term, could create an opportunity for a broader regional agreement to limit intelligence agencies from that type of spying. That would help build much-needed trust, as the region needs intelligence cooperation to take on transnational criminal groups. At the same time, the region should also address the misuse of spyware and other technology purchased by governments that end up targeting political opponents rather than drug cartels. Scandals of that sort have been seen over and over again across Latin America. Governments are reluctant to discuss it, but it damages regional democracy and public trust in politicians.
Paraguay and Brazil will move beyond this moment of tension. To their credit, both countries’ foreign ministers met last week in Buenos Aires to discuss the espionage controversy, and the two sides are trying to move past the issue. But the region will be no better off for it if it simply glosses over this regional dispute without addressing the broader issue of spying more directly. Better regional integration, particularly in the face of transnational criminal organizations but also the global trade war, requires a more direct discussion. In its absence, the region is likely to see more such controversies in the future.
James Bosworth is the founder of Hxagon, a firm that does political risk analysis and bespoke research in emerging and frontier markets, as well as a global fellow at the Wilson Center’s Latin America Program. He has two decades of experience analyzing politics, economics and security in Latin America and the Caribbean.