Paraguay President Pledges Clean Up After Impeachment Push Fails

(Bloomberg) -- Paraguay's President Mario Abdo Benitez pledged to clean up his government following an unsuccessful attempt by lawmakers to secure votes to start an impeachment process over his handling of a controversial power deal with Brazil.

In his first public address in a week, Abdo Benitez said on Thursday that the impasse can be turned into an opportunity to restore national dialogue. Local media reported that impeachment efforts fell flat after Colorado Party lawmakers withdrew their support for the removal.

“I want to thank lower house lawmakers who worked, negotiated to find a solution” that didn't lead to an institutional rupture, he said.

Earlier in the day, Brazilian and Paraguayan diplomats had agreed to cancel the electricity contract that triggered the landlocked nation's worst political crisis since the impeachment of ex-President Fernando Lugo in 2012. Critics say the administration caved to Brazilian demands by agreeing to purchase higher-cost electricity from the Itaipu dam owned by both countries under a contract that could have potentially cost Paraguay hundreds of millions of dollars.

Paraguay's currency was down almost 0.9% at 6,052 Guarani per U.S. dollar in afternoon trading. Paraguay's benchmark 2044 bond traded 0.1% lower, while the 2027 bond was down almost 0.6%.

Economic Headwinds

After initially defending the power deal, Abdo Benitez on Monday accepted the resignation of foreign minister and three other officials in a move aimed at placating opposition lawmakers. Still, some of them said late on Wednesday that they would continue with efforts to impeach both the president and Vice President Hugo Velazquez.

The political crisis comes as Paraguay's once fast-growing economy faces headwinds. The central bank last month more than halved its 2019 growth forecast to 1.5% due to a slowdown in trade and a drought that slashed soy and hydropower output.

Itaipu, the world's second-largest hydroelectric dam, is source of national pride and resentment for Paraguayans who see Brazil as unfairly benefiting from the multi-billion dollar project that started producing power in 1985. Itaipu generated approximately 90% of Paraguay's electricity and contributed more than $600 million to government coffers last year.

The two countries are set to revise key aspects of the Itaipu treaty, including how power is priced and shared, in 2023 when the last of the money borrowed to build the massive project is finally paid off.

Abdo Benitez said he would create an “advisory commission” staffed by members of civil society to assist in those negotiations.

To contact the reporter on this story: Ken Parks in Montevideo at kparks8@bloomberg.net

To contact the editors responsible for this story: Walter Brandimarte at wbrandimarte@bloomberg.net, ;Juan Pablo Spinetto at jspinetto@bloomberg.net, Matthew Malinowski