This is the third in a series examining corrosive capital and its implications for Paraguay
Paraguay is entering a period in which infrastructure, energy and digital investment will increasingly determine its economic future. File Photo by Giuseppe Lami/EPA
In a column published in these pages last month, I argued that corrosive capital does not simply distort markets. It distorts the state. It hollows out the institutions and regulatory bodies that a country needs to act in its own interest.
Often, it does this through the ordinary mechanics of investment, procurement and public concessions. The question this raises is practical: What, specifically, can Paraguay do about it?
The answer is not to close the door to foreign investment. That would be self-defeating. Paraguay is entering a period in which infrastructure, energy and digital investment will increasingly determine its economic future.
The country’s openness is a genuine advantage. But openness without safeguards can expose strategic decisions to actors whose goals are not purely commercial. The task is discernment: learning to distinguish between productive capital and strategically corrosive capital before the latter takes root.
Transparency first
The first line of defense is transparency of beneficial ownership. If Paraguayan authorities cannot identify the natural persons behind an investor, a consortium or a major public contractor, they cannot properly assess risk.
Hidden ownership is not a technical imperfection. It is often the mechanism through which political pressure and illicit finance are concealed.
GAFILAT, the Financial Action Task Force of Latin America, assessed Paraguay’s anti-money laundering framework in its 4th Round Mutual Evaluation Report, adopted in July 2022. The report found that Paraguay had taken meaningful steps toward creating beneficial ownership registries. But it also found that implementation remained incomplete and that the quality of registry information needed strengthening.
That gap has not fully closed.
Screen high-risk investments
The second line of defense is a credible screening mechanism for high-risk investments. The OECD’s 2019 Policy Framework for Investment is clear on this point: governments can remain open to foreign capital while using transparent, proportionate tools to review transactions that may affect national security or public order.
Paraguay does not need a clumsy anti-investment bureaucracy. It needs a narrow, disciplined process for scrutinizing deals in genuinely sensitive sectors. Energy, telecommunications, ports and digital infrastructure are obvious examples.
The list does not need to be long. But the absence of any formal framework for reviewing such transactions is a vulnerability that sophisticated actors can exploit.
Follow the money
Paraguay should also deepen source-of-funds and sanctions-related due diligence. Knowing the name of the front company making the bid is not enough.
Authorities need to know who finances the transaction. They also need to know whether politically exposed persons are connected to the structure and whether related parties face sanctions or serious litigation exposure.
Corrosive capital often travels through legal forms while obscuring political purpose. Due diligence must therefore look beyond incorporation papers and surface-level compliance.
Protect procurement
Procurement is where weak states are most often tested. If major contracts can be shaped by insider access or discretionary modifications, opaque capital will find a way in.
The OECD’s 2017 Recommendation on Public Integrity underscores the importance of conflict-of-interest controls and publication of key contract terms. It also stresses the need for accountability in public decision-making.
These are not administrative niceties. They are defenses against strategic corruption.
Strengthen institutions
Paraguay should continue building the institutions that make these safeguards real. Financial intelligence capacity matters. So do sector regulators, prosecutors and courts that can act without political interference.
The GAFILAT evaluation found progress and a genuine national commitment to anti-money laundering. But it also found that Paraguay’s system remained only moderately effective. In practical terms, that means the rules are more robust than the enforcement behind them.
Corrosive capital is most dangerous exactly in that gap.
Know what is strategic
Not every foreign investment poses the same level of risk. A passive minority stake in an ordinary commercial venture is not the same as control over a port terminal, a transmission asset or a logistics chokepoint.
Paraguay does not need to securitize its entire economy. But it does need to identify which assets create dependency if they are captured by opaque or politically directed capital. For a country seeking to become a regional hub for energy and production, that distinction is not academic.
Independent oversight is part of this picture, too. Investigative journalism, public registries and civil-society monitoring do not scare away serious investors. They help keep bad ones honest.
Corrosive capital flourishes in darkness because darkness reduces the cost of influence.
The pro-investment case for safeguards
None of this is anti-investment. It is pro-investment in the only sense that matters over the long term.
Investors who play by the rules benefit when ownership is transparent and procurement is fair. They also benefit when strategically sensitive assets are not exposed to hidden political leverage. A country that governs foreign capital well is more attractive to serious capital, not less.
Paraguay’s challenge is not whether to welcome foreign money. It is whether to govern it intelligently.
The country should remain open to investors who bring technology, jobs and productive capacity under clear rules. But it should be far more skeptical of money that arrives with obscure ownership, regulatory shortcuts or strategic strings attached.
States rarely lose sovereignty all at once. More often, they dilute it transaction by transaction, concession by concession, until influence becomes embedded inside the machinery of development itself.
Paraguay still has the advantage of acting before that happens. The question is whether its decision-makers will recognize the risks before the damage is already in the system.
Federico Sosa is a Paraguayan economist and international consultant with experience in foreign direct investment, industrial development and trade policy. He is a member of the executive committee of Instituto Patria Soñada, a Paraguayan think tank. The views expressed are solely those of the author.
