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Paraguay: A History, by L. Carlos, Bahia Free Press, 1957

By the end of 1938 the nation of Paraguay had not only increased its links with Argentina but had undergone some surprising political transformations as Argentine economic aid made an impact.

In Asuncion the Revolutionary Democratic Council made up of representatives from the United Paraguayan Anti-Government Front (UPAF) led by Luis Contreras, the Paraguayan Marxist Party, the Catholic Peoples Party and the landowners association still took care of day-to-day running of the nation but in larger economic and strategic matters Cordoba was making policy. As the Argentine military control of General Jose Serra Aznar as the Commander-in-Chief of the Army (the post of General Commander Area Paraguay was disbanded in August 1937) weakened the Cordoba bureaucrats rose in prominence. The police force still maintained law in the countryside with Argentine military help and in March 1938 the cities came under the control of a new civilian police. General Aznar in the same month announced that one division would leave Paraguay during 1938.
In February 1938 the new Paraguayan army formed a second division, the Luis Contreras Division which contained 200 Argentine mercenaries (90 were NCOs or above) and new recruits from outside the former UPAF members. Paraguay still relied on Argentina for aerial defence and the Navy was still part of the Argentine Navy under the joint defence agreement signed in March 1937.

Politics
Luis Contreras had to now work with the new Argentine coalition government led by President Eduardo Garcia. They had been broadly opposed the plan to unite with Paraguay and efforts began to stall but the numerous Conservative Party and Democratic Union links inside Argentina via businessmen, military men and politicians meant many deals were done and the Argentine government began to loose a grip on policy in Paraguay. Also their United Workers Party allies were pushing to improve the worker’s lives in Paraguay and were trying to form a sort of working class out of the peasants who now lived in the towns and cities.
Former Argentine President Alfredo de Miguel Gonzalez’s plan of a merged Federation of the two countries which would form a powerful counter to Brazil and Grand Uruguay was largely officially lost when the Democratic Union fell from power but aspects of the plan remained as men like General Jose Serra Aznar continued their political ambitions beyond his military career.

Luis Contreras in 1937 had seized power as President and formed the Democratic Council comprising himself, General Aznar and three appointed members of each party. In July 1937 a Chamber of Deputies was created and each Department of the country sent a representative elected by the people. The elections were peaceful and the Catholic Peoples Party (the landowners association officially merged with them), the National Party (formerly UPAF) and the Marxist Party all stood candidates. The share of the vote was; the Catholic Peoples Party 43%, the National Party 36% and the Marxist Party 21%. In February 1938 it was renamed the Paraguayan Chamber of Deputies but no new upper house was formed as so the Democratic Council remained the de facto decision making body. President Eduardo Garcia hated this blatant abuse of power and ordered General Aznar to leave the Council and instead threatened to cut off aid to Contreras unless he formed a proper higher body. Using the Argentine constitution now adopted by Argentina a 30-seat Senate was formed in April 1938 and its candidates vetted by Cordoba and elections were held in June. The results were Catholic Peoples Party 43%, the National Party 56% and the Marxist Party 1%. This translated to 12 seats, 17 seats and 1 seat respectively.

A new High Court was created in April 1938 but by this time 40% of all judges were Argentine and the rest were the few judges not tainted by the Diaz regime.

The success of Contreras’ policies were very mixed, his promise to build 20,000 homes a year to re-house the population resulted in fewer than 800 in 1937 and during 1938 this increased to 950 but nearly all were built by Argentine firms since the contracts were awarded to Union Democratic members with influence in Paraguay. In contrast all schools had re-opened by late 1935 and by the end of 1938 the lack of teachers and equipment was solved thanks to foreign investment and teachers from Europe and the university was open with a full intake, the new national teaching college was turning out 100 teachers a year and all children aged 5-15 were receiving free education and 40 new schools had opened out of the planned total of 100 by 1939. In July 1938 an old age pension was created as were unemployment benefits (both polices enacted from Cordoba via Contreras) and a Social Fund set up (a tax on earnings earning the payee social credits for his/her pension and unemployment fund). It was one of the biggest changes ever to affect Paraguay. Two new hospitals were also built and free clinics began touring the countryside, all funded by aid groups.

Economics
Argentine capital was still very important and several loans had helped get the core industries back into operation. The National Bank was taken over by the Argentine National Bank and since the Mint had been destroyed in 1935 by bombing new money was printed in Argentina and sent to Paraguay. Inflation had fallen from its high of 20% to 10% and by mid 1938 around 8% while interest rates remained pegged at Argentine levels. In July 1936 a free trade agreement was in place and all border controls between the two nations were lifted. The policy was also part of Argentina’s reconstruction, Argentine firms were able to get cheap materials and labour while avoiding import taxes and they could invest sums in Paraguay and expand their interests their. In return Paraguay got jobs and foreign money it could use in Argentina to buy cheap food and imports and economic stability.
The newspaper Noticias Argentinas set up a Paraguayan paper which was pro-Argentine in late 1936, AFNE shipyard brought the shipyard at Encarnation in March 1937 and many Argentine firms brought mines, land, companies and factories. By mid 1938 however the powerful Paraguayan Landowners Association had (with Argentine loans) brought sizable areas of agricultural land and perhaps as much as a quarter of all Argentine brought businesses had returned to Paraguayan ownership.

In May 1937 an Economic Board was created to oversee the economy directly responsible to the Democratic Council, later the Senate, and had authority over the Department of Economics. The Argentine Finance Minister Leopoldo Noriega wrote most of the economic plans and during early 1938 a team of American and British economists joined the board which totally re-planned Paraguay’s economy and opened the floodgates to foreign investment, which often trickled down into Argentina. It was perhaps at that time one of the purest capitalist systems and also one of the most extensive economic experiments then conceived. Certainly it proved a strange paradox when in Argentina the coalition government seemed to steer towards nationalisation and public ownership that it’s polices in Paraguay were obviously so pro-Capitalist. Many economic historians point to the Conservative and Democratic Union business men acting behind the government but this is only a partial explanation. In a sense though, the Economic Board was an experiment in state economic planning.

In contrast there was no agricultural policy and the Landowners Association was still very powerful. The peasants still faced the prospects of working for powerful landlords and struggling with small plots of land for subsistence farming.

Anti-Marxism
After the military actions against extreme Marxist elements its support was much weakened and its deputies largely ignored and sidelined. Some claim the Senate elections were rigged with many Marxist candidates removed from the lists and only one was voted in. The government remained anti-Marxist after events in Brazil and Argentine Army intelligence still kept a close watch on the party.

Interesting read... Once or twice I thought the pace is wuite high but actually I have nothing to compare this with. So you might even be right...

Too many marxists eevrywhere in South America......