Growing pains in Paraguay as economy modernizes

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CIUDAD DEL ESTE, Paraguay (AP) — Verna Fragadas stands with her arms crossed in front of Friendship Bridge, which separates this gritty, bustling Paraguayan city from Brazil and nearby Argentina.

For decades, she and her husband supported their five children by smuggling computers, televisions, shoes and other products into the neighboring countries and selling them at stiff markups. Fragadas now passes her days chatting with other out-of-work smugglers gathered at the bridge, occasionally carrying small contraband items into Brazil.

"I used to be able to make $400 a day. Now, I'm not even making $20," Fragas said.

Set on the Parana River, across from Brazil and a stone's throw from Argentina, Ciudad del Este long has been a transit point where Paraguayan smugglers could buy pirated merchandise, some of it brought in by small boats during the night, then carry the goods across the border.

For years, the city's Wild West reputation landed it a spot on the list of "notorious markets" kept by the United States Trade Representative.

But the government is cracking down on black market trading to spur legitimate growth and modernize Paraguay's economy. Already it is one of Latin America's fastest growing economies, with a GDP that increased nearly 5 percent a year between 2003 and 2013, according to the World Bank.

These days, suspected smugglers are searched by Paraguay's border guards, who refuse to let them pass if they believe the electronics, clothes and other goods they carry will be sold on the other side.

The crackdown has intensified since President Horacio Cartes was elected in 2013. Under pressure from merchants who lead Paraguay's emerging middle class, the government wants all vendors to pay taxes and halt sales of knockoff merchandise.

"As a country, we can't continue with the piracy and contraband," said Felipe Acosta, whose Ciudad del Este shoe store sells genuine Nike, Puma, Reebok and other top brands for more than $100 a pair.

The city of 350,000 people is a hub for immigrants from all corners, where the city streets buzz with vendors negotiating in Chinese, Arabic, Spanish and indigenous Guarani. Millionaire businessmen drive Mercedes Benz sedans past shoeless vendors who cart toys and cellphone accessories on donkeys. Guards with bulletproof vests and shotguns stand outside banks and multi-level stores selling electronics and clothing.

There are signs that smuggling continues. Streets near Friendship Bridge are strewn with clothes hangers and boxes emptied of Apple computers and Barbie dolls, packaging stripped away by smugglers trying to hide the new-status of products before crossing the bridge.

"Few people here have legal jobs," said Pedro Canyete.

He supports himself by bundling goods in plastic and loading them into vehicles that smugglers try to drive across the border. With less work, he said, his average daily income has dropped from $40 to $20.

Little of the merchandise being smuggled out can be sold in Paraguay, where nearly a quarter of the population lives in extreme poverty, according to the World Bank. But there is a huge demand for such goods across the river in Brazil and Argentina, where products are either scarce or costlier due to high import taxes.

A new Dell laptop computer, for example, can be bought in Paraguay for $800, then walked 500 yards (a half kilometer) across the bridge and sold on the Brazilian black market for $1,000, Fragadas said.

Smugglers also profit by bringing items into Paraguay: mostly hard-to-find agricultural products such as eggs, cheese, meat, milk and wool.

While the Cartes government has been tough on merchandise going out, big business owners say it's not doing enough to stop the "paseros" who bring goods into the country.

The government has moved to enforce a monthly limit of $10,000 worth of imported goods. In February, it also started requiring paseros to register with the health ministry as food importers and obtain an identification card used to pay taxes.

Sebastian Acha, a former congressman who runs Pro Desarrollo, a Paraguayan think tank focused on economic transparency, called the effort a "joke" that fails to stop paseros from skirting the law.

"How can you justify something like this to legitimate business owners?" he said.

Despite an initial protest by the paseros, about 350 people have registered, said Cesar Caceres, president of the Paseros Association in Ciudad del Este.

"We get criticized," Caceres said, "but we are people who wake up at 2:30 a.m. and work until 6 p.m. to provide for our families."

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Peter Prengaman on Twitter: https://twitter.com/peterprengaman

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