IT ONLY TOOK 61 years, but Paraguay's conservative Colorado Party finally lost an election. In last month's presidential poll, a plurality of voters cast ballots for Fernando Lugo, a left-wing candidate who does not belong to an organized political party. Lugo focused his campaign on poverty, rural land reform, and energy policy. Now comes the more difficult task of actually governing. Will Lugo favor pragmatic, market-friendly initiatives designed to boost Paraguay's economy and ensure stability? Or will he squander his historic opportunity by embracing populism? Unfortunately for Paraguayans, the answers are uncertain.

A former Catholic bishop, Lugo clearly has a deep personal commitment to improving living standards among Paraguay's poorest citizens. Indeed, he spent many years working as a religious leader in the country's most impoverished region. Paraguay is the second poorest country in South America (after Bolivia), and Lugo's success or failure as president may hinge on how effectively he promotes social development and increased prosperity.

If he looks around the region, Lugo will see two very different groups of "leftist" presidents. The first group includes Brazil's Luiz Inácio Lula da Silva, Uruguay's Tabaré Vázquez, Chile's Michelle Bachelet, and Peru's Alan García. These center-left leaders have worked to reduce poverty but also to fuel economic growth and consolidate democracy. The second group includes Venezuela's Hugo Chávez, the radical populist, and his clients: Bolivia's Evo Morales, Ecuador's Rafael Correa, and Nicaragua's Daniel Ortega. As Michael Reid writes in his new book, Forgotten Continent, "There are many reasons to believe that the effect of Chávez's policies, though masked by windfall oil revenues, will be to accelerate his country's long-term decline." Indeed, the Chávez path leads ultimately to antidemocratic politics and economic dysfunction.

Which path will President Lugo choose? On the one hand, his rhetoric has often smacked of populism, and during his time as a bishop he was a follower of "liberation theology," a radical ideology that is deeply hostile to free markets and capitalism. On the other hand, Lugo has eschewed the rhetoric of Chávez and Ortega and has not indulged in gratuitous America-bashing. Nor has he made any outlandish pledges about drastically transforming the economy. In an interview with the Los Angeles Times, Gerald McCulloch, head of the Paraguayan-American Chamber of Commerce, said that "Lugo is a bit of an unknown quantity . . . but the indicators are that he's a relatively moderate type."

In short, we can be cautiously optimistic that President Lugo will have more in common with the Lula-Vázquez-Bachelet-García camp than he will with the Chávez-Morales-Correa-Ortega group. But we won't know for sure until after he takes office in August.

Though many Americans may not realize it, the United States has very real security interests in Paraguay. The so-called Tri-Border Area (TBA)--the area where the borders of Paraguay, Brazil, and Argentina come together--has long been a meeting place for criminals and terrorists, including members of al Qaeda. Khalid Sheikh Mohammed, the mastermind of the 9/11 attacks, spent time in the TBA, while Marwan al-Safadi, a terrorist operative who participated in the 1993 World Trade Center bombing, fled to the TBA after escaping from multiple prisons.

In a 2002 New Yorker article, Jeffrey Goldberg noted that the TBA "has earned its reputation as one of the most lawless places in the world." Although Mauro Marcelo de Lima e Silva, the former director general of Brazil's national intelligence agency, says that "no cells or training camps" have been found in the TBA, the security problem is serious enough that Paraguay, Brazil, and Argentina have created a tripartite command--which cooperates with U.S. forces--to coordinate their policing efforts there.

It is encouraging that Lugo has emphasized the need to stamp out Paraguay's widespread corruption. Reducing corruption implies dismantling the structures that allow smugglers, drug-traffickers, and terrorists to thrive in the TBA. It would thus help to improve overall security in the region

So far, Lugo has made all the right statements as president-elect, and he is doing his best to mollify concerns about his past support for liberation theology. In a recent TV interview, he promised to respect property rights and be "open to the international community." He has also pledged to govern in the mold of Uruguay's President Vázquez, a social democrat who believes in the free-market system and open trade.

It is reassuring that the single biggest party in Lugo's winning coalition is a pro-market liberal party (that's "liberal" in the European sense of the word). Its leader is Federico Franco, Paraguay's new vice president-elect. Franco has vowed that the Lugo government will seek to attract investment, encourage private enterprise, and propel economic growth. Speaking to a prominent Chilean newspaper, Franco put it this way: "Paraguay will be closer to Chile than to Chávez." Let's hope so.

Jaime Daremblum is director of the Center for Latin American Studies at the Hudson Institute.

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