The terrorist attacks against the Twin Towers on 11th September, 2001 were a turning point in contemporary world history. Immediately after the attacks, there was a wave of worldwide suspicion and a search for those responsible for the slaughter. Even though attention was focused on the Middle East, Afghanistan, and fundamentalist organisations like Al Qaeda, the event also put the spotlight on a very important region of South America: the tri border area, where Brazil, Argentina and Paraguay meet.

City entrance to Ciudad del este (by Roger Schultz, on Flickr)

The focus was especially placed on the Paraguayan frontier town of Ciudad del Este, considered, according to some US intelligence and military sources, the epicenter of the region for the illegal funding of international terrorism. From that moment on, Ciudad del Este has been in the spotlight due to its long-standing history of smuggling, counterfeit goods, money laundering and drug trafficking.

Humble Origins for Paraguay´s Richest City

Ciudad del Este is known as ‘the place where everything goes’: an unlikely economic powerhouse that consistently arouses suspicions over the commercial activities that make it so dynamic. It is a cosmopolitan border city, full of contradictions and with a controversial, sometimes surreal, history.
The city was founded on 3rd February 1957, and in just over half a century is the second city of the country in terms of population and the richest in terms of wealth (even if not all of that wealth is ‘official’).
The history of the city begins in 1955, a year after the start of the long dictatorship under Alfredo Stroessner. In that year and due to a combination of geopolitical and sociopolitical reasons, the Stroessner government started what was known as the´´March to the East´´ – an attempt to populate the Paraná River bank in the eastern part of the country.

Confluence of the Iguazu and Parana rivers. The Triple frontier is a bit further in the background center: On the left is Paraguay, on the right Brazil, taken from Argentina. (By Phillip Capper, via Wikimedia Commons)
At the time, Paraguay had a population of about 1,500,000 people, with the majority concentrated in Asunción and the surrounding area, and very little outside of a 100km ratio around the capital. A vast proportion of the population was living in extreme poverty, and according to the regime, this created a breeding ground for communism and guerrilla movements. So, following the government’s logic, fostering the move of part of the population towards largely uninhabited lands could defuse a potentially explosive social situation.

There were also strong geopolitical reasons to start the ‘March to the East’, related to the decline Argentina´s leadership in South America and the emergence of Brazil as the regional power. On one side, 1955 marked the abrupt end of Juan Perón´s second term in office in Argentina and with this, Paraguay, and specifically Stroessner, lost a very important ally. On the other hand, Brazil was starting to flex its muscle as regional leader, becoming increasingly influential on Paraguayan politics and promoting improved bilateral ties between the two countries. For this reason, Brazil granted Paraguay credit for a 200km road that could join the city of Coronel Oviedo to the Paraná River bank on the border with Brazil (exactly in the place where Ciudad del Este is now), gave a free zone for its landlocked neighbour in Paranaguá, and started the building of an international bridge that would connect Foz do Iguaçu with the future Paraguayan border town.

In that context, Brazil gave Paraguay all the possible support in order to increase its own influence in an area that was traditionall considered Argentina´s hinterland. At the same time, landlocked Paraguay was also looking for an alternative route to the Atlantic due to the recurrent difficulties to keep international trade flowing through Argentine territory..

The March to the East began in 1955 with the opening of the road that involved going deep into thick subtropical forest until finally reaching the Paraná River bank in the zone of the triple frontier of Paraguay, Brazil, Argentina. Some years later that road, reaching from Asunción to the Paraná River bank, would become Paraguay´s main economic corridor.

Some 18 months after the march began, the tiny settlement of Puerto Flor de Lis was officially founded by presidential decree. Soon, as was customary by those years in Paraguay, the name of the settlement was changed to Puerto Stroessner, and soon after, Ciudad Puerto Presidente Stroessner. This name stuck until the coup d´etat that overthrew Stroessner in February 1989, when the revolutionary junta changed the city´s name to

Ciudad del Este in an attempt to sweep trace of the dictator´s image (this final name was then approved by the city´s dwellers in a local referendum).

Rapid Development

Ciudad del Este emerged against the backdrop of a major tax reform that would shape both the country’s economic profile and the new city´s place in the world. Import taxes were lowered drastically, so that electronic goods, beverages, cigarettes and luxury items imported from the USA, Asia and Europe became so cheap in Paraguay that they started to be sold on to neighboring countries. The era of commercial triangulation, a very distinctive Paraguayan activity, had started. Paraguay soon became a great importer of these items, which were then resold (or smuggled, in many cases) to the Brazilian and Argentine markets.

The privileged geographical position of the new settlement, just across the Paraná River from South America’s two biggest markets, meant it quickly became a very active and thriving trade zone.

Ciudad del Este and the surrounding region quickly became a key area for the Paraguayan economy due to three important factors that happened during the 1960s: the inauguration of the Friendship International Bridge connecting Ciudad Puerto Stroessner with Brazil’s Foz do Iguaçu in 1965, the completion in 1968 of the first hydro-electrical project, the Acaray power plant, allowing Paraguay to become energy self-sufficient; and the incorporation of surrounding land for extensive agriculture. The latter started a long period of economic growth but also generated environmental damage and social exclusion that persists today.

City street in Ciudad del Este (by Roger Schultz, on Flickr)

The city also lived a long period of splendor during the 1970s due to the deepening of the commercial triangulation system, the first soybean boom in its hinterland, and especially because of the building of a bi-national (Brazil – Paraguay) power plant, which at that time was the biggest in the world and injected US$8bn into the Paraguayan economy. As a consequence of this ´´localised belle epoque´´, the city experienced impressive population growth owing to both internal immigration from Asunción and central regions of the country and international immigration, particularly from Brazil, Asia and Middle East. This gave the place a very cosmopolitan profile and formed its well known reputation of a cultural melting pot.

The End of the Boom Times

The early 1980s marked the beginning of a slow decline for the city. The finalisation of construction for the Itaipú Dam (1974 – 1982) meant the end of high amounts of money being injected into the economic system. Moreover, Brazil and Argentina entered long periods of economic instability which led to a decrease in their demand for the goods sold in the city´s formal and informal markets. This, alongside the beginning of regional trade bloc Mercosur in 1991, undermined the commercial triangulation system.

The attacks on the Twin Towers in 2001 damages the reputation of the tri border region in general, and Ciudad del Este in particular, as there were suspicions that activities of money laundering in the area was used to finance Islamic fundamentalist groups. Two factors contributed to these suspicions: a long record of illegal transnational activities in the region and the settlement of a very important Muslim community, especially between Ciudad del Este and Foz do Iguaçu, whose most prominent members took over of an important part of the frontier trade.
It is important to highlight that the Muslim presence in the area dates back to the last decade of the 19th century, shortly after the foundation of Foz do Iguaçu in 1889. During the 20th century there were new flows of Islamic immigration to the area: first, from the 1950s to the 1970s when immigrants were drawn by the commercial opportunities of the region and second, during the Israeli occupation of South Lebanon, which took place from 1982 to 2000.

Despite the everyday accusations (many of them justified) that Ciudad del Este is a hotbed of illegal activities and a lawless land, there is an increasing debate about the involvement of some Islamic social sectors in support of fundamentalist terrorism. While some intelligence reports and news coverage from some media allege that this support exists, many local sectors, both in Paraguay and Brazil, claim that this problem distorts the real image of the Muslim community in the region, which has been part of the land for several decades and has largely integrated with the local population.

An Uncertain Future

Ciudad del Este has a long way to go in order to do something to turn itself into a place where law and order could become a reality, where crime can be effectively tackled, and the net of vested interests dismantled, at least to acceptable levels of transparency. But the city´s real problem is the lack of an integral development project, a cause of underdevelopment in several Latin American societies, including Paraguay as a whole.

So far, there has been widespread refusal in Ciudad del Este to accept the fact that the trade triangulation model is languishing and will sooner or later come to an end. This realisation leads to two important questions: is there a real and sustainable economic reconversion plan for the city? And if so, how can the two thirds of the population living off informal trade be absorbed into the formal economy without generating suffering and more social exclusion and unrest in the short term?

Facing general elections in a few months, the vast majority of the Paraguayan population knows that the unsolved problems of Ciudad del Este represent the unfinished business of past and present governments. Will the winners of the next elections finally turn things around?