IN PARAGUAY, CRIME COMES WITH THE TERRITORY

CIUDAD DEL ESTE, Paraguay -- Three Cabinet ministers here resigned in
protest this week amid allegations that, among other things, the
finance minister smuggled a stolen BMW 528i sedan into the country
for the president and created a phony paper trail to make the car
appear legal.

In many countries, that would be a scandal. In Paraguay -- locked in
a lawless time warp -- it's almost business as usual. The landlocked
South American nation remains the closest thing in the Western
Hemisphere to a pirate state -- a torrid banana republic that's home
to modern-day buccaneers.

If you're in the market for hot cars, pirated music, counterfeit
brand-name electronics, cocaine by the kilo, pliant banks happy to
launder your money, imitation Mickey Mouse gear or illegal firearms,
Paraguay is the place to go.

``Welcome to the Wild West,'' said Tony, an undercover agent for the
Worldwide Recording Industry Association who uses an assumed name. He
saw counterfeiters capture nearly half of Brazil's CD market of 95
million discs last year, the world's third-largest market for CDs,
largely through pirate operations in Paraguay.

On March 1, Paraguay squeaked by as a certified ``partner'' in the
United States' war on drugs. The State Department decided that a few
drug busts after the appointment of a new anti-drug chief were enough
to take the country off the ``uncertified'' list for the first time
in four years.

Haven For Drug Traffickers

Nevertheless, Paraguay remains a drug-runners haven, a transit point
for roughly 10 tons of cocaine each year. It's on the U.S. watch list
for money laundering. Evidence suggests the military sells hand
grenades and other weapons to drug gangs for use against police in
the region. The country manufactures millions of counterfeit CDs,
sells just a few domestically, and exports almost none. Legally, that
is.

Transparency International, a watchdog global government-reform
group, ranks Paraguay one from the bottom for official corruption,
just ahead of the African nation of Cameroon. True, the country is
enjoying the longest period of civilian rule in its 190-year history.
But that's just 12 years, and it's been disrupted by four attempted
military coups.

It would be nice to say that Paraguay hasn't always been this zany
and bent, but it has. It began when the country's first ruler, Gen.
Jose Gaspar Rodriguez de Francia, declared himself president for life
and ordered Paraguayans to wear hats so they could tip them as he
passed. The second ruler, Carlos Antonio Lopez, set the standard for
modern Paraguayan governments by gobbling up public lands, making
himself the country's largest landowner.

Gen. Alfredo Stroessner was their 20th-century counterpart. From 1954
to 1989 he offered hospitality to Nazi war criminals, sold passports
to international fugitives and undermined his neighbors' economies --
mainly Brazil's and Argentina's -- by encouraging Paraguay's
smuggling trade. More than 1 million Paraguayans, or about a fifth of
today's population, went into exile during his rule.

``Paraguay seems like a country of fiction,'' says Alfredo Boccia
Paz, a physician and human rights activist who's documenting the
Stroessner era.

California-sized and shaped like a swollen kidney in the center of
South America, Paraguay's border cities are perfect staging areas for
smuggling, drug and weapons trafficking, and any other imaginable
vice bound for neighbors. There is no one to stop them. Crime gangs
make millions, while average Paraguayans live with a miserable per
capita income of about $1,700, among the lowest in the Americas.

Stroessner effectively turned Paraguay from a hapless country given
to military dictators into a gangster state without a moral compass.
Under Stroessner -- now 89, feeble and in exile in Brazil -- a
largely agricultural country was transformed into a major supply
point for contraband into the closed economies of Brazil and
Argentina during the 1960s and 1970s.

That set into motion a way of life that persists, creating a corrupt
business class and fortunes built on government connections. Nearly
as quickly as auto sales soared in the 1960s and onward, cars were
stolen from neighboring countries for unimpeded use in Paraguay.
Citizens knew the Stroessner government did not mind this sort of
thievery.

Military Involved, Too

So whom do you turn to for help? Well, not the military.

Last June, some 141,000 pirated CDs turned up at a naval base in
Ciudad del Este. Diplomats say privately that the military is deeply
involved in arms and drug trafficking. That was evident to police
last year in Rio de Janeiro, Brazil, when a gang repulsed them with
hand grenades. Brazilian exporters had sold them to the Paraguayan
military, which allegedly sold them back to drug gangs.

The military also is suspected of perpetrating the Aug. 4, 2000,
heist of $11 million, the largest in Paraguayan history, from a
commercial plane bound for Argentina. Although news reports mentioned
police support for the thieves and the use of at least one military
jeep, President Gonzalez Macchi's government has shown scant interest
in solving this remarkable crime. Gonzalez Macchi declined to be
interviewed on the matter or on other corruption issues.

A country low on heroes clasps an odd one to its bosom: Rutherford B.
Hayes, the 19th U.S. president. As an arbitrator, Hayes sided with
Paraguay in 1878 in a postwar land dispute with Argentina, expanding
its territory by a fifth. Although Hayes' U.S. home has been razed,
he rates a monument in Paraguay, where a prominent soccer club is
named for him (and pronounced AY-yez.)

Paraguayans are friendly. Residents drag chairs outside at nightfall
to chat with passers-by and commiserate.

``People here are just as interested in what is going on outside in
the street as they are about what is on their television screen,''
says Gerald McCulloch, a former U.S. diplomat who stayed and runs the
Paraguayan-American Chamber of Commerce.

Paraguayans are also laid-back. So laid-back that the 1996 national
phone book finally came out in 2000.

Sometimes Paraguay is a lot like gangland. Step into the Caza y Pesca
hunting shop on a back street of Ciudad del Este. It's wall-to-wall
handguns, from a simple .38 special for $500 to a spanking new 9mm
Glock semiautomatic that fires 18 rounds. There is no Glock
distributor in Paraguay, but it sells for a reasonable $1,000.

Asked if he can deliver illegally to Brazil, the gun dealer offers a
ready response delivered in B-movie deadpan: ``You want one or 10?''