Paraguay counts cost of Lugo's sacking When the US embassy in Asunción, Paraguay, was preparing to hold its annual Fourth of July celebrations this year it had a delicate situation on its hands - which president to invite. In what some regional leaders are calling a new style of South American coup, the incumbent president Fernando Lugo was removed in a lightning, two-hour impeachment debate and replaced by his former deputy, Federico Franco, on June 22. Since the original invitations were sent before Mr Lugo's removal, his replacement, Mr Franco, still had "vice-president" on his. A diplomatic incident was avoided since, in the end, neither went. But Mr Lugo's impeachment has had far wider reaching implications than a mere ruffling of diplomatic feathers. It has inadvertently led to a rapid reshuffling of regional relations to bring Brazil and Argentina closer to Venezuela in a move that will be closely watched by outside powers. "This is Venezuela muscling in," Mr Franco told the Financial Times in an interview at the leafy official presidential residence in Asunción. In a region with painful memories of military coups, Brazil, Argentina and Uruguay - ironically the Triple Alliance that crushed Paraguay in a brutal 19th-century war - dished out diplomatic isolation as punishment to a country they said had flouted due process for its elected leader. They speedily suspended Paraguay from the Mercosur trade bloc, though stopped short of sanctions. Then, in a meeting days after the impeachment, they hustled Venezuela into Mercosur as a member, something Paraguay's Congress had steadfastly opposed in protest against president Hugo Chávez's record on human rights and democracy, Mr Franco says. "The price of Mercosur's punishment [of Paraguay] was the entry of Venezuela," Mr Franco said. He reiterated Paraguay's assertions that Venezuela had tried to persuade military chiefs before the vote to intervene to prop up Mr Lugo - a serious claim in a country ruled by military strongman Alfredo Stroessner for 35 years. Michael Shifter, president of the Inter-American Dialogue, a Washington-based think-tank, said Mercosur membership gives Venezuela a chance to show Mr Chávez as a regional player, while Argentina cements ties with an ideological friend and gets possible energy and economic benefits. Brazil could also boost agriculture and other exports. Mr Franco has withdrawn Paraguay's ambassador to Caracas in protest and wants to pursue legal action against Venezuela's membership, which is due to be ratified on July 31. Chris Garman, an analyst with Eurasia Group, said: "Paraguay was steamrolled and they have very few means for recourse." He added that trade between Brazil, which is seeking new markets for its struggling manufacturing sector, and Venezuela had grown dramatically in the past five years. But as Mr Franco embarks on his 14-month term in diplomatic limbo - elections are due in April; he cannot stand and will hand over to the winner in August 2013 - he already has his eye on a potentially lucrative new trading partner: China. "We should have commercial representation in Hong Kong," Mr Franco said. If we did that, we would open a huge market. Paraguay, the world's fourth-biggest exporter of soya, is the only country in South America with diplomatic relations with Taiwan, not Beijing, and there is no sign of this changing any time soon. Yet despite this, China is already the second-biggest source of Paraguay's imports, after Brazil. Paraguay also boasts abundant land, a climate that permits two harvests a year and cheap energy from the Itaipú and Yacyretá hydroelectric dams that are jointly owned with Brazil and Argentina respectively. Moreover, a $4bn smelter planned by Rio Tinto Alcan - which Mr Franco hopes will be in operation in three to four years - will turn Paraguay into an aluminium exporter. Meanwhile, he has his work cut out steering the country to elections that, polls suggest, could return the Colorado party that ruled Paraguay for 61 corruption-drenched years to office - within months of Mexico re-electing the PRI party that held sway for seven decades. Mr Franco denied any kind of coup and added: "I didn't seek this. To be president at 49, for a year and a bit, with no possibility of re-election and this international image - you can keep it. I'm castrated, politically speaking. The former cardiologist, who says "I cure, I don't operate," sees his job as "sowing a lot" for others to reap and his goal is to "have the house in order and the economy growing" when he hands over the presidential sash. He acknowledged that his Liberal party, the arch rivals of the Colorados and former fractious coalition partners with Mr Lugo, could benefit electorally if he does well "and, I hope, even win." But he ruled out using state cash to fund its campaign. Pro-Lugo demonstrations in Asunción, meanwhile, appeared to have fizzled out. As for the Mercosur suspension until next year's elections, Mr Franco sees its impact as small. "You miss the cocktails, the whiskies and the receptions, but that's about it," he smiled.