Why corrosive capital is dangerous: It distorts the state

May 7 (UPI) -- Last month, the OECD released its Anti-Corruption and Integrity Outlook 2026, a comprehensive assessment of governance and integrity systems across 62 countries, including Paraguay. The findings for this country were instructive, though not surprising. Paraguay fulfills virtually all formal criteria for conflict-of-interest regulation on paper. In practice, however, implementation falls to just 11%, far below the OECD average of 45%. The gap between what the law says and what actually happens is not a technicality. It is an open door.

That gap is precisely the environment in which corrosive capital operates.

In the previous piece in this series, I argued that not all foreign investment arrives with the same purpose. Some capital seeks returns while other capital seeks leverage, and that difference matters enormously for countries like Paraguay. Here I want to go further: to explain why corrosive capital is so dangerous, and why the danger is political before it is economic.

When access matters more than value

Most discussions of problematic investment focus on economics: an overpriced asset, a weak contract, a procurement process that appears tilted from the start. Those are real concerns. But they are the surface layer of a deeper problem.

Corrosive capital, as governance specialists at institutions such as the National Endowment for Democracy have documented, refers to financing that flourishes in environments where transparency is weak, oversight is limited, and public institutions are vulnerable to pressure. Its distinguishing feature is not simply opacity. It is the way opacity is used to build political influence that outlasts any single deal.

The mechanism is elite capture. When politically connected actors become dependent on opaque outside financing, their priorities shift. Instead of asking whether an investment serves the country, they begin to ask whether it serves the network that sustains them. A minister hesitates to scrutinize a deal too closely. A regulator looks the other way. A public official learns that protecting the arrangement is easier than challenging it. Influence enters public life quietly, not through a formal loss of sovereignty, but through habits of dependence.

Why strategic sectors matter

The second danger is institutional decay. Corrosive capital rarely demands that laws be abolished outright. It works through smaller accommodations: softer scrutiny, selective enforcement, hidden ownership, or bidding terms written for favored players. Once those practices take hold, they are hard to reverse. Weak institutions attract opaque money, which in turn further weakens them.

The risks become more acute when this kind of capital enters sensitive sectors. Energy, telecommunications, logistics, and digital infrastructure are not ordinary assets. They shape national resilience and long-term strategic autonomy. Governments in Europe and North America have recognized this in recent years, adopting or strengthening investment screening mechanisms specifically designed to evaluate who owns what and why. Latin America, by contrast, has barely begun this conversation. A 2025 study by the CELIS Institute found that of the major regional economies assessed, none had a fully operational investment screening regime, and most lacked even the political will to begin building one.

For Paraguay, the concern is direct. The country is working to expand its infrastructure, develop its energy advantages, and deepen its integration into global supply chains. Those are worthy goals. But they also increase the importance of knowing whose capital is entering, on what terms, and with what effect on national decision-making.

The cost of looking the other way

There is also a reputational dimension. Countries known for opaque deals tend to discourage precisely the investors they most need. Serious long-term capital looks for legal certainty and fair competition. It wants to know who owns what, how contracts are awarded, and whether regulators act independently. A system that tolerates corrosive capital may attract fast money, while driving away durable investment.

This is not a hypothetical trade-off. According to the Inter-American Development Bank, countries perceived as more corrupt attract measurably less productive foreign investment; each deterioration in corruption rankings is associated with a 6.5 percent drop in the probability of investment.

Paraguay already carries one of the lowest FDI rates among countries with a comparable credit rating, according to Fitch Ratings. The institutional weaknesses that make the country vulnerable to corrosive capital are the same ones that hold back the investment it needs most.

That is why the debate about investment quality should not be reduced to ideology or hostility toward foreign capital. Paraguay does not need less investment. It needs better filters, with clearer procurement rules and stronger transparency on beneficial ownership.

The OECD findings released last month confirm what many here already sense: having the right rules on paper is not enough. The challenge is closing the gap between law and practice. Corrosive capital is most dangerous precisely in that gap, where formal compliance can coexist with institutional erosion, and where the damage accumulates quietly, transaction by transaction, before it becomes visible at all.

Federico Sosa is a Paraguayan economist and international consultant with experience in foreign direct investment, industrial development, and trade policy. He is a member of the executive committee of Instituto Patria Soñada, a Paraguayan think tank. The views expressed are solely those of the author.