Taiwan to improve relations with lone South American ally Paraguay via $200 million data center project

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Taiwan has made plans to further improve its lone South American alliance with a $200 million data center in Paraguay, which aims to bring together Taipei’s semiconductor access with Paraguay’s cheap hydroelectric power. 

This investment is designed to preserve the diplomatic relationship between the two countries, and the facility is targeted to deliver 10 megawatts of computing capacity by the end of 2027. The plans emerged from a memorandum signed during Paraguayan President Santiago Peña’s visit to Taipei in May, where he met Taiwan’s President Lai Ching-te.

Taiwan’s International Cooperation and Development Fund has since contacted Google, Microsoft, and Amazon about investing in the project or serving as anchor customers for its compute capacity.

Taiwan invests in a rare ally

Paraguay is one of just 12 governments worldwide that maintain formal diplomatic ties with Taiwan. Beijing, which claims Taiwan as its territory, has systematically pulled the South Asian country’s Latin American partners over the past decade.

Panama switched ally positioning in 2017, followed by the Dominican Republic and El Salvador in 2018, Nicaragua in 2021, and Honduras in 2023.

The data center project will split ownership and financing between the two governments through a digital entity overseen by both nations. The countries will both contribute actively to the core infrastructure. Paraguay would handle the power requirements via hydroelectric power sourced from the Itaipu Dam, one of the cheapest and cleanest energy sources in Latin America, while Taiwan will obviously provide its expertise on chips and hardware, alongside connections to technology supply chains.

Government officials in Paraguay have described the first phase of development as purely focused on use by the Paraguayan government. These uses will include processing of public records, tax systems, and citizen health data.

Paraguay aims to position the facility as a national AI asset and not any other low-cost hosting site for foreign cloud and AI operators.

Officials also outlined later expansion phases that could push power usage demand up to 100 megawatts and eventually as high as 1,000 megawatts, although those targets remain out of sight currently.

Paraguay’s standing beyond infrastructure

The data center is the most visible piece of a wide and intensive effort by Peña’s government to prove the Taiwan relationship continues to deliver concrete economic value. That argument has faced ongoing domestic opposition, as Paraguayan agribusiness exporters and some political figures have pushed to switch recognition to Beijing for years.

These individuals and political officials have argued that formal ties with Taiwan hurt the country by cutting off access to China’s market for soybeans and beef, which are important products in the country’s economy.

Peña has countered these arguments by pointing to the level of technology transfer, investment, and new trade access granted, including Taiwan’s decision to open its market to Paraguayan poultry. During his Taipei visit, he defended the partnership as grounded in shared democratic values and called for the country’s participation in more international organizations. Beijing responded by urging Paraguay to “stand on the right side of history” and sever ties with Taipei.

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