Taiwan backs Paraguay’s sovereign AI hub

Taiwan is moving to anchor its alliance with Paraguay through a data-centre project expected to require at least $200 million in its first phase, tying diplomatic survival to artificial intelligence, clean energy and strategic infrastructure.

The plan, centred on a sovereign AI computing facility in Paraguay, gives Taipei a rare large-scale investment platform in South America as Beijing intensifies pressure on Asunción to cut formal ties. Paraguay remains Taiwan’s only diplomatic partner on the continent and one of just 12 governments worldwide that maintain official relations with Taipei.

The project emerged from a memorandum signed in Taipei during President Santiago Peña’s visit to Taiwan, where he met President Lai Ching-te and senior technology officials. The proposed centre is intended to combine Taiwan’s computing and semiconductor expertise with Paraguay’s abundant hydroelectric power, a resource the Peña administration wants to convert into higher-value digital services.

Paraguay’s authorities have described the first stage as a 10-megawatt data centre focused largely on state use, including secure processing of public records, health data, tax systems and other sensitive government information. Investment for that phase has been estimated at between $200 million and $300 million. Officials have also outlined broader ambitions for later stages that could lift power demand to 100 megawatts and eventually 1,000 megawatts, though those targets remain politically and commercially demanding.

The initiative is being framed by both governments as a sovereign AI project rather than a conventional colocation facility. That distinction is important for Asunción, which wants to avoid being seen merely as a low-cost power host for foreign cloud companies. The official pitch is that Paraguay would retain strategic use of the computing capacity while Taiwan helps provide technology, financing channels and international credibility.

For Taiwan, the political stakes are clear. Paraguay established diplomatic relations with Taipei in 1957 and has resisted repeated calls to recognise Beijing. China claims Taiwan as part of its territory and rejects any formal state-to-state relationship with the island. Taipei rejects Beijing’s sovereignty claim and has sought to hold its remaining partners by shifting assistance from grants and symbolic diplomacy towards trade, investment, technology and education.

Peña has defended the relationship as one based on democracy, freedom and institutions, saying the partnership must produce tangible opportunities for Paraguayans. During the Taipei visit, he also reiterated support for Taiwan’s participation in international organisations and criticised pressure directed at the island. Beijing responded sharply, urging Paraguay to “stand on the right side of history” and sever ties with Taipei.

The diplomatic contest has domestic resonance in Paraguay. Agribusiness exporters and some opposition figures have long argued that formal ties with Taiwan limit access to China’s vast market, particularly for soybeans and beef. Peña’s government is trying to counter that argument by showing that the Taiwan relationship can deliver higher-value investment, technology transfer and market access, including Taiwan’s decision to open its market to Paraguayan poultry.

The data-centre proposal fits into a wider push to position Paraguay as a digital infrastructure hub. The country draws most of its electricity from major hydroelectric assets, including Itaipú and Yacyretá, giving it one of the cleanest power profiles in the region. That advantage is attracting interest from data-centre developers, crypto-mining firms and AI infrastructure companies seeking cheap, low-carbon electricity at a time when demand for computing power is rising worldwide.

Yet the plan faces serious tests. Data centres require not only electricity, but firm grid delivery, fibre connectivity, cooling systems, specialised construction, cybersecurity rules and skilled engineers. Paraguay’s digital workforce remains limited, and critics have questioned whether the country can support an AI facility on the scale described by officials. Energy planners also face pressure to balance industrial demand against future domestic consumption and export commitments.

Regional experience offers both encouragement and caution. Latin America is drawing heavier investment from cloud and AI companies because of renewable energy, growing digital markets and geopolitical diversification. Brazil, Chile, Mexico and Uruguay have advanced faster because they combine power access with deeper telecoms networks, larger technology labour pools and clearer regulatory pathways. Paraguay’s advantage lies in energy supply, but its success will depend on whether infrastructure, governance and talent can catch up.