Argentina, Brazil and Uruguay mounted international diplomatic sanctions against Paraguay after its Congress jettisoned President Fernando Lugo last June and installed his deputy Federico Franco as caretaker president.
Lugo, a former Catholic priest faulted for fathering several children from women in his flock and other alleged abuses of authority, was blamed for security failings that caused deaths of eight police officers and nine farmers in armed clashes.
He resigned after a speedy impeachment but soon changed his mind and garnered enough left-wing Latin American support to trigger a crisis in international regional ties. Both the Mercosur trade bloc and Union of South American Nations backed him against Franco's caretaker regime, calling the takeover a coup.
The Mercosur-Unasur faction also got Paraguay suspended from both organizations but failed to achieve similar sanctions in the Organization of American States, which upheld Asuncion's argument Franco would hold democratic elections, which he did.
Tobacco magnate Horacio Cartes was elected president in May and will take over from Franco in August for a five-year term.
Although Lugo was elected a senator in the May poll, Paraguayan politics are shifting right. Asuncion, while polite to its neighbors, is demonstrating firm resolve in changing the way it does business with neighbors.
Argentina and Brazil share electricity from two dams located in Paraguay. For years Asuncion has claimed the partnership agreements over the dams are unfair and wants the terms revised to its satisfaction.
In an Independence Day speech Franco condemned both Argentina and Brazil for exploiting its water resources and demanded Argentina pay more for surplus electricity and compensation for flooding damage to Paraguayan territory.
The gigantic Itaipu hydroelectric complex supplies Brazil with almost 25 percent of its electricity needs. Argentina consumes most of electricity generated by the Yacireta dam over the Jasyreta-Apipe waterfalls in the Parana River.
Both Argentina and Brazil claim Paraguay still owes them money spent on building the projects. Paraguay rejects the claims it owes Brazil $31 billion and Argentina $15 billion.
Federico declared, "Here in this sacred place and on this day we affirm that Paraguay has long canceled the two binational dams' debt."
He said Argentina needs to compensate Paraguay for flooding damage and for delayed payment of power bills.
True Paraguayan independence will be achieved only when the country is treated as an equal partner by Argentina and Brazil and the financial matters are settled, Franco said.
Paraguay aims to use more of its electricity and stop giving it at "rock-bottom" prices to neighbors, he added.
Despite all the political upheavals Paraguay has been recording steady economic growth and sees improved prospects for its youth to discourage them for emigrating to find menial jobs in neighboring countries.