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Paraguay has one of the fastest growing economies in the world

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Paraguay new president, the tobacco magnate Horacio Cartes, admits to having an “obsession”: his country’s economic growth rates.

Certainly, they are impressive. Paraguay’s double-digit growth this year will make it one of the fastest expanding economies in the world.

But Cartes, who was elected president in April, told Bloomberg that his government would like to see 7 to 8 per cent annual growth “on a permanent basis”. This would be achieved by ploughing $2.5bn in public and private investment each year into Paraguay’s $26bn economy, especially in infrastructure and agriculture, he said.

Cartes’ growth targets sound ambitious. Although the IMF expects Paraguay to grow by 11 per cent this year, its growth forecast drops to 4.6 per cent for next year. Growth is bouncing back this year after a serious slump last year caused by a bad soya harvest, which had a major impact, given that Paraguay is the world’s fourth biggest soya exporter.

Not only that, but the government of one of Latin America’s poorest countries is strapped for cash, forcing it to emit the landlocked country’s first bond ever on the international capital markets in January for $500m.

True, Cartes is trying to do something about his government’s cashflow problems by improving Paraguay’s pitiful tax collection, which is lower than African countries like Congo and Chad.

Shortly after he was elected, Cartes introduced Paraguay’s first commodities tax, taking 10 per cent from farmers’ profits on soya, maize, wheat and sunflower production. That could generate as much as $300m a year by 2015. Cartes has also pledged to crack down on tax evasion, which is rife.

Also reason for optimism is the potential of Paraguay’s hydrocarbons and minerals (especially tin) resources.

If Cartes does manage to sustain Paraguay’s growth spurt – which mainly benefits its highly mechanised agriculture sector – it will be important to ensure that inequality is not accentuated in this unstable nation.

Certainly, Cartes will want to avoid the fate of his predecessor, Fernando Lugo, whose term was cut short by what he called “an express coup d’état.”

FT Times

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