Paraguay’s strong growth erases the shadows of its past

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Foreign investors are attracted to low tax rates and competitive labour costs. Electricity is also cheap thanks to Itaipu’s huge hydroelectric dam.

Foreigners visiting Paraguay at the beginning of the century XXI described the landlocked country as little more than a moor with few opportunities and marked by a history of war, dictatorship and corruption.

If they came back now, they wouldn’t recognize it. During the past decade, there have emerged bright skyscrapers in Asunción, the Capital, a testimony of national economic growth rates that are the envy of the rest of Latin America.

In the last 15 Years, Paraguay’s growth was 4.5% on average. GDP grew to about USD 7 billion in 2003 to almost USD 40 billion today, and Paraguay’s middle class has doubled. GDP per capita exceeded USD 5,800 Annual, according to figures of 2017 of the World Bank, lower than Brazil, but importantly the poverty rate has decreased considerably since the early years of this century.

Paraguay did very well during the commodities boom of the last 15 years, said Dionisio Borda, who was Minister of finance twice since 2003 and who is credited for the implementation of the systems that drove a great part of the country’s economic progress. “But the system is not sustainable, ” he added.

Much of the recent growth of Paraguay was due to the large increase in soybean and meat exports and today is one of the top ten global exporters of both products. Experts agree however, that the country must further diversify its economy if growth is to continue.

The Essential Ingredient for growth to continue is foreign investment, but institutional weakness remains a serious concern for investors. It should be noted that the judiciary is not independent of the legislature, to which has ample powers to appoint and to dismiss judges in order to dilute the supremacy of the Presidency after the fall of Stroessner. Since then, politicians often meddle with the judiciary to protect their own interests.

Paraguay has strict legislation that prevents the fiscal deficit from exceeding 1.5% of GDP.

Increased foreign direct investment has been well received, with investments rising from USD 1 billion in 2003 to more than USD 6 billion in 2017.

Source: Financial Times

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