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Paraguay: current situation, principal economic indicators, advantages of investing in the country, and investors guide.

Current Situation

Structurally well positioned in terms of competitive advantages, at the gates of MERCOSUR, and currently going through good times in the macroeconomic dimension, the country maintains some uncertainties and challenges on poverty, backwardness and ignorance, and on judicial insecurity, that can be overcome with the participation of local resources, foreign investment, and international help.

In orthodox terms, the Paraguayan situation of 2007 is relatively good. At the beginning of July, 2007, the International Monetary Fund gave, once again, its support to the National Government’s economic program for its successful performance in the past years. And at the beginning of June, 2007, Standard & Poors International improved significantly Paraguay’s qualification on its attention to international financial compromises, thus rising better expectations towards this landlocked country as the beneficiary of new credits and foreign investment.

Paraguay, which enjoys macroeconomic equilibrium, with relative price stability, fiscal surplus in the last three years, and balanced international accounts, is only checked by its non-sufficiently high economic growth (around 4 to 5 % per year) for one of the highest demographic growths of Latin America: 2.2% cumulative per year.

Nevertheless, it’s still one the countries with the lowest production costs in the continent, in tributary and salary-related matters as well as in social security and manufacturing expenses1. However, its manpower has a very low qualification level. The production of goods and services has a promising future, with intensive technology on non-qualified manpower, and emphasis on raw material and agro-industrial products.

The cost of long term credits, despite their tendency to drop, and the improvement of the offer, is still an obstacle for domestic financing of high-amount investment. But the local financial system is solid, and the access to international credits is good. For a certain kind of investments with long term profitability, it is best to come to the country with financing from the main source or to locally have special credit lines from bi- or multilateral organisms on an international level.

The work market shows high levels of unemployment and underemployment of manpower. The impoverishment process seems to have stopped, but poverty still is enormous. Of a population that nears 6 million people, only 1,700,000 workers enjoy a stable job, of which two thirds perceive an income that is inferior to the legal minimum wage (currently 244US$ per month, with an exchange rate of 5,000 Guaranies – the local currency – per American Dollar).

The judicial insecurity is still a source of concern in some regions and sectors, but it is relatively predictable. The cost of the insecurity, partially reigning, of being a landlocked country, and the complexity of the wide range economic policies make necessary, in the case of foreign investment, the participation of local partners that can help to overcome them better

Enero 2008

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