Paraguay Paraguay, officially the Republic of Paraguay, is a landlocked country in South America.

It is bordered by Argentina to the south and southwest, Brazil to the east and northeast, and Bolivia to the northwest. Paraguay lies on both banks of the Paraguay River, which runs through the centre of the country from north to south. Paraguay used to be a part of the Spanish Colony until 1811 when it gained its independence from the Spanish and ever since then the rulers of Paraguay have used protectionist barriers and isolated the country from International firms and other countries. In 1989 Paraguay was able to have free elections and joined Brazil, Argentina and Uruguay to found Mercosur. Landlocked Paraguay has a market economy distinguished by a large informal sector, featuring reexport of imported consumer goods to neighbouring countries, as well as the activities of thousands of microenterprises and urban street vendors. Between 1970 and 2009 the country had the highest economic growth of South America, with an average rate of 7.2% per year and the prospect of 9% annual growth from 2010, being the highest in South America. The country also boasts the third most important free commercial zone in the world: Ciudad del Este, trailing behind Miami and Hong Kong. A large percentage of the population, especially in rural areas, derives its living from agricultural activity, often on a subsistence basis. Because of the importance of the informal sector, accurate economic measures are difficult to obtain. On a per capita basis, real income has stagnated at 1980 levels. The economy grew rapidly between 2003 and 2008 as growing world demand for commodities combined with high prices and favourable weather to support Paraguay's commodity-based export expansion. Paraguay is the sixth largest soy producer in the world. Drought hit in 2008, reducing agricultural exports and slowing the economy even before the onset of the global recession. In 2010, Paraguay experienced the greatest economic expansion of the zone and the highest of South America, with a GDP growth rate of 14.5% by the end of the year. The following year, Paraguay's growth rate remained a relatively high 6.4%; The industrial sector produces about 25% of Paraguay's gross domestic product (GDP) and employs about 31% of the labour force. Output grew by 2.9% in 2004, after five years of declining production. Traditionally an agricultural economy, Paraguay is showing some signs of long-term industrial growth. The pharmaceutical industry is quickly supplanting foreign suppliers in meeting the country's drug needs. Paraguayan companies now meet 70% of domestic consumption and have begun to export drugs. Strong growth also is evident in the production of edible oils, garments, organic sugar, meat processing, and steel Nevertheless, capital for further investment in the industrial sector of the economy is scarce. Following the revelation of widespread financial corruption in the 1990s, the government is still working to improve credit options for Paraguayan businesses. In 2003, manufacturing made up 13.6% of the GDP, and the sector employed about 11% of the working population in 2000. Paraguay's primary manufacturing focus is on food and beverages. Wood products, paper products, hides and furs, and non-metallic mineral products also contribute to manufacturing totals. Steady growth in the manufacturing GDP during the 1990s (1.2% annually)

laid the foundation for 2002 and 2003, when the annual growth rate rose to 2.5%. Balance of trade Paraguay reported a trade deficit equivalent to 1351 Million USD in the first quarter of 2011. Paraguay is the world's fourth largest soybean exporter. Paraguay also exports feed, cotton, meat, edible oils, electricity, wood and leather. Main export partners are Argentina, Brazil, Uruguay, and Russia Paraguay imports vehicles, consumer goods, tobacco, petroleum products, electrical machinery and chemicals. Main import partners are Brazil, United States, Argentina and China.

Currency The Paraguayan Guarani exchange rate depreciated 0.12 percent against the US Dollar during the last month. During the last 12 months, the Paraguayan Guarani exchange rate depreciated 7.97 percent against the US Dollar.

Balance of Payments

Paraguay is currently having a current account surplus equivalent to 179 Million USD in the third quarter of 2011

Exports Paraguay exports were worth 1157 Million USD in the first quarter of 2011. Paraguay is the world's fourth largest soybean exporter. Paraguay also exports feed, cotton, meat, edible oils, electricity, wood and leather. Main export partners are Argentina, Brazil, Uruguay, Russia

Imports Paraguay imports were worth 2508 Million USD in the first quarter of 2011. Paraguay imports vehicles, consumer goods, tobacco, petroleum products, electrical machinery and chemicals. Main import partners are Brazil, United States, Argentina and China.

GDP Paraguay Gross Domestic Product is worth 18 billion dollars or 0.03% of the world economy, according to the World Bank. Historically, from 1965 until 2010, Paraguay's average Gross Domestic Product was 5.33 billion dollars reaching an historical high of 18.47 billion dollars in December of 2010 and a record low of 0.40 billion dollars in December of 1965. Paraguay is the second poorest country in the South America. Its economy is based on agriculture, agribusiness and cattle ranching. In recent years the Paraguayan economy has grown as a result of increased agricultural exports, especially soybeans and beef.

GDP annual growth rate The Gross Domestic Product (GDP) in Paraguay expanded 3.4 percent in the fourth quarter of 2011 over the same quarter, previous year. Unlike the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of seasonal adjustment.

PARAGUAY GDP PER CAPITA The GDP per capita in Paraguay was last reported at 1621 US dollars in December of 2010, according to the World Bank. Previously, the GDP per capita in Paraguay standed at 1434 US dollars in December of 2009. The GDP per capita in Paraguay is obtained by dividing the countrys gross domestic product, adjusted by inflation, by the total population.

PARAGUAY GDP PER CAPITA PPP The GDP per capita, adjusted by purchasing power parity, in Paraguay was last reported at 5181 US dollars in December of 2010, according to the World Bank. Previously, the GDP per capita PPP in Paraguay stood at 4546 US dollars in December of 2009. The GDP per capita PPP in Paraguay is obtained by dividing the countrys gross domestic product, adjusted by purchasing power parity, by the total population.

PARAGUAY GOVERNMENT BUDGET Paraguay reported a government budget deficit equivalent to 0.4% of the Gross Domestic Product (GDP) in 2010.

PARAGUAY GOVERNMENT DEBT TO GDP The Government Debt in Paraguay was last reported at 15.0% of the countrys GDP.

PARAGUAY INFLATION RATE The inflation rate in Paraguay was last reported at 4.4% in January of 2012.

PARAGUAY INTEREST RATE The benchmark interest rate in Paraguay was last reported at 6.5%. In Paraguay, interest rates decisions are taken by the Central Bank of Paraguay (Banco Central del Paraguay).

PARAGUAY POPULATION The total population in Paraguay was last reported at 6.46 million people in 2010 from 1.9 million in 1960, changing 232% during the last 50 years. Paraguay has 0.09% of the worlds total population which means that one person in every 1087 people on the planet is a resident of Paraguay. PARAGUAY UNEMPLOYMENT RATE The unemployment rate in Paraguay was last reported at 6% in the fourth quarter of 2011.

Poverty A recent World Bank report on poverty1 found that Paraguay appears to have a relatively lower incidence of extreme poverty and a more equitable income distribution than most other countries in Latin America, including many whose economies are more developed. The estimates, which unfortunately cover only the urban population, suggest that about 20% of the population is poor and 3% is very poor. Although poverty was found to be distributed more evenly than income in the different regions across the country, it was found to be relatively more prevalent in small cities, and presumably also in rural areas. About 34% of the population in small cities is poor, and almost 8% is very poor. Poverty is associated with low education levels, female-headed households, language (monolingual Guarani speakers), and migration. It is reflected in overcrowding, low quality dwellings, and a lack of access to basic household services. The probability of being poor for primary school graduates is twice as high as for secondary school graduates, a monolingual Guarani speaker has almost a 50% greater chance of being poor than a monolingual Spanish speaker, and migrants have a 60% higher probability of being poor than non-migrants. On gender issues, the report found clear-cut evidence of sex discrimination. Females make about 57 of male earnings, a differential observed almost uniformly at all levels of education. Work experience is much better rewarded for men. However, wage discrimination in terms of schooling is less obvious, in the sense that proportionally women receive a larger increase in payment than men for the same improvement in education (although this is still consistent with a widening gap in absolute terms). Gini index: 53.2 HDI: 0.665 and ranked at 107 ECONOMIC POLICY Poverty Strategy Key challenges remain, and this is reflected in weak social indicators in some areas that mostly affect the poor. For example, maternal mortality appears to be high, the quality of primary education is poor, the quality and coverage of secondary education is low, and the coverage of water and sanitation services is also low. To solve these problems and to reduce poverty further, the report

recommends maintaining a sound macroeconomic framework, and keeping the size of the public sector small (and the tax burden low). It also recommends developing targeted programs that benefit the poor rather than generalized subsidy programs, concentrating education investments on increasing primary education quality and secondary education quality and coverage, improving primary health care, and avoiding reductions in the relative price of public services, especially water and sewage. Fiscal Policy In the 1970s, the government pursued cautious fiscal policies and achieved large surpluses on the national accounts, mainly as a result of the vibrant growth in the second half of the decade. By the early 1980s, there were growing demands for increased government expenditure for social programs. By 1983, the first fiscal year of increased government spending and the first full year of a recession, the government had entered into a significant fiscal crisis as the budget deficit reached nearly 5% of GDP (the deficit had been only 1% of GDP in 1980). In 1984 the government imposed austere measures to remedy national accounts. Cuts in current expenditures curtailed already meagre social and economic programs. In addition, from 1983 to 1986, real wages of government employees were allowed to drop by 37%. Capital expenditures were cut back more seriously. Capital expenditures as a percentage of total expenditure dropped from 31% in 1984 to 10% by 1986. Austerity measures were successful in economic terms, and by 1986 budget deficits were less than 1% of GDP. In 1986 the government announced a high profile Adjustment Plan, which continued previous policies of expenditure cutbacks but also proposed more structural changes in fiscal and monetary policies. The most prominent of these was a proposal for the country's first personal income tax. Many observers characterized the plan as mainly rhetorical, however, citing the government's lack of political will to implement many of its proposals. Despite the government's ability to control budgetary matters, fiscal policy faced two new and growing problems in the 1980s. The first was the poor financial performance of state-owned enterprises. The overall public-sector deficit, which reached 7% of GDP in 1986, had swelled in part because of the high operating costs of state-owned enterprises, which accounted for 44% of the overall deficit in 1986. Rather than continually increasing the price of utilities and the services of state-owned enterprises, the government accepted the loss to avoid the inflationary pressures of increasing costs to consumers. This policy, however, was seen by critics as only a stopgap measure, short of more painful structural solutions, such as examining the financial viability of certain stateowned enterprises. The second growing fiscal problem in the 1980s directly involved the country's complex exchange-rate system. Created in July 1982, the multitier system allowed a preferential exchange rate for the imports of certain government-owned companies. It was the Central Bank, however, that forfeited the losses involved in these exchange transactions, which were recorded as part of the overall public-sector deficit. In 1986 Central Bank losses of this kind accounted for nearly half of all the public sector's deficit. Again to avoid inflation, the government chose to maintain the multitier system, at least in the short run. Monetary Policy In 1943 the Guarani replaced the gold peso (which had been pegged to the Argentine peso) as the national currency, laying the foundation for the country's contemporary monetary system. Guarans are issued exclusively by the Central Bank (Banco Central) in notes of 1, 10, 100, 500, 1,000, 5,000 and 10,000 and as coins of 1, 5, 10, and 50 Guaranis. One Guarani is worth 100 centimes. Changes in banking laws in the 1940s set the stage for the creation of the county's new Central Bank, which was established in 1952, replacing the Bank of Paraguay and the earlier Bank of the Republic.

As the centre of the financial system, the Central Bank was charged with regulating credit, promoting economic activity, controlling inflation, and issuing currency. As a result of the growth in the financial system, a new general banking law was introduced in 1973, authorizing greater Central Bank regulation of commercial banks, mortgage banks, investment banks, savings and loans, finance companies, and development finance institutions, among others. In 1979 the Central Bank also began to regulate the nations' growing capital markets. The Central Bank also controlled monetary policy. One of the major aims of monetary policy in the 1980s was price stability. After experiencing extreme price instability--a familiar threat to the economies of the Southern Cone--in the 1940s and 1950s, Paraguay entered into two decades of price stability, credit expansion, economic growth, and a stable exchange rate. Inflation was only 38% in the 1960s, a dramatic turnaround from the 1,387-percent figure recorded during the previous decade. Although the rate climbed to 240% in the 1970s, it remained far below the post war level. The pace of inflation accelerated in the 1980s, however, after the economic downturn in 1982. Inflation, as measured by Paraguay's consumer price index, reached an annual rate of 27% in 1986 and climbed to well over 30% in 1987. Government authorities wrestled with how to control inflation without implementing policies that could unleash even greater inflation and popular discontent. Although influenced by many factors, inflation in the 1980s was exacerbated by fiscal deficits, exchange-rate losses of the Central Bank, the exchange-rate system in general, the country's declining terms of trade, and the inflation of neighbouring trading partners, Brazil and Argentina. The Central Bank regulated the allocation of credit, the supply of credit, and the country's interest rate in an attempt to promote economic growth and restrain inflation. The Central Bank held considerable control over the national banking system, but many regulations were loosely enforced. Exchange-Rate Policy From 1960 to 1982, Paraguay enjoyed extraordinary exchange-rate stability as the Guarani remained pegged to the United States dollar at g126=US$1. After the virtual financial chaos of 1947-54, this stability was especially welcome in Paraguay. Although the country's exchange rate was overvalued in the 1970s, it was not until the 1982 recession that the government devalued the Guarani. Exchange-rate policy in the 1980s came to be characterized by numerous devaluations and almost annual changes in the number of exchange rates employed. In early 1988 five exchange rates were in use, making exchange-rate policy very complicated. The first rate of g240=US$1 was used for the imports of certain state-owned enterprises and for external debt service payments. The second rate of g320=US$1 was applied to petroleum imports and petroleum derivatives. The third rate of g400=US$1 was reserved for disbursements of loans to the public sector. The fourth rate of g550=US$1 was used for agricultural inputs and most exports. The fifth rate, the only one not set by the Central Bank, was a free market rate set by the commercial banks. The free-market rate, which was applied to most of the private sector's nonoil imports, exceeded g900=US$1 by 1988. Exchangerate adjustments were expected to continue in the late 1980s. One of the most distinctive and complex features of the nation's exchange-rate policy was a system of official minimum export prices for selected agricultural commodities. The system, called Aforo, was essentially a way of guaranteeing foreign-exchange earnings to the Central Bank. Aforo values, assessed by the government immediately before a harvest or slaughter, designated the minimum prices exporters should receive for the goods and determined what percentage of foreign-exchange earnings must be turned over to the Central Bank. The difference between the Aforo price and the actual price was traded in the free-exchange market. In 1987 the official export rate for Aforos was g550=US$1, whereas the free-market rate was upwards of g900=US$1. Lower Aforos generally made

Paraguayan exporters more competitive but guaranteed less revenue to the Central Bank. Aforos were one of several government policies that fuelled contraband trading. As the manipulation of Aforos demonstrated, exchange-rate policy was an important economic policy tool of the Paraguayan government and directly affected most sectors of the economy. Although the government ostensibly intended to reduce the gaps among the various tiers of the exchange rate, it was reluctant to reunify the rates in fear of greatly speeding inflation. Paradoxically, however, the multitier exchange-rate system increased inflationary pressures in numerous indirect ways. One of its most important effects was the fall in Central Bank reserves associated with the exchange-rate subsidies for state owned businesses, a policy that created a growing public sector deficit. Likewise, Central Bank losses encouraged a more expansionary monetary policy, most notably through rediscounting rates. An overvalued exchange rate also hampered export growth in general, which in turn aggravated Paraguay's balance-of-payments deficits and potentially its external debt.