LatinFinance - July/August 2014 - Paraguay Supplement - 3

Overview | PARAGUAY

will, it is hoped, help diversify the economy is due to be set up.
"The issue is not how you grow; it is how you sustain
growth," says Gustavo Leite, Minister of Industry and
Commerce. "Sustainability is only given by export markets, by
efficiency, by innovation, by being always at the forefront.
"All of this has to be mounted on a Singapore-like platform,
which means a very open economy, transparent, efficient, a
non-bureaucratic economy, which means being a very safe
country in all aspects - and also a very non-corrupt country,"
he says.
Following its successful debut in the international bond
market last year, Paraguay is poised to return to the market as
early as July, according to Carlos Fernández, Paraguay's central
bank governor. "We are trying to push and go to the market
in July. It is going to be tight, but I think we can get it," says
Fernández.
"I think we are going to sell about $650 million in bonds,"
says Cartes, who hints that Paraguay will aim at longer maturity
of up to 30 years. "The last bond was for 10 years. I am pretty
sure we can have a tranche of 10 years and a tranche at 30 years.
"If the market gives you 30-year bonds, this means the
country is having a very good time," he says.
Meanwhile, the business community has largely given
the thumbs up to the Cartes administration. "Paraguay is
going through a good period. It is on the right track towards
development," says Viviana Varas, chief executive of the local
subsidiary of Itaú, the largest bank in the country.
In June, ratings agency Standard & Poor's praised efforts
made by Paraguayan economic policy makers when it raised the
country's ratings to BB from BB-.
"Recent steps in Paraguay to boost investment in
infrastructure, along with cautious macroeconomic
management, will sustain economic growth and gradually
diversify the economy, reducing its volatility," says Sebastian
Briozzo, director of sovereign ratings at Standard & Poor's.

Prudence
Fiscal balance % GDP

2.5
2
1.5
1
0.5
0
-0.5
-1
-1.5
-2

2007 2008 2009 2010

Source: Government statistics

2011

2012

2013

2014

CARLOS FERNÁNDEZ, CENTRAL BANK

 "WE ARE TRYING TO PUSH, AND GO
TO THE MARKET IN JULY. IT IS GOING
TO BE TIGHT, BUT I THINK WE CAN
GET IT"
In infrastructure, Briozzo says the government has the will
and the tools, in the form of a new public-private partnership
law, to move forward. But obstacles remain, including lower
level technical capabilities in government departments and
agencies in relevant departments.
The continuity of technical staff at key positions in the
central bank and finance ministry over the past decade is
also contributing to what Briozzo calls institutionalization of
economic policy making, making it less vulnerable to policy
changes.
The Cartes administration has also introduced a new fiscal
rule capping the budget deficit to 1.5% of GDP. Under the rule,
current expenditures may not increase by more than 4% in real
terms. That comes in a context when Paraguay's budget has
already seen relatively balanced years, with surpluses for many
of the past ten years, partly thanks to high commodity prices.
But Briozzo says progress in institutionalizing government
departments, "has not been comprehensive within the public
sector," for example in customs. He also says the country's Debt
Management Office needs improving, given the country's greater
participation in international capital markets.
"A track record of compliance over the next few years with
the key legislation passed in recent months, such as the Fiscal
Responsibility Law and the PPP law, will provide a good test of
how far economic institutions have improved in Paraguay," says
Briozzo.
Leite is adamant that there is no turning back. "A new
process has started. President Cartes is very clear about where
we are going. He wants Paraguay to be the simplest and most
serious country to do business. What do people want? People
want rules that will not change over time and that is we intend to
develop," he says.
In spite of the political difficulties and rising opposition
within the ruling Colorado party, Paraguay seems intent on
writing a new page of its history. President Cartes would rather
like to put his country's troubled past behind. 
"The country has already lost too much time. We have no
more time to lose. We now have to make up for lost time," he
says.
Turning into a Latin American version of Singapore may be a
long shot, but it is certainly motivating to have ambitious goals.
Investors should pay attention, says Fernández.
"The boat is ready to sail. There are still some seats available.
But hurry up, because the boat is getting full quickly. So come
quickly before it departs," he says. LF

July/August 2014 - L ATINFINA NCE.COM 3
http://www.LATINFINANCE.COM
Table of Contents for the Digital Edition of LatinFinance - July/August 2014 - Paraguay Supplement
