LatinFinance - September/October 2013 - 84

PARAGUAY
economy

Paraguay’s new president has vowed to end the economy’s dependency on commodities. Making that happen won’t be easy. By Thierry Ogier and Nancy Areco

High hopes

T

here is a new mood on the streets of asunción, Paraguay’s capital , and it’s a
happy one for foreign investors.
Horacio cartes, the business magnate who was sworn in as president mid-august, has so
far had little trouble convincing investors that he means business when it comes to reforming
the country’s creaking economy.
But effecting change in a poor country that has long been plagued by corruption and
inefficiency is likely to prove tougher than managing his 20-odd private businesses.
the administration’s priority is to diversify the economy, helping end abrupt swings in the
economic cycle that come from a dependency on agricultural exports.
“the president has the firm intention to generate a greater diversification of the economy,”
Germán Rojas, the Paraguayan finance minister tells LatinFinance in an interview. “the
required business environment is being set up to attract industrial investment.”
exploring untapped titanium reserves and rolling out an aluminum smelter project near
the Brazilian border are high on the agenda. Rio tinto alcan has been involved in the plant,
although concrete plans are still elusive.
another move towards diversification would be to foster the local food industry, based
on the country’s agricultural wealth, but there is strong resistance to this from multinational
trading companies.
“Ultimately the solution to overcoming this volatility has to be diversification from primary
production,” says andrew nickson, honorary reader in latin american Studies at the
University of Birmingham and former director of a european Union project for state reform
in Paraguay.
“Paraguay is still a primary producer and it does not defend its industry because so much
of its output is smuggled across the border to Brazil and argentina,” he says. “it is a highly
open economy. it has not pursued any serious industrialization policy except through the
maquila sector, which is still very small.”
industrial investment would help the Paraguayan economy — one of the smallest in South
america — reduce its dependency on exports of cereal and the agricultural sector, which the
government calculates accounts for 23% of GDP.
“this year, thanks to the good weather, we will produce 14 million tons of grain, but last
year it was half of that,” says Rojas. that means Paraguay expects a spectacular 13% GDP
growth this year — it will probably be latin america’s top performer — after shrinking 1.2%
last year.
a similarly dramatic swing happened after the global financial crisis, when Paraguay
suffered a 3.8% recession in 2009, only to bounce back by 15% the following year. the finance
minister puts the country’s growth potential at “over 4%”. But the main problem for the
government is developing a smoother pattern of growth.

84 l atinfina nce.com - September/October 2013

In Cartes we trust
the day after his inauguration, the new
head of state hosted a breakfast with
350 local and foreign — mainly Brazilian
— business leaders to shape the new
Paraguay. “i have worked with Paraguay for
25 years. i have never witnessed so much
expectation of real change,” says Regis
arslanian, a former Brazilian ambassador
to mercosur, who was present.
When cartes rolled out his plans
for public-private partnerships in
infrastructure, aslanian described it as the
launch of a “new cycle of efficiency and
pragmatism”.
Several members of the new
government, including finance minister
Rojas, the minister of foreign affairs and
the minister of public works, were present.
the novelty is that these are not long-time
members of the colorado party, which
has been in power for most of the past five
decades, but technocrats perceived as
having no strings attached.
“there are no politicians among the
11-member cabinet, which has caused a bit
of a stir among the colorado party,” says
arslanian, who is now a senior partner at
Go associados, a consultancy in São Paulo.
Paraguay is just emerging from yet
another period of political turmoil.
fernando lugo, the former priest who
became the first left-wing president in
modern Paraguayan history in 2008, was
replaced four years later by his deputy
federico franco after a controversial
impeachment.
“this is like a new stage of normalization
in the country following the franco
government, which put the country
‘offside’ on the international scene,” said
milda Rivalora, a Paraguayan historian
in asunción. “now we have a colorado
government, which is not so colorado.
the current administration is rather more
technocratic and liberal than the century
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