LatinFinance - September/October 2013 - 85

old populist party.”
there are other elements that foreign
investors may find reassuring. “in recent
years, there has not been any expropriation
or nationalization of companies or anything
of the kind,” notes oscar Pineda, an
historian, in asunción.
last year’s political crisis led to a sharp
fall in foreign direct investment — from
nearly $400 million in 2011 to little more
than $120 million in 2012. now, capital may
be returning.
“the government is making great strides
in encouraging foreign direct investment,”
says nickson. “they held probably the
largest ever road show in miami [in June] to
attract foreign investment and i understand
there is another one planned in november.
cartes has certainly stressed that very much
in his campaign: the solution to poverty
reduction is to have a big inflow of foreign
investment.”
Testing the limits
cartes himself is a relative newcomer
to politics. He became famous for
acknowledging that he never voted before
he joined the colorado party. that was
only four years ago. He was picked as a
presidential candidate after the traditional
party suffered a devastating defeat against
the leftist lugo. However a successful
businessman he might have been, many say
he still has much to learn.
courting foreign investors is a welcome
move, but nickson says cartes faces some
serious restrictions. “the problem is that
the public administration is, even by latin
american standards, still extremely weak,
extremely corrupt, extremely inefficient,
and riddled by nepotism. the whole style
of management is still very, very out of
date. foreign investors negotiating with the
[local] bureaucracy is still an issue.”
the cartes administration has vowed
to clean this up, but it is not easy because
the system is deeply embedded, nickson
argues. and the party itself has yet to be
reformed.
“my fear is that eventually there will be a
conflict, if he is serious about transforming
the economy with more modern, far
sighted cabinet members in charge,” he
says. “When they begin to bring about
structural changes in the administration,
they will meet formidable resistance from
the colorado party and the powerful public
sector trade unions that the part controls.
that is the danger, this could well happen in
the coming months and years.”

Dialing up debt
Paraguay, which issued its first dollardenominated bond at the beginning of
the year, intends to “position itself as an
investment destination”, Rojas says.
But when it comes to issuing more
debt, much caution is needed, warns
Dionisio Borda, a former finance minister,
who served under previous colorado
administrations as well as under lugo.
“there are plans for more debt issues,
but one has to exercise great caution,” he
says. “the tax burden in Paraguay is low,
which means that the capacity to absorb

would obviously reduce the country’s
dependency on commodities.”
Paraguay would benefit from a
burgeoning food industry, which would
also attract investment. But this may be an
uphill battle. “there is no political will for
that. folks are rather in favor of pushing
soy and other export goods,” says Rojas
Villagra.
the new government acknowledges
the need to change the tax system. it has
put forward its own plan to increase the
formal workforce and raise more tax from
agriculture and livestock. “this sector

HAPPY START: Paraguay’s new president
Horacio Cartes and finance minister Germán
Rojas

debt is limited and on the other hand,
capital market conditions may become
more demanding.”
at around 12% of GDP, the country’s tax
take is one of the lowest in the region.
that means there are better solutions
to issuing bonds, say some. “it would be
better to reform the tax system and increase
collection than piling up debt,” says luis
Rojas Villagra, founder of the Society of
economic Policy of Paraguay, a local
think tank.
“the priority should be the removal
of blatant tax evasion schemes that are
common in all business sectors in the
country,” says aníbal amado nunes, an
economic adviser of the opposition party
frente Guasu. “this would double tax
collection.”
nunes also favors an export tax on
non-processed grain. “this would lead
a large part of the grain that’s due to be
exported to be processed locally, which

accounts for some 23% of the GDP, while
the income tax collection from this sector
accounts for 0.06% of the GDP,” says
minister Rojas.
medium and large producers should
pay more income tax, he suggests, while
unprocessed goods from agriculture and
livestock, currently tax exempt, will be
levied 5%. “as far as exports are concerned,
they are exempt from all kind of specific
tax,” he says.
the new government has shied away
from a radical tax increase that would
undermine its political support base.
taxing large soy farmers and foreign
trading companies is a sensitive issue
and the political will to address this issue
in congress is thin, especially among
the ruling colorado party, which has a
strong agrarian base. But there may be an
opportunity to boost a burgeoning food
industry from the three soy processing
plants that are already in operation. LF

September/October 2013 - l atinfina nce.com 85


http://www.LATINFINANCE.COM

LatinFinance - September/October 2013

Table of Contents for the Digital Edition of LatinFinance - September/October 2013

Latin Finance - September/October 2013
Contents
Front notes
People news
Debt news
Equity news
M&A news
After the storm
Advantage Mexico
Treading water
New structures
Mexico
Regaining the Initiative
Deficit Ahead
Building up
Switching Course
Brazil
Work in progress
Extreme makeover
Mind the gap
Brazilian life insurance
Andean
Breaking the fall
Reaching out
Market movers
Paraguay
Smoothing the cycles
Thinking big
Parting Shot
LatinFinance - September/October 2013 - Latin Finance - September/October 2013
LatinFinance - September/October 2013 - Cover2
LatinFinance - September/October 2013 - Contents
LatinFinance - September/October 2013 - 2
LatinFinance - September/October 2013 - 3
LatinFinance - September/October 2013 - Front notes
LatinFinance - September/October 2013 - 5
LatinFinance - September/October 2013 - People news
LatinFinance - September/October 2013 - 7
LatinFinance - September/October 2013 - Debt news
LatinFinance - September/October 2013 - 9
LatinFinance - September/October 2013 - Equity news
LatinFinance - September/October 2013 - 11
LatinFinance - September/October 2013 - M&A news
LatinFinance - September/October 2013 - 13
LatinFinance - September/October 2013 - 14
LatinFinance - September/October 2013 - 15
LatinFinance - September/October 2013 - 16
LatinFinance - September/October 2013 - 17
LatinFinance - September/October 2013 - 18
LatinFinance - September/October 2013 - 19
LatinFinance - September/October 2013 - 20
LatinFinance - September/October 2013 - 21
LatinFinance - September/October 2013 - 22
LatinFinance - September/October 2013 - 23
LatinFinance - September/October 2013 - After the storm
LatinFinance - September/October 2013 - 25
LatinFinance - September/October 2013 - Advantage Mexico
LatinFinance - September/October 2013 - 27
LatinFinance - September/October 2013 - Treading water
LatinFinance - September/October 2013 - 29
LatinFinance - September/October 2013 - 30
LatinFinance - September/October 2013 - New structures
LatinFinance - September/October 2013 - 32
LatinFinance - September/October 2013 - 33
LatinFinance - September/October 2013 - 34
LatinFinance - September/October 2013 - 35
LatinFinance - September/October 2013 - 36
LatinFinance - September/October 2013 - 37
LatinFinance - September/October 2013 - 38
LatinFinance - September/October 2013 - 39
LatinFinance - September/October 2013 - 40
LatinFinance - September/October 2013 - Mexico
LatinFinance - September/October 2013 - Regaining the Initiative
LatinFinance - September/October 2013 - 43
LatinFinance - September/October 2013 - Deficit Ahead
LatinFinance - September/October 2013 - 45
LatinFinance - September/October 2013 - Building up
LatinFinance - September/October 2013 - 47
LatinFinance - September/October 2013 - 48
LatinFinance - September/October 2013 - 49
LatinFinance - September/October 2013 - 50
LatinFinance - September/October 2013 - 51
LatinFinance - September/October 2013 - Switching Course
LatinFinance - September/October 2013 - 53
LatinFinance - September/October 2013 - 54
LatinFinance - September/October 2013 - 55
LatinFinance - September/October 2013 - 56
LatinFinance - September/October 2013 - Brazil
LatinFinance - September/October 2013 - Work in progress
LatinFinance - September/October 2013 - 59
LatinFinance - September/October 2013 - 60
LatinFinance - September/October 2013 - 61
LatinFinance - September/October 2013 - Extreme makeover
LatinFinance - September/October 2013 - 63
LatinFinance - September/October 2013 - 64
LatinFinance - September/October 2013 - 65
LatinFinance - September/October 2013 - 66
LatinFinance - September/October 2013 - Mind the gap
LatinFinance - September/October 2013 - 68
LatinFinance - September/October 2013 - 69
LatinFinance - September/October 2013 - Brazilian life insurance
LatinFinance - September/October 2013 - 71
LatinFinance - September/October 2013 - 72
LatinFinance - September/October 2013 - Andean
LatinFinance - September/October 2013 - Breaking the fall
LatinFinance - September/October 2013 - 75
LatinFinance - September/October 2013 - 76
LatinFinance - September/October 2013 - Reaching out
LatinFinance - September/October 2013 - 78
LatinFinance - September/October 2013 - 79
LatinFinance - September/October 2013 - 80
LatinFinance - September/October 2013 - 81
LatinFinance - September/October 2013 - Market movers
LatinFinance - September/October 2013 - Paraguay
LatinFinance - September/October 2013 - Smoothing the cycles
LatinFinance - September/October 2013 - 85
LatinFinance - September/October 2013 - Thinking big
LatinFinance - September/October 2013 - 87
LatinFinance - September/October 2013 - Parting Shot
LatinFinance - September/October 2013 - Cover3
LatinFinance - September/October 2013 - Cover4
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