Paraguay: An Investment Primer - 7

PARAGUAY Economy

The Brazilian recession even created
new business opportunities in Paraguay.
"The crisis led several [Brazilian] industries
to look for competitive conditions to produce
in Paraguay," says Liz Cramer, minister of
industry and commerce.
Companies such as Fujikura Automotive
(automotive cables), Estrela (toys) or
Riachuelo (clothes) have all relocated part
of their manufacturing base to Paraguay.
Those companies can produce locally at low
costs and then export output with competitive conditions.
According to the trade and industry ministry, Paraguay currently hosts 173 "maquilas," or foreign plants geared for export only,
including 120 from Brazil, and their numbers
have grown rapidly.
López credits the maquila model as an
important factor behind the diversification
of Paraguay's economy. "We are going to
proceed with what is working well. We will

"PARAGUAY IS ONE
OF THE FEW COUNTRIES
IN THE REGION THAT
DOES NOT HAVE A TWIN
DEFICIT"
JOSÉ CANTERO, CENTRAL BANK

continue strengthening this," he says.
Parts of the agribusiness sector are also
moving towards diversification. Yet Paraguay
still has a long way to go, according to some
foreign analysts. "We acknowledge that the
administration has advanced in terms of
diversifying the economy, especially in the
manufacturing sector. The maquila regime
is becoming increasingly important for this

country, but there is still a preponderance of
the commodity sector," says Marina Neves,
from S&P Global Ratings in São Paulo.

What about infrastructure?

The strict observance of orthodox macroeconomic policies has sometimes taken
its toll on social policies. The fiscal rules
"could be better adapted to the country's
development challenges," the Inter-American
Development Bank (IDB) wrote in a recent
report. "The spending cap limits investment
plans, which are crucial to tackle gaps and
opportunities in economic development."
However, Paraguay's President, Mario
Abdo, has ruled out any change in the fiscal
responsibility rule "at the moment."
Some government members have
acknowledged serious budget constraints
in areas such as water sanitation and healthcare. "This is a difficult equation from the
macroeconomic point of view. We do have

Q&A with the President of Banco Basa Eduardo Campos
We see the largest South American economies struggling with political
and social unrest and severe currency volatility; yet Paraguay decoupled
from this predicament. How would you explain this context to investors
looking at Paraguay?
Paraguay is going through a unique period in its economic history. It has
successfully managed to decouple from the political and economic woes of
regional mammoths, like Brazil and Argentina. Its macro fundamentals remain
strong, reflected by sustained GDP growth, stable inflation levels and a solid
fiscal position. Paraguay will continue to carve out a comfortable niche for
itself in attracting companies from its more populous neighbours.
Against this background, has the financial sector in Paraguay taken any steps to capitalize on the momentum?
In short, yes but we need to do more. The financial sector has been instrumental in unlocking growth in the private sector and
boosting consumer demand, however it needs to keep innovating. The numbers speak by itself about the strength of the sector, well
capitalized, strong liquidity ratio, low NPLs and strong ROEs. The country recently upgraded its banking legislation after 20 years
abiding to the highest international standards, and the Central Bank has a new chapter. However, the reach of local capital markets
remains limited and participation from international investors remains very low. Opening Paraguay to international investors and
building a dynamic and deep capital market are pending tasks so we can fully ´capitalize on the momentum´.
Considering Banco Basa has been outperforming the sector on key indicators for the past 5 years, how do you plan to
maintain and advance the bank's position?
We understand the path for sustainable growth is unequivocally interlinked with the growth and development of the country in its
entirety. We are extremely proud of being a Paraguayan bank with over 26 years in the market, nevertheless this highlights our
obligation and commitment to keep playing a key role in developing the financial sector and local economy. The Bank has prepared
itself to benefit from the macro stability achieved in recent years, investing in technology and human capital. The development
of new products through digital banking and new business units for investment banking and capital markets, has prepared us
to lead the domestic financial sector in the future. The Bank has strengthened its corporate governance, incorporating Santiago
Peña (former Minister of Finance) and Carlos Fernandez Valdovinos (former President of the Central Bank) as Executive Directors
to continue enhancing our international outreach, solidifying our position as the leading local bank, and more importantly to keep
innovating by working hand in hand with the private and public sector.
corporate statement

A Supplement to LatinFinance - September/October 2018

Table of Contents for the Digital Edition of Paraguay: An Investment Primer