Efforts to reunite warring left-wing groups in the run-up to the April 2013 presidential election seem to have come to naught. Two rival alliances selected presidential candidates in primary elections held on January 13th.
Following widespread recriminations after the June 2012 impeachment of the president, Fernando Lugo, his centre-left Frente Guasu (FG) coalition of 21 parties and movements split earlier this year, when a group critical of his leadership broke away to create Avanza Pais (AP). The main party in the AP is the youth-oriented left-wing Partido Movimiento al Socialismo (P-Mas), although another key member is Mr Lugo's former cabinet secretary, Miguel Angel Lopez Perito. Mr Lugo remains head of the diminished FG, now comprising 11 parties and movements.
Weak turn-out
Both the FG and AP held internal elections on January 13th. The vote was marked by low turnout. Together, the FG and AP have around 250,000 members, but only 88,000 in total (50,000 for the FG and 38,000 for the AP) voted, a small number compared with the turnout in the December primaries for the right-wing Partido Colorado (PC; 830,000) and the centrist Partido Liberal Radical Autentico (PLRA; 420,000).
For the FG, Anibal Carrillo Iramain, a doctor, has been selected presidential candidate. Luis Aguayo, a respected peasant leader, is his running mate. Mario Ferreiro, a well-known television presenter who was groomed by Mr Lugo as his heir apparent until they fell out earlier this year, has, as expected, been elected AP presidential candidate. There are another two left-wing presidential candidates: Mr Lugo's former head of civil service reform, Lilian Soto, who heads a women's movement, Kuña Pyrenda; and a journalist, Coco Arce of the Partido de los Trabajadores (PT).
The left and the PLRA
It is estimated that a united-left presidential candidate could still obtain close to 25% of the popular vote. This would be insufficient to challenge the two main parties, especially as there is no second-round run-off in Paraguay. However, a united-leftist congressional ticket could deliver a strong legislative presence. On this basis, there has in recent weeks been strong pressure from grassroots activists for unity on the left, but to no avail. Instead, insults have flown between the FG and the AP, after the FG accused Mr Ferreiro of negotiating an electoral agreement with the PLRA. Given the austere persona of the PLRA candidate, Efrain Alegre, an alliance with Mr Ferreiro would indeed give a much-needed boost to the PLRA election campaign. Although Mr Ferreiro says only that "conversations" took place, there are now clear divisions inside the AP camp on the issue.
The issue of a leftist-PLRA alliance is a controversial one in the aftermath of Mr Lugo's impeachment. The FG and the PLRA forged a historic electoral alliance in 2008 that removed the PC from power for the first time in over 60 years. However, once in government the alliance quickly unravelled and the FG remains angry over the PLRA's participation in impeachment proceedings against Mr Lugo, which left the PLRA, under Federico Franco, in control of the interim presidency.
In this context, prospects of an agreement on a leftist-unity presidential candidate before the February 14th legal deadline are now very slim. We continue to believe the April presidential contest will be a straight fight between Horacio Cartes of the PC and the PLRA's Mr Alegre. An alliance between the AP and PLRA could, however, still be in the offing. Although this would produce a closer election result, without the FG on board, the PC still appears on track to win in April. In this scenario, the most the centre-left can hope for in 2013-18 is an increase in its representation in Congress.
January 17, 2013
A new constitution is promulgated in 1992
The democratic constitution promulgated in June 1992 replaced the highly authoritarian charter that had been in force since 1967. The president and vice-president are elected for five-year terms and consecutive re-election is not permitted. The cabinet has 18 members. The bicameral legislature (Congress) is composed of an 80-member lower house, the Chamber of Deputies, which is elected on the basis of departmental constituencies, and a 45-member upper house, the Senate, which is elected from a single national constituency—both using closed party lists. Congress generally acts lethargically and tends to obstruct bills proposed by the executive. The public holds most members of Congress in disdain, and many have acquired a reputation for sloth and venality. According to local observers, the buying and selling of votes in Congress is commonplace. The 1992 constitution introduced 17 departments as a new intermediate tier of government. Departmental councils and governors are directly elected, but their powers, responsibilities and financing are still limited. The constitution also guarantees autonomy for the country's 231 municipalities.
The judiciary is tainted by party politics
The Supreme Court is the highest judicial authority. A council composed of candidates approved by both the president and Congress appoints judges to the court and selects members for the electoral tribunal. The public image of the judiciary is poor because of political interference in the selection of judges and the endemic corruption that this tendency engenders. In a move designed to improve the judicial system, six of the nine Supreme Court judges were replaced in April 2004. However, the new judges were also appointed along party political lines, underscoring the daunting challenge involved in renewing Paraguay's institutions. Since March 2006 the opposition has pressed, without success, for the resignation of the six judges who voted in favour of Mr Duarte Frutos in his appeal to assume the PC's presidency.
May 13, 2008
Official name
Republic of Paraguay
Form of government
Presidential
The executive
The president, the highest executive power, is directly elected for a five-year term and appoints a Council of Ministers
Head of state
Federico Franco
National legislature
Bicameral Congress, comprising a 45-member Senate (the upper house) and 80-member Chamber of Deputies (the lower house)
Legal system
Series of courts of first instance, with the Supreme Court at the apex
National elections
Most recent elections: April 20th 2008 (presidential and congressional, plus departmental governors and councillors); next elections: April 2013 (presidential and congressional, plus departmental governors and councillors)
National government
The government is led by Mr Franco's Partido Liberal Radical Auténtico (PLRA) party, after a majority of congressmen controversially voted to impeach the president, Fernando Lugo, on June 22nd 2012. Mr Lugo had ousted the Partido Colorado (PC) from 61 years of rule at the 2008 elections, leading a broad coalition of left-wing and centre-right parties, including the PLRA, the País Solidario, the Movimiento Popular Tekojoja and the Partido Democrático Progresista
Main political organisations
PC; PLRA; Partido Unión Nacional de Ciudadanos Éticos (UNACE); Partido Patria Querida (PPQ); Movimiento Popular Tekojoja; Partido País Solidario (PPS); Partido Democrático Progresista; Partido Encuentro Nacional (PEN); Partido Patria Libre (PPL)
Key ministers
President: Federico Franco
Cabinet chief: Martín Burt
Agriculture & livestock: Enzo Cardozo
Defence: María Liz García
Education & worship: Horacio Galeano Perrone
Finance: Manuel Ferreira Brusquetti
Foreign affairs: José Félix Fernández
Industry & trade: Francisco Rivas
Information & communication: Martín Sannermann
Interior: Carmelo Caballero
Justice & labour: María Lorena Segovia
Public health & social welfare: Antonio Arbo
Public works: Enrique Salyn Buzarquis
Central Bank president
Jorge Raúl Corvalán
January 16, 2013
Outlook for 2013-17
Review
January 16, 2013
| Main economic indicators, 2007 | |
| (Economist Intelligence Unit estimates unless otherwise indicated) | |
| Real GDP growth (%) | 6.4 |
| Consumer price inflation (av; %) | 8.1(a) |
| Current-account balance (US$ m) | 573.8 |
| Exchange rate (av; G:US$) | 5,030.3 |
| Population (m) | 6.1 |
| External debt (year-end; US$ m) | 3,604.8 |
| (a) Actual. | |
| Source: Economist Intelligence Unit, CountryData. | |
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May 13, 2008
Data and charts: Annual trends charts
January 16, 2013
Paraguay: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: The interim president, Federico Franco of the Partido Liberal Radical Auténtico (PLRA), will see out his term, which ends on August 15th, when a new president will be inaugurated. But governability will be poor, particularly in the run-up to the presidential election on April 21st, reflecting a probable increase in land invasions in the pre-election period as landless peasants seek to put the issue on the agenda, as well as Paraguay's continuing diplomatic isolation from regional neighbours following the controversial "lightning" impeachment of the then president, Fernando Lugo, in June 2012. Governability could also be tricky in the long period between the election and the inauguration of a new government. But even after the inauguration, the Economist Intelligence Unit's baseline assumption--that Horacio Cartes of the right-wing Partido Colorado (PC) will win the presidency but that his party will not secure a congressional majority--suggests governability will be fairly weak. Assuming that it is in a minority position in Congress, the PC will have to reach out to more centrist parties, such as the Partido Patria Querida (PPQ), to enact its agenda. Given the government's powers of patronage, the executive should be able to secure sufficient votes to pass legislation at least in the first half of its term. However, towards the end of its term, legislative co-operation is likely to break down.
ELECTION WATCH: Having already made gains in the 2010 mid-terms, the conservative opposition PC remains in the best position to win the presidency on April 21st. Mr Cartes won the PC primary comfortably in December, and it seems that after some negotiation, his main challenger in the primary, Javier Zacarias Irún, will work together with Mr Cartes to present a united front in the general election. This will be a break from the internecine conflict that has bedevilled the party in recent years and that was the main cause of electoral defeat in 2008 after more than 60 continuous years in government. Mr Cartes is an outsider, having joined the party only in 2009. A multi-millionaire who earned his fortune manufacturing cigarettes, he has in recent years diversified his activities into banking, ownership of a leading football club and bottling soft drinks. Efforts by political opponents and by sections of the media to play up allegations that he was involved in narcotics-trafficking and money-laundering (denied by Mr Cartes) do not seem to have deterred voters, and Mr Cartes is now the clear front-runner, backed by the strong electoral machinery of a united PC.
INTERNATIONAL RELATIONS: Relations with regional neighbours will remain tense, in view of Paraguay's suspension from the Mercado Común del Sur (Mercosur, the Southern Cone customs union) following Mr Lugo's impeachment. Although diplomatic ties with neighbouring countries will be restored when a new government takes office after the April 2013 elections, relations will prove tricky--assuming that Mr Cartes becomes president--because of ideological differences with leftist governments. Relations with Brazil will be lukewarm, although bilateral economic interests should be unaffected, but relations with Venezuela (where Hugo Chávez was re-elected president in October) will be frosty, particularly as Venezuela has joined Mercosur since Paraguay was suspended (the Paraguayan legislature had for years blocked its membership). Relations with Argentina will not be much better.
POLICY TRENDS: Mr Franco made better than expected progress on his economic policy agenda early on, but will be ineffectual as the election approaches and the PC becomes more obstructionist. Mr Franco's major achievement has been the passage of an income tax reform for high-earning individuals that was first approved in 2004 but had been repeatedly delayed by Congress ever since. However, ambitious proposals to develop the industrial sector by making greater domestic use of Paraguay's huge electricity resources have not succeeded, given substantial political obstacles. In January Mr Franco was forced to backtrack on the idea of providing subsidised energy to Canada's Rio Tinto Alcan to develop a major aluminium smelter (an investment that would be the largest ever in Paraguay's history), and the issue will now be left to his successor to negotiate. Mr Cartes has been portraying himself as a moderniser, notably by backing the introduction of the personal income tax, but this is partly electorally motivated, and once in office we expect him to prioritise public policies more in line with party interests, particularly with regard to control of state companies on a corporativist basis. He therefore appears unlikely to pursue long-standing plans to open airports and utilities to private investment. That said, his government would be likely to be relatively open to foreign investment in mineral resources, given recent opportunities that have emerged. On this basis, and although he has criticised Mr Franco's handling of negotiations for the aluminium smelter, we think Mr Cartes will ultimately support the US$4bn project. Reforms to Paraguay's mining legislation are also likely to increase the sector's attractiveness to foreign companies.
ECONOMIC GROWTH: Paraguay's growth outlook will hinge largely on the performance of the export-oriented agricultural sector (particularly of soya, the main export crop), which is subject to the vagaries of the weather as well as developments in the global economy affecting demand and prices for commodities. Bolstered by a consolidation of macroeconomic stability, the growth of agro-exports and favourable terms of trade have raised Paraguay's GDP growth rates in the past decade; with this cycle prevailing, the economy has the potential to grow at annual average rates of around 4.5% in the medium term. The recent discovery of a major titanium deposit, and plans for an aluminium smelter using the country's cheap hydro-energy resources, illustrate Paraguay's natural resources potential. If the smelter goes ahead, this would boost growth above our current forecasts and also lift imports--which would be financed by an offsetting large rise in foreign direct investment (FDI) inflows.
INFLATION: Annual consumer price inflation--which fell from 9.4% in September 2011 to 4% at end-2012, as a food price spike beginning in the fourth quarter of 2010 dropped out of the annual series--should remain in the tolerance zone of 2 percentage points above or below its central target (5%) set by the Banco Central del Paraguay (BCP, the Central Bank) in the medium term. Given Paraguay's vulnerability to supply-side shocks as a small open economy, there are, however, substantial risks to this forecast, in the form of higher than expected food or commodity prices, or a weaker currency, any of which would pass through quickly into consumer prices. In the short term at least, there is also a risk of a rise in demand-side price pressures, given the strength of economic rebound projected for 2013, although we expect the Central Bank would be prepared to tighten policy fairly aggressively in this event (although this is not our baseline forecast).
EXCHANGE RATES: As expected, the guaraní appreciated mildly late in 2012, after weakening around the time of Mr Lugo's impeachment in June (at which point the Central Bank intervened to steady the currency). We expect foreign-exchange inflows from the projected bumper harvest to support some further nominal currency strengthening in 2013. Assuming that the terms of trade do not deteriorate sharply and inflation does not overshoot our forecasts by a significant margin, we expect some moderate nominal currency depreciation thereafter as a result of a gradual widening of the current-account deficit and a strengthening of the US dollar. In real (inflation-adjusted) terms, our forecasts envisage that the guaraní will remain more than 10% stronger than its long-term (15-year) average. However, ongoing productivity gains in the agricultural sector mean that the currency will not be significantly overvalued.
EXTERNAL SECTOR: From an estimated 3.8% of GDP in 2012, the current-account deficit is forecast to narrow sharply in 2013 on the back of a firm rebound in traditional export earnings (particularly soya, reflecting a strong recovery from drought conditions last year). Thereafter, we expect the trade and current-account deficits to start widening again, although higher revenue from energy sales to Brazil will lift the services surplus and keep the current-account deficit below 3% of GDP throughout the forecast period. Our forecast assumes that sufficient capital inflows, including FDI, will fully cover current-account deficits in 2013-17 and allow for reserves accumulation.
January 14, 2013
Outlook for 2013-17: Forecast summary
| Forecast summary | ||||||
| (% unless otherwise indicated) | ||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Real GDP growth | -0.3 | 9.5 | 5.0 | 4.6 | 4.3 | 4.4 |
| Gross agricultural production growth | -15.0 | 18.0 | 4.0 | 5.0 | 4.5 | 5.0 |
| Gross fixed investment growth | -5.4 | 14.3 | 8.0 | 7.0 | 7.0 | 7.0 |
| Unemployment rate (av) | 6.9 | 6.6 | 6.3 | 6.0 | 5.7 | 5.5 |
| Consumer price inflation (av) | 3.7 | 3.7 | 4.8 | 4.7 | 5.1 | 4.4 |
| Consumer price inflation (end-period) | 4.0 | 4.7 | 4.7 | 4.8 | 4.7 | 4.6 |
| Lending interest rate | 26.5 | 27.0 | 26.0 | 25.4 | 25.0 | 25.2 |
| Central government balance (% of GDP) | -3.2 | -2.4 | -1.1 | -0.7 | -0.4 | 0.0 |
| Exports of goods fob (US$ bn) | 8.8 | 10.1 | 10.8 | 11.6 | 12.8 | 14.1 |
| Imports of goods fob (US$ bn) | 11.7 | 12.4 | 13.5 | 14.8 | 16.3 | 17.9 |
| Current-account balance (US$ m) | -913 | -208 | -407 | -792 | -871 | -1,010 |
| Current-account balance (% of GDP) | -3.8 | -0.7 | -1.3 | -2.2 | -2.2 | -2.3 |
| External debt (year-end; US$ bn) | 5.7 | 6.2 | 6.7 | 7.3 | 7.9 | 8.6 |
| Exchange rate G:US$ (av) | 4,425 | 4,159 | 4,252 | 4,381 | 4,501 | 4,596 |
| Exchange rate G:US$ (end-period) | 4,227 | 4,188 | 4,316 | 4,447 | 4,555 | 4,638 |
| Exchange rate G:BrR (av) | 2,502 | 2,265 | 1,962 | 1,961 | 1,998 | 2,004 |
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January 16, 2013
Land area
406,752 sq km
Population
6.46m (2010, IMF estimate)
Main towns
Population in '000 (2002 census):
Asunción (capital): 513
Ciudad del Este: 223
San Lorenzo: 203
Luque: 170
Capiatá: 154
Lambaré: 120
Climate
Subtropical
Weather in Asunción (altitude 139 metres)
Hottest month: January, 22-35°C (average daily minimum and maximum); coldest month: June, 12-22°C; driest month: August, 38 mm average rainfall; wettest month: December, 157 mm average rainfall
Languages
Guaraní and Spanish
Measures
Metric system and local measures, including:
1 barril = 96.9 litres
1 libra = 0.46 kg
1 arroba = 11.5 kg
1 quintal = 100 kg
Currency
Guaraní (G); average exchange rates in 2011: G4,191:US$1; G5,833:€1
Time
4 hours behind GMT (April-September); 3 hours behind GMT (October-March)
Public holidays
January 1st; February 3rd; March 1st; May 1st, 15th; June 12th; August 15th; September 29th; October 12th; November 1st; December 8th, 25th; variable: Maundy Thursday, Good Friday, Corpus Christi
January 16, 2013