Paraguay

Politics:

• Analysis

  Paraguay politics: The never-ending war

  The never-ending war

  How a terrible but little-known conflict continues to shape and blight a nation

  THE fall of the "father of all Paraguayans" was even more abrupt than his rise. In 2008 Fernando Lugo, a Catholic bishop and liberation theologian who called himself a champion of the poor, won his country's presidential election and broke the Colorado Party's chokehold on power. Shortly after his inauguration, however, four women said that he had fathered their children while under a vow of celibacy; Mr Lugo recognised two of them. The Liberal party, whose support had propelled him to the presidency, repudiated him. In June 2012 Congress summarily removed him from office, after he was accused of mishandling a clash between police and landless peasants.

  In the eyes of the leftist leaders of Argentina, Brazil and Uruguay, Paraguay's partners in the Mercosur trade block, the lightning-fast impeachment was a coup. They suspended the country from Mercosur and encouraged the Organisation of American States (OAS) to do the same. On June 26th Hugo Saguier, Paraguay's ambassador to the OAS, took the floor and lashed out. "If you want to form a new Triple Alliance," he said, "go ahead."

  Many in the room were puzzled. But Brazil's representative angrily replied that the comment was "unnecessary and gratuitous". Mr Saguier had invoked one of the deepest scars in Latin America's history: the War of the Triple Alliance, a conflict between Paraguay and a coalition of Argentina, Brazil and Uruguay that began in 1865 (just as the American civil war was drawing to a close), and ended in 1870. "I wanted [the speech] to hurt," Mr Saguier says.

  The war, known in Paraguay as the "War of '70" or the "Great War", was among the worst military defeats ever inflicted on a modern nation state. According to Thomas Whigham of the University of Georgia, as much as 60% of the population and 90% of Paraguayan men died from combat or, more often, from disease and starvation. Other researchers put the figure considerably lower--but still atrociously high. Federico Franco, Mr Lugo's successor, recently called the war a "holocaust". Yet it is little known outside the region. Even in Paraguay its moral ambiguities have caused generations of leaders to shroud it in myth.

  But the diplomatic backlash against the impeachment has revived debate about this national trauma. After 142 years Paraguay is grappling with the mixture of hubris and heroism that plunged it into self-immolation, a tragedy that still defines the country.

  Modern Paraguay--flat, landlocked and steamy--is a geopolitical pipsqueak. Its foreign influence is limited to two giant dams on its borders, soyabean exports that feed Chinese livestock and the free-for-all bazaar of Ciudad del Este, a border town where vendors of cut-rate electronics and clothes operate in public, and arms dealers and Hizbullah fund-raisers do so in private.

  In the mid-1800s, however, Paraguay was a middling regional power. It began a breakneck industrialisation during the presidency of Carlos Antonio López, who imported European experts to build a shipyard, a foundry and one of South America's first railways. He also beefed up the army to deter Paraguay's twitchy neighbours: Argentina considered the country a rebel province until 1852, while Pedro II, the Brazilian emperor, claimed lands that Spain and Portugal had disputed.

  In 1862 López died, and was succeeded by his son Francisco Solano. The younger López demanded absolute deference--he banned people from turning their backs to him, or sitting while he stood--and was eager to make a name for himself as a statesman. In 1864 he saw his chance. To protect its commercial interests, Brazil threatened to intervene in a civil war in Uruguay, a small buffer state between it and Argentina. López feared this would upset the regional balance of power, and announced that Paraguay could not tolerate the presence of Brazilian troops on Uruguayan soil.

  Pedro shrugged him off and invaded Uruguay. Soon afterwards López declared war on Brazil and attacked its interior province of Mato Grosso. He later dispatched a force to Uruguay as well. When Argentina refused to let him march troops through its territory, López sent them anyway. Once the Brazilian-backed side won the war in Uruguay, the three governments signed a secret pact. They agreed to annex half of Paraguay's territory, collect reparations and forbid it from keeping an army--and to fight until López was ousted.

  The odds were stacked against Paraguay. The allies' combined population was 25 times bigger. Paraguay relied on Napoleonic-era kit--muskets, 17th-century cannon and wooden boats--and, being landlocked, could not import modern armaments. Many of its horses were crippled by a spinal ailment. The allies ultimately mustered long-range rifles, artillery and ironclad warships.

  Victory or death. It was death

  The Paraguayan invaders were soon beaten back from Uruguay and Brazil, and López proposed peace. But Pedro's honour would not let him quit until his rival was toppled (the Brazilian troops did most of the fighting). Honour similarly prevented López from abdicating, though perhaps no alternative, self-respecting Paraguayan leader could have surrendered on the secret pact's terms. What began as a capricious escapade became a total war, and a struggle for national survival.

  For three years the outgunned, undermanned Paraguayans battled their enemies to a stalemate in the country's southern marshes. Water mines and obstacles at the fort of Humaitá blocked the Brazilians' advance by river. But in 1868 heavy rains raised the water level, and their boats quickly reached Asunción, the capital. Paraguay's army surrendered the next year.

  López, however, would not give up. He moved his capital from one town to another, taking the entire state archives in tow. He imagined a vast conspiracy against him, and jailed and tortured thousands of his most loyal backers, including his own mother and sister. His brother was among the 700-800 people he had executed--often by lance to save ammunition.

  Because López had drafted every man in Paraguay, there was no labour to work the fields, and starvation set in. Many who subsisted on bitter wild oranges succumbed to cholera, malaria and dysentery. As able-bodied men died, López recruited a new army of wounded and child soldiers. He armed them with sticks painted to look like guns, disguising the youngsters with fake beards. The army's original red uniforms had dwindled to rags; rain seeped through ponchos made of shredded carpets. Eventually they fought naked. (Today, Paraguay celebrates Children's Day on the anniversary of a battle in which 2,000 children perished.)

  López continued to retreat. In 1870 the Brazilian army cornered him at last at Cerro Corá, in the remote north-east. His ring bore a slogan, "victory or death", which he honoured by refusing to surrender. "I die with my homeland," he proclaimed before being shot--though his partisans insist he said "for my homeland". Elisa Lynch, his Irish consort, buried him next to their son.

  My day will come

  According to a rough-and-ready post-war census, just 29,000 males over the age of 15 were left in Paraguay. One observer called the survivors "living skeletons...shockingly mutilated with bullet and sabre wounds". Jaguars roamed freely and feasted on human flesh. Women wandered the streets naked.

  The war wiped out Paraguay's elite. After an eight-year occupation the country was run by Argentine carpetbaggers and exiles who had backed the allies. They branded López a butcher and a tyrant, and excised him from history. He had foreseen what would become of his reputation. "I will be buried beneath the weight of mountains of ignominy," he said on the day before his death. "But my day will come, and I will rise from the abyss of slander to...take my rightful place in history."

  Time would prove him right. By the 1920s tensions were rising with Bolivia over the Chaco region, wrongly thought to be rich in oil. Eager to whip up nationalist sentiment, the government recast López as a symbol of the country's bellicose spirit.

  From 1932-35 the two countries went to war. This time Paraguay won. The indigenous Bolivian soldiers did not want to fight for their white commanders, and could not understand Paraguayan radio signals in the Guaraní language. Their wool uniforms left them dehydrated in the arid Chaco.

  With Paraguay's pride restored, López's remains were moved to a domed shrine in central Asunción. Today, el mariscal ("the marshal") is the country's improbable icon. A portrait of him atop a stallion hangs in the president's office in the López Palace, which he built. His sword sits in a display case.

  Yet despite this clumsy hagiography, Paraguay has done little to tell the real story of the war. Asunción has no history museum; the main battlefields have been neglected. Humaitá is now a fishing village, accessible only by a dirt road that is often blocked by cattle. The river moves a few feet east every year, taking the border with Argentina with it. It now threatens to flood the ruins of a church destroyed by the invaders. "What they didn't take in the war, they're getting from the river," says Vicenta Mirando, a local schoolteacher.

  The war's worst atrocity occurred in Piribebuy, 80km (50 miles) east of Asunción by road. There Brazilian troops cut the throats of everyone they could find, and locked the doors to a crowded hospital before setting it alight. A gruesome concrete relief, illustrating the horror, has been built on the site; the town has funded a one-room museum, which includes a single tuft of braided hair removed from the mass grave below its 18th-century church. In the church itself, however, there is no sign of the history buried below the red-tiled floor. Speakers blare Christian rock between services.

  It isn't even past

  Paraguay's suspension from Mercosur set off a surge of nationalism. Asunción is plastered with posters trumpeting the country's sovereignty. "We won't accept foreign tutelage," says President Franco. "This is a poor but dignified country. It's poor as a consequence of an unjust war." He demands that Brazil return Paraguay's "Christian Cannon," cast from melted church bells.

  The episode has also increased sympathy for López in some quarters. "I've had my re-evaluation of el mariscal," says Esteban Burt, a lawyer. "The Triple Alliance went out of its way to say [the impeachment] was a disgrace, that Paraguayans should be punished. We haven't heard that sort of language since 1870." Mr Burt thinks that Brazil's wartime archives, the last of which were declassified this year, will reveal that the allies had conspired to destroy Paraguay years before the war began.

  But Mr Lugo's career highlights other aspects of the war's legacy. His election was widely celebrated because it ended 61 years of unbroken rule by the Colorado Party, 35 of them under Alfredo Stroessner. It was under Stroessner that the cult of López reached its apex. "The emphasis on glory, self-sacrifice, authoritarian models and internal enemies felt very congenial to the stronistas," says Mr Whigham, the historian. Stroessner's state "legitimised itself by drawing a straight line between Big Al and the Marshall."

  Wartime depopulation also influenced Stroessner's policies. Post-war governments distributed brochures offering immigrants a free trip to Paraguay and land. A series of Utopian colonies sprung up, including a "New Australia" and an Aryan-supremacist "Nueva Germania", co-founded by Friedrich Nietzsche's sister, where a German flag still flies. In 1931 descendants of that group set up the first Nazi party outside Germany. (At the start of the second world war, Paraguay's government openly sympathised with Hitler. The national police director named his son Adolfo Hirohito; police cadets wore swastikas on their uniforms.)

  Another German who came to Paraguay after the war was Stroessner's father, a Bavarian. Stroessner himself had no direct ties to the Paraguayan Nazis, but he shared many of their instincts: in 1974 he was accused by the UN of committing genocide against the native Aché people. He also harboured numerous Nazi war criminals, including Josef Mengele.

  This autocratic tradition may have influenced Mr Lugo's dismissive attitude to other politicians--a crucial factor in his downfall. The Liberals abandoned him in part because they felt their support had not been adequately rewarded in policies and jobs. Instead Mr Lugo had packed his cabinet with leftist allies. "You get in with one group and govern with another," he reportedly said.

  But alienating the Liberals cost him his presidency, because the Paraguayan left was far too weak to protect him. That too has roots in the war. "Our economy never overcame the deficiencies the war imposed on us," says Jorge Rubiani, an architect and author, "so there was never an industrial structure to generate class consciousness." Brazilian troops destroyed the foundry at Ybycuí, Paraguay's main industrial asset, so it could never be reused.

  The pretext for the impeachment also stems from the conflict. Before 1865 most Paraguayan land was state-owned. To pay reparations, post-war governments sold off huge plots to Argentine landowners. The broad subdivisions of Paraguay in 1880s maps refer to individual possessions, not provinces. Those concentrated holdings still bedevil the country: they include the ranch where police fired on peasant squatters in June.

  Even Mr Lugo's first misstep, his paternity scandal, can arguably be traced to the war. Sexual relations in Paraguay have always been open: in 1545 a Spanish priest called the country "Muhammad's paradise" after witnessing his compatriots sleeping with numerous native women, behaviour he associated with Muslims. In the mid-1800s most Paraguayan households were led by señoras, often depicted chomping cigars, carrying food on their heads and sporting white cotton dresses. They paired off with a rotating cast of itinerant men.

  But even that tradition did not prepare society for the post-war free-for-all. "Men without modesty", wrote one newspaper, "may be found even in the corridors of the Church and the cemetery, atrociously scandalising even during the day to satiate their brutal passions." No one knows whether the intercourse in "plazas, streets and meeting places" was rape, prostitution or a result of the privileges men enjoyed because of the distorted sex ratio. Mr Lugo might not have realised quite how far sexual mores had changed. "Lugo was the cultural extension of the idea that we have to populate the country," says Benjamín Fernández Bogado of 5 Días, a newspaper. "Having children in huge quantities wasn't a problem. Even priests could have children."

  Sexual violence during the war itself poisoned attitudes to race. In its own way, Paraguay is a melting pot: the countryside is full of blond-haired, blue-eyed peasants who speak fluent Guaraní and halting Spanish. Yet López's propagandists tried to drum up prejudice against the Brazilian army, which was mostly black, since Pedro promised to free slaves who fought. They called the emperor the "chief of the monkey tribe". The resentment lingers. "The kambá raped our women," says Miguel Ángel of the Piribebuy museum, using the Guaraní word for blacks. Legend has it that the resulting black babies were killed.

  The would-have-been country

  Perhaps the final tragedy of the war is that it is so little known abroad. Mr Fernández Bogado thinks this is no coincidence. "The world isn't a comfortable place for us," he says of his country's insularity. "It's a scene of danger, conspiracy and death." For Paraguayans, he explains, success is a prelude to danger: when the national football team scores, "It makes us nervous and we panic."

  Guaraní--still spoken by 80% of the population--renders time differently from Western tongues. The future is uncertain: the word for "tomorrow" means "if the sun rises". The past is divided between what happened, and what was supposed to but did not. If you quit a seminary, you are a "would-have-been priest"; a broken engagement yields a "would-have-been spouse". This grammar is "like a backpack you can never take off," says Alejandra Peña, a former national museum director.

  Paraguayans still die in falls and accidents while digging for treasure supposedly buried by their forefathers during the war. Perhaps they can only truly understand the conflict in their mother tongue. They know full well the woes of the country they live in, but never forget the one that might have been.

  Piribebuy has funded a one- room museum, which includes a single tuft of braided hair removed from the mass grave below its 18th-century church

  December 22, 2012

• Background

  Paraguay: Constitution and institutions

  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

• Structure

  Paraguay: Political structure

  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

  October 25, 2012

• Outlook

  Paraguay: Key developments

  Outlook for 2013-17

  • The interim president, Federico Franco of the Partido Liberal Radical Auténtico (PLRA), will have little time to fulfil his pledges of land and energy reform, as other parties' support for his agenda fades ahead of the April 2013 election.
  • Horacio Cartes is likely to win both the opposition Partido Colorado (PC) presidential nomination in December and the April 2013 election, unless other centre and leftist parties unexpectedly unite behind a consensus candidate.
  • After a contraction in GDP in 2012 of 2.1%, a strong rebound, to 7.4% growth, is forecast for 2013, owing to the rapid recovery of agriculture from drought. Thereafter, annual GDP should expand by close to its potential rate (4.5%).
  • An increase in spending by the Franco government will widen the fiscal deficit to an estimated 3.2% of GDP in 2012, but the Economist Intelligence Unit expects some consolidation after the 2013 elections.
  • Assuming that there is no repetition of supply-side shocks from food price rises, annual inflation will remain within the 5% target range (plus or minus 2 percentage points) of the Banco Central del Paraguay (the Central Bank).
  • After narrowing in 2013 on the back of a rapid recovery in agricultural exports, the current-account deficit will widen steadily in 2014-17, but it will remain manageable, at less than 3% of GDP throughout the forecast period

  Review

  • With the presidential race approaching, the ruling PLRA has chosen its ticket, and the front-runner, Mr Cortes, has come closer to receiving the nomination of the PC.
  • After final approval by the Senate, a personal income tax for high-earning individuals-first approved in 2004 but repeatedly delayed by Congress since then-finally came into effect on August 1st.
  • The government has presented a budget proposal for 2013 to Congress that envisages large rises in revenue-owing to the recent passage of a reform introducing income tax-and in infrastructure spending.
  • Having successfully pushed through tax reform, Mr Franco is now focusing his energies on attracting investment in domestic industrial projects that require large and stable sources of electricity supply, but progress will be slow.
  • Mr Franco has been in the US, heavily promoting a US$550m global bond issue planned for January 2013, but, given the proximity of the elections, objections from the opposition are rising and the issue remains in doubt.
  • The Central Bank announced a cut of 50 basis points in its benchmark 14-day interest rate in August, to 5%. The rate cut, the third in 2012, was expected.

  October 25, 2012

Economy:

• Background

  Paraguay: Economic background

  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.

  Download text file (csv format)

  May 13, 2008

• Structure

  Paraguay: Economic structure

  Data and charts: Annual trends charts

  
  

  

  October 25, 2012

• Outlook

  Paraguay: Country outlook

  Paraguay: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Economist Intelligence Unit expects the interim president, Federico Franco, of the Partido Liberal Radical Auténtico (PLRA) to see out his term. However, governability will be poor ahead of the 2013 election, owing to simmering social and political tensions, as well as Paraguay's diplomatic isolation from regional neighbours following the controversial, lightning impeachment of the former president, Fernando Lugo, in June. Mr Franco will face the challenge of managing land invasions that normally intensify during a pre-electoral period, as landless peasants seek to put the issue on the campaign agenda. In addition, rural opposition to Mr Lugo's impeachment will increase xenophobia towards brasiguayo soybean farmers, heightening violence. The Franco government has promised to eradicate the Ejército del Pueblo Paraguayo (EPP, a small guerrilla group operating in central-eastern Paraguay), but this is most unlikely in Mr Franco's short term of office.

  ELECTION WATCH: Having made gains at the last local elections (November 2010) over the PLRA and leftist parties supporting Mr Lugo's administration, the opposition conservative Partido Colorado (PC, Colorado party) remains in a good position to win the 2013 general election. Horacio Cartes, a wealthy businessman who engineered the impeachment of Mr Lugo, is the favourite to secure the PC presidential nomination at its primary in December 2012. However, the party's president, Lilian Samaniego, will challenge him, risking the sort of division that contributed to the PC's historic defeat at the 2008 election.

  INTERNATIONAL RELATIONS: Diplomatic relations with regional neighbours will remain tense, given Paraguay's suspension from Mercosur (a southern cone customs union) following Mr Lugo's impeachment. While diplomatic ties will be restored when a new government takes office after the April 2013 election, relations will prove tricky, assuming that Mr Cartes wins the election, owing to ideological differences. Relations with Brazil will be lukewarm, although bilateral economic interests should be unaffected, but relations with Venezuela (assuming that Hugo Chávez wins the October 2012 election) will be frosty, particularly as the latter is set to join the Mercosur bloc. Relations with Argentina will not be much better either.

  POLICY TRENDS: Mr Franco has announced ambitious plans for reform before the April 2013 election, but this will require support from the PC in Congress. Although agreement to approve the income tax law suggests cross-party consensus, this is likely to break down, as the PC begins to block reform legislation in its aim to portray Mr Franco's government as ineffectual ahead of the election. In particular, the PC will be wary of Mr Franco's intention to expedite the land reform process. In the absence of a cadastre, this will concentrate on land purchases at commercial rates. Although Mr Cartes has been portraying himself as a moderniser, notably by backing the introduction of a personal income tax, we consider this to be purely electorally-motivated, and upon taking government he is likely to backtrack as he prioritises public policies more in line with party interests, particularly with regards to control of state companies on a corporativist basis. Hence, he is unlikely to pursue long-standing plans to open airports and utilities to private investment. That said, his government is likely to be relatively open to foreign investment in mineral resources, given recent opportunities that have emerged. In particular, he will actively support the Rio Tinto Alcan aluminium smelter project, for which he will probably be able to count on backing from the PLRA. Reforms to Paraguay's mining legislation are also likely to increase the sector's attractiveness to foreign companies.

  ECONOMIC GROWTH: Paraguay's GDP growth outlook will hinge largely on the performance of the leading 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, and with this cycle prevailing, the economy has the potential to grow at annual average growth rates of 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, underscore Paraguay's natural resources potential. If the aluminium smelter goes ahead (a decision is expected soon), this would boost GDP 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 3.9% in June 2012, as a food price spike beginning in the fourth quarter of 2010 dropped out of the annual series and food prices fell--will remain in the Central Bank's tolerance zone of 2 percentage points above or below its central target (5%) in the medium term. Higher than expected food or commodity prices, or further currency weakening, represent negative risks to our baseline forecasts, while a stronger than envisaged currency would lower inflation.

  EXCHANGE RATES: The guaraní has experienced volatility in line with swings in international risk sentiment and as exports of meat were temporarily halted in recent months, owing to outbreaks of disease. The Banco Central de Paraguay (BCP, the Central Bank) also intervened after Mr Lugo's impeachment in June to steady the currency. On the assumption 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 later in 2012, as a result of a 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 over 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: The current-account deficit is estimated to exceed 4% of GDP in 2012, owing to a widening trade deficit, as growth in the import bill outpaces that of export earnings. Soya export earnings will be hit hard by drought. Meat export earnings will fall and recover only when the recent outbreak of foot-and-mouth disease is cleared up. Additional Itaipú plant energy sales (which began to materialise in October 2011) will lift the services surplus, offsetting the impact of the wider trade deficit. Our forecast assumes that sufficient capital inflows, including FDI, will cover current-account deficits averaging just under 4% of GDP annually in 2013-16, and allow for reserves accumulation.

  July 01, 2012

• Forecast

  Paraguay: 5-year forecast summary

  Outlook for 2013-17: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	-2.1	7.4	4.8	4.6	4.2	4.3
  Gross agricultural production growth	-15.0	18.0	4.0	5.0	4.5	5.0
  Gross fixed investment growth	-8.5	10.4	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)	3.8	3.8	4.8	4.8	5.2	4.5
  Consumer price inflation (end-period)	4.2	4.7	4.8	4.9	4.7	4.7
  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	10.7	11.6	12.8	14.1
  Imports of goods fob (US$ bn)	11.7	12.4	13.4	14.8	16.2	17.9
  Current-account balance (US$ m)	-920	-189	-444	-788	-895	-1,054
  Current-account balance (% of GDP)	-3.9	-0.7	-1.5	-2.4	-2.4	-2.5
  External debt (year-end; US$ bn)	5.7	6.2	6.7	7.3	7.9	8.6
  Exchange rate G:US$ (av)	4,456	4,449	4,548	4,686	4,814	4,916
  Exchange rate G:US$ (end-period)	4,521	4,480	4,616	4,757	4,872	4,961
  Exchange rate G:€ (av)	5,720	5,617	5,696	5,799	6,066	6,183
  Exchange rate G:R (av)	2,302	2,266	2,306	2,363	2,383	2,407
  a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Download text file (csv format)

  October 25, 2012

View detailed map

Country Briefing

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: G4,260:US$1; G5,929:€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

March 26, 2012