I get asked a lot: How is that Brazil is struggling but Paraguay’s economy is growing?
I don’t think there is a recipe. It’s a combination of ingredients that we have put together that have helped us get through a difficult time in the region, not only in Brazil but also in Argentina. Paraguay is located between both countries, but the economic situation here has been very positive.
The central bank announced late last year that it estimates economic growth this year of 3.7%. The economy is off to a strong start this year, with strong agricultural crop production. That’s very important because it obviously carries over into other parts of the economy, impacting small businesses and the financial sector.
This is providing a very important base for growth. Construction, in both the public and private sector, is also important. Manufacturing has also been boosted by our efforts to attract more investment, particularly from Brazilian companies realizing how cost effective it can be to produce in Paraguay.
Paraguay is not looking to become a substitute for Brazilian industry but instead a complement that can be used to help Brazilian businesses gain competitiveness. Over the last three years, we have seen Brazilian manufacturers discover the opportunities in Paraguay.
We believe there has been a change in the perception of Paraguay from its reputation as a country with high levels of corruption and an industry of contraband. The government is focused on providing clear investment rules to encourage companies to come and invest, and we’ve developed a simple corporate tax structure to accomplish that.
We’re working to go the international debt markets in March. The idea is to issue $550 million. Half of the proceeds will go to paying down debt and the other half will be used for infrastructure projects.
The president understands the country is lagging behind in terms of infrastructure and that our infrastructure projects will help provide a boost to GDP.
While Paraguay may be behind the other countries in the region in terms of developing public-private partnerships, I think there is an advantage of being behind the curve. It has allowed us to see what other countries have done right and to help us avoid what they did wrong. The consensus is everyone was quite surprised at how fast we decided to move. As soon as we had our own our law, we decided to launch two projects right away.
In the 1990s in Chile, it took a couple of years before they launched the first project once their law was approved.
We’re obviously paying attention to the political changes in the US, particularly the potential financial and trade impact. On the financial front, we haven’t seen much impact because Paraguay’s corporate sector has very little connection with the capital markets in the US.
In terms of trade, Paraguay historically does not have any preferential access to the US market. The Paraguayan products in the US market have managed to establish their presence by being competitive. Paraguay is one of the world’s largest exporters of organic sugar, which has strong demand in the US. Paraguay’s other leading exports, meat, soybeans and electricity, go to other markets. It’ll be interesting to see what Trump does with tariffs and the agricultural sector, which is an area where Paraguay is very competitive. LF
Santiago Peña is Paraguay’s finance minister. This is an edited transcript of his comments in an interview with Kevin Gray and Peter Agra.