Paraguay country brief

Australia-Paraguay Relations

Australia's positive relations with Paraguay are growing. As agricultural producers and exporters, we work together to achieve fairer international trade in agricultural products through membership of the Cairns Group and cooperation in other multilateral fora. Australia is also increasing its engagement with Paraguay through development cooperation and people-to-people exchanges.

Australia strengthened its relationship with Paraguay by opening a Consulate headed by an Honorary Consul in Asunción in January 2011, which provides enhanced consular services to Australians in Paraguay. Australia has non-resident accreditation to Paraguay through the Australian Embassy in Buenos Aires.

Paraguay established an Embassy in Canberra in September 2011.

New Australia

In 1893, a new colony was founded in Paraguay, known as 'New Australia'. The settlement, comprising nearly 250 Australians, was founded by William Lane, a prominent figure in the Australian labour movement, in an effort to establish a socialist utopia. Paraguay was chosen as the movement's site for settlement. The settlement eventually dissolved due to conflicts amongst members of the movement, and particularly following the arrival of a second group of colonists in 1894. New Australia exists today and has a population of approximately 300 people.

Political overview

Spanish colonisation of the area which would become modern-day Paraguay began when Asunción was founded by explorer Juan de Salazar in 1537. Following the overthrow of the Spanish monarchy by Napoleon in 1808, the Paraguayans revolted against Spanish rule and achieved independence in 1811.

Following the Chaco war fought against Bolivia in the early 1930s, politics in Paraguay were characterised for several decades by repressive military dictatorship and internal instability. General Alfredo Stroessner took power in a coup in 1954 and remained in control for more than 30 years. Stroessner was deposed in another coup by General Andres Rodriguez in 1989, who was then elected President as a candidate for the Colorado Party. Rodriguez instituted political reforms and international rapprochement, and democracy was consolidated through constitutional reform in 1992. Juan Carlos Wasmosy was elected as Paraguay's first civilian President in 1993 in elections widely regarded as free and fair.

In May 2011, along with a number of other Latin American countries, Paraguay celebrated its bicentenary of independence from Spain.

System of government

Paraguay is a constitutional republic headed by a directly elected president, with a bicameral legislature.

Paraguay's National Constitution, enacted in 1992, radically decentralised and democratised the country's system of government, establishing a clear division of executive, legislative and judicial responsibilities, and vastly improved protection of civil rights.

The executive branch is headed by the President, elected by popular vote for a five-year term, who appoints a Cabinet of ministers. The legislative branch consists of a bicameral Congress, with an 80‑member Chamber of Deputies and a 45‑member Senate. Members of both houses of Congress are popularly elected for a five-year term under a system of proportional representation, based on local electoral districts ("departments") for the Chamber of Deputies and on nationwide results for the Senate.

On 15 August 2008, the successful leftist candidate (and former Catholic priest) Fernando Lugo was sworn in as President of Paraguay. Prior to President Lugo's appointment, Paraguay had been ruled by the Colorado party for 61 years, of which 15 years were democratic.

Following his impeachment by the Paraguayan Congress in June 2012, Lugo was replaced by Vice-President Federico Franco. Lugo's removal was condemned by neighbouring states. Paraguay was subsequently suspended by regional organisations, Mercosur and Unasur. Paraguay may re-join these bodies following presidential elections in April 2013.

International relations

Paraguay's most important political and economic partners are its immediate neighbours and fellow members of Mercosur, Argentina and Brazil. Mercosur, the Southern Cone Common Market, is comprised of Argentina, Brazil, Paraguay, Uruguay and Venezuela as well as associate members, Bolivia, Chile, Colombia, Ecuador and Peru. Mexico is an Observer. As a landlocked country, membership provides Paraguay with preferential trade access to the markets of Mercosur members and associates.

Paraguay is also a member of several regional organisations, including the Union of South American Nations (UNASUR), the Community of Latin American and Caribbean States (CELAC) and the Organisation of American States (OAS), which seek to advance a variety of regional political and economic interests.

Paraguay and the US maintain close ties through areas of mutual interest, including efforts to combat the trafficking of people and drugs, engagement on sustainable development and through economic ties. An increasing number of US multinational companies have established a presence in Paraguay.

Colorado Party candidate Horacio Cartes won the April 21 presidential election with approximately 46 per cent of the vote, compared with 40 per cent for the runner up, Efraín Alegre of the centrist Partido Liberal Radical Autentico (PLRA). President-elect Cartes will be inaugurated on 15 August 2013.  The election paves the way for Paraguay to return to Mercosur and Unasur.

Economic overview

Paraguay is predominantly an agricultural economy. The country's main export is soybeans, which makes it highly susceptible to climate and world price changes. Paraguay's other main exports include electricity (from the Itaipú dam) cereals, beef, timber, leather and apparel. Paraguay's economic outlook is strongly influenced by the economic performance of its neighbours, particularly Brazil and Argentina. Paraguay, together with Brazil, runs one of the largest hydro-electric facilities in the world, located in the Paraná River, the border between Brazil and Paraguay. Hydroelectricity exports are a major income source for Paraguay.

China was Paraguay’s largest source of imports, with imports in 2011 of US$3.65 billion 30 per cent of Paraguay’s total imports.  Exports to China were more modest at US$33.5 million, much less than Paraguay’s exports to the United States of US$148 million. 

Paraguay's real GDP growth rates have varied widely in recent years, from growth of 6.4 per cent in 2008 to minus 4.0 per cent in 2009, a rebound to 13 per cent in 2010, 4.3 per cent in 2011 and an estimated minus 1.5 per cent in 2012. The robust performance of Paraguay's agricultural sector in 2010, as well as strong performances in construction and manufacturing drove a positive rebound from the recession in 2009. The banking system also weathered the recession relatively well. However, an unexpected fall in export volumes unfolded in 2011, due to a contraction in construction (owing to cement shortages), difficulties in exporting meat (owing to an outbreak of foot and mouth disease), and a weaker global economy.

Foreign direct investment in Paraguay has increased substantially in recent years, resulting from investments by multinational firms in Paraguay and secondary effects from capital flows into the region.

Bilateral relationship

Australia's growing relations with Paraguay centre on our shared drive for fairer international trade in agricultural products through membership of the Cairns Group and cooperation in other multilateral fora. Paraguay has taken a more active role in multilateral trade issues since it became a member of the World Trade Organization in 1996, and joined the Cairns Group, chaired by Australia, in June 1997.

An Australian parliamentary delegation led by the Speaker Anna Burke visited Paraguay to meet with officials in April 2013.

At the Mercosur summit held in Brazil in December 2010, then‑Foreign Minister, Kevin Rudd, and Mercosur countries issued a joint declaration indicating that they would forge closer trade and economic relations.

Australia has also been deepening its relationship with Paraguay through development cooperation, investment and people-to-people links. An increasing number of Paraguayan students are pursuing their education at Australian institutions.

In the area of development cooperation, Australia is working with Paraguayan, Chilean and German authorities to take forward the project 'Paraguay for All'. The project seeks to improve the coordination and effectiveness of critical social services in Paraguay. Through the Inter-American Development Bank, Australia is contributing to a microfinance project which aims to economically empower low-income women through micro-franchise opportunities.  Australia is also supporting projects in the field of human rights and is undertaking cooperation work to support human resources development, including through the provision of scholarship programs.

Bilateral economic and trade relationship

Australia's bilateral trade with Paraguay is small, largely reflecting one-off deals rather than ongoing supply arrangements. In 2011-12, two-way merchandise trade totalled A$4.0 million, of which A$3.8 million were Australian exports, consisting mainly of paper and paper products, pharmaceuticals and vehicle parts. Imports consisted of clothing, sugars, molasses and honey, vegetable oils and fats.

In December 2009, P&O Maritime Services completed the acquisition of 70 per cent of the shares in the Dos Santos Group Bulk Barging business, a river navigation business based in Asunción. P&O's head office is based in Melbourne and the company maintains operations in five Australian ports.

Export and investment opportunities

There may be some openings for investment in the agribusiness sector and for the export of agriculture related and other products and services from Australia.

Rio Tinto Alcan is developing plans to construct a major aluminium smelter in Paraguay, taking advantage of Paraguay's hydroelectric power facilities. The project is estimated to be worth $US3.5 billion. If the project proceeds, construction would commence in 2014.

The mining industry in Paraguay has, to date, been relatively underdeveloped but the recent discovery of one of the world's three largest deposits of ilmenite (a titanium ore) has the potential to greatly expand mining in the country.

Australian companies with existing interests in Argentina, Brazil and Uruguay may find that the close commercial ties that these countries have with Paraguay may facilitate entry into the Paraguayan market.

Updated April 2013