Paraguay Country Brief - February 2008
Introduction/overview
Australia's relations with Paraguay are modest. As agricultural producers, we work together to achieve fairer international trade in agricultural products through membership of the Cairns Group and cooperation in other multilateral fora. Australia has non-resident accreditation to Paraguay through the Australian Embassy in Argentina. Paraguay is represented in Australia through its Consulate-General in Melbourne.
Political Overview
System of Government
Paraguay is a constitutional republic headed by a directly elected president, with 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 a 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.
Recent Political Developments
President Nicanor Duarte Frutos, or the Partido Colorado (PC), has abandoned his strongly resisted attempts to overturn a constitutional ban preventing him from seeking re-election in the presidential elections on 20 April 2008.
Paraguay’s political scene has now swung fully into campaign mode. In a primary election to select the governing Colorado party’s Presidential candidate in December 2007, President Duarte Frutos’ preferred candidate, former education minister Blanca Ovelar, emerged as the winner by a small margin. Her main rival – former Vice-President Luis Castiglioni – refused to accept the result, denouncing it as tainted by fraud.
The Colorado party’s main rival in the presidential election had been, until recently, Fernando Lugo, a popular former bishop who resigned from the priesthood to launch a career in politics. However, there is increasing support for former general and army chief, Lino Oviedo, who was released from prison on 6 September 2007 and who remains a popular figure in Paraguay. Mr Oviedo has announced that he will run for the presidency in the 2008 elections. Mr Oviedo served over half of a 10-year sentence for an alleged coup attempt in 1996 against the then president, Juan Carlos Wasmosy. Mr Oviedo was also accused of involvement in the assassination of the then vice president, Luis Maria Argaña, in March 1999, and of partial responsibility for the deaths of seven protestors at the hands of police shortly after that.
It is reported that the government engineered the release of Mr Oviedo in order to split the opposition vote. The political scene ahead of the 2008 election is now fluid, and this uncertainty is fuelling concerns about political stability.
Economic Overview
Paraguay is still predominantly an agricultural economy. The country's main export is soybeans, which makes it highly susceptible to climate and world price changes. Paraguay's economic outlook continues to be affected by the economic performance of its neighbours, particularly its larger Mercosur partners, Brazil and Argentina. Paraguay has reportedly voiced its dissatisfaction with the benefits it is receiving from its Mercosur membership and has floated the idea of negotiating bilateral FTAs with other countries, especially the United States.
Following an expansion of four per cent in 2006, real GDP growth in 2007 is expected to have reached 4.5 per cent. Growth will continue to be driven by private consumption (sustained by strong investment flows of remittances from Paraguayans living abroad), gross fixed investment (underpinned by projects in the manufacturing and telecommunications sectors) and government spending (which will accelerate in the run up to the presidential election in April 2008).
Investor confidence in the economy will be supported by a Stand-By Arrangement signed with the IMF in June 2006. The main policy objective set out in the agreement is to achieve sustainable real GDP growth of 4-5 per cent per year, through a combination of increased public investment, improved monetary policy and structural reforms (including the restructuring of publicly owned companies). The government is also planning to implement significant tax reforms. However, progress toward these ends will be subject to delays as a result of the current political uncertainty.
Following 12.5 per cent inflation in 2006, a year-end inflation rate of 10.2 per cent was expected for 2007. Continuing high oil prices and expansionary fiscal expenditure will prevent a further reduction in inflation.
Bilateral Relationship
Australia's modest 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. Like Australia, Paraguay is an agricultural producer and exporter with a priority interest in international agricultural trade liberalisation. Paraguay has taken a more active role in multilateral trade issues since it became a member of the WTO in 1996, and joined the Cairns Group –chaired by Australia- in June 1997.
Bilateral Economic and Trade Relationship
Australia's bilateral trade with Paraguay is small - largely reflecting one-off deals rather than ongoing supply arrangements. There are no significant investment flows between the two countries. Australia’s merchandise exports to Paraguay amounted to $A5.7 million in 2006-2007 and consisted mostly of soft oil seeds and crude vegetable materials. Imports totaled $A267,000, mainly sugars, molasses and honey.
Export and Investment Opportunities
Although there are not significant opportunities for Australian exporters and investors in Paraguay, there may be some opportunities for the export of agriculture-related and other products and services from Australia. One strategy for Australian companies looking to invest and trade in Paraguay is to take advantage of existing interests they may have in Argentina and Brazil. The close commercial ties that these countries have with Paraguay may facilitate entry into the Paraguayan market.