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Paraguay country brief

Australia-Paraguay Relations

Australia's positive relations with Paraguay are growing. Australia and Paraguay established diplomatic relations in 1974, and Australia’s first Ambassador to Paraguay, H.A. Dunn, presented credentials on 6 October 1976.

Australia opened 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 group of nearly 250 Australians established a settlement in Paraguay. The settlement, known as 'New Australia', was founded by William Lane, a prominent figure in the Australian labour movement, in an effort to develop a socialist utopia. The settlement eventually dissolved due to conflicts amongst members of the movement, particularly following the arrival of a second group of colonists in 1894. A town called “Nueva Australia” (New Australia) still exists today, with a population of approximately 300 people.

Political overview

Background

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.

After 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. In 1989 Stroessner was deposed in another coup by General Andres Rodriguez, 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.

Recent developments

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 centre-right 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, and led to Paraguay’s temporary suspension from regional organisations, the Southern Cone Common Market (Mercosur) and Union of South American Nations (UNASUR).

Colorado Party candidate Horacio Cartes won the April 2013 presidential elections 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 Cartes was inaugurated on 15 August 2013. Paraguay’s suspension from Mercosur and UNASUR was lifted following his inauguration.

International relations

Paraguay's most important political and economic partners are its immediate neighbours and fellow members of Mercosur, Argentina and Brazil. Mercosur is comprised of Argentina, Brazil, Paraguay, Uruguay and Venezuela as well as associate members Chile, Colombia, Ecuador, Guyana, Peru and Suriname. Mexico is an Observer and Bolivia is in the process of becoming a full member. Membership provides Paraguay, a landlocked country, with preferential trade access to the markets of Mercosur members and associates.

Paraguay is also a member of several regional organisations, including UNASUR, the Community of Latin American and Caribbean States (CELAC) and the Organization of American States (OAS), which seek to advance a variety of regional political and economic interests. In June 2013, Paraguay became an observer to the Pacific Alliance.

Paraguay and the United States 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.

Economic overview

At a glance

For latest economic data refer to the Paraguay fact sheet [PDF 54 KB].

Economic Outlook

Paraguay is predominantly an agricultural economy. The country's main export is soybeans (Paraguay is the world’s 4th largest exporter), 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 hydroelectric 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 and Brazil are Paraguay’s largest trading partners. In 2012, Brazil was Paraguay’s principal export destination (39.2 per cent) and China was Paraguay’s main source of imports (27.6 per cent).

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 minus 1.2 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, there was an unexpected fall in export volumes in 2011, due to a prolonged drought, a decrease in construction (owing to cement shortages), difficulties in exporting meat (owing to an outbreak of foot and mouth disease), and a weaker global economy. A record harvest in 2013 is expected to provide real GDP growth of 12 per cent for the year.

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 in April 2013. Australia has also been deepening its relationship with Paraguay through development cooperation, investment and people-to-people links.

From 2010 to 2014, Australia provided $100 million in development assistance to Latin America, including 250 Australia Awards scholarships. Eight long-term and 12 fellowship scholarships were granted to Paraguayan students under the Australia Awards program.  While the regional program has now closed, some activities which have already been funded will continue until 2017.  As part of that program, Australia worked with Paraguayan, Chilean and German authorities on the 'Paraguay for All' project. The project sought to improve the coordination and effectiveness of critical social services in Paraguay. Through the Inter-American Development Bank, Australia contributed to a microfinance project to economically empower low-income women through micro-franchise opportunities. Australia  also supported projects in the field of human rights and undertook work to support human resources development.

In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America.  For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.

Bilateral economic and trade relationship

Australia's bilateral trade with Paraguay is small, largely reflecting one-off deals rather than ongoing supply arrangements. In 2012, two-way merchandise trade totalled A$2.6 million, of which A$2.3 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, which would be the largest investment in Paraguay’s history, is estimated to be worth US$4 billion. Construction of the project depends on the outcome of ongoing energy-pricing negotiations.

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 2014