Paraguay Country Brief - February 2009
Introduction/overview
Australia's positive 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 has non-resident accreditation to Australia through its Embassy in Tokyo, Japan. It also maintains a Consulate-General in Melbourne.
Political Overview
Background
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 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.
On 15 August 2008, Fernando Lugo was sworn in as President of Paraguay. Mr Lugo, a former Catholic bishop and political independent, is the first president from outside the Partido Colorado (PC) since 1947. His election, in April 2008, raised widespread expectations of change, particularly better conditions for the country’s poor. Although President Lugo won by a clear margin over the Colorado candidate, who placed second, the Colorados maintain a significant presence in Congress and among provincial authorities and continue to be highly influential.
Recent Political Developments
The Lugo Government has set about establishing a “new development agenda” to reduce poverty and social exclusion, at the centre of which is land reform. Around 300,000 people in Paraguay are landless and much of the land is owned by two per cent of the population. Other priorities for the government include tackling corruption and reforming the tax system. President Lugo faces significant challenges implementing this agenda, including ongoing disputes over land ownership between small local farmers and large landholders, many of whom are Brazilian.
The inertia of state institutions and the prospects of economic deceleration as a result of the global financial crisis and recession will further compound the challenges President Lugo faces implementing his reform agenda. Mr Lugo has also started to face more resistance in Congress from the opposition parties, which combined in late 2008 to reject proposed government legislation..
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 economic outlook continues to be affected by the economic performance of its neighbours, particularly its larger Mercosur partners, Brazil and Argentina. Paraguay has voiced its dissatisfaction with the benefits it derives from its Mercosur membership and has floated the idea of negotiating bilateral FTAs with other countries, including the United States.
The global financial crisis has had a severe impact on the domestic economy. In order to cushion the economy from the financial fallout, in the last couple of months the Central Bank has reduced interest rates, eased reserve requirements and taken measures to try to moderate currency depreciation.
Meanwhile, as a result of the global credit crunch and the drying up of commercial credit lines, Paraguay has come to rely increasingly on multilateral lending, which was already an important source of financing to the country. The Inter-American Development Bank (IDB) has issued guarantees for local bank Interbanco to support around US$5 million in import transactions of agribusiness products and machinery from Brazil to Paraguay.
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 $A1.4 million in 2007-2008 and consisted mostly of crude vegetable materials and pharmaceutical products. Imports totalled $A540,000 and were made up by sugars, molasses and honey, and medical instruments.
Export and Investment Opportunities
While there are not many opportunities for Australian exporters in Paraguay, 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. 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.