Paraguay Puts Pandemic in the Past

Paraguay is one of the surprise success stories of the pandemic. Now government ministers are inviting investors to the Virtual Business and Investment Networking Paraguay-Europe 2020 on Wednesday the 22nd of October

Liz Cramer – Minister of Industry and Commerce 

Coronavirus revealed the best and worst of the Paraguayan state. The strong macroeconomy has given us access to international tools, such as raising international debt, but the crisis has also revealed the structural weaknesses of the Paraguayan state.

One of the success stories of the pandemic was that the government worked with the private sector to create a supply chain for gowns and face masks for the local market. It was a national agreement, that created an integrated supply chain. It was a welcome boost for the textile sector, which was hit from the fact that people stopped going out and buying clothes. The strongest recoveries have been in construction and agriculture, which have both helped the economy.

Now the government is implementing its economic reactivation plan, and it is focused fixing the weaknesses that the pandemic exposed in Paraguay. The main one was the informality, as many SMEs were unable to get credit because they weren’t registered with state institutions. Before the pandemic this government had already highlighted its poor score in the ‘starting a business’ category of the World Bank’s Doing Business Ranking. And we had passed a law to create an entity that will streamline the process for opening a company. But now the crisis has encouraged us to do more on that front, and we are investigating how new digital payment methods and credit tools can help reach wider parts of our economy.

José Cantero Sienra – Central Bank Governor

During the pandemic Paraguay’s solid macroeconomic fundamentals really stood out. These foundations allowed us to quickly implement extensive countercyclical policies against this massive shock. Working together with the Treasury and the rest of government, the Central Bank was part of a response with three key elements: monetary policy, fiscal support and financial incentives.

“This crisis is an opportunity for Paraguay to reform institutions and boost transparency…”

On the monetary side, the Central Bank has an inflation target but the hit to demand meant we didn’t have to worry about prices so we cut our benchmark rate to 0.75% – a historic low. We also provided extra liquidity worth 6% of GDP. Then the government announced tax cuts worth 6% of GDP and the final element was a credit package to financial entities, so they could pass it on to their end clients – namely SMEs.

But it is vital that these countercyclical measures are supported by structural reforms. This crisis is an opportunity for Paraguay to reform institutions and boost transparency. We are seeing laws that will improve competitiveness in the private sector and better the business environment. Our recession was far more moderate than many in the region, while by June and July we were already seeing a rebound. However, structural reform is key as that will allow us to build a Paraguay that is more inclusive and better able to face the challenges we will have in the future.

Antonio Rivas – Minister for Foreign Affairs

The best answer to the pandemic is more and greater integration between countries – both economic and social. That’s the approach that we have taken with our partners in Mercosur. Paraguay held the presidency of Mercosur when the pandemic struck so we immediately switched to ‘virtual mode’ and held more than 120 videoconferences.  Mercosur has adjusted well to the new dynamic and have managed to keep progressing despite the pandemic. We have maintained negotiations with the EU and closed the political chapter of that deal. We are hopeful that the Agreement will be signed within a few months which is very important for Paraguay as it gives us trading rights with a developed bloc. I think it matters for the EU too.

Now we are looking at extending the cooperation to boost economic reactivation. We are focusing on the border zones between our countries. This is especially important to Paraguay as we are keen to grow our exports and we want to reduce any logistical costs or delay. In the new post-pandemic world, good quality foodstuffs will become increasingly important. That’s what Paraguay produces so we need to focus on that and make sure we get the most benefit for our people.