Paraguay

• Author: Alejandro Guanes Mersan
• Pages: 229-279

229

Paraguay

Alejandro Guanes Mersan

Guanes, Heisecke & Piera, Abogados*

COUNTRY OVERVIEW

The Republic of Paraguay (in Spanish, República del Paraguay, and in Guaraní,

Tetã Paraguái) is known as the “H eart of the Americas .” It is also located in the

heart of South Amer ica. It is a landlocked country b ordered by Argentina to the

south and southwest, Brazil to t he east and northeast, and Bolivia to the northwest .

It lies 800 kilometer s from the Pacific Ocean and 60 0 kilometers from the Atlant ic

Ocean. Its area covers 40 6,752 square kilometers.1

The Paraguay River splits the terr itory into two clearly defined regions: the

western region, or Chaco, and t he eastern region. The Chaco a rea covers 61 per-

cent of the national territory and compris es 2.7 percent of the population. The east-

ern region covers 39.3 percent of the total land and comprises 97.3 percent of the

country ’s population.2 In terms of political division, Paraguay has 17 departments,

14 of which are located in the Oriental, or eastern, Region, and 3 of which are i n

the Occidental, or wester n, Region.3

According to the official s tatistics, in 2012, t he population was estimated at

6.7 million, of which 82 percent is considered as “population in working age.”4 Para-

guay has indeed one of the large st proportions of young population in the region. 5

CHAPTER 7

* With the collaboratio n of Patricia Flor Ríos.

230 Chapter 7

The capital and largest c ity is Asunción, which is ran ked among the world’s least

expensive cities in which to live.6 Parag uay differentiates itself from its neig hbors

with its culture a nd its deeply rooted traditions. The officia l languages are Spani sh

and Guaraní, bot h of which are widely spoken in the country.

Despite being landlocked, Pa raguay benefits from its location at the conf luence

of an important river system —formed by the Paraguay and Paraná R ivers, both of

which directly af fect its territory—a nd the crossroads of two oceans, a sit uation

that offers the potential for un iting the major ports and market s of South Amer-

ica. Because of its geographic lo cation, Paraguay plays an important role in t he

future of two regional development projects. The first, called Hidrovía,7 includes

the construction of por ts and a real waterway system that connec ts five countries

of South America with t he Atlantic Ocean. T he Hidrovía includes the Paraguay

and the Paraná Rivers and is de signed to make transportat ion of products easier

and safer from the hear t of Brazil (Puerto Cáceres), passing th roughout the ter-

ritories of Bolivia, Paraguay, Argentin a, and up to Uruguay (Nueva Palmira). The

ships of Paraguayan flags cu rrently represent about 85 percent of the total fleet

of the Hidrovía8 and positions Paraguay into third place of the biggest fleet on a

worldwide scal e.9 In the bi-ocea nic corridor, the government has initiated a project

to improve the roads along the whole country, especially in the we stern area. The

project is intended to increase the volume of trade t hat crosses the country from the

Atlantic to the Pacific and v ice versa.10 This project is still u nder study and negotia-

tions with the neighbor cou ntries.

The Paraguayan economy can be cha racterized as small but open a nd grow-

ing. Paraguay’s economy is based on the production and expor t of primary agri-

cultural products a nd meat, as well as on commerce associated with the import

and reexport of consumer product s. Its external trade repres ented 71 percent of

the gross domestic product (GDP) in 2013 and 74 percent on average during the

past decade.11 The main dest inations of Paraguayan exports are t he MERCOSUR

countries, followed by the Europea n Union countries.12 Paraguay is experienci ng a

sustained growt h in the economy, according to the yearly increments in the G DP.13

The struct ure of the Paraguayan economy reflects t he comparative advantage

of agriculture and agro-industries. Parag uay’s primary economic activities a re cat-

tle farming and ag riculture, account ing for more than 22 percent of the countr y’s

productio n.14 The agricultu ral sector is characteri zed by the split between the t ra-

ditional, labor-intensive sec tor of cotton cultivation and the modern sector, related

to soybean production. Agribusine ss from the sector of oilseeds and c ereals (soy-

bean, wheat, corn, su nflower) represents 81 percent of the agricultu ral production

in the GDP.15 Paraguay is ranked sixth in the world in soybean production and

fourth in volume of soybean expor ts.16

Industrial production is conc entrated primarily in t he processing of local raw

materials. The indust rial sector accounts for 18 percent of the GDP. According to

recent data provided by the Paraguayan Centra l Bank, most of the categories in the

Paragu ay 2 31

industrial sector have presented considerable growth. The most relevant dynam ics

have been experienced in the produc tion of meat, oil, textiles , milling, clothi ng,

chemicals, and nonme tallic minerals.17

The services se ctor, including financing, re al estate, construc tion, trade, com-

munication, restaura nts, hotels and household, and government services, account

for 59 percent of the GDP.18

Banks are the ma in financial i nstitutions inside the Paraguayan f inancial sys-

tem, and they are the ma in source for financing busi ness activity, followed by the

stock market. In 2013, Paraguay issued its f irst emission of sovereign bonds in the

international stock ma rket,19 followed in 201420 by a second emission, opening a

new financing source for national development.

The state has lim ited participation in business act ivities, giving private initia-

tive a more important role in investment a nd economic growth. Paraguay offers

important opportu nities for private investment in industries aimed at producing for

the local and expor t markets in the areas of meta l castings, text iles, vegetable oils,

dairy and meat product s, leather and hides, and assembly of elect ronic appliances,

as well as wood and other products. Rura l development and commercially viable

programs for the protection of the envi ronment are ongoing objectives.21

Through various treat ies, Paraguay has been granted f ree ports in Argentina,

Uruguay, and Brazil, throug h which it sends its exports. The mo st important of

these free ports i s on the Brazilian Atla ntic coast at Paranaguá. The Friend ship

Bridge that spans the Paran á River between Ciudad del Este and t he Brazilian city

of Foz do Iguaçu permits about 40,0 00 travelers to commute daily bet ween both

cities and allows Paraguay land acc ess to Paranaguá. A vibrant economy has devel-

oped in Ciudad del Este and Foz do Iguaçu, mostly based on international com-

merce and shopping trips by Brazili an buyers.22

Together with Argentina, Braz il, Uruguay, and Venezuela,23 Paraguay is a

member of MERCOSUR , a common market established in 1991 with more than

295 million consumers cu rrently,24 whose objective is to integrate the economies

of the aforementioned countries by achieving the free movement of goods, service s,

and production inputs throughout the five- country area. T he MERCOSUR scope

of market is amplified with C hile, Colombia, Peru, Ec uador, Guyana, and Suri-

name as associates cou ntries of MERCOSUR , and with Bolivia, which is in the

process of becoming a f ull member.25

Taxes in Paraguay are the lowest in ME RCOSUR, and Paraguay has t he most

competitive tax scheme and fi scal benefits in the reg ion.26 This scheme is the resu lt

of comparative low tax rates and proportionately fewer taxes t han other coun-

tries.27 Additionally, Paraguay is the MERCOSUR country member with the low-

est comparat ive labor cost. 28

Paraguay has a strong macroeconomic position, with the lowest percentage of

debt-to-GDP-ratio in the region as well as the lowest inflation perc entage in the

region.29 I n this sense, it is worth noti ng that to strengthen the economic s tability,