07-09-12 by Emmanuel Besserve
Paraguay is a landlocked country that has much to offer. The economy in Paraguay is distinguished by many informal sectors that work on reexporting and importing of consumer goods to other countries.
They also have thousands of microenterprises and many urban street vendors. A large chunk of the population, mainly in rural areas, create their income from agricultural industries and live there on a subsistence lifestyle. The informal sector is a very important part of Paraguay, however, this makes it really hard to have accurate measures of the economy.
Per capita, you will find that the amount of real income has actually been stagnant since 1980, but the economy grew rapidly from 2003-2008 as world demand for commodities grew. There were high prices and there was favorable weather that helped them with their export expansion. Paraguay is actually the 6th largest soy producer in the world, but drought hit in 2008 that reduced their exports and slowed their economy, this happen before the global recession hit.
In 2009, the economy fell by 3.8% as there was less demand on a world basis and the prices were so high. To help, the government introduced some fiscal and monetary stimulus options. So, growth kicked back in around 2010 by 14.5 % which was the highest of any South American country. There is always political uncertainty, corruption, and slow progress on structural reforms that are obstacles.
With a market based competition, it operates within a weak framework institutionally. Free competition and the protection of property rights are limited by the corruption and all the political influence from the administration and the court system. Regulations are inconsistent and they aren't held to implementation standards. There is a very strong state presence with the telecommunications, electric power, gas and oil refining, cement production, and the water utilities sectors. The government wholly controls the price of fuel and the public transportation system. The government also controls minimum wage through these rules and they are mainly ignored. About 12% of employees are in the public sector. The informal sector is large, but it is basically immeasurable. This sector does things like smuggling across the border and produces illegally narcotics, pirated music, stolen vehicles, and illegal weapons. 61% of the Paraguayan economy is free and this is a huge part of this sector.
Monopolies and oligopolies are not stopped or regulated in Paraguay. This is the only country that is in Latin America that doesn't have legislation that will help to create and protect competition. After the last elections, the national entrepreneurs started pressing Lugo and the government to work on an anti-monopoly law which would help the local firms against the multinational firms too.
Banking supervision is improving, but it is still inadequate and it falls short of the standards that are set internationally. They lack qualified personnel and there is too much political influence over the banking decisions. International organizations want Paraguay to work on the independence of their central bank. But, what has been shown over and over again is that there is political influence that drastically affects them. The interesting fact is that the two major banks are actually foreign owned and they actually control 29% of all assets and 40% of all deposits.
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