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Economy of Paraguay

Economy - overview: Paraguay has a market economy marked by a large informal sector. The informal sector features both reexport of imported consumer goods to neighboring countries as well as the activities of thousands of microenterprises and urban street vendors. Because of the importance of the informal sector, accurate economic measures are difficult to obtain. A large percentage of the population derive their living from agricultural activity, often on a subsistence basis. The formal economy grew by an average of about 3% annually in 1995-97, but gross domestic product declined slightly in 1998 and 1999. On a per capita basis, real income has stagnated at 1980 levels. Most observers attribute Paraguay's poor economic performance to political uncertainty, corruption, lack of progress on structural reform, and deficient infrastructure.

There is a large subsistence sector, including sizable urban underemployment, and a large underground re-export sector. The country has vast hydroelectric resources, including the world's largest hydroelectric generation facility built and operated jointly with Brazil (Itaipú Dam), but it lacks significant mineral or petroleum resources. The government welcomes foreign investment and provides national treatment to foreign investors. The economy is dependent on exports of soybeans, cotton, grainss, cattle, timber, and sugar; electricity generation, and to a decreasing degree on re-exporting to Brazil and Argentina products made elsewhere. It is, therefore, vulnerable to the vagaries of weather and to the fortunes of the Argentine and Brazilian economies.

According to Paraguayan Government statistics, Paraguay's GDP of $7.7 billion in 2000 represented a real decrease of 0.4% from 1999. However, given the importance of the informal sector, accurate economic measures are difficult to obtain. Paraguay generally maintains a small balance-of-payments surplus. In early 2000, official foreign exchange reserves were below $775 million, and foreign official debt remained about $2.2 billion. On a per capita basis, GDP declined by about 3% during 2000, and inflation rose to 8.6%.

Agriculture and Commerce
Agricultural activities, most of which are for export, represent about 24% of GDP. More than 200,000 families depend on subsistence farming activities and maintain marginal ties to the larger productive sector of the economy. The commercial sector is primarily engaged in the import of goods from Asia and the United States for re-export to neighboring countries. The recorded activities of this sector have declined significantly in recent years, placing a strain on government finances, which depend heavily on taxes on this trade. In general, Paraguayans prefer imported goods, and local industry relies on imported capital goods. The underground economy, which is not included in the national accounts, may equal the formal economy in size. The bulk of underground activity centers on the unregistered sale of imported goods--including computers, sound equipment, cameras, liquor, and cigarettes--to Argentina and Brazil.

Post-Stroessner Reforms
Since 1989, the government has deregulated the economy, which had been tightly controlled by President Stroessner's authoritarian regime. The Rodriguez and Wasmosy administrations eliminated foreign exchange controls and implemented a dirty floating exchange rate system, reformed the tax structure and established tax incentives to attract investment, reduced tariff levels, launched a stock market, and began a process of financial reform. Though the short-lived Cubas administration was hampered by political conflicts, it attempted to reduce the rising government deficit by cutting spending, to fight intellectual property piracy in order to attract foreign investment, and to address a financial sector crisis that had simmered since 1995. The Gonzalez Macchi government has made some progress on state reform and privatization, but the fiscal deficit has grown as has Paraguay's external debt.

The central government budget in 2000, excluding decentralized agencies and store-owned enterprises, represented 20% of GDP.

GDP: purchasing power parity - $19.9 billion (1999 est.)

GDP - real growth rate: -1% (1999 est.)

GDP - per capita: purchasing power parity - $3,650 (1999 est.)

GDP - composition by sector:
agriculture: 28%
industry: 21%
services: 51% (1999 est.)

Population below poverty line: 32% (1997-98 est.)

Household income or consumption by percentage share:
lowest 10%: 0.7%
highest 10%: 46.6% (1995)

Inflation rate (consumer prices): 5% (1999)

Labor force: 1.7 million (1996)

Labor force - by occupation: agriculture 45%

Unemployment rate: 12% (1998 est.)

revenues: $1.9 billion
expenditures: $2.1 billion, including capital expenditures of $700 million (1995 est.)

Industries: sugar, cement, textiles, beverages, wood products

Industrial production growth rate: -4% (1999 est.)

Electricity - production: 50.324 billion kWh (1998)

Electricity - production by source:
fossil fuel: 0.12%
hydro: 99.66%
nuclear: 0%
other: 0.22% (1998)

Electricity - consumption: 1.494 billion kWh (1998)

Electricity - exports: 45.307 billion kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: cotton, sugar cane, soybeans, maize, wheat, tobacco, cassava (tapioca), fruits, vegetables; beef, pork, eggs, milk; timber

Exports: $3.1 billion (f.o.b., 1999 est.)

Exports - commodities: soybeans, feed, cotton, meat, edible oils

Exports - partners: Brazil, Argentina, EU

Imports: $3.2 billion (f.o.b., 1999 est.)

Imports - commodities: road vehicles, consumer goods, tobacco, petroleum products, electrical machinery

Imports - partners: Brazil 34%, United States, Argentina, Uruguay, European Union, Hong Kong (1998)

Debt - external: $2.7 billion (1999)

Economic aid - recipient: $NA

Currency: 1 guarani (G) = 100 centimos

Exchange rates: guarani (G) per US$ - 3.332.0 (January 2000), 3,119.1 (1999), 2,726.5 (1998), 2,177.9 (1997), 2,056.8 (1996), 1,963.0 (1995); note - since early 1998, the exchange rate has operated as a managed float; prior to that, the exchange rate was determined freely in the market

Fiscal year: calendar year

See also : Paraguay