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main export goods, 2007-2008, source : Paraguay Ministry of Industry and Commerce / Riedex

Paraguay has a market economy characterized by a large informal sector. Agriculture dominates the economy, but unequal land distribution has resulted in a large class of peasant farm laborers. A large portion of the population is uninvolved in the formal economy, instead existing as subsistence farmers. In recent years, the economy has grown as a result of increased agricultural exports, especially soybeans. Reforms in fiscal and monetary policy also have improved Paraguay’s economy. Inflation has dropped, and the currency has appreciated gradually. Nevertheless, urban unemployment and underemployment have been problems throughout Paraguay’s history. Paraguay has the economic advantages of a young population and vast hydroelectric power but has few mineral resources, and political instability has undercut some of the economic advantages present. The government welcomes foreign investment. [1]

Contents

Structure of the economy

Soja y silos Paraguay 01.jpg

The most important component of the Paraguayan economy is the farming sector, which contributed 27% to GDP in 2006. The participation of commerce was 20.2%, and that of other services, including government, 38.4%. Industry’s part (including mining and construction) was about 20%.

After years of economic crisis, between 1999 and 2002, the Paraguayan economy grew at between 2.9 and 4.1% per year from 2003 to 2006. For 2007, the estimated growth is about 6.4%. Inflation in 2007 reached 6.0%.

Most enterprises are small, micro and individual ones, including subsistence jobs like street vendors. Only 4% of the Paraguayan labor force works in companies with more than 50 employees.

In June 2007 external foreign exchange reserves amounted to US$ 2153 million, and the foreign official debt US$ 2154 million, close to parity.

Fiscal surplus is provisionally reported as 0.5% of GDP in 2006 and 2007.

Paraguay’s economy (GDP) grew 5,8% in 2008, fastest growing sector being agriculture with 10,5% growth[2]

cattle on cleared land in the Chaco
rice paddy
deforestation in the Paraguayan Chaco

Agriculture accounts for about 20 percent of Paraguay's annual gross domestic product (25 percent in 2004) and virtually all of the country's export earnings. It is Paraguay’s largest and most consistent source of employment, employing about 45 percent of the working population. In addition to those engaged in the formal agricultural sector, thousands of Paraguayan families survive through subsistence farming.[1]

Paraguay produces enough basic food to be largely self-sufficient. Corn, cassava, and wheat are the main food crops for local consumption. The global surge in grain prices 2007/2008 was a major impulse for the agricultural sector. Wheat cultivation expanded, so did rice. Most significant was the increase of soy production. In 2004 Paraguay had about 1.6 million hectares dedicated to genetically modified (GM) crops.[1] Export value of soy and its derivates increased from US$1,25 billion in 2007 to US$2,54billion in 2008

Paraguay’s eastern plains as well as the Chaco support the country’s dairy and ranching industry. Behind soybeans, beef exports make up a significant part of Paraguay’s agriculture sector. Additionally, Paraguay produces an adequate supply of beef, pork, and dairy products to meet domestic needs. The discovery of cases of foot-and-mouth disease in 2002 and 2003 led to a ban on Paraguayan beef in many countries. However, in 2004 Paraguay’s meat production and exports rebounded. As a result of rising international prices and the recovery of important markets like Chile or Russia, Paraguay’s meat exports rose to US$143 million in 2004. They reached US$353 million in 2007 and US$597 million in 2008. Presently, Paraguay has a national herd numbering between 9 and 10 million head of cattle.

Land purchases by foreigners, attracted by low land valuations[3][4],have for long been a feature of paraguayan agriculture.

Paraguay’s forests adequately meet domestic needs for lumber and fuelwood. However, logging for export, both legally and illegally, has thinned Paraguay’s once abundant forests, resulting in a ban on the export of logs since the 1970s. More then 90% of the native rainforest of Paraguay's eastern half have been lost between 1975 and 2008. In the western half, the Chaco, virgin forest is lost to cattle ranching at an anual rate of more then 200.000 hectare (2008))[5]. Sustainable wood cultivation is now on the increase.[1]

The fishing industry in Paraguay exists almost solely to meet domestic demand.[1]

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Mining and minerals

Unlike many South American countries, Paraguay has few mineral resources and very little history of mining success. Foreign companies have explored Paraguay in recent years, searching for overlooked mineral deposits. Small extraction projects exist, seeking lime, clay, and the raw materials necessary to make cement, but the country’s iron and steel manufacturers must import raw materials from neighboring countries.[1]

Industry and manufacturing

The industrial sector produces about 25 percent of Paraguay’s gross domestic product (GDP) and employs about 31 percent of the labor force. Output grew by 2.9 percent in 2004, after five years of declining production. Traditionally an agricultural economy, Paraguay is showing some signs of long-term industrial growth. The pharmaceutical industry is quickly supplanting foreign suppliers in meeting the country’s drug needs. Paraguayan companies now meet 70 percent of domestic consumption and also have begun exporting drugs. Strong growth also is evident in the production of edible oils, garments, organic sugar, meat processing, and steel. Nevertheless, capital for further investment in the industrial sector of the economy is scarce. Following the revelation of widespread financial corruption in the 1990s, the government is still working to improve credit options for Paraguayan businesses.[1]

In 2003 manufacturing made up 13.6 percent of the GDP, and the sector employed about 11 percent of the working population in 2000. Paraguay’s primary manufacturing focus is on food and beverages. Wood products, paper products, hides and furs, and non-metallic mineral products also contribute to manufacturing totals. Steady growth in the manufacturing GDP during the 1990s (1.2 percent annually) laid the foundation for 2002 and 2003, when the annual growth rate rose to 2.5 percent.[1]

Energy

Hydroelectric the Itaipú

Paraguay relies almost solely on hydroelectric power to meet its energy needs. The Itaipú Dam, completed in 1984, has the world’s second largest power-generating capacity: 13.3 gigawatts. The dam is located on the Paraguay River, and Paraguay and Brazil evenly share the ownership, operation, and electricity generated. Additionally, Paraguay co-owns another major hydropower plant, Yacyretá, with Argentina. Paraguay uses only a small portion of the energy it generates through Itaipú and Yacyretá. In 2002 Paraguay generated more than 48 billion kilowatt-hours of energy. It consumed only 2.5 billion kilowatt-hours while exporting 45.9 billion kilowatt-hours. Paraguay will have even more hydroelectricity to export when planned new turbines are installed at Itaipú and the Yacyretá dam is fully completed.[1] In 2007 electricity production rose to 70 TWh, and exports reached 64 TWh which put Paraguay in second place world-wide as an exporter of electrical power (And in the first place as a net exporter since France, the Number one exporter in the World with 67 TWh, also imports 10 TWh, while Paraguay does not import any).

Paraguay has no oil reserves; it relies on imported oil to meet its limited need for oil-produced energy. The Paraguayan government owns Petróleos Paraguayos, which is responsible for all distribution of oil products. The state accepts bids from international oil companies, selecting a few companies annually to meet the country’s demand. Presently, Paraguay does not produce or consume natural gas, but consumes LPG imported mainly from the Argentine.[1]

Services

The services sector made up nearly 50 percent of Paraguay’s gross domestic product in 2004 and employed about 19 percent of Paraguay’s working population. The importation of goods, especially from Argentina and Brazil, for sale and illegal reexportation creates service industry jobs. The services sector had a moderate growth rate of 0.9 percent from 1990 to 2003. The sector decreased by 7.8 percent in 2002, before rebounding in 2003 with a 1.6 percent growth rate. Instability in the economy and a large black market have hampered development of the formal services sector in Paraguay.[1]

Tourism

Tourism

Paraguay has a small tourism industry. Total tourism receipts declined annually from 2000 through 2002. In 2003 Paraguay’s hotel occupancy rate was 38 percent. It increased by 15 percent in 2004. Small gains in tourism have come from business rather than leisure travelers. For many years, Paraguay served as a central market for trafficable, duty-free goods. However, crackdowns by the governments of Brazil and Argentina have stemmed the flow of shoppers traveling to Paraguay looking for trafficable items.[1]

Banking and finance

Paraguay’s banking and financial services industry is still recovering from the liquidity crisis of 1995, when news of widespread corruption resulted in the closure of several significant banks. Reform efforts spurred by the International Monetary Fund (IMF) and World Bank helped restore some credibility to Paraguay’s banking industry. Still, a paucity of credit options hinders the overall economy. Paraguay has a long history as a money-laundering center. The government has taken steps to curb the problem, but enforcement of anti-laundering legislation remains inconsistent.[1]

Foreign companies either partially or wholly own most banks and financial institutions in Paraguay. Paraguayan banks hold less than 10 percent of deposits. Of the 16 banks operating in Paraguay in 2003, 50 percent were wholly foreign-owned and 25 percent were partially owned by foreign companies. Paraguay’s Central Bank exists to stabilize the financial sector, making sure that another run on banks, such as the one that occurred in 1995, does not recur. The Superintendencia de Bancos regulates the banking system, monitoring the percentage of non-performing loans in the banking system. Bank deposits rose significantly in 2004, along with the percentage of local currency in total deposits. Local currency deposits increased by 26 percent in 2004, a sign that Paraguayans are gaining confidence in the stability of Paraguayan currency. In another promising development, interest rates dropped dramatically in 2004, from 50 percent in 2003 to 27 percent in 2004.[1]

Paraguay’s stock market, the Bolsa de Valores y Productos de Asunción, began trading in October 1993. The tradition of family-owned companies and economic instability kept investment low throughout the 1990s. The value of shares on the Asunción stock exchange rose by 390 percent in 2004, reaching US$17.5 million.[1]

Labour

Paraguay’s formal labour force was estimated to total about 2.7 million workers in 2004. About 45 percent worked in the agricultural sector, 31 percent in the industrial sector, and 19 percent in the services sector. Unemployment was estimated at about 15 percent. Paraguay’s constitution guarantees the right of workers to unionize and bargain collectively. About 15 percent of workers are members of one of Paraguay’s 1,600 unions. Strikes are legal and not uncommon.[1]

The 2001 census found that 5 percent of Paraguay’s workforce was under the age of 14. Although Paraguay ratified the International Labour Organization’s Minimum Age Convention in 2004, child labour continues to be prevalent. Nearly 14 percent of children between the ages of 5 and 17 are employed, many in poor conditions and for negligible pay. The government has mandated a minimum wage of approximately US$158 per month for private-sector employees. Government employees have no minimum wage. The standard workweek is 48 hours. In 2004 Paraguay’s unemployment rate stood at 15 percent.[1]

Currency, exchange rate, and inflation

Paraguay’s currency is the guarani (PYG). In mid-October 2005, US$1 equaled about PYG6155.[1]

Price inflation fell dramatically between 2003 and 2004, from 14.2 percent to a 30-year low of 4.3 percent. President’s Duarte’s economic reforms and austerity programs have produced results more rapidly than many expected. As of 2005, experts forecast that the inflation rate in Paraguay likely would rise in coming years but remain below 10 percent.[1]

Foreign economic relations

Paraguay is a member of the Common Market of the South (Mercado Común del Sur or Mercosur). Most of Paraguay’s trade takes place with neighbors Brazil and Argentina. In 2002 Paraguay conducted more than US$400 million in trade with Argentina and nearly US$800 million with Brazil. Paraguay is also a member of the Inter-American Development Bank, Latin American Integration Association, and Latin American Economic System and a signatory to the agreement creating the South American Community of Nations. In 2004 Paraguay signed an energy cooperation agreement with Venezuela to purchase oil and petroleum. Venezuela agreed to concessional financing that allowed Paraguay to pay over a 15-year period at a nominal interest rate.[1]

Imports totaled US$3.3 billion in 2004. Principal import commodities included automobiles, chemical products, consumer goods, tobacco, petroleum, and machinery. Brazil was the leading source of imports to Paraguay (24.3 percent), followed by the United States (22.3 percent), Argentina (16.2 percent), China (9.9 percent), and Hong Kong (5 percent). Experts note that import statistics are difficult to confirm for Paraguay because as much as half of all imports are illegally re-exported to Argentina or Brazil. Imports from Mercosur countries continue to rise, up to 57 percent in 2003.[1]

Paraguay’s export revenues totaled about US$2.9 billion in 2004. Agricultural commodities continue to drive Paraguay’s export totals. Soybeans are particularly vital, accounting for 35 percent of total export revenues in 2003. Other agricultural cash crops include cotton, sugarcane, cassava, sunflowers, wheat, and corn. Other significant exports include feed, meat, edible oils, electricity, wood, and leather. Even as Paraguayan export revenue has fluctuated, Brazil remained Paraguay’s principal export destination (27.8 percent in 2004), followed by Uruguay (15.9 percent), Italy (7.1 percent), Switzerland (5.6 percent), Argentina (4.3 percent), and the Netherlands (4.2 percent). In 2003 nearly 60 percent of Paraguayan exports went to Mercosur countries.[1]

Paraguay had a negative trade balance of about US$400 million in 2004. Higher earnings from soybeans and cotton could not offset the surge in imported consumer goods and petroleum products.[1]

After years of negative balances, Paraguay achieved a positive balance of payments totaling US$234 million in 2003. In 2004, however, the current account had an estimated deficit of US$35.1 million.[1]

Paraguay has a sustainable debt level according to the International Monetary Fund (IMF). External debt totaled about US$3.4 billion in 2004, low compared to most Latin American countries. Continued reductions in Paraguay’s debt to gross domestic product ratio are expected in coming years. Paraguay paid US$412 million in debt service to the IMF in 2004.[1]

Foreign investment in Paraguay nearly disappeared in 2002. After direct foreign investment of US$84 million in 2001, only US$9 million in investment came from abroad in 2002. This drop was largely the result of the financial crisis in Argentina and the banking collapse in Paraguay. Direct foreign investment rebounded in 2003, reaching US$90.8 million for the year.[1]

Paraguay has depended on the International Monetary Fund (IMF) and World Bank for economic development assistance. The World Bank has promised Paraguay assistance totaling US$325 million between 2003 and 2007. Projects currently underway in Paraguay aim to improve education, transportation, and rural development.[1]

Transport

The Paraguayan road network includes almost 4,500 kilometers of paved roads and nearly 60,000 kilometers of secondary roads. The density of the road network is higher in the oriental region, and lower in the Chaco area. However, in 2007 a paved connection to the Bolivian border was completed across the Chaco region.

The Paraguay-Paraná waterway constitutes an essential route for the transport of exported and imported goods.

The railway which connects Asunción to Encarnación actually doesn’t operate, but there is still a connection between Encarnación and Posadas (Argentina) for the transport of agricultural goods.

Paraguay has two international airports, Silvio Pettirossi International Airport, in Asunción, and Guarani International Airport, in Ciudad del Este, and several secondary airports in other parts of the country.

Media and communications

There are five national newspapers and a larger number of local publications. There are five Paraguayan TV stations. Additionally, essential international stations can be received by cable in the main urban areas.

The fixed line network is controlled by the state-owned COPACO Company. The cell phone network is open to private operators. There are four competing mobile phone operators in Paraguay. During the last few years mobile phone coverage of the population has been far more extensive than fixed line coverage.

Statistics

GDP (purchasing power parity): $30.9 billion (2005 est.)

GDP (official exchange rate): $7.586 billion (2005 est.)

GDP - real growth rate: 3.3% (2005 est.)

GDP - per capita: purchasing power parity - $4,900 (2005 est.)

GDP - composition by sector:

  • agriculture: 27.5%
  • industry: 24%
  • services: 48.5% (2005 est.)

Labor force: 2.68 million (2005 est.)

Labor force - by occupation: agriculture 45%

Unemployment rate: 16% (2005 est.)

Population below poverty line: 32% (2005 est.)

Household income or consumption by percentage share:

  • lowest 10%: 0.5%
  • highest 10%: 43.8% (1998)

Distribution of family income - Gini index: 56.8 (1999)

Inflation rate (consumer prices): 7.5% (2005 est.)

Investment (gross fixed): 20.1% of GDP (2005 est.)

Budget:

  • revenues: $1.334 billion
  • expenditures: $1.37 billion, including capital expenditures of $700 million (2005 est.)

Public debt: 36.1% of GDP (2005 est.)

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

Industries: sugar, cement, textiles, beverages, wood products, steel, metallurgic, electric power

Industrial production growth rate: 0% (2000 est.)

Electricity:

  • production: 51.29 billion kWh (2003)
  • consumption: 3.528 billion kWh (2003)
  • exports: 44.17 billion kWh (2003)
  • imports: 0 kWh (2003)

Electricity - production by source:

  • fossil fuel: 0%
  • hydro: 99.9%
  • nuclear: 0%
  • other: 0.1% (2001)

Oil:

  • production: 0 bbl/day (2003 est.)
  • consumption: 25,000 bbl/day (2003 est.)
  • exports: NA (2001)
  • imports: NA (2001)

Current account balance: $-170 million (2005 est.)

Exports: $3.13 billion f.o.b. (2005 est.)

Exports - partners: Uruguay 27.8%, Brazil 19.2%, Argentina 6.3%, Switzerland 4.1% (2004)

Imports: $3.832 billion f.o.b. (2005 est.)

Imports - partners: Brazil 30.9%, Argentina 23.3%, China 16.6%, US 4% (2004)

Reserves of foreign exchange and gold: $1.293 billion (2005 est.)

Debt - external: $3.535 billion (2005 est.)

Economic aid - recipient: NA

Currency: 1 Guarani (G) = 100 centimos

Exchange rates: guarani (G) per US$ - 6,158.47 (2005), 5,974.6 (2004), 6,424.34 (2003), 5,716.26 (2002), 4,105.92 (2001), 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

References

External links


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