PARAGUAY

Republic of Paraguay

República del Paraguay

COUNTRY OVERVIEW

LOCATION AND SIZE.

Paraguay is located in the center of the southern half of South America, northeast of Argentina. It is also bordered by Bolivia to the northwest and Brazil to the east. With an area of 406,750 square kilometers (157,046 square miles), Paraguay is almost as large as the state of California. Asunción, the nation's capital, is situated on the easternmost point of the Argentine border, just south of the center of Paraguay. The nation is landlocked, which sets it apart from virtually all of Latin America, and could be seen as a detriment to the nation's economy. Major cities that provide river ports, such as Asunción, Villeta, and Encarnación (both to the south of Asunción), help to alleviate the economic consequences of the nation's lack of coastline. Ciudad del Este, a commercial center on the Parana River, is another important city to the east of the capital. Paraguay's Argentine border to the southwest measures 1,880 kilometers (1,168 miles), its Bolivian border is 750 kilometers (466 miles), and the Brazilian border is 1,290 kilometers (802 miles).

POPULATION.

Recent estimates place the population of Paraguay at 5,734,139 (July 2001). Due to its Spanish colonization and heritage, at least 90 percent of the population is Roman Catholic and 95 percent of the population is mestizo (a racial mix of Spanish and Amerindian) This makes the population surprisingly homogenous in comparison to most of Latin America. The mestizo population has strong pride in their Guaraní (the primary indigenous group and culture of Paraguay) ancestry and traditions. Spanish was the only official language until 1992 when Guaraní also became an official language. Guaraní is spoken by approximately 90 percent of the population. Spanish is used predominantly in business and government matters, but both languages are utilized in education. At least half of the population is bilingual.

People between the ages of 0 and 14 make up 39 percent of the population, while those between the ages of 15 and 64 constitute 56 percent. At least half of this second age group is below 30 years of age, making two-thirds of the population younger than 30. The population of Paraguay grew from 2.4 million to 4.3 million between 1970 and 1990 (80 percent), and grew 30 percent from 1990 to 2000. With a yearly population growth rate of 2.6 percent as of 2001, the population is estimated to reach 6,980,000 by 2010. The average life expectancy of the population is 73.92 years (2001 est.).

Migration to the urban areas of Paraguay is common, but more than half of the nation's population still lives in rural areas, mostly in the east. Only about 5 percent of the population lives west of the Paraguay River. High rates of emigration from 1950 to 2000 have contributed to the large percentage (40 percent) of Paraguayans living outside their country and help to alleviate the high growth rate. Many Paraguayans have historically emigrated to Argentina, particularly during and after the Chaco War of 1936 and the Civil War of 1947, and also during the 1950s and 1970s. Paraguay has one of the world's lowest population densities. The nation's most densely populated area is Asunción and its surroundings. The Colorado Party's clientelistic agrarian reform (giving unused land outside of Asunción to the party's supporters in exchange for political favors or funding) of the 1960s helped to alleviate overcrowding in the capital by drawing peasant labor into previously unused territory. However, the effects were not lasting and overcrowding is still a problem today.

One of the most surprising features of the Paraguayan population is its high literacy rate of more than 92 percent despite its poorly-developed education system. School is mandatory only between the ages of 7 and 13 and this requirement is not well enforced. There are insufficient numbers of primary and secondary schools and severe shortages of educational resources, especially in rural areas. The shortage is worst at the secondary level. There are only 2 universities, vocational schools are concentrated in the main cities, and there is a severe shortage of teaching resources throughout the nation.

OVERVIEW OF ECONOMY

Paraguay's geographic location has had a large impact on its economic development. Being one of only two landlocked nations in all of South America, Paraguay has had to rely on its rivers for transportation and trade routes and has developed a sufficient network of roads, highways, railways, and airports to increase trade possibilities. The Paraguay and Parana Rivers provide direct routes to the Atlantic Ocean through Brazilian territory, and the U.S., Japan, Germany, Italy, and the Netherlands now use these routes for imports and exports. Paraguay has also turned to its rivers for a power source. In fact, due to its substantial hydroelectric power, the nation is on its way to becoming one of the world's largest producers of power. In addition to commerce and power production, Paraguay also relies on agriculture, but only one-fifth of the nation's land is arable and even less is actually farmed. Still, almost half of the nation's workforce is in agriculture and particularly subsistence farming (growing only enough to survive). The country is self-sufficient in food production, but the agricultural sector has suffered from unpredictable weather and climate conditions and changing world market prices.

Paraguay also relies heavily on Ciudad del Este, the world's third-largest retail center. This city is a border town on the Parana River (on the Brazilian border) and as a result is susceptible to heavy smuggling. Crime is also a serious problem there and the police force of Ciudad del Este is suspected of widespread corruption. Store-owners have hired guards to monitor their stores around the clock, and these guards outnumber police officers by more than 5 to 1. The mayor even has 4 bodyguards at all times. Theft is prevalent. Crime is a less extreme problem in Asunción.

Paraguay has strong commerce, power, agriculture, and retail sectors, but most of the economy's strengths tend to be focused in small areas. The retail sector is concentrated in Ciudad del Este, tourism is concentrated in the capital, and the power industry, trade, and transport are concentrated along the Paraguay and Parana Rivers. Despite these specific areas with strong, focused economic sectors, Paraguay is still one of South America's less-developed nations in an economic sense.

General Alfredo Stroessner, president from 1954 to 1989, encouraged private investment at both domestic and international levels, especially in commercial agriculture ventures. He emphasized cotton and soybean production through government favors in terms of land and money. Before the 1970s, public investment was low and focused mainly on the expansion of infrastructure and communications, but after the 1970s, several new state-owned businesses increased public sector spending and employment rates. During the 1970s and early 1980s, Paraguay offset its crippling foreign debt and trade deficit with international loans, but paying back these loans in the years to come weakened the national economy. The economic growth of the 1970s did not benefit the entire nation equitably, but did benefit the police and military, as well as the upper class involved in business, agro-industry, and industry. The military and the agro-industrial elite both had ties to the Colorado Party in power. The working class was held back by low wages and limitations placed on the activities of labor unions.

Foreign investment has played a substantial role in Paraguay's economic growth, particularly in the 1970s and 1980s. Joint ventures with Brazil and Argentina in building hydroelectric power plants gave Paraguay a surplus of power and made it a leading power producer. Also, the government tried to attract foreign investors through low income taxes and tax exemptions during this time.

The years of President Andres Rodriguez (1989-93) were marked by reforms implemented to ensure transition to a market economy. He abolished the multiple exchange rates , low-cost subsidies to state enterprises, and export taxes. He also privatized several state enterprises and broke up state monopolies in telephone, water, and energy. Ecuador's airline, Cielos de America, bought 80 percent of the national Paraguayan airline; the remaining 20 percent was reserved for employees. The trade deficit caused by the international loans of the early 1980s was severely exaggerated by inaccurate figures stemming from large-scale smuggling, until Rodriguez's reforms weakened the causes of smuggling.

The 1990s were marked by substantial foreign investment in the form of multinational corporations . Joint ventures using foreign capital to spur domestic development include hydroelectric power plants built with Argentina and Brazil, cotton mills and spinning plants built with Italy and Brazil, and foreign oil companies searching for possible drilling sites. The late 1990s have been a time of consolidation in the transition to a market economy, but the national economy is still underdeveloped in comparison to other Latin American nations.

POLITICS, GOVERNMENT, AND TAXATION

According to the 1992 Constitution, Paraguay is a representative democracy that embraces separation of powers. The government has 3 branches: the legislative, the executive, and the judiciary. The legislative branch, called the Congress, is comprised of the Senate (with at least 45 members) and the Chamber of Deputies (with at least 80 members). Members of Congress are popularly elected from Paraguay's 17 departments (states) for 5-year terms that coincide with the president's 5-year term. The president is chief executive and Commander in Chief of both the armed forces and the police. Emergency powers to declare a state of exception (suspending the constitution) in times of war or unrest belong to both the president and Congress.

The judiciary includes a Supreme Court of 9 Supreme Court Justices, who are appointed by the president and the Senate for 5-year terms, which are renewable. Judges cannot be removed after 2 consecutive terms until they reach retirement age. The Supreme Court controls its own budget and heads a system of lower courts and magistrates.

On the local level, each of the 17 departments popularly elects a governor and a departmental board, as well as local mayors. The Electoral Code ensures that everyone over 18 years of age votes, and congressional seats are filled by a proportional representation system (a proportional representation system ensures that one area of the nation is not over-represented or under-represented in comparison to another in terms of population).

The Paraguayan government has played a large role in the nation's economy, most notably in the last half of the 20th century. In the 1960s, the government used incentives to encourage the settlement of undeveloped or unused rural areas, to alleviate overcrowding in the Asunción metropolis, and to stave off Brazilian territorial advance (Brazil and Paraguay have a history of border disputes) in the area. Most of the land sold during this agrarian reform was to people with connections to the ruling Colorado Party. These landowners produced large quantities of soybeans for profitable international agro-industries. Also when the Colorado Party replaced the Liberals in power in 1954, officials directed government favors and funds to soybean and cotton producers, which developed a strong system of clientelism. While the Colorado Party is responsible for the birth of heavy cotton and soybean production, which spurred growth in the agricultural sector and now account for two-thirds of all agricultural exports, it also encouraged the widespread exploitation of peasant labor. The party's clientelistic focus on the elite widened the gap between the small upper class and the poor masses. The Colorado Party, which has strong military ties, has dominated Paraguayan politics and government for the last half of the 20th century.

Beginning in the 1970s, the Stroessner government (1954-89) used low income taxes and tax exemptions to attract foreign capital and foreign investment. The government handed out state subsidies for farming as well. The Rodriguez government (1989-93) continued to encourage foreign investment while implementing market reforms, beginning in 1989. Rodriguez put an end to the multiple exchange rates, expensive subsidies for state enterprises, and export taxes. The government also privatized several important state-run companies.

The Stroessner government placed strict controls on labor unions and maintained low minimum wages. As a result of Paraguayan labor laws, the U.S. placed trade restrictions on Paraguay but continued to trade with the country as a part of its Cold War policy. Labor union activism was low in Paraguay until the very late 1980s, when unions began to garner more political influence. As several labor unions emerged, particularly the Unitary Workers Central, the United States and Paraguay reinstated the Generalized System of Preferences (GSP). The GSP is a trade incentive package making trade between developed nations and developing nations profitable for each party. The 1990s spurred the Paraguayan Workers Confederation and the National Workers Central, and these 3 unions are now strong political interest groups in Paraguay. The new Constitution of 1992 embraced workers' rights, protecting the right to strike and the freedom of association.

The 1990s have been a decade of fast political changes including: an attempted coup, President Cubas's implication in the assassination of his vice president Luis María Argaña, Senate head Luis Gonzalez Macchi stepping up to assume the presidency, and the election of liberal vice president Julio Cesar Franco. Despite this political instability, the 1990s were a decade of heavy government involvement in economics. Paraguay liberalized and deregulated much of its economy, eliminating foreign exchange controls, reducing tariffs , establishing tax incentives and exemptions to stimulate foreign investment, creating a stock market, and restructuring the tax system. Paraguay has South America's least burdensome tax system. There is no personal income tax, business taxes are limited, and there is a value-added tax (VAT) of 10 percent. Investors in their first 5 years are eligible for tax exemptions of 95 percent and the duty -free import of capital goods . Corporate taxes are 30 percent but reinvested profit is only taxed 10 percent, which also encourages long-term investment and growth.

Today, there are 2 main political parties, each of which is an alliance: the Colorado Party (formally called the National Republican Association/Colorado Party) and the Democratic Alliance, which includes the EN (Encuentro Nacional) and the PLRA (Partido Liberal Radical Auténtico), a left-wing radical party. Both the Colorado Party and the Democratic Alliance formally support social equality and oppose the exploitation of the working class. The focus on working class economic issues has been magnified in the 1990s, as labor unions and organizations have gained power.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

In economic terms, Paraguay has depended heavily on its rivers, especially in the 20th century. Waterways provide 3,100 kilometers (1,926 miles) of transport paths. Most international trade flows through the Paraguay and Parana Rivers, which connect Asunción to the Atlantic

Ocean through Brazilian territory. These 2 rivers have helped alleviate the consequences of Paraguay's land-locked location. Paraguay's Flota Mercante del Estado, a merchant marine owned and operated by the state, has transported cargo on the Paraguay and Parana Rivers since 1945.

Towards the end of the 20th century, more and more freight has been carried along roads, notably to Buenos Aires, Argentina, and Santos and Paranaguá in Brazil. Paraguay has a sufficient network of roads and bridges, but about half of the roads are still unpaved. 15,000 of the 29,500 kilometers of roads were paved as of 1999. Major highways connect Asunción to Ciudad del Este, Paranaguá, and Encarnación. Another highway runs from Villa Hayes across the Chaco region to the Bolivian border.

Paraguay's railway system is limited. The railway Ferrocarril Presidente Carlos Antonio López, which stretches 441 kilometers (274 miles) from Asunción to Encarnación, makes up much of the railway system in Paraguay. Railways total 971 kilometers (603 miles), which includes privately-owned railways as well. The nation's airport network, however, is much broader. With 937 airports, Paraguay's most notable airports are the government-owned Líneas Aéreas Paraguayas, opened in 1962, and the modern international Silvio Pettirossi, established in 1980 near Asunción. Only 11 airports had paved runways as of 2000. Combined, Paraguay's network of roads, rivers, railways, and airports facilitates its strong trade and transport industry.

Paraguay has substantial economic potential in hydroelectric power, which accounted for 99.79 percent of the nation's electricity in 1999. Paraguay depended on thermoelectric power plants, located in the capital, that burned wood and oil until 1968. That year, the Acaray hydroelectric power plant was built, and there have also been large joint ventures in hydroelectricity with Argentina and Brazil. The government-owned National Power Company distributes all electricity.

The communications network in Paraguay is limited in terms of its population size. There is insufficient telephone service and poor connections outside of Asunción and its surrounding area. Still, much of the population has access to newspapers, radios, and televisions, and depends on them for news and information. The nation has 4 television stations (2001), 79 radio stations (1997), and 4 Internet service providers (1999). Foreign investment has pushed the communications technology of the nation ahead in recent years. In the mid-1990s, for example, PanAmSat signed a 15-year contract with 2 Paraguayan television stations to provide satellite service.

ECONOMIC SECTORS

In Paraguay, while agriculture contributes 28 percent of the GDP, 21 percent comes from industry and 51 percent comes from services (1999 est.). Some 45 percent of the population depends on agriculture, particularly subsistence farming. Agricultural concentrations include livestock, lumber, and a variety of crops, which depend heavily on the varying climate and conditions. The industrial sector experienced a boom in hydroelectric power and construction during 1980, but since then hydroelectricity accounts for most of the industrial sector output. Trade and transport dominate the service sector, which has yet to fully realize its potential in areas such as banking and tourism. The tourist industry is developing in Asunción, but outside of the capital, tourism is virtually nonexistent.

AGRICULTURE

Agriculture provides 28 percent of Paraguay's GDP, but 45 percent of the population actually depends on agriculture and subsistence farming. This agricultural activity utilizes less than 6 percent of the nation's most arable land, concentrated in the east. Until 1970, the nation depended heavily on the production of meat, tobacco, and yerba maté (a tea). These highly-emphasized products have now been replaced by soybeans and cotton grown largely in the east.

Soybean production became important during the agrarian reform policies of the 1960s. The government sold cheap land to affiliates of the Colorado Party, which dominated the government at that time. These landowners were involved in highly profitable international agro-industrial agreements that called for large-scale production of soybeans. The government claimed that the agrarian reform would help alleviate overcrowding in the capital while developing unused land in the east. Cotton also emerged as a dominant export. The Colorado Party encouraged cotton production through government favors, but in the process encouraged the exploitation of peasant laborers as well. Nevertheless, soybeans and cotton now account for two-thirds of the nation's agricultural exports.

Cotton produced in Paraguay had generally been exported unprocessed until the 1990s. In the mid-1990s, an Italian-Paraguayan group built a US$10 million computerized cotton-spinning plant just outside of Asunción. Spinning the cotton domestically adds 140 percent profit to its export. It is exported primarily to Italy and Brazil. Brazilian investors have also built and renovated many other cotton mills in Paraguay. If the cotton industry continues to develop and farming is mechanized, many rural farmers who grow cotton may be put out of work.

Other important agricultural goods include coffee, corn, rice, wheat, citrus fruits, sugarcane, and peanuts. Paraguay produces some marijuana as well. Paraguay's productive agricultural sector makes the nation practically self-sufficient in food products.

Livestock is raised in the west, particularly in the Chaco region. Though pigs, sheep, horses, and chickens are raised, by far the most important livestock is cattle. Meat, dairy products, and hides are used both domestically and for export. Timber is another important export. Though Paraguay has utilized its rivers for transport, it has not yet developed a commercial fishing industry to tap into the abundance of fish.

INDUSTRY

Despite high industrial growth rates in the late 1970s and 1980s, manufacturing and mining have remained undeveloped. Paraguay manufactures little more than its own food products. The industrial boom climaxed in the middle of 1979 and was centered in hydroelectric power and related construction projects. Today the industry sector accounts for 21 percent of the national GDP. Of that 21 percent of GDP, more than 75 percent comes from the manufacturing of such goods as cement, sugar, textiles, beverages, and wood products. Manufacturing provides jobs for 13 percent of the workforce . Fully manufactured exports account for only 5 percent of all exports, but semi-processed agricultural goods make up 72 percent of all exports.

ENERGY.

Paraguay's energy industry has thrived on its hydroelectric potential. Hydroelectric power replaced thermo power (power from burning wood and oil) around 1970. In 1968, Asunción's Acary hydroelectricity plant began operating, and in 1973 Paraguay and Brazil together built the US$20 billion Itaipu plant by the Parana River. This joint venture made history as Brazil bore most of the cost and Paraguayan electricity production grew 15-fold from 1970 to 1990. Initial arrangements that benefited

Brazil were later modified in 1985 to ensure that Paraguay received fair compensation. Paraguay also built a dam on the Parana to create a reservoir that spans a total of 870 miles in Paraguay and Brazil. The 1990s were marked by Paraguay's joint venture with Argentina to build a hydroelectric power plant on a chain of islands in the Parana. Combined, Paraguay's ventures in hydro-electric power have ensured that the nation will become one of the world's top producers of hydroelectric power in the 21st century.

In 1999, Paraguay generated 51.554 billion kilowatt hours (bkwh) per year, but only consumed 1.915 bkwh that year. In 1999, Paraguay sold 46.03 bkwh of power for export, primarily to Brazil and Argentina, making power a large source of export earnings. Itaípu's earnings reached a record US$420 million in 1998 (equal to 15 percent of all exports) and Brazil purchased 97 percent of the plant's power. Several plans (including joint ventures with Argentina and Brazil) are being developed for expanding existing hydroelectric power plants and constructing new ones in the coming decade.

CONSTRUCTION.

In the late 1970s and early 1980s, construction grew rapidly, with a drastic rise in hydroelectric dam and power plant projects, infrastructure projects, and housing development in Asunción. The construction industry's resources were primarily found locally: lime, sand, wood, and stones. Since the mid 1980s, however, construction has fluctuated dramatically as old hydro-electric power plants and infrastructure projects were completed and then new projects were begun.

In response to a growing construction industry, the nation has invested large sums of money in expanding and modernizing the production of cement, metal, and steel. The government completed a US$200 million expansion of its largest cement plant, at Vallemi, in 1986. The plant had previously used outdated production techniques and had been operating well under capacity. This expansion was financed by French banks, but ended up burdening the economy since it still operated well below capacity and was over 500 kilometers outside of Asunción, far from most industrial activity. The government also owned Acepar, the largest steel plant, in the 1980s. Acepar alone is capable of producing 5 times the amount of steel Paraguay uses each year, and there are other large steel producers in the nation as well. Unfortunately, most development in construction-related industries like cement and steel took place after most of the nation's biggest hydroelectric and infrastructure projects. However, similar projects in the late 1990s and early 2000s are capitalizing on these industries.

MANUFACTURING.

Manufacturing of steel, cement, plastic, and wood products has risen since the late 1970s due to construction projects (hydroelectric power plants, infrastructure, and urban housing). Fully manufactured exports account for only 5 percent of all exports, but semi-processed agricultural goods make up 72 percent of all exports. Still, manufacturing is underdeveloped in Paraguay, and is characterized by many small-or medium-sized firms. The few larger firms are primarily foreign owned, and few companies operate at full capacity. Food, beverages, and tobacco have formed the largest manufacturing subsector; agriculture and lumber manufactures form the second-largest subsector; and textiles, clothing, leather, and shoes form the third.

MINING.

Paraguay also has a small, undeveloped mining industry, concentrated along the Paraguay River where most mineral deposits have been found. Gypsum, limestone, and clays are the most heavily used minerals and are exported mostly to the building trade. Other major minerals near the river include peat, marble, salt, copper, bauxite, iron, and uranium. Other regions of the nation that have not been fully utilized show deposits of manganese, malachite, azurite, feldspar, mica, and talc. Though resources are varied and local construction mines many resources itself, the mining industry still has not been fully developed.

SERVICES

The service sector accounts for 51 percent of the nation's total GDP. The most vital component of the service sector is trade and transport. In terms of trade the nation has profited greatly from its 2 major rivers, the Paraguay and the Parana, particularly in the last half of the 20th century. Other service industries do not yet play a significant role in the national economy. The finance industry is small and state-dominated, and the nation has not yet established a profitable tourism industry. With the exception of a small but developing tourism industry in Asunción, tourism-related business is virtually nonexistent and plays an insignificant role in the economy elsewhere.

TRADE AND TRANSPORT.

The Paraguay and Parana Rivers have allowed Paraguay to overcome its landlocked handicap in terms of trade and commerce. The 2 rivers join Paraguay to the Atlantic Ocean through Brazilian territory and allow for the export of such items as soybeans, cotton, meat, and timber. Aside from neighboring partners Brazil and Argentina, Paraguay's principal trading partners are in Europe: Germany, Italy, the Netherlands, and Switzerland. Paraguay also imports from Japan and the United States. All of these export and import partners utilize the Paraguay and the Parana trade routes. The nation's numerous airports, as well as its rail and highway networks, facilitate the development of this sector of the economy. Perhaps the most profitable variety of trade in Paraguay is re-export . Paraguay is widely known for its re-exporting of goods: over 50 percent of all goods imported are then re-exported for profit, with little or no change made to them. Smugglers also use this practice in the informal economy .

RETAIL.

Paraguay has a developing retail sector in the capital, but the biggest retail center lies in Ciudad del Este, a city on the Brazilian border. Ciudad del Este grew out of a merchants' town and now has more than 6,000 shops over 20 blocks in the heart of the downtown area alone. The streets are heavily peppered with tiny shops, table vendors, and even van vendors and walking vendors. These "shops" are responsible for at least one-third of all money circulating in Paraguay, and have put, on average, US$1 billion in Paraguayan merchandise into Brazil each month during the 1990s. The richest city in the nation, Ciudad del Este is the world's third-largest commercial center, behind only Miami and Hong Kong. Ciudad del Este has a large Asian population, with Chinese who specialize in toys, house wares, and school supplies, and Koreans who specialize in electronics. The city is also responsible for a great deal of trade with Eastern Asia. The smuggling of goods into Brazil and other countries is a big problem, though. Outside of Ciudad del Este, the retail sector in Paraguay is not well developed.

FINANCE.

The finance sector of Paraguay is underdeveloped. There are 2 main state banks: the Banco Central del Paraguay and the Banco Nacional de Fomento. The latter specifically handles credits and grants to agricultural ventures and entities in the manufacturing and lumber industries. Some international banks from other parts of Latin America, Europe, and the United States also have branches in Paraguay. The government encourages foreign investment and in the 1990s began developing a stock market, but there is still much more potential for growth in the finance sector.

TOURISM.

Tourism in Paraguay has developed very little outside of Asunción, despite the potential of attractions such as Ciudad del Este's retail area and ruins of Jesuit missions. The nation has only 11,000 beds (more than half in Asunción), 34 percent of which are in luxury or five-star hotels, and 52 percent of which are in three-or four-star hotels. Small establishments account for the remainder. Tourism brought in US$144 million annually in the late 1990s. Just over 400,000 tourists visit Paraguay each year, 70 percent of which come from Brazil, Argentina, and Uruguay. Ecotourism —tourism that focuses on nature and wildlife observation—is also growing.

INTERNATIONAL TRADE

Paraguay's main trading partners are Brazil, Argentina, the United States, the Netherlands, Germany, Italy, Japan, and Switzerland. Paraguay exports soybeans, meat products, cotton, oils, and timber principally to

Brazil and Argentina, as well as Germany, the Netherlands, Italy, and Sweden. Exports in 2000 totaled US$3.5 billion (not including the black market ). Most imports come from Brazil, Argentina, the United States, and Japan, including machinery, petroleum and petroleum products, chemicals, lubricants, electronics, consumer goods , and cars. Local industries rely heavily on these imported goods. Imports in 2000 totaled US$3.3 billion (not including the black market). Smuggling has been prevalent in Paraguay, and in the 1980s smuggling reached new heights, severely skewing the nation's official trade figures. Computers, sound equipment, cameras, liquor, and cigarettes are among the most popular items smuggled across the Brazilian and Argentine borders. Smuggling decreased somewhat in the 1990s, but the informal economy is still estimated to be at least as large as the formal economy.

U.S./Paraguayan economic relations are strong as of the early 21st century. Each year the United States imports more than US$40 million of goods from Paraguay and exports approximately US$1billion in goods to Paraguay. The United States has more than a dozen large multinational firms with Paraguayan subsidiaries, including firms in the computer, manufacturing, agro-industrial, banking, and service industries. The U.S. also has more than 75 businesses with agents in Paraguay. The Cold War of the 1970s and 1980s actually worked in Paraguay's favor. Despite numerous human rights violations, Paraguay still received substantial aid and trade privileges from the U.S., provided that Paraguay align itself with the United States against the Soviet Union. The U.S suspended its Generalized System of Preferences—a trade agreement with Paraguay—from 1987 to 1991, due to poor labor laws and working conditions in Paraguay.

Paraguay does belong to several international trade agreements and organizations. Aside from its trade agreement with the U.S., Paraguay also belongs to Mercosur, a free trade and common market agreement between the Southern Cone nations (Paraguay, Uruguay, Argentina, and Brazil). Joining Mercosur in 1991 benefited Paraguay greatly. Trade between Mercosur members increased from US$5 billion in 1991 to US$17 billion in 1996, and the Mercosur market accounted for 5 percent of the world's total GDP in the late 1990s, making the Mercosur market very attractive to foreign investors. Paraguay is a member of the Latin American Integration Association (formerly the Latin American Free Trade Agreement) as well.

MONEY

The Paraguayan currency has been remarkably stable in comparison to most of South America. The most significant hindrance to economic stability in Paraguayan history was the War of the Triple Alliance. This war, from 1865 to 1870, killed most of the nation's male population and devastated the national economy. Soon after, in 1870, the nation began reconstruction efforts and rebuilt the economy. The economy finally found stability again in the late 1910s and early 1920s.

The 1940s and 1950s were marked by price instability, and in response the government established the Banco Central, a central bank intended to perform many tasks. Its responsibilities included regulating credit, promoting economic activity, controlling inflation , and issuing currency. It also regulated banks (commercial, investment, and mortgage banks), savings and loans, finance companies and institutions, and capital markets. Further, the bank administered monetary controls and price stability. The Banco Central was successful until the 1980s. The 1970s and early 1980s showed rapid growth attributed to joint hydroelectric power ventures with Argentina and Brazil, but as the power plants were completed, the rapid economic growth came to an abrupt halt. The stable prices, credit expansion, and exchange rates of the 1960s and 1970s were replaced by the increasing inflation in the mid 1980s. By 1988, inflation had risen more than 30 percent. The Central Bank successfully tamed inflation with rising interest rates during the 1990s.

The growth of the 1970s allowed Paraguay to avoid the hyperinflation and the balance of payments crises that plagued the rest of the Southern Cone (Brazil, Argentina, and Uruguay). Large exports of soybeans and cotton also helped maintain growth and stability in the economy during this time, with the exception of a brief period from 1981 to 1983, when GDP fell more than 15 percent because of a combination of factors. Adverse weather shrank agricultural exports, currency in neighboring Brazil and Argentina was suffering devaluation , and trade relations with Brazil and Argentina were unfavorable.

From 1960 to 1982, the guaraní was consistently valued at 126 guaraní to the U.S. dollar. In 1982 a new foreign exchange system was introduced using multiple fixed exchange rates , but the new system was unsuccessful and the government implemented a free market foreign exchange system once again in 1984. The 1984 system, still in effect, strongly favors private enterprise and foreign investors.

The 1990s were a time of mixed results in economic development. The banking system is developing but still small. In 1992, the government approved measures to develop a stock market, and in 1995 Bolsa de Valores, the Asunción Stock Exchange, was created. It showed slower growth than expected at first, but now the stock market has grown and expanded to include many foreign corporations. Countries with companies listed the United States, South Africa, and Japan.

From 1993 to 1995, the GDP per capita increased by 18 percent and inflation dropped from 20 percent to 15 percent. In the late 1990s, though, Paraguay suffered from the devaluation of the currencies of other Mercosur member nations, particularly Brazil in 1998 and 1999. Still, the Paraguayan economy shrank only 0.06 percent in response to Brazil's devaluation of the real (Brazilian currency). Paraguay's currency value fluctuated little in the late 1990s, though many economists expected it would, due to severe political instability. The 2000 exchange rate showed G3,502 equal to US$1.

POVERTY AND WEALTH

Paraguay has an extreme gap between the small upper class and the large lower class, and there has historically been virtually no social mobility. Paraguay has the most unequal distribution of land in the region. Less than 10 percent of the population owned and controlled over 75 percent of the nation's land in the late 1990s, leaving much of the large rural population landless and living in extreme poverty. In the mid-1990s, nearly half of the farmers in Paraguay did not own land, according to Ramón López and Alberto Valdés, writing for the World Bank. The upper 10 percent of the population accounts for 46.6 percent of income and consumption, and

the upper 20 percent make up 62.4 percent of all income. The poorest 60 percent of the population earns less than 20 percent of the nation's income.

The extreme gap between the small upper class and the large lower class was widened by the clientelism of the Colorado Party during the last 50 years. During the 1960s, by selling most unused land to Colorado Party affiliates, the small elite class came to include a small, newly established agro-industrial elite class. These elites underpaid workers to maximize their own profits. Cotton and soybean producers (the elite landowners) continued to underpay peasant workers well into the 1980s, and the government kept labor unions weak and ineffective. Although the 1990s were a time of newly-developed strength for labor unions, the gap between the rich and the poor did not change significantly.

There are not enough schools or educational resources throughout the nation, but shortages are worst in poor, rural areas. Rural areas also have less effective health care available to them. Virtually all urban areas have access to safe water and good medical care, but only 15 percent of the rural population has access to safe drinking water and only 42 percent of the rural population has access to medical care. Despite these problems, it is important to note that Paraguay's government does subsidize education and health care. The government finances schools and makes teacher training courses available.

Paraguay's Social Insurance Institute (SII) oversees the social security system. Some 9.5 percent of employees' own earnings, 16.5 percent of employers' earnings, and 1.5 percent of government funds go toward social security. The Institute offers pensions for old age, invalidity, maternity, sick leave, and on-the-job injury. The SII also runs its own hospitals and health clinics.

Though as a rule there is little socioeconomic mobility in Paraguay (especially in agriculture), the commercial city of Ciudad del Este is the exception. In Ciudad del Este, a man pushing handcarts can work for US$15 a day, save up enough capital to buy a small spot on the street sidewalk and a table to sell goods. Then he can save enough money to buy a van and gradually work his way up the economic ladder.

WORKING CONDITIONS

The Stroessner government placed strict controls on labor unions and maintained low minimum wages from 1960s through the 1980s. As a result, labor union activism was low in Paraguay until the very late 1980s, when unions began to garner more political influence. As several labor unions emerged around 1990, the Unitary Workers Central, the Paraguayan Workers Confederation, and the National Workers Central all became strong political interest groups in Paraguay. The Paraguayan Workers Confederation (CPT) had 60,000 official members as of 1985, but claimed to represent 90 percent of the workforce. The CPT refused to comply with workers' strikes due to government control, and the union lost its membership in the International Labor Organization (ILO). Despite this new union activism in the 1990s, labor laws have improved very little. Only a small percentage of the workforce receives benefits like pensions, pay in times of illness, and medical care. Wages have only slightly increased in the late twentieth century.

Roughly 45 percent of the labor force works in agriculture, largely in subsistence farming. Though some of these workers receive government subsidies, they have no benefits or security and suffer from the changing climate and the fluctuation of the world market. The few workers who do receive benefits work in urban areas. As of 1998, unemployment had reached 12 percent, up 4 percent from 1996. An increasingly industrialized economy continues to threaten the jobs of farmers, still a considerable portion of the workforce.

Women in the workplace earn substantially less than men do, despite equal or greater education. Women with 6 years of education or less earn only half of men's salaries in equivalent jobs, while women having 7-13 years of education earn only 60-70 percent of men's salaries for the same positions. Women outnumber men in professional and technical occupations, but women occupy only 20 percent of the nation's administration and management jobs and only 5 percent of higher-level occupations. Social security does pay women on maternity leave half of their salary for a period of 12 weeks.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1500s. Paraguay is inhabited by Guaraní Indians before the Spaniards arrive.

1608. Spanish Jesuits take root in Paraguay after several failed colonization attempts. The Jesuits control reducciones (centers of religious conversion for the Guaraní Indians). These settlements are also centers of labor for agricultural production, manufacturing, and trade.

1767. Spanish landowners—envious of the military, political, and economic control of the Jesuits—expel the Jesuits to regain control of the area.

1776. Establishment of Viceroyalty of Rio de la Plata by the Spanish.

1811. Paraguay revolts against Spain to become a republic.

1865-1870. War of the Triple Alliance (against Brazil, Argentina, and Uruguay) decimates Paraguay's male population.

1870. New constitution begins reconstruction after war, but dictatorial oppression continues.

1932-1935. Chaco War against Bolivia: Paraguay wins western territory.

1954. General Alfredo Stroessner becomes president and remains in power until 1989.

1968. Acary power plant begins operation and Paraguay's national power production increases 15-fold from 1970-1990.

1970s. Government encourages foreign investment through tax incentives.

1970s. Soybeans and cotton replace tannin, meat, yerba maté, and tobacco as primary agricultural exports.

1970s-1980s. Despite serious human rights violations under the Stroessner regime, the U.S. continues to provide military aid because of Cold War policy.

1973. Itaipu hydroelectric power plant construction begins (finished in 1982) with Brazilian cooperation.

1980s. Foreign loans accruing interest begin to severely burden the economy.

1987. Generalized System of Preferences (trade agreement with U.S.) suspended because of poor labor laws.

1989. General Andrés Rodríguez leads coup that overthrows the Stroessner regime. Rodríguez becomes president in a multi-candidate election and announces that democracy has come to Paraguay. He enacts sweeping reforms to implement a market economy.

EARLY 1990s. Labor unions begin to grow in numbers and in political influence.

1991. Constituent Assembly elected to draft new constitution.

1991. Paraguay, Uruguay, Argentina, and Brazil sign Mercosur (a free trade agreement among the countries of the Southern Cone). Generalized System of Preferences reinstated between Paraguay and the United States.

1992. New constitution takes effect, making Paraguay a representative democracy. Government approves laws to encourage foreign investment and establish a stock market.

1993. Juan Carlos Wasmosy of the Colorado Party is elected as president. These elections are deemed fair and democratic by the world community.

1995. The Asuncion Stock Exchange, Bolsa de Valores, is established.

1997. Banking crisis strikes due to political corruption.

1998. Raúl Cubas Grau of the Colorado Party elected president in May.

1999. Vice president Luis María Argaña is assassinated in March and President Cubas, implicated, is forced out of office. Luis Gonzalez Macchi, the head of the senate, becomes president.

2000. Julio Cesar Franco of the Liberal Party is elected vice president. This is the Liberal Party's first major victory against the Colorado Party in 50 years.

FUTURE TRENDS

The 1990s were a time of many economic and political changes in Paraguay. The nation has become arguably more democratic and has implemented a market economy system, but still Paraguay remains one of Latin America's more underdeveloped nations in many ways. The future of Paraguay is uncertain: Paraguay faces the challenges of consolidating its semi-democracy and possibly further democratizing while developing its weak economy at the same time. Trade and transport, and imports and exports, continue to carry the Paraguayan economy as development is slow in agriculture, banking, tourism, mining, and industry.

Paraguay's membership in Mercosur is beneficial in terms of stability and growth prospects, but the other member nations are apprehensive as to whether or not Paraguay will successfully consolidate its recent democratic and market economy reforms. Spectrum Oil Corporation is currently exploring potential oil sites in and around the Chaco region. Foreign investment is steadily increasing due to government incentives and the size and success of the Mercosur market.

Furthermore, government incentives are designed to keep foreign investors' goods in the Paraguayan market, so foreign companies cannot exploit Paraguayan labor. Labor will not be simply performing tasks contributing to goods being shipped back out of the country to be sold elsewhere. The government also gives larger tax cuts to profits reinvested in the nation, which is conducive to sustaining long-term investment and development. The Paraguayan economy is growing at its most rapid pace since the late 1970s, but the growth rate is slower than some of its neighbors. Overall, prospects are good for economic growth and development in Paraguay's near future.

DEPENDENCIES

Paraguay has no territories or colonies.

BIBLIOGRAPHY

Embajada del Paraguay: Embassy of Paraguay. <http://www.magma.ca/~embapar/index.html>. Accessed March 2001.

Grinbaum, Ricardo. "In Paraguay, Smugglers' Paradise." World Press Review. Vol. 43, No. 1, January 1996.

López, Ramón, and Alberto Valdés. Poverty in Rural Latin America. Washington, D.C.: World Bank, 1996.

Pagan, Rafael A., Jr. "Paraguay Emerges as a Significant Southern Cone Market." Business America. Vol. 116, No. 8, August 1995.

Tradeport. Paraguay. <http://www.tradeport.org/ts/countries/paraguay/>. Accessed March 2001.

U.S. Central Intelligence Agency. World Factbook 2000: Paraguay. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed January 2001.

U.S. Department of State Background Notes. Background Notes: Paraguay. <http://www.state.gov/www/background_notes/paraguay_0799_bgn.html>. Accessed March 2001.

U.S. Energy Information Administration. Paraguay. <http://www.eia.doe.gov/emeu/cabs/paraguay.html>. Accessed March 2001.

U.S. Library of Congress. Paraguay: A Country Study. <http://lcweb2.loc.gov/frd/cs/pytoc.html>. Accessed March 2001.

Wilke, James W., editor. Statistical Abstract of Latin America. Volume 36. Los Angeles: UCLA Latin American Center Publications, 2000.

—David L. Childree

CAPITAL:

Asunción.

MONETARY UNIT:

Guaraní (G). Coins are in denominations of G500, G100, 50, 10, and 5. Paper currency is in denominations of G100,000, G50,000, 10,000, 5,000, and 1,000.

CHIEF EXPORTS:

Soybeans, feed, cotton, meat, and edible oils.

CHIEF IMPORTS:

Road vehicles, consumer goods, tobacco, petroleum products, and electrical machinery.

GROSS DOMESTIC PRODUCT:

US$26.2 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$3.5 billion (1999 est.). Imports: US$3.3 billion (2000 est.).