Paraguay : between growth and inequality

Paraguay sometimes referred to as “The heart of America”, is a landlocked nation situated in South America between Brazil, Argentina and Bolivia.

It was a member of MERCOSUR, a trading bloc which includes Brazil, Argentina, Uruguay but it was suspended in 2012 because of the previous president, Fernando Lugo, and Venezuela was admitted to replace Paraguay which prevented it from becoming a member. But with the new president, Horacio Cartes, the country will become again a member and benefit from commercial advantages.

The economy of the country is essentially based on agriculture. It is the fourth largest soy-bean producer in the world, but also the second-largest producer of stevia, the sixth-largest exporter of corn, the tenth-largest exporter of wheat and the 8th largest exporter of beef.

More and more people diverge from the agricultural activities to support their needs and turn to commercial activities in free commercial zones for example, like Ciudad Del Este located on the border with Brazil.

Between 1970 and 2013 the country had the highest economic growth in South America with an average rate of 7.2% per year.

However the importance of informal sector prevents from obtaining accurate economic measures. 

Boom times in Paraguay

In 2010 Paraguay had the greatest economic growth in South America, with a GDP growth rate of 14.3%, going ahead of its former partners of Mercosur and other regional economies like Chile.

This economic boom can be explained by the growing demand and high prices in the agricultural sector, especially in soy harvest. 

Soy 

In 2009-2010 the country experienced a record soybean harvest of 7.5 million tonnes, which is 1.5 million tonnes more than the previous season. The revenue of soybean exports in 2010 was expected to reach $2.3 billion.  

The main factor behind this expansion is the good climate conditions which played an important part in the record. Climate plays an important role for the harvest because the economy of the country depends on the weather but also the workers who live from agriculture are affected by this factor because if there are bad harvests they will earn less money and the purchasing power will decrease.

This expansion is also due to the open economy of the country as 80 percent of GDP is generated by exports and imports.

Despite this significant expansion, the economy of the country decreased in 2012 of 1.2% because of the poor soy harvest and a period of drought.

Even if Paraguay is the fourth biggest soy exporter, farmers are not as well equipped as their giant neighbours in Brazil and Argentina where big-scale farming and intensive production reign.

A soybean harvest in northern Brazil

These regions are more and more attractive and competitive for foreign investors in agriculture like the United States which invest in farmlands in Paraguay and Brazil, buying it, and employing local people. During recent years, new investors arrived in others sectors like the automobile, logistics, manufacturing goods with the purpose of supplying the Brazilian market.

Paraguay's attractiveness lies in low-cost electricity, low rate taxation and it geographical location.

Oil discovery

Recently President Energy, a British company, discovered oil in the region of Chaco, a Paraguayan basin which is arid, sparsely populated and where ranchers are the main inhabitants.

This discovery attracted a lot of explorers and oil companies because it represents a considerable commercial potential and a secure investment. A London-based company said that it may contain the equivalent of 200 million barrels of oil.

This oil will supply the domestic market in order to reduce the country’s reliance on imports of oil and gas.

Poverty persists

Despite these economic growths the country still one of the poorest of South America which is marked by social inequalities that’s why many economists think that it don’t reach all the population.

Actually the economic boom doesn’t mean anything to most Paraguayans because they don’t live it even if the country is one of the first of the continent in terms of GDP growth and because 80% of the land is own by only 1% of the population.

As the economic boom didn’t benefit to the population it mainly profits to big importers of agricultural machinery and banks but it has not an impact on workers because the growth is due to an intensive agriculture with big machinery which generates few jobs.

The poverty in Paraguay is also due to a non-existent social protection system, to a low tax burden of 12.4 percent the lowest in the Americas and the absence of personal taxation until 2013.

This explains why few people become richer and richer while the state is poor. The IMF focus on correct these problems in order to improve the social situation in the country.

A fisherman on the polluted waters of a small river within sight of the towers of Asunción

Moreover the growth of the agricultural sector is not reflected in the state’s income because this sector pays little tax revenue to the state.

Even if inflation is less than 2%, unemployment less than 6%, and the overall poverty rate has fallen to 32% in 2011 from 44% in 2003 Paraguay still has social inequalities, 20% of the population lives in extreme poverty with one dollar a day and another 36% live below poverty line.

Paraguay has a flourishing economy but the social context is put aside and it doesn’t benefit to the population as it should be. The country figured among the poorest countries of South America and the most unequal despite a favorable economic situation.

The country should spend more money on social issues because the more it is growing the more inequalities are increasing.

Emmanuelle Peysson