| PARAGUAY |
Economy:
Landlocked Paraguay has a market economy distinguished by a large informal sector,
featuring re-export of imported consumer goods to neighboring countries, as well as the
activities of thousands of microenterprises and urban street vendors. A large percentage
of the population, especially in rural areas, derives its living from agricultural activity, often
on a subsistence basis. Because of the importance of the informal sector, accurate
economic measures are difficult to obtain. On a per capita basis, real income has
stagnated at 1980 levels. The economy grew rapidly between 2003 and 2008 as growing
world demand for commodities combined with high prices and favorable weather to support
Paraguay's commodity-based export expansion. Paraguay is the sixth largest soy producer
in the world. Drought hit in 2008, reducing agricultural exports and slowing the economy
even before the onset of the global recession. The economy fell 3.8% in 2009, as lower
world demand and commodity prices caused exports to contract. The government reacted
by introducing fiscal and monetary stimulus packages. Growth resumed at a 14.5% level in
2010, the highest in South America. Political uncertainty, corruption, limited progress on
structural reform, and deficient infrastructure are the main obstacles to growth.
GDP (purchasing power parity):
$33.31 billion (2010 est.)
country comparison to the world: 105
$28.89 billion (2009 est.)
$30.05 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$18.48 billion (2010 est.)
GDP - real growth rate:
15.3% (2010 est.)
country comparison to the world: 2
-3.8% (2009 est.)
5.8% (2008 est.)
GDP - per capita (PPP):
$5,200 (2010 est.)
country comparison to the world: 145
$4,600 (2009 est.)
$4,800 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 21.8%
industry: 18.2%
services: 60.1% (2010 est.)
Exports - commodities:
soybeans, feed, cotton, meat, edible oils, electricity, wood, leather
Exports - partners:
Brazil 21%, Uruguay 17%, Chile 12%, Argentina 11%, Russia 4% (2009 est.)
Imports - commodities:
road vehicles, consumer goods, tobacco, petroleum products, electrical machinery,
tractors, chemicals, vehicle parts
Imports - partners:
China 30%, Brazil 23%, Argentina 16%, US 5% (2009 est.)
Executive Summary extracted from IMF report - Paraguay: Financial System
Stability Assessment—Update (July 2011)
The regulation and supervision of banks in Paraguay have undergone major progress
in many areas since the last Financial Sector Assessment Program (FSAP). A risk-based
approach to supervision is being implemented, and several prudential norms have been
strengthened, including on risk management, licensing, and “fit and proper” criteria for
banks’ board members and senior management. This progress has translated into
enhanced compliance with international standards and a significant improvement of
financial sector soundness, supported also by favorable macroeconomic conditions.
However, the regulatory constraints imposed by the banking and central bank laws
have limited the Central Bank of Paraguay (CBP)’s further progress towards an
effective risk-based supervisory framework. Given the increasing dynamism of the
Paraguayan economy and its financial sector, a solution should be found to address this
situation. The legal framework should be overhauled so that laws will establish principles
and general requirements, while leaving to the CBP the responsibility for establishing the
specific requirements and technical details.
Most banks appear resilient to shocks, although the exposure to large borrowers is high
and some small banks are exposed to significant liquidity risk. Two systemic banks have
CARs below or barely at the 10 percent minimum, if Basel I definitions were applied. A third
bank is also weak but not systemic.
Very rapid credit growth is creating conditions for a repetition of past boom and bust
cycles. Delays in withdrawing the monetary policy stimulus that was applied in response to
the global crisis, have contributed to this development by allowing a buildup of excess
liquidity and maintaining low interest rates for too long. While credit quality still appears
good and corporate borrowers do not seem to be excessively leveraged, conditions are
changing quickly as financial institutions are beginning to compete more aggressively for
market share.
The mission strongly recommends the adoption of measures that would moderate credit
growth and induce financial institutions to build cushions that can protect them and
their clients from a sudden reversal of conditions. In this regard, the tightening of
monetary policy should proceed faster, and regulations are needed quickly to bring the
definition of bank capital closer to international standards and ensure adequate
provisioning.
The mission supports current plans to introduce forward-looking provisions.
The recapitalization of the CBP is a key step toward addressing this and future
challenges to financial stability. The effective implementation of the CBP Capitalization
Law, approved in April 2010, is crucial for the CBP to redress a weak financial situation
that limits its sterilization capacity and, in turn, its ability to conduct monetary policy and
moderate credit growth. The mission encourages the ministry of finance (MoF) to start
formal discussions with the CBP and establish a work calendar so as to proceed quickly
with Paraguay’s banking system safety net is well developed but there is room for
improvement. In particular the rules governing early corrective action, the resolution
regime for systemic crises, and emergency liquidity assistance (ELA) should be
strengthened.
Additional contingent funding for the deposit insurance fund (FGD) is necessary given the
large size of coverage.
There has also been some progress in the supervision of cooperatives with appropriate
focus on the largest ones. However, their regulation and supervision still remain less
stringent than those of banks. Moreover, Instituto Nacional de Cooperativismo (INCOOP)
is constrained by insufficient resources and limited enforcement power. Its governance
structure also means that INCOOP’s supervisory role is compromised by conflicts of
interest that diminish its independence.
The mission encourages INCOOP to strengthen its supervisory approach and to
promote the development of a safety net for cooperatives. The mission recognizes the
cooperatives’ contribution to supporting economic growth and to making financial services
available to segments of the population that have so far been largely neglected by the
banking system. For this reason, it strongly encourages the sector and its supervisor to
adopt
(i) strong “fit and proper” rules that can ensure that only the most qualified persons (in
terms of integrity, capacity, and independence) manage the savings of their members; and
(ii) prudential rules and a safety net that can protect cooperatives from undue risks and
adverse changes in macroeconomic conditions, thus limiting potential spillovers to other
sectors. To avoid exacerbating moral hazard, the implementation of the liquidity scheme
and the deposit insurance fund should proceed after the soundness of the largest
cooperatives has been ascertained. There is some urgency to take action on these issues
in light of the results of the liquidity stress tests undertaken on cooperatives.
In order to start building a strong macro-prudential policy framework, the mission
recommends improving coordination and information sharing among all agencies
responsible for financial stability, and financial sector oversight. To this end, the mission
strongly encourages the authorities to set up a committee of all regulators at the highest
level.
Click here to view full report
Key Findings extracted from IMF Report - Paraguay: Article IV Consultation
(August 2011)
Context. The economy is projected to continue growing above potential in 2011, at a time
when overheating pressures have already emerged. Supportive macroeconomic
conditions will contribute to inflation of close to 10 percent this year and a widening
external current account deficit. While the banking system remains sound, risks are
increasing, mainly as a result of very rapid credit growth (40 percent), particularly credit in
foreign currency (58 percent). Economic policies need to be geared toward reducing
overheating pressures and protecting financial sector stability.
Monetary policy. Given current stimulative monetary conditions, tightening needs to
continue. The menu of options should include higher reserves requirements, especially to
address the very rapid expansion of credit in foreign currency. Continued exchange rate
flexibility would also help reduce inflationary pressures.
Fiscal policy. Fiscal policy is adding stimulus to activity and should become at least
neutral. It is important to contain current expenditure growth and save any revenue
overperformance. Pressures to further loosen fiscal policy ahead of the 2013 elections
also need to be resisted.
Macro-prudential and financial sector policies. Macro-prudential measures would help
address financial sector risks while contributing to reducing credit growth. Higher specific
provisions and stricter limits on loan-to-income ratios would help deal with very high
consumer credit growth and currency mismatches. It is also important to continue moving
forward with efforts to strengthen regulation and supervision of cooperatives, and address
legal constraints that limit a more effective risk-based supervision for banks.
Monetary policy framework. The recapitalization of the central bank (BCP) is crucial to
increase monetary policy’s room for maneuver. The recent decision to adopt inflation
targeting calls for increased efforts to clarify the BCP’s operational framework, including by
limiting FX intervention and thus sending a clearer signal that inflation is its main objective.
Click here to view full report
Banking
While there have been several closings of local banks by the Superintendent of Banks
over the past few years, Paraguayan operations of international banks or large regional
banks are sound. The Paraguayan banking system is stronger and more profitable and
stable than in past years. The Central Bank continues to improve prudential regulation
with assistance from the International Monetary Fund. As of January 2010, there were
14 private banks operating in the market, and one state-owned bank. Macro-economic
stability during the past years has led to a significant increase in private-sector deposits
and loans. The top three private banks had 63.2 percent of the USD 178 million total
utilities of the local private banking system in 2009. The system-wide level of non-
performing loans in 2009 was 1.6 percent of total loans.
The financial sector regulated by the Central Bank also includes 11 finance companies
dedicated to smaller consumer operations not served by banks. The banking system
operates mostly on short to medium term credit (12 months is the usual maximum for
commercial transactions, although private finance of vehicles and homes is available on
longer terms) in both local and foreign currency. There is also a large cooperative sector
in Paraguay which is self-regulated and does not fall under the purview of the Central
Bank. Cooperatives may have as much as a third of total financial system assets, but
cooperative assets are not included in Central Bank data.
Banks and finance companies are regulated by the Banking Superintendent, which is
housed within, and is under the direction of, the Central Bank of Paraguay. Deposits are
guaranteed up to 30 million Guaranies, approximately USD 6,031.36 at the yearly
average exchange rate for 2009 (Guaranies 4,974 to the U.S. dollar). The Central Bank
operates based on a modern law, 489/96, although it is not truly independent.
Stock Exchange
Paraguay has a relatively small Asuncion capital market that began operating in 1993.
As of 2009, the Asuncion Stock Exchange handled USD 99.2 million in transactions,
compared to a volume of USD 79.6 million transactions in 2008. The number of
companies traded is 87. The high cost of capital makes the market an attractive
alternative, but the fear by family enterprises of losing control has tempered enthusiasm
for public offerings. Most of the exchange’s volume occurs in fixed income securities.
Landlocked Paraguay has a market economy distinguished by a large informal sector,
featuring re-export of imported consumer goods to neighboring countries, as well as the
activities of thousands of microenterprises and urban street vendors. A large percentage
of the population, especially in rural areas, derives its living from agricultural activity, often
on a subsistence basis. Because of the importance of the informal sector, accurate
economic measures are difficult to obtain. On a per capita basis, real income has
stagnated at 1980 levels. The economy grew rapidly between 2003 and 2008 as growing
world demand for commodities combined with high prices and favorable weather to support
Paraguay's commodity-based export expansion. Paraguay is the sixth largest soy producer
in the world. Drought hit in 2008, reducing agricultural exports and slowing the economy
even before the onset of the global recession. The economy fell 3.8% in 2009, as lower
world demand and commodity prices caused exports to contract. The government reacted
by introducing fiscal and monetary stimulus packages. Growth resumed at a 14.5% level in
2010, the highest in South America. Political uncertainty, corruption, limited progress on
structural reform, and deficient infrastructure are the main obstacles to growth.
GDP (purchasing power parity):
$33.31 billion (2010 est.)
country comparison to the world: 105
$28.89 billion (2009 est.)
$30.05 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$18.48 billion (2010 est.)
GDP - real growth rate:
15.3% (2010 est.)
country comparison to the world: 2
-3.8% (2009 est.)
5.8% (2008 est.)
GDP - per capita (PPP):
$5,200 (2010 est.)
country comparison to the world: 145
$4,600 (2009 est.)
$4,800 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 21.8%
industry: 18.2%
services: 60.1% (2010 est.)
Exports - commodities:
soybeans, feed, cotton, meat, edible oils, electricity, wood, leather
Exports - partners:
Brazil 21%, Uruguay 17%, Chile 12%, Argentina 11%, Russia 4% (2009 est.)
Imports - commodities:
road vehicles, consumer goods, tobacco, petroleum products, electrical machinery,
tractors, chemicals, vehicle parts
Imports - partners:
China 30%, Brazil 23%, Argentina 16%, US 5% (2009 est.)
Executive Summary extracted from IMF report - Paraguay: Financial System
Stability Assessment—Update (July 2011)
The regulation and supervision of banks in Paraguay have undergone major progress
in many areas since the last Financial Sector Assessment Program (FSAP). A risk-based
approach to supervision is being implemented, and several prudential norms have been
strengthened, including on risk management, licensing, and “fit and proper” criteria for
banks’ board members and senior management. This progress has translated into
enhanced compliance with international standards and a significant improvement of
financial sector soundness, supported also by favorable macroeconomic conditions.
However, the regulatory constraints imposed by the banking and central bank laws
have limited the Central Bank of Paraguay (CBP)’s further progress towards an
effective risk-based supervisory framework. Given the increasing dynamism of the
Paraguayan economy and its financial sector, a solution should be found to address this
situation. The legal framework should be overhauled so that laws will establish principles
and general requirements, while leaving to the CBP the responsibility for establishing the
specific requirements and technical details.
Most banks appear resilient to shocks, although the exposure to large borrowers is high
and some small banks are exposed to significant liquidity risk. Two systemic banks have
CARs below or barely at the 10 percent minimum, if Basel I definitions were applied. A third
bank is also weak but not systemic.
Very rapid credit growth is creating conditions for a repetition of past boom and bust
cycles. Delays in withdrawing the monetary policy stimulus that was applied in response to
the global crisis, have contributed to this development by allowing a buildup of excess
liquidity and maintaining low interest rates for too long. While credit quality still appears
good and corporate borrowers do not seem to be excessively leveraged, conditions are
changing quickly as financial institutions are beginning to compete more aggressively for
market share.
The mission strongly recommends the adoption of measures that would moderate credit
growth and induce financial institutions to build cushions that can protect them and
their clients from a sudden reversal of conditions. In this regard, the tightening of
monetary policy should proceed faster, and regulations are needed quickly to bring the
definition of bank capital closer to international standards and ensure adequate
provisioning.
The mission supports current plans to introduce forward-looking provisions.
The recapitalization of the CBP is a key step toward addressing this and future
challenges to financial stability. The effective implementation of the CBP Capitalization
Law, approved in April 2010, is crucial for the CBP to redress a weak financial situation
that limits its sterilization capacity and, in turn, its ability to conduct monetary policy and
moderate credit growth. The mission encourages the ministry of finance (MoF) to start
formal discussions with the CBP and establish a work calendar so as to proceed quickly
with Paraguay’s banking system safety net is well developed but there is room for
improvement. In particular the rules governing early corrective action, the resolution
regime for systemic crises, and emergency liquidity assistance (ELA) should be
strengthened.
Additional contingent funding for the deposit insurance fund (FGD) is necessary given the
large size of coverage.
There has also been some progress in the supervision of cooperatives with appropriate
focus on the largest ones. However, their regulation and supervision still remain less
stringent than those of banks. Moreover, Instituto Nacional de Cooperativismo (INCOOP)
is constrained by insufficient resources and limited enforcement power. Its governance
structure also means that INCOOP’s supervisory role is compromised by conflicts of
interest that diminish its independence.
The mission encourages INCOOP to strengthen its supervisory approach and to
promote the development of a safety net for cooperatives. The mission recognizes the
cooperatives’ contribution to supporting economic growth and to making financial services
available to segments of the population that have so far been largely neglected by the
banking system. For this reason, it strongly encourages the sector and its supervisor to
adopt
(i) strong “fit and proper” rules that can ensure that only the most qualified persons (in
terms of integrity, capacity, and independence) manage the savings of their members; and
(ii) prudential rules and a safety net that can protect cooperatives from undue risks and
adverse changes in macroeconomic conditions, thus limiting potential spillovers to other
sectors. To avoid exacerbating moral hazard, the implementation of the liquidity scheme
and the deposit insurance fund should proceed after the soundness of the largest
cooperatives has been ascertained. There is some urgency to take action on these issues
in light of the results of the liquidity stress tests undertaken on cooperatives.
In order to start building a strong macro-prudential policy framework, the mission
recommends improving coordination and information sharing among all agencies
responsible for financial stability, and financial sector oversight. To this end, the mission
strongly encourages the authorities to set up a committee of all regulators at the highest
level.
Click here to view full report
Key Findings extracted from IMF Report - Paraguay: Article IV Consultation
(August 2011)
Context. The economy is projected to continue growing above potential in 2011, at a time
when overheating pressures have already emerged. Supportive macroeconomic
conditions will contribute to inflation of close to 10 percent this year and a widening
external current account deficit. While the banking system remains sound, risks are
increasing, mainly as a result of very rapid credit growth (40 percent), particularly credit in
foreign currency (58 percent). Economic policies need to be geared toward reducing
overheating pressures and protecting financial sector stability.
Monetary policy. Given current stimulative monetary conditions, tightening needs to
continue. The menu of options should include higher reserves requirements, especially to
address the very rapid expansion of credit in foreign currency. Continued exchange rate
flexibility would also help reduce inflationary pressures.
Fiscal policy. Fiscal policy is adding stimulus to activity and should become at least
neutral. It is important to contain current expenditure growth and save any revenue
overperformance. Pressures to further loosen fiscal policy ahead of the 2013 elections
also need to be resisted.
Macro-prudential and financial sector policies. Macro-prudential measures would help
address financial sector risks while contributing to reducing credit growth. Higher specific
provisions and stricter limits on loan-to-income ratios would help deal with very high
consumer credit growth and currency mismatches. It is also important to continue moving
forward with efforts to strengthen regulation and supervision of cooperatives, and address
legal constraints that limit a more effective risk-based supervision for banks.
Monetary policy framework. The recapitalization of the central bank (BCP) is crucial to
increase monetary policy’s room for maneuver. The recent decision to adopt inflation
targeting calls for increased efforts to clarify the BCP’s operational framework, including by
limiting FX intervention and thus sending a clearer signal that inflation is its main objective.
Click here to view full report
Banking
While there have been several closings of local banks by the Superintendent of Banks
over the past few years, Paraguayan operations of international banks or large regional
banks are sound. The Paraguayan banking system is stronger and more profitable and
stable than in past years. The Central Bank continues to improve prudential regulation
with assistance from the International Monetary Fund. As of January 2010, there were
14 private banks operating in the market, and one state-owned bank. Macro-economic
stability during the past years has led to a significant increase in private-sector deposits
and loans. The top three private banks had 63.2 percent of the USD 178 million total
utilities of the local private banking system in 2009. The system-wide level of non-
performing loans in 2009 was 1.6 percent of total loans.
The financial sector regulated by the Central Bank also includes 11 finance companies
dedicated to smaller consumer operations not served by banks. The banking system
operates mostly on short to medium term credit (12 months is the usual maximum for
commercial transactions, although private finance of vehicles and homes is available on
longer terms) in both local and foreign currency. There is also a large cooperative sector
in Paraguay which is self-regulated and does not fall under the purview of the Central
Bank. Cooperatives may have as much as a third of total financial system assets, but
cooperative assets are not included in Central Bank data.
Banks and finance companies are regulated by the Banking Superintendent, which is
housed within, and is under the direction of, the Central Bank of Paraguay. Deposits are
guaranteed up to 30 million Guaranies, approximately USD 6,031.36 at the yearly
average exchange rate for 2009 (Guaranies 4,974 to the U.S. dollar). The Central Bank
operates based on a modern law, 489/96, although it is not truly independent.
Stock Exchange
Paraguay has a relatively small Asuncion capital market that began operating in 1993.
As of 2009, the Asuncion Stock Exchange handled USD 99.2 million in transactions,
compared to a volume of USD 79.6 million transactions in 2008. The number of
companies traded is 87. The high cost of capital makes the market an attractive
alternative, but the fear by family enterprises of losing control has tempered enthusiasm
for public offerings. Most of the exchange’s volume occurs in fixed income securities.
Background:
In the disastrous War of the Triple Alliance
(1865-70) - between Paraguay and Argentina,
Brazil, and Uruguay - Paraguay lost two-thirds
of all adult males and much of its territory. It
stagnated economically for the next half
century. In the Chaco War of 1932-35, large,
economically important areas were won from
Bolivia. The 35-year military dictatorship of
Alfredo STROESSNER was overthrown in 1989,
and, despite a marked increase in political
infighting in recent years, relatively free and
regular presidential elections have been held
since then.
Government type:
constitutional republic
Capital:
name: Asuncion
time difference: UTC-4
Independence:
14 May 1811 (from Spain)National holiday:
Independence Day, 14 May 1811 (observed 15
May)
Constitution:
promulgated 20 June 1992
Legal system:
based on Argentine codes, Roman law, and
French codes; judicial review
of legislative acts in Supreme Court of Justice;
accepts compulsory ICJ jurisdiction
Suffrage:
18 years of age; universal and compulsory up
to age 75
Government:
Chief of state: President Fernando Armindo
LUGO Mendez (since 15 August 2008); Vice
President Federico FRANCO (since 15 August
2008); note - the president is both the chief of
state and head of government
head of government: President Fernando
Armindo LUGO Mendez (since 15 August
2008); Vice President Federico FRANCO (since
15 August 2008)
cabinet: Council of Ministers appointed by the
president
elections: president and vice president elected
on the same ticket by popular vote for a single
five-year term; election last held on 20 April
2008 (next to be held in April 2013)
election results: Fernando Armindo LUGO
Mendez elected president; percent of vote -
Fernando Armindo LUGO Mendez 40.8%,
Blanca OVELAR 30.6%, Lino OVIEDO 21.9%,
Pedro FADUL 2.4%, other 4.3%
For names of current Ministers, click here.
Disputes - international:
Unruly region at convergence of
Argentina-Brazil-Paraguay borders is locus of
money laundering, smuggling, arms and illegal
narcotics trafficking, and fundraising for
extremist organizations
All the information on this page sourced from the
CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
In the disastrous War of the Triple Alliance
(1865-70) - between Paraguay and Argentina,
Brazil, and Uruguay - Paraguay lost two-thirds
of all adult males and much of its territory. It
stagnated economically for the next half
century. In the Chaco War of 1932-35, large,
economically important areas were won from
Bolivia. The 35-year military dictatorship of
Alfredo STROESSNER was overthrown in 1989,
and, despite a marked increase in political
infighting in recent years, relatively free and
regular presidential elections have been held
since then.
Government type:
constitutional republic
Capital:
name: Asuncion
time difference: UTC-4
Independence:
14 May 1811 (from Spain)National holiday:
Independence Day, 14 May 1811 (observed 15
May)
Constitution:
promulgated 20 June 1992
Legal system:
based on Argentine codes, Roman law, and
French codes; judicial review
of legislative acts in Supreme Court of Justice;
accepts compulsory ICJ jurisdiction
Suffrage:
18 years of age; universal and compulsory up
to age 75
Government:
Chief of state: President Fernando Armindo
LUGO Mendez (since 15 August 2008); Vice
President Federico FRANCO (since 15 August
2008); note - the president is both the chief of
state and head of government
head of government: President Fernando
Armindo LUGO Mendez (since 15 August
2008); Vice President Federico FRANCO (since
15 August 2008)
cabinet: Council of Ministers appointed by the
president
elections: president and vice president elected
on the same ticket by popular vote for a single
five-year term; election last held on 20 April
2008 (next to be held in April 2013)
election results: Fernando Armindo LUGO
Mendez elected president; percent of vote -
Fernando Armindo LUGO Mendez 40.8%,
Blanca OVELAR 30.6%, Lino OVIEDO 21.9%,
Pedro FADUL 2.4%, other 4.3%
For names of current Ministers, click here.
Disputes - international:
Unruly region at convergence of
Argentina-Brazil-Paraguay borders is locus of
money laundering, smuggling, arms and illegal
narcotics trafficking, and fundraising for
extremist organizations
All the information on this page sourced from the
CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
| KnowYourCountry |
|
| Last Updated: 6 September 2011 |