1 1122 Paragu ay Country Economic Memorandum Am IL -- fE-0 - ^a 4;E.. A WORLD BANK COUTRY STUDY Paraguay Country Economic Memorandum The World Bank Washington, D.C Copyright © 1992 The International Bank for Reconstruction and Development/THE WORLD BAN'K 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1992 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues With the governments. Some of the reports are published in this series with the least possible delay for the use of governments and the academic, business and financial, and development communities. 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ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data Paraguay-country economic memorandunm p. cm.-(A World Bank country study) "Draws on the findings oi missions that visited Paraguay in March and November 1990"-P. ISBN 0-8213-2158-7 1. Paraguay-Economic policy. 2. Paraguay-Economic conditions-1954- I. International Bank for Reconstruction and Development II. Series. HC222.P442 1992 330.9892-dc2O 92-17097 CIP Page 1 of 2 PARAGUAY COUNTRY DATA Area rvpulation Density (in thousands sq. kms) 4.0 million (1989) 9.8 per sq. km 406.8 Rate of Growth 2.9 (1989) SOCIAL INDICATORS (19871 Population Characteristics Healh Crude Birth Rate (per 1,000) 35 Population by Physician 1800 Crude Death Rate (per 1,000) 7 Population per Hospitat Bed 700 Infant Mortality Rate (per 1,000 live births) 42 Access to Safe Water Access to Electricity Percent of Population Urban 46 Percent of Dweltings - Urban 52 Rural 10 - Rural 40 Nutrition Education Calorie Intake 2873 Primary School EnrolLment (X) 101.0 Per Capita Protein Intake (grams per day) 81.0 PER CAPITA GROSS NATIONAL PRODUCT IN 1989: US$1010.4 Gross National Product in 1989 USS Million % of GNP Annual Growth Rates (M. Constant Pricec, 1977-81 1982-87 1988 1989 GNP at Market Prices 4041.4 100.0 11.1 0.7 7.0 5.4 Gross Domestic Investment 898.2 22.2 20.2 -4.8 3.7 -1.2 Gross National Savings 802.5 19.9 Current Account Salance 95.7 2.4 Exports of Goods & NFS 1466.6 36.3 1.6 11.0 8.4 10.7 Iriports of Goods & INFS 1464.9 36.2 9.8 -3.6 4.2 -13.6 OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 1989 Value Added Labor Force Vahle Added/Per Worker USS Milron Percent Thousands Percent USS Milion Percent Agriculture 809.5 20.0 570.0 36.8 1420.0 54.4 Industry 1212.3 30.0 315.0 20.0 3848.0 147.4 Services 2019.6 50.0 663.0 42.8 3046.0 116.7 Total/Average 4041.4 100.0 1548.0 100.0 2610.0 100.0 - iv - Page 2 of 2 GOVERNMENT FINANCE Cons, Public Sector Central Govemment US$ Moon % of GDP US$ Milron %of GDP 1989 1989 1984 1989 1969 1985 Current Receipts 635 15.4 13.1 408 9.9 7.9 Current Expenditures 446 11.8 11.1 309 7.5 6.7 Current Balance 148 3.6 2.0 99 2.4 1.2 Capital Expenditures 219 5.3 8.4 70 1.7 2.5 Money. Credit and Prices 1988 1987 1988 1989 (bilLions of guaranies outstanding at end of period) Money and ruasi Money / 274.7 365.6 430.6 609.4 Bank Credit to Public Sector y 42.8 46.2 10.7 -102.0 Bank Credit to Private Sector 166.8 211.3 276.B 384.2 Money and Quasi Money as X of GDP 15.0 14.7 13.0 13.2 General Price Index, Averace (1982 * 100) 239.3 311.9 390.4 512.7 Annual Percentage Changes in: General Price Index 31.5 30.3 25.1 31.3 Bank Credit to Public Sector 21.9 7.9 -76.8 -1053.3 Bank Credit to Private Sector 35.8 26.7 31.0 38.8 Balance of Payments 1987 1988 1989 Merchandise Exports (1989) (USS millions) US$ million Percent Exports of Goods, NFS 872.4 1190.8 1466.6 Cotton 351.6 30.2 Imports of Goods, NFS 1238.2 1484.0 1464.0 Soybeans 467.2 40.1 Resource Gap (deficit -) -365.8 -293.2 2.6 Timber 26.6 2.3 Livestock 136.0 11.7 Interest Payments -150.4 -154.6 -98.5 Others 183.0 15.7 Other Factor Payments (net -) 28.4 70.7 63.0 Net Current Transfer: 27.0 35.3 7.2 Total 1,164.0 100.0 Balance on Current Account -460.8 -341.8 -25.7 Direct Investment 8.5 6.2 21.0 M< Extemal Debt, 12131189 US$ milrion Public M< Loans (net) 88.7 -21.9 125.3 Disbursements 305.2 220.8 654.5 Public Debt inc. Guaranteed 2604.7 Amortization 216.4 242.7 529.2 Non-Guaranteed Private Debt 26.7 Other Capital (Net) 292.1 168.5 86.1 Total Outstanding & Disbursed 2631.4 Increase in Reserves C-) 55.9 -135.3 206.7 Arrears 127.4 53.7 0.0 Debt Service Ratio for 1989 Percent Gross Reserves (end Year) 483.3 348.U 554.7 HSLT Public Debt inc. Guaranteed 21.1 Rate of Exchanae I IBRD Lending. 12/31/89 USS million 1980: USS1.00 * G126.0 Outstanding & Disbursed 336.5 G1.00 * USS.0079 Undisbursed 48.0 1989: USS1.00 * G1120.0 Outstanding inc. Undisbursed 384.5 G1.00 a USS.00089 pj Private Sector only Y/ Net cf Deposits S/ Average Annual Rates CIJRRENCY EOUIVALENTS Currency Unit = Guarani (G) ' As o, April 20, 1992) USS1.00 = 144(, GT G$ 1.00 = US$0.0006944 FISCAL YEAR January 1 to December 31 GLOSSARY OF ABBREVIATIONS AND ACRONYMS ACEPAR Steel Company ANAC Civil Airports Administration ANDE Power Comany ANNP Ports Administration AN-TELCO Telecommunications Company APAL Alcohol Company BCP Central Bank of Paraguay BNF National Development Bank CORPOSANA Water and Sewage Company FCCAL Railroad Company FLOMERES Shipping Transport Company IBR Rural Welfare Institute IDB Inter-American Development Bank INC Cement Company IPS Social Security Institute IPVU Housing Institute LAP Paraguayan International Airline LATN National Transport Airline MEC Ministry of Education MH Ministry of Fmnance MIC Ministry of Industry and Commerce MOPC Ministry of Public Works and Communications MPSB Mnistry of Health and Social Welfare NBT Workers National Bank PETROPAR Oil Importing Company SIDEPAR Steel Holding Company STP Planning Secretariat UNA National University WB World Bank - vi - ACKNONVLEDGEMENTS This report draws on the findings of missions that visited Paraguay in March and November 1990. The first mission was led by J. Garcia-Milujica and integrated by M. Cortes (Trade), C. Corti and Y. Boray (Public Enterprises), and M. Preece (Statistical Annex). Contributions also were made by A. Fleming (Finance), J. Joyce (Agriculture), and G. Unda and W. Matthey (Transport) based on separate missi, ns. The report also summarizes and integrates a number of studies on the Paraguayan economy indicated in the References section. The report was written by J. Garcia-Mujica. - vii - TABLE OF CONTENTS Paee Nos. EXECUTIVE SUMMARY AND RECONIMENDATIONS ......................... ix CHAPTER 1: GROWTH IN THE LAST HALF CENTURY ...... ................. 1 Instability and "Stagflation' in the Forties and Fifties ....... .................... I The Sixties: Establishing the Basis for Faster Growth ....... ................... 3 Itaipu: The Basis for Accelerated Growth in the 1970s ...... ................... 5 The 1980s: Macroeconomic Instability and Stagnation ....... ................... 8 Credit and Monetary Policies ............................................ 20 ChIAPTER 11: SECTORAL CONSTRAINTS AND OPPORTUNITIES FOR GROWTH . 24 A. Agriculture .............................................. 24 Productivity . .............................................. 24 Agriculture Taxation .............................................. 25 Environmental Considerations . ....................................... 25 Future Agricultural Development Strategy ........ ...................... 26 B. Population, Colonization and Poverty ............ ....................... 28 Official Emphasis on Foreign Immigration Until the 1940s ..... .............. 28 Colonization to Fight Poverty After 1940 ......... ...................... 30 Difficulties Ahead ................................................ 31 C. Transport ......................... 31 Main Agreements with Brazil .......................... 32 Evolution of the Road Network ....... ................... 33 Challenges Ahead .......................... 34 D. Itaipu and Yacireta: Electricity as an Export ........ ...................... 35 E. Informal Trade ................................................. 39 CHAPTER III: POLICY REFORNIS TO STIUlUIATE GROWTH ....... .......... 41 A Financial Sector Reform .............................................. 42 B. Trade Policy Reform ............................................... 49 The Present Custorms Law . ......................................... 49 Revenue Collection ............................................... 50 Intended Effect of the Customs Law ............. ...................... 53 Impact of Customs Duties by Sector .......... ........................ 54 Informal Imports ................................................ 56 The Challenges of MERCOSUR . .................................... 57 Export Incentive Policies ............................................ 57 Summary .................................................... 58 - viii - C Public Enterprise Reform ............................................ 58 ANDE ...................................................... 62 ANTELCO ..................................................... 64 CORPOSANA ................................................... 65 FLOMERES .................................................... 66 INC ....................................................... 68 LAP ...................................................... 69 ACEPAR ..................................................... 71 PETROPAR .................................................... 72 Summary ..................................................... 74 D. Tax Reform ..................................................... 75 The Present Tax System ................. .......................... 77 Ongoing Administrative Reforms .......... ........................... 79 The Present Tax Reform ................ ........................... 79 Reflections on a Tax Reform ............ ............................ 81 CHAPTER IV: ECONOMIC PROSPECTS .. ................................. 83 Summary Background .... 83 Low Case: Retreating from the Changes Made .........Made.......................... 85 High Case: Fast Implementing Missing Changes ....... ...................... 88 Intermediate Case: Slower Progress but No Retrogression ..... ................ 90 Conclusions ..................................................... 91 REFERENCES ..................................................... 92 ANNEX I - HSTORICAL BACKGROUND ......... .......................... 95 ANNEX II - SUMMARY OF SCENARIOS LOW, MEDIUM AND HIGH .... ........ 102 STATISTICAL APPENDIX . ............................................ 124 COUNTRY MAP -ix - EXECUTIVE SUMMARY AND RECOMMENDATONS Overview Agriculture has been Paraguay's main source of growth sinice colonial times. After two devastating wars, in 1865-70 and 1932-35, the wealth of the land rescued the countryfrom disaster. More recently, betveen 1940 and the mid-1 960s, the fortunes of agricultural e :ports were a major determinant of tite rhythm of growth. New sources of growth developed in the 1960s: commnerce and tourism, and construction. In the 1970s, groswth accelerated sharply wvith the rapid growth of agriculture based on the expansion of the agricultural frontier and the construction of Itaipu dam. Itaipai dominated economic performance both in the 1970s, wshen tihe civil works were tire ,r-:-- factor in aggregate growth, and in the 1980s, when tire economnv iad to face tire consequencL., fi the end of the massive construction expenditures. In the future, sales of surplus hydro-powerfrora liaipu will benefit Paraguay substantially, as will sales from Yacireta wileiz it is completed. Paraguay now stands at a critical but highily promnising crossroads. An authoritarian regime has been deposed and the new government has taken a number of stong actions to restore stability, including improving public finances, bringing down inflation, unijying and liberalizing the exchange rate, freeing many interest rates, and initiating a tax reform. Yet Paraguay's history contains numerous examples of long, strong and perv asive autlzoritarian regimes followed by periods of lingering and severe political instability and economic decline. Thle challenge for the Government is to avoid such economic deterioration. The current Government has an almost unique opportunity to develop a working democracy in an environment of financial stability and strong and sustainable economic growth. Along with sound macroeconomic management, a number of structural changes would contribute to these goals, including shifts in agricultural policy to promote a more land- intensive pattern of development; continued investment in and nmaintenance of transport infrastructure; changes in funancial sector regulation to reduce the artificial barriers between institutions and improve financial supervision; reduction and unification of tariffs to bring the Customs Law into line with actual practice and to prepare for entry into the AERCOSURP Some of these actions may require additional rcsources. To achieve this, it will be necessary to improve public enterprise management including privatLations and joint ventures, and to reform taxes by lowering rates to collectible levels, widening the base, and improving collections from agriculture." j] Social sector needs-water and sewerage, education, health and nutrition-also are urgent. An upcoming report, Paraguav. Public Expenditure Review: The Social Sectors suggests that although Paraguay's social indicators are surprisingly good in light of nts per capita incomo and low public expenditures, a -..-nber of problems remain to be addressed. Particularty important is to improve the efficiency of public expenditures In these areas. If this Is not achieved, merely increasing expenditure, In an attempt to ameliorate the problems, would have no major Impact on social indicators and resources would be wasted. The Chanriing Sources of Para2uav's Growth i. Traditionallv, external demand for agricultural products has been an important factor in Paraguay's prosperity. The 1940s and l950s w'ere no exception. Economic grow-th was high during WVorld War 11--demand for Paraguayan exports was high due to war-related needs among the Allies. After 1945, external demand dropped and the economy stagnated. Grow th resumed in the second half of the 1950s, although at modest rates. From the late 1930s through the 1950s, inflation was high and variable, reducir.g the incentives to -. 'e and invest. ii. The 1960s were years of financial and political stability that %witnessed a change in the sources of growth. Agriculture remained the main engine of growth in the first half of the 1960s, but was not a major factor in the second half, despite the beginnings of the expansion of the agriculture frontier during the decade. After 1965, the main sources of growth became commerce and construction. Paraguay's essentially open frontiers allowed it to take advantage of the protectionist policies of its neighbors and become a commercial and tourist center. Informal trade expanded rapidly, especially after road links with Brazil wcre improved. The internal road network also was expanded substantially. The construction of the country's first hydroelectric plant, along with the signing of agreements that paved the way for the construction of O-e largest hydroelectric plant in the world, Itaipu, foreshadowed enormous growth in the enel iii. Growth accelerated dramatically in the 1970s wvith the construction ' ;taipu. As in the r t haif of the 1960s, construction and commerce were the most dynamic st:ors of the econo, ,.; the 1970s, but this time agriculture's performance also was outstanding, helped by the expansion of the frontier begun ii the 1960s. Investment increased sharply, from 15 percent of GDP in 1970 to 29 percent in 1981. (Investment figures exclude construction of the Itaipu works, which is treated as a foreign operation from the standpoint of Paraguay's national accounts and balance of payments). Inflation accelerated, largely in parallel to the rise in international rates. The bailance of payments show ed large surpluses, reflecting the large inflows of foreign exchange related to the construction of Itaipu and the control of domestic credit. The Macroeconomic Instability of the 1980s iv. After the completion of the main works at Itaipd in 1981, the Paraguayan economy entered a deep recession that lasted well into the mid 1980s. GDP declined for two consecutive years, leaving production 4 percent lower in 19833 than in 1981. Growth resumed in 1984, but the average rate over 1984-86 was well below the growth of population (2 and 3 percent per year correspondingly). The recovery speeded up in 1987 and 1988, but this was no, enough to offset the losses in per capita income arising from the 1982-86 recession. Social unrest burst into a revolution in February 1989, which toppled a regime that had lasted fo- 35 years v. The sectors that suffered most in the post-Itaipu era--cor,rtruction, and commerr,e and finance--were those that had grown most rapidly in the 1970s boom. Stagnant domestic demand, linked to the fall in foreign exchange receipts from Itaipu, was the main factor in the slow-down As the private sector mistook transitory income increases stemming from the construction of Itaipd with permanent increases in wealth, many of the invesiments thz-: had been made in the boom of the 1970s were ill-designed for the post-Itaipu pe' od, and proved imprudent. Data suggest that exports continued to grow in the 1980s 1. it at a s:ower rate than in the 1970s. However, the poor quality of the statistics--Paraguay's poro.s brri-ers mean that large -xi - volumes of trade appear and disappear in the official statistics depending on policies in the neighboring countries--also suggest caution is needed in drawving this conclusion or even in estimating the severity of the dow-nturn of 1982-86. vi. The Governmen; tried to avert the post-ltaipu recession by embarking on an investment and spending program. Thlis only piled a financia: disequilibrium on top of the recession. The economy still stagnated, and inflation accelerated. To finance its increased spending, the Government sharply .ncreased its external borrowing. In addition, credit to the public sector (including the Central Bank's deficit) also increased; this contri1uted to rising inflation and, despite the foreign borrowings, loss of the abundant international reserves that had been built up in the 1970s. Ceilings on interest rates provoked a massive disinterniediation of quasi-rnonetary savings that contributed to the inflation and the loss of reserves. In a vain attempt Lo stem the balance of payments problem, the Government instituted a complex system of multiple .xcnange rates. This not only failed to stop the ioss of reserves, it distorted the ecolioaly and encouraged corruption, the more so as the domestic price level increased. The principal lcal beneficiary of the multiple exchange rate system was the nonfinancial public sector. Although official figures suggest the nonfinancial public sector deficit remained roughly constant throughout the 19d,s. the explicit and implicit annual subsidies from the Central Bank and exporters to the nonfinancial public se.ctor reached the equivalent of almost 5 percent of GDP annually in 1 985-8S. *ii. As a result of the sharp increase in external borrowing, external debt rose substantially in the 19SOs. NIedium- and long-term debt (including arrears) rose from 15 percent of GDP in 1981, to 62 percent of in 1987. Moreover, the external funds were largely used on unprofitable projects, which added to the macroeconomic instability and eventually led tc the suspension of disbursements from several creditors. In the mid-1980s, the Government stoppec' ser%icing much of its intemationat debt. Arrears to commercial banks and bilateral creditors have accumulated since then. viii. The new Authorities that took charge after February 1989 have made substantial improvements in policy management. The government deficit was reduced, public enterprise finances wvere tightened significarndy, the multiple exchange rates were unified and the exchange market liberalized, interest rates were freed, and a tax reform was begun. Although inflation increased from 15 percent in early 1989 to 44 percent in 1990, it was cut to a less than 15 percent annual rate in 1991. The balance of payments has improved, although Paraguay cont' v'es to accumulate external arrears. However, a number of policy reforms are still needed in . - r to strengthen the sectors that w,ill form the basis of Paraguay's grow;th in the 1990s and improve prospects for high and sustainable growth. Sectoral Constraints and Opportunities for Growth ix. Agricultare still provides the basis upon which much of the country's economic activity res-s. Tt employs 40 percent of the labor force, supplies raw materials used in manufacturing, and was the only significant source of foreign exchange earnings until the constructi !n of Itaipu. The potential of the agriculture sector, in terms of underutilized resour-ces, available technology and markets, should mean that the sector can continue to play an important role in economic growth and development. The main issues in achieving rapid and sustainable agricu!tural growth are related to: increasing productivity, further expanding the - xii - agriculture frontier, ensuring careful management of renewable resources, and removing the distortions imposed by the tax system. x. Improving agricultural productivity to reach the higher yields obtained under controlled conditions, or even in neighboring countries, is always a difficult task. An important start could be made by encouraging more intensive use of resources via sustainabie agriculture practices, rather than further expansion of the agriculture frontier. '. ch an approach would begin by improving land information systems, preparing new cadastres, setting rules on allowed uses of land and penalties for breaking them, and abolishing remaining regulatory the impediments to imports and local distribution of fertilizers. xi. Improvements in the management of rerewable resourc :s also would contribute to higher pruductivity. In particular, deforestation is an increasingly r.itical issue, -ith forest in many a-ces being removed %vith no concern for the land's long-term productivity. Current policy gives conflicting signals for forest managtement and subsidized credit has contributed to deforestation. Paraguay needs to define and enforce a consistent, environmentally-sound set of guidelines. xii. Changes in the tax policy toward agriculture also would encourage more intensive land use. The existing estate tax often goes uncollected and property assessments do not reflect market values. At a later stage, the land tax could be refined intc one more closely related to the capability of the soil, making it production-positive by allowving deductions linked to capita. investments in the land. xiii. Colonization and the A2ricultural Land Prob!em. Paraguay was and remains one of the least denseiv populated countries in Latin America. The country's population was decimated after the Triple Alliance War in 1865-70; the Chaco War (1932-35) was a further setback. Underpopulation typified the country into the late 1950s. so the Government encouraged immigration. Foreign immigrant colonies were officially sponsored and successfully established betveen the 1SSOs and the 1940s. Spontaneous Brazilian immigration was significant during the 1960s and 1970s. xiv. The official focus of the colonization progran changed ;ter the 1940s, from settling the still-empty regions to poverty alleviation. New settlements were established in the country's rich eastern-most regions, w'hen spontaneous colonization had already started by the 1950s. The Instituto de Bienestar Rural (IBR) was founded wvit' this purpose in 1963. Between its inception and 1982, officially sponsored and private settlements covered 6.5 million ha. on 93,AO0 lots benefiting more than half a million people, about one third of the rural population in "lie early 19SOs. This temporarilv easied social :ensions in the 1970s. xv. Despite these efforts, the agrarian land problem and its links to the minifundiaipoverty problem remain urgent. Land occupations and evictions are becoming more corn;.r-x. I1R could help alleviate these proble.ms by improving its system of granting land titles and providing landhclders xwith more secure titles Further land distribution may be another option, but it would involvc larger land purchases .rom the private sector, with greater financial costs. Improvements in IBR's collections from land transfers would be critical to limit the cost of the program. But even this would not be enough. Perhaps more importantly, reducing poverty - xiii - will depend on a shift in the pattern o ag-iculture growth to more intensive land use and an efficient increase in social expenditures in rural areas (see footnote 1). xvi. Transport Lack of transport infrastructure has been a major bottleneck to tl- country's efficient use of resources. Until the sixties, rriary areas were inaccessible to wheeled traffic or could be reached only under the most favorable weather conditions. Since the late thirties the Government has been committed to reducing internal and external depcndence Zn riverways by expanding the road network. The internal road network multiplied four t!.nes bctween 1940 and 1955, almost doubled betwveen 1955 and 1960, and ncarly doubled again in thc following five years. The expansion of the domestic r^ad network slowed somewhat after 1965, but road mileage continues to grow faste:. than GDP. Agreements with Brazil, reached in the 1940s and 1950s, formed the basis of exr,anded international communications by land, esoecially after the construction of the bridge over the Parana River at Ciudad del Este was finisLed in 1965. xvii. The results of the expansion in the road netivori' were impressive. The country became much less dependent on river transport, the expar.ded agricultural frontier could be serviced, and trade with fast-devcloping Brazilian regions (Parana and M.latto Grosso) was greatly facilitated. Nonetheless, the trans-ort .ector faces important problems. Financing of improvements in river ports and channeli could becon.e. an important issue if such improvements, plus the prospective lower costs of priva..Led purts in Argentina and Uruguay, reduce river shipping cos.s of bulk exports such as cotton and soybeans below overland shipping costs through Brazil. A decision must be taken about the future of the railway, which has deteriorated to the point where it has al.-iost no commercial value. Regarding roads, with limited resources the C-overnment faces difficult choices: improving existing roads, maintaining the network, or building new penetrationi roads. xviii. £nerrv as a Source of Foreign Exchange. Paraguay has abundant hydroelectric capacity; sales of surplus electricity to neigiiboring countries are projected to be a major export in the 1990s. Paraguay began to tap its hydroelectric resources when Itaipti was built; Yacireta will bring further benefits when it is finished. Paraguay's revenues from Itaipu will stem mainly from two sources, royalties charged for the use of Paraguayan waters in the Parana River, and "sales" of surplus electricity to Brazil (the surplus electricity assigned to Paraguay is transferred back to the Itaipu Binationa! Corporation, which sells it to Braz.l at a price agreed in the Itaipu Treaty and modified in later referral notes). However, receipts have been temporarily reduced, first by delays in dam constniction; second, because Paraguay agreed to lend back to Itaipu a fraction of the income to which it was entitled, and third because of Brazil's financial difficulties (Brazil did not fully pay Itaipu and therefore Itaipu could not pay Paraguay). Beginning in 1991, Itaipu will be operating at full caipacity. Beginning in 1992, Paraguay is projected to receive nearly USS200 million annually fr m royaities and sales of surplus electricity, provided that Brazil can pay on time. Thi i: is equivalent to more than 3 percent of Paraguay's GDP. XiX. Infornmal Trade. Informal trade appears to be significant in Paraguay, but few reliable estir' :c. of the sector's size are available. Unregistered import and export transactions cause corcern because they don't contribute their fair share to Government finances. But they also ha'e had a positive effect, namely, setting a limit on the distortions in relative prices that in other Latin American countries becarre so pervasive. Informal trade was fostered by the construction of the bridge over the Parana River at Ciudad del Este and the related - xiv - improvements in road connections with Brazil. To a large extent, informal trade reflects the protectionist policies prevailing in neighboring countries. Thus, it may suffer if Brazil and Argentina open up their economies to international competition, or if MIERCOSUR is successfully implemented. New Sources of Growth and Associated Policv Reform xx. I'he Financial Sector. Several problems need urgent attention in the financial sector. First, the health of the financial system, which weakened after the financial crisis in 19S2, must be carefully evaluated and nurtured, to define a safe path that will encourage t'inancial savings. Second, homogeneous regulations and efficient super-vision of financial institutions are needed to improve the financial sector's mobilization and allocation of resources. Third, the roles of the official banks need to be changed and some official banks may need to be closed. vxi. The government has liberalized interest rates on deposits and loans, except the discount rate. Full interest rate litrcralization might have created difficulties after the 19S2 crisis, when, due to a strong devaluation that affected many creditors, bank portfolios detericrated dangerously. Currently, however. although some private banks are in poor shape, most private banks seem reasonably capitalized and can respond to the pressures of the market. The report recommends maintaining the regime of free rates and placing greater reliance on market forces in determinina the Central Bank's rediscount rates. xxii. Bank supervision concentrates too much on the supervision of compliance with compulsory investments, tax laws, and reserve requirements and too little prudential supervision (fo: example, evaluating portfolio quality and capital adequacy), to the detriment of the system's health. Another problem is differential regulation in the financial sy stem, which has discriminated against private banks, produced an artificially segmented financial system, and overloaded the Superintendeney of Banks. The Government is revising the Central Bank Law and the banking laws. The report recommends that these laws and/or their complementary legal provisions (i) redefinie the role of the Superintendency of Banks and its relation with the Central Bank, so as to encourage the proper lind of supervision, and (ii) reduce artificial distinctions between financial institutions. %xiii. The main official banks (in addition to the Central Bank) are the National Development Bank (BNF), that lends to small farmers, the Livestock Fund (FG), that lends to large ranchers, the National Housing Bank (BNV), that supervises savings and loans institutions (serving credit needs in the housing sector), and the National Workers Bank (BNT), that supposedlv lends to workers. Official banks lost vast sums by borrow%ing in foreign currency and lending locally at ftxed interest rates. Recapitalizing the official banks would require a large commitment from the government; hence, it is worth examining their roles in some detail at this point. BNF probably deserves support if it can fulfill its role effectively. However, because reaching small farmers is a social!y desirable but expensive endeavor, BNF is unlikely to generate profits. Alternative solutions need to be examined, such as greater teliance on private banks, to keep subsidies clear and transparent and ensure timely collections. Regarding FG, there is no reason for it to operate with losses, as large ranchers should be able to pay market interest rates for the credit they receive and should finance the extension services they use. Thus, the report recommends thtat FG's role be undertaken by the private sector and advises against transforming FG into another public bank. The renort suggests that there is little need or justification for -xv- having BNV in Paraguay. The BNT should operate like any other commercial bank, if it cannot. it should be closed within a reasonable time-frame. xxiv. Trade Policy Reform. Trade-rclated distortions are not important in Paraguay now. However, they easily could become sizable in the future unless acti:;n is taken to bring the tariff code in line vith actual practice. In practice, and in relation to other countries, non-tariff and tariff barriers are low. However, the existing Customs Law and some related taxes contain a heavy protectionist bias. Custom duties (including surcharges) range from 3 percent to 86 percent, and tend to be higher for traditional manufacturing sectors. If applied, these duties would imply high effective protection. Actual protection is limited, however, because the Government has implemented several simple special tariff regimes (border countries with a 10 percent flat rate; tourism with a 7 percent flat rate; and whisk-y and tobacco with a 8 percent flat rate), and because unregistered trade is widespread. The high tariffs have not generated large fiscal revenues and also have failed to provide protection to domestic production; Paraguay is de facto a free-trade economy with low actual protcction. To remove the possibility that the Customs Law might be applied, to ensure the continued benefits of low protection, and to allow the country to keep pace with reductions in tariffs taking place in its MERCOSUR partners, the report recommends bringing the Customs Law into harmony with actual practice by enacting a flat 10 percent import tariff. xxv. Public Enterprises. The financial condition of public enterprises remains weak, despite some improvem-nts in 1989 and in 1990. Public enterprise deficits still exceed the leveis at the beginning of the 1980s, and, as with the government, public enterprises are accruing arrears on much of their extemal debt. Public enterprise performance deteriorated in the 1980s because of poor control polices, overstaffing, lack of managerial acacuntability, and, until recently, poor pricing policies. xxvi. Major improvements in financial management took place in 1989-90 that partly offse: the elimination of the large subsidy on foreign exchange that the public enterprises enjoyed. Cuts in some investments also occurred, linked to the postponement of some works and the completior. of others (including cement and steel plants of doubtful value). Nonetheless, the public enterprises' overall deficit increased from about 3.4 percent of GDP in 1988 to an estimatcd 4.4 percent in 1990. (This comparison overstates the increase in the deficit because the 1988 figure is on a cash basis and the 1990 figure on an accrual basis, but the deficit on an accrual basis in 1988 would have been much larger than on a cash basis because of the prevailing subsidy on foreign exchange.) Moreover, the public enterprises' current saving as a share of GDP also declined sharply in 1989. The large increases in tariffs in 1990, particularly on petroleum prices and water, generated new resources and increased current saving to nearly the 1988 level, but were not enough to reduce to deficit to 1988 levels. xxvii. The report concludes that further improvements in productivity are needed. Plans to reduce overemployment are in place and must be implemented. Overdimensioned investments were an important problem in the recent past. The concern now is to avoid repeating such mistakes. The Authorities are planning to improve control and accountability in public enterprise management, and audit processes are in progress in several enterprises; these actions should be strengthened. Price and tariff distortions were an issue in the 1980s, but actions taken after February 1989 have removed some of the most important such distortions. The main price distortions remaining are in potable water (despite the recent price increase) and, especially, - xvi - sewage. Although most public sector tariffs are reasonable, a method must be developed to ensure that tariffs are regularly adjusted and, at the same time, pressure is put on enterprises to avoid their covering up inefficien:ies through higher relative prices. Privatization is one method for improving the delivery of services at lower cost to the State. A number of state enterprises could be privatized or operated as joint ventures and the Government is beginning to study these options. xxviii. Tax Rerorm. Although tax revenues increased sharply in 1989, Paraguay's tax system remains antiquated and inefficient. The tax system is based on: multiple specific taxes with widespread exemptions instead of a few generalized ad-valorem ones, outdated bases for property taxes, and payments made with long dclays and no effective penalties. As a result of inappropriate rates and bases, tax collection did not keL? pace with domestic intlation and growvth in the 1980s. In particular, because of lower revenues from import taxes, linked to the inefficient system of multiple exchange rates prevailing until 1989, tax revenues dropped two percentage points of GDP. The cadastre for taxing properties is obsolete and needs updating; in fact, many rural estates have never been assessed. Evasion is widespread because of loopholes (only some of them legal) and the lack of effective fines; low interest penalties encourage late tax payments. Hence, a better sanctioning system must be designed. xxix. Tax administration is also weak. Until recently, there were several independent tax units with similar tasks and organizatiors, an institutional arrangement that fostered confusion and waste. Recently, the Finance Ministry has made substantial improvements in its organization and in tax administration in particular. Tne report applauds these changes, since efficiency will be enhanced by eliminatirng duplications. xxx. A significant and ovcrdue tax reform is currently under preparation. The Finance Ministry has submitted a tax reform package to Congress involving a radical simplification of the system: few taxes with ad-valorem rates on wide bases, a value-added tax replacing the present sales tax, reassessing propertv values, and a more efficient system of fines. The report suggests higher penalties and cuts in tax rates, to levels that are collectible, in exchange for radical increases in tax bases (if possible, no exceptions). Prospects xxxi. Paraguay has made substantial progress towards regaining macroeconomic stability. Many painful aspects of adjustment already have been completed successfully (i.e., freeing the exchange rate, liberalizing most interest rates and strengthening public finances). However, additional efforts are necessary. If the issues discussed above can be resolved, then prospects for high growth rates and macroeconomic stability are excellent. xxioi. The report develops three alternative scenarios to illustrate the importance of completing the adjustment process already under way and securing international cooperation. A Low Case illustrates the negative consequences of delaying indefinitely the adjustments recommended in the report and reversing progress made in exchange rate policy, interest rate policy and tax administration. Under this scenario, inflation mounts, distortions increase, and capital outflow occurs, making this an unviable alternative. The High Case illustrates the effects of rapidly implementing the needed changes, namely the reforms suggested in the financial sector, the simplification of the tariff code, the efficient increase in infrastructure and social sector - x6iI - spendino, the improvements in efficiency in public enteprises, the privatization of selected public enterprises, and the successful enactment of the tax reform--the latter two also are needed to generate the incre. se in public sector resources for high priority expenditures. Results are encouraging: GDP growth accelerates and remains high, inflation drops rapidly to international levels, the balance of payments remains strong, and creditworthiness is strengthened. The third scenario is an Intermediate Case which reflects the likely advance of reforms; a slower pace than in the High Case but no retrogression. Results are favorable, but of course somewhat less so than in the High Case. Inflation drops to single digit figures, growth reaches nearly 5 percent per year, and external accounts are nearly as strong as ia the High Case. Regarding foreign financing requirements, in the Low Case, due to poor domestic policies, voluntary disbursements will not be available; the country resorts to the unattractive and unproductive option of accumulating arrears. In the High and Intermediate Cases, less external credit actually is needed than in the Low Case because the improved policy framework stimulates domestic saving and foreign investment and reduces capital flight. External credit is expected to be provided voluntarily, mainly by bilateral and multilateral lenders. Resolution of Paraguay's arrears problem, coordinated support from foreign lenders, and good project preparation are the key constraints facing the country in the external area. Both the Intermediate and High Cases assume the arrears problem is resolved in 1992. CHLAPTER 1: GROVTH IN THlE LAST HALF CENTURY 1.1 Paraguay's growth in the last 50 years occurred in four distinct phases.' In the 1940s and 1950s financial instability was endemic, inflation high and growth was linked to trends in the agriculture sector. Within this phase there were three subphases: relatively high growth during World War II stimulated by external demand for agricultural products; stagnation immediately after the cessation of hostilities in 1945 and for several years thereafter with the drop in external demand; and a rcsumption of growth in the second half of the 1950s. 1.2 The 1960s, the second growth phase, were years of financial and political stability with an important shift in the source of growth from agriculture to public works and commerce. By the early sixties inflation was virtually eliminated. In the first half of the decade, agriculture continued to be the main stimulus of economic growth. However, by the late 1960s, agricultural growth slowed, as the sector underwent a transition, while the agricultural frontier expanded rapidly. Public works and informal trade with neighboring countries, especially Brazil, became the key contributors to growtd. Improvements in the road network were substantial; radical changes took place in the energy sector. The 1960s also witnessed the construction of the country's first hydroelectric plant and the signing of agreements that led to the construction of the largest such plant in the world, Itaipu. 1.3 In the 1970s, the third phase. growth accelerated tremendously with the construction of Itaipu. The works, which cost more than four times Paraguay's annual GDP, were carried out mainly between 1973-81 and were financed externally through the Itaipu Binational Entity (%with debt guaranteed by Brazil). Non-Itaipu investment also increased. However, inflation began to accelerate, even though the balance of pay-nents continued to show a healthy surplus. As in the sixties, the construction and commerce sec:ors showed the highest growth rates. Agriculture's performance also was exceptional, reflecting the expansion of the frontier begun in the i960s. 1.4 Unfortunatelv, investments carried out with the transitory resources flowing into Paraguay during Itaipu's construction were not prudently made. Thus there was no real base for offsetting the post-Itaipu letdown. The 19SOs were years of macroeconomnic instability and economic stagnation. Only at the end of the decade did the economy begin to revive with a recovery in agriculture and substantial improvements in macroeconomic policy management. Despite the slowdown of the 1980s, Itaipu dramatically improved Paraguay's growth potential and will continue to provide great benefits--among them, a substantial inflow of foreign exchange--for many years to come. Instabilitq and 'Staeflation" in the Forties and Fifties 1.5 Between 1938 and 1946, GDP growth averaged 2.5 percent per year, led by export growth of 8.2 percent per year (See Table 1.1). During World War II, demand for Paraguayan agriculture products increased sharply. During this period, the volume of tobacco exports tripled, A word of warning is in ordcr. Inform3tion on Paraguay, specially trade and output related data, often are unreliable due to a large but not well-quantified, informal sector that leaves few traces on official data. The porosity Of the frontiers means that large shifts to and from registered trade may occur. With unregistered trade only imperfectly estimated, tbis means thai both trade and output figures may show year-to-year variatior-s thdt are much different than the underlying reality. -2 - wood multiplied five times, meat exports doubled, cotton and hides increased 50 percent, and vegetable oils increased more than six times (Ugarte, 1983, Annex 1, p. 305). However, exports of yerba mate showed only a slight increase, and exports of quebracho--a product tak-en from a tree growing in the Chaco and used to tan leather--showed only modest growth after World War II due to competition from a less expensive alternative from Africa. Inflation accelerated in this period; a steady rise in prices from 1939 to 1941 was followed by steep increases until 1944. Between 1939 and 1944 the cost of living skyrocketed 300 percent for higher income groups and 50 percent for the poor (Warren 1949, p. 334). In November 1943, the guarani became the country's monetary unit, at an initial exchange value of G3.07 to the dollar (one guarani replaced 100 old pesos) (Ibid., p. 335). Table 1.1: PARAGUAY - &DP BY EXPENDITURES 1938-1988 (Growth Rate in Percent*) 1938-46 1946-52 1952-60 1960-65 1965-70 1970-81 1981-88 1989-90 Goverrnnent Consunption 2.8 4.8 6.7 1.2 8.5 6.5 2.3 4.3 Private Consunption 2.5 2.5 3.9 2.1 5.1 7.6 2.7 1.3 Gross Fixed Investment 4.4 1.5 13.8 7.0 7.5 18.2 -2.5 10.4 Exports 8.2 7.2 -7.1 9.6 3.4 9.9 9.6 16.9 Imports 9.1 11.3 -2.3 -5.5 9.1 13.5 5.3 9.0 GOP 2.5 2.4 3.8 4.6 4.8 8.9 1.9 4.4 Memo Items ICOR 0.80 13.77 1.40 1.60 2.57 2.14 10.81 4.6 Fixed Inv/GOP 2.8 3.9 4.8 7.7 12.0 18.3 21.8 21.2 Source: Statisticat Annex, Tabte 2.6. *Growth rates estimated by expownetiat regression. 1.6 The end of World War I brought a drastic drop in demand for agricultural products. GDP dropped 13 percent in 1947, a consequence of the end of the war and the revolution that began earlier that year. The problems caused by low export demand and social unrest that disrupted production continued into the early 1950s. They were further exacerbated by imprudent financial policies. In 1952, real GDP was about the same as in 1946, with most exports at lower levels Not surprisingly, investment uas low in this period. In an attempt to encourage production, credit policies became too expansive, fueling inflation and draining foreign reserves (Birch, n.d., p.15). Inflation accelerated from 20 percent in 1947 to more than 50 percent in 1951, and then jumped to 160 percent the following year (IBRD 1954, Statistical Annex, Table IV). A system of multiple exchange rates and exchange controls gradually developed. In 1955, the different exchange rates varied between G21 and G65 to the dollar. By the end of 1955, Paraguay had exhausted its foreign reserves (Baer and Birch 1987, p. 603). 1.7 Growth recovered somewhat in the latter half of the fifties, averaging 4 percent per year between 1952 and 1960. Commerce and construction were among the most dynamic activities (see Table 1.2). In agriculture, traditional products such as cotton, corn, tobacco, and forestry did not improve much, the bulk of the change in agriculture output came from sugarcane and manioc (WB 1965, Tables 4a, 7a). The buoyant construction sector, which grew at an average rate more than twice that of the economy, owed its dynamism to a tripling of the road network between 1954 and 1963. Investment increased faster than GDP (see Table 1.1). -3 - However, the realized ICOR (ignoring depreciation) was a fairly high 1.4, despite a rather low growth rate and a long payoff period for the projects undertaken. Inflation declined in the second half of the 1950s, but at close to 18 percent per year in 1960, it was still high. The problem was brought fully under control after 1962 when inflation dropped to less than 5 percent. Table 1.2: PARAGUAY - GDP BY SECTORS (reat growth rates in percent) 1952-60 1960-65 1965-70 1970-81 1981-88 1989-90 Agricutture 2.4 4.0 1.8 6.9 2.4 4.9 Industry 1.8 6.6 6.5 8.4 1.6 4.2 Construction 9.3 6.6 6.5 21.1 -1.3 8.0 Services 6.1 4.2 6.3 9.3 2.2 4.7 Basic 2.4 3.3 4.9 11.6 4.7 6.4 Other 6.5 4.6 4.8 8.9 1.9 4.4 GDP 4.0 4.6 4.8 8.9 1.9 4.4 Source: Statisticat Arnex, Table 2.2 * Average growth rates estimated by exponential regression. 1.8 Important agreements that paved the way for growth recovery in the second half of the fifties--and for faster growth in the future-began in this period. Several treaties oriented to improve transportation were signed with Brazil (see the Transport section in the next chapter). In January 1956, Paraguay signed an agreement %with Brazil, whereby the latter offered to finance and conduct studies of the hydroelectric potential of the Acaray and Monday Rivers, both tributaries to the Alto Parana River, close to the area where the transport projects were being advanced. Brazil also offered to cosign whatever loans were necessary for the construction of the hydroelectric plant and to buy 20 percent of the energy produced (Birch n.d., p.19). Relations with Argentina also improved. In 1958, Argentina and Paraguay signed an accord to study the hydroelectric potential of the Yacireta-Apipe rapids on the lower Parana Rivers. The report was submitted in 1964 but further studies were considered necessary (Ibid., p. 21-22). The Sixties: Establishins the Basis for Faster Growth 1.9 Growth accelerated to 4.7 percent per year in the 1960s; however, for the decade as a whole, agriculture was not this time the main source of groswth. In the first half of the decade, galvanized by rapidly increasing exports, agriculture expanded as fast as GDP (see Table 1.2), only to stagnate when export markets declined.2 In the second half of the sixties, public sector works seem to have remained a main source of growth; construction increased at annual rates well above GDP's, while electricity and water growth began to exceed GDP's. Commerce was another important growth source, expanding by more than 6 percent per year, pushed up by regional tourism, the most dynamic element in Paraguayan exports in those years. Tourists from 2 No explanation has been forthcoming for the slow agricultural growth in these latter ycan. The dynamic elemenas that fueled growth in the 1970s were to some aent in place in the second half of the sixties, but the economy did not respond to them at the time. Again caution is necessary in draming firm condusions because of the poor data quality. Argentina, and especially Brazil, were attracted by improved roads and the availability of luxury goods at relatively low prices (WB 1971, p. 31). 1.10 Driven by public capital outlays, fixed investment grew faster than GDP, its share frequently over 12 percent in the second half of the decade. With an ICOF. around 2.6, the implicit productivity of capital seems to have declincd but the ICOR remained much lower (productivity appears to have been higher) than in other countries ia the carly stages of development. Public investment averaged 5.3 percent of GDP in 1966-70, double the rate of the previous five years. The Government had started to carry out important programs, cspecially road construction, hydropower development, expansion of port facilities, improvement of water services in Asuncion, and construction of a cement plant (WB 1971, p. 39). Foreign financing for these expenditures was important--even more so was the increase in public savings. Taxes went up from 7.5 percent of GDP in 1964 to close to 11 percent in 1969/70 (WB 1971, Table 5.1). In part this increase merely reflected a shift in oil revenues to the category of taxes, once the oil reFinery was installed in 1966, but it also reflected the introduction of a sales tax in 1969, higher rates for the stamp tax approved in 1967, and a further increase in 1969.' 1.11 Among public investments, aside from transport projccts, energy ventures to take advantage of the country's hydrcelectric potential are the most striking. During the 1960-70 period, the Electricity Company (ANDE) increased its generating capacity from 22 to 126 MW. Construction of the Acaray plant was carried out in the second half of the 1960s; in 1969, ANDE installed the second 45 MW generator. The second stage of this project, Acaray II, was completed in the 1970s, raising the project's capacity to 194 NM (Ugarte 1933, p. 267). This endeavor, however, was overshadowed by the signing of agreements for construction of Itaipu. Studies for this latter project began in 1961, when Brazilian President janio Quadros commissioned the first full study of the Guaira Falls (completed in 1963). This study proposed a plant with a capacity of 10,000 MW. Construction was initially delayed because of border disputes between Brazil and Paraguay.' However, a solution was soon reached: in June 1966, Paraguay and Brazil signed the Acta Final, which became the basis for the Itaipu Treaty signed in April 1973 (Birch, n.d., p. 24). The Acta stated that the electricity generated would be divided equally between the two countries. 1.12 Expanding the agricultural frontier was the Governmcnt's top priority, pursued with great success during the 1970s. Although attempts to expand this frontier began soon after the Triple Alliance War (1870), by the 1950s, more than 60 percent of the country's population still was concentrated within 100 miles of Asuncion (Baer and Birch 1984). Minifundia remained The catalytic element v, the opening of the bridge connecting Ciudad dcl Este in Paraguay and Foz d'lguazu in Brazil (para. 2.30). It is instructive to recall that after one year of deliberations, Congress passed an income tax reform approving a global peronal income tax that failed to be applied Also, the jump in the tax revenues in 1969,70 did not last. As early as 1973, tax revenues fell below 8.5 percent of GDP. In other wod, as in many other countries and circumstances, higher tax rates had only a temporary effect on collections. In June 1965, Brazil moved troops to the area and Paraguay protested (Birch, n.d., p.23). -5 - the typical form of land exploitation within that perimeter. For example, in 1962, Cordillera, one of the minifundia departments, had a population of 38 persons per km2 while the national avert-e was 4.5. With the land opened by the new roads and the founding of the IBR (Instituto de Bienestar Rural) in March 1963, 42,000 families were resettled between 1963 and 1973 (Baer and Birch 1984). However, agriculture output did not respond immediately to the new settlements-- instead, it stagnated in the second half of the 1960s for reasons that are not altogether clear. Itsipu: The Basis for Accelerated Growth in the 1970s 1.13 Between 1970 and 1981 GDP growth averaged a strong 8.9 percent per year. Agriculture grew rapidly (6.9 percent per year), as did most other sectors. Basic services like electricity, water and sewage, and transport averaged 11.6 percent per year; however, the thrust of the added dynamism was in another sector and transitory--construction expanded at an average rate of 21 percent per year. Obviously this growth could not be sustained, a fact that became increasingly clear throughout the 1980s. The dramatic increase in construction stemmed from a large expansion in private investment (public investment remained at about 5 percent of GDP). Private investment, which represented less than 10 percent of GDP (at 1982 prices) in the 1960s, increased to almost 17 percent on average during the 1970s and over 20 percent between 1979 and 1981. The ex-post ICOR fell Lo 2.1, despite the increase in investment, because of the extremely rapid growth rate. Public finances remained strong in this period and huge increases occurred in foreign reserves, which grew from less than US$20 million at the beginning of the seventies to US$800 million in 1981. 1.14 Inflation accelerated in the 1970s, following worldwide trends. Domestic and international (US) inflation moved together between 1970 and 1978 (see Table 1.3), reflecting a fixed exchange rate. Massive inflows of foreign exchange occurred as domestic i.;redit policy was relatively tight until the end of the decade.6 Domestic inflation slightly exceeded the international rate in 1973 and 1974. In 1974, a parallel and free market for foreign exchange developed, with a small premium on the free over the official rate. The premium almost disappeared in 1977, the free rate dropping to the official rate. However, domestic inflation substantially exceeded the international rate for the three consecutive years, 1979, 1980, and 1981, a break from the close linkage of the 1970s. A large premium developed in the free market after 1980 and in 1984, fueled by excessive credit expansion,7 and, in the face of the diversion between domestic and international inflation rates, the official exchange rate could not be maintained (Baer and Birch 1987, p. 610; Baer and Breuer 1987, p. 134). The Govemment chose to initiate a complex and distortionary system of multiple exchange rates, which was eliminated only with the adoption of a unified free exchange rate in 1989. 6 Bctween 1970-78 credit increased at an annual rate of 13 percent, well below nominal GDP growth rate of 18 percent per annum. Between 1978 and 1984 credit increased at an avcragc annual rate of 26.5 percent, higher than the 22.1 percent average increase in GDP. -6 - Table 13: PARAGUAY - DOMESTIC & INTERNATIONAL INFLATION IN THE SEVENTIES (percent per year) Year International a/ Domestic J/ 1970 6.3 1.6 1971 5.4 5.7 1972 9.0 8.5 1973 i5.8 20.4 1974 21.8 23.5 1975 11.2 5.7 1976 1.4 4.8 1977 9.8 11.0 1978 15.1 9.9 1979 13.3 19.9 1980 9.7 16.8 1981 0.4 16.3 Al Source: World Bank, MUV index h/ Source: GDP Deflator, BCP 1.15 The two most important factors in explaining the changes in growth that occurred in the seventies were the expansion of the agriculture frontier and the construction of Itaipu. 1.16 The Stroessner Administration's efforts to expand the agriculture frontier in the mid-1960s and 1970s paid off handsomely in the 1970s. The settL-ments of the 1960s were the main reason for agricultural growth By the end of 1976 almost 90,000 land titles had been issued, covering about 4 million ha (WVB 1978, p. 8). In response to powerful economic incentives, a la ,e number of Brazilian farmers came to the expanding frontier to join Paraguayan colonists in the seventies as welL The frontier lands were mainly used to produce export crops, especially cotton and soybeans, which came to dominate the country's exports. The areas allocated to cotton increased five times between 1970 and 1980 (from 50,000 to 250,000 ha), and land under soybean cultivation grew from 40,000 to 430,000 ha. Other crops also benefitted from increased availability of land; areas under maize and manioc increased significantly (from 190,000 ha in 1970 to 380,000 ha in 1980 for the former, and from 100,000 ha to 140,000 for the latter) (WB 1984, Table 3). Output grew correspondingly. In that period, output of cotton, soybeans, maize, and manioc increased 535, 1,740, 230, and 10 percent, respectively (Ugarte 1983, p. 280; WB 1981, Table 7.3; WNB 1984, Table 8.2). The structure of exports reflected the dramatic change in production. Cotton and soybeans represented only 6 percent of exports in 1970 but 60 percent in 1981 (Baer and Birch 1984, p. 787). 1.17 The highways to Brazil, opened in the sixties and seventies (see section on transport), also were a stimulus in agricultural growth. Parguay's traditional dependence on Argentina as its primary trade route to the sea was brokerL This was reflected by the dramatic - 7 - increase in trade with Brazil, to the detriment of trade with other countries, especially the United States. Exports to Brazil were 1.6 percent of the total in 1970 and 18.3 percent in 1981 (33 percent in 1989); for imports these values were 3.2 in 1970 and 25.9 percent in 1981 (close to 30 percent in 1989). The corresponding totals for the United States dropped from 27 percent to 5 - percent for exports and from 24 percent to 10 percent for imports. 1.18 The radical changes brought about by opening new frontiers can also be observed in the regional population distnbution. While only 18.3 percent of the population lived in the eastern frontier region in 1962 273 percent lived there 20 years later. Also, about 40.5 percent of the population lived in the minifundia region in 1962, compared to 34.2 percent in 1982 (see Table 1.4). Contrary to migration elsewhere, the main migratory movements in Paraguay did not involve flows from rural to urban arcas but rather movement out of rural minifundia into newly opened rural areas (Baer and Birch 1984, p. 788). Table 1.4: PARAGUAY - REGIONAL DISTRIBUTION OF POPULATION (Percent) Region 1962 1972 1982 Asuncion 15.9 16.5 15.1 Minifundia Region ! 40.5 35.7 34.2 Eastern Frontier Region E 18.3 22.2 27.3 Other 25.3 25.6 23.4 Total 100.0 100.0 100.0 Source: Baer and Birch 1984, p. 788, Table 5. A/ Includes Departments of Cordillera, Guaira, Paraguari and Central. h/ Includes Departments of Caaguazu, Itapua, Alto Parana and Canendiyu. 1.19 The other major source of growth in the seventies was the construction of Itaipu, a massive hydroelectric dam, managed by a binational enterprise with an equal number of Paraguayan and Brazilian directors. The dam was planned and actually built based on loans contracted by the binational entity in international markets, guaranteed by the Government of Brazil. The electricity generated is sold to electric companies in both countries at prices set in US currency (Baer and Birch 1984, p. 789). 1.20 Itaipu's cost was USS18.5 billion (measured at the end of 1989), four times Paraguay's 1989 GDP. Of Itaipu's cost, USS250 million (equivalent to 6 percent of ',DP) was - 8 - spent in Paraguay each year between 1977 and 1980 (Baer and Birch 1984, p. 789).' This inflow increased liquidity and helped stimulate a tremendous credit expansion while putting downward pressure on thc real exchange rate. Construction benefitted most from the easier credit policies, growing at an average annual rate of 23 percent between 1973 and 1981. This reflected not so much the construction of Itaipu as the boom in private construction and nublic spending on infrastructure. Easy credit also helped expand commercial activities. For example, in 1972 there were only six banks in Asuncion; by 1981 there were 20. Also, plentiful foteign exchange allowed abundant import of consumer goods, and many well-known brands couid be found in Paraguay. As a result, commerce and financf' grew at a 10 percent average anrual rate between 1973 and 1981. It is likely that agricultura: growth during this period was a byproduct of increased demand stimulated by the construction of Itaipu--with the expansion of the frontier as another consequence of Itaipu, and not an independent cause of agricultural growth. 1.21 Mlany private sector investments° during this period later proved to be overdimcnsioned; construction investment ccrtainly was greatly exaggerated. Initially, the public sector behaved conservatively and increased its savings; the Central Bank accumulated close to US5800 million in foreign reserves. Unfortunately, thLs public secter approach did not last long, as discussed below. As in a typical case of Dutch Disease, neither the private nor public sector spent the transitory income increase wvisely. The 1980s - NMacroeconomic Instabilitv and Stnenation 1.22 After 1981, the large inflow of fo.-eign exchange from Itaipu essentially disaip-eared. This worsened the balance of payments and substantially reduced income for many Para-uavans, causing drops in output, errnloyment and aggregate demand. As noted above, private investments made during the 1970s proved to be unproductive, but the public sector ha.d accumulated considerable savings in highly liquid foreign reserves. This encouraged the Government to intervene in the economy during the 1981 dounturn. The Government increasec' expenditures and entered (or expanded its presence) into sectors such as cement and steei. To some extent, thlese expenditures were financed abroad; but expansive credit policies also were used. 1.23 The outcome of these actions differed substantially from Government expectations: investments turned out to be overdimensioned for the domestic market and targeted to sectors where regional markets already showed substantial excess capacity; hence, most of this investment was, and remains, unproductive. Foreign debt increased dramatically, repayment corditions were not met, and after a time the Government began to accumulate substantial arrears. Even the increase in foreign debt and external arrea-rs was not enough to finance puL'lic expenditures; monetary expansion rose and inflation became rampant. Between 1982 and early For national accounts purposes, Paraguay does not consider binational enter, -4-s as being located within the national terrtory therefore, their accounts (investment, value-added, etc.) are not part of GDP. Sales of Tra.aguay to them are included as exportr (and in that sense pan of GDP): their imports are not included in the national accounts; and wag,s p tid to Paraguayans and royalties and other Paraguayan income are coosidtred factor payments received by Paraguay, part of GNP not GDP. Investment figures exdude all direct expenditures linked to Itaipu as discussed in note 8. -9 - 1989, the Monetary Authorities lost a large percentage of the reserves accumulated during the construction of Itaipu. In an attempt to counteract the balance of payments difficulties, the Authorities imposed a system of multiple exchange rates, under which, ultimatcly. the public sector became the main legal beneficiary. These multiple exchange rates not only did not resolve the balance of payrnlents diffict'lties; they also distorted ;Acentives. And with the higher inflation, distortions caused by the multiple exchange rates increased. This, in turn, affected growth and started the vicious circle of policy instability, inflation, and stagnation, which Paraguay had been able to avoid since the late fifties. Thus, Government policies not only failed to ameliorate the slowdown but induced instabi!ity that exacerbated the effects of the recession. Some progress was achieved between 1986 and 1°'89, sut it was too li2tle, too late. 1.24 Growth by Sectujr in the 1980s. Not just growth but absolute GDP declined for two consecut` e years after the completion of Itaipu's civil works in 1981. The economy's absolute cO.lt -.ction (GDP was 4 percent lower in 1983 than in 1981) stopped in 1984; however, this was not enujgh to avoid additional output loses in 1984-86. Growth remained at less than 2.5 percent per year for the next three years, well below the 3 percent p.a. population increase. A recovery began in 1987 and accelerated in 1988, ,vhen growth exceeded 6 percent. However, this still did not bring income back to levels that would correspond to a long-run trend of about 5 percent growth per year. According to national accouiits figures, exports continued to expand fa; .Iy rapidly in the 1980s, though not nearly as fast as in the 1970s (see Tab!e 1.5). Domestic demani stagnated, refleciing the slowdown in construction and services and the loss of factor income from Itaipu, and so did GD?. TABLE 1.5: PARAGUAY - GROSS DOMESTIC PROD-JCT (real growth rate in percent) 1971-81s/ 1981-86a/ 1987 1988 1989 1990 To:al Experditures 9.7 C.e 3.0 6.9 4.3 2.1 Consu,ption 7.7 2.2 2L 7.? 2.9 0.2 Public 7.2 0.7 10.0 3.3 5.4 3.2 Private 7.7 2.3 1.6 8.1 2.6 -0.1 Investment 18.7 -6.5 6.3 3.7 10.7 10.1 Im"ports 13.9 0.6 1V.4 8.7 14.0 4.3 AExDed. in Dom. Goods 8.9 0.1 -0.8 5.4 1.6 1.4 Exr-:rts 10.8 5.8 36.7 6.0 25.1 9.3 GOP 9.2 0.8 4.3 6.4 5.8 3.1 Source: Statistical Annex, Table 2.6. M/ Average growth rates estimated by exponential regression. 1.25 The secto-s benefitting most trom the Itaipu boom--construction, and commerce and finance--wer_ those that suffered most in the post-Itaipu period (see Table 1.6). Construction activity in 1989 was still more than 7 percent below that of 1981; although trade and finance was 16 percent higher in 1989 than in 1981, this sector's growth rate was below GDP's for all years after 1981 except two (1985 and 1986). - 10 - TABLE 1.6: PARAGUAY - GROSS DOMESTIC PRODUCT (Real growth rares by sectors in x 1977-81 a/ 1981-86 a/ 1987 1988 1989 19.90 Agriculture 7.5 1.1 7.0 12.1 7.7 2.2 Industry 10.4 0.5 3.6 5.9 5.9 2.5 Construction 26.4 -2.9 2.0 2.6 2.5 -0.9 Services 11.2 1.3 3.5 4.1 5.1 4.2 Basic b/ 11.3 3.9 6.0 7.1 5.3 7.6 Other 11.2 0.9 3.1 3.5 5.1 3.6 GDP 10.8 0.8 4.3 6.. 5.8 3.1 - rce: Statisticat Annex, Table 2.2. a/ Average growth rates estimated by exponential regression. b/ Basic services include transport, electricity and water. 1.26 Agricultural stagnation in the eighties, as retlected in the national accounts, involved a significant restructuring of output oriented to the domestic market: an impressive expansion in corn and wheat--corr. doubled and wheat increased five times between 1981 and 1987--almost compensated for reductions in traditional products like manioc, tobacco, coffee, and bananas. Agriculture's poor performance contributed to commerce's slow growth. Banking services also stagnated, reflecting the substantial reduction in financial savings. 1.27 Manufacturing output moved at about the same pace as global GDP. Agriculture- related industries, rrostly oriented to the domestic market, continue to comprise most of the country's manufacturing activities, vith food, beverages, i. bacco, cotton (including textiles), woods, and hides account for more than two-thirds of the sector. As might be expected, in a sector where exports are insignificant, manufacturing stagnates along with domestic demand. The steel and cement industries' performance also reflects slow domestic growth and regional excess capacity. As a result there is substantial excess capacity in these sectors. 1.28 As in earlier de.-ades, basic services--electricity, water and sewage, and transport-- expanded faster than the economy; but grovth also declined substantially compared to earlier years. Transport services expanded the least in the general economic downturn. Electricity, water and sewage continued to grow at rates over 6 percent a year through the eighties. In particular, the beginning of operations at Itaipu in 1983 promoted high electricity growth rates after 1985; the completion of important water and sewage works in Asuncion explains the higher growth rates for this sector until 1983. 1.29 It should be noted, however, that data problems make developments in this period difficult to interp.c;. For example, between 1981 and 1986, national accounts indicate that the real value of total exports of goods advanced at a relatively fast rate (5.8 percent per year), while expor' of goods registered by the Central Banl (or exports measured by imports of other countries, which is the basis of the balance of payments estimates'0) declined. Thus the increase 10 However, balance of payments estimates may be more unreliable than the national accounts. For a more complete explanation see paras. 1.45-1.47 below in the total is wholly due to the estimated evolution of unregistered cxports, about which little is known with any certainty. Although exports might not have increased as much as national accounts estimates suggcst, this report's hypothesis is that such evolution Nwas indeed plausible. 1.30 National accounts figures for specific agricultural products suggests a modest if not negative real growth of export of goods between 1981 and 19S6, which probably understates what really happened. Cotton and soybeans have been the economy's most dynamic products in the last two decades, and because most of their output is exported, little change might be cxpected in the share of output exported. However, the drastic changes in this share for both cotton and soybeans. as depictcd in Table 1.7, suggest that registered exports and corresponding output figurcs are incompatible. Significant changes in incentives to export through informal channels make registered exports a poor proxi for total exports. Moreover Paraguay's exports may rry from year-to-year because of teexports from Brazil, which may or may not be registered. Exchange rate policy discouraged non-registered exports before 1981. and encouraged them afterwards;" only in 19S9 conditions wvere again like in 1981. In 19S9, cotton and soybeans represented nearly 70 percent of registered exports and 37 percent of agriculture exports; the corresponding figures for 1981 were only a little lower, 60 percent of registered exports and 31 percent of agriculture output. But yearly changes within the 198I-S6 period show a different picture. For example, between 1981 and 1982 tctten's domestic and external demand increased strongly -the volume of cotton (registered) exports increased 23 percent and textile output increased 20 pcrcent--but domestic output is estimated to have declined 25 percent. The observed high ratio of output exported show%n in Table 1.7 may be misleading: output grcwth maybe understated (or unregistered exports rrom Brazil may have increased). Between 1982 and 1986 the contrary happened; (registered) exports were constant and textile output increased barely 7 percent while estimated cotton output jumped 23 percent; thus the share of output exported declined, another misleading change. This time, cotton exports' growth probably was underestimated by the evolution of registercd exports. Registered exports as a whole declined 26 percent bet-ween those years but non-registered exports increased strongly, so that the total of registered and unregistered went up by more than 50 percent. Because of the exchange rate policy, the evolution of both total and ncn-registered exports after 1982 seems plausible. Therefore, the trend of overall exports of goods is inaccurately estimated by registered exports. If estimates of overall exports are right and the evolution of non-registered exports of cotton explains the evolution of the aggregate, it could well be that cotton output might have grown as much as stated bctween 1982 and 1986; still, because of the 1982 bias, output growth probably is underestimated in the 1981 and 1986 period. The picture offered by soybeans output is more clear-cut and suggests inaccuracies like cotton's. Soybeans are almost fully exported (although national accounts indicate that only 25 percent of the country's output Was sold abroad in 1981-- see Table 1.7). Between 1981 and 1986 exports' volume increased almost 200 percent, but domestic output is estimnated to have declined more than 20 percent. Even though the fraction of output sold abroad appeared at a mo-e reasonable 90 percent in 1986, output growth seemns to have been substantially underestimated between 1981 and 1986. Thus in both of these important products, cotton and soybeans, output growth bet-ween 1981 and 1986 might have been underestimated in national accounts. GDP growth would have been understated correspondingly. For a more detailed d&ussion of exchange rate po;icies, see the balance of i-ayments section, paras. 1.43 - 150. - 12 - Table 1.7: PARAGUAY - SHARE OF EXPORTS IN DOMESTIC OUTPUT Soybeans Cotton 1970 0.0 30.1 1971 16.2 17.4 1972 41.5 18.8 1973 44.5 22.1 1974 53.0 20.6 1975 46.3 26.5 1976 74.4 31.0 1977 68.9 26.4 1978 58.2 29.4 1979 74.2 33.3 1980 36.2 32.1 1981 25.2 28.6 1982 62.3 44.0 1983 81.0 34.6 1984 64.5 27.9 1985 72.4 34.5 1986 90.1 35.4 1987 93.6 37.3 1988 89.9 31.2 1989 115.4 35.1 Source: Central Bank of Paraguay, National Accounts. 131 Investment and Savin_s. The country's overall capital expenditures dropped substantially after 1981. Investment expenditures increased at a 21 percent annual rate during Itaipu years (without considering the works themselves which appear as part of the Binational Corporation); they contracted more than 6 percent per year between 1981 and 1986. Investment which had reached 26 percent of GDP in the 1977-81 period, at the height of works in Itaipu, dropped to 22 percent in 1982-86 (see Table 1.8). Private investment in particular declined sharply in the 1980s. Public investment remained high; indeed on a cash rather than national accounts basis, it was somewhat higher in the period 1982-86, than in 1977-81 (see Table 1.9). 132 Natioral savings fell even more than investment according to national accounts. The share of national savings in GDP dropped from ahnost 22 percent to less than 13 percent between 1977/81 and 1988. This was the result of low internal interest rates, not only negative in real terms (they had also been negative in prior years) but extremely uncompetitive with rates - 13 - abroad. With the completion of most civil works in itaipu, foreign savings (i.e., the current account deficit) increased substantially after 1980181."2 1.33 This picture changed when the new Administration took office in February 1989. The policy changes undertaken produced some recovery in private investment and a strong increase in national savings both from public and priv'ate sources. National savings grew to 17 perce .t of GDP. In 1989-90 there was a radical cut both in the private and public deficits and a corresponding reduction in the current account deficit (foreign savings), from 10 percent down to 5 percent of GDP. Table 1.8: PARAGUAY - SAVINGS AND INVESTMIENT, 1977-1990 (Percent of GDP) 1977/81 1982186 1987 1988 1989 1990 Gross Fixed Invest. 26.1 22.0 23.7 23.1 22.7 22.0 Private 19.7 16.6 16.6 16.6 19.1 18.5 Public 6.4 5.4 7.1 6.6 3.6 3.5 Gross Savings 26.1 22.0 23.7 23.1 22.7 22.0 National 21.7 14.8 14.0 12.9 16.2 17.0 Private 15.4 13-5 12.5 11.7 11.2 9.1 Adjusted Public 6.3 13 1.5 1.2 5.0 7.9 Public 5.1 -0.1 -0.2 -0.3 3.0 5.6 Inflation Tax 1.2 1.4 1.7 1.5 2.0 2.2 Foreign 4.4 7.1 9.7 10.3 6.5 5.0 Source: Statistical Annex, Table 2.6. 1.34 Public Finance Policies. As noted above, in an attempt to counteract the depressive effects of lower expenditures at Itaipu, the Government increased its investment, which went up from an average of 5.6 percent of GDP between 1980 and 1982 to 6.8 percent between 1983 and 1988 (7.3 percent excluding 1986-see Table 1.9); the increase mainly reflected the construction of a public cement plant and a steel milL In addition, public finances suffered as tax collection deteriorated as a result of a declining economy and poor tax administration. After averaging 8.1 percent of GDP in the 1980-82 period, revenues dropped to 6.8 percent between U Foreign savings in national accounts are not consistent with balance of payments estimates. in the former, the movements in foreign and national savings amr more consistent wih related policy changes. Thc balance of payments estimates suggest that foreign savings would have dropped strongly from 1981 to 19S3 and tncrased dramatically from 1983 to 1987, which is not consistent with policies in plac; the etrors and omissions account also shows targc and countcrintuitive changes in the opposite direction. In fact, if the crrors and omissions account is aggregated with the current account, foreign savings estimated from the balance of payments become more plausible and get closer to the national accounts estimates. Nonetheless, substantial discrepancies remain (see paras 1.46 and 1.47). - 14 - 1983 and 1988. The Government tried to counteract these negative effects on public finances by cutting "formal" current expenditures, excluding interest payments, which dropped from 11 percent of GDP in 1982/83 to 9 percent after 1984. However, those cuts had little impact, since they were offset by a rapid rise in interest payments (from 0.5 percent of GDP in 1980/81, to 1.5 percent in 1987/88), even with the accumulation of external arrears. 1.35 Although formal public sector official expenditures (excluding the financial sector) were cut, effective outlays probably increased because official expenditures in foreign currency were valued at an artificially low exchange rate. In fact, a major reason for the deterioration of public finances in the latter half of the 1980s was the larger (effective) expenditures that were financed by foreign exchange subsidies. The subsidies cannot be disaggregated into current or capital expenditures for analytical purposes. However, they are included in this report's estimate of the deficit to be financed (See Table 1.9 including note b). Tble 1.9. PAZAGUAT - C0NSCLIDATED PnLIC SECTOR ACCOUNTS (CASH BASIS *t) 1! of CDP) 1980 1981 1982 1983 1984 1965 1986 1987 1986 1989 1990P/ 6urr-nt .u.-Ou.. 14.4 1.4 15.1 14.3 13.6 14.1 13.1 14.6 14.3 X1.3 1'5 Tax.. 8.5 7. 8.63 81 8 7 . 8.8 7 1 7.0 8.8 9.2 Valus Added ELt. bI 2 9 2 6 3 1 3 4 2 5 3 5 3.1 3.8 3.4 3.1 43 Otber 3.2 3.2 3.7 4.3 3.9 3.7 3.7 3.6 3.8 5.4 SA Curr,nt Expand 9.3 10.2 12.3 12.7 11.1 10 2 10.3 10.8 10.0 13.8 133 Non Intoest 8. 9.7 11.3 11.8 10.1 9.3 4.4 9.3 8.6 10.6 111 Interest a1 0D. 0.5 1.0 0.9 1.0 0 9 0.9 1.5 1.4 3.2 2.1 Curroot S-lIt. 5.3 3.2 2.6 1.6 2.0 3.9 3.3 3 4.3 3.5 5 CSvit1 Expend3 5.3 6.1 5.5 S.9 8.4 6.5 5.1 6.7 7.4 6.8 5D Offlolal Deficit .1 -.1 2.9 2.7 5.3 6.4 2.6 1.7 2.9 3.1 3.3 -03 Porc- Subsidies cE 0.0 0.0 0.8 0.6 2.7 4.9 5.5 4.0 4.5 0.5 OD Deficit - Plnonoln5 .0.1 2.9 3.4 5.9 9.1 7.5 7.2 6.9 7.6 3.8 -03 Ex. .1J finoc. U'T1 7,7 7:7 7 7:7 T 71 % Doe.stic Fin. -0.8 2.0 2.4 2.4 4.9 6.6 4.6 6.4 7.1 -0.5 13 CB For.x Sub 0.0 0.0 0.1 0.1 1.8 2.4 3.7 3.7 3.0 0.3 OD Banking Credit 0.3 1-7 0 7 2.3 0.3 0.8 0.4 .0.3 -0.8 -2.4 -0S NOa B..k Fortz Sub 0.0 0.0 0.7 0.5 0.9 2.3 1.8 0.3 1.5 0 2 0D Other -1.2 0.4 0.9 .0.5 1.9 0.9 -1.4 2.7 3.4 2.4 I1 Sourc.s Finance Mintitry and Bank estl.t.s. *t Arrears not included. Vali. of .a... I..* cost of inputs. Public enterprises' other o wn re e incudd in tother;i thus the 0volu. add,d- cr, pt in thi. table is not the sa. as in aoction 3C. C - .h full counterpart of th.s. subsidies ia icluded Jn the deficit to be finened. to sacx extent this is an ovrattatebnts the frcttion financed by the Central 3.k to oy croation, but tb.t finoocod by eportor (lnd iport.r. of capital throgh official obhnnal) represents a tIrsofor of rcurco to i.port.sr and thus. eff. t sly I a ta and subsidy. ?I Freliain.ry stiatse. 1.36 The sizable subsidies the public sector received on its purchases of foreign exchange came both from exporters (who had to sell to the Central Bank a fraction of their export proceeds at an exchange rate well below the market rate--the "aforos") and the Central Bank (which sold foreign exchange to the public sector at even lower prices). Th_se purchases reached the equivalent of nearly 5 percent of GDP between 1985 and 1988. Thus, although the official deficit did not go over 3 percent of GDP during the entire decade (except in 1983/84), the effective deficit, including the foreign exchange subsidy, averaged more than 7 percent of GDP in the 1983-88 period. After a small surplus 'in 1980, with the general economic decline after Itaipu, the public sector deficit increased to 3.4 percent in 1982 and to 7.4 percent of GDP between 1983 and 1988 (see Table 1.9). In sum, despite low official deficits, public finances performed poorly through most of the eighties. 1.37 Deficit financing introduced additional instability. Changes in foreign financing caused instability in the real exchange rate by affecting the availability of foreign exchange, and domestic - 15 - financing generated inflation by forcing large monetary expansions. Foreign financing" fluctuated substantially: it represented 0.9 percent of GDP between 1980 and 1982, jumped to 3.9 percent in 1983/84, and dropped to 0.5 percent in 1987/88. Domestic financing showed a steady increase, as reflected in monetary aggregates. Although formal credit from the banking system to the public sector generally was small if not negative in the eighties (it exceeded 2 percent of GDP only in 1983), the banking system resources channeled to the public sector show large increases when foreign exchange subsidies are tak-en into account. Including these subsidies, banking credit to the public sector increased from 0.3 percent of GDP in 1980 to 2.4 percent in 1983, and to over 3 percent in the 1985-87 period (see Table 1.9). Starting in 1983, the deficit's domestic financing became a major source of disequilibrium. 1.38 The picture changed radically in 19S9 with the new Administration. Against heavy odds, they improved public finances substantially. The foreign ex-h-nge subsidy (about 5 percent of GDP on the average between 1985 and 1988) was eliminated wL n the new economic program was put in place in February of 1989 and the multiple exchange rates unified. Moreover, the adjusted cash deficit was substantially cut from almost 8 percent of GDP in 1988 to an estimated surplus in 1990, and domestic financing (including banking system credit) was negative, after represcnting more than 6 rercent of GDP between 1984 and 1988. Actions included increases in tax revenues, courageous cuts in expenditures, as well as improvements in public enterprise finances, all despite no new taxes. 1.39 Tax revenues as a percentage of GDP had declined from 9.4 percent in 1971 to 6.5 percent in 1983 and were only 7 percent in 1988 Mainly by improving tax administration, charging import taxes on the market value of imports as the tax base, and enacting a small tax on exports (that replaced the old "aforo' system), revenues increased to 8.8 percent of GDP in 1989 and 9.2 percent in 1990. 1.40 In 1989, cuts in expenditures and strongly enforced rationalization policies offset part of the strong upward pressures stemming from the elimination of foreign exchange subsidies (mostly spent on fuels and servicing interest on foreign debt) and higher wages and held the increase in current expenditures to two percentage points of GDP. Capital expenditures declined relative to GDP, in consonance with a general tightening of public finances and restructured priorities, which were reflected in cuts in works considered unnecessary (the excessively elaborate airport originally proposed for Ciudad del Este, for example). 1.41 Performance in the rest of the public sector (especially in public enterprises) also offered encouraging aspects in 1989 and 1990 despite unfavorable circumstances.. For example, when the exchange rate was unified, the fuel bill of PElROPAR (the petroleum company in charge of oil imports) did not increase as a share of GDP." In 1989, wage increases were significant for public enterprises (30 percent in May), and tariff increases were we!l below expectations, but total enterprise savings (excluding interest payments) did not decline as much as expected. Without considerizg arrea in interest payments, w.ich, howvner. were not large. interest arrears were less than one- third of the total arrears at the end of 1989. 1. PETROPAR's exchange rate for import of oil (US$115 million) ruse from G400 per dolar to G1000 per dollar. - 16 - 1.42 Public investment was reduced in several areas in 1989, in part by reducing the waste of the mid-1980s but also because of more stringent budget constraints. The construction of a cement plant and a new steel mill had been completed by 1988--both turned out to be greatly overdimensioned for the domestic and regiona! market and now represent a burder. on the public sector. However, because of important new projects, overall PE's investment increased in 1989 and again in 1990. Public enterprise outlays, about 3.9 percent of GDP in 1988, Lre estimated (prelimir--ily) at 5.6 percent in 1990. 1.43 The Balance of Pavments in the 1980s.'5 The effects of the completion of the main works at Itaipu dominated the extemal accounts for most of the 1980s, as it did the economy as a whole. First came the drop in associated extemal net inflows; then a lack of adjustment to the Balance of Payments deficits. The evolution of the foreign capital account aggravated the misdirected policies: too many resources were channeled to the country in the first few years after the reduction of Itaipu inflows-which encouraged maintaining the incorrect policies--then, because of lack of progress in policy management, too few were channelled in the following years--to which the government responded by accumulating arrears. 1.44 In 1980/81 net earnings (exports, wages, and sales of expropriated land) from the binationals (Itaipu and Yacireta) totaled about USS435 million a year according to the balance of payments accounts; in 1983 they were US5315 million, and less than US$90 million in 1986 (see Table 1.10). This drop was the equivalent of over 6 percent of GDP. In 1982-83, the Government offset this reduction through increases in medium- and long-term borrowing. In 1983, these additional inflows reached almost US$150 million more than in 1981, more than compensating for the Itaipu-related losses of foreign exchange in that year. Adjustment was needed to the decline in foreign exchange earnings through changes in relative prices, but this was delayed by the borrowing and loss of foreign exchange reserves. 1.45 After Itaipu' the real exchange rate needed to increase (depreciate) to reflect the lesser availability of foreign resources. Until 19S81, the real exchange had declined (the domestic currency appreciated) due to the abundant supply of foreign exchange--falling by 6-7 percent per year between 1978 and 1981. In 1981-83, the real exchange rate should have increased, reflecting a lower supply of foreign exchange. However, the adjustment was avoided by foreign borrowing. With the overly expansive public expenditure policies, not even the greater foreig-n borrowing was enough. The result was the country lost US$100 million in foreign reserves. Overall the real exchange r3te dropped (appreciated) instead of rising (depreciating). 1.46 According to balance of payments figures, (see Table 1.10)16, exports declined in the early 1980s, reflecting the appreciation in the real exchange rate. However, according to the balance i*f payments statistics, imports also fell, contrary to what might be expected with a real As noted above, there are significant differences bewcen balance of payments and national accounts data. It must be noted (hat this table is not fully consistent with that shown in thc projections. Debt related figures (interess, disbursements and amonizations) in the former are from official Central Bank figurcs; for the lattcr, the sourcc is the World Bank debt statistics. - 17 - exchange rate appreciation. As a consequence, the balance of payments shows an improvement in both the resource balance and the current account." This movement in imports is, however, probably an aberration in the data. The balance of payments also shows a large increase in outflows under errors and omissions. This most likely reflects (net) unreported imports. If these errors and omissions are added to imports, the current account and resource balance would more closely resemble what could be expected from the appreciation of the real exchange rate. 1.47 The policy of increasing foreign borrowing and reserve loss wts unsustainabL. In 1983 a distortionary and corruption-prone system of multiple exchange rates was implemented to try to stop the foreign exchange drain. As part of this system, the average exchange rate was depreciated substantially in nominal and real terms. The average real exchange rate almost doubled between 1983 and 1985 (see Table 1.10)". The result should have been an improvement in net exports and the current account and resource balance. However, according to the current account, exports were fairly constant (and even declined in 1985) while imports increased. As a result the balance of payments reports a swing in the current account from +2.4 percent of GDP in 1983 to -12.7 percent in 1987.'9 Again, there seems to be a problem with the balance of payments estimates, since errors and omissions show a massive improvement from - 5 percent of GDP in 1983 to roughly zero in 1985 and to +9.8 percent in 1987. It is likely that the improvement in the current account and resource balance is hidden in the capital account under the label "other" but in fact reflecting exports which went unreported to avoid the implicit tax imposed by the multiple exchange rate system and the shift of formerly unregistered imports to the official exchange rate. 1.48 Despite the improvement, the current account plus errors and omissions remained negative for the period 1984-88 Moreover, net medium- and long-term financing to the public sector dried up. These funds represented about 5 percent of GDP in 1983/84, but were negative in 1987/88. The international financial community (including the World Bank) correctly reduced voluntary disbursements for macroeconomic reasons. Adjusting the economy to the regative inflows would have meant a decline in domestic well being: instead the Government chose to accumulate arrears. Even with the accumulation of arrears, international rese.:es declined a further US$320 million between 1984 and 1938. 17 As explained earlier (see paras. 1.29 and 132) balance of payments and national accounts figure are not consistenL However, the latter does suggest that the current account deteriorated in 1982-83 to As noted above, the sysate was used as a tax to benefit the public sector, not importers or pritvate capital. n lThis time the uiational aount data also show a big increase in the current account deficiL -18- TABLE 1.10: PARAGUAY- BALANCE OF PAYMENTS SUMMARY, 19089 1980 1981 1982 19R3 1984 1985 1986 19S7 1988 19S9 1990 ExpofU (Gd. & NFS) 944.9 965.6 7n3.6 742.2 756.2 671.3 790.8 806.8 1159.6 1538.6 1804.5 BinatiomabL 266.6 322.2 218.2 245.0 156.4 105.2 62.0 75.4 141.7at 221.2sW 2255&1 ImponU (Gd. & NFS) -1193.5 -1175.5 .919.8 -667.5 -907.3 -840.1 -1108.6 -1201.6 1320.8 1297.6 1739.0 Resource Balance -248.6 -209.9 -138.2 74.7 -151.1 -168.8 -317.8 -394.8 -161.2 241.0 65.5 Net Factor Income 94.4 136.7 113.5 55.4 30.7 -28.8 -32.8 -88.6 -84.1 -28.8 -7.2 Accnued Intcrea .77.4 -78.7 -79.9 -64.1 -78.3 -106.8 -117.0 -161.5 -138.0 -112.5 -101.1 Wages (Binatiocals) 100.2 122.8 81.2 66.2 47.2 19.0 27.4 45.2 23.7 39.1 33.8 Othen Net 76.1 98.3 117.2 59.5 71.1 76.9 57.9 31.9 30.2W/ 44.6b/ 60.lW Net Curncat Trausen 4.5 5.7 5.0 6.2 9.3 7.5 11.1 27.0 35.2 23.9 32.9 Cutent Account -149.7 67.5 -19.7 136.3 -111.1 -190.1 339.5 -456.4 -210.1 236 1 93.2 Public LT (vol.)r/ 148.1 133.9 225.7 281.3 2095 83.0 139.6 -69.1 463.5 -114.9 -1083d/ Biralicals (cxpropr) 28.6 25.4 21.6 5.4 9.6 1.4 1.0 10.6 45.7 42.0ct 2.1ct OIcam (Ne) 98.8 61.6 -69.4 -180.7 -109.8 -13.6 55.6 156.1 -80.8 150.5p/ -9.1;t Caoital Accoumt 275.5 220.9 177 9 106 0 109.3 49.9 154.2 24.3 -190.0 -6.4 -115.3 E &O 38.7 -108.2 -233.2 -281.8 -93.7 29.6 59.5 367.2 196.2 -92.2 111.8 Overal DeFicit -164.5 -45.2 75 0 39,5 95 5 110.6 125.8 64.9 203.9 -137.5 -87.7 Decline Reserves -64.5 -45.2 71.5 39.5 955 68.6 59.3 -46.2 143.8 -136.7 -245.9 Incruae in Arras 0.0 0.0 0.0 0.0 0.0 42.0 66.5 111.1 60.1 -0.8 158.2 Mcmo Itesm (u % of GD?) Reaource Balance -5.6 -3.7 -2.6 1.3 -3.4 -5.3 -9.0 -10.6 -4.1 5.9 1.2 Currenst Accont -3.4 -1.2 40.4 2.4 -2.5 -6.0 -9.6 -12.2 -5.3 5.7 1.7 Errors and Ornis ajX 0.9 -1.9 4.3 -5.0 -2.1 0.9 1.7 9.8 5.0 -2.2 2.1 Publ;c Net LT (vormQ 3.3 2.4 4.2 5.0 4.8 2.6 3.9 -1.9 -1.6 -2.8 -2.1 Chnge Rcnca -3.7 -0.8 1.3 0.7 2.2 2.2 1.7 -1.2 3.6 -3.3 4.7 Cnngc Arran 0.0 0.0 0.0 0.0 0.0 1.3 1.9 3.0 1.5 0.0 3.0 Real Ex. Raic Index Ilon ( 86.1 U.4 83.0 109.2 157.6 140.4 139.3 139.6 147.9 130.5 GDP (S millioa) 4448 5625 5419 5603 4386 3161 3547 3733 3951 4115 5264 Souce: Sttistical Annex, Table 3.1. nldaes royahia and income from ala of swphu cctricity to BScul b/ Incude accruwed inerest oc Itaiu's dbt "widt Parguay. c/ Amoizatiran an waccrual bis. d/ AmortizztioLs in 1990 do not ichude dabt rcdurction cowm4 in prpsymnect of debt with Brzil (USS316 millioa). ct lachdes as outovws bun to ltaipu and its rean of axnoin.ton and inrnt. fp lnchadea u filows rcnegor td uman of irsla (US542 illim and amorizatious (USS1O6.7 mlli) co debt with BrAzil. 1.49 The balance of payments situation improved radically after February 1989, when the exchange rate was I. aified and 'freed Nonetheless, some problems remain to be corrected if the recent achievements are to be sustained. The real exchange rate increased in 1989, and with much tighter public finance management, there was a massive accumulation of foreign exchange reserves (over US$130 million). The sum of the current account and errors and omissions improved significantly, from a slight deficit in 1988, to a surplus of 3.5 percent of GDP in 1989. However, voluntary medium- and long-term capital inflows remained negative. Nonetheless, the capital account as . whole improved, taking into account the refinancing of arrears on the debt to - 19 - Brazil. Another problem was that arrears continued to accumulate on non-Brazilian debL The overall balance of payments result was reserve accumulation, equivalent to more than 3 percent of 3 iDP. This accumulation exceeded the surplus in the public sector accounts, meaning that it gLnerated (net) monetary expansion which allowed inflation to proceed and even accelerate. 1.50 International reserves increased USS246 million in 1990, even more than in 1989. However, this was in the context of a real appreciation and a deterioration in the current account. surplus (with the elimination of the multiple exchange rate system the aggregation of the current account and the errors and omissions account makes less sense-the current account alone is a reasonable measure of trade in goods and services). Net voluntary disbursements (including only Paraguay's actual payments on rescheduled debt with Brazil) were again negative (21 percent of GDP). Arrears accumulation was about 3 percent of GDP and there was no refinancing as in 1989. The main factor in the increase in reserves was a massive increase in errors and omission. The large improvement in errors and omissions probably reflected flows of short term capital responding to the high domestic interest rates, tight domestic credit conditions and open capital account; as in 1989 this inflow fueled monetary expansion and allowed inflation to proceed at high rates. 1.51 External Debt rose substantially in the eighties as a result of the public -ctor's borrowing. Medium- and long-term debt outstanding and disbursed was US$784 million in 1980 and US$842 million in 1981 (15 percent of GDP); in 1983 it was US$1.3 billion, or about 23 percent of GDP, and in 1989 it was USS2.3 billion (including interest arrears) or 62 percent of GDP (see Table 1.11). After Paraguay implemented a system of multiple exchange rates, the Government ruled that official lenders should disburse their loans at artificially low rates. As this became a source of corruption, many official lenders stopped channe!ing money to Paraguay (the World Bank stopped disbursements against local currency expenditures in 1980). 1.52 Terms also hardened significantly as Paraguay increased its borrowing from commercial banks. In 1980, the zverage interest rate was slightly higher than 5 percent, increasing to close to 8 percent in 1989; scheduled amortizations in 1980 implied an average maturity of 15 years but only 9 years in 1989. Sc-eduled debt servicc. which was US$80 million in 1981, increased to over USS400 million in 1987. 153 In 1989, Brazil and Paraguay reached an accord on the US$427 million the latter owed (scheduled debt service on corresponding loans was USS70 million before the de-al). This debt could be serviced or prepaid with Brazilian foreign debt valued at par but purchased in secondary markets at a substantial discount. In October 1990, Paraguay had paid back that debt in full, with an average 70 percent discount. 1.54 External arrears accumulation has become a major problem. With the tightening foreign exchange situation in the mid-1980s, the Government elected to stop debt service payments in commercial bank and most bilateral official debt, but continued to repay multilateral creditors. Arrears (principal plus interest) reached USS280 million in 1989 and soared to over USS440 million in 1990 concurrently with the accumulation of foreign reserves. About one-third of arrears reflect unpaid interesL. - 20 - 1.55 With exports increasing strongly due to the new exchange rate policy the country's potential creditworthiness is improving. However, the problem posed by external arrears remains. Solving it will require a deal that may not be easy to reach becaive a significant fraction of arrears irvolve debt whose legitimacy the Government questions (it is linked to allegedly corrupt tiansactions carried out by the previous administration). Table 1.11: PARAGUAY - EXTERNAL DEBT AND DEBr SERVICE. 197S-1989 ;USMllicna) 1975 1980 1981 1983 198s 1987 1988 1989 1990 Long Term Debt 228.0 783.9 842.0 12M.0 1638.0 2253.0 2124.0 2125.0 1755.0 Official sources 138.6 405.0 454.6 706.0 1043.0 1324.0 1256.0 1608.0 1205.0 o/w IBRD 7.7 67.7 98.5 168.4 247.9 372.3 314.9 282.0 279.0 Private sources 89.4 373.9 387.4 567.0 595.0 92 9.0 868.0 517.0 550.0 Short Term Debt (inc. Int. Arrears) .. 174.0 308.0 140.9 177.8 268.0 231.0 260.0 372.0 Interest Arrears (Est.) 8.0 27.0 67.0 93.0 79.0 114.0 Long Term Debt Service Payments 30.0 124.9 131.4 101.1 158.3 225.0 341.9 311.1 334.7 Amortizatiopq 21.5 80.4 95.0 53.4 78.0 131.0 223.9 218.6s/ 250.3 Interet 8.5 44.5 36.4 47.7 80.3 94.0 118.0 92.5 87.1 Intcret on Short Term Debt (Est.) 22.0 40.0 0.7 0.3 14.9 20.1 20.0 14.0 ToWal Debt Service Payments 30.0 146.9 171.4 101.8 158.6 239.9 362.0 331.1 351.4 Debt Ratios Long Term Debt/GDP 14.8 17.6 15.0 22.7 51.8 60.4 53.8 51.6 33.3 Debt Service Ratio b/ 11.7 1s.s 22. 22.1 13.7 23.6 29.7 31.2 21.5 19.5 Total Debt/GNP 14.8 21.5 20.4 25.2 57.4 67.5 61.7 58.6 40.4 Source: World Bank Debt Reporting System. Cntral Bank of Paraguay and World Bunk estimates. a/ Does not include rescheduled future amortizations on debt with Brazil. b Total Debt Service Paymcnts as a percent of cxports of good& ad services. Credit and Monetary Policies 1.56 Between 1980 and 1988, domestic credit policies largely reflected the country's macroeconomic policy instabilities. However, beginning in 1989, monetary/credit/exchange policy must adapt to face a new challenge arising from the possible destabilizing influence of shor.-term intemational inflows. 1.57 Domestic credit policy was increasingly expansive during most of the eighties. In 1981/82, the increase in credit represented 2-4 percent of GDP (See Table 1.12). In 1981, a rapid expansion of quasi-monetary savings financed botb additional credit and a strong foreign reserves accumulation whilc narrowly defined money (Ml) barely increased. In 1982, the first year after the Itaipu boom, narrow money growth was again negligible and quasi money grew more slowly; credit expansion was flnanced' largely by large losses of foreign reserves. An - 21 - additional inflationary element in 1982-whY' . would remain substantial throughout the eighties-- was a reduction in the real value of quasi-m:inetary savings. 1.58 Between 1983 and 1988 credit and narrow money grew fairly rapidly; inflation increased correspondingly. To finance the growing public sector deficit, credit increases rose, reaching a peak of 7.5 percent of GDP in 1986X. However, increases in credit to the private sector fluctuated betvveen 1 and 3 percent of GDP through most of the period (see Table 1.12), which was not enough to keep the level of private credit constant as a share of GDP.2' The growth in the stock of money (MI) peaked at over 40 percent per year in 1987 (the increase in the nominal stock was equivalent to 2.5 percent of GDP). A credit policy significantly more expansive than increases in Ml and quasi money was made possible by large losses of foreign reselves; between 1981 and 1988, the Central Bank was drained of USS550 million, equivalent to almost 15 percent of GDP in 1986. 1.59 Inappropriate intcrest rate policies discouraged quasi-monetary savings after 1981. As a result the stock of quasi money fell from 10.8 percent of GDP at the end of 1981 but only 5.6 percent at end 1988. The stock of deposits in foreign currency were especially affected; they were 3.1 percent of GDP at end 1981 and dropped to 0.5 percent in 1988 (though this may partly, reflect an inappropriate exchange rate used to value them). Quasi money in local currency also declined from the 1983 peak of 9.7 percent of GDP to just 5.1 percent of GDP in 1988. 1.60 Inflation (defined by the implicit GDP deflator) roughly followed the evolution of the narrow money supply (MI). The low expansion in the money supply and the slow dowvn in the growth of credit between 1980 and 1982 produced a strong reduction in inflation, which dropped to 5 percent in 1982, down from 16.5 percent in 1980/81. But the rapid ,rowth of money and credit that followed, to finance the public sector, accelerated inflation to a peak of about 30 percent per year in 1986/87. The growth of money and credit slowed somewhat in 1988, reflecting not so much prudent cred-t policies as larger losses of foreign reserves, and inflation declined accordingly. In fact, inflation fell to about 15 percent in th.,- 12 months ending in February 1989 (measured by the consumer price index). 1.61 Conditions changed radically after February of 1989. Domestic credit policy became highly res ictive but narrow money grew faster than in any other year during the eighties. The amount of added credit represented just 1.1 percent of GDP, implying a suhbAnntial cut in the real value of ihe stock of credit. As noted earlier, the public sector became drastically contractionary: there was a corresponding reduction in the nominal stock of net credit dirc.:ted toward it amounting to 2.1 percent of GDP. The private sector, on the other hand, received more credit, equivalent to 3 percent of GDP. However, this was enough to barely increase the share of private credit in GDP, since inflation exceeded 30 percent. Although credit to the public Including the Central Banks foreign cxchange subsidy to the public sector, which is substantive after 1984. Without this sutsidy, credit to th: public sector declinec (the llow was negative) in 1987 and 1988 (as well as in 1989), and was vecy small in 1984 and 1986. 3' Private credit's share was 1.1 percent in 1989, a little higher than in 19X8 (10.8 percent) and well below that of 1980- 82 (16.2 percent). - 22 - sector decreased and the quasi-money stock continued to fall as a percentage of GDP', the narrowly defined (Ml) money supply increased more than 46 percent due to the massiie inflow of foreign exchange that the Central Bank purchased at a fixed rate. Table 1.12: PARAGWAY - FINANCIAL SYSTEM FLOW OF FUNDS (Changes in Financial Assets and Liabilities as X of GDP) 81 82 83 84 85 86 87 88 89 90 Ml 0.1 -0.1 1.6 1.7 1.9 1.? 2.5 1.6 2.6 1.6 OM Local Curr 2.4 1.3 1.8 0.8 C.8 1.5 1.1 0.3 1.2 1.0 OM For curr 0.1 -0.7 -0.5 0.0 -0.3 0.3 01 0.0 1.9 1.' Total Liab. 2.6 0.4 Z.9 2.5 2.5 3.6 3.7 1.9 5.8 4.3 For Res 0.8 -2.2 -0.7 -2.4 -0.8 -1.1 0.7 -1.6 3.3 4.7 Cred 4.1 2.0 3.0 4.6 4.3 7.5 5.6 4.6 i.1 0.5 Pubtic Sector 1.7 0.8 2.4 2.1 3.2 4.1 3.4 2.2 -2.1 -2.2 Private Sector 2.4 1.2 0.6 2.4 1.1 3.3 2.1 2.4 3.3 2.7 Other -2.3 0.6 0.6 0.3 -1.0 -2.8 -2.6 -1.1 1.4 -0.9 Memo Items X change in Ml 0.6 -1.8 22.8 25.7 29.6 27.6 42.9 25.7 46.1 27.7 X change in Pvt. Creditl8.4 7.7 4.4 20.8 10.4 36.9 23.4 27. 4C.2 34.8 Inftation CGDP def.) 16.3 5.0 14.4 26.9 25.2 31.5 30.3 25.1 31.2 36.3 Source: Central Banke of Parguay and World Bank estimates. 1.62 Similar trends developed in 1990, when a further drop in credit 'o the public sector was accompanied by a small increase in credit to the private sector (the real value of the st:.,k de-lined this time). No..etheless, monetary expansion reached almost 30 percent. Again the main J .,a for the monetary growth was a massive accumulation of foreign reserves. The Central Bank acm_;iulated almost USS180 million between February and Decemnber of 1989 and USS25O million in 1990. With the rise in money growth, inflation accelerated to 31 perco nt in 1989 and to 44 percent in 1990. 1.63 Monetary policy has been less expansive in 1991, despite substantial accumulation of foreign reserves (US5300 million between the end of 1990 and August 1991) again this year. Strorger public finances explain further reductions in public sector credit; the liberalizition of interest rates combined with lower interest rates on fore; -n currency has helped cut private sector n Quasi-monetuy deposits in national currency dropped to 4.9 percent of GDP. Quasi money deposits in foreign currency increased in dollar terms fr the low levels of 1988 and in terms of Guarani ros- spectacularty because of the change in the cchange rate used to value themL - 23 - borrowing locally and shiftcd it abroad. Another and most encouraging development is taking place. in quasi-mone.ary savings. These savings, both in local and foreign currency denominations, sern to be rezovering fast reflec'iUg the higlher real interest rate on savings. A progressive reduction in reserve requirements that started in 1991 will stiengthen this recovery by further increasing interest rates on savings through cutting the spread between lending and deposit rates. Tne higher sav`ngs have helned cut the ra:e of giowth of the money supply. MI grew at an annual rate of 23 percent in the first semetrer of 1991 (there is little seasonal growth in the second serrmester). Inflation has receded w;,h the slowdown in monetary growth. The annual rate uf inflation in the first semester of 1991 was below 15 percent and this figure is not expected to e exceeded in the year as a whole. - 24 - CH-LAPFER II: SECTORAL CONSTRAINTS AND OPPORTUNITIES FOR GROWTH 2.1 Agriculture has been and will likely remain the country's most important growth engine. Constraints on its growth--linked to difficulty in further expanding the agricultural frontier and transportation--will affect the whole economy. As a result of the construction of Itaipu, Paraguay is now exporting large amounts of its surplus electriciLy to Brazil. The revenues from these sales should become an important source of additional foreign exchange and therefore provide opportunities for growth. Finally, the informal sector has been an important growth source since the mid-1960s. However, this source may decline soon if Argentina and Brazil significantly cut protection for their domestic markets. A. Agriculture 2.2 Paraguay is rapidly approaching a crucial juncture in the development of its agricultural sector. The various stages of agricultural development through which Paraguay has passed have all, to a greater or lesser degree, have been extractive and/or exploitive of natural resources. With land as an abundant factor, the natural renewal of fertility and the low level of intensity of land use allowed this approach to operate until recently as a sustainable form of production. The acceleration of devclopment over the past 20 years, however, has meant that the limits to extensive growth soon will be reached. There is a potentially serious problem of increasing degradation and erosion of soils in the areas already taken into production. A radical change in the strategic approach to the development of the sector must be adopted, if sustainable growth is to be achieved in the future. This implies a concentration on increasing productivity in tandem with a heightened concern with the environment and the preservation of natural resources. The key issue is how far a traditionally weak public sector has the will or the capacity to influence the course of events through technical or policy-based interventions. 2.3 The activities of product marketing, including concentration, transport, primary processing and distribution or export, are mainly undertaken by the private sector. The role of the state in this area has been limited to the establishment of certain quality norms, the establishment of basic prices between producers and marketing agents (for certain products), the creation of price information systemns, and in very limited cases (e.g., wheat, fruit, and vegetables) the creation of marketing infrastructure. Cooperatives are playing an increasingly important role in marketing both for small and medium-sized farmers. Marketing intermediaries have an important function beyond the simple commercial transactions in products, especially in the provision of credit. Productivity 2.4 The main source of growth in the dominant crop sector has been area expansion, rather than increases in yield. Yield figures, to the extent that they can be believed, show modest but very uneven growth for cotton, wheat and soybeans and little or no growth for maize. This is not a surpris:ng picture in a country where lanrd has not been a constraint and where farmers have therefore had little incentive to intensify their production systems. Such yield increases as there have been in the export crops have almost certainly spilled over from Brazil via the introduction of improved varieties of wheat and soybeans developed by the Brazilian research establishment. - 25 - 2.5 Yields in Paraguay are significantly lower than those achieved in the US, but they are approximately equal to those achieved in Brazil and Argentina. Obviously, there is a large theoretical potential for improved yields derived from increased use of fertilizers. However, there is a wide divergence between theory and practice. The rrain determinant is not access to technical know-how, but the interplay of various sets of incentives. The most obvious one is pressure on land. Farmers genera'ly do not take risks with high-input agriculture if it is possible to expand production by cultivating a wider area. The intensification of Paraguayan agriculture will not occur therefore on any impressive scale until the limits of the frontier are reached. There are, however, a number of other important factors, the most obvious of which is the ratio of fertilizer costs to output prices. Due to its location, it is unlikely that Paraguay will ever compete in this respect with Brazil, Argentina or the US. However, in time there wvill be significant opportunities for achieving economics of scale in fertilizer imports, and the best way of realizing these opportunities will be through the abolition of any remaining regulatory'impediments to import and distribution. Agrriculture Taxation 2.6 The tax burden on the agricultural sectcr, resulting from instruments specific to the sector, falls into three main categories: (i) real estate taxes, levied on officially assessed land values; (ii) export taxes, including export duties, taxes on exchange transactions and stamp duties; and (iii) various internal taxes and fees related to specific commodities. The available evidence does not indicate that the tax burden is higher on the agricultural sector than elsewhere in the economy. If it is accepted that the level of taxation in the economy as a whola is low, at between 8-10 percent of GDP, and that an increase in tax revenue is both essential and likely given the government's spending aspirations and the need to eliminate the fiscal and quasi-fiscal deficits, the issue of taxation in the agricultural sector becomes of crucial importance. The main problems of the present system arc its complexity, cost, and inequitable nature. These deficiencies should be remedied in a rational tax system, which in addition should be nondistortionary with respect to the allocation of resources, and conducive to capital formation and economic growth. The design and implementation of such a reformed system will, however, be long and arduous and may be a serious limitation on the ability of the public sector to influence the course of sectoral development. 2.7 In the agricultural sector, emphasis should be placed on improvements in the real estate tax, where there are three priority areas for improvement: (1) a more realistic assessment of property values; (ii) a more efficient approach to the identification of taxable properties; and (iii) a more rigorous collection effort. Structural changes in the property tax system would allow its conversion into a land tax based on production potential, which in turn would allow a rationalization of land use and the encouragement of the adoption of technology, via investment, and hence an increase in both output and productivity. At the same time, steps should be taken to remove explicit and "quasi" export taxes (e.g., exchange taxes and stamp duties). The continued use of fees or user charges is appropriate but should be subject to the same rationalization as the rest of the tax system. Environmental Considerations 2.8 The most important environmental issues in the agricultural sector concern deforestation, natural resource conservation and the survival of the indigenous communities. The - 26 - rate of deforestation for agricultura' purposes is accelerating. It has increased over the last year in step with groxAing claims by landless people, since land under forest is deemed to be unused or underused and therefore subject to expropriation. The motive force for much deforestation is the insatiable demand in Brazil for timber, especially from the northern part of the Eastern Region with its "frontcra seca" which eases smuggling. The demand for wood from the charcoal-fueled ACEPAR steel plant is likely to put pressure of forests in the future. Finally, in many areas, land has been cleared of forest for agricultural and livestock purposes, in some cases using low cost credit, with only an incomplete use of timber and without due regard for the capability of the soils to sustain agriculture over the long term. Although some land-owners are respecting the basic rules concerning slopes, water course protection and contour ploughing, there are many areas where total forest removal and %vindrowing of debris down the slopes are creating the potential for soil erosion on a massive scale. In some areas, forest clearing has revealed poor soils which, after a few ycars of mining the natural fertility, are abandoned to forest regrowth. 2.9 In theory, cutting of forest and transport of logs are both suuject to permits that should be issued by the Servicio Forestal Nacional (SFN), which comes under the Subsecretarfa de Recursos Natuiales v Medio Arnbiente (RNMA) in MAG. However, the SFN is unable to control forest cutting for lack of resources and because of the significant pressures exerted by landowners and others engaged in exploiting the forest. In any event, a realistic view of the situation suggests that policing and control measures are unlikely to stem a tide that has its origins in the pc werful incentive system described above. The only hope for slowing this process lies in: (i) the devclopment of the technical basis for natural resource planning and for sound!y-based expropriation; (ii) a change in expropriation policy away from the simplistic view that forested land is by definition underused; and (iii) consolidation and development of productive potential in existing colonized areas to reduce the flow of new migrants seeking land. 2.10 The 'agricultural frontier" in Paraguay has traditionally been seen as virtually limitless, whereas in practice deforestation wvill probably be complete in little more than 10-15 years unless action is taken now to prevent it. Simple, emotional appeals not to cut down trees are unlikely to have any impact, and it is important that the debate should be carried out on the basis of detailed technical knowledge. Cutting down forest to make way for sustainable agricultural production can be a rational use of natural resources where the soils and slopes permit. However, the absence of strategy and technical knowledge leads to indiscriminate deforestation. The generation of information about the natural resource base is essential to allow the definition of strategy and the establishment of mechanisms to implement it. The establishment of a satellite image-based Geographic Information System (GIS) and Agricultural Land Information System (ALIS) are therefore k-ey requirements. Future Agricultural Development Strategy 2.11 The development potential of the agricultural sector in terms of underutilized resources, available technology and markets is sufficient to allow the sector to cori;:nue to play an import2-t role in economic growth and development. However, the "easy" phase of laraguay's agricultural development is coming to an end. A new set of policy measures and objectives is required to make more productive use of the resources available. Within this context the key issues that must be wvoven into any future growth strategy are as follows: (i) the limits to growth imposed by the degradation of natural resources; (ii) the potentially explosive impact of landlessness and rural poverty; (iii) the extremely poor data base on which to make rational - 27 - decisions concerning poverty and natural resource protection; (iv) the weakness of the institutions that will be needed to develop this data base; and (v) the generally high input: output ratio (caused by geographic factors and infrastructural weakness) that discourage the adoption of more intensive systems of farming. 2.12 To deal with these issues implies a fundamental structural change from the present policy of continuous expansion of the agricultural frontier, to a strategy of intensification of resource use through sustainable agricultural practices. The expansion of the agricultural frontier via timber extraction and deforestation is coming to an end. The forest cover is not yet completely gone, but deforestation is accclerating and there are only a fcw years left. What is absolutely clear is that, given the statc of knowledge about land resources and their ownership, there is an urgent need to prepare land information systems to provide the basic data necessary to implement a long-terTm strategy. The derinition of strategy, however, does not need to wait for the compilation of this detailed data base. 2.13 Giveni the importance of the small farmer and the pioneering nature of much of the agricultural development achieved to date, a signiFicant change in priorities in public sector expenditure, both capital and recurrent, will be required if rational and sustainable grow6th is to be achieved in future. More specifically, the following expenditures deserve support from ext.ern! sources: (a) A Geographic Information System (GIS) and Agricultural Land Information System (ALIS), based on satellite imagery and closely coordinated with a new cadastre, should be established. This would allow the MAG to implement controls on deforestation and to promote practices designed to minimize soil degradation and erosion and to protect watersheds. (b) The Instituto de Bienestar Rural (IBR) should be reorganized and strengthened, in order to discharge its role of colonization of agricultural areas effectively. The purchase of large holdings for fractioning, either through legal channels of expropriation or through the market, will remain a key role of IP7t financing measures, including bonds amortized through the payments made. Uy those receiving land under the settlement schemes, must be sought to limit de,,ands on the Government's resources. (c) There is an important and legitimate role for the government in assisting the agricultural development process through agricultural research, extension, quality and phytosanitary control for exports, control of land clearing and promotion of soil conservation practices. Support should be given to the promotion of farmers' organizations, whose degree of development was greatlv restricted under the previous government. These are the most cost-effective means of providing many essential services to the small farmer. Efforts in this regard should be especially focused on the high potential Eastern Region, where the country's main comparative advantage lies. (d) Increased tax collection in the agricultural sector is needed to finance an enhanced public sector role as described above. A major effort will be required to create a complete cadastre and land titling system, and install a mechanism to keep it up-to- -28 - date once created. In taxation, the first phase should be to ensure that all landowners are liable for and actually pay the Impuesto Inmobiliario (estate tax). The cost of issuing the invoice is small, and there are strong arguments for having a minimum taxable land holding of a very small size. Later phases should then aim at increasing the official (fiscal) value of land to its real market level. As a later refinement, a combination of the cadastre plus production, economic and soil capability overlays would yield a tax more closely related to the intrinsic produztive capability of the soil (e.g., IMAGRO-Uruguay or the proposed, more sophisticated, version from Argentina) and would be broadly production neutral. Such a tax could be made production positive by including allowance for capital investments made on the land. B. Population, Colonization and Poverty 2.14 The country's population was decimated after the War of the Triple Alliance in 1865-70. Raine estimates the Paraguayan population at the beginning of the war at 800,000; by the end it was reduced to about 230,000 (see Table 2.1). A significant loss of population also occurred in the Chaco War in the 1930s. Underpopulation typified the country into the late 1950s. Paraguay was then and remains one of the least densely populated countries in Latin America.3 Thus, for many years the Government encouraged foreign immigration. OMcial Emphasis on Foreign Immigration Until the 1940s 2.15 The first foreign colony was settled in Paraguay in May 1855 by French immigrants. It did not succeed and no further attempts at colonization were mad-e until after the War of the Triple Alliance. The first successful permanent colony was founded by German immigrants in San Bernardino in 1881, which later became an almost self-sufficient dairy center. Today, San Bernardino is an important municipality and summer resort. Further attempts were made by Germans and Australians soon after 1881, but they were not successful. Many German colonists arrived after NVorld War I, and most did well (Raine 1956, p. 130). 2.16 A difficult but successful colonization enterprise was that by the Mennonites in 1926, the only foreign settlers in the Chaco--even though severe droughts in 1937 forced the relocation of almost 20 percent of these settlers to the more fertile eastern territories. Their practice of hard work, proper planning, and adequate financing provides a lesson on how to prosper in a hostile environment. Though not from Germany (the first group came from Canada, another from Russia), most Mennonite immigrants were of German descenL The most serious obstacle they faced in the Chaco was lack of transport infrastructure. Despite the difficulties, shortly after World War II, these colonists were raising beef and dairy cattle, producing cotton, peanuts and beans, and building refrigeration plants. In the early 1950s, the Chaco supported 9,000 Mennonites, about 5,000 of whom were living in eastern Paraguay (BiLd., p. 305). More immigrants arrived just before and after World War II. A Japanese colony was established in 1936 about 50 miles from Asuncion near a rail line; by 1946 it comprised more than 600 people. 23 In 1987, them were 10 people per square mile of territory, and 22 people per square mile of agricultural land (World Bank, Social Indicators of Developientl, 1988). - 29 - Table 2.1: PARAGUAY- ESTINMATED POPULATION 1865-1950 (Selected Years) Years Population (thousands) A. Raines 13. Mendoza 1865 800 600 1872 231 231 1887 329 328 1899 635 430 1909 650 541 1919 800 683 1938 950 1062 1945 1100 1247 1950 1405 1397 Source: Raines 1956, p. 295; Mendoza, in Rivarola and Heisecke (eds.) 1970, pp. 17, 21. 2.17 Spontaneous (not officially sponsored) Brazilian immigration was of special importance in the 1960s and 1970s. There are few statistics that gauge the size of this inflow. Incomplete records suggest a lower bound of 6,000 Brazilians a year entering the country in 1974/5. Birch quotes estimates of 300,000 Brazilian colonists in 1979 and 420,000 in 1982 (the latter r _ apparently provided by a Brazilian official in the eastern border region (Birch, n.d., p. 31).' Several factors made this immigration attractive: (i) the rapid colonization of Parana in Brazil had ended and the fertile virgin land was rapidly being exhausted; (ii) nearby virgin lands in eastern Paraguay had identical soil and climatological characteristics; (iii) despite lack of transportation infrastructure, land prices were much lower in Paraguay than in Brazil; (iv) taxation in Paraguay was much lower than in Brazil; and (v) communication with Brazil and the rest of the world was relatively easy, as it was easy to reach the Atlantic given Brazilian transport infrastructure and the port privileges offered to Paraguay in Paranagua. For poputation purpoce, it is also important to know Paraguayan emigration to neighboring countries, but little information is available (see Meilon and Silvero in Rivarola 1970, p. 53). Some authors suggest that for political reasons, as well as internal strife, emigration could be significant Others disagree. Eligio Ayala, in 'Migraciones' (Santiago, Chile, 1941) holds the view that this migration has been important; Rivarola, however, states that its effect was not important, at least before 1970 (in Rivarola 1970, p. 32). The only of ficial figure mentioned is from the 1947 Argcntine Census, which states there were no more than 50,000 Paraguayans living in Argentina (in Rivarola 1970, p. 41) The Paraguayan boom during the seventies and the far bigger economic slump in Brazil and Argentina than in Paraguay in the eighties suggests that migrations from Paraguay would not have become more intense after the 1970. - 30 - Colonization to Fight Poverty After 1940 2.18 The colonization program's main concem changed after 1940 to poverty alleviation for the local population, which new goal was embedded in the Agrarian Law o. '940. The population was concentrated around Asuncion, where minifundia was the prevailing land tenure system'. Before 1940, most colonies were settled by foreigners; after 1940 most official settlements were comprised almost exclusively of Paraguayans (Raine 1956, p. 259). In practice, however, the impact of the Agrarian Law was not significant. The forties and fifties produced little progress in alleviating poverty and minifundia remained abundant around the capital. 2.19 Spontaneous colonization of the eastem region began in those years, but without sufficient official backing, Paraguayan settlers did not prosper. This led the Govemment to give high priority to solving the problems posed by the minifundia area around Asuncion. The Instituto de Bienestar Rural (IBR) was founded with the objective of relieving population concentration in these areas, legalizing tenancy of the settlers occupying Govemment or private lands through colonization programs, and providing technical assistance, credit, and infrastructure support to settlers in the colonies (WB 1984a, p. 9). 2.20 IBR had a powerful effect. From 1963 to 1982 its settlements had covered 5.6 million ha on 72,000 individual lots. In addition, 73 settlements on 21,000 lots were established on private lands covering 840,000 ha'>. The size of public properties has been subject to conflicting reports and land titling is an important and unresolved issue. Raine reported that at the end of the nineteenth century hardly any land remained in public hands (see Appendix I para. 17), but most IBR's colonies were settled on public lands in the 1960s and 1970s. As for legalization of titles, there was not much improvement in relative terms--50 percent of all farms had definitive or provisional titles in 1956 versus 57 percent in 1982--but the number of farms almost doubled in that period rising from 150,000 to 245,000 (WB 1984a, p. 10 and Table 14). A feature of these programs was that most beneficiaries actually paid nothing for their lots, even though prices charged were well below market values. But as most settlements were on state lands, this failure did not drain IBR's financial resources. 2.21 Despite often poor sanitary conditions, Paraguayans are among the better fed peoples of the Western Hemisphere (Raine 279, Table p. 280). In the countryside, meat, not bread has been the staff of life, with daily per capita consumption of about 200 grams and an intake of 3,200 calories.' The lower class city dwellers are better off than most Latin Americans and perhaps better off than persons of a similar class in many parts of the world; however, they do not eat as well as farmers, averaging 2,800 calories per day (Ibid., p. 288). Despite all the laws enacted and resources spent, the agrarian problem remained urgent and was a cause of deep concern, according to Eligio Ayala, a Paraguayan scholar writing in 1941 (quoted in Rivarola 1979, p. 31). More recent estimates, though not necessarily comparable, put the number of lota on official lands at around 125,000 and on private lands at 60,000 (-World Bank Environrmental Issues Paper,' June 1990, p. 3). The former figure is at variance with a forecast that claimed that State-owned lands were exhausted and further settlements would require purchases of private property (WB 1984a). n7 Estimates based on a study of a small town, Pirebebuy, in the Cordillera Department (minifundia region) (Reh, E., 'Paraguayan Rural Ufe," Washington, Institute of International Affairs, 1946, quoted in Raine 1956, p. 287). - 31 - Difriculties Ahead 2.22 Despite these achievements, the agrarian problem remains urgent and causes deep concern. The recently acquired freedom of expression in Paraguay has presented the new administration with a series of challenges, the most important of which is a vociferous and growing demand on the part of campesinos for land. Land occupations, confrontations, and evictions are becoming more common and more serious. The govemment must deal tactically with this issue, while developing a long-term strategy for the small farm sector. With still extensive cultivab' land resources and a low rural population density, the problem would seem to be relatively trividi. However, the distribution of land is very skewed and worsened significantly over the past 35 years, as sizeable areas of tierras fiscales or state-owned land were distributed to domestic and foreign friends of the previous government. 2.23 ,he land distribution policies for small farmers, established in the early 1960s, have been only partly successful. Many families have been settled on land, but the institutional arrangements have been seriously dceficient. The Instituto de Bienestar Rural (IBR) has given away large areas of state-owned land at little or no cost but has failed to provide many small farmers with titles or to collect payment for land distributed. The net result is that: (a) the remaining area of tierras fiscales actually are available to the government for distribution to small farmers is unknown but probably quite small; and (b) the amount of tierras fiscales distributed en forma prebendaria and which, in thcory at least, might be susceptible to 'expropriation" or other coerced return to state ownership, is similarly unknown. To this can be added that the true number of landless families and the farmers who possess land without legal title, and therefore are without access to formal credit, which is also an unknown number but probably quite large. C. Transport 2.24 Lack of transport infrastructure has been a major bottleneck affecting the country's foreign trade and efficient use of resources through most of Paraguay's history. The most important intemational means of communication used to be the waterways. There are conflicting reviews on the quality and costs of the services rendered. Raine wrote in the mid- 1950s that river service was said to be good, provided by modem vessels that have run regularly for a long time; but he complained that river transport was an Argentine monopoly and that it cost more to send goods from Asuncion to Buenos Aires than to ship from Buenos Aires to the United States, Europe, or the Far East, with freight costs downstream double those upstream (Raine 1956, p. 383). However, a Bank report published about the same time takes an opposite view: "most ships and barges now operating on the Parana and Paraguay Rivers are overaged and ill adapted for river transportation' (WB 1959, Annex II, p. 2); moreover, "analysis of freight rates does not confirm the widely held view that transportation costs on the Paraguay and Parana Rivers are excessively high" (Ibid., Annex II, p. 2). 2.25 At present, river transport costs to Atlantic ports on the River Plate Bay are lower than land transport costs to Paranagua, Brazil, a deeper water port on the Atlantic at the same latitude as Asuncion. However, because Paranagua accepts large ships offering lower freight rates to ports in Europe or the US, overall it is less expensive to reach these ports by land through Paranagua than by river using River Plate ports. Thus, the fact is that after the opening of roads - 32 - connecting to Brazil, riverways increasingly became commercially obsolete. In 1988 for example, 98 percent of all freight and passenger transport services was provided by roads (see Table 2.2). Table 2.2: PARAGUAY - TRANSPORT SERVICES 1986 Freight Percentage Passeng. Percentage (ton-km)ra (Pass-km)a/ Roads 6356.0 97.6 2698.7 98.4 Rivcr 114.5 1.81 1.5 0.4 Railroad 19.0 0.32 6.2 1.0 Air 0.0 0.0 6.7 0.2 TOTAL 6489.5 100.0 2743.1 100.0 Source: Plan Nacional de Transporte 1988-92. a/ in millions. 2.26 Regarding domestic transport facilities, there is agreement that transport development lagged for a long time and that until the 1960s many areas of the country were inaccessible to wheeled traffic, or could be reached only under the most favorable weather conditions (IbiLd., p. 1). 2.27 The Bank report quoted above asserts that there are few reasons for the bottlenecks posed by the sector. The lower sections of the Alto Parana and the Paraguay Rivers are often claimed to be the best unimproved rivers for inland navigation in the world. Regarding roads, the report maintains that there are few countries where topography lends itself so easily to road construction. Because terrain is flat and easy, road construction costs are low as are vehicle operating costs. Moreover, in some areas Qrst-class road construction material is readily available (Iid., p. 2). Since the late 1930s, the Government has been determined to reduce transport dependency for riverways and to expand the network of roads. It did so by substantially increasing resources for investments in the sector and by reaching important agreements with Brazil. Main Agreements with Brazil 2.28 In 1939, General Estigarribia, newly elected President of Paraguay, went to Brazil and signed the first of a series of agreements that drastically changed the structure of the transport system in Paraguay. The accord was for the construction of a spur off the Sao Paulo- Campo Grande railroad to Ponta Pora on the Paraguayan border. This spur was expected to connect with the projected Concepcion-Pedro Juan Caballero rail line in Paraguay, thus allowing Paraguay an alternative other than the river for access to the Atlantic Ocean. An option then available was the Central Paraguayan Railroad, which only went south from Asuncion to Encarnacion, linking the latter to the Argentine system (and thus to Buenos Aires) after crossing the Parana River (Birch, undated p. 7) by ferry. - 33 - 2.29 In 1941, Paraguay and Brazil signed several other accords. In one, Brazil ga -e Paraguay free facilities at the Atlantic port of Santos, close to Sao Paulo; another stipulated the conditions for the construction and a 30-year concession for the operation of the above- mentioned railroad between Concepcion and Pedro Juan Caballero. A Brazilian firm was awarded the contract to extend the lines from the Ponta Pora spur to the new line. This accord was revised in 1946, but little work was done within Paraguayan's borders; however, the Braz.Iian side was completed in 1954 (jAi4. pp. 9-13). Another accord (signed in February 1957) provided the basis for the construction of a road between Concepcion and Pedro Juan Caballero--also important for Brazil to help develop its own areas near Pedro Juan Caballero (Ibid., p. 20). 2.30 A treaty signed in 1954 secured Brazilian financing for the construction of the road from Colonel Oviedo to the Parana River (now Ciudad del Este) by reactivating an old loan made by Brazil to Paraguay in 1942; works began in 1955 (Ib d., pp. 9-13). In January 1956, an agreement was signed whereby Paraguay gave Brazil free port privileges at Concepcion on the Paraguay River, while Brazil gave Paraguay similar privileges at Paranagua: a port on the Atlantic, south of Santos, directly east and connected to Asuncion by the Colonel OCiedo Road, which would link Paraguay with the Brazilian highway system going to Paranagua (which Brazil completed in the late 1950s). In this accord Brazil also agreed to finance the construction of a bridge across the Parana River. Traffic across the Parana was mirimal at the time of the accord. The bridge was completed and inaugurated in 1965 and Asuncion was then connected to the Atlantic by an exceLent highway. This was a critical ingredient for the massive increase in trade with Brazil that developed in the seventies. Evolution of the Road Network 2.31 The road network has increased dramatically since the early 1940s (see Table 2.3). The network multiplied more than four times in 15 years between 1940 and 1955 (a 10.3 percent year increase), and almost doubled again between 1955 and 1960 (13.3 percent year increase). Especially remarkable was the expansion of paved roads (14.8 percent per year). Earth roads also showed an important though less impressive increase. Initially, most paved roads began in Asuncion and went east to Colonel Oviedo, and southeast to Encarnacion, bordering Argentina. Roads were later extended to Iguazu, then to Ciudad del Este, bordering Brazil; Colonel Oviedo was later connected to Encarnacion. 2.32 In the first half of the 1960s, road expansion was as fast as in the latter half of the 1950s (15.6 percent per year), with the extension of paved and earth roads more than doubling. The pace slowed to less than 10 percent per year in the second half of the 1960s, and even more so in the 1970s and 1980s, but paved roads continued to increase faster than the resL In 1966 the fully paved route to Ciudad del Este (on the Brazilian border) was inaugurated and later upgraded. Other important roads are the route to Bolivia across the Chaco, paved only half way at present; the Concepcion-Pedro Juan Caballero Road (linking the Paraguay River with the Brazilian border at Ponta Pora), also partly paved, and a road linking Encarnacion and Ciudad del Este on the eastern side of the country, which is now fully paved. - 34 - Table 2.3: PARAGUAY - ROAD NETWORK (in kn) Years Earth Gravel Paved Total 1940 69.4 188.0 12.0 269.4 1945 255.0 354.8 84.5 694.3 '950 288.4 474.4 88.0 850.8 1955 557.1 513.8 95.0 1,165.9 1980 1,317.8 653.2 194.5 2,165.9 1960 2,245.8 653.2 194.5 3,093.5 1965 4,965.3 963.5 470.0 6,398.8 1970 8,012.4 594.4 817.0 9,423.8 1975 9,991.1 582.0 905.0 11,478.1 1980 14,724.6 482.9 1,469.4 16,676.9 1985 20,479.6 452.0 2,076.6 23,008.2 Source: For 1940-60 from Ugarte 1983, p. 193; for 1960-85 from 'Plan Nacional de Transporte 1987-1991,' Ministerio de Obras Publicas y Comunicaciones (earth roads in MOP figures include roads built by IBR (Institut3 de Bienestar Rural), local "Juntas Viales," and private institutions (mennonites, oil companies, etc.), which Ugarte figures do not). 2.33 Thc rcsults of the expansion in the road network were impressive. Not only did the country become more independent of river transport and an outdated railway (connecting Asuncion with Encarnacion), but the expanded agriculture frontier could be serviced, and trade with a fast developing neighboring region in Brazil was greatly facilitated. Colonel Oviedo traffic experienced a phenomenal growth in the 1940s and 1950s due to the ;-nterlands that the highway to Ciudad del Este opened (Raine 1956, p. 311). Ciudad del Este followed suit when roads to it were completed and construction of Itaipu began. The growth of Colonel Oviedo. Ciudad del Este, and the eastern agricultural region illustrates how economic development and the production of wealth follows the building of roads into undeveloped regions. It remains to be seen if opening roads into the untapped Chaco will have similar beneficial effects. Challenees Ahead 2.34 Despite many achievements, the transport sector still faces important constraints. The road network has reduced the role of riverways, even for bulky products going abroad such as soybeans and cotton (now the country's two main exports). However, it is not clear that the present lack of river transport represents economic inefficiency; instead this may be the result of poor investments by the State (FLOMERES, the river iransport company) regulations hindering private investment, and inefficiencies in the River Plate ports. Port costs in Argentina and - 35 - Uruguay may drop if the privatization projects proceed as planned. The Bank is presently carrying out a study of transport costs for exports under diffrrent alternatives. If river transport turns out to be less expensive undcr the new circumstances, Paraguay will need to improve its ports and the navigability of its rivers. A working international accord that would preserve the navigability conditions of these rivers inside and outside the. national territory would be extremely useful for Paraguay and all the countries in the River Plate Region. 2.35 Important roads planned sometime ago were built (Concepcion-Pedro Juan Caballero and the Trans-Chaco Highway), but their paving has been delayed. Maintenance also seems a problem; the Bank recommended in 1984 that the Government pay more attention to improving maintenance and upgrading rural roads (WB 1980, p. iii). In addition, public funds are especially scarce now and may remain so for some time. Thus, the Government faces difficult choices: improvement of existing highways such as the two just mentioned; maintenance of the existing network; or building new penetratioa roads to opcn up new areas to create added wealth and employment opportunities. 2.36 The railway is a source of concern. One of the first system in Latin America, now linking the cities of Asuncion and Encarnacion, it has deteriorated to the point where it now is of almost no social or commercial significance. The recently inaugurated bridge over the Parana River between Encarnacion and Posadas (Argentina) connects the Paraguayan railroad with the Argentine system (and therefore with ports in the Atlantic). This development may turn the Paraguayan railway into a profitable endeavor. The question turns on the best policy option: make minimum investments and let the railway slowly die; upgrade it drastically; or build a nev' system. The study mentioned above will also analyze these topics and should help find an answer to this question. Another line planned between Concepcion and Pedro Juan Caballero and linking northern Paraguay with the Brazilian railways system was never built. At present, it may no be wise to advance further on this idea. D. Itaipu and Yacireta: Electricity as an Export 2.37 Paraguay has abundant energy wealth in the forrn of surplus hydroelectric resources that can be exported as electricity to neighboring countries. It began tapping these resources in the 1970s with the construction of the main civil works at Itaipu (the largest hydroelectric power plant in the world). Recently, Paraguay has begun to profit from the investment done in the 1970s. Itaipu, a binational entity owned in equal shares by Paraguay and Brazil, has a power capacity of 12,600MW based on 18 turbines delivering 700MW each. Most of the plant is in operation; the last turbine is expected to be installed in early 1991. With all turbines in operation, Itaipu is expected to produ!ce 75,000GWh/year, and half of Itaipu belongs to Paraguay. Paraguayan energy demand in 1989 was estimated at ,ust 1,950GWh/year. Most of this demand is met by Acaray, another hydroelectric plant used for domestic consumption. Its initial power was 90MW, ater expanded to 194MW. Therefore, most of Paraguay's share in Itaipu's electricity is sold to Brazil and should represent a continu.ng source of income for Paraguay. 2.38 In addition, Paraguay participates in another binetional entity in the power sector, Yacireta, shared equally with Argentina. Like Itaipu, the agreement that gave life to this entity was signed in 1973, however Yacireta is expected to begin oper tion only in 1993. Multiple -36 _ financial and legal problems have delayed its completion. The power of Yakireta will be 2,700MW. Another hydroe!ectric plant, Corpus, also shared equally between Argentina and Paraguay, is being studied for the long term. Its capacity would be 4,400MW. All energy belonging to Paraguay from these plants would be exported to Argentina. 2.39 As discussed earlier in this report, the construction of these plants (mainly Itaipu) generated a strong boom in the 1970s. Table 2.4 shows the inflow of foreign resources. These resources peaked in the 1978-81 period when they reached close to 10 percent of GDP (nearly US$500 million in 1981), and dropped thereafter, reaching less than 3 percent of GDP in 1986 (barely US$90 million). It was expected that Itaipu would begin operations in i 283 and Would have all its power available in 1988; insiead, operations began in 1985, with the iast turbine expected to be installed in early 1991. As a result of these delays aad of economic difficulties in BraZil, Paraguay has not received the expected operating rzvenues. As a consequence, Itaipu accumulated arrears vith Paraguay, which began to be repaid in December 1989 (USS51 million) dnd in 1990 (US$106 million). 2.40 Because Yacireta is rot yet operational, this section emphasizes foreign exchange earnings from Itaipu only. From Yacireta, Paraguay receives inccone only from payments to Pzraguayan workers employed at the plant and from goods s-id to it, about US$60 million a year (see Table 2.4). This figure is not included in the analysis of Itaipu that follows. On the other hand, Paraguay consumes some energy fron: Itaipu. It has to pay about US$45 million for that energy and the interest and amortization of the credit obtained to pay its initial capital contribution (Canese 1990, p. 64); this outflow is not considered either. In effect, the r_port conservat!-o 'y assumes tnat these two elements cancel each other out. In the future, Paraguayan consumpt,on from Itaipu will grow, but Yacireta will start producing electricity that Paraguay will be able to sell; therefore, the net effect of not including Yacireta is to underproject the inflows of foreign exchange Paraguay will receive in the future. Tab!e 2.4: PARAGUAY - ITAIPU .AND YACIRETA, INFLOWS OF FOREIGN EXCHANGE (mllllon USS)y It.pu Yacireua TotaV Con(r. Operation Total Corstr. Total GDP (%) 1974 1S 0.0 15 0.0 15 0.1 1975 430 0.0 43.0 Z6 45.6 3.0 1976 7L9 0.0 71.9 4.8 76.7 45 1977 142.9 0.0 147 9 6.1 149.0 7.1 1978 228.9 0.0 228.9 23.2 252 1 9.8 1979 23LO 0.0 231.0 653 296.3 8.7 1980 276.6 0.0 276.6 1085 385.1 87 1981 319.6 0.0 319.6 151.0 470.6 8.4 1982 297.2 0.0 297.2 4S.4 345.6 6.4 1983 280.9 0.0 280.9 34.3 315.2 5.6 1934 164.4 0.0 164.4 4S8.8 213.2 4.9 19S5 110.c 55 1155 28.3 143.8 45 ' Q86 54.9 7.7 62.6 35.6 98.2 Z.8 1987 50.0 9.2 59.2 855 144.7 3.9 1988 37.0 9.8 46.8 55.0 101.8 2.6 1989 30.0 63.7 93.7 60.0 153.7 3.7 Source: R.- Canesc, a. Problematica de Itaipu, Ed. Base-Eaca, Asuncion, Paraguay. 1990 (Table5 1 and 9). al Figures in this table are similar but not exactly the same as the latest balance od payments data. - 37 - 2.41 The cumulative expenditure on Itaipu at the end of 1989 was about USSi5 billion. As Table 2 5 indicates, the project was financed mrainlv through borrowing; capital is an insignificant fraction. As noted above, the loans were guaranteed by the Brazilian Government. As is normal i,, Lhese kinds of projects, interest charges represent a significant 'raction of total costs. But at 40 percent, they were especially high. in Itaipu. Also total cost grew y exceeded initial estimates. Wher thie proj@c. startcd in 1973, the cost was expected to be US$3.44 billion (Tbid., p. 67). Several factors help explain the difference. First, between 1973 and 1989, US prices (index fo, 'cdustrial goods) increased 180 percerit, a much higher annual inflation rate than in the 1960s, whCen the project was evaluated. This explains an added cost of US$6.1 billion, a large fraction of which is hidden in interest charges'. Second, the real iaterest rate may he three percentagc points higlher than initially forecast, and works lasted two years longer than oririna!ly estimated. In a project sL 'interest rate intensive" as Itaipu, this cou!d explain an additional cost of Uz4 billion. Third, the plant was expanded 30 pcrcent (scheduled to bav_ a power of 9,800MW with :4 turkines; instead, 18 turbines will be install_d with a power of 12,600MW); at 1989 prices this would be equivalent to US$2.9 billion. And fourth, housing investment was drastica,ly underestimated in the initial project, and in 1989 this represented ;5 percent of the value cf ma>. fixed assets; in 1989 prices this would be equivalent to 1,$SS1.4 billion. Table'? 5: PARAGUAY - ITAIPU EXPENDITURES AND 1N1NANCING 1984-88 (million USS) 1984 1985 1986 1987 1988 Expenditures (Cummulative) 11755 13194 14597 16206 17739 Main Fixed Assets (dam) 4300 4504 4822 5157 5509 Housing & Related 668 679 714 764 840 Financial Costs 4471 5452 6205 6879 7562 Liquid Assets (Purchase) 123 220 236 472 658 Otheg 2l93 2339 2620 2934 3170 Financino 11755 13194 14597 16206 17739 Loig Term 7750 8494 83i5 9740 9301 Short Term 1492 2210 3177 4018 6162 Exch Rate Ditf. 2423 2390 2945 2348 2176 Capital 100 100 100 100 106 Source: R. Canese, "La Problemratica de Itai2u," Ed. Base-Ecta, Asuncion, Paraguay, 1990 (Tzbles 17 and 21). Assets rellect dollar values at purchise time and are not adjusted by dollar innation thereafter. Howevcr in later years, thr much higher interest rate (reflectirg inhlation) adds substantilly to total costs. - 38 - 2.42 For Paraguay, revenues from Itaipu stern from four sources: (i) a 12 percent return on the capital that Paragu-y provided at the beginning (US$50 million, as much as Brazil); (ii) the compensation to ANDE (the Paraguayan electricity company) fcr the administrative costs it incurs in running Jtaipu (both (i) and (ii) are received by ANDE); (iii) "royalties" paid for the use of the water from the river; and (iv) sales to Brazil of the surplus electricity that Paraguay does not use. The Finance Ministry receives (iii) and (iv). The royalties and il.; price to be received by Paraguay for the electricity Itaipu sells to Brazil on its b.^half were fi d by the Itaipu Treaty: the first was set at US$650 per GWh generated, and the second .t ,.'3 per Gwh sold. The latter two figures are increased by two factors: first, a multiriica: v '- . V . *nt set at 3.5 in 1986 and increasing to 4.0 in 1992 and afterwards (Ibid., p. 171); ar ;u th - increase in the price level in the TJ<' (a simple average of US consumer prices and prices of industrial goods). 2.43 In 1991, Itaipu should be producing energy at full capacity (about 75,000 Gwhiyear, assuming losses of about one-thiri of potential power). Paraguay is entitled to half of it but almost all is sold to Brazil. As US prices can be expected to be 25 percent higher than in 1986, the adjustment factor would be about 4.9 for 1991. This mcans that from royalties plus sales to Brazil, Paraguay's Finance Ministry would rzceive about USS4,655 per Gwh, or US$175 million. Adding the return on capital (US56 million) and the compensation to ANDE (about US$9 million), Paraguay should receive a total of about USS190 million from Itaipu from these four sources in 1992 and thereafter. 2.44 Until 1992 Paraguav agreed to receive in cash only a fraction of the royalties and compensation to which it is ent.ii,d from Itaipu. The rest was taken in the form of a bond amortized in 10 years beginning in 1992, yielding an interest rate equivalent to the average interest rate on loans contracted by Itaipu. Table 2.6 shows the fraction of the receipts Paraguay has agreed to loan back to Itaipu. Because of these loans, Paraguay should receive in cash about USS170 million in 1991 (plus the interest on the roughly US$190 million of loans outstanding).' From 1992 on, it should receive not only the full US$190 million annual income from Itaipu, described above, but also 10 percent of the loans granted (the amortization payments on the debt accumulated) plus interest (assuming Brazil remains current on its payments). Table 2.6: PARAGUAY - CREDffS FROM PARAGUAY TO ITAIPU (% of royalties and value of sales to Brazil) 1985 100.0 1986 71.4 1987 58.1 1988 45.3 1989 33.1 1990 21.5 1991 10.2 1992 0.0 Source: Canese 1990, p. 173. IN add;t on, ltaipu accumulated arrears with Paraguay, part of which werc paid in 1989 and 1990 (sec para. 239). As of cnd 1990 the anear wcre equivalent tc the normal paym'-nts cxpected to Hive been made in 1990. If paid in 1991, the resoureas Paraguay would receive fr om Itaipu would exced the US5170 million mentioned. - 39 - E. Informal Trade 2.45 Informal transactions appear to be significant in Paraguay, which helps to explain the fast growth of the commerce sector. Data on the informal trade sector are based on rough estimates where available. These kinds of transactions take place both in domestic and foreign dealings of many small anC la-ge enterprises, and mostly result from the desire to evade taxes. The development of these activities is a cause of concern because such enterprises do not pay their fair share in financing Government expenses. Most important seems to be unregistered imports and exports. These transactions also have a positive side: they set a limit on distortions in relative prices of tradeable goods, and therefore help avoid the massive distortions that have been so common in Latin America. Unregistered trade appears to be large enough so that variations in registered import and export statistics often are of little utility. For example, in 1988, this report's import and export estimates exceed official registered trade by 110.2 and 62.0 percent, respectively. However, the unification of the exchange rate has reduced the incentives for unregistered trade significantly. 2.46 This kind of trade traditionally has been important in Paraguay. There are miles of "dry borders" impossible to monitor, great demand for high-quality imports not available in neighboring countries, high local tariffs and taxes, and cumbersome legal procedures. Paraguay has tried to encourage the legalization of such transactions with only partial success. By 1956 Paraguay and Brazil had signed a General Treaty on Trade and Investment that allowed trade between the two countries to take place outside existing regulations governing trade with other countries--the intention being to reduce illegal trade in border areas. Contraband along the border with Matto Grosso was estimated at 70 to 80 million cruzeiros in the mid-1950s (Birch, n.d., p. 20, from an article in "O Estado de Sao Paulo," January 1956). 2.47 The construction of a bridge over the Parana River at Ciudad del Este, completed in 1965, fostered growth of commercial activities oriented to satisfy luxury demand from Brazilian tourists who faced high tariffs in their country. An upsurge in unregistered imports was detected (WB 1971, p. 57), and the Government contemplated reducing import tax rates on luxury consumer goods (e.g., alcoholic beverages and electronics) to reduce this kind of trade. The wide disparity between statutory and effective taxation left ample room for cutting rates without sacrificing revenues (WB 1971, p. 63). This policy was implemented only at the end of the eighties. 2.48 Paraguay serves as commercial intermediary for imports that actually are headed mostly to Brazil and Argentina (the tourist regime). Though a significant percentage of these imports are included as such in the country's formal accounts, the corresponding exports are unaccounted for, which effectively biases the country's balance-of-payments accounts. Such transactions are an outcome of the heavy protectionist policies prevailing in these bordering countries, and are a cause of concern because of poor prospects for Paraguay if Brazil and Argentina succeed in opening up their foreign trade. 2.49 Other informal activities on foreign transactions invoive the so called "triangulation" process. Often these are formal exports from Paraguay that reflect not Paraguay's but a neighbor's output. This behavior is explained by Paraguay's low export taxes, and free exchange rate (a parallel rate openly tolerated before 1989 and the only rate since then), versus - 40 - heavy implicit (and sometimes explicit) export taxes, pricing policies and often unrealistically low exchange rates in neighboring countries. Paraguay's soybean exports reflecting Brazilian output have been most relevant recently, but coffee exports have also been important in this regard. Argentine rreat exports to Brazil also are conveyed through Paraguay when there is a significant difference between the official and free exchange rate in that country. 2.50 A reduction in protection in the context of MERCOSUR may have a severe impact in Paraguay. Paraguay's informal sector has developed to provided Argentinean and Brazilian imported consumer goods unavailable in those countries. With MERCOSUR, these goods will become legally available in all signatory countries, thus the services presently provided by Paraguay will no longer be in demand. In this case, Para6uay will need to develop alternative productive activities to absorb resources now used in the informal sector. - 41 - CHAPTER III: POLICY REFORMIS TO STINIULATE GROWVTH 3.1 Paraguay faces significant structural problems. Some of them affect productive sectors, such as those linked to the alternative of expanding the land frontier versus increasing productivity in'the agriculture sector. Solving them will require a long, sustained, and carefully planned effort. Others refer to the policy environment becoming an "artificial" hurdle to the development process. The latter's removal is relatively easier and will facilitate and increase growth. 3.2 In the private sector, the financial sector and trade policy would benefit from reform. In the financial sector, there is a clear need to: (i) make more uniform the regulations affecting different financial intermediaries to avoid artificial specialization among them; (ii) rationalize the functions of the Superintendency of Banks, which because of too many unnecessary responsibilities, does not pay sufficient attention to its most critical role, that of judging the financial health of commercial banks; and (iii) redefine the role of official banks. To these reforms should be added the improvement of the rediscount mechanism and, as the macroeconomic situation permits, the reduction of the reserve requirements to cut the spread between lending and deposit rates. This package should increase financial savings, which were cut in half (as a percentage of GDP) after several years of negative real interest rates. 3.3 In the trade area, tariffs should be restructured to remove the existing excessive tariffs ("water"), discourage informal activities and cut protection. Customs is another structural area where reforms are criticaL The country is already effectively operating with low import duties; trade-related distortions, while not important now, may quickly become so. The Custows Code contains high tariff rates that are not being applied--to the good fortune of the country. However, since the code exists, future Authorities may be tempted to apply it. It would be prudent to establish a code reflecting the rates effectively paid currently. 3.4 In the public sector, key problems are the public enterprises and tax reform. Public enterprises made some improvements in their financial performance in 1989, and raised tariffs in 1990, but much still needs to be done. Overdimensioned investments, overstaffing, and lack of management accountability have been sources of difficulties in the recent past. Investment carried out by public enterprises contracted after 1989, so the first problem now seems less urgent. Several enterprises are performing audits, and studies are being conducted on how to improve use of resources, but further efforts are required. Privatization and/or joint ventures with the private sector are being discussed, but these policy overtures have not gone very far. 3.5 The tax system is another area that needs urgent action. The Government already has started taking important actions with a significant effect on tax administration, but the reform of the tax system as such is still to be approved. Evasion has been the main problem. It is rooted in a system perceived as unfair by the private sector because of high tax rates linked to widespread exemptions. For a tax reform to succeed, it will be necessary to have the backing of the private sector-which must perceive it as a better alternative to what they now have. Wider bases, fewer exemptions, and lower rates are the basic ingredients of such a reform. - 42 - A. Financial Sector Reformn 3.6 Two areas are of special relevance for policy reform in the financial sector: monetary management and institutional reforms. The Government is taking important correcting steps in both. With regards to monetary managemcnt, the IN-IF and the Bank have supported a program of structural reforms that have sought to replace a rigid system of monctary control-- which has led to a marked disintermediation from the bankinL system--to a market based system of control. Furthermore, Paraguay has adopted an ambitious reonetary program. In addition, a unified and to some extent free cxchange rate policy now in plac- has critically important implications for monetary policy managemcnt. Regarding institutio-zi reforms, Authorities are in the process of reforming the Central Bank and the Banking Laws, anJ are studying ways to improve banking supervision. 3.7 Overview of the Sector. The financial sector's main componeDts arc commercial banks, investment banks, official banks, savings and loan associations, and finance companies. Although these institutions are subject to quite different regulations, actual differences in their lines of business are far less significant. However, as a rcsult of inappropriate regulations and inefficient supervision, Paraguay's financial sector is artificially segmented (overspecialized institutions for the size of the market) and fragmented in almost every category (too many institutions in each category). Unrcgulated "informal" or "parallel" institutions are run by most formal financial intermediaries to avoid cxisting regulations. 3.8 The country has in operation 23 private commercial banks that mobilize mainly demand and time deposits, including deposits denominated in foreign currency. Foreign banks have a strong presence, with 14 institutions mobilizing more than 70 percent of commercial bank deposits. There are also four oF[icial banks in addition to the Central Bank: the Fondo Ganadero, basically a second-tier institution lending to the livestock sector; the workers' (BNT) and development (BNF) banks, which are both first-tier (though not very successfully) and second-tier institutions; and the housing bank (BNV), which channels funds to that sector and supervises saving and loan associations. In addition, there are six saxings and loan associations that mobilize mainly short-term time deposits and grant short-term credit (not always to the housing sector), and 28 finance companies that mobilize time deposits denominated in domestic currency. 3.9 Table 3.1 summarizes some indices of the relative size of these intermediaries in selected years. Although BNF remains an important source of credit, its share of credit has declined since the mid-1970s. Most of the credit BNF grants is not financed by deposits, but external credits and loans from the Central Bank (which appears as other net in Table 3.1). Commercial banks (including the official BNT) have maintained their share in domestic resource mobilization and (with some fluctuations) also their share in total credit granted by the system. "rivate development banks are insignificant and capture virtually no financial savings. Finance companies rapidly developed between 1975-85 but stagnated afterwards; they grant less than 10 percent of the credit commercial banks do and capture an even lowver proportion of domestic savings. However, the size of these institutions may be underestimated because of the importance of the "informal' component in them (twice the size of the "formal" component according to unofficial estimates). - 43 - 3.10 Supervisorv and Re 3latnrv Practices. In the financial system, economic-type regulation is excessive and discriminates against commercial banks. The information requested of commercial banks by the Superintcndency is unnecessarily large, costly to obtain, and almost impossible to process to serve a useful purpose. Prudential regulation is inadequate; it is not actively pursued and does not provide financial transparency or discipline. Universal banking may be a desirable final outccme, but not if it is obtained through the formation of scattered non- legally related financial institutions. 3.11 The country's regulatory framework is set by the Central Bank Law and the Banking Law, both now under revision. Thc Centrail Bank promulgates and implements monetary policy; the Superintendency of Banks (a dependenicy of the Central Bank) supervises and ensures that laws and regulations are being followed. 3.12 The regulatory framework differs substantially among institutions. For example, the minimum capital requirement is now G600 million for commercial and investment banks', and an additional G126 million is required for the right to operate in foreign exchange, but only G100 million for finance companies and G200 million for savings and loan associations. At end-1990, reserve requirements were 37 percent on all demand and saving deposits in domestic currency, 15 percent for the new CDs mobilized by banks, and 20 percent for deposits in foreign currency. Requirements were only 5 percent for dcposits in savings and loan and finance companies. The interest rate lending ceiling was eliminated in October 1990; deposit rates have been unregulated since earlv in the ycar. It would be important to implement similar reserve requirement regulations among institutions wvith similar roles. The new Banking Law now being drafted might be the right instrument to initiate this process. 3.13 Banking supervision is carried out under two different procedures: off-site supervision and on-site inspection. The first requires reviewing balance sheets provided by banks on a daily, monthly, quarterly, and annual basis. At present this process is carried out manually; but a study is underway to computerize the information input and the operational procedures. A manual containing methodologies, analytical techniques, and operational procedures is already available. Information requested from banks and provided by them is extremely detailed and most of it is not analytically useful, but verifying compliance with detailed Central Bank economic regulations makes it indispensable. Most of this effort is of little practical use because the lack of transparency in the information available renders it al-ncst meaningless (it is not checked by independent external reviewers and mav not follow satisfactory accounting standards). On-site supervision, the second procedure, is conducted by inspectors who visit banks periodically, with inspections limited to headquarters. Unfortunately this most important kind of supervision is not actively pursued. No manuals are available for these inspections and the quality of banks' portfolios are not evaluated. 30 Central Bank Resolution No. 5 (dated Octobrr 26,1989) raised this minimum to G2,000 million beginning in April 30, 1990 and to G3,000 million starting Octobcr 30, 1990. Thc capital requirements in guaranies deteriorated in real terms unti this change. Originally it was Uss2.5 million; before the changes it was less than one-third that amounL Capital requirements for finance companies werc not changed by Resoiution No. 5. - 44 - Table 3.1: PARAGUAY - SIZE OF FINANCIAL INTERNfEDIARIES (unconsolidated, as a share of total domestic resource mobilization)a/ 1975 1981 1985 1988 1989 1990 National Development Bank (BNF) Liquid Assets 8.7 5.4 5.4 10.2 5.6 5.5 Credit 52.9 22.6 22.7 20.9 21.8 22.1 Dom. Resource Mobilization 14.8 7.8 7.6 10.2 6.3 7.4 Other Net 46.8 20.2 20.5 20.9 21.1 20.3 Commercial Banks Liquid Assets 43.2 35.4 45.6 36.5 36.8 30.7 Credit 70.3 72.3 57.6 60.4 68.0 79.2 Dom. Resource Mobilization 73.8 68.7 71.9 71.8 75.6 76.7 Other Net 39.6 39.0 31.2 25.1 29.2 33.3 Savings and Loan Associations Liquid Assets 3.3 4.6 2.4 2.2 2.2 1.9 Credit 8.1 16.1 113 10.9 11.0 11.1 Dom. Resource Mobilization 10.8 21.1 16.9 14.4 14.0 13.8 Other Net 0.6 -0.4 -3.2 -1.2 -0.8 -0.8 Private Development Banks Liquid Assets 0.2 0.0 0.4 0.7 0.6 0.8 Credit 3.6 0.8 0.8 1.1 1.1 1.8 Dom. Resource Mobilization 0.3 0.0 0.0 0.1 0.3 0.6 Other Net 3.6 0.8 1.2 1.7 1.4 2.1 Finance Companies Liquid Assets 0.0 0.4 0.4 0.5 0.6 1.1 Credit 0.5 7.6 6.8 5.9 5.6 6.2 Dom. -Resource Mobilization 0.3 2.4 3.6 3.6 3.8 1.6 Other Net 0.2 5.6 3.6 2.8 2.4 6.3 Total Liquid Assets 55.4 45.7 54.1 50.0 45.7 40.1 Credit 135.4 119.5 99.1 993 107.4 121.1 Dom. Resource Mobilization 100.0 100.0 100.0 100.0 100.0 100.0 Other Net 90.8 65.2 53.2 49.3 53.2 61.2 Source: BCP, 1990 a/ Note: Liquid assets plus credit equal domestic resource mobilization plus net other. - 45 - 3.14 Concerning risk classification of assets, there is a strongly enforced regulation requiring that loans more than 30 days overdue cannot accrue interest, and forcing banks to take legal action after a specified time. However, banks can easily cover-up bad loans by continually rolling them over or by arbitrarily reclassifying them as good, thus avoiding further inspection. Moreover, the Superintendency does not require that a provision be made for nonperforming assets, and there are no effective lending limits to shareholder-related interests. Many banks lack the capacity to properly monitor the quality of their portfolio; one-third of the banks do not use external auditors. 3.15 Due to economic overregulation, lack of mechanization and insufficient personnel, supervision has not been carried out properly. It is estimated that in 1989 only 30 percent of the Superintendency's responsibilities have been performed. This is reflected in inefficiencies in supervisory practices, with approval of banks' balance sheets and thus distribution of dividends to shareholders also affected. It would be desirable to rationalize and simplify Central Bank economic regulations regarding commercial banks. If the Central Bank regulates only the most basic elements dealing with monetary control, the system would be able to concentrate on supervising the intermediaries' financial health and deposit security. This would cut the Superintendency's human and computational requirements would be cut while contributing more efficiently to overall development. 3.16 Health of the Banking System. 3anks did not correctly anticipate and were strongly affected by the collapse of the fixed foreign exchange rate in 1982, after decades of a constant exchange rate. Although in the years prior to 1982 only a few institutions captured savings in foreign currency and lent the proceeds in domestic currency, most did not take foreign exchange risks directly but lent in the same currency in which they received the funds. Despite this, the crisis was widespread and almost everyone was affected. Debtors not directly linked to foreign trade were affected most since relative prices moved strongly against them. Importers also were affected because of price controls that kept the domestic prices of imports from rising as fast as the new free foreign exchange. Even exporters were affected because they were required to return part of their export proceeds to the Central Bank at the low official foreign exchange (implicitly, a substantial tax was imposed on exports). However, now, seven years after the crisis, most banks seem to make good profits and some are expanding very fast; thus, the crisis of 1982/83 seems over. 3.17 Nonperfonrring loans rose massively in 1982/83 as a result of the foreign exchange crisis. Their value almost tripled between 1981 and 1983 rising from 7.6 percent to 19.9 percent of the banks' portfolio (see Table 3.2). The renegotiation of loans, the write-off of others, the capitalization of banks, transfers from the Central Bank through subsidized rediscount interest rates, but, above all, the rise in nominal lending, permitted a consistent reduction in that percentage of nonperforming loans in the ensuing years. This percentage now stands at a value almost as low as in 1980, though because of lack of effective on-site supervision and lack of transparency in official information it is possible that the data shown may underestimate the actual size of bad loans. -46 - Table 3.2: PARAG!JAY - NONPERFORNING PORTFOLIO OF COMMERCIAL BANKS, 19814. 1980 1981 19S' '983 1984 1985 1986 1987 1988 1989 A. Billions of Guaranies Non-Performing Loans 1.9 6.6 1.7 19.2 19.4 18.2 153 129 11.4 173 ToLal Portfolio 86.0 107.5 114.1 129.0 151.6 165.4 210.8 254.7 325.5 608.8 Loan Loss Provision OA 1.0 1.4 2.3 3.0 2.8 2.7 3.0 2.5 4.3 B. Percentages Non-per/1otal (%) 2.2 6.1 11.1 14.9 12.8 11.0 7.3 5.1 3.5 Less Prov/Non-perf. 21.1 15.2 10.9 12.2 15.4 15.6 17.8 23.2 21.6 25.' Source: Central Bank and World Bank estimaes. 3.18 On the surface, the system as a whole seems financially sound. The bulk of commercial banks appear to be profitable and capitalized. This reflects in part the relative stability of this economy over an extended number of years. The banking sector does, however, contain several very weak institutions. Some private banks are clearly bankrupt and the official banks have lost substant.al amounts of resources. There are three private institutions that have negative net worth, but others may also be in trouble. For example, there are two other institutions where "other assets accounts" and unsettled 'pending balances to reconcile between branches" (where bank losses may be hidden) relative to equity have more than twice the importance these accounts have on the average of all banks. On top of these, there are four other banks with negative operating margins" (except for foreign exchange profits that are not checked by the Superintendency). These nine banks offer about one third of private bank's total credit' (only three are foreign owned). 3.19 Until June 1990, regulations specified that capital (and reserves) had to be at least 15 percent of total assets, excluding reserves in the Central Bank." Most banks did not comply with this requirement, which was unrealistically high by international standards. As of the end of June 1990, at least 15 out of 23 banks were in noncompliance; with a capital shortfall of about G30 billion. The capitallasset ratio for the consolidated banking system was just 11.3 percent. 31 The three banks opas* ic trouble also show very low or negative nCt operating margins. The two other banks with large "uncerain' assets show healthy proGt margins before taxes but only because of large foreign exchange profits (without these profits, one shows losses, the other has a modesty positive margin). Of course, all these inslittgioes need not be CorupL As explained below, the four with negative profit margins have risk-adjusted capital/asset ratios above 10 percent and of the two with large uncertain assets, one has a ratio above 10 percenL Of the three bankrupt institutions, one if foreio-owned and sbould not have difficulty arranging recapitalization. 33 Assets are defined esduds reserve requirements and cash in foreign and domestic currency. Capital does not include accumulated profits nor does it reduce accumulated loss the latter exceeded the former between 1983.87, but the situation reversed in 1988 Official regulations ded,vi tr!e losses but do nat allow retained profits to be added to capital. - 47 - However, no penalties were applied; instead, the Central Bank reduced requirements by allowing the deduction of rediscounts from the assets determining capital requirements. This is policy probabiy gives an incorrect signal--not only should capital requirements be enforced, but banks are responsible for repayment of both their normal and rediscounted portfolio and thus should' maintain capital against both. There are other changes to legal requirements that could be worth implementing: first, the inclusion of retained earnings as capital; and second, allowing inflation- rclated revaluation- of fixed assets in the definition of capital (and assets) without tax penalties. Assets also could be weighted by risk, to give a better idea of the portfolio's quality. These changes would provide a better picture of the true financial condition of banks. Rough estimates of capital in relation to a risk adjusted portfolio are close to 15 percent, which is the legal requirement. Excluding the nine banks mentioned above, only two show a capital ratio below 10 percent (both foreign owned). Of the nine banks in possible trouble, the three openly so show of course a negative capital coefficient; of the two with large uncertain assets only one has a very low coefficient; the four other banks with negative profit margins all have coefficients higher than 10 percent. 3.20 Accounting practices are poor and some regulations have allowed banks to show unrealistic results. Banks couid use different foreign exchange rates to value their foreign currency accounts and some apparently did. With the multiple exchange rate system in place until 1989, banks could choose among many different official exchange rates to value assets and liabilities and the Superintendency could not check this, since it only requested information in local currency. Now the Superintendency has forced banks to value all their foreign currency operations at prevailing market exchange rates. But because it does not require that this information also be provided in the original foreign currency denominations, it is still impossible to check the veracity of the figures provided. The analysis of this latter information seems critically important, as so many banks show large foreign exchange profits that have not been checked. 3.21 The Central Bank and Bankin2 Laws. The country now has an excellent opportunity to implement changes in the financial sector through the right drafting of these two laws and their complimentary legal provisions. With regard to bank supervision and the role of Superintendency of Banks (SB), the legal framework should: (i) guarantee the SB's professional independence from the Central Bank; (ii) emphasize the SB's role in enforcing compliance with prudential (not economic) regulations; (iii) encourage better focused on-site bank supervision; (iv) promote use of internationally accepted accounting practices and risk exposure guidelines, (v) define prudent limits on credit granted to conglomerates and shareholders (and their related interests); (vi) define capital requirements and enforce compliance with them, (vii) define a clear-cut calendar of actions to deal with troubled financial institutions and give BS enough power to implement them when these cases arise; (viii) set stringent conditions before the Central Bank can offer financial support to troubled institutions; and (ix) apply homogeneous regulations to similar institutions and allow universal(as opposed to specialized) financial institutions to develop as warranted by the market. 3.22 OMcial Banks. As mentioned earlier, the official banks are the Banco Nacional de Fomento (BNF), Fondo Ganadero (FG), Banco Nacional de Ahorro y Prestamo para Vivienda (BNV), and Banco Nacional de Trabajadores (BNT). They have generated large losses owing to low interest rates (relative to the cost of funds), high administrative costs and poor collection - 48 - rates. Moreover, these banks also have received implicit subsidies through government recapitalization at no cost. Recapitalizing these banks implies a large commitment; hence it is worth reexamining their roles at this point. 3.23 The BNF has been capitalized several times and recently received anothcr injection of resources from the Government (this time expected to be provided in periodic installments). Its profitability has been estimated to be highly negative. The main problems have been large arrears on its lending, heavy administrative costs, and dependency on foreign resources to be channeled to domestic markets at fixed interest rates in domestic currency. The BNF did not lose even larger amounts because of the implicit subsidy it received, and continues to receive in reducec' amounts, from the Central Bank through rediscounts. 3.24 The BNF has been expected to provide medium-tern. financing for productive sectors and formal credit to small farmers. It has not been successful as a medium-term financing institution, but it has reached the small farmer. However, this has been an expensive endeavor. If the bank can be made profitable, while simultaneously reducing its dependency on foreign financing and increasing its ability to mobilize domestic savings channeled as medium-term loans, the BNF could become a key pillar in the country's development and deserves the strongest support. However, if reforms do not succeed in reaching these goals and the bank keeps losing vast amounts of money, alternative solutions should be sought--for example greater reliance on private banks with limited, targeted subsidies--to improve collections and keep subsidies clear and transparent. 3.25 FG's role has been :o offer medium-term credit and technical assistance to large ranchers. It has been successful at this task, but at a heavy financial cost. FG has almost exclusively relied on foreign funds and, like the BNF, has often lent at fixed interest rates in local currency. As a result, foreign exchange loses have been substantial. If its foreign financing is valued at market exchange rates (some loans have been undertaken by the Finance IMIinistry, which formally carries the foreign exchange risk), FG's net worth is substantially negative. Its low profitability suggests poor prospects. 3.26 The FG has played a valuable role in the country's livestock sector, but in the process it has trarsferred large amounts of wealth from taxpayers to large ranchers. The latter can be avoided in the future if FG's function are handed over to the private sector. If the private sector is not interested in taking such a role, creating a new public (or mixed) bank to carry FG's role is an option that should be strongly discouraged. 3.27 BNV's credit operations should be subject lo a low, strict ceiling while its future role is reviewed. At present, it is supposed to promote housing construction while ser..ing as a central bank for the savings and loan institutions. But, because of the country's relatively high inflation in recent years, the lack of inflation-adjusted interest rates, and the lack of the mediun-term financing, housing finance is nonexistent and savings and loan institutions operate like other financial institutions controlled by the Central Bank and could be supervised by it. Tn these circumstances, there is little justification for the BNV. 3.28 BNT operates as a normal commercial bank (except that it used to generate large losses, like the other official intermediaries) but is financed through a tax on wages. There is - 49 - little reason for an institution like this. The Government should be encouraged to eliminate the tax that finances BNT, reduce BNlTs size, and if it cannot be made profit,,ble, close it in a reasonable time-frame. B. Trade Policy Reform 3.29 Trade related distortions a,-e not important in Paraguay now, but they could become sizable. In practice and in relation to other countries, nontariff barriers are few.4 However, the existing Customs Law and some related taxes have a heavy protectionist bias. Custom duties (including surcharges) range from 3 percent to 86 percent, and tend to be higher for traditional manufacturing sectors. These duties are consistent with high effective protection rates. In fact, it would not be surprising to find a few subsectors operating with a negative domestic value-added if their output and inputs were valued at international prices.' 3.30 However, because the Government operated under simple, special tariff reginies and bccause smuggling was widespread, the Customs Law was not effective. Despite the notionally high tariffs, ordinary duties (those defined by the Customs Law) represent just 7 percent of taxable imports 3 (registered imports were close to 90 percent of estimated imports in 1990, but were a much lower percentage in earlier years). Thus, indirect evidence implies that actual protection is much lower ihan the law suggests. To a significant extent, Paraguay seems to be de facto a free-trade economy with low actual tariffs and taxes. The Present Customs Law 3.31 Although distortions induced by the current, effective trade regime may not be large and the law does not reflect actual outcomes, it is still important to study the implicatior,s of properly applying the law as statedt This is of special relevance now because the present political system is evolving towards a full democracy, and economic policies may change is new authorities are elected at different levels. If the existing legislation is potentially disruptive, then it is urgent to change it to a tariff code that more closely reflects current reality; any incoming adminictration might try to enforce it, thus causing costly and long-lasting negative effects on growth, employment creation, and income distribution. Moreover, moving toward lower, more unified tariffs would be consistent with the changes taking place in Argentina, Brazil and Uruguay and thus leave Paraguay in a better position for its entry into the MERCOSUR. '4 Some basic foods are subject to trade restrictions at the harvesting season, but they seem to have little practical rJlevance. Many imports were prohibited before 1989 and smuggling was widespread; at present, same import rertrictions :emain, initially set in Decree 1663 of December 1988, Artide 9. and as before, the corresponding goods are widely smuggled. Despite this, the policy implemented in 1989 is far more eftlcienL is These are activities tbat operte with a high content of imported inputs and whose valuc at international prices is higher than the import value of the rinal pro.1uci (cg, assembl, industries for bicycles). X4 Total taxes on imports (indu1irg taxes on imports co!lected by Customs but labeled as i:rmrnal taxes rather than duties (sce para. 333)) represented 12 percent of registered imports in 1989 (swe Table 3.4). - 50 .. 3.32 In December 1988, `iraguay adopted the Harmonized System for tariff classification, which is more complete but also more complex than the previous one. rhe old system had 14 different tariff levels while the new oiie had 41 as of December 1989. The new system was hastily introduced, so Customs personnel and related staff still lack training to use it fully. In many cases its application is too discretionary and thus often inconsistent. 3.33 Fortunately, the application of the ordinary customs r-gime of duties often is disregarded and replaced by special regimes. About 25 percent of imports frcm neighboring countries (affecting mainly Argentina and Brazil) pay a flat 10 percent tax; items associatec with "tourism" pay 7 percent follow:ng transitory regLIations that are no, part of the Customs Law. (Imports of scotch and cigarettes--two tourism-related items--arz subject to another special procedure.) Only half of the 19 percent tax on imports from neighboring countries is corsidered an import duty; the other half is labeled "internal ta:" because this import tax was enacted t- replace certain internal levies that were eliminated simultaneously. Regarding the tourist regime, five points of the seven are considered import duties and the. other two interna! taxes. In T?ble 3.3, the five percentage point taxes on imports from neighboring countries and tourist goods are shown as part of ord.nary duties, the remainde, as "internal taxes"; in Tal-'e 3.4, the "internal taxes" are included in the total import tax rate, but not the ordinary rate. 3.34 There also are additional taxes on imports that are not collected bv customs and, corrcspondingly, often evaded. First there is a surcharge of 3 percent on raw materials and capital goods, ef 30 percent on beverages and tobacco, and of 6 percent on goods not under the 3 p,ercent or 30 percent rates. Since this surcharge on imports is consiucred an "inteiaal tax," it is rnot cl.irged at customs and often evaded. in addition, while domestic output is iiominally taxed at 4 percent under a value-added type of sales tax (which is almost always evaded), imports are taxed at 8 percent and 14 percenL The higher rate (another tax on imports ,lot collected by customs) is considered an internal tax and also is evaded, though less frequently than on domestic goods. About 80 percent of the revenue from the sales tax come from impoi!s and thus the sales tax is mainly an import tax. Revenue Collection 3.35 The Authorities have succeeded in making important changes in custom duties to increase revenues and reduce corruption and evasion. Among others, starting in May 1989, taxes on imports were applied to import values at the free exchange rate.7 As a result, collections of import taxes more than doubled in 1989. (This figure includes the taxes on imports collected by customs that are legally labeled "internal taxes' (see para. 3.33 and Table 3.3). Total taxes on imports rose to 22 percent of (3 much higher) tax revenue in 1989, compared to 17-18 percent in 1986-88. Import duties were 25 percent of total taxes after May 1989, when the new valuation system started operating in fulL This pzrcentage would be eve:, higher if other duties applied at sales time only to imported products, were classified under this latter category. r7 For customs purpowe, the value of the USS was G400 in 1988; G550 in January and Fcbriary 1939, 0-750 in March and untii May 9; from May 10 on it has been the free exchange raze (around G1,200 in December 1989). - 51 - 3.36 Twvo factors helped increase import tax revenues: first, the taxable value of imports increased because of the higher value of foreign exchange used; second, the Authorities simplified the tax system. ai3d reduced tax rates. Average tariff rates accord.ng to the tariff codes were reduced around 25-30 percent; the average rate paid fot ordinary import duties declired from 10 percent to 7 percent, and the overall rate of taxes on imports, including "internal taxes" went down from 16 percent to 12 percent (Tablc 3.4). 3.37 Efforts to simplify the system included widening the application of a 10 percent tariff on selected goods from neighboring countries (Brazil and Argentina). Originally, only necessities were eligible for the ten percent rate, but the list has gradualy expanded and now cover. about a fol-th of tc-tal trade with those countries. The base for the tourist regime (a 7 percent flat rate) was also widened. It was initially applied to peoducts li Iked to tourism in border cities but is now in place throughout the country. It affects tourists and locals and covers a wide variety of products inuluding some unlikely io be related to tourism (sucn as odontological equipment). Table 3.3: PARAGUAY - CUSTOMS CO 'ECfL:' TAXES ON IMAPORTS (in Diliions of Guaranies) 1985 1986 1987 1988 1989 Total Taxes on Imports _5.' 21.6 30.9 42.4 89.6 Ordinary Duties a/ 11.1 15.5 19.2 26.0 533 Special Revenues b/ 0.8 0.9 1.5 2.3 1.8 "Internal taxes" C! 3.3 5.2 10.2 14.1 34.5 Tot,! Taxes 96.3 125.0 177.9 233.0 400.8 ImDoIr. Taxes/ rotal Taxes(%) 15.8 17.3 17.4 18.2 22.4 Sourc.: Finance Mini-try, Gener3l Directomate of Customs. a/ Includes nr )rmal custGmS duties and the 'customs" fraction of the neighboring countAies' trade and tourism regimes. k Special regimes of ...inor impoz tancea. el Includes import taxes labeled "iriternal,' ramely the part of the taxe_ on tourist goods and trade with neighboring ccuntries thet xeplaced interr.al taxes, the stamp tax applied to imports, and other special import taxes. 3.38 The evolut.on of tax revenues toom these two special import taxes has been remarkable (see Table 3.4). While ordinary import taxes doubled, because the base for special import taxes was widened, co'lecti_n from the two special tax iegimes probably increased much - 52 - more (Data on taxes on imports are not discriminated by regime in 1988). Although the value of taxable imports subject to normal duties almost douMled,3` border-trade imports increased 250 percent and tourism imports increas_d almost tenfold. The number of statements from persons and entities using the "neighboring-countries" provision also increased tenfold between 1988 and October 1989. 3.39 Tn 1989, one-third of ordinary custorrs revenues came from these two special regimes but tNis is an underestimatc. If the portion of these taxes labeled "internal" also were classified as import taxes,19 these two special regimes would account for close to 6 percent of total taxes 3.40 The lower special tax on neigr,boring countries' impcrts may be counterproductive for Paraguay by diverting legal Lndlor illegal imports from less expensive sources in thi.d countries to legal but more expensive sources from Brazil and A-gentina. In this case, the Government would receive less revenues and/or the "smuggling premium" (a source of income for some nationals and a potential revenue source for the Government) would decline as the activity becomes legal. Unfortunately, it is not yct possible to evaluate the dimension of the trade diversion effect. Of course, this includes the ef!ea of the reduction in non-registered imports resulting from a unified exchange ratc and simpler regulations, which reduced incentives to smugglinD. X These taxes are included under the label 'Non-Custom Duties" in Table 3.3. - 53 - Table 3.4: PARAGUAY - ORDINARY IMPORT DUTIES (in Billions of Guaran es and percent) 1988 1989 Guaranies Taxable Imports 264.4 737.9 Normal 220.3 412.2 Tourism 25.4 261.1 Border trade 18.7 64.6 Tax Collection 26.0 53.3 Normal NA 35.3 Tourism NA 14.2 Border trade NA 3.8 Percent Average Ordinary Rate 9.8 7.2 Normal NA 8.6 Tourism NA 5.4 Border trade NA 5.9 Memo Item Total Import Tax Rate a/ 16.0 12.1 Source: Ministry of Finance, Directorate of Customs. a/ Total import taxes include taxes that conceptually (though not legaDly) belong in this category. See Table 3.3. Intended Effect of the Customs Law 3.41 The high tariffs in the customs code serve little purpose. The code has many high tariffs,4 so that the average of all the ordinary tariff codes is 16.2 percent (see Table 3.5), while actual coliection of import duties is only 7.2 (see Table 3.4). This discrepancy, which occurs in most countries, suggests that the code's high tariffs are not there to increase revenues, but intended to provide protection. This finding is confirmed by the weighted average tariff calculated using actual imports (December 1989) as weights. This average is 8.3 percent, whl_. is The maLimum rate is 72 percL, whicb grows to 86 percent if surchargcs are included. - 54 - higher than the observed value but consistent wAith it because only about 80 percent of potential revenues are collected, the rest being legally exempt. Impact of Customs Duties by Sector 3.42 For agriculture, the average tariff on all related codes is 18 percent but the import- weighted average is only 8 percenL A similar discrepancy takes place for manufacturing, where the simple average is 16 percent while the weighted one is 8 percent. Mining on the other hand has small tariffs on most codes and thus shows little discrepancy between the two averages (see Table 3.5). Table 3.5: PARAGUAY - IAIPORT TARIFF RATES BY SECTOR (Weighted by Import Values in December 1989) Goods Simple Weighted Imports Average Average Sharch/ Tariff TariffaJ Overall Average 16.2 8.3 100.0 Agriculture 18.2 7.8 0.3 Mining 4.2 3.6 0.3 Manufacturing 16.3 8.3 99.4 Manufacturing by Use 16.2 8.3 100.0 Consumer Goods 23.9 8.7 54.1 Intermediate Goods 11.5 5.6 17.3 Capital Goods & Transport Equipment 12.6 9.1 28.6 Source: World Bank calculations using customs data for December 1989. a/ Using tariff rates adjusted by special regimes (tourism, 7 perment; border trade (10 percent). J Manufacturing disaggregates add up to 100 percent. 3.43 In manufacturing, few activities benefit from high tariffs in the customs code. As a landlocked country facing high transport costs, Paraguay naturally has its domestic activities protected from external competition. But this characteristic also discriminates against exports. 3.44 Using the three-digit Intcrnational Standard Industrial Classification, less than 0.5 percent of total imports come from subsectors with average tariffs over 30 percent, and 2.5 percent of imports come from subsectors with average tariffs above 15 percent. The only items - 55 - benefiting from tariffs over 15 percent are soft drinks, motorcycles, texti!cs, tanneries, and some wood (furniture), paper, and clay products. 3.45 Soft drinks may not always F legally brought into the country, but are abundantly imported through informal channels. The,, domestic industry is already able to compete with those imports and a reduction of tariffs would have little effect on domestic prices or production. Motorcycles, like cars, are also widely brought into the country, though not through Customs. Duties on cars were recently reduced, but it remains to be seen if registered imports of cars will increase. There is no domestic production of these goods, so the Government is the only one losing from illegal imports. 3.46 K )me textile activities are protected, with rates reaching close to 30 percent. Ho%% ver , les also are often imported through informal channels and domestic production has deai w l tl s challenge. In fact, some enterprises are already exporting textiles, which is not surn :is g, given the country's comparative advantage in producing cotton; so it is unlikely that do e! . output will suffer from a substantial tariff reduction. Textile activities are expanding de ?it: the preser.t system of temporary imports that discriminates against them: exporters of appai I can deduct taxes paid by foreign producers (import taxes on inputs are exempt) but c< in( L deduct taxes paid by local textile manufacturers. As the apparel industry is growing fast, Ic :al textile industries would be better off with lower tariffs on their final products if this were a o . ccompanied by less discrimination against their output through existing export incentives. 3.47 Tanneries also seem to receive rather high protection rates, while leather products a.id footwear receive very little. If this is correct, it is not only inefficient, but punishes industries that are more important at the national level (e.g., the shoe industry alone has a national value- added larger than the other two combined). Thus, the economy would benefit if protection of tanneries is substantially cut and brought in lirne with that of shoes and leather products. Table 3.6: PARAGUAY - W EIGHTED AVER.GE TARIFF RATES FOR MANUFACTURING Simple Import Vcighted Production Weighted CIU Average Average Ordinarv Including Spec. Classification Tariff Tariff a/ WVeihts Tariffs Reeimens a/ Weights Fnod, Beverages and Tobacco 22.0 6.1 12.6 25.8 73 49.9 Tcruiles, Apparel, and Leather 25.6 13.8 5.2 31.0 14.1 11.1 Wood and Furniture 37.0 33.7 0.0 29.8 155 13.6 Paper, Paper Prod. & Printirg 18.2 53 2.0 31.9 11.5 3.6 Chem., Coal, Rubber & Plastic 6.5 5.9 17.8 6.1 4.6 11.2 Non-Metallic Minerals 19. 11.2 1.6 22.9 13.8 4.6 Basic Metal Industries 8.4 4.4 2.7 7.8 3.3 0.5 Metallic Ind., Machinery & Equipment 14.6 95 50.5 16.7 11.9 4.7 Other Manufacturing 21.8 7.1 7.6 24.2 7.1 0.8 Average 16.2 8.3 100.0 23.4 9.5 100.0 Source: World Bank calculations based on Customs data. a/ Using tariff rates adjusted by special regimes (tourism. 7 percent; border trade, 10 percent). - 56 - 3.48 Wood furniture and clay products are other activities that might benefit from high tariffs. Further study is needed to be able to say if they will be significantly affected by a drop in tariffs. With regard to the paper indu;sry, it has segments that are also competitive with production from abroad, it is beginnir g to export. For example, printed books are being exported to other countries in South America; .:otebooks compete favorably with inexpensive products from Brazil and Argentina. This industry has had substantial protection of little relevance, since smuggling from neighboring countries is almost impossible to stop. It is likely that reducing tariffs in these industries will have little negative effects; instead, the economy will benefit from this change by speeding the transfer of resources into activities where the country has more comparative advantage. 3.49 The small incidence of high tariffs on domestic output is corroborated when examining more aggregate industrial data. Table 3.6 illustrates average tariffs by main manufacturing subsectors. In it, one can again see that simple averages of ordinary tariff codes are much higher than the import-weighted averages (except for chemicals), with tariffs in two subsectors exceeding 25 percent. In the import-weighted averages, except for wood and furniture, no aggregate exceeds 15 percent and most are below 10 percent. 3.50 The disaggregate figures in Table 3.6 also support the view that the ordinary customs schedule tends to be muc-i more protectionist in theory than in practice. The average production-weighted tariff in the ordinary schedule is 23.4 percent, with most activities showing tariffs higher than 25 percent. By contrast, the tariff schedule actually applied shows little protectionist tilt. Because of the special regimes on border trade and tourism, the production- weighted average is only 9.5 percent, just slightly higher than the import-weighted average previously mentioned (8.3 percent). Moreover, the production- and import-weighted averag;es give low and similar results for the subsectors. It is worth noting that the production weighted- tariff in the wood and furniture subsector is much lower than the import weighted tariff, since in this activity high tariffs protect enterprises with minor domestic output. Informal Imports 3.51 Informal activities (smuggLing among them) are important in Paraguay. Leaving aside their negative impact on the legal system and the ethical question, illegal imports have had some positive indirect economic effects. Contrary to the experience of most Latin American countries, production inefficiency has had a ceiling set by apparently low smuggling costs (estimated at about 10-15 percent of CIF value). 3.52 Off-custom imports are an element of several informal activities carried out not only by small enterprises but also by many large ones that operate using a parallel financial accounting system. Parallel accounting is the enterprises' reaction to what they perceive as a heavy burden implicit in most tax laws. Managers of private firms argue that income tax rates on profits are too high (30 percent), that some indirect taxes are also too high (for example, 30 percent on some imports), and that the burden of taxation is not evenly distributed among the productive sectors. Agriculture is especially privileged in the sense that it is exempt from most taxes and receives a large share of subsidized credit. - 57 - 3.53 The private sector also argues that informal imports would not stop even if all import tariffs were abolished, as long as other taxes remain high. A reform of trade taxes may not producc substantial revenue unless this action is accompanied by a general tax reform the private sector considers fair. In fixing tax rates the government must therefore be cognizant of its ability to collect taxes and not set rates that will encourage evasion, at the cost of public revenues. The Challenpes of MERCOSUR 3.54 The recently signed MERCOSUR treaty between Brazil, Argentina, Uruguay and Paraguay reducing duties on imports from third countries and eliminating tariffs among signatory countries will pose special challenges to Paraguay. One possible result of the pact might be high external tariffs--this would hurt Paraguay if these tariffs were applied, but current experience suggests this is unlikely. However, if the external tariff is low, then Paraguay may be forced to make adjustments in informal activities and government revcnues that are much more significant than for the other countries. 3.55 Paraguay has profited from high protection in Brazil and Argentina and its informal activities have flourished by taking advantage of such conditions. If protection in those countries drops substantially, then Brazilian and Argentinean customers will not need the services now informally provided by trade in Paraguay, and these activities sill suffer. In addition, duties stemming from legal imports from Brazil and Argentina are of significance for Paraguay and these duties will be eliminated when the treaty is implemented. Paraguay needs to carefully prepare its economy to absorb the impact of MERCOSUR. One way wou!d be to move toward lower, more uniform tariffs, which would not only reflect reaLit, but make Paraguay's tariffs more consistent with its MERCOSUR partners. The Government also will need to find alternative forms of revenue. More than 6 percent of the country's taxes stem from duties on Argentinean and Brazilian imports and goods imported for sales to tourists that will no longer come to Paraguay. New productive activities will need to be identified and expanded to absorb the resources left unemployed by the contraction of informal activities. If subsidies are to be avoided in reaching this latter goal, studies should be advanced and the corresponding informnation generated widely shared with the private sector. Export Incentive Policies 3.56 Paraguay uses a special drawback scheme to benefit exports. Based on a system of "temporary imports' it essentially refunds import taxes. Though the laws regulating the system have been in place for some time, its acceptance has increased strongly only since 1988. The new Investment Law (see next paragraph) further encourages its use. However, temporary-import policy discriminates against domestic inputs and stimulates vertical integration because the Government returns to exporters the import taxes that they pay but not the taxes they pay on inputs bought from local producers. These latter taxes can only be avoided by backward integration of the activity. This may help explain why Paraguay exports raw cotton and soybeans but has failed to develop a sizable export industry of finished products. Producers in the garment industry complain about this problem; it affects the profitability of their business and works against export diversification. - 58 - 3.57 An Investment Incentives Law was enacted in 1989. It gives beneficiaries 5-year tax holidays on 95 percent of income taxes and 6 months of duty-free imports; however, the law's regulations have not yet been issued. The system seems discretionary and poses serious problems that can be translated into significant tax revenue losses, resource misallocation (creation of artificial new firms instead of expanding existing ones), and incentives to close existing firms at the end of the tax holiday. A group of privileged entrepreneurs may emergeMwth a constituency for perpetuating interventionist policies. Summ RvY 3.58 In practice, Paragua1y operates with tariffs that are low and quite homogeneous, despite a Customs Law often suggesting high tariffs (30 percent and sometimes reaching over 70 percent) with wide dispersion. Three factors have helped achieve low, homogeneous tariffs in practice. First, simple special regimes operating wAith low and flat rates (10 percent for some border trade; 7 percent for "tourism' trade) have replaced many ordinary tariffs (often the high rates). Second, taxes often reaching close to 5 percent of imports are charged under different names even on tariff-free items; therefore, even though the lowest tar-iff is often zero, some taxes are paid even in these cases. Anid third, unregistered imports set a ceiling on tariff rates. If tariffs exceed 10-15 percent, goods tend to be imported through ir'~ormal channels. 3.59 In light of the regime of effective tariff rates, as opposed to the tariff code, it would be simpler for Paraguay to operate with one flat across-the-board tar-iff rate of, say, 10 percent, replacing all present import.taxes. This policy would not preclude further consumption taxes on specific items (e.g., luxuries) that can also be charged at customs and on domestic producers, and "wit?~out" exemptions."1 Since imports represent about 30 percent of GDP, import tax revenues would be about 3 percent of GDP--some%%hat higher than now collected (2.4 percent)--and the system would be more efficient and less prone to cor-ruption. 3.60 Few sectors would be affected by these a changes, since the economy is already operating effectively under a similar regime in practice. However, some enterprises may suffer. In the few cases wh'7,c lower tariffs will do significant damage, an accelerated schedule of tariff cuts can be agreed'. U: e producer until the common flat rate is reached. However, for lower import taxes to be si.. --..ully collected, a far-reaching general tax ,eform will need to be accompanied by elimination of discriminatory tax-incentive schiemes (e.g., the Investment Law). The recently signed M1ERCOSUR treaty with Argentina, Brazil and Uruguay poses more difficult challenges. Goveinment. revenues may suffer and informal activities w%ill be curtailed if the treat-y is successfully implemcnted. Paraguay will need to study how to best take advantage of the treaty's favorable provisions and compensate for the short-term adjustment costs. C. Public Enterprise Reform 3.61 Paraguay has thirteen large public enterprises: four in the transport sector (two airlines, LAP and LATN; railroads, FCCAL; and riverways, FLOMERES); one in the petroleum refining and distributioin area (oil and gas, PETROPAR); three in the manufacturing sector -(steel, It will bc impassible to avoid same exemptions because af intemnational agreements, but they can be minimized. - 59 - ACEPAR; cement, INC; and alcohol, APAL); two administrations (airports, NAC; and ports, ANNP); and three utilities (electricity, ANDE; water and sewage, CORPOSANA; and telecommunications, ANTELCO). A holding company (SIDEPAR) has just been divested. 3.62 The financial condition of public enterprises is weak despite some improvement in 1990. Public enterprises still show a deficit well above that observed at the beginning of the 1980s, and as uith the government, thcir external debt is not being serviced on time. Public enterprist finances received a severe blow in 1989 with the exchange rate liberalization in February. Some enterprises had been heavily subsidized in their use of foreign exchange to buy imports and service external debt through the now-abandoned system of multiple exchange rates. In addition, there were substantial wage increases in the first semester of 1989, and adjustments in tariffs were well below initial programs. As a result most enterprises' financial performance deteriorated in 1989 but appears to have improved in 1990 (see Table 3.7) as a result of lower investments in some enterprises, improvements in efficiency, and higher tariffs'. However, the current financial performance remains unsustainable, and much remains to be done to reach satisfactory results. 3.63 Public enterprise financial performance generally deteriorated during the 1980s despite the foreign exchange subsidies, mainly because of large increases in capital expenditures-- some profitable (electricity and, to a degree, telecommunications), others with much less return (river transportation), and still others in overdimensioned and obviously unprofitable endeavors (steel and cement). The larger capital outlays were financed mainly overseas. The enterprises encountered problems in servicing this external debt and accumulated arrears even before 1989; after 1989 it became even more expensive to service the external debt because of the higher real exchange rate.'3 Resolving the problems posed by this debt and the unproductive and overdimensioned investments financed abroad, will involve actions by Paraguay and cooperation by the creditors. Brazil started the process and gave Paraguay an excellent deal on its debt which benefitted mainly ACEPAR (see paras. 1.53 and 3.92). A Paris Club agreement would help Flomeres and INC. Nonetheless, such agreements generally are extensions of amortization periods, not debt reductions. The government will need to take action to improve public enterprise performance and thereby reduce the need for additional financing of public enterprises. a Investment is usually underestimated in preliminary reports due to data collecting difficulties in measuring expenditures financed abroad (mainly capital). Due to the large voluntary and involuntary foreign financing (i.e., accumulation of arreats), public enterprises did not need to increase their net indebtedness v.ith the domestic banking system in 1989-90. Had public enterp'ises made their foreign interest and amonization payments on schedule, significant credit expansion from the banking system would have been necessary. - 60 - Table 3.7: PARAGUAY - PUBLIC ENTERPRISE FINANCIAL ACCOUNTS (% of GDP) 1980-81 1983-84 1986-87 1988 1989 1990 p/ Value Added aj 3.0 3.4 4.1 4.2 3.9 6.5 Current Expend. 1.4 2.1 2.7 2.7 4.1 5.3 Wages 1.2 1.5 1.3 1.5 1.6 2.2 Interest J 0.2 0.5 0.5 0.7 1.5 1.7 Taxes 0.1 0.1 0.8 0.6 0.9 1.2 Other 0.0 0.0 0.1 0.1 0.1 0.1 Own Current Savings 1.5 1.3 1.4 1.5 -0.2 1.1 Real Investment 2.0 4.3 3.4 3.9 4.9 5.6 Other -0.2 -0.1 0.6 1.1 0.3 0.0 Deficit / g/ 0.2 2.9 2.6 3.5 5.4 4.4 Source: Statistical Annex, Tables 5.5, 5.6 and 2.1. a/ Includes other own revenues but is mainly value of sales less cost of intermediate inputs. kf On a cash basis until 1988, accrual thereafter. J/ Revenues from transfers received from the Central Government are not included. p1 Preliminary estimates. 3.64 The public enterprises' total deficit reached 3.5 percent of GDP in 1988, rose to 5.5 percent in 1989 and is preliminarily estimated at 4.4 percent in 1990 (see Table 3.7). (The figures for 1989 and 1990 refer to an accrual basis, 1988 on a cash basis, but the difference between cash an accrual was not great in 1988 because the low, distorted exchange rate meant that the financial cost of the interest arrears was small.) The public enterprises' current savings are estimated to have declined substantially in 1989 but they rose again in 1990. 3.65 The enterprises with the largest deficits in 1988 were INC, ANTELCO, and ACEPAR. INC and ACEPAR's deficits declined in 1989 and 1990, despite lower savings because their investments also declined drastically with the completion of plants that had been under construction. ANTELCO's performance showed a similar pattern, but the decline in investment reflected cuts in programs underway. 3.66 Despite the improvement in these three enterprises, the savings of the public enterprises fell dramatically in 1989 and the deficit rose sharply, largely due to the results of ANDE and PETROPAR. ANDE started important new works in 1989; thus, despite an increase in savings that allowed it to finance a higher interest bill, it posted by far the highest deficit in 1989 and 1990 (see Table 3.8). PETROPAR's finances deteriorated in 1989 as a resulted of higher taxes paid and insufficient adjustmnents in fuel prices after the eliminatioa of the multiple exchange system. PETROPAR's large deficit in 1989 (one of the highest among PEs) was also - 61 - the result of a large increase in inventories. However, the drastic increases in fuel prices that took place in 1990 produced a strong improvement in PETROPAR's savings performance and turned its deficit into a surplus, which explains almost the whole reduction in the deficit of the public enterprises. 3.67 There are some encouraging signs in public enterprise performance. Among them are management improvements and gains in efficiency to a large extent linked to less financial "leakage" and some reductions in future financial requiiements reflecting completion of investments at the cement and steel companies--the latter reflected in 'other" capital expenditures in Table 3.7 due to accounting problems. 3.68 Despite these signs of improvement, the performance of the public enterprises remains unsustainable. There continue to be major problems with managerial accountability, accounting and control practices, and overstaffing. These problems help explain the poor quality of many enterprise's investment programs and unsound financial results in the 1980s. The Government has began to audit its enterprises but the institutional setup under which they operate is not yet well defined, which makes their control very difficult. Although financial performance appears to have improved in 19S9/90, some of this progress may be misleading. Moreover, financial troubles should not be the only concern. Inefficiency is a key issue, which is not fully reflected in the enterprise finances because of the monopoly power that several enterprises hold. Most relevant in this regard are the cases of ANTELCO, CORPOSANA and PETROPAR. The former two can set high enough tariffs to cover inefficient operations (reflected for example, in overstaffing). ANTELCO has already done this, but CORPOSANA's tariffs are too low. PETROPAR might use its monopoly power on gasoline and gasoil to set high enough prices and generate a large enough surplus that would allow it to build a new refinery that probably would not be profitable in a competitive environment; its finances would look good but at a high cost in terms of efficiency. Thus the public enterprise problem is not simply one of raising prices, which would simply shift the burden of their inefficiency from the Govemment to the consumer, with a corresponding loss of competitiveness. 3.u9 Privatization and joint ventures wtith the private sector (local and/or foreign) are altematives that should help improve results in several enterprises. A biief summary of the r;iain issues in each enterprise follows. For cxample, in PETROPAR crpenditures for crude oil purchases did not increase in 1989 while the related exchange rate almost tripled. This implies a radical improvement in management practices. In the Central Government, the Health and Education Ministries are similar examples that are often mentioned. - 62 - Table 3.8: MAIN PUBLIC ENTERPRISES FINANCIAL DATA, 1985-88 (% GDP) 1986187 1988 1989 1990 p/ Current Own Savings a/ 1.46 1.46 -0.19 1.20 ANDE 0.62 0.69 0.70 0.69 ANTELCO 0.22 0.27 -0.16 0.36 CORPOSANA 0.04 0.07 0.04 0.08 FLOMERES 0.06 G.04 -0.09 -0.08 INC -0.06 -0.12 -0.38 -0.38 LAP -0.09 -0.11 -0.22 -0.44 ACEPAR/SIDEPAR 0.00 0.00 -0.10 -0.05 PETROPAR/APAL 0.64 0.61 -0.08 0.74 Other 0.02 0.02 -0.09 -0.24 Deficit a/ 2.84 3.53 5.36 4.38 ANDE 0.43 0.48 2.45 3.56 ANTELCO 0.19 0.97 0.55 0.15 CORPOSANA 0.33 0.18 0.21 0.52 FLOMERES 0.00 0.02 0.10 0.09 INC 1.09 1.17 0.57 0.40 LAP 0.37 0.38 0.53 0.55 ACEPAR/SIDEPAR 0.51 0.75 0.23 0.08 PETROPAR/APAL -0.09 -0.58 0.81 -0.73 Other 0.02 0.16 -0.09 -0.25 Source: Central Bank, Ministry of Finance, and World Bank estimates. a/ Excludes arrears (in 1986/87 and 1988) and transfers received from the Government. p/ Preliminary estimates. ANDE 3.70 The Electricity Company (ANDE) was cne of the few public enterprises that performed consistently well throughout the 1980s. It generated current savings of close to 1 percer.t of GDP, based on a stable value-added and a consistent cost structure (see Table 3.9). However, its deficit multiplied five times in 1989 and grew even larger in 1990 due to increased capital outlays. This reflected a rapid expansion in electricity distribution, the main element being the completion of the Fourth Distribution Line Project linking Itaipu and Asuncion. Nonetheless, some works were deferred due to lack of resources. The preventive repairs on the first hydropower plant in the country (Acaray) are an example. ANDE also has frozen the hiring of new personnel. Investment is expected to drop in 1991 as works are completed. With these - 63 - lower funding requirements. the eificit should be eliminated and maintenance works might be brought back on schedule. 3.71 ANDE had ambitious investment plans to expand electricity distribution coverage until 1995; however, tight public finances and the strong increase in the exchange rate that ANDE must pay to service its foreign debt has forced the rescheduiing of that plan. Works locally f::.anced have been postponed, and those with foreign financing are being spread over a longer period. It is not expected that these difficulties will have long-lasting consequences. Table 3.9: PARAGUAY - ANDE FINANCLAL ACCOUNTS (% GDP) 1980/81 1983/84 1986/87 1988 1989 1990 P/ Value added aj 1.15 1.05 0.93 1.07 1.21 1.47 Current Expend. 0.31 0.34 0.31 0.38 0.51 0.79 Wages 0.25 0.25 0.24 0.30 0.33 0.56 Interest / 0.05 0.07 0.07 0.07 0.18 0.20 Taxes 0.00 0.00 0.00 0.00 0.00 0.00 Other 0.01 0.02 0.01 0.01 0.01 0.02 Own Savings 0.84 0.71 0.62 0.69 0.70 0.69 Real Investment 0.46 0.87 0.75 0.86 3.15 4.24 Other 0.05 0.11 0.30 0.30 0.00 0.00 Deficit bJ cf -0.33 0.27 0.43 0.48 2.45 3.56 Source: Central Bank, Ministry of Finance, and World Bank estimates. a/ Includes other own revenues but it is mainly value of sales less cost of intermediate inputs. y/ On a cash basis until 1988, accrual aftervard. ./ Revenues from transfers received from the Central Government are not included. p/ Preliminary estimates. 3.72 As indicated above, ANDE's investment is expected to decline sharply after 1991 as ongoing works are completed; committed new projects with foreign financing (mainly from IDB and OECF) will start more slowly. ANDE is prepared to extend electricity services to interested customers faster than planned if these customers agree to finance the works either directly or through bank loans with ANDE collateral. ANDE would pay the corresponding credit by providing no electricity charges for some agreed -ime. To meet its external debt, ANDE is paying all interest but no amortization, except to multilaterals and a highly concessionary British loan. - 64 - ANTELCO 3.73 ANTELCC, the Paraguayan telecommunications company, experienced a some improvement in its financial accounts in 1990 after 3 significant deteriorasion in 1988-89; there is room for still further imorovement. Though ANTELCO showed deficits through most of the 1980s, in 1988-89, its deficits were much higher than previously (see Table 3.10). ANTTELCO's deficits reflected a substantial investment program concentrated on providing phone service in the Chaco and the eastern regions, especially in 1988. The deficit was reduced somewvhat in 1989 by reducing capital outlays. However, in 1990, preliminary data indicate that investment was increased again. With the rise in tariffs and desp'ite an increase in the wage bill and other spending, current savings rose enough to finance most of the higher investment. 3.74 Special care is needed in interpreting the improvemcnt in 1990. Telecom- munications is an activity widely regarded as very profitable all over the world--in Paraguay it i:. a monopoly as well. ANTELCO has the option to increase tariffs to finance current and capital expenditures that may not be economically efficient (overstaffing, fancy equipment). To some extent it has done so in the past. Thereforc, it may be desirable to give ,he Centra! Gover-nnent a larger say in the enterprise's investmen' program, and to set control systems that encourage independence but also accountability. It also is difficult to defend that such a potentially profitable endeavor pays no taxes or distributes any profit to its owner, the Government. Privatization is an option worth studying and some progress appears to be taking place in this regard. Table 3.10: PARAGUAY - ANTELCO FINANCLIL ACCOUNTS (% GDP) 1980181 1983184 1986187 19S8 1989 1990 p/ Value added a/ 0.92 0.93 0.70 0.73 0.69 1.44 Current Expenditures 0.41 0.53 0.47 0.46 0.85 1.08 Wages 0.34 0.43 032 0.33 0.46 0.61 Interest U 0.07 0.10 0.14 0.12 0.38 0.39 Taxes 0.00 0.00 0.00 0.00 ).0u. 0.00 Other 0.01 0.01 0.01 u..0' 0.01 0.07 Own Saings 0.51 0.40 0.22 0.27 .0.16 0.36 Real Investments O.Ar 0.37 0.38 1.22 0.36 0.51 Other 0.01 0.07 0.03 0.02 0.02 0.00 Deficit U/l1 0.00 0.04 0.19 0.97 0.55 0.15 Source: Central Bank, Ministry of Finance, and World Bank estimates. a Includes cther own revenues but it is mainly value of sales less cost of intermediate inpu.s. J On a cash basis until 1988, acclual thereafter. g/ Revenues from transfers received from the Central Governmeiit are not included. p/ Preliminary estimates. - 65 - -ORP~OSA*NA i75 The Water an.d Sewage Company (CORPOSANA) continues to face financial lifficu;:ies despite recent improvements. COIZPOSANA generates a very :mall aving, well bel;w its capital expenditures. A subsvantial increase in tha investment that began in 99 is lik-cly to enlarge the deficit further. L.76 NcnetMeless, preliminarv estima'es show some bright spoLs. Reflecting increases in tfficien-y in co'lictions, and despite fast declining real tariff rates (tariffs w ent up only 25 percent n 1989), tiie value-addtd genferated b3 the ente.rrice kept pace with GDP growth in 1989. nterest on tht. exiernal debt rose sh-irply, largely explaini..g ihe decline in current savings (see lab._ 3.11), With ihe ten percent increase in taxJ..s in the first semester or i990 and further vilustrents in nhe second semester. current revenues and savings recovered relative to GDP. ['he 50 r 7ce-r. tariff in-.rease in the .ast quarter of 1990 offset some of the rise in investment ,xpenditures in 1991. i.77 Despite 1.hT adjustments in 1990, water charges remain low by intcrnational tandards, w'hich encs cages wastage .-,d investmcnts larger tlhan necessary; also sewage charges ire too !ow (5 percent oF -.uater cF which further straifs CORPOSANA's finances. Since vater charres arc linked io propef.: ..tered consumption, ihe- ariff level and the effectiveness of eoli.ction are mrripurt;,nt issues. This latter problem is compo; .ided by the public sector (including wublic entities), which pdy no conruumpiion rharges. i.78 CORPOSANA's investment program contemplates works worth USS7S-80 million wer qi.) months beginniing in 1990. The plan is to increase thc water suipply to Asuncion by 70 percent (from 20 to 341 cubic meters). The progiam includes bringing water from the basic ources to reservoirs. constructing a treatment plant, and cons!ructing a distribution network to onsumers. Tte program will be financed by MDB (US$48 million), a French consortium US$20 million), and the iocal counterpact (US$8 million). - 66 - Table 3.11: PARAGUAY - CORPOSANA FINANCLAL ACCOUNTS (% GDF) 1980/81 1983/'84 1986/87 '988 1}. ) 1990 p! Value added / 0.19 0.15 0.16 0.16 0.17 0.24 Current Expend. 0.12 0.12 0.12 0.09 (.13 0.16 Wages 0.10 0.10 0.07 0.07 0.08 0.12 Interest / 0.02 0.02 0.05 0.02 0.05 0.04 Taxc , 0.00 0.00 0.00 0.00 0.00 0.00 Ot'ier 0.00 0.00 0.00 0.00 0.00 0.00 0wn Savings 0.06 0.03 0.04 0.07 0.04 0.08 Real Invest. 0.35 0.30 0.35 0.23 0.25 0.60 Other (.00 0.00 0.02 0.02 0.00 0.00 Deficit tj g/ 0.29 0.27 0.33 0.18 0.21 0.52 Source: Central Bank, Ministry of Finance, and WVorld Bank estimates. aJ Includes other own revenues but it is mainly value or sales less cost of intermediate inputs. J On a cash basis until 1988, accrual thereafter. g/ Revenues from transfers received from the Central Govermnent are not included. pI Preliminary estimates. 3.79 Although the envisaged investrrent program may deserve a high priority, it would be prudent to increase water and esp..cially sewage tariffs in order to control future demand, rationalize future investment outlays, and improve the enterp.ise's financial performance. The public sector should pay for its consumption. Overstaffing (100 to 120 connections per worker) also is a problem, along %%ith inzdequate organization and management practices. An IDB loan includes technical assistance for institutional strengthening, with special emphasis on improvements in the organizational structure and in the use of labor (i.e., retraining of workers and cuts in eniployment for those who cannot be trained). FLOMERES 3.80 FL OMJERES is Paraguay's riverv'ay transport comnpary. In a !andlocked couatry strongly dependent on river transport, FLOMERES has been associated with national security. The firm is small conmpared to other PEs and although its finances do not impose a heavy burden on the nation, its economic performance is weak. Regulat,ons require that 50 percent of the country's river transport be carried out by Paraguayan ships. In practice the proportion never reaches 30 percent- a little less than half of it provided by FLOMERES, ani the rest by private companies. F ;- ERES nanagement complains that it is difficult to compete witb Argentina's highly subsidiv2.d ri;er vessels, but poor .nvestment _hoices (for example, buying ocean passenger - 67 - ships instead of river barges) seem to be far more relevant issues in explaining its financial difficulties. Table 3.12: PARAGUAY - FLOMERES FINANCIAL ACCOUNTS (% GDP) 1980/31 1983/84 1986/87 1988 1989 1990 p1 Value added a/ 0.03 0.06 0.12 0.11 0.04 0.07 Current Expend. 0.04 C14 0.06 0.07 0.13 0.15 Wages 0.04 0.04 0.03 0.03 0.04 0.05 Interest b/ 0.C0 0.00 0.03 0.04 0.09 0.10 Taxes G.00 0.00 0.00 0.00 0.00 0.00 Other 0.00 0.00 0.00 0.00 0.00 0.00 Own Savings -0.01 0.02 0.06 0.04 -0.09 -0.08 Real Invest. 0.02 0.45 0.05 0.06 0.01 0.01 Other 0.00 0.00 0.00 0.00 0.00 0.00 Deficit bj cJ 0.03 0.43 0.00 0.02 0.10 0.09 Source: Central Bank, Ministry of Fnance, and World Bank estimates. / Includes other own revenues but it is mainly value of sal !ss cost of intermediate inputs. J On a cash basis until 1988, accrual thereafter. J/ Revenues from transfers received from the Central Government are not included. p/ Preliminary estimates. 3.81 FLOMERES' value-added as a share of GDP plummeted in 1989 because PETROPAR stopped subsidizing the company's bunker oil and gas transport, which was the main nonseasonal transport business in the country. Reflecting lower value-added, savings dropped correspondingly (see Table 3.12). The Government has assumed the service of the company's external debt (about US$90 million). Investment was cut drastically to less than a sixth of 1988, which contri:mted to hold the deficit, excluding interest payments, to levels similar to those of prior years (as a percentage of GDP). 3.82 This performance was repeated in 1990, when investment was again nil and the enterprise could barely finance wages paid. FLOMERES management agrees that private sector participation in the company may be required, but thinks that the Government must keep some significant participation (a veto power, for example) to protect national security interests. Although authorities in the Ministry of Transport agree with this view, privatization is an option th:it should be carefully evaluated and implemented if it is the most efficient altemative. -68 - 3.83 The Ministry of Transport and Communications in connection with Japan's Technical Assistance Agency (JICA) is completing a global sector study of the Paraguayan transport sector, including waterway uses. This is an important endeavor, since Paraguay's transport costs seem exceedingly high. River transport is expected to be more expensive than ocean transport originating in deep-w%ater ports, but the difference seems too high along Paraguayan rivers. Exporters of:en prefer to ship from the deep-water port of Paranagua (near Santos in Brazil) paying the corresponding ground transport costs to get there susually very high), than to ship from Buenos Aires or other River Plate ports using river transport to reach these other ports. INC 3.84 The cement company (INC) expanded substantially after 1982, even though Itaipu's main construction works were complete. As a result the company is greatly overdimcnsioned for the Paraguayan market. The expansion was financed abroad, mainly through a French consortium. In addition, the Paraguayan Authorities allege that the. real value of the works carried out to be far less than the amounts committed. They may contest this debt in court. 3.85 Production capacity is 1.06 million tons a year while output was just 340,000 tons in 1989. Export prospects to Brazil and Argentina are not good but there may be a potential market in Bolivia. The effects of the unneeded expansion in production capacity are reflected in TF< le 3.13. Investment was high between 1983 and 19.38, the enterprise's value-added has not increased correspondingly. Moreover, the wage bill ,eased along with capacity not with sales; thus savings, which were positive in the early 1980s, became strongiy negative after 1985. Although the deficit was reduced in 1989, the improvement does not reflect productivity increases but the completion of the works th,t were overdimensiozied from the start. The deficit was reduced further in 1990 as a result of further cuts mn investments reflecting rompletion of ongoing works. Investment only included mining ecpuipment and trucks. 3.86 There seems to be much room for improving INC's use of resources. Employment could be almost halved--efforts are underway to reduce staff to 700 from the current 1,100; transport costs may also be reduced; and, as indicated, the authorities are considering litigation in some debt service payment-if settled in favor of Paraguay, costs would be cut significantly. INC also has a G56 billion debt -Aith the Central Bank which it is not servicing. Except for external and internal debt service, it needed no financing from the banking system in 1989-90. 3.87 As for privatization, the Ministry of Industry and Commerce (MIC) tried to implement an ambitious plan. This was delayed (if not abandoned) because of strong political resistance. At a minimum, joint venitures should be explored. - 69 - Table 3.13: PARAGUAY - INC FINANCIAL ACCOUNTS (% GDP) 1980/81 1983/84 1986/87 1988 1989 1990 p/ Value added a/ 0.20 0.25 0.19 0.27 0.31 0.45 Current Expend. 0.06 0.20 0.25 0.39 0.70 0.83 Wages 0.05 0.06 0.08 0.08 0.10 0.12 Interest bJ 0.00 0.13 0.17 0.31 0.60 0.71 Taxes 0.00 0.00 0.00 0.00 0.00 0.00 Other 0.00 0.00 0.00 0.00 0.00 0.00 Own Savings 0.14 0.04 -0.06 -0.12 -0.38 -0.38 Real Invest. 0.14 1.83 1.03 1.04 0.19 0.02 Other 0.00 0.02 0.00 0.00 0.00 0.00 Deficit hI c/ 0.00 1.81 1.09 1.17 0.57 0.40 Source: Central Bank, Ministry of Finance and World Bank calculaticns. a/ Includes other own revenues but it is mainly value of sales less cost of intermediate inputs. K/ On a cash basis until 1988, accrual thereafter. cf Revenues from transfers received from the Central Government are not included. p, Preliminary estimates. LAP 3.88 The operati.g results of LAP, the national airline, deteriorated significantly in 1989- 90, which was partially offset by larger transfers from the Central GovernmenL In 1988, LAP's current savings were negative, -0.1 percent of GDP, more negative in 1989, and even more so in 1990 (-0.4 percent of GDP) due to collapsing revenues (value-added in Table 3.14). There has been some improvement in management of rc.ources: LAP now shows quarterly balances, has improved the use of its equipment by flying less, and changed the aircraft maintenance program, which used to be provided by israel Aircraft Industries but now is done with the enterprise's own resources, with the help of foreign experts. Additional management improvements should have taken place in 1990 as a result of recommendations from an external audit by Price Waterhouse. However, results have been disappointing. Sales declined in 1989 and have remained low. The wage bill declined slightly in 1989 (rclative to GDP) but rose dramatically in 1990 as did the costs of inputs (basically fuel). - 70 - Table 3.14: PARAGUAY - LAP FINANCIAL ACCOUNTS (% GDP) 1950/81 1983/84 1986/87 1988 1989 1990p/ Value added / 0.12 0.30 0.27 0.30 C.14 0.07 Current Expend. 0.17 0.32 036 0.42 0.36 0.50 Wages 0.14 0.24 0.30 0.32 0.28 0.40 Interest/ 0.03 0.08 0.04 0.06 0.04 0.07 Taxes 0.00 0.00 0.00 0.00 0.00 0.00 Other 0.00 0.00 0.02 0.03 0.03 0.03 Own Savings -0.05 -0.02 -0.09 -0.11 -0.22 -0.44 Real Invest. 0.09 0.22 0.28 0.27 0.31 0.12 Other 0.00 0.00 0.00 0.00 0.00 0.00 Deficit J c/ 0.15 0.24 0.37 0.38 0.53 0.55 Source: Central Bank, Ministry of Fmancc, and World Bank estimates. g/ Includes other own revenues but it is mainly value of sales less cost of intermediate inputs. J On a cash basis until 1988, accrual thereafter.. cI Revenues from transfers received from the Central Government are not included. p/ Preliminary estimates. 3.89 Large Government transfers have not been enough to finance LAP's capital expenditures; thus, its accounts have significant deficits. Due to lack of resources stemming from poor financial and managerial performance, and given the lack of progress from ongoing adjustments and reforms, LAP should contemplate nc ',nificant investment for coming years (this did not hp-pen in 1989 and preliminary estimates show little improvement in 1990). 3.90 LAP's strategy is to strengthen the company's regional position and emphasize the European market, given the opportunities that its de.egulation will open after 1992. However, these goals require adequate aircraft and the present fleet is obsolete. LAP has attractive landing rights but capital requirements wfll be heavy and resources are scarce. The present management would like to find a suitable partner abroad. It dislikes the idea of outright privatization, but welcomes the possibility of joint-venture arrangements with international companies. Discussions in this regard are evolving. Another option would be to sell off the existing assets and pursue an 'open skies' policy. - 71 - ACEPAR 3.91 ACEPAR, the national steel company, is a mixed enterprise: 74.6 percent is owned by the Ministry of Defense (previously through a now-divested holding company, SIDEPAR) and the rest by two Brazilian enterprises (24.4 percent by FLN, a holding company, and 1 percent by Tenenge, an engineering consulting firm). The company has a technical production capacity of 175,OOOT cast iron, 240,OOOT steeL and 120,OOOT sheet steel. It began full operations in 1988, operating since then with only one of its two blast furnaces and keeping the other idle. Table 3.15: PARAGUAY - ACEPAR/SIDEPAR FINANCIAL ACCOUNTS (% GDP) 1987 1988 1989 1990 p1 Value added a/ 0.01 0.06 0.15 0.20 Current Expend. 0.02 0.07 0.24 0.25 Wages 0.02 0.07 0.07 0.06 Interest J 0.00 0.00 0.17 0.19 Taxes 0.00 0.00 0.00 0.00 Other 0.00 0.00 0.00 0.00 Own Savings -0.01 0.00 -0.10 -0.05 Real Invest. 0.00 0.00 0.00 0.03 Other d/ 0.50 0.75 0.13 0.00 Deficit Y/ J 0.51 0.75 0.23 0.08 Source: Central Bank, Ministry of Finance and World Bank calculations. a/ Includes other own revenues but it is mainly value of sales less cost of intermediate inputs. J On a cash basis until 1988, accrual thereafter. gc Revenues from transfers received from the Central Government are not included. J/ Reflects real investment before 1989. p/ Preliminary estimates. 3.92 ACEPAR nearly eliminated its deficit in 1989 (excluding interest payments), down from 0.75 percent of GDP in 1988, ats primary works were completed and sales increased. Most of ACEPAR's external debt was with Brazil, which was rescheduled under.very favorable conditions and was fully repaid in 1990--thus the enterprise now owes a far lower debt (about - 72 - one-fourth of the original contracts), this time with the Government .' However, these accounts overstate the viability of the enterprise because potentially serious long-term environmental problems have not been conm .`red. ACEPAR's furnaces are fueled by charcoal made from wood and the costs of a f-t dv :nt ting forest have not been included appropriately in the enterprise's financial picture. Estimat.ng these costs is urgent, and if high enough the alternative bf closing ACEPAR will need to be examined. ;.93 An encouraging aspect is that 60 percent of the enterprise output is exported, despite working at 50 percent capacity (it uses only one blast funiace). According to its authorities, if the enterprise could get money to begin operating its unused furnace (at an initial investment cost of about US$3 million), it would be able to produce higher quality steel, thus improving its financial outlook. But economic studies on the profitability of firing the seeond furnace are not available. It is not clear that there will be a market for the additional output and as stated above, important costs have not been estimated. 3.94 ACEPAR management would like to increase capital by issuing new stock uithout concern about who buys the new shares. The recent divestiture of SIDEPAR should facilitate this process. The Mlinistry of Industry and Commerce (MIIC) believes that Taiwan may be interested in bu)ing a share of the enterprise. Argentine and Uruguayan concerns have also expressed similar interest. If ACEPAR turns out to be sucially profitable, export prospects should be studied and joint ventures with the private sector encouraged to increase ef£iciency and availability of funds. PETROPAR 3.95 PETROPAR refines and distributes oil and gas. As the principal beneficiary of the subsidized official exchange rates in the 19SOs, PETROPAR accumulated surpluses of over USS50 million towvards the construction of a new refinery. In 19S9, the foreign exchange subsidy wvas eliminated and taxefs were raised' but domestic fuel prices were allowed to increase only 15 percent, well below infiation. In addition, the price structure was wATong: gasoil prices were especially low relative to other fuels. Although financial controls were tightened significantly and important cost-savings were made--the premium on the Sahara blend crude that Paraguay imports, was cut from USS1.00-USS1.50 to just 40 cents per barrel, maritime freight costs declined, and fluvial freight cost wcre cut by eliminating the subsidy granted to FLOMERES of about 85 cents per barrel--PETROPAR's current savings decreased dramatically. However, about 60 percent of the increased deficit reflected higher taxes. 3.96 PETROPAR also increased its investment substantially in 1999. In response to the consolidation of PETROPAR's large deposits in the Central Bank at no irterest, PETROPAR tripled its fuel inventories, from 30 to 90 days of consumption. Although 90 days inventory may be too much in social terrms, the increase was not the result of a "socially" profitable investment but a "private' decision to reduce deposits because the enterprise could not Repayment of the debt with B.a2il was recenthl completed, but by the Central Bank, not ACEPAR, at a 70 percent average discount (para 153). ACEPAR now owes the Central Bank 510.5 m! ion a year in interest. PETROPAR has been the second largest 'tax collction agenc.- in the country after customs. - 73 - manage them and earned no interest. This large increase in investment, on top of the sharp fal in current savings, turned PETROPAR's 1988 surplus into a large deficit. Table 3.16: PARAGUAY - PETROPAR AND APAL FINANCIAL ACCOUNTS (% GDP) 1983/84 1986/87 1988 1989 1990p/ Value added J 0.40 1.56 1.31 0.99 2.11 Value of sales 3.72 4.36 4.24 3.25 5.14 Intermediate inputs 3.32 2.80 2.93 2.26 3.03 Current Expend. 0.32 0.92 0.70 1.07 137 Wages 0.13 0.11 0.12 0.09 0.09 Interest h/ 0.13 0.03 0.03 0.01 0.01 Taxes 0.05 0.7Q 0.55 0.96 1.25 Other 0.01 0.01 0.01 0.01 0.01 Own Savings 0.08 0.64 0.61 -0.08 0.74 Real Invest. 0.18 0.53 -0.01 0.57 0.01 Other 0.00 0.02 0.03 0.16 0.00 Deficit h/ c/ 0.°0 -0.09 -0.58 0.81 -0.73 Source: Central Bank, Ministry of Fmance, and World Bank estimates. a Includes other own revenues but it is mainly value of sales less cost of intermediate inputs. h/ On a cash basis until 1988, accrual thereafter. L/ Revenues from transfers received from the Central Government are not included. R/ Preliminary estimates. 3.97 The situation imprrved significantly in 1990, despite the rise in crude international crude oil prices. PETROPAR raised prices substantially and remedied the structural problems. In January, prices of alcohol for fuel uses, liquified gas and jet fuel were freed--kerosene prices were freed in April; PETROPAR's monopoly on imports of these products was also relinquished. Although gasoline and gasoil prices remain controlled (and PETROPAR keeps its monopoly to import then'.), they were raised 23 percent in January and 46 percent in April. A fuzrther 33 percent increase was granted in September, as needed to deal with the effect of the Persian Gulf crisis on petroleum prices. Fuel subsidies on public transportation were also eliminated at that time. Provided these prices can be kept free of government control and adjusted with inflation, the main problem from a national point of view. is the monopoly power that PETROPAR holds - 74 - on key products. Price increases helped savings go up despite large increases in taxes. Although a small reduction in petroleum prices took place in April/May 1991, PETROPAR finances have remained strong in 199i. Further savings may take place in the future if a recently reached agreement to buy Argentine crude (replacing the Algeria light) delivers on its promised savings. 3.98 PETROPAR's investment program contemplates increasing fuel storage capacity to 120 days of consumption. As expressed in para. 3.95, this may be excessive from the standpoint of the social productivity of investmenL However, the Central Government has limited influence on the enterprise's decisions and so the project may be carried out independently from national priorities. Converting the existing reinert to heavier crudes at a cost of US580-100 million is another potentially large investment in the program; technical studies have been completed for the project, but the economic evaluation is still pending. Works in this proje.ct are nct programmed for tte near future because of lack of resources, but the recent adjustments in fuel prices might accelerate this schedule. The economic viability of any new refinery should be carefully studied before starting the project. The new refinery will be easier to justify if it can compete with alternative sources for similar products--in other words, after eliminating PETROPAR's remaining import monopolies (gasoline and gasoil). 3.99 PETROPAR has taken over the administration of .he alcohol plant (APAL), an inefficient endeavor worth no rnore than US$4 million but holding USS22 million in liabilities. It carries an external debt of USS9 million and a domestic debt (with the Central Bank) of G13 billion. PETROPAR is proposing to take over APAL permanently while assuming the external but not the domestic debt; however, no final decision has been made yet. The firm plans to improve the efficiency of the plant by making use of byproducts now wasted--a gas that can be used in sodas; vinaza (wvine dregs), a potential fertilizer from sugarcane; and the "bagazo," which can be used as animal feed when miced with vinaza and yeast. Suinmarv 3.100 Public enterprise finances generally deteriorated in the 1980s, with their total cash primary deficit reaching close to 3 percent of GDP--and much more than that if interest arrears are taken into account and revenue from the foreign exchange subsidy is disregarded (expenditures in foreign currency are valued at an exchange rate that excludes the subsidy). At the core of the PE's financial problems and inefficiencies were lack of managerial accountability and poor management, overdimensioned investments, and overstaffing. Low tariffs contributed to the poor financial performance of public enterprises in the 1980s, but the adjustment that took place in 1989 and especially in 1990, relieved this problem (except for CORPOSANA--water and sewage). Although it is important to develop a mechanism to ensure regular adjustment of tariffs, a danger also exists that public enterprises may take advantage of their monopoly position, raising prices to hide inefficiency beneath an apparent financial strength, but at the cost of reducing the country's competitiveness abroad. 3.10! Positive developments that took place since 1989 included cuts in investment (linked among others to the completion of ongoing works of doubtful economic value--a cement plant and a steel mill), and management improvements. Overcimensioned investments are in most cases a foregone cost; the concern is rather to avoid further repetitions. Completion of some endeavors has permitted cuts in capital expenditures in the cases of INC and ACEPAR, with such expenditures now being kept under tight control in most enterprises (capital outlays - 75 - ped substantially in ANTELCO and FLOMERES). However, because of a strong .n investment by PETROPAR, ANDE and CORPOSANA, the aggregate investment of :ased from 3.6 percent to 6.6 percent of GDP. There is substan:ial room for bettcr uses )le real and financial resources. Plans to reduce overemployment are in place and itation has begun in INC and ACEPAR, and are expected to extend to CORPOSANA, I ANTELCO. Authorities are also pLanning to improve control and accountability in PE lent; also, audit processes are in progress in several cnteiprises. As for management improvements and better use of resources, privatization is a option but it has slowed after confronting serious political obstacles (INC), although R was eliminated and some privatization initiatives are taking place in other entities LAP, and possibly ACEPAR and FLOMERES). Other actions contemplated aiong with ion include normalizing domestic and foreign obligations and modifying some public -s' legal status. Notwithstanding these improvements, much is yet to be done. The institutional ler which public enterprises operate is far from satisfactory. This makes control of their , and investment program difficult. Pricing practices must be watched closely--prices must zd with inflation and should not be allowed to decline so as to endanger enterprises' but neither should they be allowed to increase too much and thereby hide inefficiencies se competitiveness abroad and/or welfare among final users of public services. The ent plans to expand its enterprises that provide basic goods and services such as water, and telephones. However, it will be important to not cnly increase their resources e of inputs, and investment) but to improve their efficiency. The Government also plans from money losing activities such as steel, cement, and alcohol, but privatization has not , far. Privatization and joint ventures are iinport2nt options for improving efficiency, and rr.ment has star d a new program to divest some incfficient public enterprises. D. Tax Reform It is often argued that Paraguay's tax system has not kept pace with domestic 3nd growth, which endangers macroeconomic equilibrium, future growth, and prospects ating poverty. Several new taxes were introduced in 1967-69, which temporarily revenues (see para 1.10). Tax revenues rose to 10.3 percent of GDP in 1970 (see 7). However, excluding the transitory jump in revenues in 1968-70, taxes remained in of 8-9 percent of GDP in the 1960s and 1970s. A fall in revenues took place in the 1980s--taxes dropped to about 7 percent of remained there until 1988. Tnis was mainly because of a drop in import tax collection. a extent these lower revenues from import taxes were the outcome of' the system of -xchange rates. Import taxes represented almest 3 percent of GDP in 1977/79 and less -76 - than 1 percent after 1983 when several exchange rates were used and import taxes were linked to the lower rates."7 Table 3.17: PARAGUAY - TAX BURDEN, 1970-89 (in Billions of Guaranies) Tax Revenues GDP Tax Burden (%) 1970 7.7 74.9 10.3 1971 7.8 83.7 9.3 1972 7.8 96.9 8.1 1973 10.0 125.4 8.0 1974 14.2 168.0 8.5 1975 15.5 190.4 8.1 1976 16.7 214.1 7.8 1977 23.0 263.6 8.7 1978 30.2 322.5 9.4 1979 38.7 430.5 9.0 1980 45.6 5605 8.1 1981 51.0 708.7 7.2 1982 58.6 737.0 7.9 1983 55.6 818.1 6.8 1984 71.7 1070.4 6.7 1985 96.3 1393.9 6.9 986 125.0 1833.8 6.8 ,987 177.9 2493.6 7.1 1988 233.0 3319.1 7.0 1989 406.6 460&4 8.8 1990 596.2 6474.4 9.2 Source: Central Bank, Ministry of Finance, and World Bank estimates. 3.106 A significant recovery in tax collection took place in 1989. However, the tax system remains unsatisfactory. The system is based on multiple specific taxes with widespread exemptions instead of a few generalized ad-valorem ones with lower rates; outdated bases for property taxes; and payments made with long delays and no practical penalties. Tax administration also is a big e7 Figures for foreign trade taxes (mainly izaporUs) in this section and in the section on Tradc show some diffcrence. For purposes of consistency in the series, only officially labedkd import taxes are included here; in the trade section these figSres were sometimes adjusted o include revenues that are legally labdIe intanal taxes but are collected by customs, for example in Tables 3.3 and 1.4. - 77 - problem. The cadastre for taxing properties is obsolete ani needs updating. Until recently, there were several independent tax units in charge of similar tasks, whvlich created confusion and waste. It is urgent to carry out a p;ufound tax reform, and the. Government has concrete ideas on what to do and how to do it. At present, its efforts to increase revenues are two pronged: to improve tax administration under the existing structure, and to have a tax reform approved and implemented bv 1992. 3.107 Paraguay's tax/GDP ratio is among the lowest in the hemisphere. Although this implies that the tax burden of the private sector is low, the limited volume of public sector resources also has some drawbacks: public sector wages are low (which encourages corruption); public investment in some of the standard public sector areas such as transport, basic health, and education has been limited; and current social expenditures benefitting the poor are low. And. when the resource constraint was neglected, inflation increased and balance of payments difficulties developed. In the future, Paraguay will receive additional resources from Itaipu (see 2.37 - 2.44), and some capital resources as the privati7ation process proceeds (see paras. 3.102 - 3.103). Nonetheless, further efforts will be needed to improve the tax system, not just to increase collections but to improve efficiency by reducing evasion and widening the base e' more modern new taxes, as explained below. The Present Tax System 3.108 Taxes under the present system can be classified into four broad catezories: taxes on goods and services, income taxes, taxes on capital, and foreign trade taxes. The latter were discussed in the section on trade policies.' The first category groups sales tax, several selective consumption taxes (fuels, liquor, cigarettes, livestock, etc.), stamp taxes or different kinds of transactions, and several other small taxes. The overall inccme elasticity of the aggregate taxes collected in this category has been _lose to one in the last decade. They represented about 4.2- 4.3 percent of GDP in 1984-88 (Table 3.18). However, because of an increase in stamp tax-s in 1989, the aggregate grew to 4.6-4.7 percent of GDP in 1989-90. 3.109 The structure of taxes on goods and services has changed significantly. The general sales tax represented 0.6 percent of GDP in 1984, a ratio that increased progressively to 0.8 percent by 1987. Although exemptions are widespread and poten.ial revenues are difficult to calculate, evasion must be widespread, since the tax rate on domestic sales is 4 percent, and on imports 8 percent or 14 percent, with 80 percent of the proceeds coming from the latter two (therefore the sales tax basically amounts to an imports tzx). The domestic sales tax is charged only to the final consumer. Even if it affects only nalf of GDP, it zhould generate more than 2 percent of GDP in revenues but collections are less than half of that. 3.110 Selective consumption taxes have declined from about 1.6-1.7 percent of GDP to about 1.4 percent of GDP. Stamp taxes, on the other hand, have shown an elasticity higher than one; they were 1.8 percent of GDP in 1984, 1.9 percent in 1988, and 2.4 percent in 1989-90 (see Table 3.18). Though all these taxes are classified under one heading, they include many taxes with no relation to each other; for example, the stamp tax includes 84 different taxes affecting Sec previous footnotc on the categ(crizati'n of these taxes into 'internal taxes and import dutis. civil and commercial dealings. Many of these taxes are specific and thus decline in importance with inflation. Erosion of potential tax revenues also occurs throug:h widesjs ead exemptions. 3.111 The second broad category of taxes, income taxes, is another collection of uncoordinated smal' taxcs. Tney apply mainly to enterprise -ice the personal income tax applies in few :;-stances and is negligible in effect. The incu.:_ tax on profits (agriculture is exempted) is s'ightly progressive, with rates moving from 25 percent to 30 percent with higher corporate incomes. Income taxes represented 1.6 percent to 1.7 percent of GDP in the early 1980s, but this share dropped to 1.2 percent in 1984-86; they were about as much in 1990. Evasion must be pervasive in this category as well. With returns to capital affounting to about half of value added and assuming the tax applies to Lail of GDP, the niterprise tax alone should represent 6.5 percent of GDP, over 5 tim- s the actual collection. Table .i.8: PARAGUAY - rAX STRUCTURE (% GDP) 1984 1985 1986 1987 1988 1989 1990 Taxes on Goods & Senr:ces 4.21 4.26 4.1R 4.23 4.30 4.76 4.61 Consumption 2.26 3.35 2.40 2.41 2.3C 2. 16 2.21 General Sales 0.56 0.66 C.74 0.82 0.81 0.79 0.73 Selective Sales 1.70 1.69 1.66 1.59 1.49 1.37 1.43 Stamp Taxes 1.79 1.77 1.65 1.76 1.90 2.44 2.34 Other 0.15 0.14 0.13 0.11 0.10 0.15 0.06 Income Taxes 1.11 1.27 1.Z5 1.53 1.42 1.40 1.26 Capital Taxes 0.38 0.40 0.38 0.33 0.26 0.25 0.27 Land/Property 0.35 037 0.35 30 0.25 0.22 0.27 Other 0.03 0.03 0.03 0.03 0.03 0.02 0.00 Othier Taxes a/ 1.01 0.97 1.01 0.99 1.02 2.42 3.08 Total 6.71 6.91 6.82 7.13 7.02 8.82 9.21 Source: Ministry of Financ;~. g/ Mostly import and expc-t taxes. 3.112 Capital taxes generate little revenue--about 3 percent of total taxes and, recently, less than 0.3 percent of GDP. Although tax rates are about 1 percent of property value, assessments are extremely iow. On the average, urban property tax values represent lesa than 45 percent of market value, and in rural are?-s taxable values are just 5 percent of market value. Moreover, the cadastre is incomplete, with many rural properties never assessed. The cap.tal tax category also includes an inheritance tax that is so easily evaded its proceeds are insignificant. - 79 - OtheL capital taxes included are special taxes on the value of stocks, shares, and silent partnerships, as well as taxes on automobiles, though again revenue! are negligible. 3.113 Sanctions for failing to pay taxes due on time vary by tax and ofteo are nonexistent. IP fact, the system not only does not penalize infractions, but in pracUcce encourages the taxTayer to avoid payment. In ,.±vst instances, penalty interest rates are l. - commercial inteiest rates. Thus, for the taxpayer, it is more profitable to Idla" p?).ient until the infraction is discovered (if it ever is) than to pay on time. On2oinp Administrative Reforms 3.114 Recently, the Finance Ministry in general, and tax administration in particular, were substantial'y reorganized. For aeministrativc purposes, the tax system used to emphasize independent and parallel organizations ror each main group of taxes. There were four tax division-: sales and consumption, income, property and import. Each one had its own independent department of data processing (including different and incompatible computers), tax collection, accounting, auditing, legal advisors, penalties for lack of payments or errors in calculating taxes, etc. The main goal for these divisions was to fulfill targets set in the Budget, which is why underestimating tax revenues in the Budget has been a tradition. 3.115 A new Under Secretary of Ta-cs was created in the Ministry of Finance, which unified the four tax divisions mentioned. The implementation of an organizational scheme based not on types of taxes but on tax functions is expected soon. Efficiency will be enhanced by eliminating duplication. The new divisions would be, for example, Tax Collection, Fiscalization, Support Services, etc., with Customs also a division under this new Under Secretary. 3.116 Authorities have started to implement the new Single Tax Registry (Registro Unico de Contribuyentes, RUT), approved in December 1988. Taxpayers (persons and legal entities) are being registered under this new registry that will provide information on all tax- related transactions corresponding to each taxpayer, thus facilitating control. The computer system to manage the RUT is already in place. Authorities expect that in two years they will have everyone registered, but admit that the deadline for the importa.a taxpayers already has passed. The delay was related to the elimination of the General Directorate of Taxes (which had functions ind purposes very similar to the new Under Secretary of Taxes), created in the previous administration together with the RUT. The: .ew Under Secretary is expected to expedite registration. The Present Tax Reform 3.117 Au-'thorities have recently proposed a plan to reduce the nurrber of taxes to 11 while mak . iystem simpler and easier to manage. Of those 11, about 9 taxes are expected to evolve ir .-isting levies, though substantially modified. A large effort is contemplated to eliminate taxes that are cumbersome and yield little revenue; also, specific taxes will be transformed into ad-valorem ones, and tax assessments will be updated. In addition, a new si,np; value-added tax is planned. 3.118 In the proposed reform, the system of indirect taxes will be based on: (i) a value- added tax (VAT) that will replace existing saies taxes; and (ii) a few selective ad-valorem taxes - 80 - on consumption (fuels, liquors, cigarettes, luxuries, etc.) that will replace specific taxes now in place as well as the important stamp tax. A flat rate (to be negotiated in Congress) and a wide base are being considered for the VAT, but many exemptions are still contemplated. The. VAT will operate as a normal sales tax, bur .':e taxpayer will be able to deduct from his taxes the VAT that he pays on his inputs. Agriculture 5 exe-npt and some public enterprises may end up exempted too. Agriculture's exemption is only for first-round transactions, which is considered efficient because those transactions would be too difficult to monitor. Further transactions of agricultural inputs involving the industrial sector would be taxed. Because of monitorihg prob.cins, small enterprises (those with income below a certain level) will be exemp', but a Unified Tax will be charged on them, replacing the VAT as well as direct taxes th':y might owe. This tax would be based on easy-to-identify indices, and allow beneficiaries to dei-uct a fraction of the VAT that they in turn had paid. In this way, authorities expect that large e.,terprises Will have trouble evading the VAT through bogus trausactions with small enterprises. 3.119 Initially, a VAT with a hypothetical 12 percent rate would be expectcd to yield 2 percent of GDP but would replace taxes that contribute 1.6 percent; thus, the net impact wriuld be an increase of 0.4 percent of GDP (see Table 3.19). It would apply to about 30 percent of GDP and to most imports; this estimate assumes that evasion would remain significant, at least in the early stages of implementation. It is fundamental to negotiate lower rates in exchange for a wider base. 3.120 For selective consumption taxes, ad-valorem rates will replace specific rates; the ad-valorem rates are expected to have a ceiiing established by law and defined for each tax, but authorities will be able to decide the actual rate up to that ceiling. Through this process, authorities intend to increase tax elasticity while reducing the discretion now in the hands of tax collectors, an apparent source of corruption under the present system. 3.121 For income tax on profits, the proposal is to tax them a a flat rate also to be negotiated. Other reforms include proper assessmen! of property values4" based on a comprehensive cadastral study that may take a number of years to complete. The inheritance tax would be abolished, and the tax on vehic!es is intended to tax use, not property to avoid the problem posed by the large number of vehicles where legal o..,ership is difficult to ascertain. 3.122 The Authorities a:e discussing the Tax Code with penalties and a system of enforcing penalties as separate items. They intend to prepare a law dealing with tax penalties in general instead of the multiple laws and regu!ations that currently exist. A preliminary draft of this law is now ready, but further improvemernts are. cor.t .mplated. It will be critical to include a true penalty interest rate to encourage ;r.ely tax payr%-&.s. Automatic general revaluation of urban and rural and vzlues can be done by decree and needs no special law. The text refers to proper valuation of land on individual properties. - 81 - Table 3.19: PARAGUAY - VAT, ESTLIATED NFT REVENUES (Initial years, % GDP)W/ GDP 100.00 Fraction Taxed 27.28 Fraction Exempt /f 72.72 Imports 6.95 Fraction Taxed f 17 Fraction Exempt LI C.78 Potential Revenue 4.01 Expected Initial Evasion 2.00 VAT Collected 2.01 Taxes Forgone 1.65 Net VAT Effect 0.36 Source: Central Bank, Ministry cf Finance, and World Bank estimates. a/ Estimates based on 1988 GDP data. kI Includes exports, agriculture, electricity, water, small enterprises, Government services, housing, health, education, and changes in stocks (which cannot be taxed in a system that uses sales as the base). g/ Oil imports, included in the import total used, are expected to be exempt. 3.123 The Authorities presented a complete draft of the tax reform in August 1990. After disc. .*:)ns with the private sector and the community in general, a project was sent to Congress wz --e it a,-!aits approval. The private sector is expected to be more formally involved. in the preparation of the final project. The tax reform then goes to Congress where a strong debate is expected. A two-part, strategy is expected to be used in Congress to have the reform passed into law. First would be to approve less controversial modifications to existing taxec; second would be the approval of the: new taxes contemplated. Authorities expect that this may take some time; but for the reform to succeed, it is extremely important to have it backed by the private sector. The deiay could be useful if it helps increase support by labor and entrepreneurs. Reflections on a Tax Reform 3.124 The private sector claim:. that taxes are widely evaded in Paraguay because of what it considers unreasonably high tax rates: the 30 percent tax on profits, some high import tariffs, - 82 - and the stamp tax (an inefficient scheme that levies contracts rather than output, income, or wealth). To avoid these taxes, the private sector has developed a complex "parallel economy" with surprisingly favorable results relative to those obtained in the "formal economies" in neighboring countries. Whether the private sector is correct or not, experience suggests that Paraguay needs an efficient tax system that is perceived as fair. In setting tax rates, the Government must consider not only their potential revenues or redistributive effects but its ability to enforce the law and collect the taxes due. It is not advisabie to set high tax rates that will be evaded and "punish" the few that decide to abide by the law. For a country with a small public sector and Government Authorities that resist enlarging it, the door is %wide open for promising and sweeping changes to cut evasiun by enacting a few simple taxes with broad bases (no exceptions if possible) and low rates. 3.125 Of course, it would take time and good tax administration to reach potential yields, but with low tax rates, wide bases, fcw cxemptions, and good administration the Government should be able to obtain a reasonable volume of resources. Tax administration and proper backing from the community (both Authorities and the private sector) are indispensable. Some aspects may take time before implemcntation is possible, but efficicnt tempoeary alternatives can be formulated. For example, a cadastre would be an urgent task to carry out. While this is being done, some kind of voluntary valuation of capital can replace the official one--penalties can be devised for gross violatiors, e.g., valuation can be public, w ith the Government having the right to purchase property from a taxpayer at the price he values it for tax purposes. - 83 - CHAPTER lV: ECONOMIIC PROSPECTS Summary Backmround 4.1 Paraguay's growth and financial performance were moderately successful in the sixties. Growth rates of about 4-5 percent per year exceeded populavion growth (slightly less than 3 percent per annum); inflation, at less than 5 percent per year, was similar to industrial countries' rate of 3 percent. Growth accelerated substantially in the first half of the 1970s with the construction of Itaipu (beginning in 1974). Between 1973 and 1931 the annual growth rate exceeded 9 percent per year. Domestic inflation increased reaching annual rates of 10-15 percent--intlation in industrial countries was similar until 1978 but much lower in 1979-81. The large domestic investment surge that occurred during the period of Itaipu construction stimulated domestic demand, production, and employment, and the substantial inflows that accompanied Itaipt' were sufficient to keep the nominal exchange rate constant and allow for a substantial increase in foreign exchange reserves. External debt was nearly five times larger in 1981 than in 1973, but due to the high real growth rate, the reduction in the real exchange rate (linked to Itaipd related foreign exchange inflows) and the high international inflation, the ratio of external debt to GDP actually declined slightly over that period. 4.2 Economic policy in the latter half of the 1970s did not prepare the country for post- Itaipu conditions. To a large extent, the country spent the transitory additional resources as if they were permanent: consumption increased and investment projects, particuiarly construction, assumed unsustainable expenditure patterns. When basic works at Itaipu were completed (1981) and inflows of foreign exchange dropped, expenditures and growth declined. The public sector tried to maintain domestic demand by starting oversized and poorly timed investments, but the result was only to add internal and external financial disequilibrium to the reduction in resources availabl_ to the country. Distortions multiplied and productivity suffered. Per capita GDP was 10 percent lower in 1987 than in 1981; the ratio of external debt (medium- and long-term, including arrears) to GDP rose from a low figure of about 20 percent of GDP in 1981 to about 70 percent in 1987-89; the Central Bank lost USS550 million of foreign reserves between 1981 and early 1989; quasi-money in domestic currency dropped from 7.8 percent of GDP in 1981 and almost 10 percent in 1983 to just 4.5 percent in 1990; and inflation doubled to 30 percent in 1986-87. 4.3 At the core of the deteriorating economic performance was a large but hidden public sector deficit and a system of multiple exchange rates. Officially the deficit was less than 3 percent of GDP in 1987, not much larger than in 1981, but the true deficit (including interest arrears and the public sector foreign exchange subsidy) was about 8 percent of GDP. There were seven different exchange rates in 1987, the lowest just 15 percent of the highest (a free rate). 4.4 Radical changes in economic policy took place after February 1989, when new Authorities took charge in the country. The exchange rate was unified. In the public sector, the foreign exchange subsidy was eliminated; a strorig program was implemented to rationalize both current and capital expenditures in the Central Government as well as in public enterprises; and tax collection practices were improved. In the financial sector, interest rates were freed, except for rediscounts which still provide a significant subsidy. New savings instruments also were authorized. To lower external debt, a pioneering agreement was reached with Brazil, whereby - 84- using Brazilian foreign paper purchased at a discount in secondary markets but valued at par. Using this mechanism the Paraguay's debt to Brazil was prepaid in Septerr',er 1990. 4.5 The results of these initiatives have been excellent. Between 1988 and 1989, the public sector deficit was cut from 7.6 percent to 3.9 percent of GDP with small surpluses estimated for 1990 and for 1991. Public savings increased more than three percentage points of GDP (if the foreign exchange used to pay for imports and interest is valued at market prices). The balance of payments showed a surp:us of over US5200 million between February and December of 1989 and of US$550 million in 1990-91 taken together. Despite tight fiscal policy, real GDP growth averaged close to 4.5 percent per year in 1989-90 well above growth rates of the 1980s. But, notwithstanding much improved public finances, the money supply growth reached record heights in 1989-90, fueling a rise in inflation. Monetary expansion was 15 percent in the 12 months ending in February 1989, and almost 90 percent in the two-year period December 1988-December 1990. The principal source of monetary expansion was the inflows of foreign exchange, which the Central Bank purchaspd at a roughly fixed exchange rate and added to its international reserves. As the nominal exchange rate has remained almost constant since mid- 1989, the real exchange rate has dropped (appreciated) along Aith domestic inflation. 4.6 The large inflows of foreign exchange in 1990 were related to substantial payments received from Itaipu, overvalued currencies in Brazil and Argentina, and speculative capital inflows. In 1990, Itaipu settled arrears accumulated with Paraguay up to 1989; only the payments corresponding to 1990 were overdue at end-1990. Stabilization programs imposed in Brazil and Argentina in 1990 resulted in large appreciation of these countries' currencies leaving the Paraguayan Guarani highly undervalued with respect to its two large neighbors but highly overvalued with respect to other countries. Speculative inflows developed to take advantage of high dollar-equivalent interest rate in Paraguay, despite the very negative real interest rate when compared to domestic inflation. 4.7 In 1991 the economy largely has overcome these short-run difficulties. The Government has followed a stringent monetary program that has drastically reduced the expansicn-i in the money supply and has cut inflation to annual rates below 15 percent in the first three quarters of the year. The IMF agrees with the program applied and talks towards reaching a stand-by agreement have advanced substantially. However, a final accord has not been signed because of Paraguay's difficulties with the commercial banks. 4.8 Structural reforms also are needed to move the country onto a sustainable growth path. In the financial sector it is necessary to revise complicated regulations and inefficient supervision of institutions, while setting favorable conditions for the recovery of quasi-mone.ary savings. Progress has been made with the liberalization of interest rates in 1990, a more recent reduction in reserve requirements in 1991, and the implementation of open market operations. In the trade area, it is necessary to simplify customs administration. Tariffs should be adjusted to reach a low uniform rate, in order to bring the customs code into alignment with reality, reduce thc potential protection that could develop if the existing custom code were strictly applied, and bring the country into greater harmony with the codes of its MERCOSUR partners. In the public sector, despite the major achievements in 1989, the success is not deeply rooted and old problems may revive. To avoid this, it will be necessary to increase the efficiency of public enterprises. The tax system needs revision to reduce tax rates, widen the bases, and enforce payments, all of which -85 - should improve efficiency. To avoid further arrears accumulation and/or unnecessarily heavy adjustment costs, efforts are needed, coupled with cooperation of the international financial system, to resolve Paraguay's debt problems and to resume payments on the external debt. 4.9 Prospects for high growth rates and financial stability are excellent if the short-term and structural issues are dealt with properly. By international standards, many of the adjustment's most painful aspects already have been successfully completed (freeing the exchange rate, liberalizing interest rates, and strengthening public finances). On the other hand, prospects may not be good if the remaining issues are not tackled properly. Three scenarios have been prepared to illustrate the importance of completing the adjustment started and securing international cooperation. A low case shows the consequences of retreating from the adjustment process started. A high case illustrates the effects of rapidly implementing all the changes needed and obtaining the needed funds from abroad. And an intermediate case shows the effects of a slower progress in putting in place the reforns needed while avoiding significant retrogressions. A summary of the main results in the three cases is presented in Table 4.1. Table 4.2 describes the sources and uses of funds needed to finance the balance of payments under the three altematives. Low Case: Retreatine from the Chanees Mlade 4.10 The consequences of retreating from the reforms already made are serious, since the impressive achievements in the fiscal and external areas would be reversed. This scenario assumes that fiscal policy becomes expansive in 1992 as a result of political pressures stemming from the presidential election in early 1993. Consequently, credit to the Government and monetary growth increase and infation accelerates. Authorities then reimpose interest rate controls. The tax reform is not approved (or is approved in a form that fails to induce private sector cooperation) and public enterprises' productivity and financial performance deteriorate. As a consequence of the deterioration, the recent speculative capital inflows reverse themselves. 4.11 As noted, the initial effect of an expansive fiscal policy would be higher monetary growth and innlation. In 1992, under this scenario, monetary growth is projected to exceed 37 percent, more than double the 1991 rate. Inflation increases correspondingly, reaching 30 percent. As inflation accelerates, the national currency appreciates and balance of payments problems reappear. At some point in the second semester the r_al exchange rate need to depreciate would become urgent. In this scenario, Authorities nonetheless are assumed to try to slow down the devaluation rate and to reimpose a system of multiple exchange rates, along the lines of that observed until 1989. Its effect is to deter exports and only gradually increase the implicit exchange rate cost for imports, to about 30 percent in real terms in 1995. This further increases the financial disequilibrium. 4.12 Inflation is expected to accelerate to 30 percent in 1992, double the rate expected in 1991, and would increase further in following years-which makes unorthodox approaches to address the problem politically attractive. The unified exchange rate and freely determined prices are early casualties of such a policy shift 4.13 Despite the effect of multiple exchange rates, the current account deficit increases. Because foreign creditors are not willing to channel funds to the country, Paraguay cannot finance its deficit with voluntary disbursements, thus it is assumed to accumulate more external arrears as - l9n ¶U-I'w" flIyw9 t u. a g *,,iq p, ,,. p W,l.,dX ,. X!V ° -w -q P ; q- q- ' a A 83 SL CtL S Li tCS CO 0 C (9 t I' iL OtL O's I IRC 9aCE rKt #t1 601 9(1 991 911 0ol l'tl #91 9Ca CC) (9 IS) ( 9CtC 9I s 91 El U 6 SDI 11 9 C6 CDI ;11 cCI CDI iLl ok10&w ha r3 9Car 6119 30C CW 6LCC (Ilt Lt961 rULL r9a LolO 9g9C LCOLC Vo(t 9tts C D_P- W-0O MC t t mur 0(9 IKE CZIK CL (itt 68a If SI Klt tte RVt xl1 *"'-U onUA p S t P- "U r-'z" 'So oOl ozi Os 00 00 00 00 0o0 0o 0 0oo 0oo 0o0 oo oo o 3 -3 R roll 0-nl LICI LCCI 9(9` (Ct 0-Cit 9 rt 9t 1 r Cl r9l I'M VI r.I 31(1 WV r-I -P'1131 l-1 C CC Ca n 9L ts 1 - CCI El 69 CC ODE 9K8 CI v _ tK? CCI* * U LI Ct ar- tr - [cl. 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In this case, balance of payments troubles arise to some extent because of higher current account deficits but mostly because of difficulties in the capital account. vloluntary gross disbursements from the international financial cemmunity decline and private capital cutflows become significant, thus, the needed funds are assumed to be provided partly by the accumulation of arrears, and partly by 'unidentified' sources. 4.14 Achievements in the public sector are also reversed. The improvements in tax administration evaporate as inflation accelerates and the Tanzi effect overcomes the improvements in tax administration in place. Control of expenditures becomes politically unsustainable, as reductions in GDP growth and employment force the public sector to become employer of last resort. And although not quantified, the increases in efficiency and the better financial picture in public ente:prises wil! k^!'-y -rppear, as inflation erodes tht, r-al value of tariffs charged and political pressures make it more difficult to adjust them enough. The result is that the public sector deficit. again increases, to close to 5 percent of GDP in 1995. T., 4 27 PARAGUAY . SOURCES ND I7 OF EXTEViAL FLJS o f l:SS K%h C0M C,o Lo C.. IM 2 92 I9 W 99I5 X I992 2W93 M995 333 I9W2 2993 I99W T.oW Z o F.. 3453 3D6.6 210.7 2b.4 537.2 199.7 212.7 252.9 57l.5 389.t 411.9 52S.4 G. Vol"y Dih U0.0 715.4 167.1 12.4 279.5 715.4 167.J 16.4 279.5 141.2 12 0 147.J Dt.d 73.2 333 36 46.7 903 33.3 36.f 46.7 903 33.3 36.6 46f7 Gq. 00 27.4 63 3.2 I47.3 19.3 8.4 19.7 387J 35.3 58Y3 3.9 N.. A, 155.2 -.56.5 0D 00 0.0 -569.5 00 00 0.0 I90O 190.0 250.0 Th.WU.. r Fu. 3453 26 210.7 264 S37.2 192.7 212.7 252.9 577.5 389J 411.9 527.4 C-W Ao 3.fdk -12023 38D 33.3 X.2 103.2 42.3 47.6 65.2 272.3 931 123 247.3 Aw. tk= ml6x1 215.7 179.2 165J 431 215.7 179.2 165.J 411.1 2I5.7 179.2 165.8 Pi- C.p6.2 Owlk2 4*.4 v X.6 .386 -74.5 -t9 -.6 .X.6 *74.5 .9.3 9J 903 95.4 F.ip R- W245.9 53.4 aJ. 94.9 119.6 41.3 56X 764 83.5 2D 20D0 2D0 O1 Na iEv..d 343 03 0300 0 0D 03 0 OD 03 0 00 0.0 0 4.15 Despite a current account deficit that does not explode, this scenario may not offer a sustainable policy option. Private savings decline. (They may even slow more than projected-- in which case inflation would accelerate more than indicated.) Direct investment will not be as large as assumed; GDP growth rate, already in thb low side, is likely to be exaggerated; and not even the lower voluntary disbursements assumer. may materialize. Social unrest would become widespread. The old problems that developed after 1982 will reappear. For foreign creditors, it would be dangerous to offer the country any significant support. For these reasons, although the tables provided show figures through 1995, it is doubtful that policies under this scenario can be sustained that long. - 88 - Hi2h Case: Fast Implementin2 Missing Changes 4.16 The main assumptions used to build this scenario are the following: (a) The accumulation of foreign reserves is assumed to be prudent after 1991 (about 3 percent of imports annually ), thus alowing for a modest monetary expansion. (b) Lending and deposit interest rates remain free (including rediscount credit, which is linked to a free rate). Marginal reserve requirements continue to be cut and/or some interest is paid on deposits kept at the Central Bank (either directly, if legally possible, or indirectly, by creating a new instrument that can only be maintained by those who keep deposits in the CB). These changes should help increase deposit interest rates and reduce lending rates by cutting the spread between lending and deposit rates. (c) Tax reform is approved. This should cut tax rates and widen the tax base by eliminating most tax exemptions: For example, a value-added tax with a low rate, no exceptions (although imports are taxed but exports are not), is efficiently enforced; and some simple consumption taxes on luxury goods (such as liquor, cigarettes, cars, motorcycles, sodas, beer) and fuels (to supplement road user fees) replace the myriad of indirect taxes now prevailing. Although some increase in revenues is likely, the key goal would be to increase efficiency. (d) A simple 10 percent duty is imposed on all imports, replacing the multiple rates now in place. For simplicity it is asstued that no exemptions are allowed. Exports are exempted from taxes. (e) The ongoing studies on ways to improve finances in public enterprises are successfully implemented. (f) The international financial community assists Paraguay to resolve the arrears problem and channels the new resources needed to finance its balance of payments. 4.17 The results of these changes are very favorable. Private investment is expected to rise and productivity to increase; thus, GDP growth rates accelerate and remain high. Private investment increases from 18 percent to 20 percent of GDP, and GDP growth rates, after a temporary drop in 1990/91, increase to over 6 percent per year. 4.18 The increase in private investment is more than matched by a rise in private savings, which go up from 15 percent of GDP in 1990-91 to close to 18 percent in the second half of the 1990s. A critical reversal takes place in financial savings, which were consistently negative - 89 - throughout the 1980s because of negative real interest rates." The interest rate policy plus the reduction in the spread between lending and deposit rates are expected to have a strong effect on the flow of quasi-monetary savings in domestic currency. This quasi-money stock will increase from 4.9 percent of GDP in 1989 to 11 percent by the end of the !990s, thus exceeding the level they had in 1983 (the flow in real terms as well as the evolution of the stock is given in 'rable 4.1). Reflecting a higher productivity for capital, nondistributed profits should increase along with nonfinancial savings. These latter rise to more than 15 percent of GDP in the second half of the 1990s. 4.19 Public sector finances remain strong despite conservative assumptions. The small surplus estimated for 1990 continues afterwards. The main sources of strength are a reduction in external interest payments (from 1990 onwards) stemming from the reduction of debt with Brazil, the solution of the arrears problem and the effect of the tax rcform that should increase taxes from 9.2 to 10.5 percent of GDP. Public investment is cxpected to rise slightly as a percent of GDP."1 4.20 Inflation declines as a result of limited monetary growth. With public finances in line, strong financial savings and foreign reserve accumulation fully financed, the rate of expansion in the money supply is held to about 10 percent after 1992, enough to keep the inflation rate similar to the international rate (4 percent). Because of the strong public finances and the recovery in quasi-monetary savings, credit to the private sector increases from 9 percent of GD P in 1990-91 to 14 percent in 1993, and to 20 percent in the late 1990s. 4.21 In the balance of payments, the current account deficit drops to about 0.6 percent of GDP after 1993 following a small real devaluation that is expected to take place in 1992. after the real exchange rate increases (the value of the local currency depreciates) in Brazil and Argentina and Paraguayan Authorities succeed in limiting speculative capital inflows. The overall balance of payments shows a modest r. plus in 1992 that increases in following years, averaging about US$70-75 million a year betwec.. 1992-95. 4.22 After a large reduction in debt in 1990, reflecting prepayment of the debt with Brazil, the external debt in current dollars increases moderately, but falls relative to GDP or exports. Debt was twice the annual value of exports in 1988, but will fall to less than 12 months of exports in the second half of the 1990s. Debt service (and therefore the debt service ratio) drops along with the stock of debt. 4.23 The projections assume significant gross requirements of funds, but only about half those of the previous scenario. Because of a smaller capital outflow than in the Low Case, gross disbursements are estimated at about USS220 million per annum in the first half of the 1990s. 0 Large increases in Ml (and thus in fincial savings) took place in 1989, but this appears to have been only a tempotray condition reflecting a money market disquilibrium that was resolved in 1990. Reflecting this adjustment, financial savings were very lovw in 1990. 1 nThe projecion of Govcrnm t revenues is cnnservativc; it does not include Itaipu royalties and electricity sales to Brazil. If these sizable revenues (3 percent of GDP) materiali2e, thby v,ill need lo be managed carefully--Paraguay must avoid another case of the Dutch Disease that occurred in the 197s0 -90 - This modest amount is lower than the country received in 1988/89 but higher than preliminary estimates of disbursements in 1990. Of course, if Brazil cannot fulfill its commitments a-id therefore Itaipu cannot pay Paraguay for the electricity it sells and the royalties it is entitled to, gross requirements of funds would have to increase correspondingly. The projections assume that arrears will be fully refinanced in i992, thus opening way for the normalization of Paraguay's relation with its creditors. Intermediate Case: Slower Progress but no Retrogression 4.24 In this scenario, the pace of reform is slower than under the High Case, reflecting the likelihood of the democratic Congress' lengthy consideration of the mea: ures proposed by the Authorities. On the other, the achievements already made (and assumed lost in the Low Case) are maintained. Assuming the Authorities are able to sustain the several key measures already implemented (in contrast to the Low Case), results are still favorable (although less so than in the High Case). However, because important policy changes are assumed to occur only over this scenario may not be quite stable as the High Case. For example, the Authorities miuh ' tempted to folow expansionary policies, along the lines of the Low Case, in which case the niter would better approximate results. Alternatively, they may succeed in implementing the missing reforms rapidly, in which case the High Scenario would illustrate the most likely outcome. 4.25 The Intermediate and High Cases differ mainly in their assumptions about the public sector and in the financial area. In the public sector, no drastic changes take place in the tax area. Tax coUlection in the Intermediate Case is nonetheless only marginally below that of the High Case because the tax reform is not aimed primarily at increasing revenue but at improving efficiency; the important changes take place in overall productivity, as measured by the ICOR. Current expenditures grows somewhat faster than in the High Case. But because public investment is expected to increase at a slower pace, the overall public sector deficit is similar under the two altematives. 4.26 In the financial area, it is assumed that Authorities aie unable to implement further reductions in reserve requirements and therefore the large differential between deposit and lending interest rates remains. Lower productivity and higher lending rates are translated into lower private sector investment in the Intermediate Case; 'ower deposit interest rates generate lesser financial savings. Commercial policy lowers tariffs less than under the High Case, thus imports (relative to GDP) are a little lower in the Intermediate Case (which also leads to a slightly lower real exchange rate). 4.27 Nonetheless, results of the Intermediate Case are satisfactory. Tight public finances and a prudent foreign reserve accumulation policy generate a tight monetary policy. Inflation thus comes down, to single digit features, but it exceeds that expected in the High Case. A more cautious response of private investment due to a less plentiful availability of credit (in turn due to the high differential between lending and deposit interest rates) and lower productivity, propels up the economy at a lower speed than in the High Case: growth hovers near 5 percent while it exceeds 6 percent in this latter case. - 91 - 4.28 In the balance of payments exports grow at a lower pace than in the High Case. Imports aLco grow less because the reforms simplifying the Customs systemn do not materialize. These effects more or less balance each other in early years, thus the resource balance is initially similar in the two cases. However, as time goes by, the export effect prevails, which causes a deterioration in the resource balance in the Intermediate Case, relative to the High Case. The current account deficit increases a little faster due to the cumulative effect of a slight!y higher debt needed to finance the larger deficit mn the resource bah' .r. a. This makes a gradual depreciation of the local currency ncessary. Because of this aeJustment, the current account deficit never exceeds 1.5 percent of GDP in the Intermediate Scenario during the projection period. 4.29 Resource requirements are of course higher in the Intermediate than in the High Case, but the differences are moderate In fact, because of a less aueressive reserve accumulation policy, requirements are lower in 1992 for the Intermediate Case, but this is an exception. On average, requirements are about US$10 million per year higher in Intermediate Scenario in 1993- 95, reaching about USS240 r..::o As in the ISigh Case, this scenario assumes that arrears are fully renegotiated (mostly rescheduled) in 1992. Following this agreement, the projecti'- - --e that external financing requirements are voluntarily provided, mostly by multilaterals a:> bilaterals. Reflecting high amortization payments, requirements become sizable at ti.e cnd of tl:e decade, h,,t again, this should pose little trouble if the prior disbursements have be- --operly investe_-. 'act, as in the High Case, external debt grows moderately, always declining relative to cxports L. ulDP; the debt service ratio follows a similar trend. C(onclusions 4.30 Because of the recent accumulation of foreign reserves, the need to encourage exports _nd avoid further reductions in the real exchange rate, the availability of money from Itaipu, and the possibility of a favorable outcome of a Paris Club MIeeting, Paraguay's most urgent concerns -re in strengthening its tax, financial and trade structures rather than in the extermal sector. A rescheduling of some foreign debts would improve the financial position significantly; a Paris Club Meeting should be a first step in this direction. Preparation of good investment projects in the public sector will improve performance; this is linked to institutional strengthening in most ptblic entities. 4.31 It is extremely important for the country to complete the adjustment it has begun. Many difficult aspects already have been carried out. What is missing is better m,onetary programming and action on structural problems in the financial, public enterprises, taxes and customs areas. It is also important to receive enough backing from abroad. If the policies are implemented soon, financial stability and sustainable growth would be r u comes in the short term. But if these changes are not made, not only will no progress be made but the important gains made would be lost and old problems revived. Sufficient international cooperation will be indispensable. Too little will lead to increasing arrears. Too much will discriminate against exports by reducing the real exchange rate, and will make the country u.nnecessarily dependent on foreign sapings. - 92 - REFERENCES Baer, W. and Birch, M.: "International Economic Relations of a Small Country: The Case of Paraguay," Economic De\ elopment ond Cultural Change (April 1987). Baer, W. and Birch, M.: "From Inwa'rl to Outward Oriented Growth: Paraguay in the 1980s," Joumal of Interamerican Studies and World Affairs (Fall 1986). Baer, W. and Breuer, L.: "Expansion of the Economic Frontier: Paraguayan Growth in the 1970s," World Development (Summer 1984). Birch, NM.; 'Pendulum Politics: Paraguayan Economic Diplomacy, 1940-1975," (Undated mimco) Galleous. Canese, R.: La Problematica de Itaipu (Asuncion, Paraguay Editorial Base-ECTA, 1990). Ministerio de Obras Publicas y Comunicaciones: Plan Nacional de Transporte 1987-1991 (Asuncion, Paraguay, Marzo 1987). Pincus, J.: The Economy of Paraguay (New York, F. Praeger, 1968). Raine, P.: Paraguay (New Bruns%%ick, NJ., Scarecrow Press, 1956). Rivarola, D. M., Heisecke, G.(eds.): Poblacion, Urbanizacion y Recursos Humanos en el Paraguay (Asuncion, Centro de Estudios Soc: iogicos, 197G). Ugarte Centurion, D.: Evolucion Historica de la Economia Paraguaya (Asuncion, Paraguay, Editorial Graphis, 1983). Warren, H.: Paraguay, An Informal History (November, The University of Oklahoma Press, 1949). World Bank, "Paraguay, Agriculture Strategy Paper," June 1990a World Bank, "Environmental Issues Paper," June 1990a. World Bank, 'Paraguay, Country Economic Memorandum," January 1988. World Bank, "Paraguay, Agriculture Sector Study," June 1984a. World Bank. "Paraguay, Country Economic Memorandum," February 1984a. World Bank "Paraguay, Economic Memorandum," September 1981. World Bank, "Paraguay, Regional Development in Eastern Paraguay," June 1978. World Bank, "Paraguay, Current Economic Position and Prospects," July 1971. - 93 - World Bank, 'Parag ay, Economic Position and Prospects,' December 1965. World Bank, 'Paraguay, The Economy of Paraguay," March 1959. World Bank, "Paraguay, Current Economic Position and Prospects," February 1954. - 95 - ANNEX I Page 1 of 7 InSTORICAL BACKGROUND1 1. Since colonial times, Paraguay has been continuously haunted by the threats posed by its mediterraneity. A thousand miles from the sea and hemmed in by far larger and more powerful neighbors, it has become one of the least developed countries in South America. Asuncion, its capital, was founded as a way station for explo:-rs looking for the wealth of the Incas (Raine 1956, p. 6) and was originally at the heart of Spanish civilization in the southeastern part of the continent; in fact Paraguayans foanided Argentina and settled Uruguay ( iLd., p. 3). For centuries afterwards its people were vir.uaUy isolated from the outside world, with its intellectuals far less successful in adopting European customs. For example, Paraguayans ,.re the only people in Latin America for whom two languages, Spanish and Guarani (the aboriginal tongue), are of equal importancc. Perhaps because of its isolation, Paraguay is the country in Latin America that can best claim to having developed a cul'ure of its own (Ibid., p. 9). Colonial Times--Blueprint for Economic and Political Insularity 2. Paraguay's trade suffered frc m its mediter-aneity as early as in the sixteenth century. Spain's policies forced all its colo_,al traie with Europe to take place through Spain. 1zi the case of thie Rio de la Plata region (including Paraguay), this trade had to go through Lima and Panama at exceedingly high costs for the region-so high that ports such as Buenos Aires remained inactive for cc.ituries (Ugarte 1983, p. 77). Early in the seventeenth century, Asuncion was already dropping to secondary importance, a center of a neglected and isolated region. In 1617 the Council of the Indies split the Government of the Rio de la Plata into two: Buenos Aires and Guiaira (which included Asuncion). After the division, the gap between the two regions widened furth_:r. Asuncion developed at a much slower pace than Buenos Aires. (Raine 1956, p. 44). Paraguay's economy remained a: little mire than subsistence level for the entire colonial period, with most commerce within the country carried out on a barter basis (Ibid., p. 329). 3. The establishment and growth of Jesuit missions are often considered as powerful factors determining Paraguay's past and present political and institutional weaknesses L p. 45). 1'he origin of these missions stemmed from the inalility of the colonial armies to subjugate local Indians. In 1608, Philip III, King of Spain, had ordered that the Indians of Paraguay must be subdued "by the sword of the word." The Governor of the Rio de la Plata gave the Jesuits that task while granting them full power in all settlements or 'reducciones' that they should start and maintain (Warren 1949, p. 85). The Jesuits were given many coLnmmercial privileges by the King, benefits that did not apply to the secular province. The Jesuits proved to be good businessmen who prci'ted from their special privileges. The other settlers, on the other hand, had their commern;"' : .ties hampered by restrictions, taxes, labor shortages, and lack of indispensable river transportation facilities. In factL between the early 1600s and 1767 (when the ;ng of Spain issued a decree expelling the Jesuits from all its domains), the Paraguayan province -ould best be d :ribed as two independent states, one a lay municipal government; the other a the!cracy rut by the Jesuits (Raine 1956, p. 50). This section borrows heavily from Raine (1956). ANNEX I Page 2 of 7 - 96 - 4. The carefully planned system of life in the religious settlements made them essentially self-sufficient socially and economically. The Jesuit Fathers trained the Indians in a multiplicity of trades, teaching them to become weavers, craftsmen in iron, silver, and gold, painters, and printers. Their printing shops compared favorably with those in Europe (Ibikd., p. 57). A most important task was the collection of the "yerba mat6,e a Paraguayan tca highly prized outside Paraguay and hence exported by the Jesuit settlements. Their settlements occupied the finest agricultural sections of the country and monopolized trade with the Argentine provinces. In fact, their monopoly was so thorough that they often threatened Asuncion with hunger to keep their privileges (Ibid., p. 61). 5. For obvious reasons, the 'secular' Paraguay resented the privileges g-mnted to the Jesuits. Between the middle of thD. seventeenth century until independence in the early nineteenth century their anger was reflected in almost continuous uprising against their Authorities. The "Revolt of the Comuneros' (spanning between 1730 and 1735) was especially important. Although it pitted the local Creoles (born in America from Spanish origin) against the Spanish-designated Authorities, the true problem was the differential treatment they and the Jesuit missions received. In the years of the revolt, Spain could not control Paraguay and the communes (local people) became the supreme authority. The Viceroy of Peru tried to subdue Paraguay by cutting it off completely from the rest of tha Continent and having all its goods embargoed. As this was not effective soon enough, an army was brought from Buenos Aires to put down the insurrection. This was not difficult, since in the last years of the rebellion the province was weakened and almost bankrupt-although the Jesuit missions contir.ued to prosper. Matters deteriorated further for the secular province in 1739 when a decree from Lima forced all Paraguayan merchandise passing through the port city of Santa Fe to pay a ruinous tax, which even Buenos Aires complained about to the King of Spain, arguing that it as well as Santa Fe lived largely off Paraguayan commerce (Ibid., p. 68). After 1767, when the Jesuits were expelled, a long period of economical and political decline set in for the whole colony. 6. Though some writers view the Jesuit experiment as a 'vanished Arcadia," others contend that it was the origin of the weaknesses that persists in the Paraguayan nation even today: It failed to instill any element of self-reliance and judgement in the indigenous population2 thus settling a fertile ground for an easy acquiescence to the dictators that later ruled Paraguay (Ibid., p. 60). Wo Fathen reaiding in tbe miniions were omnipotent rulers dapite ome token communal mrpresentation (Alcaldes and Cabildanta) (Raine 1956, p. 54). Still, the Indians were happy with the regimc bause of the absolute equality under which they lived. They liked it so much that when a more traditional management system and social organization was impos2d after the Jesuits' expuaijon, the rich and populous settlements vanished in IeU than 20 yeam (Bd. p. 59). ANNEX I Page 3 of 7 - 97 - Dictatorial Regimes and Unsettled Institutional Relations (181l-1870. 7. During the revolution of Spanish America, Paraguay declared its independence in July 1811, at the instigation of Dr. Jose Gaspar Rodriguez Francia. Buenos Aires had claimed Paraguay as one of its provinces, thus rejected the declaration of independence by Paraguay. Instead, it sent an emissary to negotiate a pact of union. In the subsequent agreement Buenos Aires accepted among others that: its monopoly on Paraguayan tobacco would be abolished; the tax on yerba mate then collected by Buenos Aires was going to be paid in Asuncion, although Buenos Aires might still levy a small tax on Paraguayan products in case of emergency; the Paraguay and Buenos Aires "provinces' were independent, although united in a federation and indissoluble alliance (Raine 1956, p. 86). Soon thereafter, Buenos Aires established a double duty on imported tobacco (Ibid., p. 87), and in 1813 placed heavy duties on all Paraguayan products. The tax on tobacco all but ruined the flourishing export trade on this commodity; soon afterwards, Paraguay was isolated from the world beyond its borders. 8. In 1814 Paraguay chose Dr. Francia supreme ruler for three years and then dictator for life in 1816; he died in 1840. About him, Raine (1956, p. 79) writes "seldom can be said that one man alone made a nation but that is true of Francia.' He tried and succeeded in: creating an egalitarian state through virtual liquidation of the Spanish and Creole elements in favor of the Mestizo and Indian populations; destroying the power of the church; and establishing complete self-sufficiency through the almost complete isolatirr. of the country. 9. The system of state ownership was imposed and. t.iended to all parts of the country; roads were built and agriculture production encouraged. Francia's acts to isolate Paraguay can hardly be called voluntary, according to Raine (1956, p. 104), they were forced on him by events in neighboring countries. However, even after Buenos Aires al'o<-ed resumption of trade, Francia permitted it only under rigorous regulatory conditions. Of course, prices on imported articles were enormously high while exportable products were worth almost nothing (a man's imported hat for example was worth 60 horses) (Ibid., p. 103). In the meantime, the valuable export trace for which Paraguzy had been famous was cut off and otiier nations quickly began to take its place in world trade. 10. Some social conditions deteriorated steadily under Francia. Although primary education was compulsory and free, with few illiterates to be found, secondary education was prohibited. Importation of books was allowed but few arrived and the President personally censored them all. Only he in all the country received newspapers from abroad (Ibid., pp. 103-4). Francia rose to power as the champion of the underprivileged and virtually wiped out the European-Hispanic element that had exploited the Indians. Like the Jesuits before him, he did not betray his constituencies, but once in power he did nothing to raise their economic independence and political maturity. 11. Soon after Dr Francia's death on September 20, 1840, Carlos Antonio Lopez took control, initially as fuirst Consul" of the republic (March 13, 1841), and then commanding all the absolute power and prerogatives of Dr. Francia (in 1844). He also ruled until his death on September 10, 1862. In the social area, secondary schools were founded, ports were opened, and foreigners admitted; three short high-ays and a railway were built, the latter, one of the first in South America (Warren 1949, p. 181). Except for endirg Paraguay's isolation from the outside world, Lopez followed Francia's policie& He continued to add to national pronerty holdings at ANNEX I Page 4 of 7 - 98 - the expense of remaining private owners, extended the state monopoly of trade to tobacco, and kept a tight reign on foreign trade (Raine 1956, p. 156). Lopez' as well as Francia's economic and political system was similar to that of the expelled Jesuits, with the Government assuming the role the Jesuits had previously played (Ibid., p. 122). 12. In the international arena, Lopez had three main goals: gain general recognition of Paraguay's independence; settle pending boundary disputes with Brazil and the United Provinces of Argentina; and open the country to foreign trade. In 1852, the Argentine Confederation recognized Paraguay's independence; in exchange for a c-iear recugnition of Paraguayan claims to the Chaco, Paraguay admitted Argentine's claims to the rich Misiones region (Ibid., p. 127). Also, Argentina opened the Parana River to Paraguayan commerce; thus, for the first ti, a since the founding of the Republic, Paraguay's agricultural products could be freely exchanged for manufactures from other parts of the world. However, success was not so clear in the relations with the then Brazilian Empire. Long-standing boundary disputes were not settled, and, as a corollary, Brazilian navigation of the Parana and Paraguav Rivers over Paraguayan territory was not allowed on several occasions. 13. After Carlos Antonio Lopez death, he was succeeded by his eldest son, Mariscal Francisco Solano Lopez, who again followed the absolute policies inherited from the two previous govemments ( iLd., p. 1;,6). Although Mariscal Lopez was especially interested in developing communications (telegraph lines were installed and roads built), most public money was allocated to military expenditures and his rule is chiefly remembered by the disastrous War of the Triple Alliance. Following Paraguay's separate clashes with Brazil and Argentina, a secret Triple Alliance Treaty was signed on May 1, 1865 by Argentina, Brazil, and Uruguay. The treaty specified military arrangements for actions against Paraguay, defined future boundaries in a way to award Argentina and Brazil all previotus territorial claims against Paraguay, and stated that Paraguay would have to bear all costs of any ensuing war. The treaty also provided for free navigation of the Parana and Paraguay Rivers (a vital concession for Brazil) and committed the three Allies to respect the independence and sovereignty of Paraguay. 14. Paraguay stood no military chance against its adversaries. The iength of the war, the endurance of Paraguay, and the scope of the destruction however were astonishing. In 1870, five years after the beginning of the war, only a few starving Paraguayans remained on a land stripped of crops, cattle, schools, and all signs of industry. Only the fecundity of the Paraguayan's soil saved the survivors from further misery and death. Raine estimates the Paraguayan population at the beginning of the war at 800,000'; by the end it was reduced to less then 250,000, of whom about 150,000 were women, 80,000 children, and only 14,000 men (mostly Paraguayan fighting against their own government) (Raine 1956, p. 195). Mariscal Lopez died in the last battle of the war. As with the strong Jesuit regime, the dictatorships ruling Paraguay between 1814 and 1870 brought initial success and then ruin to the economy and the people that took decades to reverse. rThis may be an overestimate according to Mendoza (see Table 1.1). ANNEX I Page 5 of 7 -99- Table 1.1: PARPGUAY: POPULATION 1865-1950 (Selected Years) Years Population (thousands) A. Raines B. Mendoza 1865 800 600 1872 231 231 1887 329 328 1899 635 430 1909 650 541 1919 800 683 1938 950 1062 1945 1100 1247 1950 1405 1397 Source: Raines 1956, p. 295; Mendoza, in Rivarola and Heisecke (eds.) 1970, p. 17 & p. 21 Institutional Instability Until the Chaco War (1870-1935) 15. While foreign troops occupied the country, a new Paraguayan Constitution was approved in 1870, remaining in effect until 1940. Paraguay signed a treaty with Brazil in January 1872 ceding all territory claimed by Brazil. In December 1873 a treaty was signed with Uruguay that provided free navigation privileges and recognized a Paraguayan debt for Uruguay's war costs. In February 1876 a treaty was signed with Argentina whereby Paraguay gave up the Misiones region and the Chaco between the Bermejo and Pilcomayo Rivers. The Chaco between the Pilcomayo and the Verde Rivei was to be submitted to an arbitral decision by the President of the United States.' As a result of these treaties, on June 1876, eleven years after the outbreak of hostilities, the Brazilian occupation forces completed their withdrawal from Paraguay. Uruguay renounced its indemnization awards by a treaty signed in 1883.5 16. Despite the improvement ac'ieved by the treaties signed in the 1870s, the size of the war losses left Paraguay politically and economically unstable for decades. Although the Constitution provided for four-year Presidential terms, normal political turnovers were few, and revolutions, often bloody, accounted for most of the thirty-one presidential changes between 1870 and 1928 Oust before the Chaco War). Economic recovery was severely constrained. On November 12.1878, President Ruthcrford B. Hayes Lssued its arbitral award entirety in favor of Parauay. Brazil and Argentina also mnenod their war indemnUications but almost 60 years later. Argentina in August 1942 and Brazil in May 1943 (Birch, n.d. p.11). ANNEX I Page 6 of 7 - 100- 17. The public sector had no revenue sources and the Government could not obtain new foreign loans since it was unable to pay the interest on the old loans. The Government then resorted to land sales (most land in Paraguay became Government property under the Francia and the two Lopez regimes). The Land Acts of 1885 paved the way for the sale of these properties. These sales created an ephemeral economic boom; land prices increased ten times in eastern Paraguay and four times in the Chaco--but the Government kept selling property at fixed prices. Also because Paraguayans had little money, property fell into foreign hands, with phenomenal profits being made in the process (Raine 1956, p. 214). Another law suspending further sale of public land was passed in 1904; however, as early as 1891, almost no land was said to remain in State hands (Ibid., p. 212)." 18. In 1904, after 30 years of Colorado Party rule, the Liberal Party took control for nearly another 30 years (Raine 1956, p. 216).' Instability was rampant during the Colorado years, with only three presider s completing their terms peacefully. No improvement occurred during Liberal rule, with only two Presidents completing the four-year term. In the first eight years of Liberal Party rule, 10 presidents followed in quick succession with four in 1911 alone. The Homestead Law was enacted during President E. Schaerer's term (1912-1916), providing free land to landless Paraguayans who complied with minimal stipulations (Raine 1956, p. 219). 19. It was not until Eligio Ayala's constitutional term (1924-28), more than 50 years after the War of the Triple Alliance, that Paraguay's finances were stabilized. President Ayala reduced the 100 million peso deficit, stabilized the exchange rate, increased revenue collections, reduced foreign debt by nearly 20 percent, and retired 57 million of paper issue (maintaining a metal backing of 45 to 55 percent). In his time, as wel as in 'uis successor's (E. Guggieri), Paraguay rose to third in school attendance throughout Latin America (Ibid., p. 221). Land distribution to landless Paraguayans continued (albeit at a slow pace), and foreign debt payments were made on time. But war loomed again in the horizon, this time with Bolivia, and Paraguay could not make faster economic progress in those years due to the cost of the military buildup. 20. Responsibility for the start of the war has not been fully determined; however, armed skirmishes started in February 1927 over Bolivia's claims to the Chaco. In June 1932, Bolivian forces attacked and took Paraguay's outpost, Carlos Antonio Lopez and Paraguay officially proclaimed a state of war on May 10, 1933. As in the War of the Triple Alliance, the military odds were against Paraguay. Raine (1956) estimated Bolivia had about 10 times more manpower and equipment and 3 times more economic resources. But the terrain was more familiar to Paraguayans, who prevailed, crossing the whole Chaco region and reaching the foothills of the Andes in 1935. A Bolivian counterattack had just begun on June 14, 1935 when a general cease-fire ended the war. About 25,000 Paraguayans died and many more were wounded, crippled, or sick with malaria and other debilitating diseases. This was a cost an underpopulated country like Paraguay could ill afford and it was again near collapse. A nationalistic revolution took place in February 1936 and Eusebio Ayala, the constitutional President, lost power, ending three decades of Liberal Party rule. This may be an eaggerated claim, ixce in 1946, although just 3 percent of agriculture land in the eastern region was in public hands, 40 percent of the Chaco belonged to the public nectar (Ugarte 1983, p. 138). The Colorado party was founded in 1874, the Loberal Party in 1887 (Warren 1949, p. 264). ANNEX I Page 7 of 7 - 101 - Cycle of Strong Regimes and Instability (1936-1954) 21. With the deprivations following the Chaco War, the army and navy revolted against the President, and in February 1936, Colonel Rafael Franco, a Chaco War hero, came to power. His socialist agenda ushered in a new political movement, the 'Febreristas," which would have importance for the next two decades. However, in a country where capital was mostly owned by foreigners (primarily Argentines), Colonel Franco was unable to implement his reform program; and was forced to resign in August 1937. In July 1938, the Treaty of Peace, Friendship, and Boundaries was signed with Bolivia which settled war claims and established the borders that now prevail, with most of the Chaco going to Paraguay. Another Chaco War hero, Gcneral J. Felix Estigarribia, was elected President in 1939, with the largest number of votes ever recorded by any previous candidate. This was an auspicious beginning, but there was little time for progress, since Estigarribia died tragically in a plane crash in September 1940. Before his death he was able to have a new Constitution approved in 1940. The document gave more power to the Executive Authority, with elections held every five years; however, it failed to deal with the institutional instability it intended to cure. His most important achievement is generally considered the enactment of the Agrarian Law of 1940, which was designed to provide the basis for the revival of the country's agriculture through improved production methods, incrcased acreage, and wider distribution of land ownership. 22. Colonel Higinio Morinigo, Estigambia's War Minister, inherited the Presidency and assumed the quasi-dictatorial powers of his predecessor. During his term, the Agriculture Law was used to create national agriculture colonies, as opposed to land given to foreign immigrants in previous regimes. Morinigo also inherited an explosive labor situation he tried to contain by: drafting a labor code (not approved); adopting minimum wage policies in 1942; and setting up a social security system in January 1944. In 1946, Morinigo gave up some of his authority and began to work actively with the political parties. In February 1947, he reshuffled his cabinet and for the first time since 1904 granted full power to the Colorado Party. Despite this, a revolution broke out in March 1947 and lasted several months. 23. Morinigo was finally deposed in June 1948, ending what Raine (1956, p. 266), calls .eight years [that] were among the most fruitful in the growth of modem Paraguay." In international relations Morinigo remained on good terms with Argentina and greatly improved economic relations with Brazil, to escape from riverway transport monopolies that inhibited the country's development at the time. 24. As in the case of previous strong regimes, substantial instability followed Morinigo's downfall. Five Presidents held office between June 1948 and September 1949. In August 1954, General Stroessner took control ar.d governed for the next 35 years. He was ousted in February 1989 by General Rodriguez, who was elected President in May of that year in a national election where political groups were free to participate. A more detailed analysis of the economic aspects of Paraguayan's history after the Chaco War is discussed next. - 102- ANNEX II SUMMARY OF SCEARIOS LOW, MEDIUM AND HIGH Paaguay Proj.ctlo Model 8:38 AM 26-SOP-91 1988 1989 1990 1991 1992 1993 1994 1995 S Poputat(on(Thousads) 4039.2 4157.3 4278.9 4404.0 4532.8 4665.4 4801.8 4942.2 6 Paralel Exdiehgo Rate (G4, base year) 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 7 8 Investment Financing (Bln. 1982 Owurunies) 9 10 TotalSavings 201.4 204.1 204.2 2129 216.7 218.3 220.0 224.2 11 Privat Savigs 143.4 201.2 142.7 143.6 153.5 144.1 139.1 137.6 12 Fhaidc Savings -5.8 36.1 0.5 12.5 -4.0 -2.6 -2.6 0.2 13 Non.ilnanalsavings 149.2 165.1 142.2 131.1 157.5 146.7 141.6 137.4 14 Pubic Savings -2.2 26.7 52.2 50.9 27.1 18.3 7.9 -0.4 15 ForeIgn Savngs 44.6 -47.6 .18.0 7.8 14.8 18.3 25.8 30.1 16 InglatlonTax 15.6 23.7 27.2 10.5 21.3 37.5 47.1 56.8 17 18 Total Investment 201.4 204.1 204.2 212.9 216.7 218.3 220.0 224.2 19 Privae Iinvestment 137.1 142.6 158.0 166.6 169.8 171.2 173.4 176.3 20 Public Investment 64.3 61.5 46.2 46.4 47.0 47.1 46.5 47.9 21 22 Investrnent Finaning (% of GDP) 23 24 Total SavIngs 23.1 22.1 21.9 22.7 21.9 21.1 20.5 20.3 25 Private Savings 18.5 21.8 15.3 15.3 15.5 13.0 13.0 12.5 26 Finacial SavIngs -0.7 3.9 0.1 1.3 .0.4 -0.3 .0.2 0.0 27 Nortfinanclal Savings 17.1 17.9 15.2 14.0 15.9 14.2 13.2 12.5 28 Public Savings -0.3 2.9 5.6 5.4 2.7 1.8 0.7 0.0 29 Foreign Savings 5.1 .5.2 .1.9 0.8 1.5 1.8 2.4 2.7 30 lnftadon Tax 1.8 2.6 2.9 1.1 2.2 3.6 4.4 5.2 31 32 Total Investment 23.1 22.1 21.9 22.7 21.9 21.1 20.5 20.3 33 Private Investment 15.8 15.4 16.9 17.8 17.1 16.5 16.2 16.0 34 Public Investment 7.4 6.7 4.9 4.9 4.7 4.5 4.3 4.3 35 36 Memo Items: 37 AveragePropensitytoSave 17.8 25.4 18.0 17.5 17.5 15.8 14.7 14.2 38 MagkialProp2MsItytoSave 90.9 -397.5 -30158 3.1 17.6 *264 .15.8 .5.6 39 41 National Accounts (Bln. 1982 Guaranles) 1988 1989 1990 1991 1992 1993 1994 1995 42 Total Consumption 728.1 703.9 721.5 737.0 790.5 839.2 879.1 912.0 43 Private Consumption 686.1 647.8 660.9 675.1 720.5 765.8 803.2 832.6 44 PubicConsumpton 42.0 56.2 60.5 61.9 70.1 73.4 75.9 79.4 45 46 Total Fixed Investment 167.0 184.8 203.4 212.1 215.9 217.5 219.1 223.3 47 Prtvate Investment 113.6 129.1 157.4 165.9 169.1 170.5 172.8 175.6 48 Pubic Inrstment 53.3 55.7 46.0 46.2 46.8 46.9 46.3 47.7 49 50 Exports 157.1 196.5 229.8 234.6 239.3 244.5 242.5 240.4 51 Imports 201.9 185.7 227.3 228.6 243.4 259.6 265.8 269.4 52 GDP 850.2 899.5 927.3 955.1 1002.3 1041.5 1075.0 1106.3 53 Terms-of-trade Adjustment 20.2 23.7 6.1 -17.4 -12.3 -4.8 -4.1 -3.5 54 GDY 870.4 923.2 933.4 937.7 990.0 1036.7 1070.9 1102.8 55 Transfers 5.4 3.4 4.3 4.2 4.2 4.3 4.2 4.2 56 Net Factw Income -11.7 -6.9 0.5 1.7 1.3 1.3 1.3 0.9 57 GNY ' 864.1 919.8 938.2 943.6 995.6 1042.3 1076.5 1108.0 58 GNP 843.9 896.2 932.1 961.0 1007.8 1047.1 1080.6 1111.5 59 60 P ODY Defakr (198621) as 3.91 5.12 6.96 8.03 10.44 15.66 25.05 42.59 61 Infttion 23.10% S4,35% 36.20% 15.00% 30.00% 50.00% 60.00% 70.00% 62 P Investment Dotator (1962-1) 4.60 5.66 7.01 8.06 10.48 15.72 25.14 42.75 63 PInv.DettaiorlPGOYDeDtator 1.21 1.10 1.00 1.00 1.00 1.00 1.00 1.00 64 P ConwsmptIon Detlator 3.69 4.68 6.89 8.07 10.50 15.74 25.17 42.70 65 ICOR 3.17 3.39 6.64 7.31 4.50 5.50 6.50 7.00 66 MUV 1.34 1.35 1.43 1.57 1.58 1.58 1,61 1.67 67 GDP Growth 6.4 5.6 3.1 3.0 4.9 3.9 3.2 2.9 68 PrSvate Consumption Growth 3.7 5.6 2.0 2.1 6.7 6.3 4.9 3.6 69 70 Natlonal Accounts (Sin. Current Guarrnles) 1988 1989 1990 1991 1992 1993 1994 1995 71 Tota Consumpton 2686.4 3292.9 4968.5 5950.3 8304.6 13212.9 22130.4 38945.1 72 PrSvate Consumption 2531.3 3030.1 4551.5 5450.4 7568.7 12057.0 20219.8 35553.4 73 PubicConsumptin 155.1 262.7 417.0 500.0 735.9 1156.0 1910.6 3391.7 74 75 Total Fixed Investment 768.2 1045.6 1425.4 1709.6 2262.0 3417.5 5510.0 9546.5 76 Private Investment 522.8 730.5 1103.0 1337.3 1771.0 2680.0 4344.7 7506.5 77 Public Investment 245.4 315.1 322.4 372.2 490.2 737.5 1165.3 2040.0 78 79 Exports 974.1 1723.2 2219.5 2490.1 3214.0 4785.3 7085.5 11127.1 80 Imports 1109.5 1453.3 2139.0 2620.9 3447.2 5184.1 7898.0 12652.8 81 GDP 3319.1 4608.4 t474.4 7529.1 10333.5 16231.7 26827.9 46965.8 82 83 Extrnal Transfers 29.6 26.8 40.5 47.9 59.8 85.1 126.1 198.8 84 Net Fac.or Income -64.2 *52.9 4.8 19.9 19.0 26.9 39.5 44.6 85 GNP 3254.9 4555.5 6479.3 7549.0 10352.5 16258.6 26867.3 47010.4 86 GDP USS 3951.3 4114.6 5263.8 5661.0 6276.6 i924.8 7864.4 9056.5 87 GNP US$ 3874.9 4067.4 5267.7 5675.9 6288.1 6936.3 7876.0 9065.1 88 Per capita GDP (USS) 978.3 989.7 1230.2 1285.4 1384.7 1484.3 1637.8 1832.5 89 Per capita GNP (USS) 959.3 978.4 1231.1 1288.8 1387.3 1486.9 1640.2 1834.2 90 a/ Current GDP/Consant GDY; 1 lnlation 91 Low Case 92 93 The Balance of Payments (Millions US$) 1988 1989 1990 1991 1992 1993 1994 1995 94 95 Exports 1159.6 1539.6 1804.5 1872.3 1952.2 2041.5 2077.1 2145.7 96 Goods 871.0 1166.5 1392.3 1449.2 1510.7 1581.0 1609.0 1662.3 97 Non-factor Servioes 288.6 372.1 412.2 423.1 441.5 460.5 468.1 483.4 98 99 Imports 1320.8 1297.6 1739.0 1970.6 2093.9 2211.6 2315.2 2439.9 100 Goods 1030.1 1001.3 1353.6 1583.7 1674.8 1758.6 1838.4 1930.5 101 Non-lactor Services 290.7 296.3 385.4 386.9 419.0 453.0 478.9 509.4 102 103 Resowee Balance -161.2 241.0 65.5 -98.3 -141.6 -1701 -238.2 -294.2 104 105 FactDr Servles (net) -76.4 -47.2 3.9 14.9 11.6 11.5 11.6 8.6 106 Interest Payments -130.3 -130.9 -90.0 -108.2 -112.4 -112.8 -114.1 -121.9 107 Olhea 53.9 83.7 93.9 123.1 124.0 124.2 125.7 130.5 108 109 Trandsers 35.2 23.9 32.9 36.0 36.3 36.3 37.0 38.3 110 111 Curront Accounl -202.4 217.7 102.3 -47.4 -*3.8 -122.3 -189.6 -247.3 112 113 CapflaAoounh -1.5 -80.2 -14.8 217.4 -6.2 -47.7 4.6 17.3 114 115 DIroct ForoIgn Investmont 0.0 0.0 73.1 . 30.0 33.3 36.6 41.0 48.7 116 117 Net MLT Fows -83.4 165.1 -576.1 -62.5 -44.5 -52.2 *56.1 -18.0 118 DlsburwmonW 141.8 628.8 80.0 140.9 141.2 127.0 101.1 147.8 119 Amorllzadons 225.2 463.7 656.1 203.4 185.7 179.2 157.3 165.8 120 121 Odher CaplIal Flows -99.9 -4.6 352.0 70.0 0.0 0.0 0.0 0.0 122 123 Oter 181.8 -240.7 136.4 150.0 -90.3 -90.3 *92.0 -95.4 124 125 FlnardngGap 0.0 0.0 0.0 29.8 35.3 58.3 111.8 83.9 126 127 Overall BOP Surplus -203.9 137.5 87.7 170.0 -160.0 -170.0 -185.0 -230.0 128 Change in Net Intemadonal Reserves -143.8 136.7 245.9 300.0 20.0 20.0 20.0 20.0 129 Ariears 60.1 -0.8 158.2 130.0 180.0 190.0 205.0 250.0 130 AmortIzations 44.4 13.9 122.2 100.0 150.0 150.0 155.0 180.0 131 Interest 15.7 -14.7 36.0 30.0 30.0 40.0 50.0 70.0 132 133 Memo hems: 134 NomInal Exchange Rate (Average) 840.0 1120.0 1230.0 1330.0 1646.3 2344.0 3411.3 5185.8 135 Real Exchange Rate 220.3 218.6 176.2 165.6 157.7 149.7 136.2 121.8 136 mplicIh Exchange Rate on Imports 218.6 176.2 165.6 170.3 167.7 163.4 158.3 137 ORPolicyVarlable 1 1 1 1.08 1.12 1.2 1.3 138 Roel Ehf. Exch. Rate (1982.1) 1.4411 1.5276 1.3477 1.4281 1.3567 1.2753 1.1860 1.1030 139 Amorizaton (DRS) 236.7 140 BOP Irteresl- DRS Interest -77.5 -39 -114.5 -144.5 -174.5 -214.5 -264.5 -334.5 141 TermsofTrador11982-100) 116.1 113.6 97.9 92.5 94.9 98.3 98.5 98.7 142 Gap plus Net MLT -83.4 165.1 -576.1 -32.6 -9.2 6.1 55.6 65.9 143 Net natlonrls 144 Slocd od Intl. Reserves 291.2 427.9 673.8 973.8 993.8 1013.8 1033.8 1053.8 145 LouwCame 146 308 Putbtc Sctor (% otOPG 1988 1989 1990 1991 1992 1993 1994 1995 309 Cwfafl Revenues 14.3 17.3 18.9 19.0 17.7 17.7 17.6 17.5 310 Taxos 7.0 8.1 9.2 9.3 8.0 8.0 7.9 7.8 311 tmport 1.1 1.6 2.3 2.6 1.4 1.3 1.2 1.1 312 Export 0.0 0.8 0.5 0.0 0.0 0.0 0.0 0.0 313 DIect 2.2 1.8 1.8 1.7 1.7 1.7 1.7 1.7 314 IndIrect 3.7 3.9 5.0 5.0 6.0 5.0 5.0 5.0 315 Nor-tx Revene 3.8 6.1 5.4 5.4 5.4 5.4 5.4 5.4 316 V.A.onPubioEnnrpa1sp s 3.4 3.1 4.3 4.3 4.3 4.3 4.3 4.3 317 318 CurtentExpendtwe 10.0 13.8 13.3 13.5 14.0 13.9 13.8 14.0 319 GovenmtSaklaes 2.9 3.8 4.4 4.6 5.0 5.0 5.0 5.1 320 Pubk Enrprhe Sabrbs 1.5 1.5 1.5 1.5 1.6 1.6 1.6 1.6 321 Sodal Sewrlty & PE Tax 0.6 0.9 0.9 0.9 0.9 0.9 0.9 0.9 322 OUrOo.mn.nt 1.7 1.9 2.0 2.0 2.1 2.1 2.1 2.1 323 Trtuns BP 1.0 2.4 2.3 2.3 2.4 2.4 2.4 2.4 324 Inlet 1.4 12 2.2 2.2 1.9 1.9 1.8 1.0 325 Exernal 1.2 3,1 2.1 2.1 2.0 1.9 1.8 1. 326 Domestic 0.2 0.1 0.2 0.1 0.0 0.0 0.0 0.1 327 328 Exchange Rale Adjustments 4.6 0.5 0.0 0.0 1.0 2.0 3.0 3.5 329 330 CwrentSavings .0.3 3.0 5.6 5.4 2.7 1.8 0.7 0.0 331 332 Caphi Expendlures 7.4 6.8 5.0 4.9 4.7 4.5 4.3 4.3 333 DIect Investnent 5.9 5.0 4.4 4.9 4.7 4.5 4.3 4.3 334 Indirect Invosement 1.5 1.8 0.5 0.0 0.0 0.0 0.0 0.0 335 336 Defidt 7.6 3.9 -0.7 0.5 2.0 2.8 3.6 4.4 337 Exmnal FInanc 2.3 1.5 1.5 2.0 3.1 2.3 2.6 2.8 338 Dbbumenbt 2.3 1.5 1.5 26 2.6 1.6 1.6 1.5 339 Amortzato (programn.) 0.0 0.0 0.0 2.9 2.4 2.1 1.6 1.5 340 InteresteAmae 0.0 0.0 0.0 0.5 0.5 0.6 0.6 0.8 341 Amoriizatlon Arews 0.0 0.0 0.0 1.8 2.4 2.2 2.0 2.0 342 DOmestb Finandg 5.3 2.4 *2.1 *2.5 -1.1 0.5 1.0 1.5 343 BarSa -0.8 .2.4 -2.2 -1.6 -0.8 0.4 0.7 1.2 344 Oter 6.1 4.9 0.1 -0.8 40.3 0.1 0.2 0.4 345 LOW Case 346 347 Flnanc jSector (iln. of Ouaal.s. stock) 1988 1989 1990 1991 1992 1993 1994 1995 348 *Total Assets 483.0 856.9 1231.3 1408.1 1767.9 2578.6 4016.6 6790.2 349 Net Intemnaonal Reserves 287.7 536.7 :91.9 1275.9 1305.6 1345.5 1403.1 1489.1 350 Domestic '!redlt 368.2 407.0 440.1 232.9 497.0 1123.3 2167.1 4284.8 351 Pubic 9.3 -103.4 -247.7 *370.0 -453.8 -393.2 -197.4 346.9 352 Prtvate 358.9 510.3 687.7 602.9 950.8 1516.5 2364.4 3937.9 353 Exchange Losses 100.6 13.8 0.0 0.0 103.3 324.6 804.8 1643.8 354 Othor Net Asaes -273.5 -100.6 -100.6 -100.6 -138.0 -216.8 -358.4 -627.4 355 356 Total LlabWlte 483.0 856.9 1146.3 1408.1 1767.92 2576.6 4016.6 6790.2 357 358 Ml 263.1 384.3 490.7 570.6 783.1 1230.1 2033.1 3559.2 359 Currency 149.1 216.2 300.5 349.5 479.6 753.4 1245.3 2180.0 360 Demand Dopolts 114.0 168.1 190.1 221.1 303.5 476.7 787.8 1379.2 361 362 aM 185.8 403.6 588.6 768.6 915.8 12T7.5 1914.5 3162.0 363 Domotsc Currency 167.6 225.2 290.9 413.6 547.0 826.7 1312.7 2296.1 364 Foreign Curaecy 18.0 178.4 295.7 355.0 368.9 450.8 601.8 863.9 365 366 Foreign LUablltes LT 34.3 69.0 69.0 69.0 69.0 69.0 69.0 69.0 367 368 Memo I1N: 369 Net nntwna.Reserves(llAIoiUS$) 342.5 479.2 725.; 10251 1045.1 1065.1 1085.1 1105.1 370 Foreign UaLbWfites LP. (lMIIlona USS) 371 UnaoDund Funds (MEons US$) -199.8 29.1 474.3 -166.2 - -141.2 -121.5 -133.8 372 373 Finandal Sector (Billons 1982 Guaranies, stod) 374 Totalssata 126.7 167.3 176.4 175.4 169.4 164.6 160.3 159.4 375 Net Intemrnatonal Reserves 75.4 104.8 127.7 158.9 125.1 85.9 56.0 35.0 376 Domestkc Credt 96.6 79.4 63.0 29.0 47.6 71.7 86.5 100.6 377 Public 2.4 -20.2 -35.5 -46.1 -43.5 -25.1 -7.9 9.S1 378 Privato 94.1 69.6 98.5 75.1 91.1 96.9 94.4 92.5 379 Exchange L.ses 26.4 2.7 0.0 0.0 9.9 20.7 32.1 38.6 140 Olr Net Assets -71.7 -19.6 -14.4 -12.5 -13.2 -13.8 -14.3 -14.7 381 382 Total Uabthn 126.7 167.3 164.2 175.4 169.4 164.6 160.3 159.4 '}3 364 Ml 69.0 75.0 70.3 71.1 75.0 78.6 81.2 83.6 385 Currency 39.1 42.2 43.0 43.5 16.0 48.1 49.7 51.2 386 Demnand Deposlh 29.9 32.8 27.2 27.5 29.1 30.4 31.4 32.4 387 *88 aM 48.7 78.8 84.0 95.7 87.7 81.6 76.4 74.2 389 DomestcCurrency 44.0 44.0 41.7 51.5 52.4 52.8 52.4 54.0 390 Foraign Currency 4.7 34.8 42.4 44.2 35.3 28.8 24.0 20.3 391 392 Foreign U rs t .' 9.0 13 5 9.9 8.6 6.6 4.4 2.8 1.6 393 Low Casa - - - - - ---~~~~~~~~~~~~~~~~~~39 446 Debt (P;2!lno + New) 0M1n. US$) 1988 1989 1990 tiSS 1992 1993 1994 1995 447 =atta Commmnts 211.8 0.0 0.0 224.8 135.7 203.7 267.4 248.1 A.48 Refnancka 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 449 Other Multilateral and IDB 79.9 0.0 0.0 50.0 50.4 50 4 4q.8 48.2 450 Wodd Bank 0.0 0.0 0.0 5.0 30.0 .M0.0 53.4 58.0 451 tVant (CACEX) 0.0 0.0 0.0 0.0 0.0 0 o0.0 0.0 152 B"Ieral 93.6 0.0 0.0 70.0 50.0 !'C.0 53' 58.0 453 Suppers + Export Credit" 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 454 FIuanciaW l'sallon 38.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 455 Prtvate Non Guarntead 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 456 IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 457 Shor TTerm 0.0 0.0 0.0 70.0 0.0 0.0 0.0 0.0 458 In.ldonfiled Souroes 0.0 0.0 0.0 29.8 35.3 58.3 111.8 83.9 459 Tgta; Dsbumwsnmts 141.8 628.8 80.0 240.7 176.6 185.3 212.8 231.7 460 Ftalhmcino 0.0 0.0 0.0 0.0 0.0 0.0 i.0 0.0 461 0Aher MUlklefal and IDS 31.4 180 15.0 24.6 33.4 43.5 39.D 50.1 462 World Bank 18.0 16.1 1Ci. 12.3 10.6 9.6 15.2 2Z.d 463 BrazIl (CACEX) 0.0 426.6 0.0 0.0 0.0 0.0 0.0 0.0 464 BMaEal 40.4 125.9 22.0 ;0.7 76.9 60.2 46.0 65.0 465 Suppliers+ExportCredlls 14.8 41.2 25.0 25.6 15.2 10.1 0.0 2.6 466 Finad Inslturons 37.2 0.O 2.0 7.6 5.2 3.6 0.0 6.3 467 Private Non Guaranteed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 468 IMF C.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 469 SWor Term -f ;.0 44.0 76.C 70.0 0.0 0.0 0.0 0.0 470 UnidentIlled Sources 0.0 0.0 0.0 29.8 35.3 58.3 111.8 83.9 471 Amortzation Arrears 44.4 13.9 122.2 100.0 150.0 150.0 155.0 180.0 472 Tntel Amord7laions 180.8 440.8 633. 203.4 185.7 179.2 157.3 165.8 473 RehiScn O.) 0.0 0.0 0.0 °.0 0.0 0.0 0.0 474 Othr Multwral and IDB 13.0 22.4 21.0 27.1 29.3 30.8 31.8 40.4 475 World Bank 42.8 37.7 41.0 38.5 38.7 38.2 37.2 32.9 476 Brazil (CACEX) 0.0 0.0 426.6 0.0 0.0 0.0 0.0 0.0 477 BUateral 41.1 59.5 28.0 44.1 44.9 45.7 42.2 59.4 478 SuppPOrs + Expotn Credits 40.3 5.7 16.0 42.5 38.1 33.0 29.6 17.9 479 Fhnaca Insatultons 43.6 323.1 0.0 49.6 32.9 29.3 14.8 8.3 480 Private Non Guaranteed 0.0 1.3 1.3 1.6 1.8 2.1 1.7 1.8 481 IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 482 UDkldenUfild Souroes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 483 Low Case 484 485 Debt (P1polln. + Nw) (hIn. US$) cont. 1988 1989 1990 1991 1992 1993 1994 1995 4813 InlerestArroers 15.7 .14.7 36.0 30.0 30.0 40.0 50.0 70.0 487 To.9inltarel 114.6 91.4 S0.0 108.2 112.4 112.8 114.1 121.9 488 RelirmcIrg 0.0 0.0 0.0 0.0 0.0 O.C 0.0 0.0 489 Oter Muttlabral and IDS 20.6 20.5 22.0 21.3 21.0 21.3 21.8 22.1 490 World Bank 30.2 25.6 25.0 22.2 20.1 17,8 15.6 13.9 491 Brazil (CACEX) 0.0 14.8 0.0 0.0 0.0 0.0 0.0 0.0 492 Bilateral 17.7 9.2 10.0 16.3 17.0 17.7 17.6 17.4 493 Supplers+ExprtCredits 25.0 7.0 17.0 12.6 11.2 8.7 "2 3.9 494 Fnanclal lnUtullWo 19.4 2.5 1.0 10.9 7.2 4.5 J.7 1.6 495 Private Non Guaranteed 0.7 1.1 0.0 1.0 1.0 0.9 0.9 0.9 496 Interest on Arrears 0.0 9.8 14.0 22.8 28.3 32.8 36.7 41.7 497 IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 498 ShortTerm 1.0 1.0 1.0 1.0 4.3 4.1 3.9 3.9 499 Unkdondfied Souroes 0.0 0.0 0.0 0.0 2A 5.0 8.8 16.5 500 oter Interest 501 Acjmdialed Arrears 282.1 281.3 439.5 569.5 749.5 939.5 1144.5 1394.5 502 JgL ID 2354.9 2388.7 2127.5 2294.9 2465.7 2661.8 2922.4 3238.3 503 Re**nqn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 504 Otere uiieral and IDB 419.4 409.7 415.0 412Z5 416.7 429.3 437.4 447.1 505 World Bank 358.1 324.3 320.0 293.8 265.6 237.1 215.1 206.0 506 Brazil (CACEX) 0.0 426.6 0.0 0.0 0.0 0.0 0.0 0.0 507 Bilateral 478.2 450.4 470.0 496.7 528.6 543.0 546.9 552.4 508 Suppelers+Exponcredits 210.3 219.3 248.0 231.1 208.2 185.3 155.7 140.4 509 FinancIal Irshtuons o29.8 269.9 283.0 241.0 213.3 187.6 172.8 170.8 510 PrivateNonGuarantsed 28.0 28.0 19.0 17.4 15.6 13.5 11.8 10.0 511 IMF 0.0 0.0 .0 0.0 0.0 0.0 0.0 0.0 512 Unidantdfed Sources 0.0 0.0 0.0 29.8 65.2 123.5 235.2 314.1 513 Shot Term 231.2 260. 372.5 472.5 502.5 542.5 592.5 662.5 514 InterestArtears 93.2 78.5 114.5 144.5 174.5 214.5 261.5 334.5 515 Otr 138.0 182.0 258.0 328.0 328.0 328.0 328.0 328.0 516 AdlustrnentIn Debt Stock -2.9 -3.7 -3.7 -3.7 -3.7 -3.7 -3.7 -3.7 S17 Net Dlsbusements: 518 OCterMutlaeralandIDB 18.4 -4.4 -6.0 -2.5 4.1 12.6 8.1 9.7 519 World Bank -24.9 -21.6 -25.0 -26.2 -28.1 -28.6 -22.0 -9.1 520 Brazil (CACEX) 0.0 426.6 -426.6 0.0 0.0 0.0 0.0 0.0 521 Bllatoral .0.7 66.4 -6.0 26.7 31.9 14.5 3.8 5.5 522 Memorandum: 523 Total Debt 2352.0 2385.0 2123.8 2291.2 2462.0 26'8.1 2918.7 3234.6 524 DebtServce/Exports(%) 37.3 41.2 43.3 23.6 24.5 23.6 22.9 25.1 525 Debt Setle/GDP(%) 11.0 15.4 16.3 9.8 7.6 9.5 8.8 8.9 526 InteresVExports(%) 11.2 5.0 7.0 7.4 7.3 7.5 7.9 8.9 527 IntoresVGDP(%) 3.3 1.9 2.4 2.4 2.3 2.2 2.1 2.1 528 DebVExports (%) 227.4 173.5 142.3 153.0 164.7 176.4 195.8 215.9 529 DebvGDP(%) 66.7 64.9 48.8 50.6 51.2 52.0 51.7 51.2 530 Low Case 531 532 Paguay Prowct1ons Mod 8:23 AM 26-Sep-91 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 999 2000 5 Pop4iaton (TOus s) 4039.2 4157.3 4278.9 4404.0 4532.8 4605.4 4801.8 4942.2 5086.8 5235.5 5388.6 5540.2 5708.4 6 Parasl Exchange Rate (G4, base year) 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 136.0 7 a Investment Flnancing (BIn. 1982 Guaranls) 9 10 Totl Savings 201.4 204.1 204.2 2129 225.8 239.1 251.5 264.6 277.2 291.5 305.4 319.9 335.1 tt PrivateSavlngs 143.4 20:.2 142.7 1436 147.4 162.7 168.1 173.9 179.5 T87.8 196.1 205.2 217.0 12 FhW Savings -5.8 36.1 0.5 125 12.1 14.9 12.5 13.5 13.6 14.4 15.6 16.1 17.4 13 Non-finandal Savings 149.2 165.1 142.2 131.1 135.3 147.8 155.6 160.4 165.9 173.4 180.5 189.1 199.6 14 PubicSavings -Z2 26.7 52.2 50.9 62.1 61.7 65.4 69.8 75.4 79.3 82.4 84.6 86.7 15 Foreign Savings 44.6 -47.6 -18.0 7.8 7.0 8.0 10.9 13.5 14.4 16.3 18.4 21.2 22.1 16 InhladonTTdx 15.6 23.7 27.2 10.5 9.2 6.7 7.; 7.5 7.8 8.2 8.6 9.0 9.4 17 18 Total Investaent 201.4 204.1 204.2 212.9 225.8 239.1 251.5 264.6 277.2 291.5 305.4 319.9 335.1 19 Pdvat investnent 137.1 142.6 158.0 166.6 175.1 185.3 195.2 204.5 214.2 224.4 235.1 246.4 258.2 20 Pubic Invstmntn 64.3 61.5 46.2 46.4 50.7 53a 56.3 60.2 63.0 67.1 70.3 73.5 77.o 21 22 Investment Flnandna (% of GDP) 23 24 Total Savings 23.1 22.1 21.9 22.7 22.9 22.9 23.0 23.1 23.1 23.2 23.2 23.2 23.3 25 PrIvate S6wIns 16.5 21.8 15.3 15.3 15.0 15.6 15.3 15.1 15.0 1. 14.9 14.9 15.1 . 26 Financial SavIngs -0.7 3.9 0.1 1.3 1.2 1.4 1.1 1.2 1.1 1.1 t.2 1.2 1.2 27 Non-lnandal Savings 17.1 17.9 15.2 14.0 13.7 14.1 14.2 14.0 13.8 13.8 13.7 13.7 13.9 28 Pubfic Savings -0.3 2.9 5.6 5.4 6.3 5.9 6.0 6.1 6.3 6.3 6.3 6.1 6.0 29 Forelgn Sdvings 5.1 -5.2 -1.9 0.8 0.7 0.8 1.0 1.2 1.2 1.3 1.4 1.5 1.5 30 lnitlaonTax 1.8 2.6 2.9 1.1 0.9 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.7 31 32 Totallnvestmenl 23.1 22.1 21.9 22.7 22.9 22.9 23.0 23.1 23.1 23.2 23.2 23.2 23.3 33 PrIvp.W Investment 15.8 15.4 16.9 17.8 17.8 17.7 17.8 17.8 17.8 17.9 17.9 17.9 17.9 34 Pubcl"cInstment 7.4 6.7 4.9 4.9 5.1 5.1 5.1 5.2 5.2 5.3 5.3 5.3 5.3 35 38 Momo hems: 37 AveragePiopensitytoSave t7.8 25.4 18.0 17.5 17.2 17.9 17.7 17.5 17.3 17.3 17.3 17.3 17.5 38 MwagrnaPropensItltoSave 90.9 -397.5 -3015.8 3.1 11.4 28.5 12.7 13.2 12.9 17.7 16.6 17.7 21.5 39 iedurn Case 40 41 NaUonal Accounts (Bin. 1982 Guarantes) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 42 Total Consumption 728.1 703.9 721.5 737.0 771.8 816.9 857.5 899.5 941.8 984.9 1031.5 1079.4 1128.7 43 Pilvata Consumption 686.1 647.8 660.9 675.1 704.7 743.7 779.7 816.9 854.3 892.1 933.1 975.1 1018.0 44 PublicConsumptlon 42.0 56.2 60.5 61.9 67.1 73.3 77.8 82.6 87.5 92.8 98.4 104.3 110.7 45 46 Total Fixed Invmstmont 167.0 184.8 203.4 212.1 225.0 238.2 250.6 263.7 276.1 290.5 304.3 -18.7 333.9 47 Privato Investmont 113.6 129.1 157.4 165.9 174.5 184.7 194.5 203.7 213.4 223.6 234.3 245.5 257.2 48 Pubolc Invostment 53.3 55.7 46.0 46.2 50.5 53.6 56.1 60.0 62.7 66.9 70.0 73.3 76.7 49 50 Eports 157.1 196.5 229.8 234.6 24^.4 268.7 282.4 297.2 311.2 325.7 .341.3 357.1 374.0 51 Imports 201.9 185.7 227.3 228.6 248.1 273A1 290.2 307.8 321.6 336.0 351.6 366.3 381.3 52 GDP 850.2 899.5 927.3 955.1 998.4 1050.7 1100.4 1152.6 1207.5 1265.Z 1325.5 1388.9 1455.3 53 Torms-ol-tiade Adjustmont 20.2 23.7 6.1 -17.4 -13.0 -5.6 -5.2 -4.9 -7.0 -8.9 -10.4 -12.9 -14.9 54 GDY 870.4 923.2 933.4 937.7 985.5 1045.1 1095.2 1147.7 1200.5 1256.1 1315.1 1376.0 1440.4 55 Transfers 5.4 3.4 4.3 4.2 4.2 4.3 4.2 4.2 4.2 4.2 4.2 4.1 4.1 56 NotlFactorlncome -11.7 -6.8 0.5 1.7 2.2 0.2 1.0 1.8 3.1 3.7 3.7 3.2 2.7 57 GNY 664.1 919.8 938.2 943.6 991.8 1049.6 1100.5 1153.8 1207.9 1264.0 1323.0 1383.4 1447.2 58 GNP 843.9 896.2 932.1 961.0 1004.8 1055.2 1105.7 1158.6 1214.8 1272.9 1333.4 1396.3 1462.1 59 60 PGDYDeflator(1982-1)a/ 3.81 5.12 6.98 8.03 9.07 9.89 10.78 11.75 12.81 13.96 15.22 16.59 18.08 61 Inflaton 23.10% 34.35% 36.28% 15.00% 13.00% C.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 62 PInvestmentDeflator (1982-1) 4.60 5.66 7.01 8.06 9.11 9.93 10.82 11.79 12.86 14.01 15.27 16.65 18.15 63 Pinv.Doelator/PGOY Deiaior 1.21 1.10 1.00 1.00 1.00 1.00 1.00 1.00 100 1.00 1.00 1.00 1.00 64 PConsumptIon oDtator 3.69 4.68 6.89 8.07 9.12 9.93 10.84 11.82 12.90 14.06 15.33 16.72 18.21 65 ICOR 3.17 3.39 6.64 7.31 4.90 4.30 4.80 4.80 4.80 4.80 4.80 4.80 4.80 66 MUV 1.34 1.35 1.43 1.57 1.58 1.58 1.61 1.67 1.73 1.80 1.86 1.93 2.00 . 67 GOP Growth 6.4 5.8 3.1 3.0 4.5 5.2 4.7 4.7 4.8 4.8 4.8 4.8 4.8 68 Private Consumptlon Growth 3.7 -5.6 2.0 2.1 4.4 5.5 4.9 4.8 4.6 4.4 4.6 4.5 4.4 69 70 Natdonal Accounts (B1... CurrentGuaranes) 1988 g 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 71 Total Consumption 2686.4 3292.9 4968.5 5950.3 7038.9 8113.2 9293.8 10636.3 12145.3 13850.4 15815.8 18043.0 20557.5 72 Private Consumptbn 2531.3 3030.1 4551.5 5450.4 6427.3 7385.6 6450.8 9659.9 11016.7 12545.8 14306.9 16299.3 18541.8 73 PubulcConsumption 155.1 262.7 417.0 500.0 611.6 727.6 843.0 976.4 1128.6 1304.7 1508.9 1743.7 2C15.6 74 75 TotalFixedInvaItment 768.2 1045.6 1425.4 1709.6 2048.7 2364.6 2711.4 3109.5 3549.6 4069.8 4647.4 5306.2 6058.9 76 Privatelnveslet 522.8 730.5 1103.0 1337.3 1588.8 1833.0 2104.2 2402.4 2743.4 3132.8 3578.0 4086.6 4667.3 77 Pubulclnvestment 245.4 315.1 322.4 372.2 459.9 531.6 607.2 707.1 806.2 937.0 1069.3 1219.6 1391.5 78 79 Exports 974.1 1723.2 2219.5 2490.1 3073.3 3724.4 4278.9 4927.3 5597.2 6353.1 7233.9 8201.3 9327.3 80 lhiports 1109.5 1453.3 2139.0 2620.9 3219.9 3866.6 4478.2 5187.8 5916.6 6738.1 7685.7 8727.7 9902.8 81 GDP 3319.1 4608.4 6474.4 7529.1 8941.0 10335.5 11805.8 13485.4 15375.6 17535.3 20011.3 22822.8 26040.9 82 83 Extornal Transfers 29.6 26.8 40.5 47.9 54.7 60.3 65.4 71.2 77.2 83.6 90.8 98.3 106.6 64 NotFactorlncomo -64.2 -52.9 4.8 19.9 28.1 2.9 16.1 . 31.0 57.' 74.2 81.8 76.7 69.4 85 GNP 3254.9 4555.5 6479.3 7549.0 8969.1 10338.4 11821.9 13516.4 15433.2 17609.5 20093.1 22899.6 26110.3 86 GDP USS 3951.3 4114.6 5263.8 5661.0 5930.3 6226.5 6673.1 7261.0 79)9.3 6644.1 9424.2 10295.0 11231.1 87 GNPUSS 3874.9 4067.4 5267.7 5675.9 5948.9 6228.3 6682.2 7277.7 7949.0 6680.7 9462.8 10329.6 11261.0 88 Per capita GDP (USS) 978.3 989.7 1230.2 1285.4 1308.3 1334.6 1389.7 1469.2 1556.9 1651.0 1748.9 1856.2 1967.5 89 Por capita GNP (US$) 9593 978.4 1231.1 1288.8 1312.4 1335.0 1391.6 1472.6 1562.7 16580 1756.1 1862.5 1972.7 90 sl Curront GDP/Constant GUY; I 4nflabon 91 Mduwn Case 92 93 The Balanea of Psyments (SflhIons US$) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 94 95 Exports 1159.6 1538.6 1804.5 1872.3 2038.4 2243.7 2418.6 2653.0 2882.9 . 3131.8 3406.8 3699.5 40.2.7 96 Goods 871.0 1166.5 1392.3 1449.2 1577.4 1737.6 1873.6 2055.4 2233.8 2426.9 2640.3 :367.4 3118.3 97 Non.lactor ServIces 288.6 372.1 412.2 423.1 461.0 506.1 545.0 597.6 649.1 704.9 766.5 832.1 904.5 98 99 Imports 1320.8 1297.6 1739.0 1970.6 2135.7 2329.4 2531.3 2793.3 3047.4 3321.6 3619.5 3936.9 4270.9 100 Goods 1030.1 1001.3 1353.6 1583.7 1707.9 1851.6 2006.8 2208.9 2407.0 2620.8 2852.3 3101.4 3362.6 101 Non-factor Services 290.7 296.3 385.4 386.9 427.8 477.8 524.5 584.4 640.4 700.8 767.2 835.5 908.3 102 103 Resowe. Ealance -161.2 241.0 65.5 -98.3 -97.2 -85.7 -112.7 -140.2 -164.5 -189.8 -212.8 -237.4 -248.2 104 105 FactorServbces(nel) -76.4 -47.2 3.9 14.9 18.6 1.8 9.1 16.7 29.7 36.6 38.5 34.6 29.9 106 Interesl Payyments -130.3 *130.9 .90.0 .108.2 .107.1 -126.8 -123.5 .124.5 -116.2 .117.7 *124.6 -137.9 -152.4 107 Others 53.9 83.7 93.9 123.1 125.7 128.6 132.6 141.2 145.9 154.3 163.2 172.5 182.3 108 109 Transiters 35.2 23.9 32.9 36.0 36.3 36.3 37.0 38.3 39.8 41.2 42.7 44.3 46.0 110 III Curenl AcoDur .2024 217.7 10Z3 -47.4 -42.3 -47.6 .66.6 -85.2 .95.1 -111.9 -131.5 -158.5 -172.3 112 CapIWAoeount .1.5 -80.2 -14.6 217.4 653.1 104.1 125.5 161.6 158.6 180.5 206.3 237.8 255.8 114 115 DlcectForelgnlnvestmenl 0.0 0.0 73.1 30.0 33.3 36.6 41.0 46.7 53.3 60.8 69.4 79.1 90.3 116 117 Not IMTFkws -83.4 165.1 -576.1 -62.5 529.7 -11.4 .3.2 20.6 -66.5 -74.1 -84.7 -96.8 .131.6 118 DIsbusements 141.8 628.8 80.0 140.9 715.4 167.8 154.1 186.4 202.1 214.1 233.5 256.7 279.5 119 Amorizutlons 225.2 463.7 656.1 203.4 185.7 179.2 157.3 165.8 268.7 288.1 318.2 353.4 411.1 120 121 Other CapItal Flows .99.9 -4.6 352.0 70.0 70.6 70.6 71.8 74.5 77.2 80.1 83.1 86.1 89.3 122 123 Other 181.8 -240.7 136.4 150.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 124 125 Flnandng Gap 0.0 0.0 0.0 29.8 19.5 8.4 15.9 19.7 94.6 113.6 138.3 169.3 207.8 126 127 Overal BOP Swuplus -203.9 137.5 87.7 170.0 610.8 56.5 58.9 76.4 63.5 68.5 74.5 79.3 83.5 128 Change In etlntemalIonalReserves -143.8 136.7 245.9 300.0 41.3 56.5 58.9 76.4 63.5 68.5 74.5 79.3 83.5 129 Arrears 60.1 -0.8 158.2 130.0 -569.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 130 Amortizatlons 44.4 13.9 122.2 100.0 -425.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 131 Interest 15.7 -14.7 36.0 30.0 -144.5 0.0 0.0 nO.0 0.0 0.0 0.0 0.0 0.0 132 133 Wemo Items: 134 NomlnalExchangeRato(Average) 840.0 1120.0 1230.0 1330.0 1507.7 1659.9 1769.2 1857.2 1941.5 2028.6 2123.4 2216.9 2318.6 135 Real Exchange Rate 220.3 218.6 176.2 165.6 166.2 167.8 164.1 158.1 151.6 145.3 139.5 133.7 128.3 136 Imlicf tExchangeRateon Imports 218.6 176.2 165.6 166.2 167.8 164.1 158.1 151.6 145.3 139.5 133.7 128.3 137 OR Poicy Variable I 1 1 1 1 1 1 1 1 1 1 1 138 Real Elt. Exch. Rate (1982-1) 1.4411 1.5276 1.3477 1.4281 1.4302 1.4316 1.4316 1.4345 1.4366 1.4366 1.4366 1.4366 1.4366 139 Amortization (DRS) 236.7 140 BOPlnteresl-DRSlnterest -77.5 -39 -114.5 -144.5 0 0 0 0 0 0 0 0 0 141 TetrmsofTrade(1982-100) 116.1 113.6 97.9 92.5 94.8 98.1 98.3 98.4 97.6 97.0 96.5 55.8 95.3 142 GapplusNetMLT -83.4 165.1 -576.1 -32.6 549.2 -3.0 12.7 40.4 28.0 39.6 53.6 72.6 76.2 143 Nei Binaionals 144 Stock of Intl. Reserves 291.2 427.9 673.8 973.8 1015.1 1071.6 1130.4 1206.9 1270.4 1338.9 1413.4 1492.8 1576.3 145 Me Ind. Reserves -164.5 -45.2 75.0 39.5. 95.5 91.1 92.6 -83.3 143.1 143.8 -136.7 -245.9 Arreare 15.9 83.5 127.4 79.3 60.1 -0.8 158.2 Anortizadonc 14.3 51.3 86.6 58.3 44.4 13.9 122.2 Interest 1.6 32.2 40.8 21.0 15.7 -14.7 36.0 Source: Central Bank of Paraguay nd World Bank etimatas. IIThe first preention of 1988bI with the old methdology of the Central Bank. 21 Does not include binstonal non-factor services 31 In 1989. thb Includes rescheduled BziazBn debt and pdecipr and interest ar* r. 41 In 1990 the couoterpart of the gift of the Brazilian debt rduction Is included. 51 Incudes loans and arrens of ltaipu. 81 In 1990. the gift of the Brazirian debt reduction Is inckuded: aiso include. short taenn flows. 27-Sep-91 T7M 3.2. PARAOUAY - CO0"O 0F REOTER£8 EXPORTS (FroS. 1975-1390 1976 19n 1979 1979 19I0 1981 19S2 1983 1984 1985 1984 1987 1e88 i989 mnAZo. of cwu. US9 Wdur Expo 177.7 274.6 261.2 299.5 306.3 296.3 327.6 263s 329.9 302.3 198.4 332.1 486.6 911.9 maudAntuNg 33.4 47.1 46.6 64.3 8. 60.0 61.7 3e.9 36.9 25.0 38.6 58.9 62.6 105.9 PMuConm~desh 144.3 227.5 214.6 235.2 2223 236.3 208.9 227.0 291.0 277.3 161.6 273.2 433.7 606.9 N oiju.d 142.2 226.1 213.4 234.1 22298 236.3 266.0 227.0 29.0 277.3 161.6 273.2 433.7 806.9 Food 96.4 137.0 109.0 131.6 107.2 366 139.7 136.9 149.2 131.1 109.5 163o 240.6 693.3 Non*oadAgdoukLtw 48.3 94.2 109.3 107.2 116.9 130 126.4 96.3 146.4 147.8 86.9 110.6 215.5 309.0 MOWl MIA Miewas 0.0 0.0 0.0 0.0 0.0 0.7 0.0 0.1 0.0 0.0 0.0 0.7 0.7 0.2 Fes 2.0 1.4 1.1 1.1 o.G 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 m b m Soybeu¶ 34.1 s6. 41.6 61.3 483 52.s 91.0 68s 101.6 106.3 4s.6 126.0 157.8 390.2 Coton 34.6 60.6 100.0 98.6 106L5 1 29.5 122.5 8.2 131.2 141.6 6o.s 101.0 209.6 306. mUon. tf conetat 1982 US* bMtmwdk.e Expor. 260.6 327.2 311.9 s71.0 437.3 311.2 327.6 260.9 297.0 29S.7 212.0 403.2 371.3 819.8 Mmwl.9ot 86. 1O0.2 107.1 223.6 175.5 6.4 81.7 52.2 54.1 26.4 632 96.4 41.6 90.4 Pfmm Convwdftls 194.4 221.0 204.9 347.5 261.3 226.8 2e6.9 226.7 242.9 269.4 166.8 306.9 329.7 729.4 Non.Fu.ls 1119.6 217.9 203.0 348.1 261.9 226.8 206.9 226.7 242.9 269.4 16S. 306.9 329.7 729.4 Food 1 2.9 132.3 104.7 193. 136.2 101.6 139.7 149.2 14.5 139.4 127.0 236.8 167.4 639.4 NonFood AgrkotihAs 67.2 96.3 107.2 1 66.0 12.4 124.1 U.4 89.6 106.2 ¶33.7 64.5 89.4 181.3 283.1 Metal and Me¶M315 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0 0.0 0.0 0.6 4.1 4.3 F.._ 4.8 3.1 1.9 2.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 eMo hkN Soybee 61.5 r,7.9 41.9 1 1.3 64.8 S3.4 91.0 97.8 939 104.9 64.1 179.4 108.5 380.8 Cotton 44.(; 76.9 96.5 149.7 112.4 116.8 122.S 81.4 96S. 130.9 62. 64.6 175.8 281.0 sft.s US$I 11982- I.001 w dbs Exports 0.63 0.84 0.84 0.52 0.71 0.96 1.00 0.94 1.11 1.02 0.94 0.82 1.31 1.11 mfatla*Ig 0.39 0.44 0.44 0.23 o0S 0.70 1.00 0.71 0.72 0.9s 0.89 o.61 1.27 1.17 twyn Conoditds 0.74 1.03 1.06 0.63 0.85 1.04 1.00 0.99 1.20 1.03 1.02 0.89 1.32 1.10 Non*ik 0.75 1.04 1.06 0.68 0.85 - 1.04 1.00 0.99 1.20 1.= 1.02 0.89 1.32 1.10 Food 0.76 1.04 1.04 o.66 0.78 0.97 1.00 0.92 1.02 0.94 0.8 0.77 1.44 1.10 Non-FoodAgulcim 0.73 0.99 1.02 0.es 0.92 1.10 1.00 1.08 1.3a 1.11 1.33 1.24 1.19 1.09 M.t1 d MOLWis - . - - 3.ae 1.00 1.07 1.00 1.so 2.13 0.88 0.18 0.04 Fuel 0.42 0.47 0.60 0.48 - 0.60 - - - - 2.67 wmo kuuw Soybean 0.66 1.02 0.99 0.6e 0.70 0.98 1.00 0.90 1.06 1.01 0.71 0.70 1.45 1.02 Coon 0.79 1.06 1.04 0.66 0.95 1.11 1.00 1.06 1.34 1.08 1.29 1.19 1.19 1.09 rwlh Ratee IpercWlo eW'udl_ Export 1.6 *4.7 63.1 -23A4 .268 5.3 -14.2 5.7 -0.4 -28.3 90.2 -7.9 120.8 fsOdscl . 23.4 0.8 108. -21.5 -61.3 -27.7 -154 3.7 -S1.3 101,8 81.1 -66.8 117.1 Ftnary Ccnmodhes 13.6 .7.3 6s.6 -24.6 -138 17.7 .14.0 6.2 10.9 -41.0 93.3 7.4 121.2 Non-Fuels - 14.9 e.a 70.0 -24.1 -13.8 17.7 -14.0 a.2 10.9 *41.0 93.2 7.4 121.2 Food - 0.1 -21.6 67.8 .24.7 -2e.4 37.2 6.8 .1.8 -4.8 -6. 86.4 -29.3 222.3 Non-Food Agulw - 50.5 12.4 54.0 23.4 1.8 3.65 30.3 6L.6 25.9 -51.7 36.6 102.7 s6.2 MOW wldMlee . 41.9 12.4 64.0 23.4 -1.8 3.5 30.3 16. 26.9 -61.7 36.6 102.7 56.2 FU - -368 e 39.3 30.3 -oo.o - *100.0 - .100.0 seno tsn:. Sybemns 12.4 -27.7 182.4 -4.3 -17.5 70.3 7.6 -4.1 11.8 -38.9 179.9 -39.6 260.6 Cotcn , 74.9 25.4 55.2 .24.9 3.9 4.6 *3.5 20.6 33.4 .52.2 35.2 107.8 69.6 Kuer Centl Bak of Peeousy end Woad S8a sownites. 16-Oct-91 - 162 - Trde 3.'3 PARAOUAY CO 1o08MN Or REGOlTIM IMPOATI (FOB). 1876-199 1978 1977 1978 1979 1980 1981 1982 1983 1984 1985 1988 1987 1938 1989 in malone of ow.t US$ Meehwdl. FIte 194.1 300.0 307.4 420.7 459.1 481.2 509.3 411.2 441.6 358.4 379.9 517.5 386.5 714.4 Meudewln 120.9 206.2 206.2 2e6.L 273.9 3080 283.6 196.5 107.0 202.4 240.2 348.5 248.4 ss68 Caphtl oods 89.9 129.6 118.4 144.5 14.2 178.4 150.3 110.6 15S.9 95.9 132. 184.0 130.3 2739 O C0w rmrwfwfb, 51.0 78.8 8(. 8 120. 125.7 129.8 133.4 8s.e 91.0 106.5 107.6 1O25 115.1 284.2 Piama Comwodi. 73.2 91.8 102.2 15.6 181.3 152 225.6 214.7 234.8 158.0 139.8 171.0 121.1 15.2 Non*uel. 30.6 38.6 3Z2 82.4 42.5 38.0 G8.5 6e.0 32.3 38.1 4L.1 38.8 27.4 37.0 Food IZ2 11.2 10.4 14.2 17.5 '.7 13.8 24.0 7.1 18.6 0.5 5.7 4.0 7.9 M etl.nd P.bwde 18.4 24.3 22.4 38.3 26.0 2e.3 "1.a 4 5. 1 2S.2 21.3 32.6 33.1 23.4 29.2 Fuel 42.6 58.2 69.4 103.2 138.8 117.2 187.1 145.8 202.3 117.9 96.7 132.2 93.6 119.2 hI mINon, of conctmnt US, Mverhe"l hr4o 343.e 5os.0 479.2 548.4 5r0.9 517.0 509.3 3a3.9 384.0 278.2 292.2 383.3 256.9 444.7 Mw haoux'. 200.6 331.8 269.6 336.2 388.5 341.0 283.6 13A9 180.9 177.9 188.2 247.9 168.1 330.9 Capia Goods 126.0 198.4 151.9 174.6 179.8 204.2 150.3 1O04 99.9 89.3 98.9 142.2 98.3 180.7 Othw nmwfactxe 75.5 1 3.4 117.9 l1l. I 18.8 136.7 133.4 80.5 81.0 8.5 89.3 1O0.6 70.0 1A.1 PmarvCommodlee 143.O 173.7 209.4 213.1 188.3 176.1 225.6 180.0 203.1 100.3 104.1 135.5 So.6 113e Nan-Suse 38.2 50.2 44.5 656. SO.3 50.6 58.5 61.6 26.4 26.5 27.3 24.3 .16.3 21.1 Food 14.4 L2.4 14.7 17.5 16.9 19.2 13.8 21.9 s.6 11.1 6.2 4.0 2.7 4.8 metal ndW meelh 21.6 37.8 29.8 483 31.4 31.4 44.8 39.7 20.7 15.4 21.1 20.3 13.6 16.3 Fues 1l17 123.5 164.9 148.3 135.0 125.5 167.1 118.4 17a.7 73.8 76.8 111.2 74.5 92.6 Defleto,s I1 982 . I 001 Mercharwhie knpot 0.86 0.59 0.64 077 0.83 0.S9 1.00 t.13 1.16 .29 1.30 1.38 1.43 1.81 ManulecUalog 0.60 0.63 0.7 0.79 0.75 0.90 1.00 1.07 1.14 1.14 1.28 1.40 1.48 1.89 CapIa Goods 0.58 0.66 075 0.83 0.82 0.87 1.00 1.07 1.16 1.07 1.34 1.29 1.37 1.82 Odw madrcumes 0.67 0.69 0.74 0.75 0.e8 0.96 1.00 1.08 1.1Z 1.20 1.20 1.54 1.83 o.89 Pibis V ConmlodIde 0.49 0.53 0.49 0.73 0.98 0.37 1.00 1.19 1.16 1.55 1.34 1.26 1.33 1.37 Non-Fls 0.84 0.71 0.74 0.78 0.85 0.71 1.00 1.12 1.22 1.44 1.58 1.59 1.69 1.75 F;od 0.84 0.90 0.71 0.61 0.93 0.40 1.00 1.10 1.23 1.sl 1.87 1.41 1.43 1.63 Metal nd lIlral 0.85 0.64 0.75 0.78 0.80 0.90 1.00 1.14 1.22 1.39 1.56 1.83 1.72 1.79 Fuels 0.38 0.48 0.42 0.71 1.03 0.93 1.00 1.23 1.IS 1.60 1.2' 1.19 1.26 1.29 Growth Ret mer*.wme kneom 44.6 -5.2 14.7 0.3 A1 .1.5 .28.5 5.F -27.5 5.1 31.2 -33.0 73.1 Mani?humm 65.4 -18.7 24. 8.7 .6.7 -16.8 .35.2 -1.6 .1.7 5.8 31.7 .33.0 99.2 Capid Goode - 5.7 .23.5 15.1 L2 13.6 -26.4 .31.2 .3.4 -106 10.7 43a8 33.0 * 9.6 Otdw ntdwtae . 76.5 .11.6 3d.9 15.1 .28.4 .2.5 .39.7 0.7 9.2 0.9 18.3 -33.0 112.0 h7^0t Com*dW" - e16.6 20.5 1.6 -110 5.0 28.1 -20.2 12.8 e 50.6 17 30.2 *33.0 2S.4 Non-Fuels - 38. -11.4 50.2 .24.8 0.6 15.7 5.2 -57.1 0.3 3.2 -11.1 .33.0 29.9 Food ' 14.1 18.3 11.8 7.6 1.5 -28.2 58.9 .73.7 93.3 -43.9 -35.6 5 33.0 '1.2 Meta nd -inerals 732. .21.1 8s.3 -38.3 0.0 426 .11.3 -48.0 -25.6 37.2 -8 .33.0 *o.1 Fues 9.86 3.5 11.3 7.77 7.1 33.1 .29.1 49.1 -se.2 3.9 44.6 -33.0 24.4 Sourte: Central Swis of Pwagay and World Ban es*rl . I 8.Ot- - 163 - Tabil 3.4: PARAGUAY * AVERAGE MARKET EXCHANGE RATE. 1980-1990 (Guaranlee per US$$ 1980 1981 1982 1983 1984 198E 19S6 1S37 1S8B 1989 1 January 138 135 161 255 339 402 773 716 e92 1070 121- February 138 1z8 155 238 335 408 831 710 893 1076 12.55 March 138 137 15B 236 36e 435 790 719 885 1005 1217 April 137 136 158 242 368 532 771 751 888 1013 1237 May 136 138 165 270 365 551 732 796 889 1069 1252 June 136 140 182 311 404 609 706 801 892 1144 i2.2 July 135 144 192 333 f5 663 671 801 911 (238 1201 August 135 148 227 423 404 848 651 806 921 1267 1198 Septembae 134 158 257 422 425 786 623 848 954 1190 1196 October 135 165 282 390 403 723 598 8d5 970 1185 1201 November 135 170 257 343 399 655 612 £50 1013 1204 1210 December 135 173 239 334 382 652 651 870 1026 1220 1270 Quarterl 138 137 157 243 347 415 798 715 890 1050 1254 Quarter II 136 138 168 274 379 564 736 783 890 1075 1235 Quarter II 135 150 225 393 411 766 648 818 930 1232 1198 Quarter IV 135 169 259 35:8 335 677 620 882 1003 1203 1234 Semester I 137 138 163 259 363 490 767 749 890 1063 1244 Semester 11 135 160 242 374 403 721 634 850 966 1217 1216 Annual 136 149 203 316 383 605 ;O1 799 928 1140 1230 Source: Foro do Econcrnia, Centro Pirague- de Eatudios Sociologicos and Banco Cent-el. 23-Sep-91 Table 4.1: PARAGUtAY; EXTERNAL 5EiT AND EC6BT SEFtVICE, 1975 1-So (US1 5MIions) 1975 1980 1981 1982 1983 19?4 1995 198b 1327 .9S8 1989 1990 LongTnr Debt 222 784 842 lC70 1273 13£ i636 1912 2253 2121 2124 1755 OtbWcI ources 139 405 465 567 7'0S 7AL@ lI4 t 12FS 1324 1256 C61l 1206 0/w iSHD 8 a8 99 147 6e8 179 248 316 37: 316 282 279 Priva.. Sou .1 89 37r 387 313 607 M69 696 054 929 SoS 613 W50 Sbc Turnm Debt 0 174 308 226 141 173 174 268 231 261 376 Interedt Arrears 8 2 32 Al 16 29 22 TotiDebt 233 958 1;5'w 1296 1414 147<: 131G 2086 2521 2352 2385 2131 LangT.rm DebtaervucePaymnnts 24 125 13' 100 101 137 158 222 225 296 142 :96 Ainordzat-om 22 t0 96 el 63 76 78 132 131 183 77 121 kxUs st 9 45 36 45 48 01 60 90 94 1 3 65 7t Intatrtor. itortTerm D bt 0 22 40 36 1 1 3 1 16 20 0 13: TotalU btServicePayments 30 1'7 171 142 102 137 153 223 240 318 152 2095 CLbt Rfolo _ - ngT*, Debc/GDP 1B 18 16 20 23 31 62 64 60 SC 52 33 Long Debt/ExportsG&NFS 8a 100 109 13C 172 too 2V4 242 279 183 138 126 Deb Serv..;aRetio 4 12 13 22 18 14 1S 24 28 30 27 10 1S Yotdl O*Lir. UP 15 2Z 20 24 25 33 57 59 68 60 SS 40 PubI and P.u- 1y Guwarnteed LT Debt Iv. Z of TettA Long Term robtl 83 , e4 e8 90 92 94 96 99 SW 99 99 aI Totel Daht Services Pymnts as s parcent of exponts n joods and servIces. Source: .Vold 9Iank- Debtor Peponin; S /stem. 23-S4p 91 Table 5.1: PARAGUAY - CONSOLIDATED PUBLIC SEtCTOR BUDGET. 1970-1990 (Current Guaernies. Millions) 1970 1971 1972 197_ 1974 1975 1976 1977 1978 1979 Current Revenues 12658 13099 14226 17173 23699 26921 30630 39791 51382 53422 Trea,;fers 1 0 0 0 0 0 0 0 0 0 Central Government 1 0 0 0 0 0 0 0 0 0 Decentralized AGencies 0 0 0 0 0 0 0 0 0 0 Muni0oalities 0 0 0 0 0 0 0 0 0 0 Public Enierprises 0 0 0 0 0 0 0 0 0 0 CurrentExpenditures 10196 11174 12650 13013 16256 19338 22000 25774 29833 38247 Personnel Services 595 9 6522 6744 6920 8114 9722 11584 13533 16094 19796 Other Services ,45A 2608 2949 3443 4948 5574 6030 6678 7740 10115 Domestic Interest 87 8e 1F4 126 226 177 227 302 249 489 External Interest 546 545 748 682 743 866 922 1274 1394 2110 Taxes 0 0 0 0 0 59 68 211 91 324 Transfers 1406 1411 2055 1342 2225 2940 3169 3774 4265 5412 Current Savings 2463 1925 1576 4160 7443 7583 8630 1.4018 21549 2S378 Transfers and Loans 0 0 0 0 0 0 0 0 0 0 TotalCepilalExpcnditures 3317 3741 4410 4912 7145 17117 15604 6072 21534 23703 Real Investment 2425 3075 4026 4989 5910 9040 12923 13822 16549 21188 ChangeinInventories 361 235 129 *226 653 1073 789 907 2248 510 Financial Investment 531 431 255 149 582 6998 1892 1342 2737 2006 Financing Needs 855 1816 2834 752 -228 9:34 6974 2054 *15 -5276 Exter-el Financing 751 79S 1361 1963 2873 9790 6123 6481 787. 2323 Internal Financing 104 1018 1473 -1211 -3171 -256 851 -4427 .7890 -7798 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 6.1: PARAGUAY - CONSOLIDATED PUBLIC SECTOR BUDGET, 190.0-'990 (Current Guaranies. Millions) 1980 1981 1982 1983 1984 1985 1986 1D87 1988 19^3 1990 CurrentRevenues 82091 95111 111332 116642 140298 195957 250528 364029 473609 795775 1224473 Transfers 0 0 0 109 0 0 0 0 0 0 0 Central Government 0 0 0 109 0 0 c 0 0 0 0 Decentralized Agencies 0 0 0 0 0 0 0 0 0 0 0 Municipalities 0 0 0 0 0 0 0 0 0 0 Public Enterprises 0 0 0 0 0 0 0 0 0 0 0 Current Expendirures 52353 72539 90639 103862 119218 142149 189787 269468 Z30924 635747 859680 PersonnelServices 26762 37447 45990 53696 57479 70770 82007 112528 146031 244664 385447 Other Services 14656 20843 17231 19140 16134 26072 38780 4P918 57389 89246 124624 DomesticInterest 415 451 915 1511 2713 2415 22q7 4862 6150 6637 9725 Externel Interest 2687 3281 6301 5885 8001 9875 16122 32089 39770 142924 133476 Texes 346 365 284 111 1321 29 i3906 20743 19128 43263 57076 Translers 7586 10153 19919 23513 33570 32988 37679 49329 62456 109014 149331 Current Savings 29738 22573 20693 12889 21080 53808 60741 94561 142685 160028 364793 Transleus and Loans 0 0 0 -207 *307 .447 *1779 .342 1232 -188 .4406 Total Capital Expenditures 29428 43265 40231 56112 89652 90237 92673 167754 246590 115118 322367 Real Investment 24958 29751 33059 54239 71650 71086 76520 99349 197070 231210 287697 Change in Inventories 1007 1067 3651 *1355 7210 11645 5531 21540 4877 55856 810 Financial Investment 3463 12447 3521 3227 10792 7506 10622 47865 44643 2dO52 33860 <;nancingNeeds -310 20692 19538 43430 68879 36876 33711 73536 102673 155277 -38021 External Financing 3071 6286 7721 29000 45110 13221 49203 12577 76685 66859 96033 Internal Financing -3381 14406 11817 14430 23769 23656 -15493 60959 25988 88418 -134054 Source: Ministry of Planning and Bank estimates 18-Sep-91 Tebl6 5.2: PARAGUAY - CENTRAL ADMINISTRATION BUDGET, 1970-1990 (Curler,t Guaranies. Millions) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Current Revonues 8784 8909 9478 11590 16262 17894 19244 26379 34333 43629 Transfers .518 -563 .518 -534 -814 -1118 -1140 -1235 .1491 -215i Centrd Government -518 -563 -518 -534 -814 .1118 -1140 -1235 -1491 -2151 Decentralized Agencies 0 0 0 0 0 0 0 0 0 0 Municipalities 0 0 0 0 0 0 0 0 0 0 Public Enterprises 0 0 0 0 0 0 0 0 0 0 Current Expenditures 6851 7120 8118 8974 11240 13294 14913 17318 20125 25042 Personnel Services 3700 3875 4344 4490 5096 6126 7326 8529 10125 12205 Other Services 1955 2021 2320 2816 4226 4853 4964 5448 6181 7900 Domestic Ilnterest 47 46 45 56 51 55 60 53 57 51 External Intoeost 201 Na7 322 247 272 308 323 G38 795 1265 Taxes 0 0 0 0 0 0 0 0 0 0 Transfers 948 992 1087 1365 1595 1953 2239 2650 2967 3632 Current Savings 1415 1226 842 2082 4208 3482 3191 7826 12717 16436 Transfers and Loens *378 -292 -290 -366 -734 -497 -562 -769 -966 -1067 Total Capital Expenditures 1119 1359 1520 1580 2143 3714 6926 6478 8194 12345 Real nvesimant 907 1090 1297 1388 1964 3471 5874 6051 7768 11379 Change in Inventories 0 0 0 0 O 0 0 0 119 0 Financial Investment 212 269 223 192 179 244 1051 427 307 966 Financing Neods 82 425 968 *136 -1331 730 4296 -579 -3557 -3025 External Financing 284 261 289 302 313 13 53 4421 2526 19G8 1956 Internal Financing -202 164 679 -438 -1644 -633 -125 3105 *552c -4981 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 5.2: PARAGUAY- CENTRAL ADMINISTRATION BUDGET 1370-1990 (Current Guaranegs, Millionu) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Current Revenues 51592 59107 68430 65459 85248 110249 143CS5 202376 263548 523391 816138 0 Transfers .2915 -3941 .4278 -4732 -4561 -4949 -7634 .8173 .11186 -29252 -30066 Central Government -2915 -3941 -4278 -4732 -4561 -4949 -7634 .8173 -11186 -29252 -30066 Decentralized Agencies 0 0 0 0 0 0 0 0 0 0 0 MunIcIpalties 0 0 0 0 0 0 0 0 0 0 0 Public Enterprises 0 0 0 0 0 0 0 0 0 0 0 Current Expenditures 35149 49050 E9817 68476 76459 92422 110868 152385 134056 353978 521287 Personnel Services 15938 22474 28288 32439 34319 40780 47108 63817 78994 141040 245000 Other Services 12340 17717 13434 16034 13157 19488 29294 37257 42295 70001 105899 Oomettilntetest so 107 so 119 8oo 00o 784 482 (t8O 478 717 External intetest 1707 2040 2458 2587 3999 5839 8895 19192 23140 67509 63561 Taxes 0 0 0 0 0 0 0 0 0 0 0 Transfers 5106 6712 15552 18297 24095 25408 24787 31437 39056 74950 106109 Current Sevings 13528 6117 4335 -7749 4228 12878 24563 41818 68304 140161 264785 Transfers and Loans -2761 t1528 -921 -834 -1325 -1277 .3037 -3328 -1361 -5300 .15000 Total Capital Expenditures 12151 24448 14486 12797 34353 33400 10733 40367 63692 47412 73071 Real Investment 10694 14743 14034 12677 29273 29716 10283 27742 61935 43864 43308 Change in Inventories 0 0 a 0 0 0 383 0 0 0 763 Financial Investment 1457 9705 452 120 5080 3684 67 12626 1756 3548 29000 FinancingNeeds 1384 19858 11072 21380 31450 21798 -10793 1877 -3251 -87450 .176714 Exlernal Financing 2538 2211 278 6107 14727 10719 4169 2953 9791 25957 8334 Internal Financing -1154 17647 10794 15273 16723 11080 -14962 -1076 -13042 -113407 -185049 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 5.3: PARAGUAY - DECENTRAUZED AGENCIES BUDGET, 1970-1990 (Current Guaranies, Millions) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Current Revenues 1729 1614 1748 2186 2538 3612 4106 5032 6295 7860 Transfers 358 409 451 470 679 742 816 981 1338 1740 Central Government 358 409 451 470 579 726 797 958 1284 1728 Decentralized Agencies 0 0 0 0 0 0 6 17 0 0 Municipalities 0 0 0 0 0 0 13 a 10 12 Public Enterprises 0 0 0 0 0 16 0 0 44 0 Current Expenditures 1490 1668 1927 1971 2368 2911 3358 3883 4772 6597 Personnel Servicos 758 836 908 987 1181 1295 1593 1835 2221 2959 Other Services 368 458 526 531 696 560 733 849 1204 1853 Domestic Interest 10 14 25 24 22 27 24 25 28 41 External lnterest I1 13 21 18 19 42 75 107 85 85 Taxes 0 0 0 0 0 59 68 33 13 14 Transfers 343 347 447 411 550 928 866 W034 1222 1645 Current Savings 595 255 272 685 749 1443 1565 2131 2860 3002 Teenaters and Loans 99 62 71 60 12 17 46 89 49 2 Total Capital Expenditures 576 326 295 259 822 1841 1828 1594 1301 2505 Real Investment 329 200 214 198 330 313 548 650 240 1451 Change in Inventories -19 27 25 71 108 121 319 84 387 85 Financial Investment 266 99 56 -10 384 1407 961 860 674 969 Financing Needs -118 9 .48 -486 61 381 217 -625 -1609 -499 External Financing 206 39 44 47 296 382 314 -62 -111 -122 Internal Financing -324 -30 -92 -533 -235 -1 -97 -563 -1498 -377 Source: Ministry ol Plarnning and Bank estimates 18-Sep-91 Table 5.3: PARAGUAY- DECENTRAUZED AGENCIES BUDGET, 1970-1990 lCurrent Guarernies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Current Revenues 10396 12845 14061 17275 16922 20102 29839 44129 59852 85955 97560 Transfers 2114 2923 3268 3622 3472 3806 5519 6748 8689 15355 15403 Central Government 2072 2880 3232 3622 3463 3749 5459 6674 8600 15149 15403 Decentralized Agencies 25 24 0 0 9 9 12 0 0 0 0 Municipalities 17 19 27 0 0 48 48 61 76 137 0 Public Enterprises 0 0 9 0 0 0 0 13 15 69 0 Current Expenditures 7911 10377 12844 14722 18057 20932 29788 38857 48977 84515 84058 PersonnelServices 3590 4661 5712 6489 6761 8546 9573 11185 13978 25065 32299 OtherServices 1810 2431 2859 3158 1894 5189 7910 9728 11724 14948 13171 Domestic Interest 44 59 58 65 44 38 73 50 162 230 91 Externallnterest 82 77 70 91 68 163 197 296 213 11767 117 Taxes 21 40 48 50 314 29 90 717 872 217 0 Ttanslers 2364 3110 4097 4869 8977 6966 11946 16900 22028 32290 38380 Cuirent Savings 4599 5391 4486 6175 2337 297G 5570 12020 19564 16795 28905 Transfers and Loans 1706 140 97 82 276 9 235 /34 595 3312 6000 Total Capital Expenditures 3370 4304 4804 5359 3434 4638 7229 9127 11690 21364 24497 Real Investment 1480 1852 2378 2914 1870 1967 1874 4419 3937 7953 19261 Change in Inventories 220 1 7 0 -246 100 786 281 431 3554 0 Financial Investment 1670 2451 2419 2445 1811 2571 4569 4428 7322 9857 5236 Financing Needs -2936 *1227 222 *897 821 1653 1424 *2159 -8469 1257 -10408 ExternalFinancing -60 -149 -61 574 213 144 1111 1361 311 *1568 8856 Internal Financing -2876 -1078 283 *1471 608 1509 313 .3S20 -8780 2825 -19264 Source: Ministry of P!anning and Bank estimates 18-Sep-91 Table 5.4: PARAGUAY - MUNICIPAUTIES BUDGET. 1970-1990 (Current Guaranies. Milions) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Current Revenues 449 479 501 534 598 664 964 1282 1541 1933 Transfers 6 13 0 0 3 182 73 57 -10 48 Central Government 6 13 0 0 3 182 86 66 0 60 Decentralized Agencies 0 0 0 0 0 0 0 0 0 0 Municipalities 0 0 0 0 0 0 -13 -8 -10 -12 Pubic Enterprises 0 0 0 0 0 0 0 0 0 0 Current Expenditures 378 393 377 399 453 544 £28 1077 1141 1277 Personnel Services 240 251 265 287 306 359 469 632 746 87' Othet services 136 129 103 96 126 162 333 381 356 36: Domestli- Intereet 0 0 0 4 6 6 18 37 .6 )W External Interest 0 I 0 0 I I 1 2 0 Taxes 0 0 0 0 0 0 0 0 0 Transfers 3 12 9 12 14 17 6 25 14 1 S Current Savings 77 99 124 1 it 148 302 209 262 389 704 Ttansfers end Loans -1 0 0 5 0 -4 0 0 57 0 Total Capital Expenditures 68 74 70 188 222 353 415 511 713 835 Real Investment 91 88 112 231 274 368 S72 474 817 907 Change in Inventories 0 29 0 0 0 0 0 0 0 0 Financial Investment -23 -43 -42 -43 -52 -15 -157 37 .105 -72 Fnancing Needs *8 *25 54 58 74 56 206 249 267 131 External Financing -6 9 -S -4 28 -10 -3 -10 -13 -20 Internal Financing -2 .16 -49 62 46 66 208 258 280 151 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 5.4: PARAGUAY- MUNICIPAUTIES BUDGET. 1970-1990 (Current Guarenies, Millionsl 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CurrentRevenues 2633 3244 3832 4476 4901 5898 6986 9220 11334 13542 17500 Trensfers 83 116 172 252 302 258 441 349 511 620 629 Central Government 100 135 200 252 302 306 489 410 586 658 629 Decentralized Agencies 0 0 0 0 0 0 0 0 0 0 0 Municipalities -17 -19 -27 0 0 *48 -48 -61 -75 .137 0 Public Enterprises 0 0 0 0 0 0 0 0 0 0 0 Current Expenditures 1746 2344 2714 3173 3255 4180 4893 6109 7491 10456 12630 Personnl Setr-ices 1129 1548 IR34 2070 1992 2553 2879 3695 4755 7399 8020 Oiher Sarvices 501 605 707 817 940 1161 1425 1831 1981 2157 3340 Domestic Interest 49 43 25 126 59 79 118 150 152 150 250 txternal Interest 0 0 0 0 0 0 9 4 12 8 20 Taxes 0 0 0 0 0 0 0 0 0 0 0 Transfers 67 148 148 160 2b.3 386 463 430 591 743 1000 Current Savings 970 1016 1290 1556 1948 1977 2534 3460 4354 3605 5499 ' Transfers and Loans 199 0 0 0 0 0 0 0 0 0 0 TotalCepitalExpenditures 1357 1516 1718 1826 2431 3411 3447 5175 6647 7490 11600 Reel lnvestment 1542 1618 1914 2044 2628 3697 3667 5547 7157 7462 12100 Change in Invertories 0 0 0 0 0 0 33 0 0 0 0 Financial Investment -185 -102 -197 -218 -197 .286 -253 -373 -510 28 -500 Financing Needs 189 501 428 271 483 1435 913 1715 2294 3885 6101 External Financing 0 105 0 0 69 0 .12 *36 -67 -90 0 Internal Financing 189 396 428 271 414 1435 925 1751 2361 3975 8101 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 5.5: PARAGUAY- PUBUC ENTERPRISES BUDGET, 1970-1990 (Cufrent Guararlee, Milions) 1970 1971 1972 1973 1974 1976 1976 1977 1978 1979 Current Revenues 16S6 2197 2499 2883 4301 4751 6316 7098 9214 13803 Transfers 157 141 67 64 232 194 261 196 164 363 Central Government 157 141 67 64 232 210 257 213 208 363 Decentralized Agencies 0 0 0 0 0 0 -6 -17 0 0 MunicipalitIes 0 0 0 0 0 0 0 0 0 0 Publio Enterprises 0 0 0 0 0 -16 0 0 -44 0 Current Expenditures 1477 1993 2228 1669 2195 2S89 2902 3495 3795 5331 Personnel Services 1001 1560 1227 1156 1531 1943 2196 2538 3001 3759 Other Services 0 0 0 0 0 0 0 0 0 0 Domestic Interast 30 29 84 42 147 89 125 I8O 139 369 xtttlinal Interat 334 344 40B 417 461 615 523 5d3 514 770 Taxqes 0 0 0 0 0 0 0 17a 70 310 Tranttlers 112 60 B12 G4 De 42 be a6 82 122 Curent Savings 376 345 338 1258 2338 2357 3666 3799 5583 8836 Transefarsend Loans 280 230 219 311 722 484 516 680 859 106S Total Carital Expenditures 1564 1982 2525 2885 3958 11208 6436 7489 11326 8018 Real Investnant 1C88 1697 2403 3172 3342 4894 5929 6647 7723 7451 Change in Inventories 380 179 104 -297 545 952 470 823 1743 425 Financial Investment 76 106 1S 10 71 5363 37 19 1860 142 Financing Needs 899 1407 1968 1316 898 8368 2255 3010 4884 -1882 External Financing 267 507 1033 1618 2236 8056 1390 4027 6030 708 Internal Financing 632 900 935 -302 -1338 312 865 -1017 -1147 -2591 Memorandum: Sales of Goods & Services 3655 4129 4479 5060 6999 8471 9573 13447 16667 23988 Value of Inputs 1959 1932 1980 2197 2698 3719 3257 6348 7453 10185 Value Added 1696 2197 2499 2863 4301 4751 6316 7098 9214 13803 Source: Ministry of Planning and Bank estimates 18-Sep.91 Table 5.5: PARAGUAY - PUBLIC ENTERPRISES BUDGET, 1970-1990 (Current Guarenres, Millions) 1980 1981 1982 1983 1984 1985 1986 1997 1988 1989 1390 Current Revenues 17471 19916 25009 29431 33228 59708 70637 108305 138878 172888 293275 0 Transfers 718 902 838 967 787 884 1674 1077 1986 13377 14034 Central Government 744 926 84b 967 796 894 1686 1090 2001 13446 14034 Decentraiized Agencies -25 -24 0 0 -9 .9 -12 0 0 0 0 Municipalities 0 0 0 0 0 0 0 0 0 0 0 Public Enterprises 0 0 .9 0 0 0 0 -13 -15 *69 0 Current Expenditures 7547 10768 15264 17491 21448 24615 44237 72118 90400 186798 241705 PersonnelSarvices 6107 8764 10157 12699 14407 18891 22447 33851 48304 71160 100128 OtherServices 6 91 230 132 143 234 151 1102 1399 2142 2214 DomesticIntrasl 263 243 746 1201 1621 1389 1318 3979 5255 5778 86t7 tuernal lnterest 799 1164 3772 3207 4035 3873 6021 12698 16(406 63840 00776 Taxes 325 325 237 61 1008 0 13816 20036 18256 43046 57076 Translers 49 182 122 192 235 229 483 5G2 782 1032 3842 Current Savings 10641 10050 10582 12907 12567 35977 28074 37264 50464 *533 65604 p Transfres and Loans 856 1388 B24 545 742 820 1023 3719 1998 1£00 4594 Total Capital Expenditures 12550 12997 19223 36130 49434 48788 71264 113085 164561 238852 213199 Real Investment 11242 11538 14732 36604 37880 35707 60697 60642 124040 171931 213028 Change in Invenltries 786 1067 3644 -1355 7456 11545 4329 21259 4446 52302 47 Financial Investment 522 393 848 881 4099 1536 6238 31184 36075 14619 124 Financing Needs 1052 1560 7816 22677 36125 11990 42167 72103 112099 237585 143001 External Financing 593 4119 7503 22319 30101 2358 43936 8299 66650 42560 78843 Internal Financing 460 -2559 313 358 6024 9632 -1769 63804 45449 195025 64158 Memorandum: Sales of Goods & Services 29614 33715 72617 76932 97669 157564 168335 248001 329102 416541 609088 Value of Inputs 13209 15355 49409 48847 70701 109379 111701 152541 214670 273782 332825 ValueAdded 16406 18360 23208 28084 26968 48185 57234 95460 114432 142759 276263 Source: Ministry of Planning and Bank estimates 18-Sep-91 Table 5.6: PARAGUAY - E. . . ET OF PUBLIC ENTERPRISES, 1580-1990 ,_xrent Guaranies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENT ACCOUNT 11498 11437 11407 13453 13309 36797 29097 40982 52462 2407 70373 CURRENT REVENUES 19045 22206 26671 30944 34757 61413 73334 113100 142862 189196 312005 Value Added 16406 18360 23208 28084 26968 48185 57234 95460 114432 142759 276263 Sales of Goods & Services 29614 33715 72617 76932 97669 157564 168935 248001 329102 416541 609088 (Cost of Inputs) 13209 15355 49409 48847 70701 109379 111701 152541 214670 273782 332825 Other 1065 1556 1801 1347 6260 11524 13404 12845 24446 30129 17012 Current Transfers 718 902 838 967 787 884 1674 1077 1986 14508 14136 Capital Transfers & Loans 856 1388 824 545 742 820 1023 3719 1998 1800 4594 CURRENT EXPENDITURES 7547 10768 15264 17491 21448 24615 44237 72118 90400 186789 241632 Operating Costs 7173 10261 14905 17238 20205 24387 29937 51530 71363 142711 1807i5 Wages& Salaries 5787 8103 9330 11616 12976 17373 20789 30309 42980 63478 89792 Social Security Contrib. 320 661 828 1082 1431 1512 1658 3543 5323 7682 10336 Rent 6 91 230 132 143 234 151 1102 1399 2142 2214 Interest on Internal Debt 263 243 746 1201 *1621 1389 1318 3979 5255 5778 8667 Interest on External Debt 799 1164 3772 3207 4035 3873 6021 12598 16405 63640 69778 Taxes & Transfers 374 507 359 253 1242 229 14300 2058a 19038 44077 60918 Taxes 325 325 237 61 1008 0 13816 20026 18256 42046 57076 Transfers 49 182 122 192 235 229 483 562 7S2 1032 3842 CAPITAL ACCOUNT 12550 12997 19223 36130 49434 48788 71264 113085 164561 238852 213199 Real Investment 11242 11538 14732 36604 37880 35707 60697 60642 124040 171931 213028 Change in Inventories 786 1067 3644 -1355 7456 11545 4329 21259 4446 52302 47 Financial Investment 582 430 940 1208 4281 1669 6735 32405 36690 14685 424 Net Loans 0 0 -43 64 0 66 19 0 0 C 9 Capital Revenues GO 37 49 391 182 199 515 1221 615 67 300 BALANCE -1052 -1560 -7816 -22677 -36125 -11990 -42167 -72103 -112099 -236,445 -142826 Source: Luis A. Campos & Ricardo Canese, 'El Sector Publico en el Paraguay' and Ministry of Finance. 18-Sep-91 Table 5.7: PARAGUAY - EXECUTED BUDGET OF ADMINISTRACION NACIONAL DE ELECTRICIDAD (ANDEi, 1980-1990 (Current Guaranies. Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENT ACCOUNT 5124 5448 5599 5699 7708 10481 10855 15986 22833 32155 31589 CURRENT REVENUES 6812 7666 6143 8631 11174 14582 16454 24047 35607 55881 67857 Value Added 6158 6584 7164 7808 10689 12900 12708 20093 29832 38048 57957 SalesofGoods& Services 7496 8013 8577 944fi 11865 16430 17578 30215 41561 75204 16134 (Costof Inputs) 1338 1429 14t3 1637 1176 3529 4869 10122 11729 37155 58177 Other 654 1081 979 823 485 1682 3745 3954 5775 17832 9900 Current Transfers 0 0 0 0 0 0 0 0 0 0 0 Capital Transfers & Loans 0 0 0 0 0 0 0 0 0 0 0 rURRENT EXPENDIrURES 1688 2218 2544 2932 3466 4102 5599 8061 12774 23726 36269 Operating Costs 1641 2130 2448 2826 3386 4007 5467 7918 12584 23422 35868 c Wages & Salaries 1323 1551 1799 1966 2219 2899 3723 5277 8823 13138 22825 Social Security Contrib. 82 176 200 226 306 414 525 794 1288 1852 3124 Rent 0 31 62 81 109 130 83 98 176 271 531 Interest on Internal Debt 1 1 0 1 1 1 0 0 0 1 0 Interest on External Debt 235 372 387 552 751 564 1136 1749 2296 8160 9387 Taxes & Transfers 47 88 97 107 80 95 131 143 190 304 401 Taxes 38 0 0 0 0 0 0 0 0 0 0 Transfers 9 88 97 107 80 95 131 143 190 304 401 CAPITAL ACCOUNT 3745 2431 2361 4405 15163 8251 20733 21910 38638 145284 195609 Real Investment 3853 2373 2361 4378 12432 7427 13904 15936 26559 133425 195609 Change in Inventories -547 n 0 0 455 966 1836 -171 2037 11803 0 Financial Investment 463 102 64 69 2276 26 5461 fi506 10042 56 0 Net Loans 0 0 -43 -21 0 0 0 0 0 0 0 Cap.sal Revenues 24 44 22 22 0 168 468 360 0 0 0 BALANCE 1378 3017 i238 1234 -7455 2230 -9878 -5924 -15805 -113129 -164020 Source: Luis A. Campos & Ricardo Canese, 'E Sector Publico en el Paraguay' and Ministry of Finar,ce. 18-Sep-91 TaDle 5.8: PARAGUAY - EXECUTED BUDGET OF ACMINISTRACION NACIONAL DE TELECOMUNICACIONES IANTELCOI,1980-90 (Current (iuaranies, Millions) _________________________ 1980 1981 1982 1 S83 1984 1985 1986 1987 1988 1989 1990 CURRENr ACCOUN-r 3522 2757 3255 3750 3355 4219 3904 5887 9948 -/421 16751 CURRENT REVENUES 5372 6296 7315 8660 8838 11999 11792 18688 24343 31819 66303 Value Added 5173 6114 7;0S 8545 8527 11726 11669 i8456 23638 30077 65432 Sales of G(ods & Servires 7235 8786 10121 11619 12969 18G76 22328 33374 45300 67046 81035 (Cost of Inputs) 2062 2673 3012 3074 4442 634Z 10659 1.1919 21662 36969 15604 Other 199 '82 207 115 111 263 124 232 705 1742 871 Current Transfers 0 0 0 0 0 0 0 0 0 0 Capital Transfers & Loans 0 0 0 0 0 0 0 0 0 0 0 CURRENT EXPENDITURES 1851 3539 4060 4909 4983 7780 7888 12q01 15295 39240 49552 Operating Costs 1836 3476 4060 4843 4929 7780 7763 12620 15071 38783 46341 Wages & Salaries 1325 2767 2766 3398 3723 5406 4987 7652 9544 19037 24522 Social Security Contrib. 66 261 339 413 450 671 641 884 1327 2325 3623 Rent 0 A 11 5 1 a 0 0 53 70 84 Interest on Internal Debt 24 24 135 189 '358 149 37 684 218 405 607 Interest on External Debt 4?n 420 810 838 398 1547 2099 3400 3930 1'!P-7 17505 Taxes & Transfers I t 63 0 67 54 0 125 181 224 i7 3211 Taxes 0 0 0 0 0 0 0 0 0 0 0 Tra;sfors 15 63 0 67 54 0 125 181 224 457 3211 CAPITAL ACCOUNT 3432 285. 5494 3653 4712 3624 4612 14296 41392 17823 23689 Real Investr.ment 2931 2631 2822 2177 2443 5522 3497 10288 37894 15776 23476 Change in Inventories 501 23 2281 1476 7U4 -1899 1115 2575 2745 S91 a Financiai Investment 0 197 391 0 1565 0 0 1432 753 1056 213 Not Loans 0 C 0 0 0 0 0 0 0 0 0, Capital Cevenuoz; 0 0 p 0 0 0 0 0 0 0 0 BALANCE 90 -94 -2239 98 -1057 b95 -708 -8409 -32344 -25244 -6939 Source: Luis A. Campos & Ricardo Canese, 'El Sector Publico en el Paraguay and Ministry of Finance. 18-Sep-91 Table 5.9: PARAGUAY - EXECUTED BUDGET OF CORPORACION DE OBRAS SANITARIAS (CORPOSANAI. 1980-1990 ECurrent Guaranies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CUR'IENT ACCOU. 1130 1322 1371 588 1028 1386 1593 2328 3501 3580 6602 CURRENT REVENUES 1840 2165 2116 1553 2414 3238 3745 5157 6554 9546 14053 Value Added 1181 1079 1406 1204 1660 2383 2433 4116 5213 7560 11003 SalesofGoods&Services 1764 1960 2081 2021 2882 4043 4181 6470 8213 11363 15967 ICost of Inputs) 583 880 675 817 1222 1660 1749 2353 3001 3803 4964 Other 11 47 118 51 12 35 289 50 110 186 170 Current Transfers 0 0 O 0 0 0 0 0 0 0 C Capital Transfers & Loans 648 1038 593 298 742 820 1023 991 1232 1800 2879 CURRENT EXPENDITURES 709 843 745 964 1386 1852 2152 2829 3054 5966 7451 ,_ -. Operating Costs 707 838 744 962 1383 1852 2149 2821 3048 5955 7433 Wages & Salaries 502 624 564 766 982 1033 1193 1249 1993 3220 4805 SocI41 Security Contrib. 55 69 71 98 134 125 142 295 269 394 614 Rent 0 6 6 5 7 8 7 0 17 24 26 InterestonInternalDebt 25 80 21 20 24 33 25 79 143 111 167 Interest on External Debt 126 59 81 73 236 653 782 1198 626 2199 1820 Taxes & Transfers 2 5 2 2 3 0 3 8 6 12 18 Taxes 0 0 0 0 0 0 0 0 0 0 0 Transfers 2 5 2 2 3 0 3 8 6 12 18 CAPITAL ACCOUNT 1428 31i7 3739 2206 3513 1545 7134 7053 70-t? 11373 27605 Real Investment 1371 2948 3694 2206 3314 1500 7276 7687 6366 11572 27605 Change in Inventories 84 201 63 0 177 47 -125 190 r'jl2 -281 0 Financial Investment 0 8 0 0 22 12 23 32 ., 91 0 Net Loans 0 0 0 0 0 0 0 0 O 0 0 Capital Revenues 28 0 28 0 0 13 40 855 615 9 0 BALANCE -298 -1836 -2368 -1618 -2485 -159 -5541 -4725 -3546 -7793 -21003 Source: Luis A. Campos & Ricardo Canese, El Sector Publico en el ParagaVy and Ministry of Finance. 18-Sep-91 Table 5.10: PARAGUAY - EXECUTED BUDGET OF FLOTA MERCANTE DEL ESTADO IFLOMERES). 1980-1990 (Current Guaranies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENT ACCOUNT 98 42 144 72 491 1422 959 1562 1482 -4078 2677 CURRENT I.VENUES 371 321 431 429 922 2534 2030 3119 3720 1848 9584 Value Added 229 172 137 292 922 2523 2069 3058 3720 1840 2848 Sales of Goods & Services 622 606 601 714 1734 4567 4552 6332 7317 9880 10656 (Cost of Inputs) 392 434 414 422 811 2044 2482 3274 3598 8031 7808 Other 8 11 24 2 0 1 1 11 62 0 0 245 Curr-nt Transfers 0 0 0 0 0 0 0 0 0 0 6491 Capital Transfers & Loans 134 137 219 134 0 0 0 0 0 0 0 CURRENTEXPEND1TURES 274 279 287 357 432 1112 1122 1558 2238 5p?r 6907 , Operating Costs 273 278 286 357 432 1083 1085 1552 2230 5918 6850 Wages & Salaries 225 228 248 328 400 420 501 604 972 1665 2103 Social Security Contrib. 23 25 27 29 30 38 45 56 96 144 193 enrt 0 0 0 0 0 0 0 0 0 0 0 Interest on Internal Debt 26 25 10 0 1 0 0 99 72 104 155 Interest on External Debt 0 0 0 0 0 626 540 J94 1091 4005 4398 Taxes & Transfers 1 1 1 0 0 29 37 6 8 8 57 Taxes 0 0 0 0 0 0 0 0 0 0 0 Transfers 1 1 1 0 0 29 37 6 8 8 57 CAPITAL ACCOUNT 121 IF' 1273 4025 4228 1543 1315 917 1981 319 409 Real Investment 111 151 1311 4098 4245 1519 1293 888 1941 47 409 Change in Inventories 10 0 -38 -42 -17 24 22 29 40 276 0 Financial Investment 0 0 0 0 0 0 0 0 0 0 0 Net Lo'ns 0 0 0 0 0 0 0 0 0 0 0 Capital Revenues 0 0 .0 31 0 0 0 0 0 4 0 BALANCE -24 -109 -1129 -3954 -3738 -121 -356 644 -499 -439( 2268 Source: Luis A. Campos & Ricardo Canese, 'El Sector Publico en el Paraguay' and M1inistry of Finance. 18-Sep-91 Table 5.11: PARAGUAY - EXECUTED BUDGET OF INDUSTRIA NACIONAL DEL CEMENTO (INC), 1980-1990 *Current Guaranies, Millions) 1980 1981 1982 1983 1984 1935 1986 1987 1988 1989 1990 CURRENT ACCOUNT 831 997 -1040 545 250 209 -1079 -1396 -4148 -17661 -17323 CURRENT REVENUES 1153 1383 369 1305 3556 1254 1878 7069 8857 14434 20762 Value Added 1147 1376 341 1305 3425 1254 1515 6437 7205 13877 20762 Sales of Goods & Services 2696 3235 3633 3477 4949 6113 9818 13195 18335 22784 33723 (Cost of lnputsl 1549 1859 3292 2172 1524 4859 8303 6758 11130 8307 12961 Other 6 7 28 0 131 0 363 632 1652 558 0 Current Transfers 0 0 0 0 0 0 0 0 0 0 0 CapitalTransfers & Loans 0 0 0 0 0 0 0 0 0 0 0 CU,IRENT EXPENDITURES 322 386 1409 760 3306 1045 2956 8465 13004 32096 38085 Operating Costs 315 379 1398 754 3306 1040 2942 8448 12984 32078 38085 0 Wages & Salaries 288 348 518 469 586 783 1151 1814 2358 4150 5132 Social Security Contrib. 18 22 52 75 90 76 147 215 280 347 409 Rent 4 5 26 15 0 12 20 29 40 18 0 Interest on Internal Debt 6 7 137 195 - 234 64 1.83 2389 3725 4765 7147 Interest on External Debt 0 0 665 0 2396 106 14Z_ ; 6582 22799 25397 Taxes & Transfers 7 8 11 6 0 5 . '7 20 18 0 Taxes 0 0 0 0 0 0 0 0 0 Transfers 7 8 11 6 0 5 i4 :7 20 18 0 CAPITAL ACCOUNT 824 989 430 20116 12966 16438 28732 12I.. 34578 8709 889 Real Investment 693 832 343 20032 12854 14095 28885 12104 32354 2240 829 Change in Inventories 131 157 0 0 191 2204 -153 115 2224 6441 0 Financial Investment 0 0 87 0 103 139 0 0 0 28 60 Net Loans 0 0 0 84 0 0 0 0. 0 0 Q Capital Revenues 0 0 0 0 182 0 0 7 0 0 0 BALANCE 7 8 -1470 -19571 -12716 -16229 -29810 -13608 -38725 -26370 -18212 Source: Luis A. Campos & Ricardo Canese, 'El Sector Publico en el Paraguay' and Minist,y of Finance. 18-Sep-91 Table 5.12: PARAGUAY - EXECUTED BUDGET OF LINEAS AEREAS PARAGUAYAS ILAP), 1980-1990 (Current Guaranies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENT ACCOUNT 19 388 180 803 -324 947 -1675 1075 -2210 2250 -12345 CURRENT REVENUES 902 1694 2306 4018 2293 501a 3972 11590 11577 18910 10732 Value Added 490 1042 1886 3497 -1789 *2622 -939 5589 -4304 2547 1159 SalesofGoods& Services 5566 6401 16456 17281 21874 41660 29667 45563 50082 71011 88743 (Costof Inputs) 5071 5359 14571 13784 23664 44282 30606 39973 54386 68464 87584 Other 0 0 0 0 3641 7295 4332 3273 14327 3863 1861 Current Transfers 339 440 408 408 441 408 580 0 894 12500 6512 Capital Transfers & Loans 74 212 12 113 0 0 0 2728 660 0 1200 CURRENT EXPENDITURES 883 1305 2126 3215 2617 4134 5647 10515 13787 16660 23077 Operating Costs 883 1305 2126 3215 2617 4134 5647 10515 1376h 16660 23077 Wages & Salaries 804 964 1254 2349 2000 3342 4879 7565 9658 11514 16490 Social Security Contrib. 0 0 0 0 0 0 0 915 1107 1550 2023 Rent 0 39 99 0 0 0 0 922 1027 1573 1390 Interest on Internal Debt 79 13 38 290 617 793 768 135 246 371 557 Interest on External Debt 0 289 735 576 0 0 0 979 1749 1652 2617 Taxes & Transfers 0 0 0 0 0 0 0 0 0 0 0 Taxes 0 0 0 0 0 0 0 0 0 0 0 Transfers 0 0 0 0 0 0 0 0 0 0 0 CAPITAL ACCOUNT 724 427 270 2385 1688 3721 1606 11618 8944 14173 5300 Real Investment 723 427 243 2189 1392 3511 1549 1.222 8481 7681 5300 Change in Inventories 1 0 37 197 296 210 57 396 463 6492 0 Financial Investment 0 0 0 0 0 0 0 0 0 0 0 Net Loans 0 0 0 0 0 0 0 0 0 0 0 Capital Revenues 0 0 10 0 0 0 0 0 0 0 0 BALANCE -704 -38 -90 -1582 -2012 -2774 -3280 -10544 -1 154 -11923 -17645 Source: Luls A. Campos & Ricardo Canese, El Sector Publico en el Paraguay' and Ministry of Finance. 18-Sep-91 Table 5.13: PARAGUAY - EXECUTED BUDGET OF SIDEPAR AND ACEPAR, 1980-1990 a/ (Current Guaranies, Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 g990 CURRENT ACCOUNT 123 117 104 203 0 0 494 301 319 -3549 -593 CURRENT REVENUES 136 128 138 254 53 61 560 1117 2550 7697 11034 Value Added -1 *2 -6 .5 -5 -5 -7 703 2105 5997 8620 Sales of Goods & Services 0 0 0 0 0 0 0 3765 11474 15389 22001 (Cost of Inputs) 1 2 6 5 5 5 7 3062 9369 9392 13381 Other 0 0 0 0 0 0 0 0 0 823 766 CurrentTransfers 137 131 143 259 58 66 567 414 445 877 1133 Capital Transfers & Loans 0 0 0 0 0 0 0 0 0 0 515 CURRENT EXPENDITURES 12 11 34 51 53 61 66 816 2231 11247 11627 Operating Costs 12 11 34 51 53 61 66 816 2231 11202 11557 Wages& Salaries 12 11 33 51 51 58 66 598 1629 2576 2948 Social Security Contrib. 0 0 0 0 0 0 0 210 572 786 0 Rent 0 1 1 1 2 2 0 8 17 6 6 Interest on Internal Debt 0 0 0 0 0 0 0 0 0 0 Interest on External Debt 0 0 0 0 0 0 0 0 13 7834 8603 Taxes & Transfers - 0 0 0 0 0 0 0 0 0 45 70 Taxes 0 0 0 0 0 0 0 0 0 45 70 Transfers 0 0 0 0 0 0 0 0 0 0 0 CAPITAL ACCOUNT 123 117 373 932 307 401 506 24303 24906 6012 1649 Real Investment 5 4 7 10 0 25 11 5 34 40 1611 Change in Inventories 0 0 0 0 0 0 0 0 0 0 0 Financial Investment 119 113 367 923 307 394 495 24298 24872 5987 38 Net Loans 0 0 0 0 0 0 0 0 0 0 q Capital Revenues 0 0 ,0 0 0 17 0 0 0 15 0 BALANCE 0 0 -269 -729 -307 -431 -12 -24002 -24587 -9562 -2241 a/ Siderurgia Paraguaya and Aceros de Paraguay. Source: Luis A. Campos & Ricardo Canese, 'EI Sector Publico en el Paraguay' and Ministry of Finance. 18-Sep-91 Table 5.14: PARAGUAY - EXECUTED BUDGET OF PETROPAR AND APAL, 1980-1990 a/ lCurrent Guaranies,Millions) 1980 b/ 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENTACCOUNT 226 112 1604 1349 48 17347 13115 13983 20100 -3834 34167 CURRENT REVENUES 914 923 4079 3979 3411 19852 29378 37934 43469 45404 97074 Value Added 886 919 4026 3933 2109 17816 25008 33758 42348 39780 94429 Salesol Goods & Services 2537 2932 29294 30199 38985 63171 76604 103474 139495 143728 233960 (Costof Inputs) 1651 2013 25268 26265 36876 45355 51597 69716 97147 103948 139531 Other 29 4 53 45 1392 2036 4370 4176 1121 5624 2645 Current Transfers 0 0 0 0 0 0 0 0 0 0 0 CapitalTransfers & Loans 0 0 0 0 0 0 0 0 0 0 0 CURRENTEXPENDITURES 688 811 2474 2630 3363 2505 16263 23951 23370 49238 62908 Operating Costs 387 472 2226 2559 2258 2408 2278 3730 4,92 4573 5043 Wages & Salaries 254 323 663 739 1279 1534 1867 2717 3604 3833 3979 SocialSecurityContrib. 47 63 89 185 370 156 97 130 311 367 395 S Rent 0 0 6 10 7 17 17 16 37 28 39 Interest on Internal Debt 87 86 394 495 363 341 292 472 841 243 259 interest on External Debt 0 0 1074 1130 240 360 6 396 102 371 Taxes&Transfers 301 339 249 71 1105 97 13985 20221 18578 44665 57865 Taxes 287 325 237 61 1008 0 13816 20022 18254 44373 57506 Transfers 14 14 12 10 97 97 169 198 324 292 359 CAPITALACCOUNT 1448 2088 4908 -1956 6453 12716 5737 19418 828 33407 479 Real Investment 888 1446 3569 944 824 1568 3456 1272 3634 701 479 Changeinlnventories 560 642 1308 -2935 5629 10004 1530 18142 -3821 25417 0 Financial Investment 0 2 31 36 0 1078 731 4 1015 7289 0 Net Loans 0 0 0 0 0 66 19 0 0 0 0 Capital Revenues 0 1 0 0 0 0 0 0 0 0 0 BALANCE -1222 -1976 -3304 3305 -6405 4631 7378 -5436 19271 -37241 33688 al Petroleos Paraguaya and Administracion Paraguaya de Alcoholes. b/ 1980-1981 budgets exclude PETROPAR. Source: Luis A. Campos & Ricardo Canese, 'E Sector Publico en el Paraguay' and Ministry of Finance. 16-Oct-91 Table 6.15: PARAGUAY - EXECUTED BUDGET OF OTHER PUBLIC ENTERPRISES, 1980-1990 a/ (Current Guaranies, Millionst 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 CURRENT ACCOUNT 425 255 190 443 454 788 931 1256 1537 6271 12584 CURRENT REVENUES 1645 1631 1774 2115 2297 2813 3476 4380 6185 12945 21640 ValueAdded 1143 1077 1095 1505 1431 2200 2778 3249 4676 11122 21087 Sales of Goods & Services 1700 1782 1853 2176 2412 3505 4207 5613 7325 16016 24701 (Cost of Inputs) 556 706 758 671 981 1305 1429 2364 2649 4894 3614 Other 159 223 393 311 578 202 170 468 756 693 553 Current Transfers 243 332 286 300 288 411 527 663 647 1130 0 Capital Transfers & Loans 0 0 0 0 0 0 0 0 106 0 0 CURRENT EXPENDITURES 1120 1376 1584 1672 1843 2025 2544 3124 4648 6675 9057 Operating Costs 1118 1372 1584 1672 1842 2022 2540 3111 4637 6669 9047 Wages & Salaries 1054 1289 1485 1551 1736 1905 2425 2833 4400 6377 8776 Social Security Contrib. 28 45 49 67 51 33 6l 44 75 82 122 Ront 2 5 18 16 16 58 24 29 32 152 138 Interest on Internal Debt 16 9 10 10 24 8 10 122 11 23 34 Interest on External Debt 18 24 21 38 is 18 21 83 119 45 49.0902 Taxes & Transfers 2 4 0 0 1 3 4 13 12 6 10 Taxes 0 0 0 0 0 0 0 4 2 0 0 Transfers 1 4 0 0 1 3 4 9 10 6 10 CAPITAL ACCOUNT 705 788 376 362 405 550 892 1356 6249 970 925 Real Investment 667 728 381 570 376 540 826 1240 6180 840 1065 Change in Inventories 47 44 *5 -51 21 -10 47 -17 65 -11 47 FinancialInvestment 0 8 0 181 8 21 26 133 4 180 113 Net Loans 0 0 0 0 0 0 0 0 0 0 0 Capital Reverwes 9 -8 P 338 0 0 7 0 0 38 300 BALANCE -280 -532 -186 81 49 237 40 -99 -4712 5300 11659 a/ Includes LATN, FCCAL, ANNP and ANAC. Source: Luis A. Campos & Ricardo Canese. 'El Sector Publico en el Paraguay' and Ministry of Finance. 18-Sep-91 TABLE 5.16: PARAGUAY - TAX REVENUE BY SOURCE. 1970-1990 (in millions of guaranies and as percent of GDP) 6370 loll 6077 6073 1314 1376 1370 60? Is?$ 6670 1600 6006 1312 6062 10964 1006 1986 l0g7 1W6s %166, 160 * Ta- . 0-"0odod0o'4..k 3476 36)6 3720 M11 6000 7140 0101 11278 12027 17310 190007 22307 26076 23667 41040 66423 2866) 100642 142736 213160 208310 Conh.0896 2207 2410 2200 2101 2000 3062 4066 6460 0370 7377 9324 3860 10681 8773 24232 32260 43013 00062 70266 00472 142070 Q- .. Z 402 411 442 042 77 022 1041 iS62 2162 2870 7010 3743 2630 2313 006. 3604 63568 7023 206132 26422 10406 S ."..0. ad-. .7 1634 lots 6ot3 7270 2720 2719 2016 3800 4243 4400 4020 4370 7206 00167 10213 22402 20400 23002 40420 3040o 82406 M686 U.-. 6602 6660i 6260 2232 3200 3023 4042 6060 7206 1303 16402 12706 1464 M146 6616 24720 20205 43970 03067 662060 666200 066.. bi 182 2010 2260 2014 2427 7627 3042 6.8o,n..o.. 74 832 040 1146 6724 2304 2404 2207 4627 042 81327 11164 16600 0666 66340 67742 22070 30683 47227 049608 01230 c".006.T... 4067 6072 0040 0220 3207 66232 67606 L. o" 266 420 603 072 Sao 006 ISO 004 1024 6636 6452 1062 2606 2340 3202 6204 0 372 7400 0366 662.03 0 274 410 672 743 36O 6020 67606 016h. Ta.. 3031 2910 2076 31100 6660 020 63 426 7006 60600 62760 160646 16000 160276 10000 16000 62406 6310, 24620 22020 6664006 683072 1 .W.n 06 1."60 To.. 2000 2060 2040 nS00I 4023 4742 4600 0023 0600 12164 62,060 16226 60426 3602 60006 62406 60063 24020 23320 016402 660226 mi4... k0.8,6 60833 ./ a6 00 620 607 sea 003 770 070 6206 1600 2022 2066S 2060 60403 0 0 0 6 0 66360 23647 ToEd1 7702 1002 2047 3061 64224 10436 16000 2237 320670 30720 40020 60640 60600 66067 760 I 3 s 023 160206 617036 2322000 400630 600233 T....-,0..A. w,d0.,A- 4.04% 4.27% 32.6% 4.07% 4.06% 3.76% 2.70% 4.20% 4.232% 4.02% 3.63% 3.16% 3.40% 2.33% 4.266 4.23% 4.60% 4.20% 4.306% 4.70% 4.01 ic-"~~~. 3~.07% 2.30% 2.44%S 2.70% 2.000 1.00% 6.00% 7.01% 1.983% 1.71% 1.43% 6.22% 6.40% 1.60%a 2.20% 2.26% 2.40% 2.41% 2.30% 2.16% 2.26% 0..WI SM.- 0.04% 00A% 0.AG% 0.43% 0.48% 0.4416 0.43% 0.00% 0.030 0.07% 0.32, 0.02% 0.43% 0.30% 0.90% C."4% 0.74 % 0.02% 0.06% 0.70% 0.70% smocon S.". v022 2.3, 2.30% 1.3 .6 .62% 6.40% 62% .46% 1 6.47IA 1.32% 1.000 0.00% 0.00% 0.03% 0.44 S6.70% 6.00%6 6.00% .6.0% 6.43% 6.37% 1.423% S6..%TI...o 6.90% 1.28% 1.41% 6.23% 1.04% 6.06% 11.50,% 3.6 2.2 0%LW 2.36% 2.00% 1.34 % 1.93% 1.72% 6.70% 6.77% 6.06% 6.70% 6.00% 2.44% 2.14% 061'.3 hi 0.16% 0.64 % 0.12% 0.66 % 0,60% 0.16% 0.06% In..., 1O.0 6.06% 6.06% 0.30% 0.6% 1.02% 6.20% 6.62%6 6.72% 16.0% 1.66% 16.8% 6.61% 6.60% 6.17% 6.16% 6.27%1 1.26% 16.32 S 6.42% 6.40% 6.20% C.O.1 T .. 0.20% 0.40% 0.80% 0.22% 0.20% 0.20% 0.270 k.w ft~..v 0.03% 0.02% 0.07% 0.40% 0.30% 0.34% 0.26% 0.34% 0.32% 0.28% 0.20% 0.20% 0.26% 0.46% 0.30% 0.36% 6.36% 0.20% 0.26% 0.22% 0.00% W,406.0 0.02% 0.02% 6.03% 6,02% 0.02% 0.l"1. 0.27% 06th. l.a. 4.06% 3.47% 2.70% 2.63% 3.04% 2.73% 2.64%L 2.10% 3.23% 3.60% 2.77% 2.20% 2.48% 2.70% 1.06% 0.07% 6.06% 0.00% 6.02% 2 .11 3.08% k-p- w .-p T... 3.30% 2.40% 2.02% 3.44% 2.60% 2.40% 2.10% 2.03% 2.00% 2.32% 2.22% 6.77% 1.416% 6.00% 6.06% 0.08% 6.01%6 0.00% 1.02% 2.47% 2.47%S mi.8. ,,w Il660. .1 0.08% 0.07% 0.144% 0.00% 0.36% 0.29% 0.36%A 0.20% 0.43 % 6.30% 0.46% 0.43% 6.03% 1.20% 0.00% 0.00% 0.00% 0.00% 0.00%A 0.36% 0.00% 1.64 10.3% 3.32% 3.10% 7.07%A 5.47% 0.13% 7.00% 0.72% 0.20% G.AG% 0.64%6 7.20% 7.06% 0.70%__0.70% 0.06%- .0.3% 7.62% 7.02% 4.08wk 0.26% S.0.6 3CP. 00&".4.6760.... ..6 00.4 M* a.' 606.6. -186- Tabte 6.1: PARAGUAY - ACCOUNTS OF THE CONSOLIDATED FINANCIAL SYSTEM. 1980-1990 (Currtnt Guaranies Millons. End of Periodl 1980 1981 1982 1983 1984 1985 1988 1987 198t9 1990 1. Consolidated Finencial System Net Foreign Assets 97289 102910 86701 80914 55206 42584 23165 41034 -13228 247697 584201 Credit 77575 106684 120635 144499 174006 200896 269564 315733 368235 406981 715474 Pubc Sector -16023 .4136 1248 19917 23532 34600 42154 35185 9340 -103361 27741 Credit 12522 13225 14267 35055 46704 60956 75607 111692 141630 136929 217378 Deposits 28545 17361 13019 15138 23172 26356 33453 76507 132290 240290 189637 Privete Sector 93598 110820 119387 124582 150474 166096 227410 280548 358895 510342 687733 Other Asests. Net -43803 -58139 *51269 -43069 3541 16984 39132 75237 128677 203952 -134778 Assets = Uatb08les 131061 151455 156067 182344 232753 260264 331861 432004 483684 858630 1164897 Ml 58058 58419 57391 70453 88533 114780 146504 209300 263062 384340 490655 Currency 31181 31161 33170 38466 48597 62613 84475 119565 149094 216192 300523 Demand DOposits 26877 27258 24221 31987 39942 52167 62029 89735 113968 168148 190132 QM PFivate Sector 58927 76771 81020 91706 100837 108864 143492 173104 186280 405306 587252 Loeal Currency 38178 85027 64472 79475 88550 100365 128788 156495 168300 228915 29151d Foreign Currency 20749 21744 16548 12231 12287 8499 14704 16609 17980 178391 295736 LTForeign Usbilities 14076 16265 17656 20185 43377 36620 41865 49600 34342 68984 86990 Memo: Groes Domestic Product 560459 708689 737040 818114 10704444 1393890 1833800 2493601 3319124 4803625 6624031 Net For. Assets t OO USt) 772134 816749 688106 642174 535059 482467 421782 477621 341968 555841 823971 n. Central Bank Net Foreign AFssts 94330 98324 81926 78795 52790 43725 17572 30311 -23129 128388 440121 Crtdit 23238 27454 32473 59949 85728 97208 154234 185313 245848 265815 351788 PutrbUSectws 11507 11681 12110 33248 45381 60146 74972 110371 141180 135913 216884 Banks- Local Curency 11729 15763 20062 26350 39863 36606 78891 74845 104532 129446 134373 Commeriat 8599 11124 9280 15053 26078 22094 53298 47888 65202 67294 55040 8NF 3027 3750 10062 10933 12932 11498 22244 22567 30024 45838 63666 Cattle Fund 103 879 720 364 853 3014. 3349 4392 9308 16314 15t0o Banks -Foreign Cureney 2 20 301 351 514 456 371 97 136 458 531 Other Assets. Not -22451 -29440 *22342 -22920 24549 39041 73277 135406 211091 279858 .71150 Assets a Us! Iles 95134 96361 92077 115824 163067 179974 245063 351029 433810 674061 720789 Cturrency 31181 31161 33170 38466 48597 62613 84475 119565 149094 216192 300523 Cash in Vaults 2531 3208 2961 3382 5106 6850 7585 8744 10181 13715 24745 Offical Deposits 23828 11434 7552 8146 14Z39 16495 21213 34626 64931 183793 119909 Bank Depoost 32813 44444 40964 55610 ed423 73938 109053 158576 195036 220829 219561 Local Currncy 327J8S 44421 40944 55510 S6423 73938 109053 158576 195038 220829 219581 Foreign CurtenY 17 23 20 0 0 0 0 0 0 0 0 LTForeign UsbUtieg 4781 6114 7430 10320 28672 19980 22757 29518 14568 39532 56021 Memo: Net For. Assets (OCO USSI 748660 780352 650209 C25361 51700-4 479234 397506 437-14 303716 427910 676303 Assets 766478 810004 686829 684067 669232 578039 475485 526536 337980 449900 700407 Uabbitje 17828 29652 38620 58708 152228 9880S 77979 89222 34264 21990 24104 Exchange Rate (011LISIP 120 126 126 126 240 240 320 320 400 1220 1255 Source: Centra Bank of Paguay. Depamemnt of Econorwrc Studies. 23-Sep-91 - 187 - Table 6.1: PARAGUAY -ACCOUNTS OF THE CONSOUDATED FINANCiAL SYSTEM. 1980-1990 (Current Guwar Miilions. End of P.riod) - ¶980 ¶s81 1982 193 1984 198g gs 988 197 1s88 I9S9 1990 M. Comm.rcial Banks Net Foeigrn Asset 2987 8048 5090 148a 2741 -s72 1e83 11288 10449 119327 144751 R .a 29968 41412 38196 533988 3248 70723 94487 127272 181696 204323 207879 Cash In Vautt la7 2347 2202 2387 2827 8017 5438 6878 7208 9341 18742 0O..*. w h 8CP 28291 3906S 34893 81029 59421 89706 89068 121597 154490 194982 190937 Lo" Curreny 25291 38066 38983 51029 59421 8570e 89068 121897 154490 194982 190937 For,ign Cumincy 0 0 0 0 0 0 0 0 0 0 0 C dh 73748 85398 9035S 92541 108237 117533 18670 203510 259920 3748 525700 Pubiic Sctot 1016 154 2167 1807 1353 10o 835 1321 450 1010 4S4 t Sctor 72731 838S4 8alt8 90734 107884 116723 160035 202188 259470 373863 525206 Ot.r Assets. Not -15533 -20233 .210S19 -10753 .11353 -s907 -12963 -25794 -40121 -36148 .18718 As"ts . LUbWisa 91068 112825 113021 135S52 18380 170597 2483o7 318254 381944 882373 89471t Oemwc DeposI 24185 25220 21730 29908 37778 48288 55859 95217 135115 187477 199364 Mbks S.r 730 1062 709 1912 s2e 1058 1194 14031 34187 31942 21007 Pt4Wu Setor 23435 24188 2102 27898 38880 47230 54375 el8sG 100948 155535 1T7557 0)4 s8298 75765 81108 91179 98837 107120 13922S 173151 191827 407802 805070 Pubtc Sector 2294 3254 3050 3883 3782 S434 8188 18804 15385 14177 25830 Private Sectr S8002 72531 774s8 8731 94s875 lo06s 133037 156247 176242 38342 579240 Local Currncy 35253 50787 OO91 75085 02588 93187 118333 136938 158262 215034 283504 Forsign Curncy 20749 217"4 18548 12231 12287 UO99 14704 18609 17980 178381 295738 Cr.t lrom Sep s8o0 11144 9651 15255 28499 22513 S3s83 47888 65202 67294 5503 Local Cureatty 8599 11124 9280 15053 28078 22094 53298 47888 65202 67294 SSO O FtbiCn tu afcy 2 20 301 202 421 A19 285 0 0 0 0 LT Forton Usbiltle 8 476 S90 410 980 678 0 0 0 0 0 Memo: S tFor Asa t'OOO US#) 23708 48000 40397 ¶1650 ¶8ta4 3150 24198 40144 38102 127348 147804 Asset. 52782 83887 7135 82588 70792 57413 s4046 67S3 ss68 137347 183707 Uabilla 29086 45887 37738 70S38 53Soe 5423 29847 13809 20863 10001 18193 Exch_anget"a O/JUSOi 128 128 128 128 240 240 320 320 400 1220 1255 rV. Banco Nadonel de Foamento NotForsignAssets -28 -1412 .315 651 -332 -ssS -570 -843 .548 -?8 -J71 tAraSs 5378 6240 4730 5498 8261 10183 22141 40048 43621 30221 36827 CahInVaajt 8" 8el 759 1015 1279 1933 2140 3068 2975 4374 8003 Dspotit witdh CP 4622 5379 3871 4481 7002 9230 19996 38879 40648 25847 2882' Lre Cirta 4505 5358 3851 4481 7002 923 I99S9 38S79 40543 2S547 28024 FAsin C.snev 17 23 20 0 0 0 0 0 0 0 0 P*Ra ScIw Cfrdlt 20784 2e807 30488 3484 41737 41369 64026 73867 90119 120175 144800 Othw Asset, Not -8738 -8489 .7328 -8386 -986G -12970 -21182 -34374 -42293 -38790 -44312 Aset * Usbitec 20378 22378 27nF 30238 40031 42983 84418 79088 90799 11008 137644 DwtD0eposait 4400 4050 3906 Slil e979 7981 11884 18515 2940 21477 30422 Pubk SorW 968 968 774 1020 3887 3024 4230 9968 18443 s84 17947 Pd.- Setr 3442 3090 3184 4011 IN2 4eJ7 7854 8S49 13020 12813 12571 om 380o 4895 3898 4687 8286 7525 11093 17837 11402 1338S 12258 Pubie Seo 735 a65 334 197 32e 347 838 980 1384 1514 4244 Pslits Sacg 2926 4240 3s62 4390 5962 7171 10465 10857 ¶0038 11881 8012 Cre frnm Sp 3027 3750 10082 11062 13025 11536 22330 22664 30160 4824 84197 LOc aUR¶cy 3027 3790 10002 10933 12932 114" 22244 22587 30024 45838 83880 For n Curnc, 0 0 0 149 93 37 se 97 138 408 S31 LTcrsiq. nU bi4ls 9209 9875 9e3 9455 1373S 15982 19108 20082 19774 25462 30988 Memo: Net For. Aesets ('000 UStl -222 -11603 -2500 5183 1071 83 78 183 ISO US5 84 Asset, 984 540 2540 5(83 1071 83 78 163 ISO S85 64 LJabiles 1200 12143 5040 0 0 0 0 0 0 0 0 Exch4ao Rate (O #/US I 12e 128 126 12 240 240 320 320 400 1220 1255 Source: Cetsl Bank of Pwrs84ay. Oparmemnt of Economic SnAids. 23-Sep-91 - 188- T&i 7.1: PAAAGUAY: COPSUMERt PO1C1 WOEX. 1872.1991 1190 . 1001 p-g 1 ol 2 bmd. Opwth Rate GGwl Food HoushM Oothmkg Od_* bdo. Food Hou.ing Oottfhv Fofe We, 1972 31.2 3.6 3s.6 34A 33.5 1973 38.0 41.2 38.6 34.4 37.7 21.7 6.9 s.6 0.8 :2.8 1974 47.4 51.5 4s86 443 47.2 24.8 25.0 20.8 28.7 25.2 1975 49.8 Sa.2 5.7 47.0 50.4 4.6 9.2 13.0 7.5 6.7 1978 51.7 S58o 55.8 50.2 SL7 4.2 3.1 5.9 s.5 4.5 177 57.s 6L6 8a.0 53.e 57.6 It.3 8.0 7.5 e.7 9.4 1978 6.9 86.6 87.0 67.7 83.7 13.0 8.4 11.7 7.8 1o.r 1979 84.1 1.5 82.s 75.7 81.7 29.5 22.4 2312 31.3 28.2 19e0 100.0 100.0 100.0 100.0 100.0 16.9 22.8 21.2 32.1 234 e198 110.4 120.2 111.0 113.4 114.0 10.4 20.2 11.6 13.4 14.0 19e2 114.3 t30.3 118.3 124.1 121.7 3.5 S.A C.o 9.4 8.8 1983 133.9 135.0 141. 14S.5 13a.1 17.1 3.8 20.8 17.1 13.5 1984 172.8 144.8 181.0 1748 188.1 28.9 7.0 28.7 20.0 20.3 Jmouy 47.2 136.9 159.3 1Sd.4 147.9 3.2 0.3 o.6 1.0 1.8 F.bsuwy 151.3 138.8 la6.2 17.4 148.8 2.8 -0.1 1.2 0.8 1.3 match t157.9 137.5 1L2.7 1659.6 15t1 4.4 0.5 0.9 1.4 2.2 Ap: 1s8. 137.8 188.1 161.5 154.3 0.8 0.2 1.5 1.2 0.8 May 158.0 139.2 I8N.A 14.d 155.6 -0.8 1.0 2.4 1.8 0.8 Jn. 189.8 140.9 175.2 18.1 181.7 7.3 1.2 3.6 2.3 4.0 .iLy 1as.9 142.2 177.8 178,3 164.0 0.2 0.9 1.S 4.9 1.8 AuGust 178.S 1444 187.9 *ea" 171.3 S.1 1.5 5.7 4.3 4.1 S.ptwinb 182.2 149.2 197.7 la"60 178.0 2.1 3.3 5.2 L3 2.7 Octobr 19L80 14.0 20.L1 192I t 8L4 5.4 3.2 2.2 2.2 3. Novw.,b 20L4 157.0 204.8 19.2 187.8 5.4 1.9 1.2 0.6 2.9 0D.oeb. 203.4 15a.2 209.3 19$4.2 t189.0 0.5 0.8 2.3 0.5 0.7 1906 220.1 189.7 240.4 220.3 230.0 27.5 17.4 32.8 28.2 25.2 _vk-Y 200.9 159.4 213.0 183A4 18.5 -1.2 0.8 1.8 -0.4 -0.3 F.,fmwy 200.0 180.4 214.4 I184. 168.4 .0.4 0.6 0.7 1.6 0.5 Marc 203.8 161.4 214.7 1 9.s 191.8 1.9 o.6 0.1 1.5 1.3 ApAe 202.6 181.7 218.0 201.1 191.3 -0o. 0.2 0.6 1.2 0.2 Ma 207.1 1e6. 217.7 203.9 194.9 2.2 0.7 0.8 1.0 1.4 J.4w 206.0 185.5 222.9 209.2 197.1 -0.5 1.7 L4 2.8 ;.I AJY 20Le 187.0 228.0 214A 198.3 .1.8 0.9 L23 2.7 o.6 Augus 233.0 177.81 258.9 229.1 218.8 14.8 6.5 10.9 6.8 10.2 s.ptunbw 231.0 180.8 267.1 244.4 228.8 . La. 1.7 6.8 8.S 3.8 Oct" 241.3 179.7 275.4 251.1 23L8 4.3 0.6 a I 7 2.6 Novnb.r 248.1 i80.7 280.0 240.5 232e ..5 0.6 .1.7 0.0. -0.1 Do_unber 248.8 178.8 282.4 24.8 23te 0.3 -1.1 0.9 0.0 0.0 los8 316.0 193.1 319.8 284.7 274.0 43.6 13.8 32.9 29.2 31.8 iwwy n2.738 t81L4 2832 268.7 248L6 10.0 1.0 0.3 4.0 5.6 Feuwy 303.4 187.0 266.7 286* 200.4 10.8 21. 1.2 a3 6.0 Mamh 318.3 190.1 291.6 27a 288.4 3.9 1.7 1.7 3A 3.1 Apul 315.4 181.3 3061 273. 270.4 0.0 0.6 5.0 0.4 0.7 mIy 313.2 113.0 318.1 21S. 271.2 -0.7 0.1 3.1 1.5 0.7 AM 316.4 19.a6 324.2 264.2 178.1 1.0 0.3 1.9 1.3 1.1 aSr 306.8 I93.8 330.9 26a.4 273.1 2.4 0.2 2.1 .t -0.7 Auust 314.7 192.8 334.3 2924 277.1 1.9 -0.1 1.0 2.1 1.5 S1ptwib- 323.8 196.4 337.1 294.A 282Lo L9 1.3 0.8 0.8 1.8 act1bw 33S.2 117.1 331.3 296.9 288.6 4.7 0.8 0.7 0.2 2.3 la, .v 33.3 1 94.4 340.2 2147 286.8 -Lo 0.3 0.3 0.4 -0.7 Dc arbe 336.7 199.7 342.2 29n.9 2887 1.0 0.7 0.8 0.5 0.8 Somm: C.nw Sbo at FPwauay. 23-Sap-1s er O e~ ° V r O o rX o~ e c~ ** e~ o e e W _1 v n4 o ~ V! e1 e 11 e m e o! _ ! e 0 ~~.00OVO.fl0 0 .-00N.~~~~.0U,N 0 0,. 0 0-00 -o o0 l-0 Ng fl00000.0.0. 0 4 '00 . o~ OR Ve _ +4e>nl W _ O 11 e! oR e~ |~ t 4-! e % 0 3 o i 0 to _ e0 In Vb a 0 0 w fta e n a _0 0 a o e e e e '3 e b 9 s eao e _ N e- e e , 0 .@o N e n i ° n 4 o N-O- - -0-w-o N. a hi _e .4 _ _ 3a ° Y e0 N d e 0 OOOOOONr-0000 0 N0NNOOC"0N 0 N00V0 N C e e3E RNm0°eN e 7See¢ 0 00r .- "00.-" N V*5U255t55X2 N S0Joo.4=ee- 3 E a e * 0~~~~~~~~~~~ d ONNVNNUO 0 SOONO-ONONUS V NNNNVI 1O NNON 0 VN000000N aN V w! - a~~~~~~~~ 6Wrt~" - a e v en-oe" ga NN°i*32tiS§t.plE e o W C! 11 Ii a 0 0 0 0 0 WS v a - .4 00 3 * 000000o "0 0 0 ~~ N NO Vn 0 000 0- 0 N 0 0N N 00 0 vsqsa00n N0*M .-m-*ftvM*ONOS co~6.o. 04 - pOv- 4 6 ~ d a54 5 , d ~~~~~~~~~~~~~~~~~~~~~~~~~0 o )-4 o o 4 A -i _ _ A __ 4 _ ei 4 A 4 .4 4 _ __4 li 9> 4 b 14 0 ~ C !Q !W NfIf0O b O N C! .40! Otr n O Ur:,Wo a 4,0*000000 - a 0 0 * 0 00 S t i . 00...QNN9NNO ~ ~ d.J.-d ooqd o, N.-.-9O zn n M f 0 e ee0 -b - - - - - -w - - - - - - - - -f - -__a_ OD 0 " neaeaa*e_e wv_eerieon "r s 24 ,, > y 0 " t N ~ r 9 .e °° ~ *~ N s f ° e.4 i _ __ e4 s e 4 _ -4 i ee e * _ qi4e s _ e4d o,Ca iE aq 9! 1°4 n 0-e|e; 1-e -0 e e ~ do.-n --"oo- .4 . . . . . .- .. N , 0 -v , .-N * 4, - N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~s0 ,r 2~~~ 9OVC4.9 N 0.0449~~~~~~MM2,9 M V 0 01 0 $ a1 e~ IV [i 5~ V'->!3 e# P; 1 I 10 m a W ; an 0 i iE 0 V l {t i ii 4 a V t; 0 0 1 l l~ 1 f sf r 4r" - 6Sn44,f oNtn n4 o,r V0 04.-toF l .4 4 .. 0 b *4-4 ,4V 0 . >o^o4 VN2 nSd -4- P eee 4,4.00CF*noo0 +-00 N -6NvrF. . . . . I 2g >g@ J5 |z <>W 9" SX tel W4 Og g t% s}E g¢ I .4 N 0V4..400004.00 N .0N4,4.4.40~~~~~~~~~J 140z 4, - 40 0 4 6 N . 4- O 4V C , | w q ° ^ o ° °qqqqqqqq° n q°q * q °qq °°° t g ~ ~ - - - - - - - - q , - o. - - - _ - - - - - - - - - - - o. - - a, - - - - -. - - - - - - - - - - - W x } s - o _ e o aq ^ t. - " a q . e q t S ID,° ° a, e^ q o _n n n1 n_s . oi~ ~~N N CSC4NNNN 4N O --- g8-- a- a......... .... . . . .. . . ° ~ ~ ~ ~ 0 N °O WC¶ a. 0 -a -c i. ° ^ e* o e nnS Df *nnb*iwwt °°°S> w o z z 0 ° ni * s w 5 o z; 8 o 0 ° a 3 ^ o a ° * w ° ° S S ee z - e F * n W ° 4 _ ° o o r _ t i etn t I ° i i o | l . _q _ n Xe t* q tt e q r q * q q 9 n q t Bt ° w °7 st eit s °. q qo it it _ .t.t..t.^.7 .t . .-ON a an n e q q'rtoq q 4 q W 0 o It et 40 o. q 0 wR qa q r R 1 l OR cl a..oac.o0~~~aNa0NaN~~~ .9o~., a ~N. aa ac o N *0W e . i~ ~ ~~p & _ee 0nrOO8o° ri srr D"o o ° q*g eS°°"~°r ° ° a! ° ! 0!. ,.,;ri °r 9 n*erannO 4 a-a NN ae ' ccnn a° a.oa r°-aa ur ai i -t °o " < e e e e xr a °n i ° w 0° °O ° e e tt qO a o < v o e e e et ¢ " °. Wt w o _ e i ri &; er rR e-° ° e°r;; °w; ° nr ° it t it * q n q it wt t R %R t q q 07 -c a R t q1 q . q . ct R e .t q R , nX,,ron te we a e ;n° n l {~~~~~ ~ ~~~~ n', q .t t qc ! R q a t I aq E q t .t t t; tn qI. t at qa q q A A . . . .N . .O. ~~V N.,~~~~~~~~~nc.4QN.W0 N : :: .,! ,? ----- - - - - - -0 I.0*W 00 C.2 -a " .-- >C *t.~ ~~.9N. . . ..l.b.S or,4. G V Na Sor Ca N W- -192 - T.N. 7.2: PAPAAOUJAY - WHOLESALE P29C1 IND5X 1972.199.7 I 1880 - 100 I Aonic¶.t1, food 70402. P.PeW NO¶o¶,1.. Wd.wy E..vicit G.¶w¶. -B .~.29s . Wood .,4 Ed,.4.,q 84c W 00., UI44.o H.@4Im Fo.-" & Tobooo 1..4w- P,odI.-o1 P.iMi, Ch-oo4oMs P".62.* M.AeI. Ew~ &aA.c2. S1.., 1887 384.0 324.6 579.2 354.8 588.8 444.1 464.7 324.6 318.8 F 4.7 418.3 608.8 182.1 Jo,-.. 338.8 311.7 487.3 308.3 491.8 413.0 419.6 311.6 284.2 52a.3 373.2 488.8 188.0 FObru.y 341.7 312.8 487.3 318.5 621.8 413.0 419.0 311.9 302.7 645.1 384.7 488.8 133.3 Mo,22h 342.2 309.3 489.1 319.1 529.6 413.0 447.1 314.4 304.8 546.1 393.8 681.7 183.4 Apl 338.8 302.5 489.6 322.0 629.6 426.8 447.1 314.4 308.8 648.1 386.7 681.7 163.4 MWv 342.8 208.2 689.1 352.8 661.2 439.8 447.1 318.9 314.2 664.9 408.4 623.6 183.4 j.w. 349.7 297.6 689.1 369.4 671.9 439.6 447.1 316.2 317.9 654.8 409.8 623.6 283.4 Ai.y 354.0 300.9 829.3 361.8 678.1 460.4 447.1 332.2 328.9 604.8 422.1 4A7.6. 183.4 A..g-a1 364A 299.9 836.1 380.4 678.9 468A 447.3 333.6 328.2 .06.4 422.7 4897.6 283.4 SWflbO 380.4 337.7 837.9 373.9 801.0 487.6 449.8 336.83 333.4 619.7 433.C 497.6 183.4 Octot.. 406.9 2798.2 837.9 389.2 614.1 487.6 461.9 336.7 332.0 633.0 440.3 497.5 193.4 Nov.nb. 421.7 400.0 839.3 394.2 817.0 474.6 517.1 334.1 338.1 643.2 456.1 4L'8.9 183.4 D.2wn.w 387.0 364.3 830.3 398.2 817.0 474.8 628.1 334.3 338.4 640.0 463.8 489.9 183.4 1o88 462.4 439.0 844.3 439.2 853.1 485.8 683.9 388.4 428.7 674.0 624.7 630.8 209.9 j..~..7 409.4 38.4.7 839.2 408.6 824.1 469.2 626.4 380.0 382.0 647.8 405.3 662.8 283.4 F.5n... 422.9 386.3 640.6 414.7 825.9 469.2 626.8 391.0 371.0 647.8 600.0 662.8 183.4 M.d,c 437.4 407.7 842.2 423.2 836.2 483.2 524.8 38.6. 371.4 668.0 498.1 519.8 183.4 AVIV 4273 392A4 641.2 428A 860.8 488.6 634.8 361.2 397.2 666.0 622.0 619.5 283A4 MWv 424.8 375.0 842.7 431.4 a652.6 489.6 ¶ 34.8 389.8 429.7 665.0 526.5 819.5 163.4 .2... 404.2 214.1 843.2 437.2 659.0 .89.56 '.28.0 389.1 4.40.1 568.0 629.8 652.0 200.8 .i..y 428.1 378.8 244.1 432.0 883.2 488S.3 647.4 375.6 459.9 556.8 834.4 519.6 210.6 Auca.mt 463.7 430.4 8,. 2 433.7 083.2 495.3 890.1 377.7 488.9 586.8 524.7 829.0 220.4 Sspt,.bw 607.4 612.0 843.5 446.7 984.9 490.2 580.1 378.3 462.1 809.0 632.1 619.5 230.0 0c2ob.t 622.0 838.0 860.1 48b5. 886.19 510.9 692.3 383.8 454.9 809.0 636.3 628.0 238.6 No.IW.bv 578.2 823.8 861.0 478.4 868.3 621.1 832.9 380.7 488.8 819.1 663.2 629.0 249.2 O..,b., 630.8 541.6 851.0 478.8 686.8 521.1 833.8 388.7 473.3 822.7 564.0 528.0 249.2 1989 583.9 610.2 716.0 680.7 779.6 _818.3 879.3 -488.4 687.0 804.1 878.5 893.2 384.7 .J-n.Y 534.0 62.9. 864.1 601.6 678.9 624.6 6.2.2 371.2 492.3 S82.1 685.03 871.4 274.1 F.b.v.y 530.2 519.6 8654.8 603.1 877.5 824.8 841.5 375.1 489.6 882.1 813.8 871.4 299.1 M&dh 643.1 630.7 864.7 602.2 700.0 668.0 837.7 382.2 498.1 68804 828.0 872.4 323.0 Ao,4 639.3 629.0 8665.9 601.7 700.7 658.0 838.3 384.2 601.7 898.4 622.3 872.4 323.9 My 643.9 607.3 882.9 638.8 726.7 808.0 8.47.8 495.8 674.5 7 10.f! 820.7 871.4 323.0 Am.. 631.1 486.0 897.9 646.8 788.8 828.0 857.8 622.7 829.9 760.3 661.4 808.9 401.2 6, 19.3 430.7 738.1 564.6 782.9 831.8 882.7 524.4 847.0 798.0 699.2 822.8 405.1 A.G.8o 663.1 473.9 736.1 691.2 783.8 832.8 707.5 634.3 647.0 8827.7 733.0 648.3 405.1 SW.Io,15o 674.3 492.9 738.1 694.0 589.4 668.4 710O.3 607.2 638.8 928.0 733.4 872.3 406.1 OdeS.w 698.3 606.5 773.8 882.2 884.8 787.6 708.3 802.2 838.3 869.8 736.2 704.8 405.1 NO.0716b 832.0 678.5 774.3 832.8 886. 856.3 7.12.8 802.1 831.8 98A.5 733.8 693.6 406.2 D0..,b. 089.5 843.8 823.9 802.0 888.0 719.1 747.7 6000.7 838.8 869.4 782.8 889. 405.2 1980 374.8 918.4 874.4 614.7 484.4 J&fl&9y. 6899.0 896.2 801.0 899.1 405.1 F.bnw.y 719.1 S89.3 827.2 742.2 443.7 M wch 702.7 783.5 671.2 76P.4 448.7 ApWl 787.0 790.7 980.6 776.1 446.7 Mo4 7866.7 752.7 U38. 773.1 June. 823.3 931.3 1022.3 902.9 448.7 .2.17 684.13 829.7 102-0.9 826.9 445.7 A.*ut 988.0 934.0 1017.3 921.1 445.7 S.pt..b. 930.3 882.0 2,23.9 683.7 446.7 0.2498f 978.2 1.1031.0 2096.7 c08.3 630.5 N, .n.b., 2238.3 1324.5 1087.4 913.2 634.3 D0o-,b.r 2119.6 1.276.4 2012.4 922.1 639.0 1981 J.2.,,v I I AI.3 2317.0 1027A 822.4 638.8 0.fr..wy 1280.7 2339.2 1030.9 942.7 533.3 Ma.h4 . 180.3 1437.3 2027.7 840.4 638.6 ApWI 221 4.1 1428.9 1049.6 949.9 533.3 -.!= 18. 270.4 1082.6871. 638.8 S~O.,o -. . of PuagS., T.bl. 7.3; PAPR6UAY -WHOLESALE PPOCEINOEX 1972.1P.1 (Co,9wh Pt. - -t . F."G Tg.'t4. P.pw t4u-.1.18 m.dw,y I Gu ,d 8.cwao ud W.od .Md Ed,L 8.. Id Ott- I I~dx H .. fi F.,..ty S& Tob.co L.&h. Ncd,,ct P6,*inq Ch.-.ci-. P.mf4.,. M.l.. Eon,k~t "- St.- 1873 30.0 76.0 28.8 16.3 138.8 24.7 4.5 20.1 11.8 20.7 6.8 10.4 OX( 1074 30.5 19.4 38.0 38.9 24.1 84.2 29.3 77.7 38.4 72.3 28.3 84.0 .3.0 1075 16.2 20.6 .3.8 1.7 0.1 4.0 24.7 1.4 7.7 11.2 25.7 64.0 0.0 1970 1.t 2.5 .7.1 1,7 4.2 -0.1 2.3 .0.6 0.2 .14.8 2.8 0.4 10.0 1077 0.0 8.3 1 8.5 1.8 11.0 10.3 2.4 27.8 0.5 .0.0 2.8 -0.3 20.1 1078 12.8 21.6 8.2 3.0 13.1 .6. IL6.? -2.0 11.0 .2.6 0.8 7.1 0.0 1078 2a.3 38.4 1 0.5 11.0 2". 13.0 18.1 6.3 32.8 18.9 8.8 1 6.8 -2.2 1800 7.8 2.7 18.3 14.1 18.2 20.7 38.1 18.4 17.8 8.7 8.8 11.0 .18.0 1881 12.2 12.7 0.7 8.3 12.6 0.8 18.2 17.3 8.3 8.4 0.7 7.8 0.0 1082 3.6 3.3 -3.0 3.2 8.1 .1 .1 0.1 0.0 2.9 23.6 2.8 13.7 0.0 1083 22.0 27.2 7.8 11.6 17.0 4.5 1 8.5 0.7 14.5 27.2 23.0 04.3 0.0 1084 26.3 1 8.8 60.8 31.7 64A8 41.4 43.2 64.0 36.3 72.8 30.2 20.6 6.2 Fhbur-Y 0.8 0.8 0.0 .0.2 1.7 0.0 1.0 0.1 (1.1 2.4 0.0 0.0 0.0 Mwd, 8.0 0.6 0.2 1.8 3 4 0.0 4.2 5.7 7.2 3.2 .2.1 0.0 0.0 Ap9r8 -1.3 .3.3 0.0 3.0 0.2 0.0 0.0 1.0 1.8 4.2 0.1 0.0 0.0 M.y B.? 2.6 32.0 4.8 18A 28.3 0.0 10.4 2.3 2.4 18.3 4.8 0.0 .1,., 1.2 .1.3 0.1 3.3 8.2 0.X 7.0 1.4 7.7 38.7 1.8 0.0 0.0 Jhip 0.2 7.0 24.7 7.2 7.7 1 .d 0.0 30.0 8.6 1.0 8.6 11.0~ 0.0 A.9-t .1.5 .4. * 0.2 2.2 1,3 0..' 0.0 2.R -0.3 0.0 1.1 0.0 6.0 S.pl.n, 3.8 8.4 8.1 1.2 .0O8 0.0 0.4 .2.4 3.4 0.0 6.2 0.0 4.7 Octobu 12.5 23A 0.0 1.2 8.2 Of 0.4 -4.6 3.5 0.0 1.8 0.0 4.5 N-..,. 2.8 1.8 0.2 8.8 1.7 2-2 13.6 0.8 0.0 0.0 2.0 0.0 4.4 Dow.bw 1.0 1.1 0.1 2.8 0.0 0.0 0.0 -0.1 I .0.8 0.0 0.0 0.0 4.3 1886 23.4 12.8 38.0 38.0 42.1 22A 32.3 23.6 28.0 682 3. 40 22 Jwaw.y 5.5 8.2 2.2 4.0 -IA -6.8 .0.2 3.2 -0.6 27.8 -0.2 .12.4 4.0 Fwbv.Y -,.8a .14.7 0.0 4.1 0.4 0.0 0.8 4.4 0.7 0.0 .2.8 0.0 0.0 M..ch 4.44 -.0 .0.7 1.1 3.0 2.3 0.2 -2.2 4.,4 -0.4 0.4 1.6 0.0 Apri 3.1 4.0 0.0 OR4 0.1 0.0 -0.3 0.0 0.5 0.0 0.8 0.0 0.0 Mwy -2.0 _.8. 0.2 2.1 8.8 2.2 1.1 -2.1 5.1 0.8 4.8 13.2 0.0 June *2.3 -6.01 0.0 0.0 2.0 0.0 0.0 0.8 0.2 0.0 0.4 0.0 *0.0 Joy - 1 0 3 12.0 2.8 1.1 8.3 4.4 0.8 16.4 17.7 16.0 07.8 0.0 A.@ut 4.3 2.8 0.0 4.3 13.3 17.9 1.3 1.8 3.8 3.2 7.8 10.2 0.0 Spt..br 8.2 18.4 .0.4 2.3 4.0 -13.7 0.0 0.4 .1.0 10.8 1.3 0.0 0.0 Octcl.r 3.4 7.0 0.2 2.0 0.0 0.0 -3.1 0.1 0.3 .0.0 .1.3 -16.0 0.0 Nowl.b.r -2.3 .3.2 .0.2 -0.3 7.4 a.2 17.0 -0.8 .8.1 -3.5 -2.3 .0.2 0.0 L',c~bw 7.6 16. 0.0 1I4 0.0 .1s. -0.2 0.0 .2.8 0.0 -0,3 0.0 0.0 1,'88 40.1 84.0 40.3 24.1 46,1 49.8 42.1 8.2 28.9 8.0 24.0 16.8 1.1 Jwu...y 14.3 26.0 -0.7 7.0 3.6 16.1 .0. 6.0 3.8 -0.2 3.3 -3.1 0.0 Pebn-y 5.4 7.7 0.3 2.8 3.0 1.8 -0.2 40.7 12.8 2.0 1.9 0.0 0.0 Mwch 209 1.3 :.5 8.2 4.2 A.2 1 5.8 -0.3 6.1 -0.2 4.3 0.0 0.0 Ap.4 -3.7 -8.7 84G -1.7 1.8 3A 0.0 0.0 1.8 0.0 -0.8 0.0 0.0 Mwy 2.4 4.8 0.6 2.3 3.6 2.8 0.0 0.2 2.1 0.0 -1.1 0.0 0.0 .1., -1.0 -3.0 0.1 3.7 14A 0.0 0.0 0.0 1.9 0.0 -0.6 0.0 0.0 Jaiy 1.3 -0.3 30.1 1.1 3.2 25.7 0.1 0.5 4.0 -10.1 .1.6 0.0 0.0 A..a.a 3.1 2.2 4.P -0.8 24 7.7 0.0 .0.3 -0.5 0.0 106.0 0.0 0.0 S.etu.,bm 7.7 12.6 0.8 5.0 0.2 3.8 0.1 0.0 0.2 0.0 .0.6 0.0 0.0 Octc&. 0.0 -0.8 4.4 1.8 0.0 5.7 0.0 0.2 -0.4 0.0 -1.2 '7.0 0.0 N.wbu -6.0 -8.8 4 A -2.3 .0.2 4.1 0.5 1.0 0.0 0.0 2.3 -2.0 0.0 0Combw -1.9 . 2.8 0.0 0.0 0.0 8.8 -0.S 0.0 0.0 0.0 13.5 8'..... '.44. 7.2. -194 - T46. 7.3: PAPAmJUY - WIOOLISAL4 PFCE INDEX 1872.1991 pqdawit~, Food TonUi= n No"K M.do G -B-p "d Wood Wn Eo..dng B.;c VWd Ot w I.dMI Hl . . Fo~.i, T ob.~a L.. PIadoot P.4silg Ch.,icW, P.t,OI.. M.tbm Eqiyn,1 o.cm . St.-., 197 11.9 *1.1 89.9 23.3 22.1 69.4 21.9 23.0 19.2 -093 26.9 8.7 38.8 .JW.Am 1.8 .0.9 11.6 .1.0 4.9 19.7 093 7.7 3.9 O n 3.7 4.9 13.9 F.bny 1.9 0.3 0.0 7.0 6.0 0.0 0.0 0.1 2.9 3.8 3.1 0.0 9.1 Mwd, 0.1 .1.1 0.4 0.2 is5 0.0 9.6 0.9 0.6 0.0 2.4 14.9 0.0 As"d -Ci3 -2.2 0.1 1.1 0.0 0.9 0.0 0.0 0.7 0.0 1.2 0.0 0.0 May 0.9 .4.4 20.3 9.3 4.1 8.3 0.0 0.9 2.4 1.7 2.4 *68. 0.0 J~2.1 2.3 0.0 1.9 3.9 0.0 0.0 0.4 1.1 0.0 0.3 0.0 0.0 iJ,y 1.6 1.2 8.9 0.6 0.7 4.1 0.0 44 361 9.90 3.1 4.C 0.0 Aapmlt .0.1 .0.3 1.0 .0.3 0.1 0.0 0.0 0.4 .0.2 0.1 0.1 0.0 0.0 SW"u,b 7.3 12.8 0.3 3.3 4.2 2.4 0.6 0.7 1.6 2.9 2.4 0.0 0.0 Oot.br 65.9 12.0 0.0 4.1 2.2 0.0 0.6 0.3 -0.4 2.0 1.7 0.0 0.0 Nowmb., 3.3 6.9 0.2 1.3 0.8 1.6 14.4 -0.8 1.9 1.9 3.4 .1.7 0.0 Ooonb.. .6.11 *IIA 0.0 1.0 00 0.0 .0.2 0.1 0.1 .0.9 .0.3 0.0 0.0 lees 27.0 39.3 11.2 23.98 : 9.3 24. 136 3. . 60 4.2 15.2 Jw.wy 3.1 2.9 0.0 2.1 1.1 -3.2 1.9 7.7 7.0 1.4 9.2 13." 0.0 F.Ibnl.a 3.3 6.9 0.2 2.0 CZ 0.0 .'.0 0O.3 2.7 0.0 0.9 0.0 0.0 Mxd, 3.4 5.9 0.1 2.0 la3 09 .0.1I 1.6 1.9 1-1 -0.4 40.0 0.0 A09 .2.3 4.2 0.0 1.2 2.5 1.1 1.9 0.2 4.9 0.0 6.0 0.0 01.0 M#y .0.9 .1.9 0.2 0.7 0.1 0.0 0.0 0.7 9.2 0.0 0.7 0.0 0.0 .~4.3 .10. 0.1 1.4 1.0 0.0 0.1 .0.2 2.4 0.0 0.6 0.3 8.8 Jaiy 8.9 12.9 0.1 .1.2 oil S.7 2.2 1.9 4.6 0.3 -1.0 46.9 6.0 A..ou. 7.1 14.2 0.0 0.4 0.0 0.0 7.8 P.8 0.0 0.0 0.1 1.9 4.6 Sayas,*w 1 0.8 19.1 -0. 1 3.0 0.3 0.2 0.0 0.2 0.8 IA4 1.4 .1.9 4.4 Odctbw 2.9 4 A 1.0 2.9 0.2 3.0 0.2 .3.8 .1.2 0.0 0.9 Ii8 4.2 Nobvo 10 IA 160.8 0.1 4.1 0.0 2.0 7.0 0.9 2.0 1.6 3.0 0.0 4.0 Dowp 7.79 .13.3 0.0 0.1 0.0 0.0 0.2 0.3 1.8 0.6 0.3 0.0 0.0 1909 2i.9 13.1 11.0 27.7 16.2 27.0 20.6 36.6 38.9 40.1 29.9 29.7 73.9 .1woy 0.6 -2.1 0.6 4.9 IA 0.7 I. 1 .2 3.9 6.3 7.4 269 *10.0 F*n,..-y -.?.7 - 1.8 0.0 0.3 0.1 0.0 .0.1 1.1 1.6 0.0 3.2 0.0 9.1 Mwh 2A 3Si 0.0 -0.2 .3 6.3 -.0. 1.9 .0.3 62 0.7 0.0 9.3 Awe .0.7 -IA 0.2 0o.1 0.1 0.0 0.1 0.6 0.7 0.0 0.7 0.0 0.0 May 0.9 -4.1 4.1 7.46 Si 9.8 Ii 28.4 14.5 2.0 .0.3 0.0 0.0 .3.32 49.1 2.2 1.3 GA 3.3 1.8 7.0 8.6 6.6 9.0 .6.8 23.9 JoAy .2.2 .7.6 8.9 1.7 2.1 0.9 3.9 0.3 2.7 4.3 7.3 2.8 1.0 A.*M.. 61.6 10.0 0.0 8.6 0.1 0.0 3.6 1.9 0.0 9.9 4.8 3.9 0.0 Septemlbe 3.9 4.0 0.0 0.6 11.0 3.9 0.4 13.8 -1.3 7.8 0.1 2.9 0.0 0Oct5 3.9 2.7 8.1 11.3 Ii 3.4 .0.7 0.0. 0.0 3.4 0.3 4.8 0.0 Novwr,5W 6.0 14.4 0.1 .4.4 0.1 1.1 2.9 0.0 -0.1I 0.6 -0.2 -1.6 0.0 Doecnemb 6.9 12.0 0.4 -4.6 0.3 4.9 2.0 .0.2 0.1 0.6 4.0 .0.3 0.0 1990 69.1 78.9 36.3 19.2 27.3 JWaWY 4 A 7.1 .2.9 1. 0.0 Februey 2.7 0.3 2.0 6.0 9.6 M8h .2 9.8 0.8 2.0 0.6 Aprg 3.2 3.i 4.3 2.9 0.0 Ma- 329 4.49 7.4 -OA 0.0 J" 7.4 10.6a 4.7 3.9 0.0 Joiy 7 A 11.3 0.0 2.0 0.0 A.,.*l OA 0.6 -OA 0.3 0.0 SqopuenIw 4.3 6.1 7.6 4.0 0.0 October 4.9 6.0 0.2 6.2 1 9.0 Nowmber 186.6 27.6 -.36 1.8 0.9 Doo.0.ber .1.6 .2.9 .4.3 1.0 0.9 1991 Jeruer 2.0 3.2 1.6 .0.1 0.0 Febnwy 4.3 6.8 0.3 2.3 0.0 MerdO 2.1 3.5 .0.3 .0.2 0.0 Apr6 .02 0.9 2.1 0.9 0.0 Mw .4.4 .10.3 0.3 7.1 ---0.0 18-Oct.81 - 195 - Tablh 7.4: PARAGUAY - WAGE INDEX, 1969-1990 11980 - 100) Utieities Hotel and and Transpon & Domestic General Manufacturing Construction Sanitation Commerce Communicat;on Services Index Weights b/ 57.9 44.0 8.1 0.6 27.4 1.6 100.0 1969 33.8 31.3 38.8 33.3 33.9 32.1 34.0 1970 35.2 31.4 38.6 33.3 34.8 33.7 35.1 1971 38.8 34.3 39.1 34.4 35.4 37.0 36.5 1972 38.4 34.3 39.1 35.2 37.2 37.2 37.9 1973 42.7 40.4 41.5 38.2 38.4 42.4 41.3 1974 51.3 51.0 49.2 51.5 42.9 52.2 48.8 1975 52.0 51.0 53.8 58.0 49.4 52.2 51.4 1978 57.1 58.5 59.4 56.5 54.7 52.2 56.8 1977 59.0 68.5 65.5 57.0 58.5 52.5 59.0 1978 68.1 74.5 72.6 63.3 54.5 80.2 67.6 1979 80.2 84.9 81.4 70.1 82.7 75.8 81.1 1980 1 "'.o 100.0 100.0 100.0 100.0 100.0 100.0 1981 1.-Q.3 119.3 120.0 124.5 119.4 121.5 120.0 1982 122.7 119.9 128.8 128.7 128.2 121.6 124.6 1983 128.5 120.5 145.1 134.8 135.8 130.5 131.4 1984 153.6 148.4 162.2 163.9 146.5 171.8 152.4 1985 185.9 193.8 220.9 202.1 175.4 231.1 186.8 1988 238.2 257.7 268.1 288.5 211.8 304.1 235.4 1987 327.3 379.1 375.2 382.6 278.7 433.8 322.1 1988 443.2 519.6 483.1 528.0 353.8 589.3 426.8 1989 555.2 650.2 895.3 852.0 534.1 735.2 567.8 1990 688.5 788.9 819.3 744.7 a63.8 887.8 898.3 a/ Wages paid to employees directly involved in production. Management io -cluded. b/ Based on the value of wages paid in June 1989. Source: Central Bank of Pareauay. 1 -Oct-91 Distributorsof World Bank Publications ARCEN'TINA EL SALVADOR JAPAN SOUTH AFRCA. BOTSWANA Cdoo. Hitoh. SRI. FO.Oad' E-uT Book Sorkv For oi.pf 60-a Calato Grnor Aoom Dr. Mo,ra.t Eo.k,qo Ai..) 0352 Hoop ICI,ot. B, rAo.5 113 Oxford UM'atoty Pr Florida 16S, 4th Floor-Ok. 453/466 Edifido SISA. Mr. Pts 7o"ky, Southon, Atric. 1333 Buans. Aira. San Salodo 011I P.O. fo. 1141 KEN(YA Cap. To"o WM6 AUSTRALIA. PAPUA NEW GUINEA.4 FINLAND Atric. Book Sori,~.1.) Ltd. F131LSOLOMON ISLANDS. A!oatseodoa WAkopps, Q.oo House< mto,tgoo 5,- For ,otlWto odto VANUATU, AND WESTERN SAMOA P.O. Box 125 P.O. Boo 45245 Iotnwm6wWu Subatiptbat Seric D.A. Books & Joonula SP-00101 HeInAld IS NaidAb P.O. Boo 4106 648 Whitehorse Rood ca.5h. Mb:hmt31.32 FRANCE KOREA. REPUWUC OF Johltsonra"2(24 Vktot4a Wortd Baok Publi6c.6o Pan Rot. Book Corportorat 66,a,mu*d1&At P.OL Bo. 101. Kwangrlhatoun SPAIN AUSTRA 73116 Pads. Soos M-di-Pren.a Uro.. S.A. Ceral sod Co. Came.1137 Cmbenr 31 GERMANY MALAYSIA 28=0 M.ndr A-1Ol1 Wi.. INO-Veiag Uoiowuly al Mals.. CsI Popp.ladorfa, AllM SS Boolala, UiouJd Lthrerta totsrao.ooa AEDC40 BANGLADESH 0-55Bonn,0I P.O. Boo 1127. iJohn Pstbi Boss Cmafl eIICantL 3S Hits W.trods, Drwlopm-.t 59766 K-al Lumnpur 56a0 Baroloom Assmseg,ceSocietyO&MDAS) CUATEMALA Noos S. Rood 16 LthrvAs Pled,. Soom 645CC SRI LANKA AND TI':!. W41LDIVES Dh.unsondl R/Aras S.. Call. 7-55 PM rVIC Lobke House Bookolsop Dhtaka 1209 Zona 1 Apoosdo ea%a122-650 P.O. Boo 244 Goowoxla Olty 1406 TIpo. Nek DY. 100. Sir CdittosP&Lan A. smB gkt,C.sdLooMoto"h 156 Na, Ahterd Sank HONG KONG. MACAO NrnEIIEL43DS Colotbo 2 Chim.gong,1000 ~A.aa 200 Ltd. D.oI Uoobo,/IrO-Polkstlk. 46-45 Wyndlto St."i P.O. Boo 202 SEW D04 76. K.D.A. 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Bo. 61.2S Elerstad, Lamo.4 Pame B.iJta, CAktuta .766n N7 -4*= Caol 6 Setie .km Ab0.unmmw% Co. postalm, 3312 COLOMBIA JAyad.,., Hmode BUidig PAXISTAM CH lED LAausanne lWoenac Lbda. S4t Main Rood GwOdInagm, Miln Book Agaicy Aportsdo Aervo 3427 Bao1lor. - SW669 65.5Sek-.Jh d.-Ano TANZANIA B"oota DM P.O. Bo N. 729 Oxford ushrdly Pre" 3-55-1129 Rioltguda Coo. Road L4wltce.40 P.O. Bo.5299 COTE DIVaME Hyderabad - SOO OZ MAIlAb Road Ceonty dEdidon et de Dllfusloeo PEUt Duo, S.Sloant% AfrniO..pe(CEDAN Pcotthwa Flats, 2nd Fboo Editwria Desrooll SA 04B.P. 541 Nw Takom U Nm&Hvsoogprs Aportodo3824 THAILAND Abid*a 04 Plabou Ahtnudalmd .3906 Lit. I CansatiDeporutaiat Store 306 SIoom Rood CYipRus Psdla1 Hot... PHIIuPPINESBfo Cypeuo Collar Bookwtt." 16-A Ashk Mug lotomtoodeAl Book Catw & Dfogarm. Struet. Eogoatl Luckotoi - 2260 OM th Floor. Filplo. Li* BudiUng TRINIDAD j& TOBAGO, ANTIGUA P.O. boo 2666 Ayala Aratue. MokaS BARSUDA. ARBADOS. Nkcools Catmol Bazaa, Road Mabo k4aolh DOMINICA, GRLENADA. 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Staall Struet Castile Pootol 552 IfrsUm PIlt, PsB..O Cairo S012S FUITL14 Ptraoa.L oi 02-061lit FL. P6.1m-A. ltn.oaa 24 Near lndustial Rood stopper 1955 MAP SECTION *_ |. \.I - '/ | tuA M L RI C A B O L I V i A0 <> C H A C O\ 4 - VI; 4V+ A L T I P A R A G U A Y j N UA ASUNCION A B R A Z I L if S T / R N 1' R G N \ B O Q U E R O N \ \ ~~~~~'9i X u~~~~ONCEPCION ;,; e| s 9-'"- IC /J A C O< n .t , 4S ' ' ~~~~~A R ,,,_~A- PARAGUAY = 1 ENUlE UR sfACED RW.ADS UNDER CCNSTUCTf3N s l 8 - e t t _ z P _ RAVEL I EARTIH 5URfbCED RODS0{>> .\ _ RIVERS 4A AI). T'F ' ^ MIf8NIM Y RCWIN 1V,,, 3 ,W,"jT ,_ NTERNATK;)NAt BOUNDARIES {;>* > r{. i@^r¢ftyv t > t/ $ >1L_ ^- \ . ,,,,.t (. ,lA _ u < X 7 sre e J c u \ M;;;< | X S 1 , ,,, A / r ~~~~~~~~~~~~~~~~~~q ,,.ft "7 \r >, The World Bank Headquarters European Office Tokyo Office 1818HStreet,N.W. 66, avenue d'1ena Kokusai Building Washington, D.C 20433, US.A. 75116 Paris, France I-1 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone (1) 4046930X00 Fac:'L ile: (202) 477-6391 Facsimile (1)40.6930-66 Telephone: (3) 3214-5001 Telex: wuL 64145 WORLBANK Telex: o40651 Facsimile: (3) 3214-3657 RcA248423woRLDWK Telex: 26538 Cable Address: m7SrAYsu WASF WCTONDC .'',, '. ,_