Paraguay
Paraguay at a glance
Capital: Asunción
Population: 6,995,655 (July 2009 estimate)
Government Type: Constitutional Republic
GDP: $28.89 billion
Imports: $9.172 billion
Exports: $8.152 billion
Paraguay’s population is distributed unevenly throughout the country. The vast majority of the people live in the eastern region, most within 160 kilometers (100 mi.) of Asunción, the capital and largest city. The Chaco, which accounts for about 60% of the territory, is home to less than 2% of the population. Ethnically, culturally, and socially, Paraguay has one of the most homogeneous populations in South America. About 95% of the people are of mixed Spanish and Guarani Indian descent. Little trace is left of the original Guarani culture except the language, which is understood by 95% of the population. About 90% of all Paraguayans speak Spanish. Guarani and Spanish are official languages. Brazilians, Argentines, Germans, Arabs, Koreans, Chinese, and Japanese are among those who have settled in Paraguay, with Brazilians representing the largest number.
Paraguay’s highly centralized government was fundamentally changed by the 1992 constitution, which provides for a division of powers. The president, popularly elected for a 5-year term, appoints a cabinet. The bicameral Congress consists of an 80-member Chamber of Deputies and a 45-member Senate, elected concurrently with the president through a proportional representation system. Deputies are elected by department and senators are elected nationwide. Paraguay’s highest judicial body is the Supreme Court. A popularly elected governor heads each of Paraguay’s 17 departments.
U.S.-Paraguayan Relations
The United States and Paraguay have an extensive relationship at the government, business, and personal level. Paraguay is a partner in hemispheric initiatives to improve counter-narcotics cooperation and combat money laundering, trafficking in persons, and other illicit cross-border
activities, and to protect intellectual property rights. The United States looks to Paraguay, which has tropical forest and riverine resources, to engage in hemispheric efforts to ensure sustainable development. The United States and Paraguay also cooperate in a variety of international organizations.
Paraguay has taken significant steps to combat illegal activity in the tri-border area it shares with Argentina and Brazil. It participates in anti-terrorism programs and fora, including the Three Plus One Security Dialogue, with its neighbors and the United States.
The United States has played roles in defending Paraguay’s democratic institutions, in helping resolve the April 1996 crisis, and in ensuring that the March 1999 change of government took place without further bloodshed.
Bilateral trade with the United States has increased over the last 7 years, after a steady decline before that due to a long-term recession of the Paraguayan economy. Although U.S. imports from Paraguay were only $78.4 million in 2008, up from $68 million in 2007, U.S. exports to Paraguay in 2008 were $1.6 billion, up from $1.2 billion in 2007, according to U.S. Customs data. (Not all exports and imports are reflected in Paraguayan Government data.) More than a dozen U.S. multinational firms have subsidiaries in Paraguay. These include firms in the computer, agro-industrial, telecom, banking, and other service industries. Some 75 U.S. businesses have agents or representatives in Paraguay, and more than 3,000 U.S. citizens reside in the country.
The U.S. Government has assisted Paraguayan development since 1942. In 2006, Paraguay signed a $34.9 million Millennium Challenge Corporation (MCC) Threshold Country Program (TCP) with the United States focused on supporting Paraguay’s effort to combat impunity and informality. A second MCC Threshold program for $30 million was approved in July 2009. Also in 2006, Paraguay signed and ratified an agreement with the United States under the Tropical Forest Conservation Act that provides Paraguay with $7.4 million in relief and the zeroing out of its remaining bilateral debt in exchange for the Paraguayan Government’s commitment to conserve and restore tropical forests in the southeastern region of the country. Separately, the U.S. Agency for International Development (USAID) supports a variety of programs to strengthen Paraguay’s democratic institutions in the areas of civil society, local government and decentralization, national reform of the state, rule-of-law, and anti-corruption. Other important areas of intervention are economic growth, the environment and public health. The total amount of the program was approximately $17.8 million in fiscal year 2009.
Foreign Relations
Paraguay is a member of the United Nations and several of its specialized agencies. It also belongs to the Organization of American States, the Latin American Integration Association (ALADI), the Rio Group, INTERPOL, and MERCOSUR (the Southern Cone Common Market). Paraguay is closely aligned with its MERCOSUR partners on many political, economic, and social issues. It is the only country in South America that recognizes Taiwan and not the People’s Republic of China.
Economy
Paraguay has a predominantly agricultural economy, with a struggling commercial sector. There is a large subsistence sector, including sizable urban unemployment and underemployment, and a large underground re-export sector. The country has vast hydroelectric resources, including 
the world’s second-largest hydroelectric generation facility, built and operated jointly with Brazil (Itaipu Dam), but it lacks significant mineral or petroleum resources. The government welcomes foreign investment in principle and accords national treatment to foreign investors, but widespread corruption is a deterrent. The economy is dependent on exports of soybeans, cotton, grains, cattle, timber, and sugar, as well as electricity generation, and to a decreasing degree on re-exporting to Brazil and Argentina products made elsewhere. It is, therefore, vulnerable to the vagaries of weather and to the fortunes of the Argentine and Brazilian economies.
Paraguay’s real GDP in 2008 of $16.1 billion (in 2000 dollars) represented an increase of 26% from $12.8 billion in 2007. The per capita GDP rose to $2,593 in current U.S. dollar terms in 2008, up from $1,928 in 2007 and $1,793 in 1996. Given the importance of the informal sector, accurate economic measures are difficult to obtain. In 2007, Paraguay had a current account deficit of $73 million, derived from a small deficit in the trade of goods, but accompanied by a significant increase in agriculture exports and services (electricity), reflecting favorable market prices for agricultural commodities and exports of electricity from the hydroelectric dams. In July 2009, official foreign exchange reserves rose to $3.2 billion, an increase of 33% over 2008, and over five times the figure for 2002 ($582.8 million). Foreign official debt rose slightly from $2.1 billion in 2007 to $2.2 billion in 2008. Inflation in 2008 was 7.5%, up from 6.0% in 2007, but down from 12.5% in 2006.
Agricultural activities, most of which are for export, represent about 20% of GDP and employ about one quarter of the work force. More than 250,000 families depend on subsistence farming activities and maintain marginal ties to the larger productive sector of the economy. In addition to the commercial sector with retail, banking, and professional services, there is significant activity involving the import of goods from Asia and the United States for re-export to neighboring countries. The underground economy, which is not included in the national accounts, may be almost twice the size of the formal economy in size, although greater enforcement efforts by the tax administration and customs are having an impact.
Best Export Opportunities
Paraguay’s potential in the short term reflects its immediate need to improve its infrastructure, become more competitive within MERCOSUR, increase its agricultural export-based production, and utilize its excess electricity for industrial programs. The country is poised to become an important player in the production of biofuels, in particular sugar-cane based ethanol. Although current production is mostly to satisfy domestic needs, the sector has the capacity and expertise to expand rapidly to meet higher export volumes for new markets.
Paraguay offers special incentives to promote its maquila assembly and distribution operations, and it enjoys lower taxes and labor costs than the other MERCOSUR countries.
Detailed information on prospects in the Paraguayan market can be found in the Best Export Opportunities section of the Paraguay country profile.
Transparency of the Regulatory System
The Civil Code and Law 1.034/83 regulate business and industrial activities in Paraguay. Under the existing framework, the Ministry of Industry and Commerce is charged with overall industrial policy coordination; the Ministry of Finance handles tax and fiscal policy; and the Central Bank is the principal coordinator of monetary policy. For further information on the regulatory system and property rights in Paraguay, see the Trade Data section of the Official Export Guide’s Paraguay country profile.
Transportation
The only U.S. air carrier that served Paraguay with daily passenger flights to Asunción suspended its operations in Paraguay in 2006. Another foreign airline that reportedly handled 60% of air travel in Latin America suspended many of its air routes including Paraguay due to financial 
problems. These actions have seriously hampered air travel to and from Paraguay. As of February 2009, Asunción receives an average of 11–12 international flights per day. Flights arrive from Buenos Aires, Corrientes, and Resistencia (Argentina); Rio de Janeiro and Sao Paulo (Brazil); Lima (Peru); Santiago (Chile); and Santa Cruz (Bolivia). One airline offers daily in-country air service between Asunción and Ciudad del Este.
Airlines that serve Asunción are Aerolineas Argentinas, PLUNA, TACA, Aerosur, and TAM. Many local and foreign bus companies offer in-country and international service to the major cities in Paraguay and neighboring countries. Asunción’s taxi network is reasonably well developed, but some taxis are in poor repair and most lack air conditioning. Motor vehicle rental service is available with or without driver. The urban bus transportation system is inadequate for business.
Paraguay has a well-developed river network and is working with its neighbors to improve the Paraguay-Parana waterway. Paraguay has a road network of approximately 19,591 miles, of which only 2,867 miles are paved. The Ministry of Public Works plans to spend over US$ 1,550 million on new roadwork from 2008 to 2013.
