Paraguay WT/TPR/S/245 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. The Paraguayan economy grew vigorously in 2004-2008, thanks to burgeoning agricultural 
output, buoyant domestic demand and a supportive in ternational environment.  Nonetheless, the 
economy's heavy reliance on agriculture and interna tional trade meant it was badly affected by the 
severe drought that occurred in 2009, which was compounded the adverse effects of the recent global economic crisis.  The Government responded with e xpansionary fiscal and monetary policies, which, 
assisted by an increase in interna tional commodity prices, enabled Paraguay to overcome the crisis 
and post double-digit growth rates in the first half of 2010. 
2. During the period under review, the economic e xpansion enabled Paraguay to double its per 
capita GDP, which reached a level of US$2,248 in 2009.  Nonetheless, reducing poverty and income 
inequality remain among the key challe nges facing the Paraguayan authorities. 
3. The combination of prudent fiscal policies and improvements made to the structure and 
administration of taxation have made it possible to stabilize the country's public finances.  The central government generated a primary surplus averaging around 2 per cent between 2004 and 2008, and this 
allowed it to increase public expenditure in 2009 to  cope with the economic crisis.  Nonetheless, 
deeper tax reforms are needed, including a wideni ng of the tax base - for example by introducing 
personal income tax, which has been postponed on several occasions, and by abolishing certain tax 
breaks.  The central government's total debt shrank  from 33.2 per cent of GDP in 2004 to 15.4 per 
cent in 2009. 
4. The key objective of monetary policy has trad itionally been to maintain the value of the 
currency, although without setting an explicit inflati on target.  This approach has gradually shifted 
towards an inflation-targeting regime, and a target  of 5 per cent was set for 2010 with a margin of 
tolerance of +/-2.5 per cent.  Paraguay has a floatin g exchange rate regime, although the Central Bank 
sometimes intervenes to mitigate sharp exchange-rate fluctuations.  During the review period, the real 
effective exchange rate stre ngthened by around 20 per cent. 
5. The current account of the balance of payments is traditionally in surplus, with a deficit on 
merchandise trade being offset by large inflow s from royalties and other business services.  During 
the period under review, the overall balance of pa yments posted a surplus, thus allowing for a 
substantial increase in international reserves. 
6. Paraguay's external trade (exports and imports of goods and services) represented 98 per cent 
of GDP in 2009, reflecting the high degree of openness of its economy.  Foreign trade grew at an 
average annual rate of almost 23 per cent in 2004-20 10, but continues to be heavily concentrated in a 
few agricultural products (soya and its by-products,  and meat) which account for around two thirds of 
total exports.  Imports consist essentially of manuf actures.  A large proportion of imported goods are 
re-exported.  The country's leading trading partners  are MERCOSUR, the Europe an Union and China.  
In recent years, MERCOSUR's share has decreased, while China has become the main import source. 
7. After attaining record levels in 2008, foreign direct investment (FDI) inflows dwindled in 
2009, in the wake of the global economic crisis, before recovering in early 2010.  The country's 
leading investor is the United States, which account s for almost 50 per cent of the total FDI stock, 
followed by Brazil and Argentina. WT/TPR/S/245 Trade Policy Review 
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(2) RECENT ECONOMIC DEVELOPMENTS  
(i) Production and employment 
8. The Paraguayan economy enjoyed an economic upswi ng in the first five years of the review 
period, with real GDP growing by 4.9 per cent per year on average between 2004 and 2008 
(Table I.1).  This was fuelled by dynamic agri cultural production and the recovery of domestic 
demand, particularly investment, which grew str ongly in 2007-2008.  Macr oeconomic stability and a 
supportive external environment helped to sustai n this growth phase.  In 2009, however, a severe 
drought, combined with the world economic crisis , brought the growth cycle to a halt, and GDP 
shrank by 3.8 per cent.  Taking the period 2004- 2009 as a whole, however, the Paraguayan economy 
expanded by an average of 3.1 per cent per year in re al terms.  In the first half of 2010, it recovered 
strongly, with GDP growing by 12.2 per cent in the second quarter compared to the same period in 2009.  Over the period 2004-2009, net exports of goods and non-factor services contributed 
negatively to GDP, as strong import growth outpaced exports. 
9. The global economic crisis that erupted in 2008 weakened external demand for Paraguay's 
products and caused a deterioration in its terms of  trade.  In addition to having suffered from the 
effects of the drought on agricultural production, export values declined b ecause of the economic 
slowdown in the country's main trading partners and the fall in international commodity prices in 
2009.  As agriculture represents around one quart er of the Paraguayan economy, domestic demand 
also contracted in 2009, both in its consumpti on component (-1.7 per cent) and in investment 
(-11.9 per cent) (Table I.1).  The slump in total c onsumption was offset by a substantial increase in 
public-sector consumption, while the retreat of priv ate investment meant a sharp reduction in capital 
goods imports. 
10. The Government has implemented countercyclical  fiscal and monetary policies to deal with 
the crisis and stimulate domestic demand.  The measures implemented as part of the Economic 
Recovery Plan 2009-2010 included the following :  expansion of public expenditure, mainly 
infrastructure investments and cash transfer progra mmes for the poorest families, supported by other 
social programmes;  financing for production sect ors, particularly microenterprises and small 
businesses, as well as family farming, with funds  channelled through development banks;  and 
measures to inject liquidity into the financial sy stem, including a reduction in the Central Bank's 
average monetary-policy rate and lower legal reser ve requirements, among others.  The package of 
fiscal measures was estimated as equivalent to 2 per cent of GDP in 2009.
1 
11. The Paraguayan economy has made a rapid and no table recovery since late 2009.  Real GDP 
is expected to grow between 9 and 10 per cent in 20102, as a result of the macroeconomic support 
policies, recovery in the economies of the c ountry's trading partners , and favourable weather 
conditions that have produced a record soya harvest .  These factors, supported by higher international 
commodity prices, have revived exports and pr ivate investment.  With the economy recovering 
strongly, the authorities have partially withdraw n the fiscal support provided in 2009, and have 
gradually returned to a more normal monetary  stance to keep inflation under control. 
                                                      
1 IMF (2010b). 
2 IMF (2010a). Paraguay WT/TPR/S/245 
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Table I.1 
Key macroeconomic indicators, 2004-2010  
 2004 2005 2006 2007 2008a2009a 2010 I 2010 II
National accounts (Percentage variation at constant prices) 
Real GDP (1994 prices) 4.1 2.9 4.3 6.8 5.8 -3.8 11.2 12.2 
Domestic demand 4.7 5.3 4.6 7.3 8.2 -3.8 10.0 10.0 
Consumption 4.6 4.7 5.0 5.9 6.5 -1.7 8.5 8.3 
Gross fixed capital formation 5.0 8.2 2.5 14.4 15.8 -11.9 17.7 18.7 
Exports of goods and non-factor services 8.1 5.5 14.6 8.1 12.1 -13.9 26.2 38.8 
Imports of goods and non-factor services 6.7 11.3 16.5 10.7 15.9 -13.7 24.3 35.2 
 (Percentage of current GDP, unless indicated otherwise) 
Domestic demand 101.9 104.7 105.3 104.0 105.2 105.1 n.a. n.a.
Consumption 82.7 85.0 85.6 85.9 87.1 89.5 n.a. n.a.
Private consumption 72.9 74.1 74.4 75.5 77.5 77.7 n.a. n.a.
Public consumption 9.9 10.9 11.2 10.4 9.7 11.8 n.a. n.a.
 Gross fixed capital formation 19.2 19.8 19.6 18.0 18.1 15.5 n.a. n.a.
Exports of goods and non-factor services 46.9 50.7 52.8 49.0 50.4 46.5 n.a. n.a.
Imports of goods and non-factor services 48.8 55.5 58.1 52.9 55.6 51.6 n.a. n.a.
Net exports of goods and non-factor 
 services -1.9 -4.7 -5.3 -4.0 -5.2 -5.1 n.a. n.a.
Open unemployment rate (%)b 7.3 5.7 6.7 5.6 5.7 6.4 n.a. n.a.
Prices and interest rates (Percentage, unless indicated otherwise) 
Inflation (CPI, percentage varia tion) 2.8 9.9 12.5 6.0 7.5 1.9 1.8 2.3 
Central Bank interest rates (annual weighted 
average) 6.6 4.8 9.6 6.0 5.9 2.1 2.0 0.9 
Commercial bank interest rates (annual 
average)         
Deposit rates (weighted average) 2.7 0.6 0.8 0.8 1.1 1.4 1.2 1.2 
Lending rates (weighted average) 33.5 29.9 30.1 25.0 25.8 28.23 27.5 25.3 
Exchange rate         
G/US$ (Annual average) 5,976 6,178 5,636 5,033 4,363 4,967 4,695 4,736 
Real effective exchange rate, annual average 
(percentage variation)c -2.53 13.80 -12.40 -7.43 -10.67 6.21 0.10 1.69 
Real effective exchange rate, end of period 
(percentage variation)c 13.15 0.12 -18.40 0.08 -13.68 12.27 0.80 0.61 
Fiscal policy (Percentage of current GDP, unless indicated otherwise) 
Central government balance 1.59 0.77 0.50 0.96 2.49 0.06 3.32 3.41 
Total income 18.53 18.25 18.29 17.67 17.36 19.67 17.03 14.19 
Tax revenue 11.87 11.85 11.98 11.41 11.76 13.02 11.77 10.56 
Total expenditure 16.94 17.48 17.79 16.70 14.87 19.61 14.35 10.78 
Total central government debt 33.17 27.41 20.86 20.14 15.04 15.45 n.a. n.a.
Domestic debt 4.09 3.38 2.97 2.77 2.41 3.05 n.a. n.a.
Central government primary balance 2.73 2.00 1.49 1.80 3.09 0.68 4.95 5.29 
External sector         
Current-account balance 2.05 0.21 1.37 1.44 -1.77 0.28 1.95 1.32 
Net merchandise trade -3.50 -6.16 -6.69 -4.35 -6.20 -7.24 -3.78 -3.57 
Goods exports 41.03 44.66 47.38 46.10 46.21 40.73 46.94 50.93 
Goods imports -44.53 -50.82 -54.07 -50.45 -52.41 -47.96 -50.71 -54.51 
Balance of trade in services 4.68 4.16 4.46 4.07 3.31 6.39 2.83 1.59 
Capital account 0.23 0.27 0.32 0.23 0.20 0.39 -4.55 1.33 
Financial accountd 0.27 5.24 1.59 5.71 3.56 3.80 0.29 0.35 
Direct investments 0.45 0.63 1.79 1.44 1.56 1.20 -7.53 -0.78 
Balance of payments 3.89 2.13 4.12 5.90 2.34 6.42 -0.56 1.87 
Terms of tradee 120.0 79.8 114.9 126.1 117.5 110.1 118.9 145.9 
Exports of goods (percentage variation) 31.9 17.1 31.3 28.4 38.0 -25.6 30.1 55.8 
Imports of goods (percentage variation) 26.9 22.8 31.7 23.2 43.0 -22.7 35.9 58.4 
Exports of services (percentage variation) 9.4 4.5 21.7 20.5 19.5 25.9 14.8 -12.2 
Imports of services (percentage variation) -8.4 14.1 11.8 20.7 27.7 -9.2 20.6 28.7 
Net international reserves (US$ million, end 
period) 1,168 1,293 1,703.1 2,461.8 2,864.1 3,860.7 3,855.1 3,908.1 WT/TPR/S/245 Trade Policy Review 
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 2004 2005 2006 2007 2008a2009a 2010 I 2010 II
External public debt (US$ million, end period) 2,391 2, 271 2,240 2,205 2,234 2,237 2,208 2,203 
External public debt service/exports (%)f 9.3 7.3 5.9 4.9 3.6 4.6 2.8 2.8 
n.a. Not available. 
a Preliminary figures. 
b The open unemployment rate is the number of people out of work  who want a job and made some attempt to find one, expressed 
as proportion of the labour force.   Excludes the departments of Boquerón and Alto Paraguay. 
c (-) indicates an appreciation. d Excludes reserve assets and special financing. 
e Index base 1994. 
f As a percentage of earnings from goods and serv ices exports, calculated by the WTO Secretariat. 
Source : Central Bank of Paraguay, Anexo Estadístico del Informe Económico , August 2010.  Viewed at:  
http://www.bcp.gov.py;  Mi nistry of Finance, Informe Financiero  (various years).  Viewed at:  
http://www.hacienda.gov.py/ web-hacienda/index.php?c=385;  Directorat e-General of Statistics, Surveys and 
Censuses, Encuesta Permanente de Hogares  (various years).  Viewed at:  http://www.dgeec.gov.py. 
12. Despite a dip in 2009, several previous years of economic expansion ha d enabled Paraguay to 
nearly double its per capita GDP to US$2,248 in that  year (Table I.2).  Nonetheless, its poverty and 
inequality indices are still relatively high compared to those of other countries in the region.  In 2008, 
37.9 per cent of the population was living in poverty, and 19.4 per cent in extreme poverty.  The Gini coefficient improved only slightly  from 0.52 to 0.51 between 2004 and 2008
3, and it continues to 
reflect a highly unequal income distribution. 
13. The open unemployment rate (proportion of the unemployed labour force that has made some 
effort to obtain work) dropped from 7.3 per cent to 5.7 per cent between 2004 and 2008, but rose 
again in the wake of the economic downturn, to reach  a level of 6.4 per cent in 2009 (Table I.1).  
Reducing poverty levels and une qual access to job opportunities, markets, and productive resources 
are some of the most important challenges f acing the current Government, whose strategic 
development plan targets economic growth with social inclusion, with emphasis on income 
distribution and investment in social areas. 
(ii) Structure of the economy 
14. The key sectors of the Paraguayan economy in terms of their contribution to GDP are 
agriculture (crop farming, livestock breeding a nd forestry management), commerce and general 
(Table I.2).  The sectoral structure of the economy remained broadly stable for most of the period 
under review, although adverse weat her conditions caused the GDP shar e of agriculture (at current 
prices) to shrink from 23.5 per cent in 2008 to 19.3 per cent in 2009, while the overall share of the 
services sector grew to 51.2 per cent. 
15. The fastest growing sectors in 2004-2009 were  communications, which expanded by an 
average of 9.7 per cent per year at constant pri ces;  followed by finance (7.9 per cent);  general 
government (6.7 per cent);  and business services (5 .9 per cent).  The agriculture sector, which had 
grown at an average annual rate of 6.6 per cen t in real terms between 2004 and 2008, shrank by 
17.4 per cent in 2009 (Table I.2). 
                                                      
3 Information from the Directorate-General of St atistics, Surveys and Censuses provided by the 
Paraguayan authorities. Paraguay WT/TPR/S/245 
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Table I.2 
Structure of GDP and employment, 2004-2009 
 2004 2005 2006 2007 2008a 2009a
Current GDP (G/billion) 41,521.9 46,169.3 52,270.1 61,511.7 73,621.7 70,705.3
Current GDP (US$ million) 6,972.6 7 ,505.3 9,289.0 12,260. 0 16,874.4 14,254.6
Real GDP (G/billion at constant 1994 pri ces) 15,230.9 15,666.3 16,346. 3 17,451.6 18, 468.4 17,758.0
Real GDP (US$ million at constant 1994 pri ces) 7,999.4 8,228.1 8,585. 3 9,165.7 9, 699.8 9,326.7
Per capita GDP (US$ at current prices) 1,205.0 1,272.0 1,546.0 2,003.0 2,709.0 2,248.0
Structure of GDP by economic sectors (% of GDP at current prices)     
Crop farming, livestock, forestry management 21.6 21.1 20.1 21.9 23.5 19.3
Fisheries 0.1 0.1 0.1 0.1 0.1 0.1
Mining 0.1 0.1 0.1 0.1 0.1 0.1
Manufacturing 14.2 13.9 13.7 12.8 12.6 13.0
Construction 4.7 4.6 4.7 5.3 6.1 6.5
Services 50.2 51.4 52.3 50.5 48.2 51.2
 Electricity and water 2.2 2.0 2.0 1.7 1.4 1.5
 Transport 4.0 4.5 4.5 4.4 4.1 4.1
 Communications 2.8 3.2 3.1 3.5 2.9 3.2
 Commerce 19.8 19.7 20.8 19.5 18.8 18.0
 Finance 2.2 2.4 2.6 2.5 3.2 3.5
 Housing 1.5 1.3 1.2 1.1 1.0 1.1
 Business services 2.2 2.2 2.3 2.3 2.2 2.6
 Hotels and restaurants 1.1 1.1 1.1 1.1 1.1 1.1
 Household services 6.1 5.9 5.6 5.3 5.1 5.8
 General government 8.3 9.1 9.2 9.2 8.5 10.2
Product taxes 9.1 8.8 9.0 9.2 9.4 9.8
GDP growth rate (at constant 1994 prices)      
Crop farming, livestock, forestry management 3.9 -0.1 3.6 14.4 9.2 -17.4
Fisheries 1.0 1.5 1.5 1.0 1.0 1.5
Mining 2.7 7.8 -2.2 3.5 5.0 3.0
Manufacturing 3.3 2.7 2.5 -1.2 2.0 -0.8
Construction 2.1 4.5 -3.5 7.2 11.0 2.0
Services 4.6 4.3 5.9 5.3 4.7 2.3
 Electricity and water 3.6 2.8 8.5 5.9 3.5 4.8
 Transport 10.7 2.2 7.7 9.5 5.5 -10.5
 Communications 8.4 13.5 14.0 12.0 4.8 4.4
 Commerce 5.3 2.4 5.8 5.2 4.1 -3.4
 Finance 0.7 4.1 5.1 5.3 18.9 6.6
 Housing 2.1 1.9 2.0 1.8 1.8 1.7
 Business services 3.4 5.5 4.5 4.1 3.0 12.4
 Hotels and restaurants 1.1 2.0 1.5 3.5 5.1 0.5
 Household services 1.8 3.8 4.2 3.0 4.5 7.0
 General government 3.5 7.8 4.5 3.0 3.5 15.2
Product taxes 4.5 3.7 4.3 5.5 5.0 -1.0
Structure of employment by branch of economic activityb 
Total employment (1,000 people) 2,560.6 2,617.7 2,553.6 2,716.4 2,810.5 2,961.0
Crop farming, livestock, forestry, hunti ng and fishing 33.3 32.4 31.2 29.5 26.5 29.5
Manufacturing, including mining and quarrying 11.4 9.7 10.6 12.1 12.3 11.0
Electricity, gas and water 0.6 0.7 0.7 0.3 0.4 0.4
Construction 4.5 5.4 5.9 5.7 6.2 5.8
Commerce, restaurants and hotels 22.8 22.3 22.9 23.5 24.0 24.6
Transport and communications 3.7 3.7 3.9 3.7 4.2 4.3
Financial establishments, insurance, etc. 2.8 3.8 3.3 3.8 4.3 3.9
Community, social and personal services 20.8 22.2 21.5 21.3 22.1 20.3
Unclassified 0.0 0.0 0.0 0.0 0.0 0.2
a Preliminary figures. 
b The data cover the period October-December, except for 2004 wh ich refer to September-Decemb er, and 2006 which cover the 
period November 2006-February 2007. 
Source : Central Bank of Paraguay, Informe económico , August 2010;  and Directorate-Gene ral of Statistics, Surveys and 
Censuses, Encuesta Permanente de Hogares .  Viewed at:  www.dgeec.gov.py. 
16. The agriculture sector remain s the leading sector in terms of employment, accounting for 
29.5 per cent of all jobs in 2009 (down from 33.3 per cent in 2004);  followed by commerce, restaurants and hotels, which contributed 24.6 per cent of total employment in 2009;  and community, WT/TPR/S/245 Trade Policy Review 
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social and personal services (20.3 per cent).  The services sector as a whole generated 53.1 per cent of 
total employment in 2009, compared to 50.1 per cen t in 2004.  The manufacturing sector's share of 
total employment remained virtually unchanged at  around 11 per cent throughout the period under 
review (Table I.2). 
(3) FISCAL POLICY  
17. Paraguay succeeded in stabilizing its public finances during the review period, by 
implementing prudent fiscal policies and making impr ovements to the structure and administration of 
taxation.  Central government generated a primary surplus av eraging around 2 per cent during 
2004-2008, which put it in a position to expand public spending in res ponse to the economic crisis in 
2009. 
18. The fiscal reform approved by Law No. 2.421 of 5 July 2004 included, among other aspects, 
an expansion of the tax base for value added and corporate income taxes;  the introduction of a 
personal income tax and a new agricultural tax;  as well as the simplification of tax and customs 
administration.  Apart from the introduction of pers onal income taxation, the implementation of which 
has been repeatedly delayed by Congress, the 2004 ta x reform has now been fully implemented.  As a 
result, revenue levels have increased, and tax reve nue grew from 11.8 per cent of GDP in 2004 to 
13.02 per cent in 2009 (Table I.1).  Nonetheless, th e tax burden in Paraguay remains light compared 
to levels in other countries of the region;  tax rates are comparatively low, and tax bases, which exclude most agricultural activities, are narrow.
4  
19. In 2009, the overall central government balance recorded a surplus of 0.06 per cent of GDP, 
which was considerably smaller than that reported in 2008 (Table I.1).  This resulted from a 26.6 per 
cent increase in total expenditure, which in turn reflected higher outlays on investments, current 
transfers and personal services.  Total expenditu re represented 19.6 per cen t of GDP in 2009.  
Although by a smaller proportion, total income also  grew to represent 19.7 per cent of GDP in that 
year, thanks to higher tax revenue, particularly from corporate income tax.  In contrast, foreign-trade 
taxes dwindled to just 1.3 per cent of GDP in 2009.  Non-tax income, including royalties from 
hydro-electric energy sales, grew by close to  9.0 per cent to represent 5.9 per cent of GDP.5  In sum, 
the central government's primary surplus shrank fro m 3.1 per cent of GDP in 2008 to 0.7 per cent of 
GDP in 2009. 
20. Total central government debt as a proportion of GDP declined sharply in the period under 
review, from 33.2 per cent in 2004 to 15.4 per cent in 2009 (Table I.1), when 80 per cent of public 
debt was held externally.6  International organizations are th e main creditors, accounting for nearly 
60 per cent of the country's external debt, wh ile other large creditors include Japan and 
Chinese Taipei.  External debt service (including  principal, interest and commissions) represented 
2.3 per cent of GDP at the close of fiscal 2009.7  Service on the external public debt absorbed 4.6 per 
cent of goods and services export earnings.  Domestic  debt also trended down as a proportion of GDP 
between 2004 and 2008, but rose again to 3 per cent of GDP in 2009. 
21. In 2010, income is estimated to  have grown thanks to the d ynamism of economic activity, and 
a small central government surplus is forecast.  The au thorities aim to keep the debt at prudent levels 
and continue to strengthen tax re venue and expand tax bases, to help  finance public expenditure on 
infrastructure and social programmes.  The medium-term target is to raise tax revenue to 15 per cent 
                                                      
4 IMF (2010c). 
5 Central Bank of Paraguay (2009c). 
6 Ministry of Finance (2009). 
7 Ministry of Finance (2010a). Paraguay WT/TPR/S/245 
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of GDP, and to achieve this, the authorities are considering measures to increase the contribution of 
agricultural activities to tax revenue.8  The introduction of personal income tax, which has been a 
pending issue since 2004, would also help broaden the tax base. 
(4) MONETARY AND EXCHANGE -RATE POLICY  
22. Monetary and exchange-rate policy is defined by  the Central Bank of Paraguay (BCP), whose 
Organic Law (Law No. 489/95) states that the fundamental objectives of monetary policy are to 
maintain and safeguard the stability of the value of  the currency and promote an effective and stable 
financial system.  The authorities have identified the control of inflation as an implicit objective.  The 
BCP is legally empowered to intervene on the foreign-exchange market to smooth out sudden 
exchange-rate fluctuations and cushion speculative attacks.  The monetary-policy instruments it has 
traditionally used include open-market operations us ing monetary regulation instruments (IRM), legal 
reserve requirements, a short-term liquidity f acility and, when necessar y, intervention on the 
foreign-exchange market. 
23. Having maintained a tight-money policy for sever al years, since late 2008 the Central Bank 
has pursued a more expansionary policy aimed at inj ecting liquidity into the national financial system 
to help it cope with the effects of the intern ational financial crisis.  In 2009, it lowered the 
monetary-policy base rate and reduced the require d reserves ratio in both domestic and foreign 
currency (eliminating the reserve requirement for deposits held for longer than one year), and it 
introduced a short-term liquidity facility.  At the same time, the Central Bank intervened on the 
foreign-exchange market to minimize exchange-rate volatility, which also helped to inject liquidity 
and made it possible to rebuild international reserves.9  The monetary policy applied in 2009 and 
maintained in 2010 helped to reduce uncertainty in  the local financial system and encourage lending 
to the private sector.  With the economy recovering strongly, the BCP gradually raised its monetary policy base rate in the second half of 2010 (although it remains below expected inflation), and it is 
expected to continue on this path to maintain price stability. 
24. Inflation stayed in single figures throughout the review period, except in 2006 (Table I.1).  In 
early 2009, the consumer price index (CPI) fell as re sult of the global economic slowdown, the fall in 
international commodity prices, and reduced activity  in the Paraguayan economy.  Despite the upturn 
in international and domestic prices (particularly in  food products) in late 2009, the year ended with 
inflation at 1.9 per cent.  In 2010, the revival of exports and domestic demand,  in conjunction with an 
increase in international commodity prices, are expect ed to put upward pressure on the inflation rate.  
The Central Bank has started to shift its focus away  from controlling monetary aggregates towards an 
inflation-targeting regime, using the short-term interest rate as the key operational variable.
10   
Accordingly, for 2010 the BCP set an inflation targ et of 5 per cent with a margin of variation of 
+/-2.5 per cent.  The recorded inflation rate in 2010 was 5.7 per cent.11 
25. Although Paraguay has a floating exchange-ra te regime, the Central Bank sometimes 
intervenes to mitigate sharp fluctu ations in the exchange rate a nd counteract speculative movements 
against the guaraní.  During the review period, the real effective exchange rate appreciated by around 
20 per cent, albeit with large fluctuations throughout  the period (Table I.1).  The guaraní strengthened 
from 2005 onward until the global financial crisis and the drought that affected the Paraguayan 
economy reversed this trend in the third quarter of 2008.   In 2009, the real effective exchange rate fell 
by 6.2 per cent, reflecting a significant depreciation of the guaraní against the United States dollar and 
                                                      
8 IMF (2010b). 
9 Central Bank of Paraguay (2009c). 
10 Central Bank of Paraguay (2009c). 
11 Central Bank of Paraguay (2009d). WT/TPR/S/245 Trade Policy Review 
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the Brazilian real;  but the recovery in the nati onal economy and substantial capital inflows from the 
second half of 2009 onwards strengthe ned the local currency once again.12  In August 2010, the 
guaraní reported a real year-on-year appreciation of 5.2 per cent against the United States dollar, 
whereas the real effective exchange rate was cl ose to its average level of the last ten years.13  
Local-currency appreciation has helped reduce importe d inflation.  According to the authorities, the 
appreciation of the guaraní has not affected manufac turing exports, since these mainly consist of raw 
materials whose prices are set on international markets. 
26. In 2004-2009, commercial bank lending and deposit rates declined, albeit with fluctuations 
(Table I.1).  Although the financial spread also narrowed to 23 per cent in August 2010, it is still 
relatively large and apparently reflects the high cost s of bank intermediation.  Despite this, lending to 
the private sector has increased si gnificantly, recording year-on-year growth of 41.5 per cent in 
August 2010.14 
27. Law No. 3.974, which came into force on 23 April 2010 provides for the recapitalization of 
the Central Bank, to be accomplished by a gradual transfer of National Treasury Bonds to the BCP. 
(5) BALANCE OF PAYMENTS  
28. A feature of Paraguay's balance of payments duri ng the period under review is that the current 
account has been in surplus (ex cept in 2008) even though the merc handise trade balance displays a 
sizable deficit.  This reflects the fact that the services balance is continuously in surplus thanks to 
income from royalties earned from the sale of hydro- electricity and other business services.  For 
balance-of-payments accounting purposes, the binationa l hydro-electric enterprises of Itaipú (jointly 
owned by Brazil and Paraguay) and Yacycretá (j ointly owned by Argentina and Paraguay) are 
considered to be non-resident en terprises, and accordingly electric ity consumption in Paraguay is 
counted as an import in the trade balance, while energy sales to Brazil and Argentina are counted as 
exports.  Royalties, compensation for energy transfer and related services supplied by the two binational enterprises are included in the balance of services, while investment is recorded as part 
of the contribution by the National Electricity Au thority to the share capital of the two binational 
enterprises.
15  According to the authorities, the fact th at the binational enterprises are considered 
"non-resident" results in an undervaluation of Paraguay's GDP. 
29. Paraguay's balance of payments was in surplu s in the period 2004-2009 (Table I.3).  The 
current account was positive throughout the period  (except in 2008), as also were the capital and 
financial accounts, and this allowed for a substantial increase in intern ational reserves.  The deficit on 
the current account in 2008 (-1.8 per cent of GDP) turn ed into a small surplus in 2009 (0.3 per cent of 
GDP), thanks mainly to a reduction in the mercha ndise trade deficit, and larger surpluses earned by 
trade in services and current transfers. 
                                                      
12 IMF (2010b). 
13 Central Bank of Paraguay (2010c). 
14 Central Bank of Paraguay (2010c). 
15 The net balance-of-payments impact of the bina tional hydro-electric ente rprises increased from 
US$368.9 million in 2004 to US$903.2 million in 2008. In 2009, it is expected to rise further to 
US$1,232.9 million, reflecting the completion of works on the Yacyretá binational hydro-electric power plant.  Information provided by the Central Bank of Paraguay. Paraguay WT/TPR/S/245 
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Table I.3 
Balance of payments, 2004-2010 
(US$ million) 
 2004 2005 2006 2007 2008a 2009a 2010a
Current account 143.0 16.0 127.7 176.6 -298.2 39.8 135.0
Balance of trade in goods and services 82.5 -150.0 -206.8 -34.4 -487.8 -120.8 26.1
Merchandise trade balance -244.1 -462.5 -621.0 -532.9 -1,046.1 -1,031.5 -304.9
Exports 2,861.2 3,351.8 4,401.2 5,652.1 7,798.2 5,805.2 4,065.0
Re-exports 1,140.0 1,608.0 2,431.0 2,772.0 3,274.0 2,586.0 ..….
Imports -3,105.3 -3,814.3 -5,022.2 -6,185.0 -8,844.3 -6,836.7 -4,369.9
Balance of trade in services 326.6 312.5 414.2 498.6 558.3 910.7 331.0
Income 627.6 655.9 798.1 961.9 1,149.9 1,448.1 683.0
Transport 86.7 86.7 97.2 124.2 203.6 161.8 106.9
Travel 69.7 77.5 91.5 101.8 109.3 204.7 97.5
Communications 16.0 17.0 17.0 14.0 13.0 17.0 9.0
Insurance and finance 26.5 26.6 30.5 33.6 23.3 27.1 13.7
Information technology and information 0.4 0.4 2.4 2.6 0.4 3.4 0.2
Royalties and licence fees 207. 9 218.7 254.7 287.2 282.3 295.0 154.0
Other business services 190.3 182.9 232.2 319.3 428.0 579.1 232.7
Personal, cultural and recreational 
services 0.0 0.0 0.0 0.0 0.0 0.0 14.0
Government services 30.1 46.2 72.5 79.2 90.0 160.0 55.0
Expenditure -301.0 -343.4 -383.8 -463.3 -591.6 -537.3 -352.0
Transport -164.0 -181.3 -208.8 -264.7 -372.9 -313.7 -226.0
Travel -70.7 -78.6 -92.2 -108.8 -121.5 -127.5 -82.2
Communications -0.2 -6.0 -2.7 -4.0 -4.0 -4.0 -2.0
Insurance and financial services -44.5 -54.8 -49.8 -52.8 -52.5 -55.7 -26.6
Information technology and information -0.9 -1.8 -1.5 -2.1 -2.1 -2.1 -0.6
Royalties and licence fees -1.9 -1.7 -3.1 -1.2 -1 .9 -1.7 -1.0
Other business services -4.5 -4.3 -6.5 -8.7 -6.8 -6.6 -3.6
Government services -14.3 -14.9 -19.2 -21.0 -30.0 -26.0 -10.0
Balance on the income account -133.7 -57.8 -91.6 -162.3 -224.6 -358.3 -148.2
Credit 165.4 205.7 297.7 336.7 390.1 337.1 150.8
Debit -299.1 -263.5 -389.3 -499.0 -614.7 -695.5 -299.0
Current transfers 194.2 223.8 426.0 373.3 414.2 518.9 257.2
Family remittances 132.0 161.3 336.0 340.8 362.6 377.3 203.8
Capital and financial accountb 34.6 413.2 177.5 728.6 634.7 596.9 -128.8
Capital account 16.0 20.0 30.0 28.0 33.0 55.0 27.0
Financial accountb 18.6 393.2 147.5 700.6 601.7 541.9 155.8
Direct investment 31.7 47.1 166.5 177.1 264.0 170.6 183.7
Abroad -6.0 -6.4 -6.8 -7.2 -8.4 -8.0 -4.0
In Paraguay 37.7 53.5 173.3 184.3 272.4 178.6 187.7
Portfolio investment -0.1 0.0 0.0 0.0 0.0 0.0 0.0
Other investment -105.0 277.0 -14.9 528.0 337.3 371.2 -339.4
Net errors and omissions 93.5 -214.0 77.5 -182.3 58.2 278.6 50.3
Reserve assetsc -179.1 -146.0 -386.8 -727.4 -394.3 -915.2 -56.6
Overall balance 271.1 160.0 382.7 722.9 394.7 915.3 56.5
a Preliminary figures.  For 2010 the data refer to the first two quarters. 
b Excluding reserve assets and special financing. 
c (-) means an increase. 
Source : Central Bank of Paraguay, Anexo Estadístico al Informe Económico, August 2010, Tables 34, 35, 36 and 37.  
Viewed at:  http://www.bcp.gov .py/index.php?option=com_conten t&task=view&id=148&Itemid=374. 
30. The merchandise trade balance was negative throughout the period under review, with a 
record deficit of US$1,046 million in 2008.  In 2009 the trade gap narrowed as imports contracted 
more sharply than exports, reflecting the negative im pact of the global financial crisis on Paraguay's 
foreign trade.  The merchandise trade deficit amounted  to 7.2 per cent of GDP in 2009.  For the first 
six months of 2010, preliminary figures from the Ce ntral Bank of Paraguay show that export earnings 
recovered by 42.6 per cent in relation to the same period 2009, while the import bill grew by nearly 
47 per cent. 
31. The surplus on services trade almo st tripled in absolute term s during the period under review, 
growing to 6.4 per cent of GDP in 2009.  The surplus that year was 63 per cent larger than in 2008, WT/TPR/S/245 Trade Policy Review 
Page 10 
 
 
thanks to higher earnings in nearly all categories of the balance of paymen ts, particularly "Other 
business services", "Royalties" and "Travel" (Table I. 3).  In 2009 the deficit on the income account 
widened owing to higher levels of profit repatriation by foreign-owned firms;  while current transfers 
produced a larger surplus than in 2008, thanks to increased grants fro m abroad and family 
remittances - the latter totalling US$200.9 million.  According to Central Bank estimates, if amounts 
not channelled through the financial system are al so taken into account, family remittances totalled 
US$377.3 million in 2009,  representing 73 per cent of total current transfers in that year (Table I.3). 
32. The capital and financial account (excluding reser ve assets and special financing) was in 
surplus between 2004 and 2009.  In the latter year, th e capital-account surplus increased owing mainly 
to capital repatriations by residents seeking a saf e haven for their assets during the international 
financial turbulence.  Foreign direct investment, which had grown on a sustained basis particularly 
since 2006, dwindled in 2009. 
33. Paraguay added substantially to  its stock of international reserve assets over the review 
period, as inflows grew from US$179.1 million in 2 004 to US$915.2 million in 2009 (Table I.3).  In 
late 2009, the net balance of inte rnational reserves stood at a record level of US$3,860.7 million, 
equivalent to 25 per cent of GDP. 
(6) TRADE AND INVESTMENT FLOWS  
(i) Composition of merchandise trade 
34. Paraguay's foreign trade in goods and non-f actor services (exports and imports) was 
equivalent to 98.1 per cent of GDP in 2009 (95.7 per cent in 2004), reflecting the economy's high 
degree of openness and strong relianc e on international trade.  According to figures taken from the 
COMTRADE Database of the United Nations Sta tistics Division, in 2004-2010 Paraguay's total 
merchandise trade grew by 22.9 per cent, with imports outpacing exports (24.7 per cent growth compared to 19.5 per cent).  In 2010, recorded  merchandise exports amounted to US$4,534 million, 
while recorded imports totalled US$10,040 million. 
35. The BCP adjusts balance-of-payments flows to ta ke account of the effect of re-exports.  As a 
result, balance-of-payments figures differ from the data supplied to the COMTRADE Database, 
which refer to trade recorded by customs and on wh ich this section is based (Tables AI.1, AI.2, AI.3 
and AI.4).  Re-exports represent retail sales in  border zones of goods imported under the "tourism 
regime" (Chapter III(4)(iii)).  Re-exports increased from US$1,140 million in 2004 to 
US$2,586 million in 2009 (Table I.3). 
36. In connection with this Review, the Paraguayan authorities reported that unrecorded trade has 
decreased significantly since 1995.  In that year , there was a 36.4 per cent difference between import 
records held by the Paraguayan customs and export r ecords from customs in the rest of the world.  
This difference was down to 11.5 per cent in 2004 and just 1.9 per cent in 2009. 
37. The structure of Paraguay's exports remained  virtually unchanged throughout the period 
2004-2010.  Commodities, the vast majority of wh ich are agricultural prod ucts, generated 89.3 per 
cent of total goods exports in 2010, compared to 87.5 per cent in 2004 (Table A.I.1).  Food products continued to increase their share, representing 85. 5 per cent of merchandise exports in 2010 (up from 
75.5 per cent in 2004).  Soya and its by-products (seed cake and oil) remain the leading export 
product (47.1 per cent in 2010), despite a substantia l increase in shipments of beef (fresh, chilled or Paraguay WT/TPR/S/245 
 Page 11 
 
 
frozen16), which accounted for 19.4 per cent of total goods exports in 2010 (9.5 per cent in 2004).  
Manufactures saw their share of total exports d ecline from 12.5 per cent to 10.7 per cent over the 
period 2004-2010.  Within this category, the main export items were chemical products (especially 
medicines), which accounted for 2.6 per cent of  goods exports in 2010, followed by "Other 
semi-manufactures" (mainly leather articles), and textiles and garments. 
38. On the import side, the share of manufactured products grew from 70.4 per cent to 79.3 per 
cent of total imports between 2004 and 2010 (Table AI.2).  The leading imports are machinery and 
transport equipment, which generated 43.0 per cent of  the import bill in 2010, followed by office 
machinery and telecommunications equipment, whic h grew significantly to 21.9 per cent (7.6 per cent 
in 2004), and chemicals (13.2 per cent).  Commo dities represented 20.6 per cent of merchandise 
imports in 2010 (29.5 per cent in 2004).  Mining pr oducts, particularly oil, accounted for 12.5 per cent 
of total imports, while food products (tobacco, pr epared foods and alcoholic beverages) represented 
7.5 per cent. 
(ii) Geographical distribution of merchandise trade 
39. According to the figures obtained from the CO MTRADE Database, Paraguay's exports to 
other countries in the Americas shrank moderately, fr om 76.8 per cent of total exports to 70.5 per cent 
between 2004 and 2010 (Table AI.3).  There was also  a reduction in the share of exports going to its 
MERCOSUR partners, which accounted for 48.4 per cen t of total exports in 2010, compared to 
53.3 per cent in 2004.  Uruguay was the leading dest ination market for Para guayan products in 2010, 
absorbing 22.0 per cent of its total exports, followed by Brazil (14.6 per cent) and Argentina (11.9 per 
cent).  There has been a sustained increase in sales to Chile (mainly meat products), which absorbed 
12.1 per cent of total exports in 2010, compared to  just 1.8 per cent in 2004.  The United States 
received 1.5 per cent of Paraguay's exports in 2010. 
40. The European share in Paraguay's exports amounted to 14.5 per cent in 2010 (10.8 per cent in 
2004).  Exports to the European Union (EU), which held steady at around 6 per cent during the review 
period (except in 2007 and 2008 when their share incr eased slightly), rose to 10.7 per cent in 2010.  
Russia and the other members of the Community of Independent States increased their share in that 
period, reaching a peak of 12.2 per cent in 2006.  Paraguay's main export markets in Asia are Japan (0.9 per cent of total exports) and China (0.8 per cent), the latter's share having dropped back from a 
peak of 4.0 per cent in 2005.  In contrast, the proportion of Paraguay's exports to India rose from 0.2 per cent to 1.6 per cent in the period 2004-2010. 
41. On the import side, the share of countries in the Americas fell from 65.1 per cent to 50.8 per 
cent in 2004-2010 (Table AI.4).  This mainly reflects a reduction in the proportion of imports from MERCOSUR, which dropped from 58.2 per cent of the total to 41.3 per cent in the review period.  Although Brazil ceased to be the leading exporter to Paraguay in 2008, it contributed 24.1 per cent of 
the latter's imports in 2010 (down from 31.6 per cent in 2004).  The proportion of imports coming 
from Uruguay and Argentina also declined in 2004 -2010.  In contrast, imports from China grew 
substantially, and in 2010 Chin a was Paraguay's leading merchandise exporter, accounting for 
34.2 per cent of its total imports (up from 15.7 pe r cent in 2004).  Japan provided 3.5 per cent of 
Paraguay's imports in 2010.  Imports  from Europe dropped to 6.6 per cent of total imports in 2010, the 
share of imports from EU countries decreasing to 5.3 per cent. 
                                                     
 
16 Paraguay's national product classification includes meat production within manufacturing industry 
(see Chapter IV(3)). WT/TPR/S/245 Trade Policy Review 
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(iii) Trade in services 
42. As shown by the balance-of-payments data, Pa raguay's foreign trade in services recorded 
surpluses throughout the period 2004-2009 (Table I.3), which, on average, represented 4.5 per cent of 
GDP.  The deficits in the transport and other servi ces categories were more than offset by earnings 
from "Other business services", which includes income  from the binational hydro-electric enterprises 
in the form of royalties and compensation and other services.  In 2009, the services trade balance posted a surplus of US$910 million, as result of exports of US$1,448.1 million and imports of 
US$537.3 million.  At the end of the second quarter  of 2010, the surplus stood at US$331 million.  
The leading export categories were other business serv ices, royalties and licence fees, transport, and 
travel;  the main import categories were transport, travel, and insurance services.
17  
(iv) Foreign direct investment 
43. Foreign direct investment (FDI) flows tota lled US$707.8 million between 2006 and the end of 
the second quarter of 2010, when the stock of fo reign investment stood at US$2,692.2 million.  
Preliminary figures show that the United States he ld the largest stock of FDI in Paraguay in the 
second quarter of 2010, with US$1,310.7 million (48.7 per cent of the total), followed by Brazil with 
US$351.0 million (13 per cent) and Argentina with a stock balance of US$206.8 million (7.7 per cent) 
(Table I.4). 
Table I.4 
Annual FDI balances by co untry of residence, as of  the second quarter of 2010 
(US$ million and percentage share of balances) 
Country Amount Percentage 
United States 1,310.7 48.7 
Brazil 351.0 13.0 
Argentina 206.8 7.7 
Luxembourg 158.2 5.9 
Spain 141.8 5.3 
United Kingdom 121.6 4.5 
Portugal 71.7 2.7 
Netherlands 69.5 2.6 
Hong Kong, China 49.8 1.9 
Italy 45.6 1.7 
Switzerland 38.8 1.4 
Panama 34.1 1.3 
Uruguay 29.2 1.1 
Germany 19.3 0.7 
Sweden 13.1 0.5 
Chile 8.9 0.3 
France 7.7 0.3 
Colombia 7.3 0.3 
Japan 7.1 0.3 
Ecuador 0.1 0.0 
Total  100.0 2,692.2  
Source : Central Bank of Paraguay, International Ec onomics Department, Econom ic Studies Division, Inversión Extranjera 
Directa en Paraguay, período 2006 - segundo trimestre 2010 , September 2010. 
44. The sector composition of FDI balances is heav ily concentrated in the tertiary sector 
(essentially services), which accounted for 63.7 per cent of the total in the second quarter of 2010, and in the secondary sector (31.2 per cent).
18  The primary sector received just 5.1 per cent of FDI, 
                                                      
17 Central Bank of Paraguay (2010b). 
18 FDI balances by economic activity and according to Paraguay's national cl assification of activities 
(Clasificación Nacional de Actividades del Paraguay  - CNAP), which defines 33 economic activities based on Paraguay WT/TPR/S/245 
 Page 13 
 
 
targeted on the crop growing, livestock breeding and forestry subsectors (the latter involving mainly 
logging and related services activities).  In the se condary sector, the production of oils, beverages and 
tobacco, and chemicals are the economic activities w ith the largest FDI balances (over US$50 million 
each).  These activities jointly accounted for 27.3 pe r cent of FDI stocks in the second quarter of 
2010.  Other activities in the secondary sector with FDI balances of more than US$10 million are:  
manufacture of pesticides and other chemical products  for agricultural use;  manufacture of tobacco 
products;  manufacture of domestic appliances;  manufacture of luggage, handbags and similar articles, and saddlery and harness;  and manufacture of basic chemicals except fertilizers and nitrogen 
compounds.  In the tertiary sector, the main FDI beneficiaries were:  financial intermediation, 
commerce, communications and transport.  These four activities accounted for 63.2 per cent of FDI 
stocks in Paraguay as of the second quarter of 2010.
 
45. Tables AI.5 and AI.6 show foreign investment flows by destination ec onomic activity and by 
country of origin for the period encompassing 2006 through the second quarter of 2010.  Following a 
record flow of US$202.8 million in 20 08, FDI declined substantially in  2009 in the wake of the global 
economic crisis, before re covering in the first half of 2010.  FD I flows in the first quarter of 2010 
were greater than in the whole of 2009.  The largest  investor by far in the period under review was the 
United States, investing a total of US$599.6 m illion between 2006 and the second quarter of 2010;  
this represented almost 85 per cent of total inward FDI.  The second largest investor was Brazil, with 
US$132 million.  Some countries and territories made disinvestments during the period under review, including Japan;  the Netherlands;  the United Kingdom and Hong Kong, China.
 
                                                                                                                                                                     
the International Standard Industrial Classification of All Economic Activities (ISIC Rev.3).  Central Bank of 
Paraguay, International Economics Department (2010).