Paraguay WT/TPR/S/146 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Since its last review in 1997 and until 2003, Paraguay experienced a period of stagnation 
during which both real gross domestic product (GDP) and real GDP per capita declined.  This was 
partly due to governance problems and the impact of a number of external disruptions, such as 
droughts, an outbreak of foot-and-mouth disease, an d the macroeconomic adjustments introduced by 
Paraguay's main trading partners.  In 2003, GDP bega n to grow again, essentially driven by exports, 
of agricultural products in particular.  During th e period under review, there was a downward trend 
both in overall investment and in foreign direct i nvestment, although the latter recovered somewhat in 
2003.   
2. Fiscal policy has sought to achieve a balanced operational budget.  The tax situation, which 
had at one point become critical, improved considerably in 2003 following the introduction of a number of reforms, inter alia , in the pension system and the administration of public funds.  The gross 
external debt increased considerably between 1997 and 2003, when it reached 47.8 per cent of GDP.  
Monetary policy has sought above all to main tain price stability, among other means through 
intervention in the foreign excha nge market.  Owing in part to the appreciation of the currency, 
overall price growth slowed down.  Real interest rates remained high, and represent an obstacle to economic growth. 
3. International trade plays an important role in  Paraguay's economy, with the value of imports 
and exports approximately equivalent to the nominal value of GDP.  Since 1997, the trade balance has 
recorded a deficit, as did the current account balan ce until 2002, when it moved into positive territory 
thanks in part to the narrowing trade deficit.  Prim ary products, in particular  agricultural commodities, 
account for the lion's share of Paraguay's exports, while imports consist mainly of manufactured 
products.  Exports are predominantly destined to other members of the S outhern Common Market 
(MERCOSUR), and have grown substantially in recen t years.  There is a considerable amount of 
unrecorded trade.   
(2) 
RECENT ECONOMIC DEVELOPMENTS  
(i) Structure of the economy 
4. The most important sectors of the Paraguayan economy in terms of contribution to GDP are 
the agricultural and the trade and finance sectors (Table I.1).  Generally speaking, the sectoral 
composition remained relatively stable during the period under review, although the agricultural 
sector's contribution to GDP increased significantly a nd that of the trade and finance sector decreased 
considerably.   
5. The agricultural sector accounted for the larg est share of employment in 2003 (40.9 per cent), 
an increase over the 1997 figure (Table I.1).  The c onstruction sector recorded the sharpest decline in 
employment during the 1997-2003 period, while the transport and telecommunications sector 
recorded the sharpest growth. 
6. Informal activity in Paraguay w ould appear to be extensive.1  The actual size of the informal 
sector has been estimated using different methodol ogies to be somewhere between 19.1 and 46.6 per 
                                                      
1 IMF (2000). WT/TPR/S/146 Trade Policy Review 
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cent of GDP.2  The authorities noted that the official  estimate of GDP incorporates all productive 
activity, whether formal or informal.   
Table  I.1 
Structure of GDP and employment, 1997-2004 
  1997 1998 1999 2000 2001 2002 2003a 2004 
Structure of GDP 
(percentage of constant GDP)     
   Agriculture 27.2 27.4 28.1 27.0 29.0 29.4 31.4 .. 
   Mining and quarrying  0.5 0.5 0.5 0.5 0.4 0.4 0.4 .. 
   Industry 13.9 14.1 14.1 14.3 14.1 14.0 13.5 .. 
   Construction 5.3 5.4 5.5 5.7 4.3 3.9 4.0 .. 
   Electricity and health services 5.5 5.7 6.5 7.0 6.9 7.0 6.6 .. 
   Trade and finance 24.8 23.9 21.6 20.6 20.5 20.3 20.0 .. 
   Transport and communications 4.8 5.0 5.1 5.6 6.0 6.2 5.9 .. 
   Housing  2.7 2.8 2.8 2.9 2.8 2.9 2.9 .. 
   Other services 9.4 9.7 9.9 10.2 10.1 10.5 10.4 .. 
   General government  5.7 5.7 6.0 6.3 5.9 5.4 4.9 .. 
Employment by sector 
(percentage of total)   
   Agriculture 35.9 35.9 36.2 35.0 38.3 39.5 40.9 .. 
   Mining and quarrying  0.2 0.2 0.2 0.2 0.1 0.1 0.1 .. 
   Industry 11.2 11.3 11.2 11.3 11.7 11.7 11.2 .. 
   Construction 9.0 9.3 9.7 10.2 4.9 3.0 3.9 .. 
   Electricity and health services 0.8 0.8 0.9 0.9 1.0 1.0 0.9 .. 
   Trade and finance 13.9 13.3 12.0 11.4 11.9 11.9 11.7 .. 
   Transport and communications 3.7 3.8 3.9 4.5 5.1 5.4 5.1 .. 
   Other services 21.0 20.9 21.1 21.5 21.7 21.7 20.6 .. 
   Unspecified 4.3 4.5 4.7 5.0 5.3 5.7 5.6 .. 
a Preliminary figures . 
.. Unavailable. 
Source : The data on production are taken from the Economic Report of the Central Bank of Paraguay of July 2004, and the 
data on employment were provided by th e General Directorate of Statistics, Surveys and Censuses, as published by 
the Central Bank of Paraguay in its Econom ic Statistics.  In both cases, the information is avai lable on-line at:  
http://www.bcp.gov.py.  Additional info rmation provided by the authorities. 
(ii) Output and employment 
7. Paraguay underwent a period of stagnation from 1997 to 2002, while in 2003 GDP resumed 
its growth, driven by agricultural exports.  Real GDP  grew at an annual average of 0.4 per cent from 
1997 to 2003, with negative growth rates in 1998, 2000, 2002.  Preliminary figures suggest that average annual growth between 1997 and 2004 was 0.8 per cent.  Measured in US$, GDP recorded an 
annual decrease until 2002.  Meanwhile, per capita GDP decreased significantly until 2002 (12.5 per 
cent per year on average) before recovering slightly in 2003 to reach US$1,019 (Table I.2).  In real 
terms, per capita GDP decreased by an average of 2.1 per cent per year between 1997 and 2003.  The 
statistics available for up to 2003 indicate that Pa raguay's real per capita GDP had stagnated since 
1986, when it stood at US$953.  A study has estimated that 54 per cent of the urban population and 40 per cent of the rural population lived below the poverty threshold in 2001.
3 
8. The Paraguayan economy's growth was infl uenced by overall economic productivity.  
According to a study, total factor productivity (TFP) in Paraguay decreased between 1960 and 2000, 
                                                      
2 IMF (2000). 
3 World Bank (2004). Paraguay WT/TPR/S/146 
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particularly after 1990.4  The study points to four factors in fluencing the performance of TFP during 
the 1990s:  labour and credit market rigidities, th e 1995 banking crisis, the implementation of the 
Southern Common Market, and the failure to refo rm the regulatory system and the institutional 
environment.  
Table I.2 
Leading economic indicators 1997-2004 
  1997 1998 1999 2000 2001 2002 2003 2004 
I. GDP          
Current GDP at market prices (G/billion)  20,934 23,437 24,144 26,921 28,119 31,977 38,806  .. 
Current GDP (US$ million) 9,607 
8,594 
7,741 
7,727 
6,850 
5,595 
6,030  .. 
Real GDP, growth rate (per cent) 2.6 -0.4 0.5 -0.4 2.7 -2.3 2.5 2.9 
GDP per capita (US$) 1,889 
1,647 
1,445 
1,406 
1,216 
969 
1,019 .. 
Real GDP per capita (US$), growth rate 
(per cent)  -0.0 -3.0 -2.1 -2.9 0.2 -4.7 0.1   
GDP growth by type of expenditure (1982 p r i c e s ,  p e r  c e n t )          
  Consumption         
      Private 3.2 -0.8 -4.5 -1.0 9.0 -4.6 4.8  .. 
      Public 2.0 0.7 3.7 14.1 -12.5 -9.7 .-7.2 .. 
  Gross fixed capital formation -1.6 -5.0 -4.3 -0.8 -19.3 -12.4 8.0 .. 
  Inventory changes -7.0 -0.9 1.0 1.0 1.5 -0.4 0.0 .. 
  Exports -5.9 -7.2 -27.0 -15.1 -0.4 14.3 13.2 .. 
  Imports -4.0 -7.0 -27.1 -6.7 -1.6 -6.3 15.4 .. 
GDP by type of expenditure (percentage of GDP at 1982 prices)       
    Private consumption 86.1 85.8 81.5 81.0 86.0 84.0 85.8 .. 
    Public consumption 10.5 10.6 11.0 12.6 10.7 9.9 9.0 .. 
Gross fixed capital formation 20.3 19.3 18.4 18.3 14.4 12.9 13.6 .. 
Change in inventories   1.8 1.8 1.8 1.8 1.8 1.8 1.8 .. 
    Exports 31.5 29.3 21.3 18.2 17.6 20.6 22.7 .. 
    Imports 50.2 46.8 34.0 31.8 30.5 29.2 32.9 .. 
II. Memo item          
Population (million) 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.8 
Open unemployment rate (per cent) 5.0 5.7 6.8 7.3 7.6 10.8 8.1 .. 
Per capita national income (US$) 1,330.0 1,298.0 1,279.0 1,244.0 1,235.0 1,175.0 1,184.0 .. 
.. Unavailable. 
Source : Central Bank of Paraguay:  Economic  Report (July 2001 and July 2004), Situation of Employment in Paraguay – 
Permanent Survey of Households 2003, information s upplied by the authorities and calculated by the WTO 
Secretariat on the basis of na tional account data available on-line at:  www.bcp.gov.py.   
9. The quality of institutions and of macro-economic  policy is also fundamental to a country's 
growth.5  During the period under review, Paraguay expe rienced periods of political instability that 
contributed to discouraging investment and had an adverse impact on general governance.  Since 
2003, the structural reforms introduced appear to  have improved the governance and quality of certain 
Paraguayan institutions (see section (2)(iii)). 
10. Between 1997 and 2003 real consumption, both private and public, performed irregularly, 
alternately expanding and contracting.  The great est decline in private consumption took place in 
2002, while public consumption declined most sharply in 2001 (Table I.2).  Indeed, the contraction of 
both private and public consumption in 2002 (which r eached 84 per cent and 9.9 per cent of constant 
                                                      
4 Inter-American Development Bank (2004). 
5 WTO documents WT/COMTD/SE/W/4 and WT/COMTD/SE/W/5, 23 July 2002 and 
23 October 2002 respectively. WT/TPR/S/146 Trade Policy Review 
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GDP respectively) was decisive in the overall cont raction of the economy (-2.3  per cent).  Meanwhile 
investment during the 1997-2003 period decreased annually in real terms until 2002 despite an 
increase in the share of public spending in GDP (unt il 2000) owing to the growth in social security 
benefits.  As a proportion of GDP, investment decreased significantly in comparison with its 1997 
levels, while public consumption remained stable. 
11. The share of international trade in consta nt GDP decreased between 1997 and 2003 from 
81.6 per cent to 55.6 per cent, but rose in 2003 as compared to 2002 (Table I.2).  In 1999 there was a sharp decline in international trade flows ( 27 per cent) of both exports and imports.   
12. According to official statistics, between 2001 and 2003 the total unemployment rate for 
Paraguay (open unemployment plus hidden unemploy ment in proportion to the active population) 
decreased, dropping to 13 per cent in 2003.
6  The authorities pointed out that the open unemployment 
rate (the portion of the labour force that has made some effort to seek employment) in 2003 was 8.1 per cent.  These figures might represent an underestimation of real unemployment owing to the effects of undeclared economic activity.  A study has estimated that approximate ly half of Paraguay's 
job market consists of informal activities.
7   
(iii) Fiscal Policy 
13. The objective of fiscal policy in Paraguay is  to achieve a balanced operational budget.8  This 
means controlling public spending, improving administra tion, and adjusting the tax structure, the idea 
being to repay debt arrears, to ensure sustainab ility of payments and to achieve long-term fiscal 
solvency by:  (i)  cutting back on superfluous e xpenditures (those which ar e unnecessary to achieve 
the administration's objectives, results and targets);  (ii) reducing the margin of discretion in the 
administration of public resources;  (iii) curbi ng tax evasion.  Efforts to reduce the margin of 
discretion include the reform of the Customs Code, the removal of retirees from the payroll, and the 
creation of the Central Public Investment Unit.   
14. Since the announcement of the new fiscal polic y objectives in 2003, two key tax reforms have 
been introduced.  The first consisted in the adop tion of Law No. 2.242 of 7 July 2004 (Administrative 
Reorganization and Fiscal Reform Law).  Among othe r things, the new law created a tax on personal 
income and a new agricultural tax, broadened th e taxpayer base for the Value Added Tax (VAT) (by 
eliminating exemptions and introducing VAT on previ ously exempt articles), eliminated the majority 
of corporate tax exemptions, and simplified tax administration.  The second reform, promulgated 
through Law No. 2.345 of 24 December 2003, involv ed the public sector retirement and pension 
system.   
15. Paraguay also signed a special drawing rights agreement with the IMF in December 2003 for 
15 months, subsequently extended until September 2005, to finance the tax reforms and stabilize the 
financial sector.  It is hoped that this will contri bute to generating a fiscal surplus as of 2004.  During 
those 15 months, fiscal policy targets will be governed  largely by the IMF agreement.  In 2003, total 
collected revenue increased with respect to 200 2 (20.1 per cent), reaching 15.9 per cent of GDP 
(Table I.3).  This was mainly due to the increase  in tax revenue (25.9 per cent), in particular from 
international trade (36.4 per cent) and from VAT ( 25.4 per cent).  At the same time, during 2003, 
although public spending increased by 8.1 per cent (13.9 per cent of GDP), it was kept under control 
                                                      
6 General Directorate of Statistics, Surveys and Censuses, Situation of Employment in Paraguay, 
Permanent Survey of Households 2003.  Hidden employment consists of unemployed persons who are not 
seeking employment, but would work if they were offered a job. 
7 World Bank (2004). 
8 Government Programme 2003-2008.  Availabl e on-line at http://www.p residencia.gov.py. Paraguay WT/TPR/S/146 
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in comparison with 2002.  The result was a primary surplus of 0.8 per cent of GDP for 2003, in spite 
of a general fiscal deficit of 0.4 per cent of GDP.  In September 2004, the increase in the amount collected and the control of expenditure r esulted in a surplus of 4.9 per cent of GDP. 
Table I.3 
Financial Accounts of th e Central Government, 1997-2004 
(G/billion) 
  1997 1998 1999 2000 2001 2002 2003 2004a 
Total revenue collected 3,299.0 3,795.2 4,093.8 4,331.0 5,029.3 5,139.7 6,171.7 5,562.3 
Tax revenue 2,236.2 2,484.5 2,397.7 2,676.8 2,851.5 2,920.8 3,676.4 3,612.0 
Income 428.7 473.1 551.3 487.0 458.8 584.7 623.9 659.2 
Property 1.0 1.3 0.9 0.7 5.4 0.5 0.07 0.08 
Value Added Tax (VAT) 951.3 1,1063.7 1,048.4 1,150.3 1,204.3 1,252.5 1,570.3 1,464.8 
Selective consumption tax  110.3 144.7 206.1 142.4 152.9 111.2 129.5 133.8 
International transactions 481.8 526.6 398.8 494.4 498.5 487.5 665.1 586.9 
 Tariffs 464.4 508.3 380.7 474.5 497.0 485.1 665.1 586.9 
 Other 17.4 18.4 18.2 19.9 1.5 2.4 .. .. 
Other tax revenue 262.9 275.1 192.2 402.0 531.6 484.4 687.5 767.2 
Non-tax revenue 954.0 1,228.4 1,602.8 1,522.4 1,925.4 1,961.7 2,225.4 1,767.1 
 Itaipú 528.8 749.6 996.8 781.7 1,283.9 1,259.2 1,491.6 1,208.5 
 Other non-tax revenue 197.9 234.1 318.1 440.1 328.1 362.9 364.4 282.6 
Revenue from social security 
contributions 227.3 244.6 288.0 300.5 313.4 339.7 369.4 276.0 
Donations + current transfers   66.1 44.9 49.8 47.1 195.2 190.6 158.0 148.9 
Capital revenue 42.7 37.4 43.5 84.3 57.3 66.5 111.9 34.2 
Total expenditure 3,382.9 3,780.8 4,649.5 4,907.9 4,775.3 5,002.7 5,410.3 3,626.4 
Current expenditure 2,589.6 3,034.4 3,336.1 3, 911. 3,969.5 4,003. 4 4,270.3 3,013.9 
Payroll 1,545.2 1,775.5 1,926.7 2,229.3 2,265.2 2,230.9 2,.358.1 1,554.8 
Goods and services 254.1 275.6 197.9 327.2 218.7 249.4 301.9 221.2 
Interest on internal debt 16.1 33.4 30.1 24.4 23.9 38.8 52.1 45.5 
Interest on external debt 78,8 118,2 133,7 248,2 307,9 320,4 277,2 294,9 
Social security benefits 425.0 489.7 669.2 727.4 793.4 825.1 863.4 591.3 
Current transfers 254.8 240.1 306.0 326.9 338.5 328.1 309.9 295.8 
Other 15.4 101.3 72.4 27.8 21.8 10.7 107.7 10.5 
Capital expenditures 793.4 746.8 1,313.4 996.4 805.8 999.3 1,140.1 612.5 
Fiscal investment 533.9 591.6 685.4 657.6 666.4 856.4 893.6 513.4 
Financial investment 81.0 63. 4 208.9 213.5 49.6 40.9 13.1 3.8 
Capital transfers 130.3 91.1 418.9 124.8 88.7 102.0 111.5 95..3 
Other 48.1 0.0 0.06 0.47 1.13 0.0 121.8 0.0 
Net Balance -83.9 14.4 -555.7 -576.9 253.9 136.9 761.4 1,935.9 
M e m o r a n d u m  i t e m s :           
Disbursement of loans 384.5 744.5 2,005.9 1,513.2 1,427.7 1,212.8 1,227.4 502.0 
Internal credit 72.0 354.8 49.7 181.9 633.0 298.2 0.0 0.0 
External credit 295.6 331.6 1740.4 785.8 357.5 851.5 1,227.4 502.0 
Debt amortization  142.9 295.6 334.2 521.5 416.2 451.0 417.1 610.8 
Internal debt amortization 0. 0 98.3 116.3 267.9 104.8 0.725 56.2 47.2 
External debt amortization 142. 9 197.2 217.9 253.6 311.4 450.3 360.9 563.5 
 
..   Not available 
 a Preliminary figures.   Figures for 2004 are at September 2004. 
Note: Based on revenue collect ed and expenditures paid. 
Source : Data supplied by the authorities. 
 WT/TPR/S/146 Trade Policy Review 
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16. The deficit for 2000 was exceptionally high, refl ecting a significant decrease in income from 
the sale of electricity at Itaipú and an increase in th e level of investment.  In absolute terms, tax 
revenue increased significantly during the period 1997- 2003, reaching its peak in 2003 (Table I.3).  
During that same period, total revenue as a proportion of GDP remained stable at 16 to 18 per cent.  
There was also an upward trend in nominal to tal expenditure between 1997 and 2003, but as a 
proportion of GDP it decreased from 16.1 per cent in 1997 to 13.9 per cent in 2003.  At the same time, 
current expenditure as a proportion of GDP remained stable until 2002 (at approximately 13 per cent) 
and then fell to its lowest level since 1998 owing to  a decrease in current transfers.  In 2003, it was 
current expenditure as a proportion of GDP that unde rwent the most significant change, falling from 
12.5 per cent to 11 per cent thanks to a decrease in interest payments on the external debt.  Physical 
investment also decreased in 2003, fro m 2.7 per cent to 2.3 per cent of GDP. 
17. The internal public debt decreased from 5.8 per cent of GDP in 1997 to 4.6 per cent of GDP 
in 2003.  While between 1998 and 2001, payments focussed on the principal (amortization), the trend 
was reversed in 2002.  The authorities noted that the servicing of the external debt in 2003, including amortization and interest payments, represented 11.8 per cent of total public spending (including debt 
servicing itself).  In 2003, the public debt was rest ructured, making it possible to settle the totality of 
arrears with the World Bank and th e Inter-American Development Bank.
9 
(iv) Monetary and exchange rate policy 
18. Monetary and exchange rate polic y is established by the Centra l Bank of Paraguay (BCP).  To 
that end, the BCP submits recommendations to va rious government agencies,  more specifically an 
annual monetary programme, for the formulation of m onetary, credit and exchange rate policy.  It is 
the BCP Board that establishes the guidelines, mechanisms and instruments for the implementation of 
that policy.  The BCP acts as the Government's " cashier", and in exceptional circumstances can make 
advances.  In October 2002, a draft reform of the BCP was being examined with a view to improving 
the institution's operational efficiency.  The proposed  reforms include a reduction in the bank's size, 
the allocation of increased resources for the in vestigation and supervis ion of banks, and the 
elimination of the support given for fulfilling the central government's budget. 
19. Law No. 489 of 29 June 1995 (Organic Law of the Central Bank of Paraguay) lays down the 
monetary policy objective of preserving and monitori ng the stability of the country's currency.  The 
authorities pointed out that one of the implicit objec tives of monetary policy was to maintain domestic 
price stability.  To that end, the BCP has interven ed in the foreign exchange market to avoid any 
sudden fluctuations in the exchange rate and specu lative attacks that could affect domestic prices. 
20. The main instrument of monetary policy is  open market operations, generally through a 
combination of currency trading and the placement of  debt instruments.  The authorities may also use 
deposit requirements to influence the economy's moneta ry flows.  In general, reserve requirements on 
deposits depend on the currency an d the term of the deposits.  From 1996 to 2003, the reserve 
requirement for Guaraní deposits up to 360 days  was 15 per cent, although it was increased to 
19.5 per cent from August to November 2002 in order to  curb the depreciation of the Guaraní.  As of 
October 2004, the reserve requirement on deposits wa s defined both for the national currency and for 
foreign exchange.10  At the beginning of 2005, the National Congress was examining a draft law by 
                                                      
9 The debt was restructured by Law No. 2.336, 12  December 2003. 
10 In the case of the national currency, it was:  15 per cent up to 360 days, 7 per cent from 361 to 
540 days, and 0 per cent for more than 540 days.  For foreign exchange it was:  26.5 per cent up to 360 days, 
16.5 per cent from 361 to 540 days, 6.5 per cent from 541 to 1,080 days, and 1.5 per cent for more than 1,080 days. Paraguay WT/TPR/S/146 
 Page 7 
 
 
which the National Development Bank would be given a monopoly on all public sector exchange 
transactions. 
21. Inflation showed a sustained upward trend between  1997 and 2003 (Table I.4).  At the end of 
2003, the general growth in prices slowed down owi ng to the appreciation of the Guaraní.  During 
1997-2003, narrow money (M1) grew at a faster annu al rate than nominal GDP, while M2 increased 
as well, albeit at a slower rate.  These trends held  until June 2004. 
Table I.4 
Leading monetary indicators, 1997-2004 
  1997 1998 1999 2000 2001 2002 2003 2004a 
Money and credit           
Net international reserves 
(US$ million) 846 875 988 772 723 641 983 1,168 
M1 (G/billion) 1,789 1,922 2, 104 2,478 2,700 2, 729 3,788 4,706 
M2 (G/billion) 3,437 3,341 3, 706 3,824 4,068 3, 914 5,079 6,300 
M3 (G/billion) 5,848 6,383 7, 532 7,833 9,333 9, 275 10,363 11,734 
M1/GDP 0.09 0.08 0.09 0.09 0.10 0.09 0.10 0.11 
M2/GDP 0.16 0.14 0.15 0.14 0.14  0.12  0.13 0.15 
M3/GDP 0.28 0.27 0.31 0.29 0.33 0.29  0.27 0.28 
Growth in the monetary base 7.5 8.5 7.6 -1.5 5..7 -1.5 57.8 17.3 
Interest rates          
Average weighted deposit rates (end of the period) 7.6 6.7 9.5 8.1 10.0 11.9 5.1 1.7 
Average consumer credit rates 
(end of the period) 41.0 44.1 43.7 41.5 46.4 53.6 36.2 22.5 
Interest rate differential 34.4 37.4 34.3 33.5 36.4 41.7 31.2 20.9 
Deposit certificates  14.3 18.6 19.8 20.3 22.7 23.1 11.4 9.6 
US$ interest rates (end of period) 3.1 3.9 3.4 2.8 1.9 0.8 0.6 0.4 
   Deposit (weighted average)         
   Credit 12.6 12.1 12.3 11.5 9.8 9.5 8.2 8.4 
Inflation          
Consumer price index, average  
(per cent change) 7.0 11.6 6.8 9.0 7.3 10.5 14.2 4.3 
Producer price index, average  
(per cent change) 1.1 14.9 5.3 14.7 5.8 19.9 26.4 5.8 
Exchange rate          
Nominal G/US$ exchange rate (avera ge) 2,178 2,726 3,119 3,491 4,149 5,774 6,436 5,942 
Real effective exchange ra te index, end of period 
(percentage change) (- =  appreciation) 2.9 2.3 3.7 0.0 15.2 15.3 -7.1 15.7 
.. Not available. 
a Only up to June 2004. 
Note: Inflation data for 2004 correspond to the end of 2004.  Cons umer price index data refer to the city of Asuncion, while pr oducer 
price index data are national figures. 
Source : Central Bank of Paraguay:  Economic Report (March and July 2001 and July 2004), calculations by the WTO 
Secretariat based on Economic Repor ts and additional information s upplied by the authorities.  WT/TPR/S/146 Trade Policy Review 
Page 8 
 
 
 
22. The authorities having reduced interest rates in  1999 to stimulate the economy and the banks 
having bought dollars in 2000- 2001 while reducing credit to the productive sector, the BCP 
intervened in 2001-2002 to defend the currency.  This contributed to the decrease in international 
reserves during 2001-2002 (17 per cent as compared to  2000).  The growth in agricultural exports in 
2003 may have contributed to the recovery  of reserves to their pre-2000 levels. 
23. The exchange rate in Paraguay has been floating since 1989, although the BCP has regularly 
intervened in the exchange market.  According to  the authorities, the purpose of these interventions 
has been to dampen seasonal exch ange rate fluctuations associated  with the seasonality of foreign 
trade (particularly exports), and to counter  speculative attacks ag ainst the Guaraní. 
24. Following a sustained depreciation against th e US dollar from 2001 until the end of 2002, the 
Guaraní began to recover at the beginning of 2003 .  Throughout 2003, and until June 2004, the G/US$ 
exchange rate continued to rise (16.5 per cent be tween December 2003 and June 2004).  The nominal 
exchange rate against the Euro al so decreased steadily from 2000 onwards, particularly in 2002;  in 
this case, however, it remained essentially unchanged during 2003.  The nominal exchange rate with 
the Argentine Peso rose sharply after the Argentine financial crisis at the beginning of 2002, while 
remaining virtually unchanged with the Brazilian R eal.  These nominal depreciations of the Guaraní 
were generally accompanied by a depreciation in th e real effective exchange rate, which began to 
recover in the middle of 2003.11 
25. The nominal cost of consumer credit in Guaranies increased from 1997 to 2002 before 
recording a decrease in 2003.  Nevertheless, real inte rest rates in 2003 generally rose.  According to 
the authorities, this is due to the fact that the ra te of inflation decreased much more sharply than 
nominal interest rates, and may have reflected an increased risk aversion on the part of financial institutions, which reduced their loans owing to Paraguay's credit rating (foreign banks account for 
about 80 per cent of the system's credits).  The margin of intermediation increased in 2001-2002, 
possibly owing to the unfavourable risk situation brought about by the decline in real GDP and the 
depreciation of the Guaraní.  In 2003, the margin of  intermediation reverted to its historical level at 
31.2 per cent (20.9 per cent in June 2004).  Since the beginning of 2003, the private banks have 
remained cautious with respect to credit.
12  They significantly increased their reserves in the Central 
Bank, which were used to increase the balances  of monetary regulation instruments without 
increasing interest rates. 
(v) Balance of payments 
26. The net balance of payments was negative durin g 2000-2002, turning positive in 2003.  Both 
the current account and the financial account achieved positive bala nces during 2002-2003, 
contributing to an improvement in international reserves in 2003 (53 per cent).  In 2002, the net 
balance was negative in spite of the fact that th e current and financial acc ounts were positive, owing 
to the net effect of the errors and omissions in the balance of payments.  As a proportion of GDP, the 
current account deficit remained stable between  1998 and 2000 (at around 2 pe r cent), and began to 
deteriorate in 2001 (3.9 per cent of GDP), chiefly fi nanced by foreign loans.  As a proportion of GDP, 
the financial account maintained a surplus during the entire period under review, oscillating between 
1.9 and 6.5 per cent. 
                                                      
11 The BCP includes the currencies of Argentina, Br azil, the European Union, Japan, and the United 
States in its calculation of the real effective exchange rate. 
12 ECLAC (2004). Paraguay WT/TPR/S/146 
 Page 9 
 
 
27. After reaching record levels in 1997, the trade deficit diminished considerably in 1998 before 
resuming its upward trend between 1999 and 2001 (Tab le I.5).  Goods exports decreased in 1999 and 
in 2002, but increased significantly in 2003 (22 per cent), driven by agricultural exports.  Similarly, imports declined in 2002 before increasing by 18 per cent in 2003, thanks in part to the recovery of 
the Guaraní. 
28. Between 1999 and 2002, the fi nancial account declined steadily, dropping to 102.6 million 
US dollars by 2002 (1.9 per cent of GDP) (Table I.5) .  This was due to the fall in direct investment, 
particularly in 2002, and to the steady decrease in net liabilities, particularly loans.  In 2003, both 
direct investment and assets expanded considerably, particularly cash and deposits assets, causing the 
financial account's share in GDP to more than double, reaching 4.8 per cent.  Meanwhile, the capital 
account (net), which is small, varied between 3 and 20 million US dollars. 
Table I.5 
Balance of payments, 1997-2003 
(US$ million) 
  1997 1998 1999 2000 2001 2002a 2003a 
Current account -650.4 -160.0 -165.4 -162.9 - 266.4 73.3 146.0 
   Trade balance -864.9 -392.9 -440.5 -537.1 -613.9 -279.9 -260.2 
  Goods:  f.o.b. exports 3,327.5 3,548.6 2,312.4 2,329.0 1,889.7 1,858.0 2,260.5 
  Goods:  f.o.b. imports -4,192.4 -3,941.5 -2,752.9 -2,866.1 -2,503.6 -2,137.9 2,520.7 
   Balance of services (net) 0.4 49.6 82.4 175.1 165.3 218.7 241.7 
  Transport -322.5 -258.4 -214.9 -167.1 -127.3 -110.2 -96.4 
  Travel -10.9 -31.1 -28.3 -7.7 -2.8 -2.6 -3.3 
  Other services 333.8 339.1 325.6 349.9 295.4 331.5 341.4 
   Income 33.2 6.0 17.5 22.3 15.7 18.6 -0.1 
   Remuneration of employees 157.4 143.4 119.5 126.3 123.8 102.8 112.6 
   Investment income -124.2 -137.4 -102.0 -104.0 -108.1 -84.2 -112.7 
      Foreign direct investment -138.5 -165.9 -92.5 -71.9 -65.6 -8.1 -26.1 
      Portfolio investment -4.3 -3.5 -5.4 0.2 0.0 2.3 2.3 
      Other investment 18.6 32.0 -4.1 -32.3 -42.5 -78.4 -88.9 
   Current transfers 180.9 177.3 175.2 176.8 166.5 115.9 164.6 
Capital account (net) 7.5 5.4 19.6 3.0 15.0 4.0 15.0 
   Capital transfers 7.5 5.4 19.6 3.0 15.0 4.0 15.0 
Financial account 431.3 319.6 506.9 193.1 153.1 102.6 288.1 
     Direct investment 230.1 336.3 88.9 98.4 78.4 11.3 85.3 
 Portfolio investment -4.3 9.0 -9.0 2.5 0.6 -0.1 -0.4 
Other investment 205.5 -25.7 427.0 92.2 74.1 91.4 203.2 
    Assets 72.9 -5.0 -117.7 -212.4 64.5 -9.5 202.3 
      Trade credits  25.1 -10.9 11.4 -25.0 5.8 -1.8 5.2 
      Loans 64.8 19.0 -138.0 -235.9 1.2 182.3 -149.3 
      Cash and deposits -16.0 -97.1 48.0 100.2 -71.3 -161.6 340.5 
      Other assets -1.0 84.0 -39.1 -51.7 128.8 -28.4 5.9 
        Liabilities 132. 6 -20.7 544.7 304. 6 9.6 100.9 0.9 
      Trade credits -114.2 -79.3 89.6 124.8 12.8 15.8 -24.8 
      Loans 165.0 126.2 502.0 143.5 11.1 42.2 -11.4 
      Cash and deposits 22.0 -0.2 -55.4 -12.4 9.9 8.3 2.8 
      Other liabilities 59.8 -67.4 8.5 48.7 -24.2 34.6 34.3 
Errors and omissions 5.8 -141.6 -256.7 -248.2 53.3 -263.6 -147.7 
Net balance -205.8 23.4 104.4 -214.9 -45.0 -83.8 301.3 
Table I.5 (cont'd)  WT/TPR/S/146 Trade Policy Review 
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  1997 1998 1999 2000 2001 2002a 2003a 
Reserve assets (- = increase) 205.8 -23.4 -104. 4 214.9 45.0 83.8 -301.3 
Memo items  
Gross external debt (US$ milli on) 1,926 2,133 2,697 2,819 2,652 2,866 2,884 
Gross external debt/GDP (per cent) 20.0 24.8 34.8 36.6 39.1 51.8 47.8 
Gross external public debt/GDP (per cent) 15.0 18.6 27.3 29.0 31.9 41.2 43.4 
External public debt service/Exports 
(per cent) 6.5 5.3 25.5 12.4 7.6 7.6 9.4 
a Preliminary figures. 
Source : Central Bank of Paraguay:  Economic  Report (July 2001 and July 2004), Pa raguay, External Public Debt – 
December 2003, and information supplied by the authorities.  
29. For balance of payments accounting purposes, the binational hydroelectric enterprises of 
Itaipú and Yacycretá are considered to be non-resident enterprises of the Paraguayan economy.13  
Electricity consumption in Paraguay is counted as an import in the trade balance, while sales to Brazil and Argentina are counted as exports.  Royalties, compensation for energy transfer, and services 
relating to the two binational enterprises are included in the balance of services, while investment is 
essentially counted through the contribution of the National Electricity Administration to the share 
capital of the two binational enterprises.  The authorities estimated that during 1995-2003, the 
binational enterprises contributed an average of 380 million US dollars annually to the net balance of 
payments. 
30. Between 1997 and 2003, Paraguay's public external debt st ock increased to 2,614,000,000 US 
dollars, while during the same period, the private external debt reached 270 million US dollars.  
Meanwhile, the public external debt burden as a pe rcentage of GDP increased considerably, reaching 
43.4 per cent (Table I.5).  In 2003, the multilateral bodi es were the main holders of the public external 
debt (54.7 per cent).  Most of the external debt  is long-term (5 per cent of the liabilities have a 
maturity of 0 to 5 years).
14  External public debt servicing  reached 202,200,000 US dollars in 2003.15  
The private external debt balance decreased a nnually from 1999 to 2003 (up to September 2003), with 
the exception of 2001.16  As a percentage of exports, public debt service rose to 9.4 per cent 
(Table I.5). 
31. A study has estimated that unrecorded trade ac counts for approximately one third of total 
trade flows.17  The BCP adjusts the balance-of-payments fl ows in order to incorporate the effects of 
unrecorded trade.18  As a result, the official balance-of-payments data differ from the data supplied by 
the Comtrade database of the United Nations Statis tics Division (see the tables in Annex).  According 
to the BCP, unrecorded trade consists mainly of smuggling, under-invoicing, and simulation of trade 
for tax evasion purposes.19 
                                                      
13 BCP (2003a). 
14 ECLAC (2004). 
15 BCP (2003b). 
16 BCP(2003b). 
17 IMF (2004a). 
18 BCP(2003a). 
19 BCP.  Document available on-line at http://www.bc p.gov.py/GEE/comerc/comerc.htm  Trade simulation 
consists in the fraudulent exportation of goods to Paraguay without any real movement of the goods taking 
place, in order to comply with the cu stoms requirements for approval of expo rt tax incentives in the countries 
from which the goods are being exported to Paraguay. Paraguay WT/TPR/S/146 
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(3) TRADE AND INVESTMENT FLOWS  
(i) Composition of trade 
32. Since there is a significant amount of unrecorded trade in Paraguay, the official data are not 
always reliable when it comes to analysing trade flow s.  Much of Paraguay's international trade comes 
from the triangulation of trade (i.e. trade from one country to another via a third country through 
which the product transits) with Argentina and Br azil.  According to the data supplied by the 
Comtrade Database of the United Nations Statistic s Division, between 1999 and 2003 total trade in 
goods grew by 5.7 per cent per year with growth in  exports significantly exceeding growth in imports 
(13.8 per cent and 2 per cent respectively). 
33. Between 1998 and 2003, the structure of exports remained stable, with primary products (all 
essentially agricultural) representing approximately 84 per cent of total exports (Table AI.1).  The 
proportion of edible products increased by about 6 pe r cent to 77 per cent of exports, with soya as the 
main export product.  Manufactured products represen t 14 per cent of total exports, down 5.6 per cent 
from 2000 when their share reached its peak. 
34. In 2003, manufactured products represented 66 pe r cent of imports, slightly less than in 1990 
(70 per cent).  The main imports were machinery a nd transport equipment, accounting for 26 per cent, 
followed by chemical products which, at over 19 pe r cent, had increased steadily since 1998, when 
they stood at 12 per cent.  Primary products account ed for approximately 30 per cent of imports in 
2003.  Mining products, especially fuel, increased by 7 per cent owing in part to the rise in world oil 
prices, and accounted for two thirds of primar y imports in 2003, while agriculture represented 
approximately one third of total primary imports (Table AI.2). 
(ii) Geographical distribution of trade 
35. Between 1999 and 2003, exports to the countries of  the Americas grew sharply to over 78 per 
cent of total exports, as compared to 56 per cent in 1999 (Table AI.3).  According to the figures 
provided by the Comtrade Database of the United Na tions Statistics Division, the trade deficit with 
Paraguay's MERCOSUR partners de creased by 32 per cent in 1999-200 3.  Brazil continued to be 
Paraguay's main export market, accounting for more than  34 per cent of total exports.  The decline in 
the share of exports to the United States (from 8 pe r cent to less than 4 per cent) was more than 
compensated by the increase in th e share of exports to Uruguay (from 2.9 per cent to 19.6 per cent).  
However, these exports consist largely of goods in transit. 
36. During the 1998-2002 period, the share of exports to Europe decreased by more than half, 
amounting to a mere 15 per cent of the total.  Expor ts to the European Unio n itself experienced an 
even greater decline, falling from 31 per cent to 7 per cent.  China emerged as the leading export 
market in Asia, representing 1.3 per cent of total ex ports in 2003, followed by the Separate Customs 
Territory of Taiwan, Penghu, Kinmen and Matsu, and Hong Kong, China. 
37. The composition of imports by region remained  essentially the same during the period under 
review, with the Americas as the main source of im ports, followed by Asia and then Europe.  Brazil 
remained the main exporter to Paraguay, while Argen tina increased its exports to 21.7 per cent of total 
imports and US exports fell to 3.7 per cent.  Th e most significant change involved China, which 
became the leading Asian exporter to Paraguay in 2003 with 13.5 per cent (as compared to a  
negligible percentage in 1999) (Table AI.4).  In 2003, the main Paraguayan imports from China were 
office machinery and toys. WT/TPR/S/146 Trade Policy Review 
Page 12 
 
 
(iii) Foreign direct investment 
38. A study has shown that foreign direct inv estment (FDI) in Paraguay benefited from the 
macroeconomic stability of the first half of the 1990s and the lack of regulation and control of 
investments and profit remittances.20  For the most part, FDI has focused on meeting unsatisfied 
domestic demand in various sectors and exporting pr imary products.  MERCOSUR regional market 
access does not seem to have stimulated FDI in Paraguay.  The same study showed that in the long term, institutional quality and gove rnance in Paraguay will be the ke y to attracting further FDI. 
39. The FDI stock diminished during 1998-2003, particularly from 2000 to 2002, owing to the 
sharp decrease in FDI in financial institutions (b anks, financial holding companies, and mutual funds) 
(Table I.6).  Non-financial enterprises are the main  recipients of FDI, accounting for 82.4 per cent of 
the total in 2003.  The FDI stock in 2003 was concen trated mainly in the following economic areas:  
food and beverage industry (23.9 per cent), comme rcial activities (18.5 per cent), wireless telephony 
and cable television services (17.6 per cent), and fi nancial services (17 per cent).  The FDI stock 
(equity and parent company loans) in the fina ncial sector recorded a significant downward trend 
between 2000 and 2003. 
Table I.6 
Foreign direct investment stock, 1998-2003 
(Thousands of US dollars and per cent) 
  1998 1999 2000 2001 2002a 2003a Percentage 
of FDI 2003  
Non-financial enterprises 727,516  792,099  888,921 724,971 601,658 777,497 82.4 
   Capital 341,599 363,689 433,442 433,113 357,131 460,094 48.7 
   Reinvested profits 201,336 218,859 283,630 207,375 98,636 145,879 15.5 
   FDI loans 
 184,581 209,551 171,849 84,483 145,891 171,524 18.2 
Banks 363,707  305,123  308,638 261,140 162,587 161,455 17.1 
   Capital 94,759 92,879 92,363 75,026 47,144 45,179 4.8 
   Reinvested profits 268,948 212,245 216,275 186,114 115,443 116,276 12.3 
   FDI loans 
 0 0 0 0 0 0 0.0 
Mutual funds 9,696  15,006  18,741 24,211 1,721 0 0.0 
   Capital 4,460 8,001 8,195 8,938 1,129 0 0.0 
   Reinvested profits 5,236 7,005 10,545 15,273 592 0 0.0 
   FDI loans 0  0 0 0 0 0.0 
Insurance 3,803  4,194  4,951 5,293 4,178 4,995 0.5 
   Capital 2,410 2,464 3,461 3,158 2,181 2,669 0.3 
   Reinvested profits 1,394 1,730 1,490 2,135 1,997 2,326 0.2 
   FDI loans 0 0 0 0 0 0 0.0 
Total 1,104,722  1,116,422  1,221,250 1,015,614 770,143 943,946 100.0 
   Capital 443,228 467,032 537,461 520,234 407,585 507,941 53.8 
   Reinvested profits 476,913 439,839 511,940 410,897 216,667 264,481 28.0 
   FDI loans 184,581 209,551 171,849 84,483 145,890 171,524 18.2 
a Preliminary figures. 
Note: Foreign investment loans refer to the funding received by th e FDI enterprise from the parent company, from a related comp any in 
the group, or from the shareholder. 
Source : Central Bank of Paraguay (2004), Resúmen del Informe de Inversión Extranjera Directa  (Summary of the Foreign 
Direct Investment Report),  and information supplied by the authorities. 
                                                      
20Giordano (2004). Paraguay WT/TPR/S/146 
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40. Between 2002 and 2003, it was investors from the United States (36.9 per cent), Holland 
(9.9 per cent) and Brazil (9.1 per cent) that accounted for most of the FDI stock in Paraguay.21 
41. In 2003, both the FDI flow and the FDI stock increased significantly following the decrease 
in FDI in 2002.  During 2003, the FDI rate that increased the most (94 million US dollars) was the 
reinvested profits of the non-financial enterprises, since it was those enterpri ses that experienced the 
most significant increase in FDI as a result of the decrease in profit remittances to their parent 
companies and the slight increase in profits earned. 
(4) OUTLOOK  
42. According to the IMF, with the recovery of  the MERCOSUR partner economies, real GDP in 
Paraguay should grow by approximately 2. 1 per cent in 2004 and 3.2 per cent in 2005.22  T h e  
authorities expect that real GDP growth for 2004  will have been 2.9 per cent.  According to 
preliminary data from the authorities, GDP grew by 2.9 per cent in 2004.  A recovery of the price of soya beans (and in general of the world prices for ag ricultural goods) will help to stimulate export-led 
growth, although the impact of the droughts may lim it agricultural production.  The authorities have 
expressed the desire to maintain a fiscal policy focused on reducing the public debt, and hope that the 
measures will generate a primary tax surplus of 4 million US dollars even if the overall tax deficit 
(including debt payment) increases.
23  Tax revenue should reach 11 per cent of GDP in 2004.  The 
fulfilment of both of these targets would be in keep ing with the objectives agreed with the IMF in the 
special drawing rights agreement. 
43. The Guaraní is expected to contin ue its recovery in 2004, helpin g to keep inflation in the one-
digit range, and consumption of imported goods (including interm ediate goods) is expected to 
increase, while BCP intervention in the fo reign exchange market should decrease.24  The progressive 
application of VAT to previously exempted pr oducts and the high world oil prices recorded in 
October 2004 should exert an inflationist pressure, although not enough to cause inflation to increase 
substantially. 
 
                                                      
21 Information supplied by the authorities. 
22 IMF (2004a). 
23 Ministry of Finance (2004).  Information supplied by the authorities. 
24 IMF (2004a).