Economy of Paraguay - Banking and Finance

Banking and Finance

Paraguay’s banking and financial services industry is still recovering from the liquidity crisis of 1995, when news of widespread corruption resulted in the closure of several significant banks. Reform efforts spurred by the International Monetary Fund (IMF) and World Bank helped restore some credibility to Paraguay’s banking industry. Still, a paucity of credit options hinders the overall economy. Paraguay has a long history as a money-laundering center. The government has taken steps to curb the problem, but enforcement of anti-laundering legislation remains inconsistent.

Foreign companies either partially or wholly own most banks and financial institutions in Paraguay. Paraguayan banks hold less than 10 percent of deposits. Of the 16 banks operating in Paraguay in 2003, 50 percent were wholly foreign-owned and 25 percent were partially owned by foreign companies. Paraguay’s Central Bank exists to stabilize the financial sector, making sure that another run on banks, such as the one that occurred in 1995, does not recur. The Superintendencia de Bancos regulates the banking system, monitoring the percentage of non-performing loans in the banking system. Bank deposits rose significantly in 2004, along with the percentage of local currency in total deposits. Local currency deposits increased by 26 percent in 2004, a sign that Paraguayans are gaining confidence in the stability of Paraguayan currency. In another promising development, interest rates dropped dramatically in 2004, from 50 percent in 2003 to 27 percent in 2004.

Paraguay’s stock market, the Bolsa de Valores y Productos de Asunción, began trading in October 1993. The tradition of family-owned companies and economic instability kept investment low throughout the 1990s. The value of shares on the Asunción stock exchange rose by 390 percent in 2004, reaching US$17.5 million.