Economy of Paraguay - Foreign Economic Relations

Foreign Economic Relations

Paraguay is a member of the Common Market of the South (Mercado Común del Sur or Mercosur). Most of Paraguay’s trade takes place with Uruguay, Brazil and Argentina. In 2002 Paraguay conducted more than US$400 million in trade with Argentina and nearly US$800 million with Brazil. Paraguay is also a member of the Inter-American Development Bank, Latin American Integration Association, and Latin American Economic System and a signatory to the agreement creating the South American Community of Nations. In 2004 Paraguay signed an energy cooperation agreement with Venezuela to purchase oil and petroleum. Venezuela agreed to concessional financing that allowed Paraguay to pay over a 15-year period at a nominal interest rate.

Imports totaled US$3.3 billion in 2004. Principal import commodities included automobiles, chemical products, consumer goods, tobacco, petroleum, and machinery. Brazil was the leading source of imports to Paraguay (24.3 percent), followed by the United States (22.3 percent), Argentina (16.2 percent), China (9.9 percent), and Hong Kong (5 percent). Experts note that import statistics are difficult to confirm for Paraguay because as much as half of all imports are illegally re-exported to Argentina or Brazil. Imports from Mercosur countries continue to rise, up to 57 percent in 2003.

Paraguay’s export revenues totaled about US$2.9 billion in 2004. Agricultural commodities continue to drive Paraguay’s export totals. Soybeans are particularly vital, accounting for 35 percent of total export revenues in 2003. Other agricultural cash crops include cotton, sugarcane, cassava, sunflowers, wheat, and corn. Other significant exports include feed, meat, edible oils, electricity, wood, and leather. Even as Paraguayan export revenue has fluctuated, Brazil remained Paraguay’s principal export destination (27.8 percent in 2004), followed by Uruguay (15.9 percent), Italy (7.1 percent), Switzerland (5.6 percent), Argentina (4.3 percent), and the Netherlands (4.2 percent). In 2003 nearly 60 percent of Paraguayan exports went to Mercosur countries.

Paraguay had a negative trade balance of about US$400 million in 2004. Higher earnings from soybeans and cotton could not offset the surge in imported consumer goods and petroleum products.

After years of negative balances, Paraguay achieved a positive balance of payments totaling US$234 million in 2003. In 2004, however, the current account had an estimated deficit of US$35.1 million.

Paraguay has a sustainable debt level according to the International Monetary Fund (IMF). External debt totaled about US$3.4 billion in 2004, low compared to most Latin American countries. Continued reductions in Paraguay’s debt to gross domestic product ratio are expected in coming years. Paraguay paid US$412 million in debt service to the IMF in 2004.

Foreign investment in Paraguay nearly disappeared in 2002. After direct foreign investment of US$84 million in 2001, only US$9 million in investment came from abroad in 2002. This drop was largely the result of the financial crisis in Argentina and the banking collapse in Paraguay. Direct foreign investment rebounded in 2003, reaching US$90.8 million for the year.

Paraguay has depended on the International Monetary Fund (IMF) and World Bank for economic development assistance. The World Bank has promised Paraguay assistance totaling US$325 million between 2003 and 2007. Projects currently underway in Paraguay aim to improve education, transportation, and rural development.