Open menu Close menu Open Search Close search Open sharebox Close sharebox
. . Support our Sponsor

. . Flags of the World Maps of All Countries
geographic.org Home Page Countries Index

Paraguay Exchange-Rate Policy
https://photius.com/countries/paraguay/economy/paraguay_economy_exchange_rate_policy.html
Sources: The Library of Congress Country Studies; CIA World Factbook
    << Back to Paraguay Economy

    From 1960 to 1982, Paraguay enjoyed extraordinary exchange-rate stability as the guaranĂ­ remained pegged to the United States dollar at g126=US$1. After the virtual financial chaos of 1947-54, this stability was especially welcome in Paraguay. Although the country's exchange rate was overvalued in the 1970s, it was not until the 1982 recession that the government devalued the guaranĂ­.

    Exchange-rate policy in the 1980s came to be characterized by numerous devaluations and almost annual changes in the number of exchange rates employed. In early 1988 five exchange rates were in use, making exchange-rate policy very complicated. The first rate of g240=US$1 was used for the imports of certain state-owned enterprises and for external debt service payments. The second rate of g320=US$1 was applied to petroleum imports and petroleum derivatives. The third rate of g400=US$1 was reserved for disbursements of loans to the public sector. The fourth rate of g550=US$1 was used for agricultural inputs and most exports. The fifth rate, the only one not set by the Central Bank, was a freemarket rate set by the commercial banks. The free-market rate, which was applied to most of the private sector's nonoil imports, exceeded g900=US$1 by 1988. Exchange-rate adjustments were expected to continue in the late 1980s.

    One of the most distinctive and complex features of the nation's exchange-rate policy was a system of official minimum export prices for selected agricultural commodities. The system, called Aforo, was essentially a way of guaranteeing foreign-exchange earnings to the Central Bank. Aforo values, assessed by the government immediately before a harvest or slaughter, designated the minimum prices exporters should receive for the goods and determined what percentage of foreign-exchange earnings must be turned over to the Central Bank. The difference between the Aforo price and the actual price was traded in the free-exchange market. In 1987 the official export rate for Aforos was g550=US$1, whereas the free-market rate was upwards of g900=US$1. Lower Aforos generally made Paraguayan exporters more competitive but guaranteed less revenue to the Central Bank. Aforos were one of several government policies that fueled contraband trading.

    As the manipulation of Aforos demonstrated, exchange-rate policy was an important economic policy tool of the Paraguayan government and directly affected most sectors of the economy. Although the government ostensibly intended to reduce the gaps among the various tiers of the exchange rate, it was reluctant to reunify the rates in fear of greatly speeding inflation. Paradoxically, however, the multitiered exchange-rate system increased inflationary pressures in numerous indirect ways. One of its most important effects was the fall in Central Bank reserves associated with the exchange-rate subsidies for parastatals, a policy that created a growing publicsector deficit. Likewise, Central Bank losses encouraged a more expansionary monetary policy, most notably through rediscounting rates. An overvalued exchange rate also hampered export growth in general, which in turn aggravated Paraguay's balance-of-payments deficits and potentially its external debt.

    Data as of December 1988


    NOTE: The information regarding Paraguay on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Paraguay Exchange-Rate Policy information contained here. All suggestions for corrections of any errors about Paraguay Exchange-Rate Policy should be addressed to the Library of Congress and the CIA.

Support Our Sponsor

Support Our Sponsor

Please put this page in your BOOKMARKS - - - - -



https://photius.com/countries/paraguay/economy/paraguay_economy_exchange_rate_policy.html

Revised 10-Nov-04
Copyright © 2004-2020 Photius Coutsoukis (all rights reserved)