Paraguay EXTERNAL SECTOR
Sources: The Library of Congress Country Studies; CIA World Factbook
In the 1980s, Paraguay was a rather open economy, in which foreign trade played a large role. Registered imports as a percentage of GDP in 1986 were approximately 28 percent; when unregistered imports were included, however, that figure exceeded 50 percent, showing the Paraguayan economy to be very open. With the exception of the Francia regime, international trade had been an important component of economic activity in Paraguay since independence. In the 1980s, the composition of trade was essentially the same as it had been for decades: raw and semiprocessed agricultural exports and imported fuels, capital goods, and manufactured items. Paraguay's dependence on just a few exports, mostly soybeans and cotton, made its export base sensitive to weather conditions and international commodity prices. As a result of low prices for agricultural exports, poor weather conditions, and an overvalued exchange rate, which reduced the international competitiveness of the nation's exports, Paraguay experienced unprecedented trade deficits in the 1980s. A sharp rise in imports--the legacy of the boom years of the 1970s--also exacerbated chronic trade deficits that persisted in the late 1980s.
Import data varied widely, and economists viewed the statistics cautiously, more as a general barometer than a specific indicator. In 1986 official imports were estimated at US$518 million. Unregistered imports in the same year were believed to have reached US$380 million, or 42 percent of total imports. Unregistered trade figure were generally calculated by comparing Paraguay's official trade data with those of its major trading partners. Computing the total trade deficit, including estimates for unregistered imports and exports, the country's trade deficit stood at an unprecedented US$527 million in 1986 (see table 7, Appendix). Some 62 percent of all imports were manufactured goods, and 38 percent were primary commodities. Manufactured products, capital goods, and fuels accounted for 81 percent of all imports. Food, metals, minerals, and other raw materials made up the balance.
Government import policies were liberal, characterized by low tariffs and by import taxes on luxury consumer goods, a significant source of government revenues. Special import exemptions were extended to certain industries, such as those established under Law 550 (see Manufacturing , this ch.). The government's import policies favored import-substitution strategies only where feasible and favored capital imports to accelerate the capitalization of the private sector.
Despite the industrial nature of the country's import basket, most imports originated from developing countries. Developing countries contributed approximately 48 percent of imports, followed by industrial countries, with 38 percent, and undisclosed countries, with 14 percent. Registered Brazilian exports, 28 percent of the market, were more than double those of any other nation exporting to Paraguay. Considering the brisk smuggling activity along the border, Brazil was clearly the main economic force influencing Paraguay. Other major importers, in order of importance, were the United States, Argentina, Algeria, Japan, Britain, and West Germany. Algerian crude oil was sometimes bartered for the country's agricultural exports.
One of the greatest challenges that Paraguay faced in the late 1980s was controlling its domestic consumption. Imports had swelled in the 1970s at a time when unprecedented exports and capital inflows offset the negative consequences of high import levels. These fortunate circumstances were not present in the subsequent decade.
Export data also varied and were generally less credible than import data. Estimates of registered exports in 1986 stood at US$233 million, but when adjusted for unregistered exports that figure reached US$371 million. The percentage of illicit exports fluctuated greatly in the 1980s. Analysts believed that illegal exports represented 37 percent of total exports in 1986, but that they had made up as much as 89 percent of total exports in 1981.
The structure of Paraguay's export basket displayed one of the hemisphere's highest concentrations on a few cash crops. Although Paraguay's exports were historically all agricultural, they had included a variety of products, including beef, timber, cash crops, and processed agricultural goods. That pattern changed in the early 1970s, however, as the price of soybeans and cotton soared (see Crops , this ch.). The percentage of total exports attributed to cotton and soybeans rose from 1 percent in 1960 to 6 percent in 1970, 60 percent in 1981, and 63 percent in 1987. Beef, wood, quebracho, and oilseeds represented a decreasing percentage of exports. The fragility of the export structure was apparent in the 1980s, as poor weather conditions and prices greatly hindered the pace of export expansion and economic growth.
In contrast to the concentration of products exported, Paraguay maintained well diversified export markets. Unlike most Latin American economies, Paraguay exported extensively to European markets and only marginally to the United States. Trade with Latin America was also vibrant. Some 55 percent of all the nation's exports went to industrial countries, particularly members of the EEC. In the late 1980s, the Netherlands, purchaser of 22 percent of Paraguay's exports, became its number-one recipient of registered exports, mostly processed oils. Following the Netherlands among industrialized countries trading with Paraguay were Switzerland (10 percent), West Germany (5 percent), Belgium and Luxembourg (5 percent), Spain (4 percent), and Italy (4 percent). The United States purchased only 3 percent of Paraguay's goods in 1986. Developing countries, all in the Western Hemisphere, received 26 percent of Paraguay's registered exports. Brazil received 15 percent, Argentina 9 percent, and Uruguay 2 percent. These figures, however, did not include contraband, which, if added, made Brazil the number-one market overall and Argentina probably the second. Other markets took 19 percent of exports. Although not recorded in government data, observers believed that in the mid-1980s Paraguay made limited sales of cotton and grain to the Soviet Union despite the fact that the countries did not maintain diplomatic relations.
Since the first National Economic Plan of 1965, the government's trade policy had explicitly promoted exports. The extraordinary growth in exports in the 1970s, and to a limited degree in the 1980s, however, was more the direct response of Paraguay's freemarket economy to international price movements than the result of government policy. One of the reasons for Paraguay's declining level of exports after 1982, besides lower prices, was the government's exchange-rate policies. A five-tiered exchange rate system and generally overvalued guaraní generated less competitive exports and slowed their expansion. Export taxes and foreignexchange taxes also discouraged exports, particularly registered exports. Another growing disincentive for certain exporters was the Central Bank's Aforo system (see Monetary Policy , this ch.).
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 EXTERNAL SECTOR information contained here. All suggestions for corrections of any errors about Paraguay EXTERNAL SECTOR should be addressed to the Library of Congress and the CIA.