Financial Crime World

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Executive Summary

Paraguay’s economy experienced a modest growth rate of 2.6% in 2003, driven by a bumper harvest. However, inflation accelerated during the year but eased to 9% by year-end. The non-agricultural sector remained stagnant.

Economic Overview

  • The economy grew by 2.6% in 2003, driven by a bumper harvest.
  • Inflation accelerated in 2003 but eased to 9% by year-end.
  • The non-agricultural economy remained stagnant.

Political Environment for Reform

President Nicanor Duarte Frutos has demonstrated an ability to advance important reforms despite not having a majority in the Senate. However, the government’s support in Congress is fragile, and opposition parties often oppose government initiatives for political reasons.

  • President Duarte Frutos has shown willingness to push through reforms.
  • Government support in Congress is fragile, and opposition parties may resist reforms.

Monetary Policy

The Central Bank of Paraguay (BCP) has maintained a flexible exchange rate regime since 2001. Base money growth accelerated sharply in 2003 as the economy began to remonetize after the banking crisis.

  • The BCP maintains a flexible exchange rate regime.
  • Base money growth accelerated in 2003 due to the economy’s recovery from the banking crisis.

Financial System

Deposits largely recovered from the sharp drop in the 2002 banking crisis, but credit to the private sector continued to fall. Non-performing loan ratios have begun to decline, but remain high, and provisioning requirements are still low.

  • Deposits recovered after the 2002 banking crisis.
  • Credit to the private sector continues to decline.
  • Non-performing loan ratios have started to decrease, but remain high.

Fiscal Situation

The consolidated balance of the non-financial public sector (NFPS) moved from a deficit of 3.1% of GDP in 2002 to balance in 2003 and a surplus of 2.5% of GDP in 2004. Tax collections increased sharply beginning in August 2003, contributing to an improvement in public finances.

  • The NFPS moved from a deficit to a surplus between 2002 and 2004.
  • Tax collections improved significantly starting in August 2003.

Exchange Rate

The guaraní appreciated by 13% against the dollar in 2003 and continued to appreciate in 2004. However, the real effective exchange rate does not appear overappreciated when fundamentals of the economy are taken into account.

  • The guaraní appreciated significantly against the dollar.
  • The real effective exchange rate is not considered overvalued based on economic fundamentals.

Structural Reform

The government has reformed the public sector pension system and is developing a reform plan for the civil service. Measures have been taken to improve transparency and governance in Paraguay, including independent audits of numerous public entities.

  • The government has implemented reforms to the public sector pension system.
  • A reform plan for the civil service is being developed.
  • Transparency and governance measures have been introduced through independent audits of public entities.