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TITLE:  PARAGUAY ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                             PARAGUAY
                                 
                     Key Economic Indicators
       (Millions of  U.S. dollars, unless otherwise noted)


                                  1991      1992      1993 /1
Income, Production,
 and Employment

Real GDP (1982 prices)            6,935     7,056     7,305
Real GDP growth (pct.)              2.5       1.7       3.5
GDP (at current prices)           6,254     6,678     6,925
 By Sector: (pct.)
  Agriculture                      26.7      26.3      26.9
  Energy and Water                  3.4       3.8       4.0
  Manufacturing                    15.9      15.6      15.5
  Construction                      5.2       5.4       5.3
  Financial Services               26.9      26.5       26.7
  Other Services                    9.5       9.6       9.7
  Government, Health
   and Education                    4.6       4.8       4.8
Net Exports of
 Goods and Services ($ million)    -821.3    -805.6     n/a
Real per capita GDP 
 (1982 BPS)                       1,323     1,280       n/a
Labor Force (000s)                1,597     1,641     1,692
Unemployment Rate (pct.)           11.0      10.0      11.0


Money and Prices
 (annual pct. growth, unless otherwise noted)

Money Supply (M2)                  23.1     26.1      28.7
Base Interest Rate
(avg. annual rate in percent)      27.0      30.1      30.9
Savings/GDP                        18.3      19.5      18.9
Wholesale Inflation                12.4       4.0       5.4
Consumer Price Inflation           11.8      17.8      18.7
Exchange Rate (GS/$)              1,327     1,500     1,750


Balance of Payments and Trade
(Millions of U.S. dollars)

Total Exports FOB /2                737       656       729
  Exports to U.S.                    34        31        66
Total Imports CIF /2              1,275     1,237     1,358
  Imports from U.S.                 375       415       420
AID from U.S.                         1.2       2.9       4.4
External Public Debt              1,637     1,240     1,201
Debt Service Payments (paid)        219       629       130
Gold and FOREX Reserves             978       604       650
Merchandise Trade Balance          -538.2    -581.1    -630
  Balance with U.S.                -341      -384      -355


Notes:

1/  Figures are estimates based on data as of October, 1993.
2/  Merchandise trade; figures exclude unregistered re-exports


1.  General Policy Framework

    Paraguay, with a total land area of 154,047 square miles
and a population of 4.2 million, according to the 1992 census,
has an annual population growth rate of 2.8 percent.  The
country has a predominantly agricultural economy and vast
hydroelectric potential but no known significant mineral or
petroleum resources.  The Paraguayan economy, with its
established export industries of cotton, soybeans, cattle,
electricity, and the lucrative business of re-exporting
products made elsewhere, is particularly vulnerable to the
vagaries of weather and the fortunes and misfortunes of the
Brazilian and Argentine economies.  The country's predominantly
agricultural economy, which includes crop and livestock
production, forest exploitation, and fishing activities,
continued to depend heavily on the production of cotton and
soybeans.  Recent government estimates project economic growth
in the 3.5 to five percent range for 1993.  The projected
increase is due to the sharp increase in soybean production and
the-better-than-expected cotton output.  Moreover, increases in
international prices for these two commodities contributed to
the improved outlook.

    A coup d' etat on February 3, 1989 marked the end of 34
years of General Alfredo Stroessner's repressive regime and the
beginning of a transition process to democracy in Paraguay. 
General Andres Rodriquez presided over the political and
economic changes that culminated on August 15, 1993 with the
inauguration of President Juan Carlos Wasmosy, the first
freely-elected civilian president in the country's history.

    The new government has pledged to continue the market-based
economic reforms begun under the Rodriguez administration, and
specifically work to keep expenditures in line with revenues;
combat inflation; keep customs duties low and uniform; place no
restrictions on capital flows; and, put more emphasis on
production and export.

    Under the Wasmosy government, the Central Bank is expected
to maintain the restrictive monetary and credit policies that
have been in effect since late 1990.  The Inter-American
Development Bank's investment sector loan, recently approved by
the congress, requires reform of the Central Bank and the
Superintendency of Banks.  The modernization of the Central
Bank would provide the monetary authorities modern tools for
the management of monetary policy.  The government has stated
that it intends to promote financial reform to encourage
economic development and to limit credit to the public sector. 
At the same time it would create mechanisms for obtaining
international financing for the private sector.

    Since 1991, the Paraguayan government has made control of
government expenditures one of its top economic policy
priorities.  The government has tried to maintain a tight rein
over expenditures to avoid deficit spending.  The 1993 budget
submitted to Congress provided for a deficit of 1.7 percent of
GDP.  Congress subsequently raised government expenditures by
approximately $80 million without providing additional
revenue.  Royalties from Itaipu dam represent a major source of
revenue for the Paraguayan treasury.  Itaipu's long delays in
paying have created serious budget management problems for the
Ministry of Finance.  President Wasmosy indicated that his
administration would manage government expenditures prudently. 
Currently, 94 percent of the government budget is used to pay
for current expenditures.  This leaves only six percent for
investment in infrastructure.  Tight monetary and credit
policies, including restraint in the growth of monetary
aggregates and high legal reserve requirements, have helped to
control inflation, which declined sharply, from nearly 45
percent in 1990 to 11.8 in 1991.  In 1992 inflation rose to 18
percent, primarily as a result of bad weather, which affected
crop yields, and subsidized credit for cotton and soybean
growers.  Despite increases in the money supply, 30 percent in
1991 and 36 percent in 1992, inflation has remained below 20
percent annually, presumably as a consequence of weak demand. 
In early 1993, in a pre-electoral campaign period, the
government increased expenditures using extraordinary funds
provided by the Central Bank without a corresponding increase
in tax revenues or borrowing from the public.  This exacerbated
inflationary pressures during the first five months of fiscal
year 1993.  The twelve month inflation rate has been hovering
near 18 percent during 1993.


2.  Exchange Rate Policy

    Since February 1989, Paraguay has maintained a freely
floating foreign currency exchange market.  Occasionally, the
Central Bank intervenes to contain erratic fluctuations and
speculative market forces.  The prevalence of relatively high
real interest rates has attracted large capital inflows that
have contributed to an excess supply of dollars in the local
market, preventing a more rapid depreciation of the guarani. 
An additional factor is the re-export trade which produces
dollar income.  The big gap between real interest rates in the
U.S. and Paraguay encouraged dollar savers to move their funds
to Paraguay where they can obtain higher interest returns.

3.  Structural Policies

    Economic reform:  Soon after the overthrow of the
Stroessner dictatorship, the government headed by Andres
Rodriguez implemented bold economic reform measures.  The
market-oriented reforms sought to restore business confidence
and to improve macroeconomics management.  Exchange rate and
interest rate liberalization stand out as the most effective
reforms.  The Wasmosy administration has promised to continue
the reform of the economic system and to speed up privatization
and financial sector reforms.

    Exchange rate reform:  In February 1989, the Rodriquez
administration devalued the guarani (the local currency),
eliminated foreign exchange rate controls, abolished multiple
official exchange rates, and established a single freely
floating exchange rate.  Since then, the value of the guarani
has been set by free market forces.  This measure greatly
reduced economic distortions and eliminated the opportunities
for corruption and graft in the management of foreign exchange.

    Tax reform:  In 1992, the government implemented a new
simplified tax code approved the previous year.  The law 
eliminated burdensome taxes and reduced tax rates in an attempt
to reduce tax evasion and promote investment.  The government
reduced the number of taxes from 84 to seven and expanded the
tax base with the implementation of the value added tax (VAT). 
Compliance with the VAT has been lower than expected, primarily
as a result of inexperience in its administration.  The new
government intends to introduce additional tax reforms, and
establish tax incentives to promote investment.  The new
minister of finance has promised to establish heavy penalties
for tax evaders.

    Tariff reform:  In mid-1992, the government implemented a
sweeping import tariff reform.  The measure included sharp
reduction of customs duties and the elimination of
administrative barriers to promote trade.  Nevertheless, the
government continues to ban a number of products of
agricultural origin.


4.  Debt Management Policies
  
    In 1992, the government reduced external debt with both
official and commercial creditors.  This was done by
repurchasing a sizable amount of the delinquent commercial debt
in the secondary market at a substantial discount and by paying
off all official debt arrears through reduction of reserves. 
As a result, Paraguay's total foreign debt declined sharply,
falling 23.2 percent, from $1,636.7 million at the end of 1991
to $1,249.0 million at the end of 1992.  This decline resulted
from the decision of the administration of President Andres
Rodriguez to normalize relations with foreign creditors.  The
full payment of arrears was accomplished without assistance
from the IMF or the Paris Club.  The government used foreign
official reserves in the amount of $629.4 million to settle in
cash outstanding debt payments with foreign creditors.  That
amount included $381.1 million for payment of principal and
$248.2 million for payment of interest.  Since the end of 1992,
Paraguay has been meeting its obligations with most foreign
creditors in a timely fashion.  The government's decision to
eliminate arrears with foreign creditors has helped improve
Paraguay's creditworthiness.  We expect the Wasmosy government
to improve relations with the IMF.


5.  Significant Barriers to U.S. Exports

    Although a few import bans will remain in effect until the
end of 1994, U.S. exports to Paraguay continue to grow. 
Government policy is to encourage free trade and capital flows,
particularly with traditional trade partners like the United
States.  U.S.-made products and consumer goods are widely
accepted and have a good reputation for quality.  New U.S.
products appear every day in Paraguayan shops.  Nevertheless,
U.S. goods face strong competition from East Asia.  Major
sectors for U.S. exports include computers and peripherals,
machinery, automobiles (especially four wheel drive vehicles),
auto parts, and consumer goods.  The declining dollar has been
helpful for processed food exports, which face strong
competition from Brazil.  Other sectors of interest include
agricultural equipment and river barges.  In the re-export
market, U.S. companies are strong in the areas of computers and
peripherals, sporting goods, cigarettes, and photo equipment. 
The U.S. maintains a healthy trade surplus with Paraguay.  From
a base of $36.3 million in 1983, U.S. exports to Paraguay rose
to $414.9 million at the end of 1992.  This represents a more
than 1,000 percent increase over the decade.

    There are no restrictions on foreign investment, except for
activities reserved for state monopolies (cement, electricity,
water, and telephone), which remain closed to both national and
foreign private investment.  Paraguay welcomes and offers an
open climate for foreign investors, who enjoy the same legal
rights as do national investors.  The Rodriguez administration
established a number of fiscal incentives to promote
investment, both domestic and foreign.  The government also
signed a new agreement with the Overseas Private Investment
Corporation on September 24, 1992.

    The legal framework governing investment incentives is
contained in Law 60/90.  The fiscal incentive package includes
total exemption from certain taxes on the establishment of
operations and reduction of customs duties on imports of
capital goods.  There is a 95 percent corporate income tax
exemption for five years.  The law is based on the principle of
national treatment and makes no distinction between domestic
and foreign investors.  The Ministry of Industry and Commerce
is responsible for the administration of the investment
incentive law; the Ministry of Finance oversees all tax
matters.  Foreign corporations doing business in Paraguay are
subject to the same tax rules as those applied to domestic
business entities.  With the implementation of the new tax
system, corporate income will be subjected to a 30 percent tax
rate.  As a further incentive to investment, the government has
reduced the income tax rate on reinvestment profits to ten
percent.  All entities are subject to tax except those which
can claim tax exemption under special laws.  The taxation of
branches engaged in business operations is the same as for
corporations.


6.  Export Subsidies Policies

    Paraguay has a free enterprise economic system.  Government
policy is to promote free competition.  Although there are
still activities that are state monopolies, the government does
not subsidize exports.  Government credit facilities provided
by banks to agricultural producers of soybeans, cotton, and
wheat perhaps is the most indirect support related to the
issue.  In June 1993 Paraguay became a member of the General
Agreement on Tariffs and Trade (GATT).


7.  Protection of U.S. Intellectual Property

    Paraguay's chief problem in the area of intellectual
property rights (trademark, patent, and copyright) is the lack
of effective enforcement of existing laws and regulations. 
Another negative factor is the slow pace of the judicial system
in issuing timely and clear decisions on intellectual property
infringement cases.  This is in great part a remnant of the
corruption and graft that were prevalent during the Stroessner
years.  The U.S. government has ongoing discussions with the
Paraguayan government on issues that must be addressed by 
Paraguay to establish an adequate intellectual property regime.

    Patents:  Law 773 of September, 1925 established an Office
of Patents of Invention and the rules and procedures for
obtaining patents.  Patents are granted for 15 years and may be
renewed.  Decisions of the patent office are subject to
appeal.  In principle, foreign patents must be registered in
the office of patents of invention and are subject to the same
procedures and fees as national patents.

    Trademarks:  The procedure for registering a trademark is
analogous to the U.S. system.  Anyone may register a trademark
and the process is relatively simple and inexpensive.  The
person who registers a trademark enjoys legal protection for
ten years.  This period may be extended indefinitely for
ten-year periods by requesting it before the expiration date. 
Ownership of a trademark may be transferred by contract.  It
may also pass to the heirs of the holder by succession, and may
be included in the provisions of a will.  A firm whose products
are sold in Paraguay should register its trademarks in the
country.

    Copyrights:  In 1991, Paraguay became a signatory to the
Bern Convention for the Protection of Literary and Artistic
Works.  Previous widespread production and trade in pirated
recordings and video cassettes has been reduced by vigorous
Paraguayan government law enforcement action.  Reportedly,
production of pirated sound recordings is taking place along
the border with Brazil, for export to that country.


8.  Worker Rights

    U.S. Generalized System of Preferences (GSP) benefits for
Paraguay were suspended in 1987 for violation of labor rights
under the Stroessner regime.  However, GSP benefits were again
reinstated in February 1991, in recognition of improvements in
worker rights under the Rodriquez government and the promise
that the government would pass a new labor code with
internationally accepted protections for labor.  In 1993, the
AFL-CIO filed a petition requesting suspension of GSP benefits
for worker rights violations and for failure to approve a new
labor code.  On October 28, 1993, the Paraguayan Congress
approved a new labor code that meets ILO standards.  As a
result the AFL-CIO petition was withdrawn in December 1993.

    Labor reform:  In 1991, the government submitted a draft
labor code to the Congress to replace the nation's antiquated
code.  Debate on the code was arduous and appeared to end
abruptly when the executive withdrew the code from
congressional consideration in March 1993.  The bill was
reintroduced, however, that same month by members of the
Chamber of Deputies.  The bill was approved by both chambers of
congress and submitted to then President Rodriguez, who vetoed
the proposed labor code in July 1993.  The Chamber of Deputies
overrode the veto on August 10, and the Senate did the same on
October 28, 1993.  President Juan Carlos Wasmosy, signed the
bill into law on October 29.

    a.   Right of Association

    For the first time in Paraguay's history, both private and
public sector workers are free to form and join unions without
government interference.  Provisions of the 1992 Constitution
superseded the existing labor code, which did not permit public
sector worker unions.  The new Constitution established
principles and protections for fundamental worker rights,
including the right of association.  It also contains an
anti-discrimination clause, provisions for employment tenure
and severance pay for unjustified firings, collective
bargaining, and the right to strike.  Under the new
Constitution, the public sector (excluding the police and
military) was most active in forming unions in 1992.  Public
employees, representing six percent of the total labor force,
formed or were in the process of forming unions in several
areas including the Central Bank, other state banks, the
telephone utility, the Social Security Administration, the
Civil Air Authority, the airport, and the Foreign Ministry,
among others.

    In principle, unions are independent of the government and
political parties, although the case of the Confederation of
Paraguayan Workers (CPT) is linked with the ruling Colorado
Party.  Approximately five percent of Paraguayan workers are
organized.  That percentage may change as public employees take
advantage of constitutional protections for public sector
unions.  Unions are free to maintain contact with regional and
international labor organizations.

    b.   Right to Organize and Bargain Collectively

    Collective bargaining is protected by law and has been
successfully conducted in many cases.  Collective contracts are
still the exception rather than the norm in labor/management
relations.  While the constitution prohibits anti-union
discrimination, the firing and harassment of some union
organizers in the private sector continued in 1992.  Under
present legislation, fired union leaders can seek redress in
the courts, but the labor courts have been slow to respond to
complaints.  As in previous years, in some cases where judges
ordered fired workers reinstated, the employers disregarded the
court order.

    There were 19 strikes by unions affiliated with the
independent labor federation (the C.U.T.), 12 of which were
directly related to the firing of union organizers, management
violations of a collective contract agreement, or management's
effort to prevent workers from freely associating.  Agreements
with the transportation workers unions went unfulfilled by
owners and management in 1992.  Teachers Associations also
protested throughout the year the failure of the Education
Ministry to meet minimum wage standards.  The failure to meet
salary payments frequently precipitated labor problems,
especially in the public health sector.  Labor attributes the
lack of action on complaints filed with the labor ministry to
bottlenecks in the judicial system.  There were also complaints
of management creating parallel "factory" unions to compete
with independently formed unions.

    Paraguay has no export processing zones.

    c.   Prohibition of Forced or Compulsory Labor

    Forced labor is prohibited by law and is not practiced.

    d.   Minimum Age for Employment of Children

    The Office of the Director General for the Protection of
Minors in the Ministry of Justice and Labor is responsible for
enforcing child labor laws.  Minors between 15 and 18 years of
age can be employed only with parental authorization and can
not be employed under dangerous or unhealthy conditions. 
Children between 12 and 15 years of age may be employed only in
family enterprises, apprenticeships, or in agriculture. 
Furthermore, the labor code prohibits work by children under 12
years of age.  However, in practice many thousands of children,
many younger than 12, work in the streets of Asuncion and its
suburban communities selling newspapers, shining shoes, and
cleaning car windows.  In rural areas it is not unusual for
children as young as ten to work beside their parents in the
field.

    e.   Acceptable Conditions of Work

    The government has established a private sector minimum
wage, regionally adjusted according to cost of living indices,
sufficient to maintain a minimally adequate standard of
living.  The minimum salary was adjusted by 10 percent in July
for the first time since December 1990, representing a loss of
real purchasing power of 20.5 percent.  Furthermore, it has
been estimated that 50 to 70 percent of Paraguayan workers earn
less than the decreed minimum.  The previous labor code, since
it was superseded by the 1992 Constitution, and the recent
enactment of the new code, is no longer an accurate guideline
for work conditions.  However, according to both that code and
the new labor code, maximum weekly hours are 48 for day work
and 42 for night work, with one day of rest.  The law provides
for an annual bonus of one month's salary.  The labor code also
stipulates conditions of safety, hygiene, and comfort.  In
general, the government did not effectively enforce the safety
and hygiene provisions of the labor code, partially due to the
lack of inspectors.

    Labor unions:  Paraguay has not developed a strong labor
union movement.  Union membership is not compulsory.  Union
representation exists at most places of work but, in general,
is relatively weak except for the banking sector which has the
strongest and most independent union organization in the
country.  It is not mandatory for unions and employees to enter
into binding contracts or agreements.  However, when 20 or more
union workers are hired, the employer has to negotiate a
collective agreement on working conditions, if and when
requested by the union.

    f.   Rights in Sectors with U.S. Investment

    Conditions generally are the same as in other sectors of
the economy.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 7
Total Manufacturing                                       D
    Food & Kindred Products                     1
    Chemicals and Allied Products               1
    Metals, Primary & Fabricated                0
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                         D
Wholesale Trade                                           D
Banking                                                   D
Finance and Insurance                                     0
Services                                                  0
Other Industries                                          0

TOTAL ALL INDUSTRIES                                     50


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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