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U.S. DEPARTMENT OF STATE
PARAGUAY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             PARAGUAY

                     Key Economic Indicators


                                     1992      1993      1994

Income, Production and Employment:

Real GDP (1982 prices) 2/           7,113     7,407      7,681
Real GDP Growth (pct.)                1.8       4.1        3.6
GDP (at current prices)2/           6,447     6,841      7,000
By Sector:
  Agriculture                        26.3      26.6       26.1
  Energy/Water                        3.8       4.1        4.3
  Manufacturing                      15.6      15.3       15.1
  Construction                        5.4       5.3        5.8
  Rents                               N/A       N/A        N/A
  Financial Services                 26.5      26.5       26.8
  Other Services                      9.6       9.4        9.5
  Government/Health/Education         4.8       4.8        4.9
Net Exports of Goods & Services 2/ -821.3    -805.6        N/A
Real Per Capita GDP (1982 base)     1,574     1,595      1,640
Labor Force (000s)                  1,627     1,672      1,725
Unemployment Rate (pct.)              9.8      11.0       11.2

Money & Prices:  (annual percentage growth)

Money Supply (M2)                    35.1      27.2       19.8
Base Interest Rate 3/                36.3      39.6       39.4
Personal Saving Rate/GDP             18.3      19.5       18.9
Retail Inflation                      N/A       N/A        N/A
Wholesale Inflation                  13.9      14.8       14.2
Consumer Price Index                 17.8      20.4       18.3
Exchange Rate (USD/Gs)              1,509     1,754      1,915

Balance of Payments and Trade: 
2/

Total Exports (FOB) 4/              656.5     725.2      715.5
  Exports to U.S.                    34.4      50.3       46.5
Total Imports (CIF) 4/            1,237.1   1,477.5    2,853.3
  Imports from U.S.                 414.9     520.9      580.5
Aid from U.S.                         2.9       4.4        5.0
External Public Debt                1,249     1,217      1,265
Debt Service Payments (paid)        628.4     233.0      125.0
Gold and Foreign Exch. Reserves     610.7     697.7      983.6
Trade Balance 4/                   -580.6    -752.3   -2,137.8
  Trade Balance with U.S.          -380.5    -470.6     -534.0


N/A--Not available.
1/ 1994 figures are all estimates based on available monthly
data in October 1994.
2/ In millions of U.S. dollars.
3/ Figures are actual, average annual interest rates, not
changes in them.
4/ Merchandise trade.  Exports exclude unregistered re-exports.








1.  General Policy Framework

    The Paraguayan economy continues to be dependent on
agricultural exports and the re-export of goods to Brazil and
Argentina.  Because of this, it is particularly susceptible to
external factors, such as bad weather or economic malaise in
its neighboring countries.  Since 1989, the government has
liberalized and deregulated the economy, eliminating foreign
exchange controls and implementing a free floating exchange
rate.  Paraguayan authorities have also established tax
incentives to encourage and attract investment, reduced tariff
levels, launched a stock market, reformed the tax structure,
and started a process of financial reform.  The Wasmosy
government has continued these policies, and has taken
important steps forward in joining the international economy
through the ratification of GATT and acceptance of the Paris
Conventions on intellectual property.   It has also
strengthened Paraguay's economic base by keeping government
expenditures in line with revenues, combating inflation,
eliminating restrictions on capital flows, reforming and
deregulating the financial sector, keeping customs duties low
and uniform, encouraging production and exports, privatizing
state owned enterprises and condemning official corruption. 
The government provides national treatment to foreign investors
and business people.

    Paraguayan imports of U.S. made products have increased
steadily.  According to the U.S. Department of Commerce,
exports to Paraguay totaled 520 million dollars in 1993. 
United States products and services enjoy wide acceptability
among the Paraguayan public.  Major sectors for U.S. exports
include computers and peripherals, machinery, automobiles, auto
parts, and consumer goods.  Other areas for business are home
entertainment equipment, communications equipment, and office
machines and equipment.  A healthy trade surplus is maintained
with Paraguay.

    Several large government investment projects could offer
interesting opportunities for U.S. firms in the future. 
Paraguay and Argentina are considering a hydroelectric project
at Corpus.  The two governments plan to establish a concession
to let private sector companies construct and manage the
project.  Another ambitious project will be the Hidrovia, a
long-term river transportation project that aims to improve the
navigation system of the River Plate region, including the
Paraguay and Parana rivers.  The project will be financed with
funds provided by the Interamerican Development Bank.  The
Hidrovia Project will fund improvements in roads and ports, and
may include some river dredging.  A U.S. consulting firm is
preparing a feasibility study for the recuperation of the
Ypacarai lake basin and the bay of Asuncion funded by a Trade
Development Agency grant.  The final report will include
recommendations for the installation of wastewater treatment
plants and the construction of dikes to prevent flooding of
land bordering the bay of Asuncion.

    The scheduled privatization of four state companies
including the national steel company, the state merchant fleet,
the Paraguayan railroad, and an alcoholic beverage plant could
also offer attractive investment opportunities to prospective
U.S. investors.  The government has also recently announced its
intention to privatize the state telecommunications, and water
and sewage companies, although the legislature has yet to
approve these plans.  Despite high-level support within the
government, opposition from many parts of society long
accustomed to a large public sector may stall privatization.

    Paraguay is a member of the Latin American Association for
Regional Integration, the Southern Cone Common Market
(MERCOSUR) and the GATT.  The Paraguay has ratified the 
Uruguay Round agreements and became a founding member of the
World Trade Organization (WTO) on January 1, 1995. 


2.  Exchange Rate Policies

    All foreign exchange transactions, public and private, are
settled at the daily free market rate.  The value of the
Guarani vis a vis the U.S. dollar and other foreign currencies
is established by market forces, with some minor intervention
by the Central Bank.  The free market rate on September 30
stood at 1,915 guaranies to the dollar.  It is legal to hold
savings accounts in foreign currency and in October 1994 the
executive promulgated a decree legalizing contractual
obligations in foreign currencies.  At present the majority of
savings accounts are denominated in dollars.


3.  Structural Policies

    Consumer prices are generally determined by supply and
demand, except for public sector utility rates (water,
electricity, telephone), petroleum products, pharmaceutical
products, and bus fares.  As a step to slow down inflation the
government implemented in April 1994 a number of economic
measures, including a stringent monetary policy, foreign
exchange market interventions to prevent sharp fluctuations in
the value of the guarani, a voluntary price freeze, and a tight
rein on government expenditures that has generated a sizable
budget surplus.  Monthly inflation declined from slightly more
than three  percent in January to 0.3 percent in September,
1994.

    The Ministry of Finance overseas all tax matters.  With the
implementation of the new tax system (Law 125/91), corporate
incomes are subject to a 30 percent tax rate.  As an incentive
to investment, the income tax rate on reinvestment profits is
10 percent.  The fiscal incentive package (Law 60/90) 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 government expanded the tax base
with the implementation of a value added tax (IVA) in 1992. 
Compliance has been lower than expected, primarily as a result
of inexperience in its administration.


4.  Debt Management Policies

    In 1992 the government reduced external debt with both
official and commercial creditors.  The full payment of arrears
was accomplished without assistance from the IMF or the Paris
Club by drawing down reserves.  The Government of Paraguay
currently has approximately 1.2 billion dollars of debt.  About
half of the debt is to multilateral lending institutions, with
the rest to Paris Club members.  Since 1992, Paraguay has been
meeting its obligations with foreign creditors in a timely
fashion.


5.  Significant Barriers to U.S. Exports

    U.S. manufactured goods face strong competition from Far
East producers.  U.S. companies have been kept out of
government procurement through purchasing practices which grant
a 15 percent preference to local bidders (bids are let on all
purchases in excess of 60,000 U.S. dollars).  Paraguay
prohibits the imports of certain foods and agricultural
products.  Although the list is reviewed every six months, it
normally stays the same.  The potential for U.S. computer
software products is limited by widespread piracy.

    In general, financing for both imports and exports is
limited.  High nominal and real interest rates due to inflation
present a major obstacle to the availability of medium and long
term credit.  The banking system also enjoys a wide spread
(over 20 percent) on its funds.


6.  Export Subsidies Policies

    There are no discriminatory or preferential export
policies. Paraguay does not subsidize its exports.  In fact,
export taxes and duties represent a significant source of
central government revenues.


7.  Protection of U.S. Intellectual Property

    Despite signing the Paris Conventions in early 1994 and a
legal framework which affords protection to intellectual
property, protection for intellectual property is lax in
Paraguay.  The lack of effective enforcement of existing IPR
laws and the slow pace of the judicial system in issuing timely
and clear decisions has encouraged the development of a sizable
business of counterfeiting, particularly sound recordings and
video movies.  The U.S. Government has ongoing discussions with
the Paraguayan Government on issues that must be addressed in
order to establish an adequate intellectual property regime.

    The outdated patent law of 1925 established an office of
patents and inventions and the requirements and procedures for
obtaining patents.  The law does not meet modern standards. 
The law grants patents for 15 years and may be renewed.

    The procedure for registering a trademark resembles the
U.S. system.  The illegal appropriation of well-known 
trademarks presents a serious problem.  Anyone may register a
trademark and the process is relatively simple and
inexpensive.  The law grants trademark rights which may be
renewed before its expiration.  Ownership of a trademark may be
transferred by contract or inheritance.

    In 1991, Paraguay became a signatory to the Bern Convention
for the protection of literary and artistic works.  Although
the government has taken measures to fight piracy, widespread
production and trade in pirated recordings, computer software,
and video cassettes remains a problem.


8.  Worker Rights

    A Generalized System of Preferences (GSP) program was
reinstated in February 1991.  Paraguay's status as a
beneficiary under the U.S. GSP was suspended in 1987 for
violation of labor rights under the Stroessner regime.  The
restoration of trade benefits was in recognition of
improvements in worker rights under the Rodriguez 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
parliament approved a new labor code that met international
labor organization standards. 

    a.  Right of Association

    The Constitution allows both private and public sector
workers, excepting the armed forces and police, to form and
join unions without government interference.  It also protects
the right to strike and bans binding arbitration.  Strikers and
leaders are protected by the constitution against retribution. 
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.  When wages are
not set in free negotiations between unions and employers, they
are made a condition of individual employment offered to
employees.  Collective contracts are still the exception rather
than the norm in labor/management relations.

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor is prohibited by law.  Domestics, children,
and foreign workers are not forced to remain in situations
amounting to coerced or bonded labor.

    d.  Minimum Age of Employment of Children

    Minors from 15 to 18 years of age can be employed only with
parental authorization and cannot be employed under dangerous
or unhealthy conditions.  Children between 12 and 15 years old
may be employed only in family enterprises, apprenticeships, or
in agriculture.  The labor code prohibits work by children
under 12, and all children are required to attend elementary 
school.  In practice, however, many thousands of children, many
under the age of 12, work in urban streets in informal
employment.

    e.  Acceptable Conditions of Work

    The labor code allows for a standard legal work week of 48
hours, 42 hours for night work, with one day of rest.  The law
also provides for an annual bonus of one month's salary and a
minimum of six vacation days a year.  It also requires overtime
payment for hours in excess of the standard.  Conditions of
safety, hygiene, and comfort are stipulated.

    f.  Rights in Sectors with U.S. Investment

    Conditions are generally 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--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                               9
Total Manufacturing                                     9
  Food & Kindred Products                   (1)
  Chemicals and Allied Products               0
  Metals, Primary & Fabricated                0
  Machinery, except Electrical                0
  Electric & Electronic Equipment             0
  Transportation Equipment                    0
  Other Manufacturing                                 (1)
Wholesale Trade                                       (1)
Banking                                               (1)
Finance/Insurance/Real Estate                           0
Services                                                0
Other Industries                                        0
TOTAL ALL INDUSTRIES                                   64      

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic Analysis
(###)


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