PARAGUAY: Economy Soaring – For the Few

Posted on 28 October 2010 by admin

Soybean fields in Paraguay.

By Natalia Ruiz Díaz

ASUNCION, Oct 28, 2010 (IPS/TerraViva) – Paraguay’s economy is currently growing at the fastest rate in Latin America, due to growing demand and high prices for agricultural products, especially soy, which is driving the expansion. But the question is whether the benefits of the boom will trickle down to the poor majority.

The International Monetary Fund (IMF) revised its own estimates upwards and now forecasts GDP growth of 10 percent this year for Paraguay, putting it ahead of Argentina, Brazil and Uruguay, its partners in the Southern Common Market (Mercosur), and other thriving regional economies like Chile and Peru.

The Central Bank reported that GDP for the first half of this year grew by 11.7 percent compared to the same period in 2009 — and by 12.2 percent in the second quarter of 2010, from the same quarter last year.

“The country has an open economy, and over 80 percent of GDP is generated by exports and imports,” analyst Lila Moliner told IPS, explaining the basis for Paraguay’s economic growth.

The main driving force is a record soybean harvest of 7.5 million tonnes in 2009-2010, 1.5 million tonnes more than the previous season, the Soy Producers Association said Monday. Revenue from this year’s soybean exports is expected to reach 2.3 billion dollars.

Paraguay is the world’s fourth soybean exporter, after Brazil, the United States and Argentina.

Economist Manuel Alarcón said good climate conditions played an important part in the record output levels, as did investment in agriculture.

In 2009, GDP shrank 3.8 percent, mainly due to a 25 percent contraction in agriculture caused by bad weather and the global economic crisis.

Both domestic and international forecasts indicate the economy will return to normal in 2011, with a growth rate of around five percent, only a few tenths of a percentage point higher than the average growth of Paraguay’s GDP in the last six years, not counting 2009.

But social scientists and economists are not optimistic that this boom will reach the majority of the population, in a country which ranks along with Bolivia as the poorest in South America, and which is marked by appalling social inequalities.

“This good patch is no bad thing; the pity is, we do not have a solid social protection system linked to the farming and livestock sector, and we lack a strong domestic market,” Moliner said.

She pointed to low agricultural wages, which go hand-in-hand with reduced social security and health coverage.

In this country of 6.2 million people, the economically active population is close to three million, of whom only 17 percent have social security coverage. Some 30 percent of jobs are in the primary sector.

Added to this, the farm industry contributes very little to tax revenue, so that the current economic boom is not reflected in the state’s coffers.

In fact, the tax burden in Paraguay is the lowest in the Americas, at 12.4 percent, which means that many individuals become rich while the state is poor, a distortion that the IMF itself and other global and regional bodies insist must be corrected in order to improve the social situation in the country.

In particular, the IMF and other global organisations say that Paraguay must urgently abandon its position as the only country in Latin America that does not levy personal income tax.

A bill to introduce personal income tax is bogged down in Congress, where the moderate leftwing government of President Fernando Lugo is in the minority and the rightwing Colorado Party, which he ousted from power after 61 years of uninterrupted rule, is resisting the measure.

Moliner pointed out that taxes on agricultural earnings currently stand at just 2.5 percent, in spite of the vast areas of land devoted to agro-exports.

According to the 2008 Agricultural Census, soybean cultivation occupies more than 2.4 million hectares, out of a total of 3.3 million hectares under crops.

“This economic growth has swelled interest on bank loans and profits for big importers of agricultural machinery and inputs, but it has not had the impact on workers that it should have had,” Moliner said.

This month, Lugo again underlined the need for Congress to pass the personal income tax bill, “because it will bring in the revenue needed to cover social spending,” he said. But the Senate, dominated by the Colorado Party, has already voted to postpone the introduction of the tax until 2013.

The legislature is also putting obstacles in the way of the government’s proposed budget of eight billion dollars for 2011, which is one billion dollars higher than in 2010, partly to honour debts contracted during the 2009 crisis, as well as to pay for new social programmes.

Paraguay is riven by social inequalities. Twenty percent of the population lives in extreme poverty, on incomes of less than one dollar a day, and another 36 percent live below the poverty line.

Meanwhile, 80 percent of the land is owned by just one percent of the population. To speak of an economic boom means very little to most Paraguayans, in spite of the country leading the continent in terms of GDP growth. (END)

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