Paraguayans were upgraded by S&P Global Ratings to BB+ in February
(FOLHAPRESS) – Japanese cars compete for space with pedestrians who rush to cross between mansions and sophisticated stores, children chat in Guarani while hailing an old bus.
The heat is strong in the early afternoon in Villa Morra, an upper-class neighborhood in Asunción, the capital of Paraguay.
The new corporate buildings, the residential buildings under construction and the intense traffic seem to sum up a country that is in a hurry to reap the rewards of an economic performance praised abroad.
In July, Moody’s raised Paraguay’s rating from Ba1 to Baa3 (with a stable outlook).
The agency attributed the granting of investment grade to “robust and sustained” growth, which makes the economy more resistant to shocks, and a history of institutional reforms.
Paraguayans had their rating upgraded by S&P Global Ratings to BB+ in February – still at a level below investment grade – and a stable outlook; and Fitch Ratings assigned a BB+ (stable) rating, also one step closer to earning that agency’s seal.
One of her executives signaled that it is still necessary to strengthen institutions, especially the Judiciary, and develop the capital market.
By comparison, Brazil had its rating improved by Moody’s in October, from Ba2 to Ba1, with a positive outlook, but it is still one step away from the good paying seal. Today, it is one step below the Paraguayans in all three measurements.
In September, President Lula (PT) and Finance Minister Fernando Haddad would meet with agencies reinforcing the government’s fiscal commitment.
The IMF (International Monetary Fund) projects an increase in Paraguayan GDP (Gross Domestic Product) of 3.8% in 2024 and also in 2025, above the region’s average. For this year, the fund expects 2.1% for Latin America and the Caribbean and 1.8% for South America.
If expectations are confirmed, although it has suffered in years of drought that affected soybean production, the neighbor will have an average annual growth of almost 4% in 20 years.
“I almost have nothing to complain about,” says secretary and app driver Augusto Ángel, 38, as he protects himself from the strong heat with a tereré (a mixture of mate and ice water).
“Our minimum wage [de 2.798.309 guaranis, cerca de R$ 2.000] It’s not enough to support the family, but I always find something to earn extra money. And the prices rarely change, it’s kind of annoying.”
In 12 months, inflation was 3.4% in November, the lowest level since February. In terms of monthly variation, it was negative in August and May, according to the local central bank.
Paraguayans are proud of the longevity of the national currency, the guarani, which has lasted eight decades, and of keeping inflation under control, avoiding a chronic problem in the region.
When commenting on the investment grade, President Santiago Peña has said that the seal is a message to international investors about the country’s reliability. He also tends to highlight the good relationship with Brazil.
Behind only the United States and Portugal, Paraguay is home to the third largest Brazilian community abroad, with 254 thousand people, according to the Brazilian Ministry of Foreign Affairs.
João Camilo, 48, from Pará, is part of it. His restaurant, in Mariano Roque Alonso (a city on the outskirts of the capital and where Portuguese is the common language), competes for students from colleges in the region with other spots that also serve Brazilian food.
He is one of many Brazilians studying medicine in the neighboring country. “Now the registration is locked, but the monthly fee costs practically a third of what you would pay in Brazil, the main taxes are around 10%. Whoever comes here and wants to grow, prospers.”
The few bumps in economic conduct mirror politics. Peña’s Colorado party has governed almost without interruption since the dictatorship of Alfredo Stroessner (1954-1989). The exception was former president Fernando Lugo (2008-2012), a leftist, but who was the target of impeachment.
Fernando Masi, director of Cadep (Center for Analysis and Dissemination of the Paraguayan Economy), attributes the good moment to the macroeconomic balance that almost no country in the region has managed to maintain for so long. “And the financial sector is stable.”
He only considers that risk agencies observe the numbers in terms of money flows, but are not oriented to say, for example, whether the market is attractive for long-term foreign investment.
“Foreign direct investment in Paraguay has been quite weak, in a few years it exceeded 2% of GDP, despite offering low taxes and incentives. There are problems of legal security, a concern about public debt and corruption.”
In 2022, Brazilian investments in Paraguay totaled US$1.7 billion in capital participation, intercompany operations, shares, currencies, deposits and real estate, according to the Central Bank of Brazil.
The economist highlights that the country has an abundance of energy, selling to Brazil what it does not use from Itaipu, for example, but there is a lack of distribution infrastructure. “Physical infrastructure, with roads, has advanced a lot, but it is scarce.”
Economic growth has also not reached everyone, as shown by the sea of simple houses in the community known as La Chacarita, an impoverished area of the capital between the waterfront and the Asunción cathedral. In recent years, the community has been opening up, with guided tours and cultural activities.
“Before, we were seen as a problem, and it took a while for everyone to understand that the city is also ours,” says car valet María Alicia, 32, at one of the entrances to the neighborhood.
Data from INE (National Institute of Statistics) indicate that poverty was 26.9% in 2021, with around 1.95 million people living in households whose per capita income was lower than the cost of a basic consumer basket ( food and non-food), 22.4% in urban areas and 34.6% in rural areas.
Until 2009, the indicator was above 40% and has remained below 30% since 2013, but rose again after the pandemic, in 2020.
The country also has to face rising crime. Paraguay, which in 2021 was not among the top 15 in the Global Organized Crime Index, began to occupy 4th position in 2023 with the advance of the PCC. According to the same index, trafficking in counterfeit products is another endemic criminal market in the region.
Masi highlights that high tax evasion and low State revenue make it difficult to combat crime. “The issue of drug trafficking is becoming a national issue and one of collaboration with Brazil that is even more important than the issue of Itaipu. It’s something to watch
