Paraguay The Economy
A farmer sacks cotton for transport to market
PARAGUAY IS A MIDDLE-INCOME COUNTRY that changed rapidly in the
1970s and 1980s as a result of hydroelectric development,
agricultural colonization, construction, and cash crop exports.
Nevertheless, the country's gross domestic product
(GDP--see Glossary)
in 1986 was approximately US$3.4 billion, or roughly
US$1,000 per capita, ranking Paraguay only ahead of Bolivia among
the Spanish-speaking countries of South America. Paraguay was the
most agricultural economy of South America, and that sector
influenced the performance of virtually every other sector of the
economy.
Traditionally isolated and underpopulated, Paraguay was one of
the last countries in Latin America to enjoy the region's rapid
growth in the post-World War II period. Paraguay entered a phase of
sustained economic growth in the late 1950s. Its economy grew at
the fastest pace of all the Latin American countries during most of
the 1970s as the Paraguayan-Brazilian project, Itaipú, the world's
largest hydroelectric plant, was constructed. During that decade,
cotton and soybeans came to dominate agriculture, mostly as a
result of high export prices and agricultural colonization.
Paraguay's economy also was characterized by a large underground
sector, in which smuggling and contraband had become normal
features by the 1970s.
The Paraguayan economic miracle of the 1970s came to a halt in
1982 because of the completion of construction at Itaipú, lower
commodity prices for cotton and soybeans, and world recession. The
economy recovered in 1984 and 1985, stagnated in 1986, and
continued to expand in 1987 and 1988. Despite its rapid growth, the
Paraguayan economy became increasingly dependent on soybeans and
cotton for exports and overall economic dynamism. These two crops,
however, remained subject to external price fluctuations and local
weather conditions, both of which varied considerably.
Economic growth in the post-World War II period occurred in the
context of political stability characterized by authoritarian rule
and patronage politics. Government economic policies deviated
little from 1954 to the late 1980s, consistently favoring a strong
private-enterprise economy with a large role for foreign
investment. Unlike most Latin American economies, in Paraguay
import tariffs were generally low, fiscal deficits manageable, and
exchange rates not overvalued. These trends faltered in the 1980s
as the government took a more active part in industry, deficits
rose, and the national currency was generally overvalued and
devalued numerous times. Throughout the post-World War II era,
Paraguay had no personal income tax, and government revenues as a
percentage of GDP were among the lowest in the world.
Despite the sustained economic growth that marked the postwar
period, the distribution of economic benefits was highly
inequitable. Although GDP expanded rapidly in the 1970s, most
economists estimated that income distribution worsened during the
decade. Government spending on social services was particularly
lacking. Paraguay's poverty was mostly a rural phenomenon, which
increasingly involved competition for land in the eastern region
near the Brazilian border, especially in the departments
(administrative divisions) of Alto Paraná, Canendiyú, and Caaguazú
(see
fig. 1). Nonetheless, land tenure was not generally the acute
social problem it was in many developing countries.
Although Paraguay faced significant obstacles to future economic
development, it displayed extraordinary potential. Paraguay
contained little oil and no precious metals or sea coasts, but the
country was self-sufficient in many areas and was endowed with
fertile land, dense forests, and swift rivers. The process of
opening up the eastern border region to economic activity and
continued agricultural expansion was expected to effect rapid
changes in once-isolated Paraguay. Likewise, the development of a
series of hydroelectric plants along the Río Paraná linked Paraguay
to its neighbors and provided it access to cherished energy
resources and badly needed export revenues. Finally, road
construction united different departments of Paraguay and provided
the country its first access to the Atlantic Ocean via Brazil.
These processes of infrastructure development, hydroelectric
expansion, agricultural colonization, and a cash crop explosion
allowed Paraguay by the late 1980s to begin to tap its potential.
Data as of December 1988
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