Paraguay SERVICES
Asunción during the mid-day siesta
Courtesy Tim Merrill
Financial System
In 1986 the service sector contributed 51.3 percent of GDP. Of
that total, commercial and financial services accounted for 30.3
percent transportation and communications for 4.6 percent, and
other services for 16.4 percent. The latter category included
government services, information services, and toursim.
The nation's financial system had a long history, but it did not
undergo major changes until the rapid growth of the 1970s. Large
increases in investment and accelerated growth brought on the swift
monetization of the economy during the 1970s. National savings
soared, as did the number of financial institutions, making
Paraguay a budding financial center in the Southern Cone. Observers
estimated that total financial activity increased more than sixty
times from 1960 to the mid-1980s. But with the arrival of the 1982
regional recession, bank losses increased markedly, and by 1987
three major American banks had pulled out of the country.
The commercial banks were the most important component of the
financial system after the Central Bank and held a third of the
assets of that system. The commercial banking system in 1988
comprised twenty-two banks with forty-eight offices in Asunción and
forty-seven branches outside the capital. Although Paraguay's
oldest commercial bank was established in 1920, the system's growth
was most pronounced in the second half of the 1970s when seven new
banks were registered. The newer banks that arrived were large,
multinational banks that entered Paraguay to manage the massive
capital investment associated with hydroelectric projects, to
finance rapidly expanding agricultural exports, to participate in
the intense economic activity along the Paraguayan-Brazilian
border, and to take advantage of the liberal banking laws. Three
banks--the Brazilian Banco de Asunción, the Spanish Banco Exterior,
and the American Citibank--held over half of all deposits. Despite
the departure in 1987 of Bank of America, Chase Manhattan, and the
Bank of Boston, Paraguay's commercial banking assets remained
largely in foreign hands.
The National Workers' Bank (Banco Nacional de Trabajadores--BNT)
was the country's only mixed bank, owned 90 percent by contributory
members and 10 percent by the government. Established in 1973, the
BNT was created to serve as a savings and loan, a development bank,
and a provider of a variety of financial services. BNT's clients
were individual workers, unions, federations, artisans, and
cooperatives.
Nonbanking institutions also were part of the burgeoning
financial system. These included finance companies, insurance
companies, and social security institutions. Most of these
financial intermediaries were opened in the 1970s as consumer
savings accumulated. The rapid growth of financial institutions was
epitomized by finance companies, at least twenty-six of which were
opened from 1975 to 1985. Unlike banks, most finance houses were
locally owned. The majority were located in Asunción, but at least
five operated in Eastern Paraguay. Representing approximately 6
percent of the financial system's assets, finance companies
functioned mostly as short- to medium-term lenders for commercial
activity and consumer durables. Some finance companies operated in
conjunction with commercial banks, contrary to banking law.
By the late 1980s, Paraguay had forty insurance companies, the
overwhelming majority of which had been established since 1960 and
were locally owned. Services varied considerably, but the companies
tended to have a marginal role in the financial system. There were
also social security institutions, which offered health and
retirement plans, but only one was in the private sector--a bank
employees' pension program that was an important lender for
mortgages and consumer durables.
The financial system also encompassed an array of development
finance institutions, generally run by the government. Most notable
among these institutions was the BNF, the major lender to
agriculture and a significant provider of credit to industry,
commerce, and livestock activity
(see Farming Technology
, this
ch.). The BNF contained 14 percent of national assets.
The major lender to livestock farmers was the governmentoperated Fondo Ganadero (FG), which also provided technical
assistance to cattle raisers. The FG--established in 1969 with
resources from the United States Agency for International
Development (AID) and the World Bank--provided nearly 70 percent of
the credit issued to livestock activity, usually in the form of
medium- to long-term loans for fixed and working capital. The FG
represented approximately 7 percent of the country's financial
assets.
The Central Bank played an unusually active role in direct
lending through a variety of mechanisms, most notably the Special
Development Fund (Fondo Especial de Desarrollo--FED), which also
was created with AID and World Bank capital. The FED operated two
direct lending programs for rural enterprises and small farmers and
a program for guaranteeing loans to rural enterprises. The FED
accounted for roughly 2 percent of national financial assets.
A more minor government agency was the Agricultural Credit
Agency (Crédito Agrícola de Habilitación--CAH), which had operated
since 1943 providing credit and inputs to small farmers. CAH
comprised only 1 percent of the country's assets.
The government also managed or participated in several other
financial institutions. The most important were those that financed
and mobilized savings for mortgages. Of these, the two major groups
were the National System of Savings and Loans for Housing (Sistema
Nacional de Ahorro y Préstamo para la Vivienda--SNAPV) and the
Paraguayan Institute for Housing and Urban Development (Instituto
Paraguayo de Urbanización y Vivienda--IPVU). The SNAPV was
affiliated with private savings and loans, which together formed
the National Bank of Savings and Loan for Housing (Banco Nacional
de Ahorro y Préstamo para la Vivienda). With 4 percent of the
country's assets, SNAPV served as a major issuer of mortgages. The
IPVU, which contained only 1 percent of assets, fell under the
umbrella of SNAPV activities and specialized in credit for lowincome housing and urban development. The government also oversaw
five public-sector entities that functioned as contributory social
security agencies. These entities generally operated under the
Social Insurance Institute (Instituto de Previsión Social--IPS),
which provided health plans, workers' compensation, and
unemployment insurance through a worker and employer contributory
system.
Data as of December 1988
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