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Paraguay EXTERNAL SECTOR
External Trade
In the 1980s, Paraguay was a rather open economy, in which
foreign trade played a large role. Registered imports as a
percentage of GDP in 1986 were approximately 28 percent; when
unregistered imports were included, however, that figure exceeded
50 percent, showing the Paraguayan economy to be very open. With
the exception of the Francia regime, international trade had been
an important component of economic activity in Paraguay since
independence. In the 1980s, the composition of trade was
essentially the same as it had been for decades: raw and
semiprocessed agricultural exports and imported fuels, capital
goods, and manufactured items. Paraguay's dependence on just a few
exports, mostly soybeans and cotton, made its export base sensitive
to weather conditions and international commodity prices. As a
result of low prices for agricultural exports, poor weather
conditions, and an overvalued exchange rate, which reduced the
international competitiveness of the nation's exports, Paraguay
experienced unprecedented trade deficits in the 1980s. A sharp rise
in imports--the legacy of the boom years of the 1970s--also
exacerbated chronic trade deficits that persisted in the late
1980s.
Import data varied widely, and economists viewed the statistics
cautiously, more as a general barometer than a specific indicator.
In 1986 official imports were estimated at US$518 million.
Unregistered imports in the same year were believed to have reached
US$380 million, or 42 percent of total imports. Unregistered trade
figure were generally calculated by comparing Paraguay's official
trade data with those of its major trading partners. Computing the
total trade deficit, including estimates for unregistered imports
and exports, the country's trade deficit stood at an unprecedented
US$527 million in 1986 (see
table 7, Appendix). Some 62 percent of
all imports were manufactured goods, and 38 percent were primary
commodities. Manufactured products, capital goods, and fuels
accounted for 81 percent of all imports. Food, metals, minerals,
and other raw materials made up the balance.
Government import policies were liberal, characterized by low
tariffs and by import taxes on luxury consumer goods, a significant
source of government revenues. Special import exemptions were
extended to certain industries, such as those established under Law
550
(see Manufacturing
, this ch.). The government's import policies
favored import-substitution strategies only where feasible and
favored capital imports to accelerate the capitalization of the
private sector.
Despite the industrial nature of the country's import basket,
most imports originated from developing countries. Developing
countries contributed approximately 48 percent of imports, followed
by industrial countries, with 38 percent, and undisclosed
countries, with 14 percent. Registered Brazilian exports, 28
percent of the market, were more than double those of any other
nation exporting to Paraguay. Considering the brisk smuggling
activity along the border, Brazil was clearly the main economic
force influencing Paraguay. Other major importers, in order of
importance, were the United States, Argentina, Algeria, Japan,
Britain, and West Germany. Algerian crude oil was sometimes
bartered for the country's agricultural exports.
One of the greatest challenges that Paraguay faced in the late
1980s was controlling its domestic consumption. Imports had swelled
in the 1970s at a time when unprecedented exports and capital
inflows offset the negative consequences of high import levels.
These fortunate circumstances were not present in the subsequent
decade.
Export data also varied and were generally less credible than
import data. Estimates of registered exports in 1986 stood at
US$233 million, but when adjusted for unregistered exports that
figure reached US$371 million. The percentage of illicit exports
fluctuated greatly in the 1980s. Analysts believed that illegal
exports represented 37 percent of total exports in 1986, but that
they had made up as much as 89 percent of total exports in 1981.
The structure of Paraguay's export basket displayed one of the
hemisphere's highest concentrations on a few cash crops. Although
Paraguay's exports were historically all agricultural, they had
included a variety of products, including beef, timber, cash crops,
and processed agricultural goods. That pattern changed in the early
1970s, however, as the price of soybeans and cotton soared
(see Crops
, this ch.). The percentage of total exports attributed to
cotton and soybeans rose from 1 percent in 1960 to 6 percent in
1970, 60 percent in 1981, and 63 percent in 1987. Beef, wood,
quebracho, and oilseeds represented a decreasing percentage of
exports. The fragility of the export structure was apparent in the
1980s, as poor weather conditions and prices greatly hindered the
pace of export expansion and economic growth.
In contrast to the concentration of products exported, Paraguay
maintained well diversified export markets. Unlike most Latin
American economies, Paraguay exported extensively to European
markets and only marginally to the United States. Trade with Latin
America was also vibrant. Some 55 percent of all the nation's
exports went to industrial countries, particularly members of the
EEC. In the late 1980s, the Netherlands, purchaser of 22 percent of
Paraguay's exports, became its number-one recipient of registered
exports, mostly processed oils. Following the Netherlands among
industrialized countries trading with Paraguay were Switzerland (10
percent), West Germany (5 percent), Belgium and Luxembourg (5
percent), Spain (4 percent), and Italy (4 percent). The United
States purchased only 3 percent of Paraguay's goods in 1986.
Developing countries, all in the Western Hemisphere, received 26
percent of Paraguay's registered exports. Brazil received 15
percent, Argentina 9 percent, and Uruguay 2 percent. These figures,
however, did not include contraband, which, if added, made Brazil
the number-one market overall and Argentina probably the second.
Other markets took 19 percent of exports. Although not recorded in
government data, observers believed that in the mid-1980s Paraguay
made limited sales of cotton and grain to the Soviet Union despite
the fact that the countries did not maintain diplomatic relations.
Since the first National Economic Plan of 1965, the government's
trade policy had explicitly promoted exports. The extraordinary
growth in exports in the 1970s, and to a limited degree in the
1980s, however, was more the direct response of Paraguay's freemarket economy to international price movements than the result of
government policy. One of the reasons for Paraguay's declining
level of exports after 1982, besides lower prices, was the
government's exchange-rate policies. A five-tiered exchange rate
system and generally overvalued guaraní generated less competitive
exports and slowed their expansion. Export taxes and foreignexchange taxes also discouraged exports, particularly registered
exports. Another growing disincentive for certain exporters was the
Central Bank's Aforo system
(see Monetary Policy
, this ch.).
Data as of December 1988
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