|
Paraguay Balance of Payments and Debt
In 1982 Paraguay experienced its first balance-of-payments
deficit in twelve years, which was followed by at least five years
of consecutive deficits. Balance-of-payments deficits were the
direct result of the mushrooming merchandise trade deficit and the
decreased level of private capital investment, both the legacy of
the 1970s, when large surpluses on the capital account more than
made up for current-account deficits. The balance-of-payments
situation became quite fragile in the late 1980s. Expectations of
rectifying the country's international accounts centered around a
reversal of the declining terms of trade, increased electricity
exports, continued devaluations of the guaraní, and renewed capital
inflows associated with Yacyretá.
Chronic deficits on the current account, primarily trade
deficits, were the prime reason for the poor performance of the
country's balance of payments. The nation's trade deficit grew from
US$10 million in 1970 to US$57 million in 1975 and US$527 million
in 1986. Over the same period, debits on the service portion of the
current account were negative but to a lesser extent. Growth in
tourism in particular served to lower the services deficit after
1982. Net transfers played only a minimal role in the current
account.
Large surpluses on the country's capital account offset current
account deficits until 1982, when exports and capital inflows began
to slow. Most capital inflows in the 1970s and 1980s were related
to Itaipú and later Yacyretá, and their special role earned them
separate entries on the balance of payments. Capital account
surpluses in the 1970s and early 1980s increased Paraguay's
international reserves to a high of US$781 million in 1981, or
roughly seven months of imports. The country's largest balance-of-
payments deficit occurred in 1982. This was financed from
accumulated reserves, as were the five years of deficits that
followed. In 1986, during the post-Itaipú recession period,
reserves declined to US$377 million, the equivalent of less than
four months of imports. Unlike many Latin American countries in the
1980s, however, Paraguay had amassed sufficient reserves in the
1970s to finance its balance-of-payments deficits. Paraguay did not
have to draw on IMF or other external resources to weather its
deficits.
Foreign direct investment in Paraguay in the 1970s and 1980s,
the source of capital account surpluses, was mostly in
hydroelectric development, banking, and Law 550 companies. The most
striking feature of foreign investment was the growing dominance of
Brazil, which represented one-fifth of all foreign investment and
72 percent of Latin American investment in Paraguay. The Banco do
Brasil became one of the country's leading creditors, financing 80
percent of Itaipú, 100 percent of the steel company Acepar, and
considerable agribusiness investment in the eastern border region.
West Germany followed Brazil and was particularly involved in
banking and Yacyretá. The United States was the third largest
foreign investor, with a portfolio of banking, petroleum
exploration, and agribusiness. United States capital was dominant
among Law 550 firms. Other major foreign investors included
Argentina, Japan, France, and Italy.
Paraguay weathered the Latin American debt crisis of the 1980s
rather well. As the fastest growing economy in Latin America for
most of the 1970s, Paraguay prospered while many of its neighbors
struggled. Paraguay's debt grew from under US$200 million in 1972
to US$842 million by 1980, but with rapid growth in GDP, debt as a
percentage of GDP remained approximately 15 percent. Unlike many
neighboring economies in the 1970s, which borrowed to compensate
for balance-of-payments deficits or inefficient state-owned
enterprises, Paraguay's minimal lending generally went toward
productive investment in infrastructure, hydroelectricity, and
agriculture. Because Brazil carried the overwhelming share of the
debt burden of Itaipú, even that large investment did not greatly
indebt the country. Furthermore, about 80 percent of Paraguay's
debt was with official creditors, not commercial banks, allowing
for greater flexibility and more favorable terms of loan repayment.
Latin America as a region, by contrast, owed more than 70 percent
of its debt to commercial banks in 1987.
Paraguay's debt, however, grew rapidly in the 1980s, at the
second fastest rate in Latin America. From 1980 to 1987, the
country's indebtedness more than doubled, to roughly US$2 billion.
Because of Paraguay's slow economic growth during that period, debt
as a percentage of GDP spiraled to above 50 percent. Over the same
period, Paraguay's debt-service ratio--total debt-service payments
as a percentage of exports of goods and services--swelled from 19
percent to 37 percent. Paraguay's rapidly growing debt in the 1980s
mirrored that of its neighbors for the first time in the sense that
loans were destined primarily to cover the capital and operating
costs of state-owned enterprises. The central government and stateowned enterprises were responsible for almost equal shares of
nearly 90 percent of the country's external debt in the 1980s. In
1986 the government was unable to make its payments on a debt to
Banco do Brasil; rescheduling this debt blemished Paraguay's
previously untarnished credit rating. In the late 1980s, analysts
expected Paraguay's national indebtedness to grow.
Data as of December 1988
|
