Peña presses on as Paraguay outperforms

This year Paraguay is marking the 100th anniversary of the birth of one of its most famous writers, Augusto Roa Bastos, who once described his landlocked country as: “An island surrounded by land”. The small Latin American country, with a population below 7 million, has long been overshadowed by its large neighbours of Argentina and Brazil.

Paraguay’s finance minister Santiago Peña remembers attending a lecture on Latin America by economist Jeffrey Sachs as a post-graduate at Columbia University. He says Sachs’s lecture covered all of the Latin American countries before closing with the briefest remarks about Paraguay: “About which he said he wouldn’t give any details because he simply didn’t know any. So you can either get upset about that or you can try to reverse this”.

The country has been attempting the latter. It re-entered the international markets in 2013 with a $500 million 10-year bond and has been a regular issuer since (including a $1 billion 30-year benchmark in August 2014). Its last deal was another $500 million 10-year bond in March 2016 that priced at par to yield 5%.

Peña says the sovereign will issue another deal – probably around $550 million – soon. The country has ambitious infrastructure plans and low debt-to-GDP so international debt makes sense, but there is also a big secondary motive to these transactions. “The bond issues are not only about getting financing but forcing investors to look at the country. All of a sudden they see we have had the second-highest growth out of 33 south American countries in the past five years.”

Paraguay’s ability to hit an average growth rate of 4.2% in the last five years is all the more remarkable because of the severe recession in Brazil and negative growth in Argentina. In the past, Paraguay’s economic success – or lack thereof – was simply a derivative of the growth rates of these two countries.

Paraguay’s ability to de-link its economy and differentiate its performance in the eyes of international investors has been achieved through its strongly pro-business tax and regulation burdens and its model of free trade in an open economy.

The Inter-American Development Bank has endorsed the economy’s progress and is holding its annual meetings in Asunción at the end of March. Peña says the return of the conference after 52 years is testament to the country’s strong recent economic performance. He also says the success in attracting the prestigious international event is as important for demonstrating to the domestic population the advantages of integrating into the international economy as promoting Paraguay’s advantages to the international audience.

“Paraguay is lagging behind most of the countries in the region,” says Peña. “We are where Chile was 20 years ago and Colombia and Peru were about 10 years ago. The question is will it take Paraguay 10 years to become what Peru is today or can we speed up that conversion? And the good news is that we can incorporate the experience of those countries to avoid going through the problems they went through.”

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