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Paraguay
Paraguay's economic freedom score is 61,
making its economy the 79th freest in the 2009 Index. Its score increased
by 1 point from last year, reflecting improved investment freedom,
business freedom, and, particularly, trade freedom. Paraguay is ranked
16th out of 29 countries in the South and Central America/Caribbean
region, and its overall score is slightly above the world average.
Paraguay scores above the world average in over half
of the 10 economic freedoms and especially well in fiscal freedom and
government size. The average tariff has been lowered, but non-tariff
barriers still limit trade freedom. Income and corporate tax rates are
competitively low. Inflation is relatively high, but the market sets most
prices. Foreign investors are guaranteed equal treatment.
Paraguay's business freedom, labor freedom, property
rights, and freedom from corruption are weak. Regulations are enforced by
an opaque bureaucracy. The labor market is burdened with rigid rules.
Property rights are poorly protected. Confidential data concerning
regulatory approvals are not safeguarded. Corruption is widespread and
frequently tied to drug trafficking and money laundering.
Background
Since the end of General Alfredo Stroessner's 35-year
rule in 1989, Paraguayans have struggled to introduce democracy. Former
Bishop Fernando Lugo, supported by the left-wing Patriotic Alliance for
Change coalition, was elected president in April 2008, ending more than 50
years of domination by the conservative Colorado Party. Lugo vowed to
support the indigenous population, redistribute land to the poor, and
secure more revenue from the Itaipu Dam, a joint hydroelectric project
with Brazil. Nearly half of all jobs are in agriculture (the major export
earner), unemployment is high, and more than one-third of Paraguayans live
below the poverty line. Improved security cooperation with neighboring
countries and the United States has led to reduced smuggling and closer
scrutiny of suspected Middle Eastern terrorist–supported groups
operating in the tri-border area with Brazil and Argentina.
Business freedom 61.7%
The overall freedom to conduct a business is limited
by Paraguay's regulatory environment. Starting a business takes an average
of 35 days, compared to the world average of 38 days. Obtaining a business
license takes more than the world average of 225 days. Closing a business
can be a lengthy and difficult process.
Trade freedom 83.6%
Paraguay's weighted average tariff rate was 3.2 per
cent in 2006. Cumbersome customs procedures, import bans and restrictions,
import taxes, import fees, weak enforcement of intellectual property
rights, and burdensome labeling requirements add to the cost of trade. Ten
points were deducted from Paraguay's trade freedom score to account for
non-tariff barriers.
Fiscal freedom 96.6%
Paraguay has very low tax rates. Both the top income
tax rate and the top corporate tax rate are 10 per cent. Other taxes
include a value-added tax (VAT) and a property tax. In the most recent
year, overall tax revenue as a percentage of GDP was 12.0 per cent.
Government size 90.4%
Total government expenditures, including consumption
and transfer payments, are low. In the most recent year, government
spending equaled 17.9 per cent of GDP. State-owned enterprises are poorly
managed, and privatisation has been slow and uneven.
Monetary freedom 76.7%
Inflation is relatively high, averaging 8.3 per cent
between 2005 and 2007. Most prices are set in the market, but the
government controls the price of fuel and influences prices through
state-owned enterprises and utilities, including electricity,
telecommunications, transportation, and water. Five points were deducted
from Paraguay's monetary freedom score to account for policies that
distort domestic prices.
Investment freedom 60.0%
Paraguay guarantees equal treatment of foreign
investors, and most sectors are open for private investment. The
government maintains monopolies in rail, oil and gas, cement, electricity,
water, and basic and long-distance land-line telephone services.
Deterrents to investment include an arbitrary and non-transparent judicial
process, corruption, and inadequate infrastructure. Residents and
non-residents may hold foreign exchange accounts. Most payments and
transfers are permitted, except for certain financial-sector transfers.
Capital transactions are subject to minimal restrictions, and there are no
restrictions on the repatriation of capital and profits. Foreign investors
may not purchase land within 50 kilometers of the borders.
Financial freedom 60.0%
Several domestic financial crises have led the
government to restructure the banking sector and improve oversight. Credit
to the private sector has grown since the 2002 credit crunch, and
non-performing loans have gradually declined to less than 3 per cent of
total loans. The banking sector consists of 13 banks, 14 savings and loan
companies, and 24 foreign-exchange companies.
The presence of foreign banks is substantial. The two
largest banks are foreign-owned, and foreign banks control 29 per cent of
assets and 40 per cent of deposits. Capital markets are not fully
developed, and a deeply ingrained tradition of family ownership limits the
potential growth of capital markets.
Property rights 30.0%
Because of widespread judicial corruption, protection
of property is extremely weak. Commercial and civil codes cover bankruptcy
and give priority for claims first to employees, then to the state, and
finally to private creditors. Acquiring title documents for land can take
two years or more. Long recognised as a regional distribution and
Freedom from corruption 24.0%
Corruption is perceived as widespread, but there have
been noteworthy improvements. Paraguay ranks 138th out of 179 countries in
Transparency International's Corruption Perceptions Index for 2007.
Paraguay has a legacy of institutional corruption after decades of
dictatorship. The multibillion-dollar contraband trade that occurs on the
borders with Argentina and Brazil also facilitates money laundering. Weak
institutions impede anti-corruption efforts.
Labour freedom 27.0%
Paraguay's restrictive labour regulations hinder
employment and productivity growth. The non-salary cost of employing a
worker is moderate, but the difficulty of laying off a worker is a
disincentive to additional hiring. Regulations on the number of work hours
remain rigid.
— Courtesy: The Heritage Foundation
Quick Facts
Population
6.0 million
GDP (PPP)
$24.3 billion
4.3% growth
3.0% 5-year compound
annual growth
$4034 per capita
Unemployment
5.6%
Inflation (CPI)
8.1%
FDI Inflow
$130.3 million
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