Paraguay--country Economic Memorandum

Book excerpt: Agriculture has been Paraguay's main source of growth since colonial times. Agricultural exports continue to be a major determinant of the rhythm of growth. New sources of growth (commerce, tourism, and construction) were developed in the 1960s. In the 1970s, growth accelerated sharply, with the growth of the agricultural frontier, and more importantly, the construction of Itaipu dam. The sale of surplus hydro-power from Itaipu, and from Yacireta when it is completed, will benefit Paraguay for years to come. The new government has taken a number of strong actions to restore stability, including improving public finances, bringing down inflation, unifying and liberalizing the exchange rate, freeing many interest rates, and initiating a tax reform. A number of structural changes that would continue to contribute towards these goals are advanced in this report. Shifts in agricultural policy to promote a more intensive pattern of development and continued investment in and maintenance of transport infrastructure are essential. Changes in financial sector regulation to reduce the artificial barriers between institutions and to improve financial supervision need attention. Reduction and unification of tariffs, improvements in management of privatizations and joint ventures, and tax reform that lowers rates to collectible levels will prepare Paraguay for the signed MERCOSUR treaty.