Country Report Paraguay February 2010

Outlook for 2010-11

• We do not expect calls by opposition congressmen to impeach Mr Lugo to lead to an impeachment vote; even so, governability is set to remain weak amid simmering government-opposition tensions.
• Political stability is likely to be impaired as Congress continues to block government reforms, which may incite Mr Lugo's supporters to mobilise in street protests against Congress.
• Despite the recent release of a cattle-rancher who had been kidnapped by the Ejercito del Pueblo Paraguayo (EPP) guerrillas, the government will face pressure from wealthy farmers and congressmen to improve security.
• Prospects for advances in Mr Lugo's social reform agenda are poor, and policymaking will be complicated by the challenges of adopting appropriate measures to aid recovery from last year's downturn.
• After moving into deficit in 2010, the fiscal accounts will improve in 2011 as stimulus measures are withdrawn, buoyed also by extra Itaipu revenue.
• After falling by 3.8% in 2009 as drought hit agriculture, a rebound here will lift GDP growth to 5% in 2010 (revised from 4.2% last month owing to indications of a stronger harvest), before easing to 4% in 2011, amid weaker soya prices.

Monthly review

• The release of a cattle-rancher who had been kidnapped by the EPP guerrilla group has temporarily reduced calls for Mr Lugo's impeachment by opposition congressmen, bolstering his standing.
• Mr Lugo reshuffled top officials at Itaipu Binacional, strengthening the influence of leftist groups supporting him and dealing a blow to the Partido Liberal Radical Autentico (PLRA) party that broke ranks with him last July.
• The hitherto deeply fractured leftist parties are uniting ahead of the November 7th municipal elections, which could improve their chances and serve to strengthen Mr Lugo in the second half of his term.
• With the opposition in Congress mobilising to repeal a new personal income tax for high earners, the government is indicating that if this succeeds it would levy a tax on soybean exports to compensate.
• Receipts from an income tax on agricultural activities, introduced as an element of the tax-broadening reforms of 2004, have begun to grow after subsequently introduced exemptions were repealed.
• Although the season is late this year, with only 5% harvested so far (compared with 30% at this time last year), estimates suggest a record soya harvest of around 7m tonnes.

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Kidnapped farmer's release eases Mr Lugo's woes
• The political scene: Shake-up in executive board of Itaipu Binacional
• The political scene: Leftist parties link up for municipal elections
• Economic policy: Opposition lobby seeks to block income tax
• Economic policy: Receipts from a rural land tax begin to grow
• Economic performance: Economic outlook lifted by bumper soybean harvest
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure