Country Report Paraguay January 2009

Outlook for 2009-10

• Recent events, including an escalation of land invasions and an obstructive stance by the opposition in Congress, indicate the significant challenges faced by the president, Fernando Lugo.
• There is a growing risk that Mr Lugo, who has been slow to implement his campaign promises, will struggle to manage the high expectations of those who voted him into power.
• Although the Economist Intelligence Unit's forecast is based on the assumption that Mr Lugo will serve out his term, political stability may be affected by increased social conflict.
• Policymaking will be complicated by the double challenge of adopting the appropriate measures to limit the negative impact of the global financial crisis on the domestic economy, and advancing Mr Lugo's reform agenda.
• We have revised down our growth estimate for 2008 and forecast for 2009-10 as our expectations for global economic performance deteriorated further.
• Easing inflationary pressures and a sharp downward revision to our forecast for the oil price in 2009 led us to revise down our inflation forecast further.
• The current account is expected to slip back into deficit in 2008, following six consecutive years of surpluses, and will remain in the red in 2009-10.

Monthly review

• Although Mr Lugo continues to enjoy high popularity ratings, the political scene remains marred by a climate of impending social conflict.
• Paraguay's powerful commercial farmers and cattle-ranchers carried out a two-day national-wide protest against plans for land reform.
• The government's difficulties have strengthened the opposition, which has blocked attempts to reform the judiciary, while negotiations over the revision of the Itaipu Treaty with Brazil remained stalled.
• Central government fiscal revenue continued to grow apace in September, while capital spending (which includes public investment) fell, resulting in a widening of the fiscal surplus.
• Following a period of strong growth, mainly in the first half of 2008, economic activity decelerated markedly in August and September, with growth slowing across all the main economic sectors.
• Declining oil prices have contributed to keep inflation under control.
• The possible approval of tougher legislation by Brazil on imports from Ciudad del Este represents a threat to Paraguay's main free-trade zone..

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52