Country Report Paraguay June 2009

Outlook for 2009-10

• The political inexperience of the president, Fernando Lugo, who took office in August 2008, and the divisions within his coalition, will become increasingly exposed as he contends with rising social and political tensions.
• The emergence of three paternity claims against Mr Lugo, a former Catholic priest, will further weaken his public position.
• Although the Economist Intelligence Unit's forecast is based on the assumption that Mr Lugo will serve out his term, political stability may be impaired 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 downturn on the domestic economy, and delivering on ambitious campaign promises.
• We expect the fiscal accounts to slip into deficit in the forecast period.
• Real GDP growth is projected to contract by 3.5% in 2009, before recovering modestly to 2.1% in 2010.
• A stronger than anticipated disinflationary trend has prompted us to revise our forecast for year-end inflation in 2009 from 4.2% to 3.1%. We expect inflation to rise to 7% by end-2010.
• We anticipate a narrowing of the current-account deficit in the forecast period and as a result, a less marked currency depreciation in the remainder of 2009.

Monthly review

• A rebel effort to start impeachment proceedings against Mr Lugo failed in May because of a lack of opposition support.
• Relations between the vice-president, Federico Franco, who also controls a faction of Partido Liberal Radical Autentico (PLRA) senators and Mr Lugo remained fractious after a failed reconciliation attempt in April.
• In May the Senate ratified its decision to postpone the introduction of a personal income tax, overturning a presidential veto.
• Fiscal revenue in April reached a new monthly record of G954bn (US$190m), up by 20% year on year. For the first four months of 2009, revenue rose by 8.4% to G2,700bn.
• In spite of the global recession consumer spending has held up well with supermarket and mobile phone sales rising in 2009.
• Inflation has eased at a faster pace than expected, falling to 2% year on year in April 2009.

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