Report: Country Report Paraguay September 2009 (EIU00555) from ReportBuyer.com

Despite the boost provided by the historic renegotiation of the Itaipu treaty in July, the president, Fernando Lugo, will continue to be undermined by serious tensions with the major parties and with Congress.
Political stability may yet be impaired by social conflict, particularly if Mr? Lugo fails to take advantage of his renewed political capital provided by the Itaipu deal.
The Itaipu deal will help to quell instability on the Paraguay-Brazil border and improve relations between the two countries. This will in turn dampen the likelihood of Paraguay aligning itself more closely with Venezuela.
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.
After slipping into deficit in 2009, we expect the fiscal accounts to record a surplus again in 2010 as the extra Itaipu revenue comes on stream.
Real GDP growth is forecast to contract by 3.5% in 2009, before recovering modestly to 2.5% in 2010.
Despite a strong disinflationary trend, we now expect that inflation will end 2009 at 2% (up from 0.4% in our August report), owing to a sharp rise in food prices in August. We expect inflation to rise to 6.7% by end-2010.

Mr Lugo has refused to sign a democratic pact that commits the executive to respect "representative democracy" as the sole means of citizen participation, despite the fact that the 1992 constitution provides for referendums.
Paraguay and Venezuela have reached an agreement over US$222m in debt owed by Petroleos de Paraguay (Petropar, the state-owned oil company) to Petroleos de Venezuela (PDVSA, the Venezuelan state-owned oil company).
In order to encourage local dollar demand and thus help to stem the rate of appreciation of the local currency, the Central Bank has authorised banks to double their maximum levels of excess holdings of US dollars to US$2m.
Workers' remittances, with Spain and the US providing nearly 90% of the total, have continued to hold up well despite the global recession. Remittances rose by 0.4% in the first half of 2009.
There was no let-up in the contraction in external trade as the export contraction deepened to 45% year on year in July. This follows a contraction of 43% in the second quarter and just 7% in the first quarter.

Source: Country Report

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