Countries of the World/COUNTRYS.BIN/dp/0281/02816.txt

Text File | 1991-06-25 | 17KB | 280 lines

$Unique_ID{COW02816}
$Pretitle{356}
$Title{Paraguay
Chapter 3E.   External Sector}
$Subtitle{}
$Author{Daniel Seyler}
$Affiliation{HQ, Department of the Army}
$Subject{percent
exports
paraguay
1980s
paraguay's
million
trade
imports
united
capital}
$Date{1987}
$Log{}
Country:     Paraguay
Book:        Paraguay, A Country Study
Author:      Daniel Seyler
Affiliation: HQ, Department of the Army
Date:        1987

Chapter 3E.   External Sector

External Trade

     In the 1980s, Paraguay was a rather open economy, in which foreign trade
played a large role. Registered imports as a percentage of GDP in 1986 were
approximately 28 percent; when unregistered imports were included, however,
that figure exceeded 50 percent, showing the Paraguayan economy to be very
open. With the exception of the Francia regime, international trade had been
an important component of economic activity in Paraguay since independence. In
the 1980s, the composition of trade was essentially the same as it had been
for decades: raw and semiprocessed agricultural exports and imported fuels,
capital goods, and manufactured items. Paraguay's dependence on just a few
exports, mostly soybeans and cotton, made its export base sensitive to weather
conditions and international commodity prices. As a result of low prices for
agricultural exports, poor weather conditions, and an overvalued exchange
rate, which reduced the international competitiveness of the nation's exports,
Paraguay experienced unprecedented trade deficits in the 1980s. A sharp rise
in imports--the legacy of the boom years of the 1970s--also exacerbated
chronic trade deficits that persisted in the late 1980s.

     Import data varied widely, and economists viewed the statistics
cautiously, more as a general barometer than a specific indicator. In 1986
official imports were estimated at US $518 million. Unregistered imports in the
same year were believed to have reached US $380 million, or 42 percent of total
imports. Unregistered trade figures were generally calculated by comparing
Paraguay's official trade data with those of its major trading partners.
Computing the total trade deficit, including estimates for unregistered
imports and exports, the country's trade deficit stood at an unprecedented
US $527 million in 1986 (see table 7, Appendix). Some 62 percent of all imports
were manufactured goods, and 38 percent were primary commodities. Manufactured
products, capital goods, and fuels accounted for 81 percent of all imports.
Food, metals, minerals, and other raw materials made up the balance.

     Government import policies were liberal, characterized by low tariffs and
by import taxes on luxury consumer goods, a significant source of government
revenues. Special import exemptions were extended to certain industries, such
as those established under Law 550 (see Manufacturing, this ch.). The
government's import policies favored import-substitution strategies only where
feasible and favored capital imports to accelerate the capitalization of the
private sector.

     Despite the industrial nature of the country's import basket, most
imports originated from developing countries. Developing countries contributed
approximately 48 percent of imports, followed by industrial countries, with 38
percent, and undisclosed countries, with 14 percent. Registered Brazilian
exports, 28 percent of the market, were more than double those of any other
nation exporting to Paraguay. Considering the brisk smuggling activity along
the border, Brazil was clearly the main economic force influencing Paraguay.
Other major importers, in order of importance, were the United States,
Argentina, Algeria, Japan, Britain, and West Germany. Algerian crude oil was
sometimes bartered for the country's agricultural exports.

     One of the greatest challenges that Paraguay faced in the late 1980s was
controlling its domestic consumption. Imports had swelled in the 1970s at a
time when unprecedented exports and capital inflows offset the negative
consequences of high import levels. These fortunate circumstances were not
present in the subsequent decade.

     Export data also varied and were generally less credible than import
data. Estimates of registered exports in 1986 stood at US $233 million, but
when adjusted for unregistered exports that figure reached US $371 million. The
percentage of illicit exports fluctuated greatly in the 1980s. Analysts
believed that illegal exports represented 37 percent of total exports in 1986,
but that they had made up as much as 89 percent of total exports in 1981.

     The structure of Paraguay's export basket displayed one of the
hemisphere's highest concentrations on a few cash crops. Although Paraguay's
exports were historically all agricultural, they had included a variety of
products, including beef, timber, cash crops, and processed agricultural
goods. That pattern changed in the early 1970s, however, as the price of
soybeans and cotton soared (see Crops, this ch.). The percentage of total
exports attributed to cotton and soybeans rose from 1 percent in 1960 to 6
percent in 1970, 60 percent in 1981, and 63 percent in 1987. Beef, wood,
quebracho, and oilseeds represented a decreasing percentage of exports. The
fragility of the export structure was apparent in the 1980s, as poor weather
conditions and prices greatly hindered the pace of export expansion and
economic growth.

     In contrast to the concentration of products exported, Paraguay
maintained well diversified export markets. Unlike most Latin American
economies, Paraguay exported extensively to European markets and only
marginally to the United States. Trade with Latin America was also vibrant.
Some 55 percent of all the nation's exports went to industrial countries,
particularly members of the EEC. In the late 1980s, the Netherlands, purchaser
of 22 percent of Paraguay's exports, became its number-one recipient of
registered exports, mostly processed oils. Following the Netherlands among
industrialized countries trading with Paraguay were Switzerland (10 percent),
West Germany (5 percent), Belgium and Luxembourg (5 percent), Spain (4
percent), and Italy (4 percent). The United States purchased only 3 percent of
Paraguay's goods in 1986. Developing countries, all in the Western Hemisphere,
received 26 percent of Paraguay's registered exports. Brazil received 15
percent, Argentina 9 percent, and Uruguay 2 percent. These figures, however,
did not include contraband, which, if added, made Brazil the number-one market
overall and Argentina probably the second. Other markets took 19 percent of
exports. Although not recorded in government data, observers believed that in
the mid-1980s Paraguay made limited sales of cotton and grain to the Soviet
Union despite the fact that the countries did not maintain diplomatic
relations.

     Since the first National Economic Plan of 1965, the government's trade
policy had explicitly promoted exports. The extraordinary growth in exports in
the 1970s, and to a limited degree in the 1980s, however, was more the direct
response of Paraguay's free-market economy to international price movements
than the result of government policy. One of the reasons for Paraguay's
declining level of exports after 1982, besides lower prices, was the
government's exchange-rate policies. A five- tiered exchange rate system and
generally overvalued guarani generated less competitive exports and slowed
their expansion. Export taxes and foreign-exchange taxes also discouraged
exports, particularly registered exports. Another growing disincentive for
certain exporters was the Central Bank's Aforo system (see Monetary Policy,
this ch.).

Balance of Payments and Debt

     In 1982 Paraguay experienced its first balance-of-payments deficit in
twelve years, which was followed by at least five years of consecutive
deficits. Balance-of-payments deficits were the direct result of the
mushrooming merchandise trade deficit and the decreased level of private
capital investment, both the legacy of the 197