1. NS4540 Winter Term 2019 Paraguayan Economy
Europa brazil economy

2. Overview
Robert Looney, “Is the Surprising Boom Sustainable? Milken Institute Review April, 2017
Despite its past problems, Paraguay, along with Bolivia stand out as the two bright spots in the IMF’s October 2016 outlook
In recent years the country has seen a sudden surge in economic performance.
Growth
Accelerated from 0.2% ( ) to 4.6% ( )
For well ahead of 3.1% for Latin America as a whole

3. Recent Growth

4. Causes of Higher Growth I
Easier to say what didn’t cause the growth acceleration
Not a classic Rostow take-off precipitated by a sudden surge in investment
Investment as a share of GDP fell from 18.4% in to 16.2% during
There has been no sudden acceleration in the country’s TFP, the main component of many economic upturns
Paraguay’s score on the WEF Competitive Index has shown only slight improvement
Not caused by sudden improvement in governance
Country has back slid in key governance indicators such as control over corruption, and the rule of law
Nor have any sweeping economic reforms taken place
Although trade freedom has improved in recent years

5. Causes of Higher Growth II
Nor can the sudden acceleration in growth be explained by short-term factors often associated with boom/bust cycles
Paraguay has no oil or other key minerals
No run-up in debt and government expenditures
Paraguay is the model for fiscal prudence
One final possibility is outsourcing for Brazilian firms, but this has only come on the scene in recent years

6. Soy Model I
Instead, Paraguay’s growth has been largely rooted in agriculture
Over last several decades Paraguay as expanded to become the world’s fourth largest producer of soy
Massive transformation of agricultural sector from traditional activities to large scale commercial farming
Called the “Soy Model”
Should be strong demand for soy in the future, so the country’s future would appear bright
Question though is this model sustainable?
Most forecasts expect soy demand to double by 2050, so no problem on the demand side.

7. Soy Model II
While soy production has not generated many linkages with other sectors, expanded banking, communications, and construction have be positively effected
Different story on the supply side
Until 1970s Paraguay’s agriculture consisted of traditional crops – cattle, cotton, tobacco, Yerba mate
Largely produced on small independent farms
With the introduction of soy, fundamental changes took place.
Many of the new farms were established by Brazilian farmer-settlers
Began assimilating and displacing smaller farms

8. Soy Model III
Paraguay now has the most unequal land distribution in Latin America
Eighty percent of fertile land is owned by one percent of the landowners
Eighty three percent of small farms control six percent of the land.
Estimates show that small farms are actually more efficient
Many of those displaced have drifted into urban poverty
Brazilian farmers claim they bought-up or displaced small scale farmers who did not have the resources or political support to survive in the new environment
Small farmers claim they were forced of the land
Insurgent group the Paraguayan People’s Army (EPP) has taken up the displaced farmer cause with attacks on the large plantations

9. Assessment Even assuming these conflicts can be contained
There is limited land for future expansion for soy cultivation
Increasing yield per acre is problematic under the current system of factory farming
Land reform a possible solution but a non starter with the government
Other option for sustaining growth is to expand Paraguay as a site for outsourcing
Cheap labor is making them the “China of Latin America” for assembly operations
To continue down this road, government will have to address the country’s deficient infrastructure and school system,