Paraguay

 The official name of Paraguay is República del Paraguay. Paraguay is situated in the center of South America and is a landlocked country between Argentina, Brazil and Bolivia. With a total area of 406.750 km² Paraguay is about 10 times as big as the Netherlands and one of the smallest countries of South America. (www.cia.gov)

 
The Río Paraguay is the third largest river in the western hemisphere and divides the country into two unequal parts. To the west of the river is the Chaco which makes up nearly 60% of the country’s area. It is an infertile and sparsely populated track of land. To the east of the river is a well-watered, elevated plateau of grasslands. The population is concentrated in the southern part of the country. (www.lonelyplanet.com)

 
The climate in Paraguay diverges from west to east. In general, Paraguay has a subtropical to tropical climate. Therefore, Paraguay belongs to the warmer regions in South-America. The summer season is from September till April. This is also the period when it rains the most. The amount of precipitation increases from west to east. The average temperature in a year varies from 26°C in the north till 21°C in the south. Because of the nearness of frigid and tropical zones, the fluctuation in temperature can be big, especially during summer. On average the sun shines 310 days a year. (www.landenweb.com)

 
The capital of Paraguay is Asunción. A population of 546,800 makes it the largest city of Paraguay. In the Asuncion’s conurbation life even more then a million inhabitants. (www.countrywatch.com) In 2003 Paraguay had an estimated population of around 6 million. Hereby, a comment needs to be placed because Paraguay does not have an official number of inhabitants. Most children in rural areas are not registered. Most estimates affect 2002 and vary from 5,5 to 6 million inhabitants.

The expected population growth is 2,54%. The age structure is typical for a developing country with a young population. Almost 40% of the population is under the age of 14. This is reflected in the average age, which is 20.9 years. In table 1 the percentages of the composition of the population are mentioned. (www.cia.gov)

 
Table 1 Age structure

Source: www.cia.gov

The original inhabitants of eastern Paraguay were the semi-nomadic Guaraní. Several hunter-gatherer groups, known as Guaycurú, populated the Chaco. (www.lonelyplanet.com) At the moment 95% of the population is mestizo (mixed Spanish and Amerindian). The remaining 5% of the population are whites and Amerindian.

Paraguay is officially a bilingual country, the official languages are Spanish and Guaraní. Guaraní is still spoken by almost 90% of the population. (www.cia.gov)

2.1       History

Pedro de Mendoza was the founder of Asunción and settled his expedition. The colony flourished and became the centre of Spanish settlement in south-eastern South America. The native Guaraní Indian population gradually absorbed the Spaniards, who in turn adopted Guaraní food, language and customs. Over time, a Spanish-Guaraní society emerged, with Spaniards dominating politically, and the mestizo offspring adopting Spanish cultural values.

In 1811, Paraguay declared independence from Spain. Within a few years it was under the regime of José Gaspar Rodríguez de Francia, who had an aversion to foreigners. He sealed the country’s borders, promoted a policy of self-sufficiency and expropriated the properties of landowners, merchants and the Church. His successor was Carlos Antonio López in 1840, who ended Paraguay’s isolation and began modernization. Unfortunately he had a son who set about destroying the country by starting the catastrophic War of the Triple Alliance (1864-1870) against Argentina, Uruguay and Brazil. At the end of this war, Paraguay had lost over 150.000 km² of territory and almost a quarter of its population. After the war, Paraguay’s agricultural sector was rebuilt by a new wave of European and Argentine immigrants, but political instability continued.

In 1932, another war started against Bolivia, called the Chaco War. The reason for this war was the prospect of vast deposits of oil in the region (which proved non-existent). The Bolivian army was pushed out of most of the Chaco and the following treaty awarded Paraguay three-quarters of the territory. The war ended in 1935.

In the following years the Paraguayan politics became even more turbulent, until a brief civil war brought the Colorado Party into power in 1949.

A military coup in 1954 saw General Alfredo Stroessner installed as president. Stroessner employed torture, murder, political purges and bogus elections to remain in power for the next 35 years. The dictator was overthrown in 1989 and was replaced by General Andrés Rodríguez. Under his authority the country’s state of emergency was cancelled, censorship was eliminated, opposition parties were legalized and political prisoners released. In the next years Paraguay enjoyed increasing political stability. In 1993, the first democratic parliament elections were held and Juan Carlos Wasmosy became president. In the following years the political situation became turbulent again. (www.lonelyplanet.com)

In May 2003, the current president Nicanor Duarte Frutos was elected democratically. At the moment the political situation in Paraguay is stable.

2.2       Economy

Paraguay has a market economy marked by a large informal sector. The informal sector features:

- Reexport of imported consumer goods or “smuggling” to neighboring countries,.

- The activities of thousands of micro enterprises and urban street vendors.

Although the importance of the informal sector, accurate economic measures are difficult to obtain. (www.cia.gov)

The currency in Paraguay is the guaraní (PYG). Like every currency, the exchange rates constantly change. When looked at 2003 and 2004 the average exchange rates were:

Table 2 Exchange rate of the dollar and Euro

Source: www.hacienda.gov.py/set/

 
The dollar also takes an important place in the Paraguayan economy. The prices for many products are still given in US dollars. This happens often with more expensive products or imported products like computers, cars, fertilizers, pesticides, etc..

In the last few years the inflation decreased. In 2002 the inflation was 14,6% compared to 9,3% in 2003. In the first six months of 2004 the inflation reached 1,9%. In comparison, the inflation in the first six months of 2003 was 5,5%. (Economía, 2004, p.13)

In 2001, the estimated population that lived below the poverty line was 36%. In 1998, the household income or consumption for Paraguay was as followed, the lowest 10% have 0,5% to spend and the highest 10% 43,8%. (www.cia.gov)

The GNI (Gross National Income) amounted to $ 6.4 billion in 2002, meaning a GNI per capita of $ 1.170. When looked at the previous years (1998 and 2001) it can be seen that the GNI per capita decreased. In 1998, the GNI per capita reached $ 1.810 and in 2001 just $ 1.380.

In 2002, the GDP (Gross Domestic Product) amounted $ 5.5 billion. Compared with 2001 the GDP dropped with 2,3%. The GDP of the sectors, agriculture, industry and services are composed as followed:

Agriculture       22.4%

Industry           28.8%

Services          48.8%

(www.worldbank.org)

 
One of the main problems for the development of the economy in Paraguay is the poor infrastructure. The total length of the highway in Paraguay is 29.500 kilometer, of which almost 15.000 km is paved. A good example of the poor infrastructure is the missing highway to Bolivia and Chili.

The waterways are important for the economy. The harbor of Asunción is accessible for large ships by the Río Paraguay and the Río Paraná. This is important for the export to Argentine and the rest of the world. Those rivers are also important for inland navigation. (www.landenweb.com)

2.2.1    Export and Import

In Paraguay almost no natural resources can be found. This means that many products must be imported, not only goods but, also raw materials to produce products. On the other hand the export of especially agriculture products is of great important to the economy.

Important export products are soya, cereals, cotton, meat, sugar and electricity. The exports reached $ 2 billion f.o.b. in 2002. The important export partners are situated in the MERCOSUR but also Chile is an important partner. When looked at the imported goods vehicles, consumer goods, tobacco, petroleum products and electrical machinery are important. In this, the MERCOSUR also plays an import role. Major trade partners are Brazil, Argentina, USA and China. The imports reached $ 2,4 billion f.o.b. in 2002. (www.cia.gov)

In association with Brazil the hydro-electric Itaipú Dam was built. With a capacity of almost 45 billion kWh a year it is the biggest hydro-electric power station in the world. This makes Paraguay the largest exporter of electricity worldwide. Most of the electricity is exported to Brazil. (www.landenweb.com)

2.2.2    Agriculture

A large percentage of the population derives their living from agricultural activities, often on substantial bases.

At the moment the agriculture in Paraguay is growing. Almost every crop increased its production volume compared to 2002. There will be a total production of 15 million ton in 2003. Table 3 gives an overview of the most important products cultivated and produced in the last two years.

Table 3 Production in 2002/2003 and 2003/2004 in tons,

Source: La zafra 2004 promete más, 2004, p.14

 
The GDP of the primary sector is built up from the GDP for agriculture and the GDP for livestock. The GDP for agriculture rose from -0,2% in 2002 till 12% in 2003. The increasing of the GDP for agriculture is particularly achieved by soya and cotton, which grew respectively 28% and 38% in production volume. But also other crops like sugar, rice and maize grew in production volume. (12% creció el sector agrícola, 2004, p.16-18) On the other hand the GDP for livestock decreased from -0,6% in 2002 to -7% in 2003. Main reason was the outbreak of foot and mouth disease in October 2002, causing important markets to close their borders for the Paraguayan meat. The alternative countries that were found, did not pay the same price for the meat. (El traspie pecuario, 2004, p.24-25)

In 2003 the GDP for agriculture was 12% and the GDP for livestock decreased till -7%. For the GDP of the primary sector this meant that overall it will grow till 5,6%, while it was -0,9 in 2002.

 
In the past 1,5 year farming waas quiet unstable in Paraguay. The main reason is described below. In the past year there were several invasions at estancias. In Paraguay a common way of farming is slash and burn. This is especially popular among small farmers. Problem for those people is, that there is not almost any forest left. To continue their way of farming they need new woods. Most large estancias still have a number of reserve hectares with wood. Incidental problem is the manner of the government, which did not take sides in this problem for a long time. In the beginning of November 2004 the government has decided to undo the invasions and take firm actions against small farmers invading private territory.

Since the beginning of 2005 the invasions have been ended. The police have cleared the grounds and at the moment the situation looks settled.

 
The case mentioned above provides an unstable environment for the agriculture and is one of the reasons why investments are lower. In the next chapter the specific threats and opportunities for cattle breeding as well as soya cultivation will be examined.

2.2.3    Membership

Paraguay is a member of the following organizations:

·         WTO (World Trade Organization)

·         MERCOSUR

The MERCOSUR stands for MERcado COmún del SUR, the common market of the south. The participating countries are Argentina, Brazil, Paraguay and Uruguay. It is a convention that stimulates the integration of the economy between these countries. The formation of a Common Market is a response to the consolidation of big economic spaces in the world and the necessity to achieve an adequate international insertion. (www.guia-mercosur.com)