Q: In what areas does Paraguay have opportunities for growth?
A: Paraguay has several very important competitive advantages. The country is a food producer, involving agriculture and cattle-raising. We’re also a clean energy producer; we’re the largest energy exporter in the region. We consume only about 6% of the output of Itaipú [a hydroelectric plant on the border between Paraguay and Brazil] and we’re now in discussion with a foreign company [Rio Tinto Alcan of Canada] over the installation of an aluminium plant, which is very energy-intensive. The [aluminium] project is being studied by an economic team within the government, formed by the finance minister, the central bank governor and the industry, agriculture and public works ministries. It is a signal of the level of interest in the country.
The third advantage that Paraguay has is its low population density: 11 inhabitants per square kilometre.
The country has another very important natural resource: water. The Guarani aquifer [one of the world’s largest sources of fresh water that lies beneath the surface of Argentina, Brazil, Paraguay and Uruguay], which is underground and suitable for human consumption, has hardly been developed at all and has huge strategic value.
This is a country of great inequality but of great [social] integration. We don’t have direct access to the sea, but this is one of the challenges that this government has undertaken: the development of infrastructure and logistics.
Another advantage for Paraguay is being part of Mercosur [a regional trade agreement between Argentina, Brazil, Paraguay and Uruguay]. Paraguay has taken advantage of its membership, although it has its negative sides too. But in the medium to long term, membership of Mercosur offers many advantages and that’s one of the reasons why Rio Tinto Alcan wants to put its plant here: low-cost energy and access to the markets of Brazil and Argentina.
Q: Paraguay has a very low tax/GDP ratio. If this increases, it might create more funds for infrastructure and education. What are the government’s plans?
A: Yes, we have very few fiscal pressures. Our value-added tax is the lowest in South America: 10% against 21% in Argentina, 23% in Uruguay, 19% in Brazil and 18% in Chile. Our corporate profit tax is 10%, while in the region the average is about 30%. We have yet to introduce a personal income tax; we have been trying to do so since 2003, but there is resistance.
Q: Do both Paraguay and its government have a perception problem?
A: Paraguay is not a country that does much promotion of itself abroad. We are a government with a social mission. We have a very high degree of poverty but there are no other restrictions. We work really well with businesses and their associations.
We are trying to eliminate the preconceptions about this government as populist because it has a social mission – this is not a populist government. This government wants to combine social policies with market policies for the sustainable growth of the country.
Companies that are present in Paraguay recognise that this government has improved the security situation. Social spending has increased, much of which has been directed towards the security of the country. Direct investment in security and education are also objectives. We also need to improve the institutions of the state – to ensure that the government, as an institution, works.