Front Matter Page
© 2008 International Monetary Fund
June 2008
IMF Country Report No. 08/180
Paraguay: Fifth Review Under the Stand-By Arrangement—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Paraguay
In the context of the fifth review under the Stand-By Arrangement with Paraguay, the following documents have been released and are included in this package:
The staff report for the First Review Under the Stand-By Arrangement, prepared by a staff team of the IMF, following discussions that ended on December 12, 2007, with the officials of Paraguay on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 18, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A Press Release summarizing the views of the Executive Board as expressed during its March 28, 2008 discussion of the staff report that completed the review.
A statement by the Executive Director for Paraguay.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Paraguay*
Memorandum of Economic and Financial Policies by the authorities of Paraguay*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
PARAGUAY
Fifth Review Under the Stand-By Arrangement
Prepared by the Western Hemisphere Department
(In consultation with other departments)
Approved by José Fajgenbaum and Matthew Fisher
March 18, 2008
Front Matter Page
Executive Summary
Arrangement. A 27-month Stand-By Arrangement (SBA) for SDR 65 million (or 65 percent of quota) was approved by the Executive Board on May 31, 2006 (expiring in August 2008). A reduction in access to SDR 30 million was approved during the fourth review, which was completed on October 15, 2007. The authorities continue treating the arrangement as precautionary.
2007 Developments. The economy is estimated to have grown almost 6½ percent, driven by dynamic exports. After a period of falling prices, inflation rebounded in the second half of the year, mostly due to food supply shocks, and headline inflation ended at 6 percent. Fiscal discipline has been preserved despite intense expenditure pressures. Monetary policy switched to a tightening phase in response to price pressures, and the currency was allowed to appreciate. Reserves rose to US$2½ billion at year-end.
Review. The program remains on track. All performance criteria for end-September and end-December 2007 were observed. With three exceptions, all structural measure for end-September and end-December 2007 were observed.
2008 Program. The macroeconomic objectives for 2008 are to achieve a real GDP growth of 4 to 5½ percent and an inflation rate of 5 percent (within the range of ± 2½ percentage points). Despite approval of an expansionary 2008 budget, the authorities have designed a financial plan that aims at overall fiscal balance. Monetary policy will anchor expectations by limiting currency growth and pursuing a policy of no Central Bank credit expansion, while accumulating at least US$100 million in international reserves. The reform agenda is parsimonious, but includes measures in all the reform pillars.
Discussions. These took place from November 28 to December 12, 2007. The mission met with Central Bank President Rojas, Finance Minister Barreto, Industry Minister Ibarra, Education Minister Jimenez, Deputy Finance Minister Alarcon, senior government officials, representatives of the banking community, and the private sector. The staff team consisted of A. Santos (head), M. Mlachila, B. Monfort (all WHD), B. Barkbu (PDR), A. Lemgruber (FAD) and J. Gasha (MCM). The mission was assisted by T. Roy, the Fund’s resident representative in Asunción, and it liaised with World Bank and IDB staff. Mr. J. Maciel (OED) participated in the meetings.
Appraisal. Staff supports completion of the fifth review given the strong performance.
List of Acronyms
| ANDE |
National Electricity Company |
| BCP |
Central Bank of Paraguay |
| BCPEBS |
Basel Core Principles of Effective Banking Supervision |
| BNF |
National Development Bank |
| CADEF |
Ranking of Financial Institutions |
| CAR |
Capital Adequacy Ratio |
| CCT |
Conditional Cash Transfer |
| COPACO |
Public Telephone Company |
| DSA |
Debt Sustainability Analysis |
| ESSAP |
Public Water and Sewage Company |
| FAD |
Fiscal Affairs Department |
| FSAP |
Financial Sector Assessment Program |
| GDP |
Gross Domestic Product |
| GNFS |
Good and Nonfactor Services |
| IDB |
Inter-American Development Bank |
| INC |
National Cement Company |
| INCOOP |
National Institute of Cooperatives |
| IPS |
Social Security System |
| LEG |
Legal Department |
| LOI |
Letter of Intent |
| LRM |
Central Bank Bills |
| MCM |
Monetary and Capital Markets Department |
| MEFP |
Memorandum of Economic and Financial Policies |
| NDA |
Net Domestic Assets |
| NFPS |
Non-Financial Public Sector |
| NIR |
Net International Reserves |
| NPL |
Nonperforming Loans |
| PC |
Performance Criteria |
| PDR |
Policy Development and Review Department |
| PFM |
Public Financial Management |
| PETROPAR |
Public Petroleum Company |
| ROSC |
Report on the Observance of Standards and Codes |
| SAS |
Undersecretary of Social Action |
| SB |
Structural Benchmark |
| SBA |
Stand-By Arrangement |
| SDR |
Special Drawing Rights |
| TMU |
Technical Memorandum of Understanding |
| VAT |
Value Added Tax |
| WB |
World Bank |
| WHD |
Western Hemisphere Department |
Contents
Executive Summary
I. Developments in 2007/08
II. Performance under the 2007 Program
III. Outlook
IV. Policy Discussions and the 2008 Program
A. Policy Framework
B. Fiscal Policy
C. Monetary Policy
D. External Policy
E. Structural Policies
V. Staff Appraisal
Text Boxes
1. Inflationary Pressures
2. Reforming State-Owned Enterprises (SOE)
3. Strategy to Improve Investment Climate
Tables
1. Quantitative Performance Criteria
2. Structural Conditionality Under the Program
3. Selected Economic and Social Indicators
4. Central Government Operations
5. Consolidated Public Sector Operations
6. Summary Accounts of the Central Bank, 2003-08
7. Summary Accounts of the Banking System, 2003-08
8. Banking System Indicators
9. Balance of Payments
10. Indicators of External Vulnerability
11. Schedule of Reviews and Purchases
12. Medium-Term Scenario
Figures
1. Real Sector Developments
2. Fiscal Developments
3. Monetary Developments
4. Financial System Developments
5. Balance of Payments Developments
6. Program Performance
Appendices
1. Letter of Intent
2. Memorandum of Economic and Financial Policies
3. Technical Memorandum of Understanding
Annexes
1. Fund Relations
2. World Bank Relations
3. Inter-American Development Bank Relations
4. Statistical Issues
5. Work Program
Front Matter Page
Press Release No.08/65
FOR IMMEDIATE RELEASE
March 28, 2008
International Monetary Fund
Washington, D.C. 20431 USA
Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org
Front Matter Page
March 28, 2008
