Whilst President Horacio Cartes has introduced a series of economic and business reforms since his election in 2013, popular opposition to his policies may lead to rollback following the 2018 election. Protest risks will be elevated in Asunción due to an on-going dispute between farmers and the government.
Protest risks in Asunción are elevated as a dispute between the government and smallholder farmers is likely to continue in the coming months. 17,000 farmers are affected by an on-going debt crisis, with farmers’ unions organising protests in the capital to petition for government debt relief. In July 2017, Congress voted for legislation that would pay off farmers’ debts up to a cost of USD 10,000 each. Despite initially supporting the bill, Cartes vetoed it on 4 August 2017, stating that it would cost around 25% of the country’s annual budget. Ensuing protests ended with a police officer being injured after fireworks were thrown by participants. Protests are likely to continue close to government buildings until Congress introduces new legislation to address the debt crisis, with a moderate risk of injury or collateral property damage.
Disputes over land reform continue to be a source of insecurity in Paraguay. Landless peasants stage intermittent occupations of estates, particularly those owned by Brazilian companies in Alto Paraguay, Itapúa and Caaguazú provinces. The Federación Nacional Campesina, which represents landless peasants’ interests, organises an annual protest march in the capital. The most recent march in March 2017 attracted around 1,000 people and occurred without violence, although businesses will face substantial transport disruption during the protest, which can last for a week.
Since his election in 2013, Cartes has implemented a series of economic reforms, including the introduction of a fiscal responsibility law (FRL). The government is likely to abide by the law in 2017, which limits the fiscal deficit at 1.5% of GDP. In the medium term, adherence to the FRL will be supported by strong revenue growth in light of efforts to curb tax avoidance by businesses and a robust agricultural harvest. Revenues grew by 10.3% y-o-y in July 2017. As a result, Paraguay will experience dynamic growth in 2017, estimated at 4%.
However, there are downside economic risks. Cartes’ reforms have been widely unpopular, as evidenced by a series of violent protests following his attempts to amend the constitution in order to seek re-election in 2018. Although these plans have now been abandoned, Cartes’ unpopularity may impede his party’s electoral success. A leftist opposition victory in 2018 would likely result in looser fiscal conditions. The opposition Partido Liberal Radical Auténtico has also threatened not to honour debt issued under the current administration, potentially elevating sovereign credit risks.
The Cartes administration has worked to improve the business environment for investors in infrastructure projects, with Congress approving a bill in October 2013 to establish a public-private partnership (PPP) programme. The programme has attracted initial interest from investors, with 13 PPP projects, valued at USD 2.9 billion, currently in the pipeline. The first PPP contract was signed in March 2017, for a 30-year highway concession. However, investors may be deterred by challenging conditions for the PPP programme, which is unpopular with many Paraguayans opposed to privatisation. In June 2015 labour unions organised a three-day strike to protest against the privatisation of airport services under the PPP programme.
Projects being developed under the PPP programme will also face an elevated risk of contractual agreement repudiation, due to the government’s lack of experience in tendering projects. In June 2017, the Comptroller General reaffirmed its April 2017 decision to invalidate the tender process for the USD 149 million development of Silvio Pettirossi International Airport, which had been granted to Spanish firm Sacyr. It was claimed that vetting procedures were not adequately followed and that paperwork was submitted incorrectly. It is unclear whether the project will now be retendered.
*** In general, insurers have capacity and appetite for Paraguayan risks, depending on the deal.
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