Georgetown Americas Institute

Paraguay stands as the eight largest economy in Latin America and Caribbean. Over the last two decades, the country, whose exports center around agriculture, livestock, and hydropower, has made significant progress in poverty reduction. However, some social problems persist, such as underinvestment in public infrastructure, high unemployment rates for young people, high rates of labor informality, and high vulnerability to the effects of climate change. Fernandez addressed these issues and more in a discussion with Georgetown students and faculty. 

Two Decades of Growth and Stability

Fernandez highlighted the positive story of economic growth that has characterized the country over the last 20 years. In 2002, the country had a debt-to-GDP ratio of 60%, a poverty rate of 50%, double-digit inflation, and a 30% annual depreciation rate. Today, the country has improved significantly, with a 36% debt-to-GDP ratio, a stable currency, and an inflation rate of 3.2%. Social indicators have also improved across the board; the country saw a reduction in total poverty of 2.7% between 2022 and 2023, dropping to 22%.

Fernandez explained that because Paraguayan society has embraced macroeconomic stability as a public good, in 2024 the country is now experiencing the strongest growth performance of any Latin American country. However, he also noted that under President Santiago Peña the current administration intends not just to maintain good credit ratings, but also to ensure that the Paraguayan public is succeeding, especially those in fragile economic and social situations. 

Fernandez stressed that to maintain growth, the government must focus on strengthening human capital. The administration is focused on the country’s youth who will come into the job market over the next decade. In that context the government has launched a new program, funded from transfers from the state hydropower plant, to provide free breakfast, lunch, and afternoon snacks for all Paraguayan students. This is one effort the government is making to secure human capital in the future labor force.

Moving Past Pandemic Restrictions

The minister explained that President Peña’s priority is to recover the fiscal and monetary space used up during the COVID-19 pandemic in order to focus on four areas: health, education, security, and the social safety net. Now that the country has addressed the more urgent needs of the pandemic and post-pandemic periods, Fernandez’s team can now work to address medium-term needs, such as enacting the needed structural changes in the economy. Fernandez expressed that while the public sector will be useful in this goal, sustainable growth rates will only be achieved with the participation of the private sector. 

Food Security and Green Growth

Paraguay has rich, fertile soil that produces significant agricultural output. Because of this, they are contributing to efforts to combat food insecurity, which has become increasingly important in the midst of Russia’s invasion of Ukraine. However, according to Fernandez the country wants to be known for more than just agriculture. 

Paraguay plans to diversify its economy and more effectively use its assets. The country sees itself as a potential hub for green growth due to its significant sources of hydropower. Itaipú, the second largest hydropower dam in the world, is a large producer of clean and renewable energy, allowing the country to sustainably produce 100% of its own electricity needs. 

The minister described the “Green Paraguay” strategy, which is an effort to make the country an example of sustainable, strong, and green economic growth. As an example, he pointed to a new plan to use green hydrogen to create green fertilizer, which would strengthen Paraguay’s role in ensuring food security in Latin America and the Caribbean. Investments have already begun, with a British company, ATOME, pledging $400 million. 

“We have water, we have energy… and with the combination of that we can do something called green hydrogen.” - Carlos Fernandez

Fuel substitutes are another important part of this project, as investments in biofuels have already begun. It is a natural path for the country to explore as it already produces the raw materials needed for biofuels in its agricultural sector, giving it a competitive advantage. The government is also helping the private sector in this new endeavor, as it recently raised the mandatory mix between biofuel and regular fuels from 3% to 5%. The minister shared that in the next few weeks, the government will issue a new decree increasing the maximum mix level to 12%.

Mercosur and the Maquila Regime

Paraguay finds itself in a tough neighborhood marred by political and economic challenges. Though this has historically been the case, the minister noted that in more recent years Paraguay and its neighbors have been working towards greater collaboration, inspired by the success of the Mercosur trade bloc.

Fernandez asserted that one of the greatest advantages of Mercosur for Paraguay is the maquila regime, which is a free trade zone law that allows investors to import goods to be processed, repaired, or assembled within the country before exporting them with a “Made in Paraguay/Mercosur” designation. The regime was introduced in the early 2000s but was not widely adopted until the mid-2010s. Now, total exports from this sector represent 8% of Paraguay’s total exports—$1.2 billion per year—generating about 25,000 jobs. 

Through the maquila regime, Mercosur has given the country access to Brazil, a market of more than 200 million people. Brazilian investors now come to Paraguay and create quality jobs for Paraguayans. The minister described the relationship as a win-win, as it strengthens Paraguay’s labor and consumption markets, allowing the country of 7 million citizens to gain access to a trade bloc with more than 300 million inhabitants. 

During the Q&A portion of the event, students asked questions regarding social indicators in the country, to which Fernandez replied recognizing the regressive and broad impact of inflation on the middle and lower classes and noting that the Central Bank has been acting to control inflation.