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Paraguay: From isolation to globalization
Latinamerica Press / September 14, 1995

By Larry Luxner

ASUNCION -- In the hilarious 1980s comedy "Moon Over Parador," Richard Dreyfus plays an actor forced at gunpoint to impersonate the dictator of a fictitious South American country.

That country, as any astute moviegoer could figure out, was really Paraguay -- with its oppressive bureaucracy, widespread corruption and slave-like devotion to Gen. Alfredo Stroessner, who seized power in 1954 and held onto the presidency for 35 years, longer than any caudillo in the country's sad and violent history.

Today's Paraguay, however, bears little resemblance to Hollywood's Parador. No longer shackled by repression, the landlocked nation of 4.7 million has evolved from one of South America's last dictatorships into a fragile democracy eager to face the world.

"We've seen extraordinary changes since 1992," says Miguel Angel Britos, who heads economic integration efforts at the Paraguayan Foreign Ministry: "We have a new constitution with democratic roots, a freely elected president and a multiparty parliament. Decisions are now taken by consensus and dialogue, not unilaterally. Economically, we have low inflation, a reasonable rate of growth, no fiscal deficit and the lowest external debt in Latin America."

All of this is good news for foreign investors, who for years avoided Paraguay because it was small, impoverished and inaccessible. Indeed, this was one of the few Latin countries without a major U.S. fast-food presence -- but even that's changing. McDonald's is currently scouting around for Paraguayans willing to invest at least $1 million in local franchises, and Burger King plans to establish as many as five restaurants in the Asunción area, starting with an outlet at Silvio Pettirossi (formerly Presidente Stroessner) International Airport.

Clearly, much of the newfound interest in Paraguay stems from its membership in Mercosur. The trade pact allows duty-free movement of products and services between the four member countries, allowing Paraguay, for instance, to export value-added products such as cotton fibers or finished garments to Brazil, without having to pay customs duties or tariffs.

Officials of Pro-Paraguay, an export promotion agency funded by the government, say their office is being flooded by investor inquiries from both Mercosur and non-Mercosur countries. In a recent interview at his Asunción office, Francisco R. Gutierrez, Pro-Paraguay's youthful director, was quick to point out his country's advantages.

"We have a lot of potential: cheap manpower, very low electricity costs, abundant natural resources and a strategic geographic position," he said. "From Asunción, you can be in all three other Mercosur capitals in less than two hours."

Statistics bear him out. According to the World Bank, average factory wages here come to only $242 a month, compared to $626 in Brazil, $825 in Chile, $901 in Uruguay and $1,005 in Argentina. In addition, electricity is quite cheap, given Paraguay's half-ownership (with Brazil) of the Itaipú Dam, the world's largest hydroelectric project. And Paraguay's external debt of $1.25 billion works out to only $285 per inhabitant, the lowest in Latin America.

Furthermore, Paraguay's new president, Juan Carlos Wasmosy, is a no-nonsense leader who welcomes foreign investment. As minister of integration in the transition government of Andres Rodríguez, Wasmosy directed Paraguay's incorporation into Mercosur. As president, he continues to push pro-business policies.

"Wasmosy has been traveling a lot, telling people Paraguay has changed," says Gerald McCulloch, deputy chief of mission at the U.S. Embassy in Asunción. The diplomat praised Wasmosy's recent decision to appoint a new nine-member Supreme Court independent of the executive branch and the long-ruling Colorado Party. "It showed real political savvy on the part of the president, and it certainly follows Wasmosy's efforts to attract foreign investment."

Adds Daniel O. Elicetche, senior partner at Coopers & Lybrand: "The question investors have always asked about Paraguay was, is there justice or not? Now I can say yes. This will give investors -- through an honest, independent judiciary system -- the possibility of contacting an arbiter who will impartially rule on problems they may have in the country."

One area of particular interest is Paraguay's potential for textiles. Already a major cotton grower, Paraguay currently exports $300 million a year worth of fibers, most of it going to Brazil. Up until now, however, 90% of the country's cotton has been exported as raw material, without any value added.

Last year, the Brazilian firm Teka S.A. acquired a Paraguayan textile plant for $19 million and spent another $25 million to increase installed capacity, while the Hering industrial group of São Paulo plans to build a factory with an installed capacity of 20,000 articles of clothing per day, mainly to export T-shirts to Argentina and other markets.

In fact, Brazil is the largest foreign investor in Paraguay, with cumulative investments of $251.2 million in 63 projects. In second place is Argentina, with $131.4 million and 112 projects, followed by Ecuador ($36.5 million in one project) and Italy ($32.7 million in 37 projects.

To boost exports to the U.S. and other countries, Gutierrez says his agency wants to promote six industrial sectors: meat, agribusiness, textiles, wood products, electronics and leather goods. Within agribusiness, yerba mate, a traditional drink popular in Argentina, Uruguay and the Middle East, has major export potential, though coffee -- once an important industry here -- does not.

"We are not working very hard in that sector," he said. "We have to make priorities, and we work only in those sectors where we have the most opportunities."

Along with Mercosur, another buzzword is energizing the Paraguayan economy: privatization. The idea of selling off inefficient state enterprises -- a practice well underway in the rest of Latin America -- has finally taken off in Paraguay, with the successful sale of once-bankrupt Lineas Areas Paraguayas S.A. (LAPSA) to Ecuador's Saeta for $22 million.

Rafael Schwarzman, LAPSA's 34-year-old president, says the government fired the airline's entire 480-member workforce in preparation for the takeover. Since then, 55% of those workers have been hired back.

"We encountered a lot of problems throughout the process," he said. "We still are having things cleared up. The government, on one side, has a promise to privatize state-owned companies, while on the other side, many people are dragging their feet."

At least three more state-owned companies are up for privatization: rum distiller Cañas Paraguayas S.A.; Flota Mercante Paraguaya (FMP), the national merchant marine fleet, and Aceros del Paraguay, a steel plant.

José Maria Espinola Manzoni, director of Paraguay's Privatization Committee, says bids for Cañas Paraguayas will be closed soon, with Argentine, Brazilian and Paraguayan firms all showing interest in the company, worth an estimated $15 million.

FMP, valued at $20 million, has 460 employees and is being pursued by Greek and South American interests. Likewise, Brazilian and Argentine firms have their eye on Aceros del Paraguay, a $70 million operation that employs 1,000 people. But the big prize is Antelco, Paraguay's overstaffed, mismanaged telecommunications monopoly. Espinola says Antelco could easily fetch $500 million, once the Paraguayan government passes a law authorizing its privatization and actually puts the company up for sale.

Sen. Armando Vicente Espinola of the opposition Liberal Party, which is now sponsoring legislation to privatize Antelco, says that only 30% of domestic long-distance calls go through on the first try, and that no new phone lines are available in Asunción -- even for large, multinational companies willing to pay for them. At the moment, Paraguay has only 150,000 lines in service, giving it a teledensity of only 3.3 per 100 inhabitants -- the lowest in South America.

At least four global telecom firms -- including Telefonica de España, EntelChile, AT&T and BellSouth International -- have expressed interest in buying the company, according to Antelco spokesman Pedro M. Duarte. Under terms of Espinola's proposed legislation, 45% of Antelco would be sold to an international firm, 45% to local investors and 10% to the employees.

Regardless of how the deal is structured, concedes Duarte, 99% of Antelco's 7,000 employees oppose a sell-off. Nevertheless, he predicts -- perhaps a bit optimistically -- "if we do it cleanly and transparently, and we present it to the workers that way, I don't think we'll have any problems."

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