Paraguay's finance minister enjoys diversity dividend

Q: Paraguay enjoyed an economic growth rate of 4% in 2016 and executed a successful sovereign debt issuance the same year. How is the country managing to weather the spillover effects of economic turbulence in its larger neighbours such as Argentina and Brazil?

A: Usually it has been the case that whenever Argentina or Brazil were doing badly, we were doing very badly. But for the first time in our economic history, we are [working separately to these countries]. Paraguay has had 15 years of macro stability [in which] we managed to grasp that there are some macro fundamentals we cannot mess with.

In 2013, there was a 40% decline in commodity prices which hit all Latin American countries badly, but in Paraguay we had diversified our economy. In what used to be an economy primarily based on agricultural commodities, we are now igniting two important alternative sources of growth: construction and industries. These two sectors [and the capital within them] were the driving forces that kept us going over this period, despite what was happening to our neighbours.

But we cannot say we were not affected. We were affected in terms of tax revenues coming from import taxes. That declined significantly and affected our budget and our capacity to make investments from the government side.

Q: In the wake of the global commodities downturn, how was Paraguay’s government able to continue investing in infrastructure and public services?  

A: We were able to use countercyclical fiscal policy to push investment in difficult times. Given the very wide gap in terms of Paraguay’s infrastructure relative to the region, we use that weakness and transform it into a strength. We started making many infrastructure investments and we were also able to save, thanks to the import laws passed in 2014. One is the fiscal responsibility law, one is the transparency law. The transparency law increased the information available to the public. That allowed us to clean up the budget and improve the way we are spending money.

When people see exactly how you are using resources, you have to start behaving much better. That process is fantastic, and very positive for the country. That allowed us to generate enormous savings, which we redirected to areas of priority, such as social programmes and so on. But the most important force has been the 15 years of stability, which we could build on and achieve diversification.

Q: As the first female finance minister in Paraguay, what programmes are you pursuing that foster inclusive growth, specifically for women and mothers? How can this play a role in improving people’s livelihoods?  

A: I am relatively new [in this position], but we are trying to continue the policies we are already implementing. Paraguay is working [on this] in many areas. One is looking at daycare as a policy: offering public, high-quality daycare to mothers. It is not a Ministry of Finance project, it is a multi-sector project of which we are a part. But we are hoping that it will soon be a reality for Paraguay as that will enable many women to leave their children in good hands [and earn money]. So we are building high-quality human capital, but at the same time, women have the peace of mind to go work and earn, which is, as we know, the best tool to lift people out of poverty.