Paraguay will again go to the Eurobond market to finance its infrastructure programme after two successful bond issues since 2013. “We may tap the international capital market later this year or at the beginning of next year, the Paraguayan finance minister Santiago Peña Palacios told Emerging Markets. “But we are not in a hurry to get into a debt spree,” he said, as some of funds from last August’s $1bn issue has not yet been spent. In addition, the government of President Cartes has also received permissionto raise $350m on the local capital market.
“We are open to various sources of funding to modernize infrastructure,” said Carlos Fernandez, the president of the Paraguayan central bank. “This is an option we have. Nothing has been decided yet. We still have some funds to take us through September. We will examine the conditions in August with the finance minister and we will see what is best to do depending on international capital market conditions.”
Foreign capital has been the key to lift the level of investment in infrastructure from 2% of the Paraguayan GDP 10 years ago to 5% at present. In spite of its high level of poverty, Paraguay continues to stand out in Latin America as a country where substantial macroeconomic progress has been achieved.
“It is a country that is very aware of what it needs to grow. It is not complacent and wants to find the right recipes. The president [Cartes] is concerned about how to accelerate the execution of projects and programmes,” said Enrique Garcia, president of CAF, the Latin American development bank. Paraguay is a rare example in the region where both economic growth and inflation stand just above 4%.
Progress towards the diversification of its economy, which used to be excessively dependent on commodity exports, is also one of the reasons that led Moody’s to raise the country’s sovereign rating to Ba1 from Ba2 last week, just one notch below investment grade. “It is a story of a small economy that is taking the right steps,” says Mauro Leos, Moody’s senior credit officer for Latin America, who has also praised the government measures to cap expenditures. “It does pay off when you do things right for a very long time,” says Peña, the 36 year old economist who was appointed finance minister at the beginning of the year.