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Paraguay: Statement by IMF Deputy Managing Director Naoyuki Shinohara at the Conclusion of his Visit

Press Release No. 14/70 February 26, 2014

Mr. Naoyuki Shinohara, Deputy Managing Director of the International Monetary Fund (IMF), made the following statement today in Asunción:

“It is a great pleasure to be in Paraguay for my first visit and learn more about this young and dynamic country. I had the privilege to meet President Horacio Cartes and members of his government team, including Central Bank President Carlos Fernandez, Finance Minister German Rojas, Minister of Public Works and Communications Ramon Jiménez, Industry and Trade Minister Gustavo Leite and Planning Minister Jose Molinas. I also had the opportunity to meet with several members of Congress as well as representatives of the business community and think-tanks. I would like to express my gratitude to the Paraguayan people for their warm welcome.

“I was impressed by the government’s ambitious agenda of growth-enhancing reforms and poverty reduction initiatives. These reforms will help improve Paraguay’s social and economic development, increase productivity growth, and support the country’s transition to a dynamic emerging market economy over the next decade. In this context, Paraguay has enacted critical legislation to address institutional and structural weaknesses attesting to the authorities’ commitment to the reforms.

“Sustained growth with greater equality is an important objective for Paraguay. Success in further reducing poverty and income disparity will depend on ensuring the long-term sustainability of initiatives underway to promote social and economic inclusion while protecting vulnerable groups through social safety nets. Labor market inefficiencies together with efforts to increase female labor participation will also need to be addressed to reduce informality and lower poverty. Improving public enterprises management will facilitate access to basic public services at reasonable cost.

“The recent strengthening of the fiscal and monetary policy framework is welcome, but additional efforts are needed to cement a stronger framework to safeguard macroeconomic stability. The Fiscal Responsibility Law (FRL) provides a sound anchor to underpin fiscal sustainability. In this context, the authorities should further strengthen tax and customs administration and budget institutions to improve cash management to avoid the need to

access central bank financing; enhance the quality of spending and bolster public investment management; and reform the civil service and pension systems. Additionally, the institutional framework and the technical capacity should be reinforced to better deal with potential risks from Public Private Partnerships (PPP). 

“Turning to monetary policy and the financial sector, the central bank has made important advances in implementing an inflation-targeting regime along with greater exchange rate flexibility. The focus should remain on steps to develop an active money market, and on further reinforcing risk-based bank supervision. Pending reforms to update financial sector legislation needs to be carried out as soon as possible along with speeding up the implementation of the Anti Money-Laundering/Combating the Financing of Terrorism plan.

“Paraguay has strong economic fundamentals to manage regional and other shocks. The country’s solid fundamentals including low debt, sizeable official reserves, small fiscal and current-account deficits, greater exchange rate flexibility, inflation below target, a sound financial system, and increased policy certainty brought about by the FRL and the inflation targeting regime provide the government with better buffers than in the past to cope with the impact of softer commodity prices, tighter external financing conditions and regional shocks.

“Overall, the outlook for Paraguay is positive. Continued prudent macro-economic management should help the country reap the benefits of transformative reforms underway, increase welfare and reduce poverty. The IMF will continue to work closely with the authorities to help them in this process.”