Tereré model: how Paraguay has mastered inflation

When we talk about the present of Paraguay, the the numbers are more than eloquent. Sustained growth in recent years, which has reached 4 and even 5% per year. On the other hand, inflation is so tight that it was only 0.3% in April this year and has accumulated to 1% since the beginning of this year. It is estimated that at this rate you can easily meet its inflation target for 2019 which is 4%.

For Santiago Peña, economist, former finance minister and former presidential candidate in the last elections, three factors are essential: political consensus drive reforms that boost the economy, a strong and independent central bank and fiscal prudence to never spend more than the accounts allow.

"We understood that the economy is a very sensitive subject. Today, macroeconomic stability is a good public. Through governments, it was understood that the Central Bank, technical entity, had the mission to take charge of the economy, "he says.

In a review of recent history, he adds: "There was a prudent fiscal policy coupled with an equally prudent monetary policy. From 2002reforms have begun and the Ministry of Finance and the Central Bank are coordinating. And this has led Paraguay to settle its accounts and not to spend more than it has. Paraguay accounted for about 50% of the public debt in 2002, compared with 18% today. This fiscal prudence has always been maintained, supported by a law on fiscal responsibility adopted in 2013"

For Humberto Colmán, current Vice Minister of Finance of Paraguay, the differences in the reality experienced by Argentina and the neighboring country are explained in the continuity of economic policies.

"We are following very closely what is happening in Argentina, the economic development of Argentina and Brazil is very important to us," he said, "and we of course follow the electoral process." The impact of the recent adjustment has been significant. It seems to me, it may be a personal opinion, that the measures were on the right track, and I think that policy continuity has a lot to do to get the economy back on track. "

With regard to his country's orientation over the last 15 years, he explains: "Paraguay had governments, from a political point of view, with very different biases, but economic driving was basically the same, whatever the political sign. We had a government with a businessman, another with a clear social purpose, with (Fernando) Lugo. In the economic aspect, there was a common denominator. There is a professional consensus on how public finances and the Central Bank should be managed. The way to manage economic, fiscal and monetary policies It's the same since 2003"

For Luis Ibarra, an Argentinian trader in Paraguay and now president of the Retailers Association, economic growth and inflation control have benefited small businesses. For him, in recent years have allowed him to expand his small business and buy more goods. "Credit live," he says.

Unpaid opportunities and debts

The economic bonanza of the country, begins to bring back to Paraguayans who have spent many years far from their land, looking for a better future. Armando Aliendres Domínguez is one of them. A young man of 30, who lived 15 in Argentina, working in the construction sector and returning to Paraguay to improve their quality of life and make a difference by sending money to their two children, who went to Buenos Aires.

"The economic situation was very difficult, very complicated and I decided to come here to see what was happening, now, thank God, I work, you can work and you can eat, I have not not here, and here it is good for you to send money, you can save something, there you can not do it any more. "

Although his children are lacking in Armando, his projects are currently in Paraguay and he dreams today of building his own house. When TN.com.ar He asks what Argentine he would bring to his country, he answers: "In Argentina, the benefits are many: hospitals, social work".

The truth is that, like him, many Paraguayans still suffer from the country's huge social debt, despite the good macroeconomic outlook. This is clearly seen in the access and quality of public services, such as health or education, in infrastructure (still far behind other countries in the region) and in the big social gap which jumps with the naked eye and crosses only the streets of the capital.

Today, total poverty in Paraguay is about 26%. However, even if it is a large number, it implies a marked improvement, especially with regard to extreme poverty, over the past 15 years. According to data from the World Bank, Paraguay is the seventh most unequal country in Latin America. Argentina, meanwhile, is in the position 15, among the four who have the smallest gap.

Santiago Peña observes about these structural problems: "In the last twenty or fifteen years, Paraguay has been the country poverty reduction in the region. The question is why do we miss so much. And the answer is because Paraguay started with these reforms that have greatly reduced poverty later than the rest of the countries ".

As for the possibility that the country continues to grow, the economist adds: "75% of Paraguay's population is under 40. C & # 39; a great opportunity, but it is also a big risk. Because if you do not insert this young population into a competitive labor market, this population will be a heavy burden. Paraguay will continue to grow at a much faster pace than the rest of the countries in the region. He has all the conditions to continue to grow. Not to mention the tax conditions to attract foreign capital and in terms of work capacity, has a younger population. I have no doubt that he can continue to maintain high growth rates. "