The Economic Crisis Via Paraguay

"The ball has to hit the ground before it can rise again."

News of what's happening on Wall Street and in DC (legislation on the bailout, for example) is front page material here in Asunción. Even "subprime" has been copied directly into Spanish. Because the U.S. is such a large market, it's clear that what happens there has effects here. But it looks a bit different.

1) The dollar is getting stronger. Between March 2007 and April 2008, I saw the conversion rate between USD and Guaranies go from 1 USD = 5,000+ G to 1 USD = 4,000 G. However, between October 5, 2008 and today, it's gone from 1USD = 4,000 G to 1 USD = 4,700 G. This makes it easier for me, of course, since I'm living off a stipend in USD, but it's causing a contraction in the buying power of Paraguayans. A local financial journal, Enfoque Económico, in its July issue discussed what to do about the influx of dollars coming from the decline of the dollar, urging the creation of funds with those dollars rather than merely spending them on increased imports. Now, though the Central Bank of Paraguay is releasing its dollar reserves to try to stem the rise of the dollar (and the declining buying power of the Guaraní), the ascent seems unstoppable.

2) Europe is having problems. Paraguay depends on remittances from a large expat community in Spain. But as economic contractions have hit Europe, construction and manual labor in Spain has halted. Many Paraguayans are out of work and returning back to Paraguay... a loss in remittances and an increase in the labor force, thus lowering wages here.

3) Fernando Lugo's economic agenda will have to proceed slowly. His Minister of Finance, Dionisio Borda, has a plan to significantly restructure the economy (recall the presence of Joseph Stiglitz in all this) including levying taxes (Paraguay, like much of Latin America, is undertaxed due to evasion and agreements that benefit external corporations).

4) Venezuela. Now that oil has fallen to below $80 a barrel (remember when it was at $150 a few months ago?), Chavez is going to have problems financing his agenda. Okay, so technically Venezuela and Paraguay aren't the same thing. But part of Chavez' lingering popularity comes from his distribution of oil wealth. The "leftward turn" to Latin America, as I've said before, is quite diverse... As Paraguay is part of this (though much more moderate than Chavez or Morales), it remains to be seen what happens to the more radical experiments in the continent when their bounty is squeezed.

5) Parallels to the crises of Mexico, Brazil, Argentina, etc etc etc in the 80s and 90s and 00s. Analysts inside and outside of Paraguay have remarked on the parallels between the crisis in the U.S. (overspending, rampant bad debt) and what went on in Latin American countries before they were reined in through structural adjustment programs that imposed austerity measures.

Posted in . Bookmark the permalink. RSS feed for this post.


Swedish Greys - a WordPress theme from Nordic Themepark. Converted by