Source:
IFIs Latin American Monitor
Fri Feb 03 2006
In the negotiation between Paraguay and the IMF, the institution asks for a deficit reduction while the government requests more resources to be invested in public works and poverty reduction. The last signed agreement expired at the end of last year and negotiations were started well before that date.
The Paraguayan government is negotiating an economic plan with the IMF that may allow it to incur a higher fiscal deficit provided this exclusively results from an increase in social spending.
As it was explained by Deputy Minister of Finance, Jorge Von Horoch, both the IMF and the government initially aimed at a balance between income and public spending for 2006, including even the possibility of a slight surplus. However, the scene changed after the approval by Congress of a budget for 2006 including a deficit close to 163 million dollars (the 2005 budget amounted to 3 billion dollars). The new project contemplates strong increases in fixed expenditure, which implies a reduction in investment-related expenditure.
The Deputy Minister also pointed out that IMF technical experts have been told about the urgent need of the country to give priority to spending on poverty reduction programmes. Social indicators continue to be a source of concern, on account of which special attention should be drawn to health care and education. According to the UNDP, the extreme poverty rate stood at 16 per cent in 2001, while about 35 per cent of the population lived in poverty.
According to Von Horoch, "tolerance levels with regards to caps set for budget increases are being discussed by Congress and the Economy Ministry; and such increase could be reaching the amount of 3.06 billion dollars”.
For a new agreement to be signed, the IMF also demands reforms in the public and financial sectors. Among said reforms is the inflow of private capital into state-run companies. The last signed agreement expired at the end of last year and negotiations were started well before that date. However, IMF-imposed conditions and social needs are often hard to conciliate.
Sources: Diario ABC Color and Ultima Hora (Paraguay)
Related Information:
Paraguay: Fourth review under the Stand-By arrangement
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