Source:
IFIs Latin American Monitor
Thu May 29 2008
Former and future Finance Minister of Paraguay, Dionisio Borda, stated that the government of Fernando Lugo will not sign a new agreement with the IMF. This statement was made almost simultaneously that a mission of the institution came to Paraguay for the last revision of the Stand-By agreement the country signed in 2006. Fernando Lugo will assume the presidency next August 15, representing an electoral alliance of political parties and social movements that demand a change in the political, economical and social model.
Lugo's victory marks a milestone in the political history of the country after 35 years of dictatorship of Alfredo Stroessner (1954-1989) and 18-year hegemony of the Colorado Party. The future government generates expectation in the local social movements, countries within the region and the international community, given the numerous challenges it will have to face. Fernando Lugo, representative of the Patriotic Alliance For Change (Alianza Patriótica Para el Cambio, APC), expressed the collective frustration and the need for changes.
According to the Paraguayan sociologist Jorge Lara Castro (ALAI, 03/05/2008), "the alternative model which is being led by Lugo, expresses an electoral alliance of political parties and social movements that make efforts to transform the country. This is an attempt to regain the lost sovereignty of the country, which has much to do with bilateral relations with Argentina and Brazil, solve the problem of poverty, and change the political model of the state creating democratic mechanisms”.
In relation to the economic policy, the appointment of Dionisio Borda as head of the Ministry of Finance was not without its controversy, given his background as head of that portfolio during the first two years of government of Nicanor Duarte.
However, since Borda's nomination was published, former and future minister has marked his differences with the current economic policy. His position against a new agreement with the IMF may be seen as a change of orientation and a difference from previous governments. Until now, Borda said that it is a personal opinion that is based on the fact that the country is going through a phase of macroeconomic balance that must be maintained, and that "the institutional reform that needs to be done does not fall within the area of IMF’s concerns".
According to Borda, Paraguay does not need a contingency agreement with the IMF because it exceeded its financial situation of predicament. Paraguay "now has enough international reserves to face any financial crisis that may arise."
The Duarte’s agreement with the IMF
The last agreement signed between the government and the IMF expires next August 15 and was approved in May 2006 (100 million dollars), "with the aim of achieving a sustained increase in economic growth and poverty reduction." The document was endorsed by the then head of the Central Bank of Paraguay, Monica Perez, and Finance Minister Ernst Bergen.
The first part of that agreement was signed in 2004 (73 million dollars) and was carried forward by the same Borda that next August 15 will assume again the ministry of Finance. This programme aimed at a financial and fiscal reform. In this respect, it was achieved the sanctioning of the Administrative Rearrangement and Fiscal Reform Law, but was left pending changes in the sector of public companies and the National Development Bank.
Despite not having used the resources available, the government had to hear the "recommendations" of the institution on the management of public companies and state resources.
The reforms
The agreements signed with the IMF during the government of Nicanor Duarte focused on the implementation of measures to maintain the macroeconomic stability, to eliminate the fiscal deficit, to achieve a balanced budget and economic growth, and on the financial system reform to ensure reliability. At the beginning it also included the reform of the public companies that finally never took place.
At this point, the IMF, to maintain an agreement with the country relaxed its demands and agreed that the Duarte government would only carry out a monitoring program on public companies. To do so, was created a Supervisory Board of State Enterprises, reporting to the President, which should produce regular reports to be published. However, so far no data on the management of state companies was released to the public.
The mission of the IMF
The last week of May Paraguay received an IMF mission to review the agreement signed in 2006. The representatives planned to meet with the current economic authorities and the team of the elected government. They didn’t rule out the possibility to meet with elected President Fernando Lugo, as the IMF's intention is to know whether the new administration is interested in continuing with a precautionary agreement.
Alejandro Santos, chief of the technical mission of the IMF, is in favour of Paraguay signing a new agreement with the institution. Santos explained that in this new phase the country would need to focus in strengthening macroeconomic stability and to deepening structural reforms, such as public companies, public employment and labour system. In his view, these and many other issues will have to be studied by the new government.
With regard to public companies, according to the monitoring process, the Supervisory Board of State Enterprises deferred management of the Paraguayan’s Oil (Petróleos Paraguayos - Petropar), Health Services Company of Paraguay (Empresa de Servicios Sanitarios de Paraguay - Essap) and National Cement Industry (Industria Nacional del Cemento - INC), while it described as acceptable the management of the National Electricity Administration (Administración Nacional de Electricidad - ANDE) and Paraguayan Communication Company (Compañía Paraguaya de Comunicaciones - Copaco).
The promise made by the government to the IMF to reform public companies comes from the same era in which Borda took over as minister in 2003, however, so far is one of the many outstanding matters. It would be desirable to clarify whether the future government is willing to keep that promise and define more precisely what would be the implications of the reform.
Sources: ABC y La Nación (Paraguay)
Related Information:
* Paraguay: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding (May, 2006 - full document - pdf format)
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