Thls report ls not to be publlshed nor may, it be quoted as representing the Bank's views.

No. E 198.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

SUMMARY OF THE EXTERNAL DEBT OF PARAGUAY

Economic Department Prepared by: James, J. Lynch

Reviewed by: Carel de Beaufort

December 7, 1951

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III.

Table 2f Cont~nts

Description of External Debt Outstanding Service Payments on External Debt Pledged Revenues

Tables A-l External Debt of Para6~Y A-2 Estimated Contractual Interest and Amortization

Payments on the External Debt of Paraguay.

A-3 - ~~ry History of the External Debts of Paraguay

1 :3 5

(~~is report ~~s prepared by James J. Lynch. reviewed by Carel de.Beaufort and cheCked by Andre,V' C. Huang).

· .. 1 .. ',',. r;'

On October lO,19Sl t~ ~Qt~l outs~anding external debt of Paraguay was estimated at the eq~"a+ent ." Qf US$+6.$ million. .

The major port1'on of this deb\ \o~~ made up of cfbligaUolls :Pa1able in :Brazilian cruzeiros and amounting to 19l 'mill ton e~I!H~~rOS i ~qu1valent to Ug$10.3 million.

A) The cru!elro debt is made up of t,,,o loans. as follows:

(1) Debt remaining after the settlement of obligations of the :Bank of Paraguay to the Bank of :Brazil. This debt. amounting to 112 million cruzeiros. r..esulted mainly from collections in arrears on commercial cred! ts and other transactions in foreign exchange and was settled on September 15. 1951 in the £0110\'11ng manner: 12 million cruzeiros ,,,ere :paid at about the time of the signing of the aGreement, leaving 100 million cruzeiros outstanding 1;[hich are scheduled to be paid by the J3a.n..1t of ?araguay to the Bank of 13razil in eight equal annual installments of 12.5 million cruzeiros each, the first installment to be paid on September I, 1952 and the last on September 1, 1959. This fuhding of commercial credit arrears is to carry a yearly interest charge of 3.5~. plus an additional 2.3 million cruzeiros for corrrpensatory interest on the debts ,,!hile in arrears, to be paid half in 1958 and half in 1959~

(2) The second ~razilian loan represents a 100 million cruzeirQ credit opened in 1942 (then equiv~lent to about US$5 million) by the 3a~c of Brazil to the Bank of the Republic of Paraguay, the two ban1ts a.ctinG as fiscal agents of their respectitte governments:, The loan, which Has to be repaid serially by 1957. carried an interest rate of 4~., and was to be dra"m. do't'm. in installments from 1942 to 1947. . Its purpose '\I,as to finance a joint economic plan including construction of certain public works and industrial establishments in Pa.raguay. Under the prOVisions of the loan the Bank of BraZil required that special re· sources be earmarked for the service of the loan (50~ of the exchange profits on exports. transportation tax to be created to cover the ex~)ense of the plan. etc.). These resource fJ, as \,lel1 as any aO.vance repayments, \1ere to be deposited in the .Asuncion 3ranch of the :Bank of :i3razil and "lere to be credi ted 'VIi th interest. In case of a defanl t, future dra\'lings on the total loan ,,[ould be suspended and the Bank of the Republic of Parat:,"'UaY \'101,11cl be jointly res1?onslble with the Paraguayan Government for the credits a1rea<l.y utilized. The complete loan '·ras dra'tm do,",m by 1947.

According to the 1944 schedule of interest and amortization payments, the loa.n. by the end of 1951 ,\1ill be in arrears on interest to the amount of 12.9 mi11ion cruzeiros. equivalent to us?695,000. and on amortization payments amount­ing to 35 million cr.uzeiro~. equivalent to US$1.9 million. Principal outstanding at the present time amounts to 90.960,000 cruzeiros. equivalent to US$4.9l6,ooo •

.... . /-- ..

- 2 -

The ParagUayans have stated that they are no,,, negotiating \1ith the Brazilians for an extension of payment of interest and amortization on this loan so that amortization payments \-1i1l be spread over the next 1.5 years. The con­tractua1 requirements called for the entire debt being paid by the end of 1957.

B) The second major category of debt is in U. S. dollar loans amounting to $4.6 million, a major portion of \r1Mch is loans from the Export-Import Bank now outstanding in the amount of $2.4 million.

(1) The $2.4 million Export-Import Bank loans are the outstanding unpaid balance of two orlg1~1 credits totalling $6.4 million, of which $6 million v~s utilized and $400,000 ,~S cancelled. Both loans were for high\~y construction. Service payments on these loans have been made irregularly especially during the period from 1947 through 19.50. In 1951, ho,.,ever. all arrears ",ere brought up to date and payments are not-T on schedule.

(2) Most of the remaining dollar oblieation is made up of the $2.1 million ~i.suncion Port Concession CO:l:'porction .51h loan. This obligation arose from a contract drl?_vTn up in 1927 bet\'Teen the Paraguayan Government and a United States construction company for construction '-fork. installations. and improvements on the Port of ":l.sunc:Lon, and to cOVer o:?erating cOsts. Little ,.;as paid on the bonds up to 1940, at 1{Ihich time the properties vera nationalized. A settlement '>JaS

arranged \'lith the corporation "'~ich scaled dovm obligations to $2.7 million to be paid over a 30-year period at S~~. These payments are nOti being made according to schedule.

(3) The remaining portion of the dollar debt is a small loan owed to the Union Oil Company amounting to :$ 76.000.

C) The third major category of debt is due to the Banco de 113. lJacion Argentina and amounts to 4.8 million .drgentine pesos, equivalent to US$951,OOO.

D) The remaining portion of the external debt is made un of the 8% (no,-! 3~) sterling bonds of 1886 and of 1896, outstanding in the amotL~t- of ~230,000. equivalent to US$645 , 000. These securities 'Ilere ;l$sued as 8% bonds in 1871 and 1872 and have been the subject of various debt adjUstment plans. The major one, agreed upon in 1924, 10\.,ered the interest rate from 8~ to 3%. extended anortization payments and reduced the face amount of the bonds to 70p of par. These bonds have been in default at various times during the period 1924 through 1944. Since that time both arrears and current payments have been made according to the revised schedules and the payments are 110'"1 up to date.

For additional details of all these loans see A-3.

. .. / ...

- J ...

Listed below are the total a~ounts in each category. For details of the loans making up these totals see Tables .<1.-1 and A-J.

II.

SUmffiarz of tee Eeter,na\Dept of Paraguay

pebt Outstapdlpg Octob~r lO,i9Sb In cutr~ncy ;. Expressed of :pament in .. 1! ,S.~. ., (in thousands)'

U.S. Dollar Debt ~ort-Import Bank 4%.1939.1942-1958 Asuncion Fort Concession Corp •• 5p 1971 'Q'nion Oil Company

$ 2,416 2,103

76 .$ 4,595 Total dollar debt • • • • .

Cruzeiro Debt Government of Brazil 4%, 1957 Banco do ~rasil 3t~. 1959

Total cruzeiro debt • • • . • • • Total Argentine peso debt • • • Total sterling debt • • • . .

.. . , ..

Cr$ 90.960 loa,ooq

Cr$190.960 .Arg.$ 4.756

It 230 TOT...~ D~T ......"....".. .... & .. .. • .. .. " .. • .. • • .. ;' .. Ii l' , .. .. .. .. i J ,. " • .. " .. • .. f; • • .. • •

~; The fo11(!),'ling exchange rates were u.sed: itl tr;: $2.80; $1 ~ 18.50 cruzeiros; $1 ~ 5 Argentine pesos.

Service Payments on External Debt iii

2,416 2,103

4,S~~ 4.916 5:405

10,321 951 64S

16.S12

Total service requirements in 1951 are estimated at the equiv~lent of US$4.3 million ~nth amortization amounting to US$3.8 million and interest to US$491.000. The 1951 :payment is substantially higher than in the follo'llling years due mainly to t\10 faetors~ (l) all arrears fron ~1revious years on the Export­Import Bank loan \-lere paid up in full in 1951, (2) final ~yments of U5$l.,5 million and 2.5 million Argentine pesos (equivalent to US$500.000). tOgether equivalent to US$2 million. \.,rere made on the nationalized utility properties of the CO!!l!:lania Americana de l,.uz y Tracc:ton. All :payments due fl,re not included, hOltleVer, since all of the unnaid 'Portion of the :Brazilian cruzeiro lOan ~lhich is in default (nre­viously discussed on Pages 1 and 2) has been excluded from the year 1951. -The Paraguayans have stated that they are no,·, negotiating this loan 1tlith the Brazlljans which may result in this cruzeiro loan being brought up to date and paid g,ccording to the present schedule or, if the Brazilians agTee, the present unpaid portion of the loan may be refunded on a 15-year basis. lio fint",l agreement he,s yet been consummated therefore no payments are included on Page 4 or Table A-2.

The year 1952 is a more representa.tive year in Hhich to vie\'! external debt payments. According to present schedules, subject to the qualification mentioned above "lith respect to the cruzeiro debt, service :payment~ in 1952 "rill amount to the equiva.lent of U5$1.9 million. broken dONn into amortization of US$1.5 millio~1 and interest of US$4.30,000. The largest portion of these :,?ayments. equivalent to US$860.000, is due in Brazilian cruzeiros. Service reqUirements for the dollar debt amount to US$706,000. The remaining uQrtion of the total 1952 debt ~ayments is. due ~n argentine pesos, equivalent to U8$236,000. and in sterling, equivalent to Ugp147 , 000.

Total service payments decline gradually to the equivalent of US$1.8 million in 1955. to US$1.4 million in 1956, to US$l million in 1957~58. and to US$929,OOQ in 1959. In 1960 paymenh ~lill amount to the equivalent of US$l77 ,000 and \'1111 continue at that rate through 1968 and then decline to $129.000 in 1969. By that time all of the existing external debt uill have been retired if uaid according to schedule. -

... / ...

-4-

Listed below are the total debts and required interest and amortization payments, along "nth a breakdo\'m reflecting payments by type of ~rency re-qUired. (For additional details see Table A+2). .

Year

1951 1952 :1.953 195.4 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969

Debt out-standiDg Jan.1

11,596 ?:-I 11,407

9.834 8,296 6.687 .5.153 j,902 2.959 2,133 1.351 1,240 1,124 1,001

B73 738 596 JJ;46 290 125

SUmmary of the estimated Interest and Amortization Parwentson the External Debt of Pa~aggay (e~ressed 1n thousands of U.S. dollars)

T~ta.l • S~rvicePalments by Currengies I Argentine. Payment§ dur~ng year

Amorti- lnter- Dollar CJ.'UzeiIl peso Sterling zation est Total debt debt 1 debt debt

4+ I ,

3. 835 491 4.326 3.372 11 64- 743 ::J 147 1;.519 430 1.949 706 860 236 147 1.481 371 1,852 641 836 228 147 1.549 316 1.86.5 685 812 221 147 1.513 254 1.767 713 788 213 53 1.251 198 1,449 528 764 157

943 152 1,095 3.55 740 927 178 1,005 229 776 782 148 929 177 752 III 66 177 177 117 60 177 177 122 55 177 177 129 48 177 177 135 42 177 177 142 35 177 177 149 28 177 177 157 20 177 177 165 12 177 177 125 4 129 129

1.1 See discussion on l?ages I, 2 and ). ~ Debt outstanding for 1951 as of October 10, 1951. 11 In the 1951 figures for the dollar debt US$1.5 million and Argentine

';Jesos 2.5 million (equivalent to US!>50Q,OOO) are included represent­ing the final 1)9,yments of the :TatioDP"llzed Utility Pro,!,erties of the Conpania .:llnericana de Luz y Traccion, nart of ",hich vlas scheduled for payIDent in later years. .nso included~ are ~layments of $1.6 million on the E:dmban};:: loans re-1resenting contractual payments for 1951 plus all t~le unpaid interest !'.nd. amortization from previous years ',·Thich \'lere 'Drought '",'2 to date and paid by Paraguay in 1951.

~: =;::cluded from the Bbove figures are :m.ym6nts on the debt of the State of Paraguay to the 3razilian Government on the 100 million cruzeiro loan granted in 1942. Unpaid amortization at the end of 1951 amounted to 35 million cruzeiros (U3$1.9 million) and 12.9 million cruzeiros (us~695.000) ~f unpaid interest. In addition, scheduled :pa~rments from 1952 of 16 million cruzeiros (US.~865 million). de­clining to ).4 millioll cruzeiros (US$182,OOO) by the last ~)8.yment due in 1957, are not included. These amounts have not been included since no final agreed u)on payment schedule has been completed to date.

- 5 -

III. Pledged Revenue§

Of the total debts three loans a~pear to be secured by pledged revenues.

(1) The first is the pledge pertaining to the old sterling bonds. The service of these loans is specially secured by the duties, payable only by special warrants. on the export of hides (at the rate of one gold peso each), and of yerba-mate (at the rate of .25 gold peso per 10 kilos of leaf mate. and .20 gold peso per 10 kilos of ground mate).

(2) Under the terms of a 100 million cruzeiros loan betueen the Bra~ilian and Paraguayan Governments in which the Central 3anks acted as fiscal agents, specia.l resources \'Tere to be earmarked for the service of the loan (see Page l).

(J) The ~\suncion Port debt is guaranteed by port dues under the original agreement.

For additional details on the loans see A~J.

Table A-l: EXTERNAL DEBT OF PARAGUAY

(In thousands)

Item

DOLLAR DEBT Asuncion Port Concession Corp. 5% - 1971 Union Oil Co.' Export-Import Bank 4%, 1939, 1942-1958

Total dollar debt

CRUZEIRO DEBT Government of Brazil 4% - 1957 £I Banco do Brasil 3 1/2% - 1959 J7

Total cruzeiro debt

A.llGENTINE PESO DEBT Banco de la Nacion, Argentina 3 3/4% -

1956]/

STERLING DEBT Sterling bonds

3%, 1686/96 (formerly 8s of 1871 & 1872)

Total debt

• J

Page 1 Debt outstanding October 10, 1951

In currenpy " Expressed in of £!Yment U.S. dollars

~' 2,103 Y ~~ (" 76 ijjl

~ 2,416

$ 4,595

cr''';; 90,960 Cr~ 100,000

cr'oiP 190,960

Arg.$ 4,756

230

2,103 Y 76 .

2,416

4,595

4,916 5,405

10,321 i .

95+

645

16,5121/

Note: The fo11ovtlng exchange rates were used: .1 = ~2.80J $1 = 18.50 cruzeiros; ~.'l -= ;; Argentine pesos.

11 This figure was given as ~2,173,672 in a recent signed statement of external debt received from representatives of the Paraguayan Government. Ho'wever, in the contract and amortization schedule received subsequently, the amount outstanding is sh01.'Il1 as )i2~162, 721. Later, it was learned from the fiscal agent, that the amount outstanding as of October 1, 1951 was ~'!2, 102, 500 as shm'/ll above.

Table A-I: FOarHarES - Continued

~ According to the Paraguayan Government, the gUaranies corresponding to service requirements on this obligation have been regularly deposited vdth· the Asuncion Branch of the Bank of Brazil. Since 1947, however, transfer into cruzeiros of these'amounts has not been effected. It is estimated that by the end of 1951, the guarani equivalent of Cr$ 35,040,000 (U~ 1,.894,.054) of principal will not have been transferred into cruzeiros .. In addition to c~ 90,960,000 of prinCipal, the Paragua~n Government has stated that there are interest obligations totalling Cr$ 21,585,400 (US$ 1,,166,718),. representing the equivalent of guaran:l,. deposited on account of interest made from 1948 through 1951 but not transferrec. to cruzeiros,; plus contractual cruzeiro interest payments due 1952-1957. Accbr~ to the Paraguayan authorities a settlement is proposed under which either the term of the loan vlill be extended, or a part or all of the principal will be accepted in guaranies by the Bank Of Brazil, to be used to increase the capital of its branch in Asuncion.

JI Obligations of the Bank of Paraguay.

~ Does not include the obligation in dollars and Argentine pesos due to the Compania Americana de Luz y Traccion. According to information received in a cablegram dated October 26, 1951 addressed to Dr. Chaves of the Bank of Paraguay, this obligation was paid off in 1951 prior to October 10 and were therefore included in Table h-2 as payments during the year.

Year

1951 1952 195) 1954 1955 1956 1957 1958 1959 1960 1.961 1962 1963 1964 1965 1966 1967 1968 1969

Tljl-ble A-~, ESTnl'ATT'~ CONTRACTUAL INTEREST AND AMORTIZATION PAYMrBTS ON TIlE EXT:'~BnAL DET OF PARAGUAY

(Expressed in thousands of U.S. dollars) Pa~ 1

Eeport-&@Jort Bank Other dQl1ar debt ~ Totnl dollar debt Debt out- PaYments during le3X Debt out- Pgments during year Debt out- Payments during Year standing Amorti- In- standing .Amorti- In- standing Amort i- In-Jan~_l z~J1on terest~_~_tal~. _!Jan.! _I .. _ ... _~tion. tered Total Jan. 1 zation terest!ot.al

2t 41{)J 2,,339 1,899 1.506 1,054

555 222 51

1,366 440 392 452 499 333 171 51

253 89 72 56 37 18 7 1

1,619 529 464 508 536 351 178 52

2, 179Y 2,067 1,992 1,913 1,831 1,744-1,653 l,S.s? 1,457 1,351 1,240 1.124 1,001

873 738 596 446 290 125

1,647Ji 75 79 82 87 91 96

100 106 111 117 122 129 135 142 149 157 165 125

106 102 98 95 90 86 81 77 71 66 60 55 48 42 35 28 20 12 4

1,753 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 129

4,59# 4,406 3.891 3.419 2.-885 2.299 1,.875 1,608 1,457 1.351 1.240 1.124 1,001

87.3 738 ,596 446 290 125

3,013 515 471 534 586 424 267 151 106 III 117 122 129 135 142 149 157 165 125

359 191 170 151 121 104

68 78 71 66 60 55 48 42 35 28 20 12 4

3,372 706 641 685 71) 528 355 229 177 177 177 177 177 177 177 177 177 177 129

See footnotes at end of table.

Table .A.-2: ESTIVlATED COHTRACTUAL Il'JTEREST AND AMORTIZATION PAYMFJ\fTS 0l'J TIDJ EXTERNAL DlllBT OF PARAGUAY - Contd.

(~ressed in thousands of U.S. dollars) Page Z

Cruzeiro debt-!i./ Argentine peso debt. Sterling debt Debt out- l?a..yments during year Debt out- Pments during l.ear Debt ,?ut- Pamnts during year-standing Amorti- In- Total standing Amor t- In- Total stand~ng !mar ~ In- ~ tal . -tIan._l~ __ za.:Uon ___ terest Jan. 1 zation terest Jan. 1 zat10n terest 0

Year

19.59. 5,40# - (# 64 95ilJ '70021 43 743 64s!1 122 25 147 1952 5.405 676 184 860 9.51 200 36 236 645 128 19 147 195.3 4.7.30 676 160 836 751 200 28 228 462 134 1.3 147 1954 4.054 676 136 812 551 200 21 221 272 1.39 8 147 19.55 3,378 676 112 788 351 200 13 213 73 51 2 53 1956 2,703 676 88 7(:# 151 151 6 157 1957 2,027 676 64 740 1958 1,351 676 10~ 776 1959 676 676 77 752 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969

See footnotes at end of table.

Table A-2: ESTINATED OOUTRACTUAL INTEREST AND AMORTIZATIOlIJ PAY1{8UTS ON THE EXT2BHAL DEBT OF PARAGUAY - Contd.

(I);;.::pressed in thousands of U.S. dollars) Page J

Total debt lJ./ Proposed I.3.R.D. loan Total debt including ~ro~osed IeB!RsDa loan lJ./

Year Debt out- ~a~ments during ~ear Debt out- ~~yments during zear Debt out- Pa~ments during zear standing Amortl- In- Total standing Amort i- In- Total standing Aroorti- In- Total Jan. 1 zation terest Jan. 1 zation terest Jan. 1 zation terest

19.51 11,59611 3,83.5 491 4,326 - 1.1 11,596 JJ 3,83.5 491 4,326 1952 11,407 1,519 430 1,949 5t OOO 219 219 16,407 1,519 649 2,168 1953 9,834 1,481 371 1,852 5t-000 219 219 14,834 1,481 590 2,071 1954 8,296 1,549 316 1,86.5 .5.000 200 217 417 13,296 1,749 533 2,282 19.5.5 6,687 1,.513 2.54 1,767 4,800 200 208 408 11,487 1,713 462 2,175 19.56 .5.1.53 1,2.51 198 1,449 4.600 200 199 '99- 9,7.53 1,4.51 397 1,848 19.57 ),902 943 1.52 1,095 4,400 1,029 181 1,210 8,302 1,972 333 2,305 1958 2,959 827 178 1,00.5 3,371 1,076 136 1,212 6,330 1,903 314 2,211 1959 2,133 782 148 929 2,29.5 1,122 88 1,210 LI',428 1,904 236 2,139 1960 1,3.51 III 66 177 1,173 1,173 39 1,212 2,.524 1,284 10.5 1,389 1961 1,240 117 60 177 1,240 117 60 177 1962 1,124 122 .5.5 177 1,124 122 .55 177 1963 1,001 129 48 177 1,001 129 48 177 1964 873 135 42 177 873 13.5 42 177 196.5 738 142 3.5 177 738 142 3.5 177 1966 .596 IlJ9 28 177 .596 149- 28 177 1967 446 1.57 20 177 446 157 20 177 :1.968 290 165 12 177 290 ' 16.5 12 177 1969 12.5 12.5 4 129 12.5 12.5 4 129

_____ ----...0. ........•

~o footnotes Oll paGe 4'; "-, ':.

Table A-2t FOOTNOTES

Page 4

1I Debt outstanding for 1951 is as of the same date as Table Awl. Payments are for the full year. ~ Includes the bonds of the Asuncion Port Concession Co~p. The contract calls for a total principal and

interest payment of $88,562 • .50 semi-annually. In this schedule "Ie have assumed that the bonds ,1111 be retired at par. Ho1tlever, they have actually been retired in the past at someHhat less than l)ar. If this is continued, retirement will be effected at an earlier date than is indicated above.

J/ Includes payments of $1,500,000 made toCom~ania Americana de Luz y Traccion prior to October 10 and

!iJ therefore not included in the amount outstanding as of tl~t date. This does not include the debt of the State of Paraguay owed to the Brazilian Government in tIle amount of Or$ 90.960,000 (US$ 4,916,000) \·,hich is included in Table A-1. According to the Para[1.layan Government the guaranies corresponding to service requirements have been regularly deposited with the Asuncion Eranch of the :Banl<:: of BraZil. Since 194'1, h0\1ever. transfer into cruzeiros of these amounts has not been effected. ~otal cruzeiro payments due, but not transferred, 1948-51 amount to Cr$ 35,040,000 (US$ 1,894,054) for , amortization and Or$ 12,851,200 (US$ 694,659) for interest. According to a schedule submittecl by the Pare.;uayan Government, total contractual interest payments due 1948-195'1 amount to Or$ 19,522,400 (US$ 1,055,265.) Ho\feVe~1 the Bank of Paraf.-."l1.B¥ has stated in a separate communic, tiona that the total due on account of interest 1948-195'1 is Or$ 21,585,400 (US$ 1,166,778). The contractual service ~ayments (principal and interest) on this debt after 1951 are as follows: 1952, OrO 15,996 800 (U$$ 864 692}r 1953 Cr$ 14t.146 400 (US$ 764,670)a 1954, Or$ 12,348,000 (US$ 667.459); 1955, Or:ti 9,5~lt600 (US$ 516.843); 1956. Or$ o,86~.800 (US$ 371,286}; 1957,. Or$ 3.369,600 (US$ 182.141).

jJ Includes special interest payments totalling Or$ 2,250,000 (US$ 121,622) for oompensatory interest on the part of the debt in arrears. This payment is scl~du1ed to be made in four half-yearly instalments of Cr$ 562,500 (US$ 30,405) each, in February end Aug~t of 1958-59.

fJ Includes payments of Arg .. $2,500,OOO (US$ ,500,000) to C.A.L.T. prior to October 10 and therefore not included in the amount outstanding as of that date.

StJHHARY HISTORY OPTED r:XTE3114L DEB,T§ OF PaMGUAY

I. Ster11ngLoan§

Prior to 1915. foreign borro",ing by the Government of Paraguay was 1il:'li ted to tvIO 8 per cent $. sanes of J,l million and. ):'2 mi1;t.ion. p1a.ced in the London ca:r.;ita.l market in 1871 and. 1872 res:r.;ective].y. 'Phe effective interest rates on these loans t'lere considerably higher than the nominal rate; the loans \Vere issued to the public at 80 and 85 per cent respectively and the prices to the underuriters Here 64 and. 73 per cent respectively. In 1915. an issue of 5 per cent bonds amounting to I.440,OOO .. mE;! privately placed in London. The issues of 18n and 1872 uere the only Para~ya.n bonds eVer publicly offered abroad and. the bonds privately placed in 1915 ''lere the only part ever issued of a ~1.3 million loan authorized in 1912.

Service payments all, all three loans have been irregular. Default all, the 1871 and 1872 loans occurred in 1874, but in 1875 the Government, out of the pro­ceeds of the loans. repurchased hl.4 million of the 1872 loan. Under a settlement arriVed at in 1885, the principal and the rate of interest on both loans ,.,ere reduced by half, and interest arrears amounting to ~l.3 million were liquidated by the assignment to bondholders of 2,177.344 acres of public land in Paraguay­Payments \-lere continued under this arrangement until 1892. .A net" settlement in 1896 reduced the rate of interest to 3 ~er cent, the present rate. Payments were made regularly under this agreement until 1914, and irregularly from 1914 to 1920, 'l'Then they ceased altogether. .A ns," settlement t1P.S made in 1924 \-!hich reduced the interest rate on the 1915 lo~n to 3 per cent, and, itt effect, reduced the re~ demptlon ~a1ue of all three loans to 70 per cent of the nominal values established in 1885, This effective reduction in ,rincipal was accomplished through a stipu­lation in the settlement agreement that the bonds 1;1ould be retired through the operation of a cumulative sinking fund to be a,plied to the purchase or tender of bonds at less than 70 yer cent of their face value, or, if not thus obtained, through dra\'lll1,:;s at 70 per cent. Funds for th:i,.s purpose, and for the payment of interest. vlere to be remitted to London by the Parab'Ul3-yan Government at the minimum rate of 'h52,572 per annum. The service of both lo8.ns "I["S to be s:r.;ecially secured on the duties, nayab1e only by snecia1 warrants, on the export of hides (at the rate of .25 gold peso per 10 kil~s of leaf mate, and .20 gold peso per 10 kilos of ground mate). The agreement of 1924 is still in effect, but payments due under it have been sus?ended hlice .... once in 1932 (resumed in Barch 1938) and again in June 1938. Interest yayments only Here resumed in August 1942 and full service payment s began in lTovember 1944. On October 10, 1951, it230. 000 renained outstanding, equivalent to U8$645.000.

II • Loe,ns Bett'Teen 3razil and Paraguay

T"lO :Brazilian loans accounting for about tl!!o-thirds of the present external debt ,,,ere entered into bet''1sen Paraguay and 3razil.

A) In 1942 €I, loan VJas nee:;otiated bet1'reen the Para.guayan and Brazilian Governments in ,\,1hloh the Ban.l.c of Jrazil Inc. and the .Jank of the H.e-Jub1ic of Paraguay acted A,S fi seal agents. The detail s of the lo[>,n \vsre as fol1oi'Js:

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ItThat the agreement signed by the representati'Ves of the mentioned banking institu.tions in the city of Rio de Janeiro on June 6, 1.942 is in force because of its approval by the Governments of Paraguay and Brazil;

That, therefore, the opportunity has come for the establishment of a legal system of utilization and servicing!;)! amortization and interest on the mentioned loan. in pu.rsuance ~ath the clauses agreed upon in the respective in­ternational agreement;

After hearing the opinion of the State Council,

't'HE FBESIDEHT OF THE REPUBLIC or PARAGUAY DECREES filTH THE FORCE OF LA~":

Art.l. The 100,000 contos de re1s loan--equlvalent to 1,600,000,000 pesos legal exchange rate--is earmarked for the financing of the following investment program:

I. 50% ECOnO~1I C PROGRAH 1. Silos and fruit storage 2. Industrial alcohol plant 3. Paraguayan Corporation of .Alcohol (State

contribution to its capital) 4. Agricultural implements and machinery 5. Loan to the il.gricul tural Bank of Paraguay for

production development (agricultural credit) 6. State contribution and credit to livestock raisers

for the capital of the Heat Corporation 7. ror the organization of the iiortgage Dept. in the

Bank of the Republic of Paraguay 8. state contriQution to the capital of the River

Transportation Corporation

I I • 50;6 PUEL I C ".£0 BKS PROGRAH 1. Construction of buildings for agriculture,

animal husbandry and industrial schools 2. Construction and re~air of buildings for the

University, high schools and grammar schools 3. Hili tary buildings 4. Construction of hospitals 5. Construction of a modern penitentiary 6. Construction and repair of churches 7. Construstion of highways

50,000,000 100,000,000

30,000,000 80,000.,000

100,000,000

120,000,000

220,000,000

100,000,000

70,000,000

100,000,000 200,000,000

.50,000,000 40,000,000 40,000,000

300,000,000

Art. 2. The mentioned credit shall be used uithin the follo\'ling baste limits:

Fesos 240,000,000 at the legal rate during 1942; 240,000,000 at the legal rate during 194,3; 272,000,000 at the legal rate during 1944; 272,000,000 at the legal rate durip.g 1945; 288,000,000 at the legal rate during 1946; 288,000,000 at the legal rate during 194'(;

Distribution of the abovementioned annual installments for the carrying out of the program referred to in Article 1 shall be by Executive Decrees.

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Art. J. The following funds are hereby earmarked for the servicing of the amorti­zation and interest on the loan in question:

a) Reimbursement of the sum allotted for construction of silos and fruit storage plus 4? interest annually. to be made within a 10 year period;

b) Reimbursement of the sum allotted for the operation of the industrial alcohol plant plus 4% interest a.nnually, to be made \-li thin a 10

c)

d)

e)

f)

g)

h)

1)

j)

It)

year period;

Reimbursement of the sum allotted for the Paraguay Alcohol Corpora­tion plUG 4;~ interestantlually. to be made 1;/ithin a 10 year period;

Reimbursement of the sum allotted for the p~chase of agricultural machinery and implements, including 4:;;; interest annually, in ten equal installments;

Reimbursement of the sum granted to the Agricultural Bank of Paraguay for the development of production, to pe made in ten equal annual installments, including 4; interest annually;

The profits of the State in the rieat Corporation and the reimburse­ment of the credits, including their interest, granted to the live­stock raisers for the establishment of the capital of that corpora­tion, 'mtil total payment of the sum intended for those purposes;

The reimbur~ement of the sum granted. to the Bank of the Republic of Parrl.c;uay for the organization of the Hortgage DenartMent, including 4~ interest annually. to be made in ten equal ammal installments;

The reiMbursement of the sum destined for the Corporation of RiVer Tra.nsporta tion lJlus 47~ interest per year to be made within alO year period;

.50% of the exchange profits on alnraised exports;

The interest on the de~osits to be made in the Agency of the Bank of :Brazil for the servicing of the loan;

The road tax to be established in due time;

Art. 4. For pur~oses of the provisions of paragra?h (i) of the preceding article, the following distribution of the exch8.nge profits on appraised exports is established:

:3l~ for the servicing of amortization and interest on the 30nds of the guaranteed Interne.l Debt;

7% for the servicing of amortization of the 4igricultural and Livestock Develol,ment BOlld;

12% to the- iiinistry of Agriculture I Commerce & Industry. destined for the development and technical improvement of agriculture and animal husbandrYi

.50~ for the servicing of the amorti~ation and interest on the loan granted by the :Bank of 3razil, Inc.

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!J:lhe balances of the accounts: 1I11inistry of Public ;vorks, Decree-LaHS Hos .469 and 11470" and "1!inistry of 'liar & Navy. Deoree-Lal" lTo .11876 - Hilitary ConstructionH shall be transferred to the ne\·! accounts o-pened in the name of tn.e mentioned M~nistries in execution of the present Decree-Law. The 10~ of the mentioned exchanged profits destined by Decree-Law 5072 for the Nationls Treasury shall become part of the 50% earmarked for the servicing of the loan of the ]arut of Brazil, tnc~ as soon as the Treasury bonds outstanding in the Bank of the Rep'L'..bllc of Paraguay are cancelled. II

3) Details of the second loan which is completely separate from the one quoted above are as follows:

liThe :Ban..'%: of Paraguay and the :sank of BraZil agree to settle the obliga­tions of the Bank of Paraguay "'ith the 3ank of 3razil relati've to the deposit of deferred exchanbed of the latter in the Barut of ?araguay in the following manner:

1) The Bank of ?ara5~y states that the deferred exchanges of the 3anlt of Brazil. lnc. in its Banking and llonetary Departments. on August 31. 1951 amount to Cr~ 112,021,037.21 broken do\,m, as:

a. Cr~ 35.567,468.60 being the balance of the sum of Cr~ 50,000,000 referred to in Item 2, Clause I of the agreement signed bet",een the contracting parties on I~y 11, 1946, plus respective interest at 3~% computed up to ~\ugust 31, 1951;

b. Cri 76,453,568.61 this being the sum on August 31, 1951 of the funds that have been accumulating in the :Bank of Par?,f.,1.1ay in favor of the Ban;.;;;: of Brazil, Inc. since the signing on j.iay 11, 1946 of the agreement betueen the t'10 bar~~s collected on commercial credits and other trans­actions in foreign exchange, not repeSd, as fo1101:13:

Balance on December j1, 1946: Balance on December 31, 1947. Balance on December 31, 1948: Balance on December 31, 1949: Balance on December 31, 1950: :Balance on August 31. 1951:

Cr~ 572,794.20 II 31,805.301.00 11 74.782,184.10 II 75,559,681.40 II 76,216,445.70 1'76,453,568.61

2) The ]anl<= of Paraguay sha.11 settle the total abovementioned debt amounting to Cr~ 112,021,037.21 in the follo",ing manner;

a. On this date it transfers Cr~ 5.000,000 in notes to the ~gency in this city of the Barut of 3razil, Inc.; and Cr~ 7,021,0:37 .21 shall be transferred .... rithin 15 days of the signing of this agreement. in notes or telegra1)hic transfer to said .dgency 01" directly to the 13anlc of 3razil, Inc. in Rio de Janeiro.

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b. The balance of Crp 100,000,000 shall be paid by the Bank of Paraguay to the Bank of Brazil, Inc. in Rio de Janeiro in eight equal annual installments of Cr~ 12,500,000 each, due on September 1st of each year, the first installment to be paid on September 1, 1952 and the last on September 1,1959. ~ayments shall be made in cruzeiros by means of transfer notes or telegraphic transfer and payment order.

c. The abovementioned Cr~ 100,000,000 shall bear yearly interest at 3.5% calculated on the balance outst~~ding and payable on June 30 and December 31 of each year in Rio de Janeiro and in the form established in the previous article for amortization payments.

d. The :Bank of Para~y like"Tise undertakes to l)S.y to the Bank of Brazil~ lnc., in addition to the obligation mentioned in Article II, Paragraph 2, the sum of Cr~ 2,250,000 cruzeiros for compensatory interest on the part of the debt in arrears mentioned in 4rticle I, Paragraph B, registered on the account "Deferred Exchanges ll in the :Ban..'!( of Brazil's branch office in this capital. This payment shall be made in four half-yearly installments of Cr~ 562,500 each, vl1th no interest, fallinG due: on February 28, 1958, August 31, 1958, February 28, 1959 and J.ugust 31, 1959. The IlCuenta Pondos" mentioned in ,tl.rticle V of this agreemez1t is also tied to the payment of these sums. 1f

III. Port Concession LQan

This obligation arose from a contract bet""een the Paraguayan Government and a Ur.ited States construction company, a~proved by a law of October 17, 1927. for construction ,,,ork, installations, and improvements to and the operation of the Port of ~suncion. The total cost of construction, installations and improvements wa s fixed at ;;'2,500,000. The conce s sionaire ,,,a s given the right to operate and maintain the port fo~ a per~od of eleven years after its opening to traffic. 11 Upon expiration of the concessio:p. operation of the port and title to all installa­tions a.nd equipment Here to revert to the government.

The company v~s authorized to oollect, during the period of its operation of the port, certain special charges oreated by the law of October 17. 19Z7, and to retain about half of such collections for operation and maintenance expenses etc. The remainder ''las to be delivered to a trustee and ap~J1ied to amortization of the bonds issued by the cO~Jany to finance construction costs, and to ~ay interest thereon at not more than 8~~. If, upon expiration of the concession, any bonds \'lere still outstanding the Government ",auld assume res1')onsi bili ty for them, and vlOuld. retire them 'l:!ithin five years.

11 The port was opened on December 18. 1929.

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During the life of the concession little ,,,as :paid on account of the bonds and as of December 18, 1940, ",hen the concession expired, the company claimed. ~hat the amount due under the contract was about $3.9 million \·,hich it said should be increased to $6.6 million by virtue of a II go1d clausen contained in the contract ",lith the government. Settlement Hith the coropapy "TaS embodied in a law of November 9. 1940, which also provided for nationalization of the port as of December 18, 1940.

Unde+ the settlement the total obligation of the goverpment to the company '1/!I.S fixed at $3.878,271. consisting of $2,435,000 in principal of outstanding bonds, $1,111,400 in unpaid interest coupons, $231,880 in interest on unpaid coupons, and $99.991 in various other claims for interest and expenses, The re­cognized obligation ~TaS scaled do~m to $2,72$,000 which the government agreed to pay over a period of 30 years with interest at 5~. It is understood that these payments have been made regularly and the amount now outstanding is $2.2 million.

IV • Eroort-Import Bank Loans ;

The amount due ($3 m~11ion) to the Export-Import Barnt is the outstanding balance on a credit of $3.400,000 aut~orized on June 1. 1939. and on a credit of $3.000,000 authorized on ~~y 18, 1942. 30th loans were for highway construction. Of the total amount authorized. ~6,OOOtOOO has been utilized by Paraguay. the remaining $400,000 having been cancelled or having expired ,rior to use. Service payments on these loans and payments on principal in particular have been made irree;ularly, but as of' the end of June all princi]Jal -payments are up to date.

V. Compania Americana de Luz y Traccion

Until it ',/as nationalized in accordance "lith a law of August 13, 1948, the electric pO\'ler and street railway aystem serving the city of Asuncion and the surrounding area was ovmed by the Compania -c\.mericana de Luz y Traccion, an Argentine company incorporated in 1914, with a capital of 8,000,000 Argentine pesos.

Under the terms of a contract betvleen the company cmd the Paraguayan Government, aplJroved by Lav! ::Jo.16 of August 13. 1948, the properties of the company were sold to the bovernment for a total consideration of )1,174,902 guaranies. equivalent to about $10 million. at the official rate of exchange. The total price VIas to be :paid during the period August 30, 1948, to June 1$, 19.51. The nationality of O\·mers of the shares of tl1e com2;lany is not knovm, but of the total lJUTchase price, 48;:; \·ras to be paid in guaranies, 30% in United States dollars, and 22% in argentine pesos.

The above agreement ~~s ohanged in 1950" and final payments were extended to 1952. This change ~~s later reversed when the Paraguayans deoided to make complete earlier payment of all outstanding obligations, and in 1951 the equiva­lent of $2 million was paid, divided into $1.5 million U.S. dollars and 2.5 million ,,~rgentine yesos, equivalent to US$500,000. These payments completelY eliminated this external debt and therefore they do not appear in the external debt of Paraguay, Table A-l, dated as of October 10, 1951. The payments made in 1951 are shown in the a-2 statement.