paraguay after 60 years of one party rule

PARAGUAY AFTER 60 YEARS OF ONE PARAGUAY AFTER 60 YEARS OF ONE PARTY RULEPARTY RULE

Fernando MasiFernando Masi

April 2009April 2009

CONTENTCONTENT

Economic and Social ConditionsEconomic and Social Conditions

The State in ParaguayThe State in Paraguay

Political SituationPolitical Situation

Government first stepsGovernment first steps

Limitations and SetbacksLimitations and Setbacks

Future ScenariosFuture Scenarios

Economic and Social ConditionsEconomic and Social Conditions

Macroeconomic EquilibriumMacroeconomic Equilibrium

Sustainable Economic Growth over the last 4 yearsSustainable Economic Growth over the last 4 years

Low levels of inflationLow levels of inflation

Healthy public finances: fiscal surplusHealthy public finances: fiscal surplus

Low level of public external debtLow level of public external debt

Rising international reservesRising international reserves

ECONOMIC AND SOCIAL CONDITIONSECONOMIC AND SOCIAL CONDITIONS

The Economic ModelThe Economic Model

Agriculture Commodity export countryAgriculture Commodity export country

Reexporting business or intermediationReexporting business or intermediation

Exporting hydroelectric energyExporting hydroelectric energy


Economic growth without equityEconomic growth without equity

Dynamic agribusiness sector vs. less efficient familiar Dynamic agribusiness sector vs. less efficient familiar agricultureagricultureDynamic commodity export sector vs. low productivity, Dynamic commodity export sector vs. low productivity, non qualified labor and low level of industrializationnon qualified labor and low level of industrializationHigh levels of poverty and informal employmentHigh levels of poverty and informal employmentUnequal distribution of income and resourcesUnequal distribution of income and resourcesProblems with public health coverage and with quality of Problems with public health coverage and with quality of educationeducation

Paraguay’s Main Economic and Social IndicatorsParaguay’s Main Economic and Social Indicators19981998 20002000 20012001 20022002 20032003 20042004 20052005 20062006 20072007 20082008

GDP Growth GDP Growth (%)(%) 3.03.0 -3.3-3.3 2.12.1 0.00.0 3.83.8 4.14.1 2.92.9 4.34.3 6.86.8 5.85.8

Inflation rateInflation rate 14.614.6 8.68.6 8.48.4 14.614.6 9.39.3 2.82.8 9.99.9 12.512.5 6.06.0 7.57.5

Fiscal Surplus Fiscal Surplus (Deficit)(Deficit)

(as % of GDP)(as % of GDP)

-- (4.6)(4.6) (1.2)(1.2) (3.8)(3.8) (0.6)(0.6) 1.61.6 1.61.6 -- 1.01.0 0.50.5

Debt Debt (as % of GDP)(as % of GDP) -- 46.146.1 47.747.7 65.565.5 60.760.7 47.847.8 40.740.7 33.033.0 25.925.9 21.421.4

Reserves Reserves (in millions of US$)(in millions of US$)

874.8874.8 771.9771.9 723.1723.1 641.3641.3 983.4983.4 1168.01168.0 1293.01293.0 1703.11703.1 2461.82461.8 2864.12864.1

Poverty Poverty (as % of (as % of population)population)

32.132.1 33.933.9 33.933.9 -- -- -- 38.238.2 -- 35.635.6 --

Extreme poverty Extreme poverty (as % of population)(as % of population)

-- -- -- 21.721.7 20.120.1 17.117.1 15.515.5 -- 19.419.4 --

Unemployment – Unemployment –

formal sector formal sector (% of labor force)(% of labor force)

14.314.3 15.915.9 15.315.3 16.416.4 13.013.0 10.910.9 9.49.4 11.411.4 5.65.6 --

Underemployment – Underemployment – informal sector informal sector (% of labor force)(% of labor force)

19.119.1 17.617.6 22.122.1 22.422.4 24.124.1 24.224.2 25.125.1 24.024.0 26.526.5 --

Source: DGEEC and BCP.


Weakness in CompetitivenessWeakness in Competitiveness

Inefficient allocation of resources through public Inefficient allocation of resources through public expendituresexpenditures

Poor public services and institutional developmentPoor public services and institutional development

Inadequate supply of physical infrastructureInadequate supply of physical infrastructure

Difficult access to medium and long term credits for the Difficult access to medium and long term credits for the productive sectorproductive sector

Low levels of technology and innovation Low levels of technology and innovation

THE STATE IN PARAGUAYTHE STATE IN PARAGUAY

A small State in comparison to others in Latin America: A small State in comparison to others in Latin America: no import substitution processno import substitution process

No civil service but clientelism and informalityNo civil service but clientelism and informality

Corruption within public institutions: the price of political Corruption within public institutions: the price of political stabilitystability

Political and economic privileges: “rent seeking”Political and economic privileges: “rent seeking”

…………..a “Predatory State” instead of a State that promotes ..a “Predatory State” instead of a State that promotes development development

POLITICAL SITUATIONPOLITICAL SITUATION

““Paraguay: Paraguay: thethe unraveling unraveling ofof oneone party rule (D. Abente 2009) party rule (D. Abente 2009)

An Hegemonic Party lost its grip on power, but modernization was An Hegemonic Party lost its grip on power, but modernization was not the relevant factor in the demise of the Colorado Party.not the relevant factor in the demise of the Colorado Party.

Three factors that explain the ousting of the “Colorados”:Three factors that explain the ousting of the “Colorados”:– The fragmentation of the ruling partyThe fragmentation of the ruling party

– The opposition overcoming its coordination dilemmaThe opposition overcoming its coordination dilemma

– The capacity of the Liberal Party to build its own political apparatusThe capacity of the Liberal Party to build its own political apparatus


Paraguay´s Political Landscape:Paraguay´s Political Landscape:

The main traditional parties: Colorado and LiberalThe main traditional parties: Colorado and Liberal

The third Space I: Encuentro Nacional and Patria The third Space I: Encuentro Nacional and Patria QueridaQuerida

The Third Space II: UNACE, splinter of the ColoradosThe Third Space II: UNACE, splinter of the Colorados

Small parties: Center-left and more leftistSmall parties: Center-left and more leftist

Paraguay’s Presidential Elections, 2003–2008CANDIDATE VOTES PERCENTAGE

2003 2008 2003 2008 2003 2008

Duarte Frutos Ovelar de Duarte 547,232 573,562 37.1 30.6

Sánchez Oviedo 208,391 410,637 13.5 21.9

Total for ANR & UNACE 755,623 984,199 50.6 52.5

Julio Franco Lugo 370,349 766,502 24.0 40.9

Fadul Fadul 328,916 44,060 21.3 2.4

Total for Opposition 699,265 810,562 45.3 43.3

+ANR is the Colorado Party; UNACE is the National Union of Ethical Citizens; PLRA is the Liberal Party; and PPQ is the Beloved Homeland Party.

‡The PLRA ran alone in 2003 and as part of the APC coalition in 2008.


The dilemmas for the new governmentThe dilemmas for the new government

The President does not have a party of his ownThe President does not have a party of his own

A loose government coalition that does not have majority A loose government coalition that does not have majority in the Congressin the Congress

The Liberal Party and its internal divisionsThe Liberal Party and its internal divisions

A discredit political class because of influence trafficking A discredit political class because of influence trafficking and corruptionand corruption


Challenges for the new governmentChallenges for the new government

Fighting corruption within the State and reforming the public sectorFighting corruption within the State and reforming the public sectorCleaning the judiciaryCleaning the judiciaryGovernance in the CongressGovernance in the CongressSocial demands and the political pressures of peasant, labor and Social demands and the political pressures of peasant, labor and othersothersHow to implement progressist policies in a very conservative How to implement progressist policies in a very conservative society.society.The renegotiation of the Itaipu TreatyThe renegotiation of the Itaipu TreatyKeep balance between liberal democracies and populism in Latin Keep balance between liberal democracies and populism in Latin AmericaAmerica

Government First StepsGovernment First Steps

Economic and Social Plan: ObjectivesEconomic and Social Plan: Objectives

Maintaining economic growth, but generating more Maintaining economic growth, but generating more employment opportunities and better income distribution employment opportunities and better income distribution with sustainable use of natural resources.with sustainable use of natural resources.

Maintaining macroeconomic equilibriumMaintaining macroeconomic equilibrium

Strengthening state institutions to promote effective Strengthening state institutions to promote effective policies oriented to provide better public services to the policies oriented to provide better public services to the citizenshipcitizenship


Economic and Social Plan: ObjectivesEconomic and Social Plan: Objectives

Strengthening State institutions to ensure legal Strengthening State institutions to ensure legal guarantees to investmentguarantees to investment

Improve public social investment and concentrate public Improve public social investment and concentrate public expenditures on reducing extreme poverty.expenditures on reducing extreme poverty.

Build economic development jointly with the private Build economic development jointly with the private sector and the civil society.sector and the civil society.


Economic and Social Plan: seven pillarsEconomic and Social Plan: seven pillarsMacroeconomic policies that promotes growthMacroeconomic policies that promotes growth

A financial system that reaches the medium and small A financial system that reaches the medium and small producersproducers

Efficient public companies to promote competitive public Efficient public companies to promote competitive public servicesservices

Modernization of the public administration to reduce Modernization of the public administration to reduce corruption, clientelism and create a civil servicecorruption, clientelism and create a civil service

Promote productivity and competitiveness to expand markets Promote productivity and competitiveness to expand markets and to gain new ones.and to gain new ones.

Agrarian reform and re-activation of the small agricultureAgrarian reform and re-activation of the small agriculture

Policies to reduce poverty and generate employment.Policies to reduce poverty and generate employment.

Government Limitations and SetbacksGovernment Limitations and Setbacks

High expectations have been met byHigh expectations have been met byThe appointment of a lackluster and disparate Cabinet The appointment of a lackluster and disparate Cabinet with no experience in running the State, except a few with no experience in running the State, except a few membersmembers

Lack of understanding of the State and the economy by Lack of understanding of the State and the economy by President Lugo´s inner circle.President Lugo´s inner circle.

No clear path in the process of decision makingNo clear path in the process of decision making

Strained relationship with the Liberal PartyStrained relationship with the Liberal Party

No clear understanding of Lugo´s political and ideologi No clear understanding of Lugo´s political and ideologi cal position to solve urgent social problemscal position to solve urgent social problems

Lack of strategies for foreign and trade policies.Lack of strategies for foreign and trade policies.

Government Limitations and SetbacksGovernment Limitations and Setbacks

Resulting in:Resulting in:Procrastination in implementing the economic and social Procrastination in implementing the economic and social planplan

Lack of coordination within the Cabinet for the process of Lack of coordination within the Cabinet for the process of decision makingdecision making

Bad management of relationships with the Congress and Bad management of relationships with the Congress and the Judiciarythe Judiciary

Splits within the Liberal Party that lead to increasing Splits within the Liberal Party that lead to increasing opposition in the Congressopposition in the Congress

In other words,In other words,

Lugo wants to lead the Paraguayan peopleLugo wants to lead the Paraguayan peoplebut not the Paraguayan government.but not the Paraguayan government.

ButBut

Has he lost his way?Has he lost his way?

ScenariosScenarios

Best case: getting your act together for substantial Best case: getting your act together for substantial changes within the State and to promote welfare changes within the State and to promote welfare

Articulation within the Cabinet, and networking with Articulation within the Cabinet, and networking with political forces in the Congresspolitical forces in the Congress

good policiesgood policies

good politicsgood politics

good managementgood management Worst Case: continuing unrest an eventual Worst Case: continuing unrest an eventual

impeachment of the Presidentimpeachment of the President

Continuity: Stability without changeContinuity: Stability without change

paraguay after 60 years of one party rule

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