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Paraguay Country Brief from www.worldbank.com OVERVIEW Paraguay is a landlocked country bordering Argentina, Brazil and Bolivia, in South America. The name "Paraguay" is derived from the Guaraní word pararaguay meaning "from a great river". The "great river" is the Paraná River, which produces the greatest amount of hydroelectric power in the world. Paraguay is divided by the Paraguay river into the eastern region or Paraguay Oriental and the western region or Chaco. The southeastern border is formed by the Paraná river, containing the Itaipú dam shared with Brazil. It is currently the largest hydroelectric power plant in the world, generating nearly all of Paraguay's demand for electricity. Guaraní and Spanish are both official languages in the country and most of the population speaks both of them. Typical to the paraguayan culture are embroidery (ao po'í) and lace making (ñandutí) with which they do fabrics and clothes full of color and beauty. ECONOMIC AND SOCIAL EVENTS The Patriotic Alliance for Change led by Fernando Lugo took office in August 2008 after 61 years of Colorado Party Government, to bring greater equity and social inclusion in the country. At present the country’s economic situation is highly favorable, hence it is a historic opportunity to improve social indicators and give way to the leveling of opportunities. Economic growth has been the highest since the 70s in the last five years and perspectives for the future are relatively favorable. At the macroeconomic level, the fiscal position is in order, inflation has remained at moderate levels and there is greater intermediation of savings through the financial system. Furthermore, the country’s present external situation is highly favorable with a systematic increase in recorded exports (almost 4-fold in the 2002-2008 period, totaling almost US$4.4 billion in 2008). Paraguayan economy is fundamentally agrarian with over 42% of the population living in rural areas according to official statistics. Agriculture and agribusiness represent also about 25% of the GDP, 30% of employment and account for almost all registered exports. In the 2004-2007 period the Gross Domestic Product increased an average of 4.5%. This has been in part the result of a prudent macroeconomic management since 2004 that brought the country out of a severe debt and banking crisis by, among others, maintaining an overall fiscal surplus of about 1% of GDP during the same period. The fiscal 1 adjustment has been underpinned by a comprehensive fiscal reform that helped to formalize key industries, such as the re-exportation of computing products. Nonetheless, the country still faces the enormous challenge of expanding its capital base. Net Direct Foreign Investment (US$188.8 million in 2007) remains low and well below the amount of funds the country receives on worker’s remittances from abroad (about US$341 million in 2007). However, the past few years of regional and country stability have fostered a number of noticeable developments in industries and services. Private investment in cellular telephony has been strong even if small in the overall macroeconomic context. Paraguay’s poverty rate increased to 46% of the population in 2002 and has since then fallen to about 35.6% in 2007 in part due to the recovery and in part to efforts to increase social spending. However, absolute poverty increased from 15.5% to 19.4% in the same period due to the rise in food prices. Not much progress has been achieved in terms of the indicators of basic social services. The maternal mortality rate has not decreased since 1988, when the country had the fourth highest rate in the continent. The infant mortality rate has remained the same or increased during the last 18 years to 36.4 per thousand live births in 2003. Drinking water coverage reaches 80.6% of the urban population, but only 35.2% of the rural population (an average of 61.5%); while sewerage coverage is barely 8.1% of the entire country and close to zero in rural areas WORLD BANK ASSISTANCE TO PARAGUAY The World Bank has recently approved the Country Partnership Strategy for the years 2009-2013. It proposes to allocate $ 100 million in new projects each year. The financial and non-reimbursable technical assistance focuses on three main pillars supporting the government program of this administration: a) Modernization of the status of public administration. b) Equity and equal opportunity for the less privileged groups. c) Generation of employment and economic growth. At the moment the portfolio of ongoing operations in Paraguay includes six Investment Operations for community development, infrastructure and rural development, as well as additional funding for the Community Development Project. These commitments total US$308.5 million. • The Community Development Pilot Project (US$9 million) helps improve the living conditions and social inclusion of marginal rural and urban communities in three Departments on the southern border of Paraguay (Itapúa, Misiones and Ñeembucú). The World Bank finances small grants for income-generation projects relating to agricultural activities, artisan workshops, eco-tourism, services (such as laundries), processing plants and community markets. 2 The Bank’s Board of Executive Directors has approved US$9 million in additional funding to expand the Project’s coverage to another eight of the country’s departments. This operation is awaiting the approval of the National Congress. • Reform of Secondary Education (US$24 million) the Project collaborates with the Ministry of Education to improve the coverage, quality and efficiency of lower secondary education. Besides surpassing the expected 10 percent gain in test scores for mathematics, the progression rate of students moving from grade 7 to grade 8 increased from 82 percent in 1995 to 94 percent in 1999, and the share of students repeating grade 7 declined from 2.4 percent in 1999 to 1.3 percent in 2001. The project also supported the free provision of 1.67 million textbooks for all grade 7-9 students in mathematics, science, Spanish and Guaraní, and social studies. In addition, 29,360 teachers and school directors were trained, and about 2,950 new classrooms were built under the project. • The Road Maintenance Project (US$74 million) seeks to improve road infrastructure management and maintenance in Paraguay. The project establishes a sustainable road management strategy that provides for the upgrading and maintenance of the road network through the strategic and transparent use of scarce resources. The approach is critical for Paraguay, which relies almost entirely on roads for transport in domestic and international goods. • The Project for Sustainable Rural Development (US$37.5 million) aims at helping improve the standard of living of small producers and indigenous communities in the Departments of San Pedro and Caaguazú. The initiative will support community organizations and foster self-government to improve the management of natural resources and thus contribute to the socio-economic development of the population. This Project was approved by the Bank’s Board of Executive Directors and of the National Congress. • The Project for Modernization of the Water and Sanitation Sector ($ 64 million) aims to improve the governance of the sector, improving water services and increase access to sewerage services in the metropolitan area of Asunción. The project also seeks to increase access to sustainable water and sanitation in rural areas. This project was approved by the World Bank Executive Board, is pending approval by the Congress. • The Project to Support Development Policy Public Sector ($ 100 million) seeks to diminish the impact of the global economic crisis and at the same time improve the functioning of the state. The initiative will support four key areas: Improving the functioning of the tax system, efficiency in public sector financial control, particularly of public enterprises, quality of public expenditure management and human resources policy. This project was approved by the World Bank Executive Board, is pending approval by the Congress. 3 In addition to loans, the Bank has mobilized grants to: • Improve the management of indigenous land (US$1.7 million) • Support social development in two municipalities (US$900,000) • Promote development in indigenous communities (US$1.6 million) On the analytical, the Bank recently concluded the preparation of: • Policy Notes. Economic and Social Development Options: Challenges and Priorities for Growth with Equity and Good Governance. • Evaluation of Achievements in Education. • Integrated Fiduciary Framework (jointly with IDB). • Paper on Real Property Tax. Projects in preparation include: a Project for the Modernization of the Water Sector (amount to be determined); a Forest Development Project (amount to determined); and a Land Management Project (amount to be determined). Closed Projects In the recent past, the World Bank program in Paraguay provided support to government initiatives in two areas: • Water and Sanitation. Significant progress has been made in the provision of drinking water services to rural areas. The Fourth Water Supply and Sanitation Project, for a total amount of US$40 million, has helped the Government expand water provision to rural populations. It is expected that this program will help to increase water and sanitation coverage from 20 percent to 30 percent in rural areas. By June-2007, 300 water systems had been built and seven water supply systems had been expanded or remodeled. Sixty of these water systems are operating in indigenous communities. In addition nearly 25,000 latrines have been built. A key feature of this program of support is its emphasis on fostering competition in the water supply market, with five private service providers operating today, while all other rural water systems are managed by the beneficiary communities which are responsible for operation and maintenance of the systems. • Rural Development. The US$47 million Natural Resources Management Project is helping to solve major agricultural and natural resource problems in the rural areas of Alto Paraná and northern Itapúa. It also assists small farmers and indigenous communities living in the area in the creation of sustainable and diversified agricultural production systems. The program encourages the participation of rural communities in the management of natural resources and the appropriate use of land. To this end, the project benefited 13,077 small farmers who received training to prepare participatory micro-catchments plans. As a result, 51 micro-catchments plans were completed, covering 17,206 rural estates distributed over 264,577 hectares. The goal is for farmers to improve productivity and adopt natural resource conservation measures. 4 For more information on World Bank assistance to Paraguay, including lending breakdown and project reports, see: Proposed Projects All Projects CONTACTS Yanina Budkin, Senior Communications Officer for Argentina, Chile, Paraguay and Uruguay Tel.: (54-11) 4316-9700 Fax: (54-11) 4313-1233 E-mail: [email protected] In Paraguay Ruth González Llamas Tel.: (595 21) 664 000 Fax: (595 21) 664 002 email: [email protected] 5