ASUNCIÓN, Paraguay — In the past few years, the economy of Paraguay has seen rapid growth fueled by sound economic policy. In fact, Paraguay’s economic reforms have made it one of the fastest growing economies in South America and the world.
This quick rise came as a surprise, because Paraguay has historically ranked among the poorest nations of the world, the reasons for which are part historical and part political.
Paraguay is a landlocked nation situated between two powerful countries, Argentina and Brazil. Since its independence, Paraguay’s leaders have feared being taken over by their strong neighbors to the east and west, resulting in a policy of isolationism that kept the country from developing with the outside world.
But during the 1950’s, the government decided to open up its borders to trade resources and ideas with the world. It began a laissez-faire style economic policy and let the private sector manage the economy. This gradual opening up and letting in of new ideas led to steady economic growth.
Based on this success, Paraguay ambitiously decided to try to catapult itself to economic leadership within South America. In 1997, the government began to offer incentives for foreign investors who did business in the country. Investors were skeptical at first due to the country’s political history, but that changed when a fiscal responsibility law was created in 2013 to control government spending.
That law gave foreign investors the confidence they needed to do business in Paraguay and since then, foreign direct investment has grown by 230 percent. The International Monetary Fund predicts Paraguay’s economy will grow by 2.8 percent next year. This is in contrast to the projected rate for South America at 0.8 percent.
Amilcar Ferreira, the Paraguayan economist with Intelligent Business Solutions, said one of the main factors for the country’s growth has been the reopening of the markets.
In addition to the government’s promise of fiscal responsibility, Paraguay’s economic reforms have made it more attractive to the international business community. At 10 percent, the country had the lowest corporate tax rate in Latin America and some of the cheapest labor and electricity in all of South America.
All of this has resulted in Paraguay ranking high in the World Bank’s Ease of Doing Business, even ranking higher than their historically powerful neighbors.
All of this economic growth has not just benefited the business class in Paraguay. The World Bank has a poverty headcount ratio that calculates the percent of a nation that lives below the national poverty line. In 2006, Paraguay had 43.7 percent of its population living in poverty. After the economic reforms of 2013, Paraguay’s poverty headcount is at 23.8 percent. The number of its citizens living at or below poverty has almost halved in less than ten years.
Paraguay’s economic reforms have led to rapid growth and the creation of a new middle class. As a region, Latin America’s middle class grew 50 percent from 2003 to 2009. This newly created middle class can open up markets for large economies like the United States.