August 28, 2010

Soy lifts Paraguay's economy

Paraguay gains record economic growth brought by its soy exports although remains exposed to domestic and international pressures to consolidate a more secure future.

According to analysts, the soy-based recovery was a short-term gain for one of Latin America's poorest nations. The country needed more investment and economic diversification.

Plans by bigger Mercosur trade bloc nations to build railroad and highways connecting Latin America's Atlantic coastal regions with the Pacific would benefit Paraguay but in the longer term, analysts said.

As of present, Paraguay's soy export earnings would bring much needed cash to help the economy back on its feet after the mauling it received in the double whammy of drought and global economic downturn in 2009. The crisis pushed the country's 6.3 million people, except for the privileged minority, further down the poverty line.

Paraguay lies on both banks of the Paraguay River, an advantage when the river is full but a punishing ordeal when it begins to run dry, as in the last drought. This year's abundant soy crop encouraged the country's economic planners to revise the growth forecast from 6%-9% - mostly because of soy earnings, some manufacturing and other farm produce.

This would be the economy's largest annual expansion in almost three decades and is unlikely to be repeated any time soon, analysts said. Central Bank President Jorge Corvalan said the economy would also benefit from a construction boom and increased livestock production. Growth in 2011 could even out to around about 4.4%, he said.

Analysts said improved consumer demand and job prospects could further boost the economy. Manufacturing received some attention in recent years but the economy is blighted by an "informal sector" that allows wealthy landowners to employ large numbers of peasant farm labourers on subsistence wages - a potential flash point cited by the opposition in its campaign pronouncements against the government.