Feature on His Excellency Horacio Cartes, President of the Republic of Paraguay
Reforms are key for any new governmental administration when it takes power, and the Cartes government arrived to many areas of the country’s economic and social fabric on which to improve. Access to well-paying, stable jobs that contribute to the nation’s coffers in the form of tax receipts, improved public transport for non-drivers, infrastructure development to power the nation’s growth, and many other actions are key to the success, real or perceived, of his presidency.
And the Cartes administration has not rested on its laurels when it comes to enacting new legislation to get the country back on the track of double-digit GDP growth. The three central foundations for this term are the reduction of poverty in absolute terms, strong and sustainable economic growth that benefits the population as a whole, with a strong element of social improvement, and finally, opening Paraguay up to the world, in terms of investment, tourism and recognition for the work the government and the people are doing to improve the country. Starting from what is essentially a blank slate, Paraguay needs to work on its international image, to sell itself as a destination where laws are respected, business is profitable, and the workforce are engaged and easily trained. As a starting point for this change, Cartes has passed two vital pieces of legislation – the investment protection law and the public private partnership law (PPP) – both of which are designed to encourage international investors to view the country as a place open for business.
The new PPP law establishes a framework for public-private partnership contracts, and also regulates private initiatives. New PPP contracts allotted by the government may extent to include management of infrastructure and associated services, including road projects, rail, port, airport, waterway dredging and maintenance of the rivers that surround Paraguay, and even go as far as to include social infrastructure, electrical equipment and urban development projects.
The main objective of the PPP law is to allow the private sector to become part of the process of building the nation, as it so often is in developing economies. This in turn will allow industry to drive infrastructure-construction projects forward, many of which are urgently needed by Paraguay due to the lack of government resources – namely funding. Through this system private capital is granted for the production of public goods and services for a fixed period, at which point the infra- structure will fall back into public hands.
The legislation has been much discussed in both houses of Congress, with some sectors of the Paraguayan legislature and society perceiving it as “privatisation light”, and a policy that will deliver even more power to the executive branch (i.e. the office of the President), given that the government has the au- thority to select the companies without the prior approval of Congress.
However, through this law, the Paraguayan government will benefit from the private sector injecting capital into pro- jects, which will ideally increase the liquidity in the Paraguay- an banking sector, one of the major issues that has held back the country over the past few years.
The major significance to the Cartes government is the spill-over effect of these infrastructure projects, in that they will create a better quality of life for all Paraguayans, and increase transparency in the investment procedures of the cur- rent and future governments.
Couple this with the fact that Paraguay is party to multiple international agreements and treaties that promote and pro- tect investment, and the country can promote itself as a leading light for business-friendly policies in South America. As a member of the Multilateral Investment Guarantee Agency (MIGA), the Overseas Private Investment Corporation (OPIC) and the International Centre for the Settlement of Investment Disputes (ICSID), capital is as safe in the country as it is in many Western or well-developed markets. These agreements guarantee capital against such risks as expropriation, currency inconvertibility and damages caused by revolution, war or civil strikes.
Paraguay also has many laws designed specifically to ease the entry of international businesses into the jurisdiction, such as Law 60/90, which encourages the investment and reinvestment of capital directed towards increasing the use of domestic raw materials, job creation, the production and distribution of goods and services, and the improvement of technology, with an increased level of general efficiency.
With the open investment environment created by the law, business can truly flourish away from the confines of an over-regulated legal situation, benefiting the company and its employees. However, one policy that excites corporations in many sectors is the maquila system, which is an export-led piece of legislation designed to pull investors into the country with favourable terms for export of completed goods, primarily into the Brazilian market: production of goods and the importation of raw materials are taxed at a low rate, meaning returns on investments are high, and with unlimited repatriation of profits and dividends, beneficial to Paraguay, in the form of revenue from employer and employee tax receipts, but also in the form of increased employment for the population, meaning lower social security spending.