Economy of Paraguay
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Until the mid-1970s, public sector investment in Paraguay was low by Latin American standards and was concerned mainly with improving roads, telecommunications, and air transport. That situation changed with the establishment of several state companies, most notably Itaipú Binacional, set up in 1973 to build a huge hydroelectric dam on the Paraná, and steel, cement, and alcohol-distillation plants. Impressive economic growth, particularly in the 1970s, was not matched by government efforts to distribute its benefits equitably. Most Paraguayans, especially in rural areas, remained poor. The police and armed forces absorbed a large portion of the budget.
During the late 20th century, public sector employment grew rapidly, making up about one-tenth of the labour force. Until 1982, when the construction of the Itaipú Dam was completed, Paraguay was able to offset its trade deficit with international loans. For the rest of the decade, however, the country was faced with a growing fiscal deficit, high debt repayments on commercial borrowing, and dwindling international reserves.
The government of Gen. Andrés Rodríguez Pedotti (1989–93) implemented a number of economic reforms designed to introduce a market-based economy. They included the abolition of a multiple exchange rate, the reduction in subsidies to state companies, and the elimination of export taxes. His successor, Juan Carlos Wasmosy (1993–98), began a mild program of privatization. Economic mismanagement during the early 2000s led to a near default on external debt repayment obligations, which was narrowly averted by strict adherence to an International Monetary Fund stabilization program. From the middle of the first decade of the 21st century, the economy began to experience escalating growth as the result of the rapid increase in the export of soybeans and meat products.
Agriculture, forestry, and fishing
Agriculture is one of the most important economic activities in Paraguay, employing about one-fourth of the workforce. It accounts for about one-fifth of the gross domestic product and the vast majority of exports. Important cash crops include soybeans, corn (maize), wheat, rice, rapeseed, sesame, sugarcane, peanuts (groundnuts), and cassava (manioc). Many farmers practice direct sowing, a mechanized system intended to preserve land nutrients and avoid erosion; much of the grain in Paraguay is grown by that method. The country is self-sufficient in many foodstuffs but is still highly dependent on the vagaries of climate and world commodity prices for its main agricultural products.
Although about one-fifth of Paraguay’s total land area is suitable for intensive cultivation, only a small amount of this is utilized steadily, and virtually all of it is in the Eastern Region. Most farm units are occupied by owners, but there are large numbers of tenant farmers and squatters. Paraguay has a highly skewed system of land tenure, which is largely a legacy of land sales following the War of the Triple Alliance (1864/65–70), compounded by sales of state-owned land to political cronies of Alfredo Stroessner during his dictatorship under the guise of land reform. During the late 20th century, more than three-fourths of the land was owned by 1 percent of landholders. The Rural Welfare Institute has helped several thousand farmers acquire land, but the farmers’ access to land titles has been problematic. The number of landless families remains high, and conflicts between large government-backed landowners, especially Brazilian soybean farmers, and groups of landless peasants seeking land reform continued into the 21st century. Some pigs, sheep, chickens, and horses are raised, but cattle are the most important livestock. Cattle raising, a traditional activity, is particularly prevalent in the Chaco, in the northern regions of Concepción and San Pedro, and in the southern regions of Misiones and Ñeembucú. Mennonite communities in Paraguay have formed successful farm cooperatives, which provide about half the country’s dairy products. Meat, dairy products, and hides are consumed domestically and exported.
Timber products have long been an important export for Paraguay. More than half the country was forested in the 1940s, particularly the north and east, but by the end of the 20th century, the proportion had dropped to nearly one-fifth. Rapid deforestation began in the 1970s, largely as a result of the extension of the agricultural frontier in the eastern border region. Widespread environmental damage ensued, as reforestation has been minimal. Official estimates of the rate of deforestation suggest that Paraguay is in danger of losing virtually all its forests by the middle of the 21st century. In 2004 the Paraguayan government passed the Zero Deforestation Law, which prohibits the conversion of forested area in Paraguay’s Eastern Region. Illegal logging in national parks, however, has remained a threat. Deforestation of the Gran Chaco increased dramatically from the beginning of the 21st century as Paraguayan Mennonites, Brazilian immigrants, and Uruguayan investors sought to expand cattle production.
Fish are plentiful in the rivers, and surubí (a species of catfish), pacu (a large river fish), and dorado (which resemble salmon) are popular domestically. There is no large-scale commercial fishing industry, however.