New Gov't to Inherit Economy in Ruin

By Cristhian Torres, IPS, 5 May 1998

ASUNCION, May 5 (IPS)—The political instability shaking Paraguay is devastating the economy, and the new government to emerge from next Sunday's elections will find a country in virtual ruin, analysts warn.

Investment has come to a standstill, the budget deficit has ballooned, inflation is climbing, the local currency is falling and unemployment has hit a record high of 20 percent, economic observers point out.

And to top things off, the El Nino weather phenomenon has caused the worst flooding in 15 years in this land-locked Southern Cone country of five million.

The government of Juan Carlos Wasmosy has taken a wait-and-see attitude, putting off corrective measures until the results of the election are in.

The political crisis broke out in September, when former army chief Lino Oviedo—an opponent of Wasmosy—won the governing Colorado Party's internal elections. But the retired general was disqualified as presidential candidate last month when the Supreme Court upheld a 10-year sentence handed down by a military tribunal on charges of rebellion.

The tribunal also ordered a dishonourable discharge for Oviedo, who staged an attempted coup when ordered to step down as head of the army in April 1996.

The deep split in the ruling party—in power for the past 50 years—has made it impossible for Paraguay's political parties to reach an accord, urgently needed to help the economy get back on its feet.

The political instability and rumours of a coup have led people to convert their savings into dollars. That has severely weakened the local currency, the guarani, which has lost 35 percent of its value against the U.S. dollar since the start of the present political crisis.

The latest projections for inflation this year are double the government's initial estimate of 6.5 percent, said influential economist Ricardo Rodriguez Silvero.

But the Central Bank is not to blame for the state of the currency or the climbing inflation rate, because unlike the executive branch's fiscal policy, the government's monetary policy has been based on sound criteria, Silvero maintained.

One of the government's most pressing problems is the budget deficit. The crisis has led to a drop in revenues, and the administration has little maneuvering room with respect to spending, because almost all taxes go towards salaries. The government is presently facing a 120 million dollar deficit, according to official figures.

There is not enough money to pay contractors involved in public works, or even to assist the 30,000 people recently evacuated from areas flooded by the Parana and Paraguay rivers.

Since both public spending and private investment have come to a standstill, unemployment has soared, with nearly 20 percent of the economically active population lacking a stable job. The informal economy, which has boomed as living conditions have taken a dive, has provided a cushion.

The opposition Democratic Alliance's presidential candidate Domingo Laino of the centrist Authentic Radical Liberal Party and his running-mate Carlos Filizzola of the social democratic 'Encuentro Nacional' have campaigned on a promise of an immediate overhaul and reconstruction of the economy.

Businessman Guillermo Caballero, who will be named economy minister if the opposition wins, indicated the Alliance's pragmatic stance when he said that the best of every doctrine would be taken into account in the coalition's economic policy.

Caballero said the conditions necessary to Paraguay's economic and social recovery were political stability, an operative legal system, an economy guided by well-defined policies, a social consensus and a major boost to confidence in the public sector.

Efforts against corruption and for public safety are indispensable in reviving people's faith in local authorities, he added.

According to analyst Pablo Herken, the economy can no longer bear the traditional, unsuccessful Colorado formula. Economic policy must be depoliticised, the link between the state and political parties severed, the economy denationalised and the armed forces professionalised.

Addressing the Rural Association of landowners, Colorado Party candidate Raul Cubas also promised to uproot corruption and fight crime.

Opinion polls, the last results of which were published last week in accordance with the rules governing elections, showed Laino ahead of Cubas, although within the three percent margin of technical error.