Paraguay has undergone a major turnaround since 2003 as the economy emerged from aserious macroeconomic crisis that required an IMF supported adjustment program basedon fiscal and financial reforms. Since 2003 the economy has been growing more rapidlythan at any time since the 1970s. In this paper we will put the growth dynamics in ahistorical context, try to identify the drivers of long run economic performance, carry outa growth diagnostic of the country and discuss a policy agenda to sustain and acceleratethe development of the country.
Lessons from the past six decades
Paraguay is a country of great promise but has yet to consistently realize this potential.The past 65 years have been marked by economic stagnation. After the Chaco war,during the 1940s and 1950s and even until the mid 1960s, output per capita was eitherstagnant or declining in Paraguay while the rest of Latin America enjoyed high growth.During the mid to late 1960s, and particularly in the 1970s, there was a significant growthacceleration. After this episode, the country entered another long period of economicstagnation that in broad outlines lasted for the last quarter century. If we look in moredetail over this more recent period we find that there were two shorter growthaccelerations: one in the late 1980s and another one initiated around 2003, but these havebeen recoveries from previous recessions of roughly the equivalent size, meaning thatoutput per capita today remains below the peak level in 1981.
Source: MaddisonThe growth acceleration in the 1970s was due to two factors: an export boom in the earlyto mid-1970s accompanied in the late 1970’s by the construction boom for the Itaipuhydroelectric dam. Between 1969 and 1977, exports per capita more than doubled, as2