Press Release No. 05/101

Press Release: Statement by IMF Staff Mission to Paraguay

May 11, 2005

The following statement was issued in Asunción by an International Monetary Fund (IMF) staff mission:

"A mission from the International Monetary Fund (IMF) was in Asunción during April 27-May 10, 2005 to conduct discussions for the fifth review under the program originally approved on December 15, 2003 for 15 months (see Press Release No. 03/218), and extended through September 30, 2005 on December 20, 2004 (see Press Release No. 04/271).The mission was headed by Mr. Alejandro Santos and met with Finance Minister Borda, Central Bank senior officials, other members of the Cabinet of Ministers, senior government officials, as well as representatives from civil society.

"The mission made significant progress in the discussions and will conduct the final assessment of this review in Washington in coming weeks after assessing performance in the context of pending structural targets related to banking legislation and audits of public entities.

"The main findings of the mission were: There were significant improvements in the main macroeconomic indicators in 2004, reflecting a strengthening of the policy framework and supported by a positive external environment. For 2005, Paraguay confronts a less favorable external environment, as well as a domestic drought affecting key crops. In recent months, inflationary pressures have also emerged, and it will remain critical to implement strong macroeconomic policies in line with the government's program to deliver the stable environment needed to foster growth.

"Despite less favorable conditions, the government's 2005 program remains broadly on track. All quantitative performance criteria established for end-March 2005 under the Stand-By-supported program were observed, assisted by a prudent monetary policy and the application of a financial plan to guide fiscal policy, while at the same time monitoring that desirable public expenditure is executed as programmed. However, there have been some delays in implementing the structural reform agenda.

"A major challenge ahead is to continue efforts to implement the financial reform agenda. Congressional approval of adequate legislation on public banking and general banking should pave the way for a dynamic financial system, which is critical to allocate efficiently the scarce financial resources to support long-term growth. Efforts in further refining a development plan with equity should be an important priority to increase the potential growth of the economy, and reduce poverty.

"The mission would like to take this opportunity to thank the authorities and the citizens of Paraguay for their hospitality. We would like to encourage the general public to read the IMF documents related to Paraguay's economic program, which can be found at our website: http://www.imf.org/external/country/pry/index.htm."