## _cr06100

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---

### Background
- Last review of the Stand-By Arrangement originally approved December 2003 and extended December 2004 and September 2005; arrangement expires end-November 2005.
- Access under the program was SDR 50 million (50 percent of quota). Upon completion of this review, the whole SDR 50 million will become available to the authorities, who do not intend to make the purchase.
- Program outcome: ending successfully, having achieved the broad objectives of restoring stability and beginning a process of structural reform, albeit with some delays.
- Context at approval (2003): Paraguay faced a severe financial and budgetary crisis triggered by the regional crisis of 2002 and weak macroeconomic fundamentals.
- Policy response: decisive Fund-supported program response stopped the financial crisis and put public finances on a sustainable path.
- 2004 performance: economic growth of 4 percent and inflation below 3 percent.
- Structural agenda: implementation uneven due to heavy reliance on legislative initiatives.

### Recent Developments (2005)
- Economic performance continued as described at last review in August 2005.
- Inflation:
  - Monthly inflation rose by 1½ percent in September and October 2005 after relative price stability in August.
  - The 12–month rate of inflation jumped to 7 percent in September and about 10 percent in October.
  - Central Bank of Paraguay estimates more than half of pressures due to: (i) higher international oil prices; and (ii) imported inflation (mostly from Brazil as the real has strengthened).
- Monetary policy and reserves:
  - Central Bank tightened monetary conditions and limited foreign exchange intervention.
  - Interest rates on letras de regulación monetaria increased by 125 basis points in late October 2005.
  - The guaraní has remained stable after an earlier appreciation against the U.S. dollar.
  - International reserves remain well above program projections.
- Fiscal policy:
  - Fiscal policy remains tight.
  - Reduction in the tax rate on advance payments on the corporate income tax (from 30 to 10 percent).
  - 2005 fiscal objectives expected to be met, mainly due to tax collection efforts and expenditure restraint, including lower-than programmed public investment.
  - Fiscal adjustment law (2004) anticipates corporate income tax rate reductions: from 30 to 20 percent in 2005 and to 10 percent in 2006; with the August reduction in advance payments, average rate on 2005 advance payments will be 20 percent (some payments at 30 percent and others at 10 percent), and the average rate on 2006 advance payments will be 10 percent. Staff estimates the tax reduction in 2006 to amount to about 1¼ percent of GDP on an annual basis.
- External sector:
  - Current account deteriorated mostly due to the oil shock.
  - Imports grew rapidly in 2005 due to higher oil prices; exports remained subdued because of drought and low export prices.
- Contested legal claim:
  - Decree 6295 (August 2005) issued in connection with disputed claim from loans fraudulently contracted by a Paraguayan diplomat in the 1980s (Mr. Gramont-Berres).
  - Swiss Federal Supreme Court ruling (May 2005) in favor of a bank syndicate claiming US$85 million against Paraguay on a purported guarantee. Decree does not recognize the ruling nor liabilities arising from the fraud; authorities seeking diplomatic solution. For program purposes, claims continue to be treated as in dispute.

### Program Performance and Conditionality
- Program remains broadly on track.
- All quantitative performance criteria for end-June 2005 were observed and reported to the Board at last review in August.
- Latest information indicates key program variables remain on track consistent with program projections.
- Discussions on a possible successor arrangement are ongoing.
- Continuous performance criteria on short-term external debt and zero-arrears and standard criteria related to exchange and import restrictions continued to be observed.

### Structural Conditionality and Completion Status
- Two outstanding structural benchmarks observed:
  - Public enterprises:
    - Design of plans for private capital participation in ESSAP (water), COPACO (telephone) and PETROPAR (petroleum), involving outsourcing management to private-sector professionals under a performance contract, completed in October.
  - Banking sector:
    - Development of an action plan to achieve program objectives of strengthening the banking system based on the FSAP recommendations completed in November.
    - Plan, designed with MFD-financed advisor assistance, sequences actions for the Central Bank and Superintendency of banks to: strengthen monetary operations; redefine minimum capital requirements; set out a fit and proper test for issuing banking licenses; sharpen identification of corporate risk; and enhance sanction capabilities.
    - Authorities intend to build consensus within the banking community to support implementation.
- Audits:
  - At time of fifth review, authorities requested a waiver for non-observance of the structural performance criterion on conducting accounting audits of ANNP, DINAC, INC, and PETROPAR.
  - Audits for ANNP, DINAC and PETROPAR had begun; audit for INC began shortly after the fifth review. All audits expected to be finalized by end–2005.

### Staff Appraisal and Policy Direction
- Staff welcomes successful completion of the Fund-supported program.
- Main objectives achieved: stopping financial crisis, strengthening fiscal position, beginning structural reform.
- Authorities implemented a demanding program under difficult political conditions; this was Paraguay’s first Fund arrangement in 35 years.
- Prospects positive, though long-standing vulnerabilities persist.
- Program outcomes: public finances placed on sound footing and enhanced debt sustainability; debt to GDP ratio is declining.
- Overall medium-term assessment broadly unchanged from previous projections.
- Authorities remain committed to broad fiscal balance over the medium term.
- Staff welcomes authorities’ interest in developing a new medium-term program aimed at increasing growth and alleviating poverty; being developed in consultation with the Fund.
- Staff supports completion of the sixth and last review under the SBA given completion of remaining conditionality, development of the banking-sector action plan, reduced vulnerabilities, and continued satisfactory macroeconomic performance.

### Key Quantitative Performance Criteria (selected reported figures)
- Fiscal targets (floor/ceiling, in billions of guaranies):
  - Overall balance of the central administration (floor):
    - 2004 end-Mar. Target 240 / Actual 523
    - 2004 end-Aug. Target 430 / Actual 982
    - 2004 end-Dec. Target 55 / Actual 792
    - 2005 end-Mar. Target 105 / Actual 261
    - 2005 end-June Target 136 / Actual 652
  - Wage bill of the central administration (ceiling):
    - 2004 end-Mar. Target 650 / Actual 668
    - 2004 end-Aug. Target 1,791 / Actual 1,812
    - 2004 end-Dec. Target 3,010 / Actual 2,984
    - 2005 end-Mar. Target 754 / Actual 744
    - 2005 end-June Target 1,525 / Actual 1,509
  - Overall balance of the public sector (floor):
    - 2004 end-Mar. Target 250 / Actual 678
    - 2004 end-Aug. Target 500 / Actual 1,529
    - 2004 end-Dec. Target 130 / Actual 999
    - 2005 end-Mar. Target 174 / Actual 357
    - 2005 end-June Target 336 / Actual 678
- Monetary targets:
  - Net international reserves (floor, in millions of U.S. dollars):
    - 2004 end-Mar. Target 773 / Actual 1,016
    - 2004 end-Aug. Target 1,057 / Actual 1,141
    - 2004 end-Dec. Target 1,059 / Actual 1,168
    - 2005 end-Mar. Target 1,100 / Actual 1,189
    - 2005 end-June Target 1,175 / Actual 1,273
  - Net domestic assets (ceiling, in billions of guaranies):
    - 2004 end-Mar. Target -2,839 / Actual -4,264
    - 2004 end-Aug. Target -4,444 / Actual -5,231
    - 2004 end-Dec. Target -3,958 / Actual -4,848
    - 2005 end-Mar. Target -4,488 / Actual -5,247
    - 2005 end-June Target -5,168 / Actual -5,782
- Public debt and arrears targets:
  - Contracting or guaranteeing of nonconcessional external debt by the NFPS (ceiling, in millions of US$):
    - 2004 end-Mar. Target 50 / Actual 0
    - 2004 end-Aug. Target 200 / Actual 0
    - 2004 end-Dec. Target 200 / Actual 0
    - 2005 end-Mar. Target 200 / Actual 10
    - 2005 end-June Target 200 / Actual 47
  - External payments arrears of NFPS (ceiling, in millions of US$):
    - 2004 end-Mar. Target 75 / Actual 75
    - 2004 end-Aug. Target 5 / Actual 3
    - 2004 end-Dec. Target 0 / Actual 16
  - Central government floating debt (ceiling, in billions of guaranies):
    - 2004 end-Mar. Target 350 / Actual 228
    - 2004 end-Aug. Target 297 / Actual 235
    - 2004 end-Dec. Target 320 / Actual 134
- Continuous performance criteria:
  - Contracted or guaranteed short-term external debt by the NFPS: Target and Actual listed as 0 for all reported dates.

### Selected Economic Indicators (annual growth, Jan–Sep and levels)
- Production (manufacture): 2003 0.2; 2004 6.6; 2005 0.9.
- Agriculture: 2003 10.9; 2004 2.8; 2005 -10.2.
- Livestock: 2003 -1.2; 2004 9.0; 2005 26.4.
- Inflation (consumer prices): 2003 9.3; 2004 2.8; 2005 7.6.
- Monetary (base money 12-month growth rate e.o.p.): 2003 57.7; 2004 17.6; 2005 -5.1.
- Monetary (money supply 12-month growth rate e.o.p.): 2003 35.8; 2004 24.7; 2005 24.5.
- Public Finances (tax receipts): 2003 25.8; 2004 34.1; 2005 10.1.
- External (exports, registered trade): 2003 30.6; 2004 30.9; 2005 -0.8.
- External (imports, registered trade): 2003 23.5; 2004 42.2; 2005 8.7.
- Exchange rate (G/US$, 12-month growth rate e.o.p.): 2003 -13.3; 2004 2.8; 2005 2.8.
- NIR (billion US$): 2003 0.98; 2004 1.17; 2005 1.28.

### Macroeconomic Performance and Projections (selected national accounts and prices)
- GDP at current prices (billions of guaraníes): 2002 10.0; 2003 24.2; 2004 14.6; 2005 Prog. 7.5; 2005 Rev. 8.2; 2006 Proj. 11.9.
- GDP at constant prices (annual percent change): 2002 0.0; 2003 3.8; 2004 4.1; 2005 Prog. 3.2; 2005 Rev. 3.0; 2006 Proj. 3.5.
- Per capita GDP (U.S. dollars, thousands): 2002 0.9; 2003 1.0; 2004 1.2; 2005 Prog./Rev. 1.2; 2006 Proj. 1.3.
- GDP deflator (percent change): 2002 10.0; 2003 19.6; 2004 10.1; 2005 Prog. 4.2; 2005 Rev. 5.1; 2006 Proj. 8.1.
- Consumer prices (end-of-period) (percent): 2002 14.6; 2003 9.3; 2004 2.8; 2005 Prog. 6.0; 2005 Rev. 10.0; 2006 Proj. 5.0.

### External Sector (selected levels and percent of GDP)
- Net oil exports and imports (US$ millions): 2002 -239; 2003 -327; 2004 -434; 2005 Prog. -510; 2005 Rev. -554; 2006 Proj. -574.
- Current account (US$ millions): 2002 93; 2003 131; 2004 110; 2005 Prog. -27; 2005 Rev. -177; 2006 Proj. -174.
- Current account (percent of GDP): 2002 1.8; 2003 2.3; 2004 0.1; 2005 Prog. -0.4; 2005 Rev. -2.4; 2006 Proj. -2.2.
- Gross reserves (millions of U.S. dollars): 2002 641; 2003 983; 2004 1,168; 2005 Prog. 1,220; 2005 Rev. 1,250; 2006 Proj. 1,288.
- Gross reserves (months of imports): 2002 2.8; 2003 3.4; 2004 3.9; 2005 Prog. 3.9; 2005 Rev. 4.1; 2006 Proj. 4.0.
- External public debt (percent of GDP): 2002 47.2; 2003 46.5; 2004 36.5; 2005 Prog. 36.5; 2005 Rev. 34.8; 2006 Proj. 32.2.

### Savings-Investment and Public Finances (selected)
- Gross domestic investment (percent of GDP): 2002 18.7; 2003 21.0; 2004 20.1; 2005 Prog. 21.3; 2005 Rev. 20.5; 2006 Proj. 21.0.
- Gross national savings (percent of GDP): 2002 20.5; 2003 23.3; 2004 20.2; 2005 Prog. 21.0; 2005 Rev. 18.1; 2006 Proj. 18.8.
- Central government primary balance (percent of GDP): 2002 -1.9; 2003 1.0; 2004 2.7; 2005 Prog. 0.7; 2005 Rev. 1.1; 2006 Proj. 1.1.
- Central government overall balance (percent of GDP): 2002 -2.5; 2003 -0.3; 2004 1.9; 2005 Prog. -0.5; 2005 Rev. -0.2; 2006 Proj. 0.0.
- Public sector debt (end-of-year, percent of GDP): 2002 54.5; 2003 51.7; 2004 40.4; 2005 Prog. 39.4; 2005 Rev. 38.2; 2006 Proj. 35.0.

### Central Government Operations (selected levels and percent of GDP)
- Total revenues (billion of guaraníes): 2002 5,048; 2003 6,001; 2004 7,637; 2005 Prog. 8,137; 2005 Rev. 8,096; 2006 Staff Proj. 9,516; Draft budget 2006 8,976.
- Tax revenues (billion of guaraníes): 2002 2,923; 2003 3,676; 2004 4,929; 2005 Prog. 5,093; 2005 Rev. 5,283; 2006 Staff Proj. 5,876; Draft budget 2006 5,765.
- Current expenditures (billion of guaraníes): 2002 4,766; 2003 4,981; 2004 5,363; 2005 Prog. 6,089; 2005 Rev. 6,275; 2006 Staff Proj. 7,001; Draft budget 2006 6,785.
- Wages and salaries (billion of guaraníes): 2002 2,582; 2003 2,724; 2004 2,984; 2005 Prog. 3,328; 2005 Rev. 3,321; 2006 Staff Proj. 3,684; Draft budget 2006 3,684.
- Interest payments (billion of guaraníes): 2002 456; 2003 489; 2004 483; 2005 Prog. 561; 2005 Rev. 568; 2006 Staff Proj. 553; Draft budget 2006 562.
- Capital expenditures and net lending (billion of guaraníes): 2002 1,281; 2003 1,165; 2004 1,625; 2005 Prog. 2,287; 2005 Rev. 1,895; 2006 Staff Proj. 2,847; Draft budget 2006 2,181.
- Overall balance (billion of guaraníes): 2002 -728; 2003 -116; 2004 799; 2005 Prog. -240; 2005 Rev. -74; 2006 Staff Proj. -331; Draft budget 2006 10.
- Overall balance (percent of GDP): 2002 -2.5; 2003 -0.3; 2004 1.9; 2005 Prog. -0.5; 2005 Rev. -0.2; 2006 Staff Proj. -0.7; Draft budget 2006 0.0.

### Consolidated Public Sector (selected)
- Revenue (billion of guaraníes): 2002 6,160; 2003 7,450; 2004 8,960; 2005 Prog. 9,665; 2005 Rev. 9,686; 2006 Proj. 10,748.
- Current expenditure (billion of guaraníes): 2002 5,763; 2003 6,247; 2004 6,802; 2005 Prog. 7,532; 2005 Rev. 7,747; 2006 Proj. 8,582.
- Capital expenditure and net lending (billion of guaraníes): 2002 1,875; 2003 1,819; 2004 1,956; 2005 Prog. 3,217; 2005 Rev. 2,235; 2006 Proj. 2,593.
- Public enterprises' operating surplus (billion of guaraníes): 2002 458; 2003 801; 2004 583; 2005 Prog. 1,063; 2005 Rev. 306; 2006 Proj. 447.
- Overall balance (percent of GDP): 2002 -3.4; 2003 0.0; 2004 2.1; 2005 Prog. 0.0; 2005 Rev. 0.0; 2006 Proj. 0.0.

### Central Bank Summary Accounts (selected)
- Currency issue (end-of-period, billions of guaraníes): 2003 2,207; 2004 2,488; 2005 Prog. 2,816; 2005 Rev. 2,736; 2006 Proj. 2,974.
  - Growth (percent): 29.9 (2003); 12.7 (2004); 10.0 (2005 Prog.); 10.0 (2005 Rev.); 8.7 (2006 Proj.)
- Net international reserves (millions of US$): 2003 983; 2004 1,168; 2005 Prog. 1,220; 2005 Rev. 1,250; 2006 Proj. 1,288.
- Net domestic assets (billions of guaraníes): 2003 -3,969; 2004 -4,848; 2005 Prog. -4,844; 2005 Rev. -5,114; 2006 Proj. -5,114.
- Monetary base growth: 57.7 (2003); 17.6 (2004); 8.2 (2005 Prog.); 0.6 (2005 Rev.); 4.9 (2006 Proj.).

### Banking System (selected)
- Broad Liquidity (M4, billions of guaraníes): 2002 8,970; 2003 10,558; 2004 11,791; 2005 Prog. 12,460; 2005 Rev. 12,633; 2006 Proj. 13,628.
- Money and quasi-money (M2, billions of guaraníes): 2002 3,839; 2003 4,794; 2004 5,974; 2005 Prog. 6,018; 2005 Rev. 6,512; 2006 Proj. 7,092.
- Credit to the private sector (billions of guaraníes): 2002 6,230; 2003 5,081; 2004 5,788; 2005 Prog. 6,464; 2005 Rev. 5,917; 2006 Proj. 6,409.
- Annual percentage change, credit to the private sector: -20.9 (2002); -18.4 (2003); 13.9 (2004); 10.2 (2005 Prog.); 2.2 (2005 Rev.); 8.3 (2006 Proj.).
- Share of nonperforming loans in total loans (percent, latest available data September 2005): 16.6 (2002); 16.5 (2003); 19.7 (2004); 20.6 (2005 Prog.); 10.8 (2005 Rev.); 8.9 (2006 Proj.).

### Balance of Payments and External Financing (selected)
- Current account (US$ millions): 2002 93; 2003 131; 2004 110; 2005 Prog. -27; 2005 Rev. -177; 2006 Proj. -174.
- Trade balance (US$ millions): 2002 -283; 2003 -280; 2004 -404; 2005 Prog. -460; 2005 Rev. -603; 2006 Proj. -603.
- Exports (US$ millions, registered and unregistered combined, selected): 2002 185; 2003 221; 2004 632; 2005 Prog. 751; 2005 Rev. 282; 2006 Proj. 820.
  - Registered exports (selected): 2002 95; 2003 112; 2004 142; 2005 Prog. 162; 2005 Rev. 163; 2006 Proj. 167.
  - Unregistered exports (selected): 2002 90; 2003 109; 2004 122; 2005 Prog. 611; 2005 Rev. 90; 2006 Proj. 88.
- Imports (US$ millions): 2002 -2,134; 2003 -2,443; 2004 -3,156; 2005 Prog. -3,280; 2005 Rev. -3,221; 2006 Proj. -3,299.
  - Registered imports (selected): 2002 -1,510; 2003 -1,865; 2004 -2,652; 2005 Prog. -2,713; 2005 Rev. -2,759; 2006 Proj. -2,839.
- Capital and financial account (US$ millions): 2002 53; 2003 207; 2004 135; 2005 Prog. 66; 2005 Rev. 100; 2006 Proj. 202.
- Overall balance (US$ millions): 2002 -83; 2003 211; 2004 265; 2005 Prog. 39; 2005 Rev. 7; 2006 Proj. 128.
- Net international reserves (increase -) (US$ millions): 2002 83; 2003 -302; 2004 -181; 2005 Prog. -39; 2005 Rev. -82; 2006 Proj. -38.

### Indicators of External Vulnerability (selected)
- Broad money (M3), percentage change: -0.5 (2000); 0.7 (2001); -21.0 (2002); 17.7 (2003); 12.3 (2004); 7.7 (2005 Proj.).
- Credit to the private sector, real (percentage change): -9.0 (2000); -8.7 (2001); -31.1 (2002); -25.5 (2003); 10.9 (2004); -7.1 (2005 Proj.).
- Average domestic lending rate, real: 16.0 (2002); 22.5 (2003); 39.0 (2004); 19.3 (2005 Prog.); 17.4 (2005 Rev.); 23.0 (2006 Proj.).
- International reserves (millions of US$): 2000 772; 2001 723; 2002 641; 2003 983; 2004 1,168; 2005 Proj. 1,220; 2006 Proj. 1,250.
- Debt service (percent of exports GNFS): 2000 10.4; 2001 10.8; 2002 9.1; 2003 11.7; 2004 7.7; 2005 Proj. 7.7; 2006 Proj. 6.5.

### Social and Demographic Indicators (selected)
- Area (thousand sq. km): 407.
- Total population (in millions-2004): 5.7.
- Rate of increase (percent a year): 1.9.
- Density (per sq. km.): 14.1.
- Life expectancy at birth (years): 70.6.
- Crude birth rate (per thousand): 29.7.
- Crude death rate (per thousand): 5.0.
- Infant mortality (per thousand live births): 26.0.
- Male literacy rate: 94 percent.
- Female literacy rate: 92 percent.
- Primary school enrollment: 92 percent.
- Secondary school enrollment: 47 percent.
- Access to a water source: 79 percent.
- Access to a sanitation facility: 95 percent.
- Income distribution:
  - By highest 20 percent of households: 61 percent.
  - By lowest 20 percent of households: 2 percent.
- Physicians per 1,000 people: 1.1.
- Hospital beds per 1,000 people: 1.3.
- Unemployment: 10.9.

### Active Loan Portfolio and IDB Program (as of September 30, 2005)
- Active loan portfolio: US$567.4 million.
- Undisbursed balance: US$278.6 million.
- Active Technical Cooperation operations: 43 operations for US$17.9 million.
  - Undisbursed Technical Cooperation balance: US$9.5 million.
- IDB 2004–2008 strategic focus areas:
  - Strengthening governance by restoring credibility of State institutions.
  - Laying foundations for sustainable growth through consolidation of the market economy and greater regional and global integration.
  - Reducing poverty and improving quality of life of low-income sectors.
- Lending pipeline (2005-A):
  - Strengthening of the Judiciary System II, US$10.8 million.
  - Professionalism of the Civil Service, US$3.5 million.
  - Asunción Coastal Development Program, US$80.0 million.
  - Science and Technology Program, US$6.5 million.
- Lending pipeline (2005-B):
  - Modernization of the Agriculture Public Sector Management, US$20 million.
  - Programmatic Loan for Public Banking Reform, US$30 million.

### Work Program, Missions and Reviews (selected dates)
- Sixth SBA Review: Board Meeting (if required, lapse of time basis) November 30, 2005.
- Successor Arrangement: Mission November 9-22, 2005; Board Meeting January 18, 2006.
- First Review under a Successor Arrangement and the 2006 Article IV Consultation: Mission April 19-May 3, 2006; Board Meeting June 16, 2006.
- Memorandum items: Approval of SBA December 15, 2003; First SBA Review April 12, 2004; Second SBA Review July 30, 2004; Third SBA Review December 20, 2004; Fourth SBA Review March 28, 2005; Fifth SBA Review August 22, 2005.
- FSAP: First Mission April 19–29, 2005; Second Mission Mid-July, 2005; Board Meeting January 18, 2005.

### Statistical Issues (as of October 24, 2005) — Main points and recommended actions
- Real sector:
  - New national accounts series prepared with IDB expert assistance; new benchmark and base year (1994).
  - Quarterly information recently became available for 1997–2001.
  - CPI base period 1992; PPI base period December 1995. Change in CPI base period and basket scheduled after household income and expenditure survey covering 2001–02 results.
  - Employment and unemployment statistics improved since 1998 household survey; frequencies remain annual.
- Fiscal sector:
  - Reliable monthly data for central government; social security asset position available daily.
  - Paraguayan GFS not fully consistent with IMF GFSM 1986; nontax revenues include social security contributions.
  - Data on medium- and long-term external debt reliable and available monthly; internal debt data available on request but need fuller integration.
  - Deficiencies in registration of short-term supplier and commercial credit of the public sector.
  - Discrepancy exists in fiscal data reported by monetary and fiscal authorities.
  - November 2003 decree requires decentralized entities and public enterprises to provide updated monthly financial data to MOF.
  - Under SBA, all public enterprises and the IPS required to undergo a complete financial audit by an internationally-recognized auditor.
  - Monthly and quarterly data are not reported for publication in IFS; resumption recommended.
- Money and banking:
  - Money and banking statistics broadly reliable following adoption in 1995 of new accounting plan.
  - Lack of coverage of financial cooperatives remains a concern.
- External sector:
  - Quarterly and annual balance of payments and IIP statistics available from 2001 onwards.
  - Major recommendations: introduce quarterly surveys for services, transfers, and financial transactions; apply quality control procedures; revise techniques to account for unrecorded merchandise trade and smuggling; improve compilation procedures; institute coordination with other agencies.
  - Sizable negative errors and omissions in recent years attributed mostly to unregistered trade and outflows of portfolio capital.

### Table of Common Indicators Required for Surveillance (selected observation dates)
- Exchange Rates: Date of latest observation 10/11/05; Date received 10/12/05; Frequency: Daily (D).
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 10/11/05; Date received 10/12/05; Frequency: Daily (D).
- Broad Money: Date of latest observation 8/31/05; Date received 9/23/05; Frequency: Monthly (M).
- Consumer Price Index: Date of latest observation Sep. 2005; Date received 10/03/05; Frequency: Monthly (M).
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation Sep. 2005; Date received 10/06/05; Frequency: Monthly (M).
- External Current Account Balance: Date of latest observation June 2005; Date received 8/01/05; Frequency: Quarterly (Q).
- GDP/GNP: Date of latest observation 2004; Date received 2/01/05; Frequency: Annually (A).

### IMF Press Release (Press Release No. 06/26, February 7, 2006) — Key points
- IMF Executive Board completed the sixth review of Paraguay's performance under an SDR 50 million (about US$73.3 million) Stand-By Arrangement originally approved on December 15, 2003 for 15 months.
- Arrangement extended through September 30, 2005 on December 20, 2004 and through November 30, 2005 on September 30, 2005.
- Later extension and the review completed by the Executive Board on a lapse of time basis.
- Completion of the sixth review made a cumulative amount equivalent to SDR 50 million (about US$71.2 million) immediately available to Paraguay.
- Paraguay did not make any drawings under the arrangement.

*Source: _cr06100 (IMF/IDB staff documents and IMF Press Release No. 06/26).*

### 1. Quantitative Performance Criteria ............................................................................9

### 1. Quantitative Performance Criteria

### Background
- This is the last review of the Stand-By Arrangement originally approved by the Executive Board in December 2003 and extended in December 2004 and September 2005; the arrangement expires at end-November 2005.
- Access under the program was SDR 50 million (50 percent of quota). Upon completion of this review, the whole SDR 50 million will become available to the authorities, who do not intend to make the purchase.
- The program is ending successfully, having achieved the broad objectives of restoring stability and beginning a process of structural reform, albeit with some delays.
- At the time of program approval in 2003, Paraguay faced a severe financial and budgetary crisis triggered by the regional crisis of 2002 and weak macroeconomic fundamentals.
- A decisive policy response under the Fund-supported program stopped the financial crisis and put public finances on a sustainable path.
- In 2004, Paraguay recorded economic growth of 4 percent and inflation below 3 percent.
- Implementation of the structural agenda was uneven due to heavy reliance on legislative initiatives.

### Recent Developments
- Economic performance in 2005 continued as described at the time of the last review in August 2005.
- Inflation developments:
  - After relative price stability in August, the monthly inflation rate rose by 1½ percent in September and October 2005.
  - The 12–month rate of inflation jumped to 7 percent in September and about 10 percent in October.
  - The Central Bank of Paraguay estimates that more than half of the pressures are due to: (i) higher international oil prices; and (ii) imported inflation (mostly from Brazil as the real has strengthened).
- Monetary policy and reserves:
  - The Central Bank tightened monetary conditions and limited foreign exchange intervention.
  - Interest rates on letras de regulación monetaria were increased by 125 basis points in late October 2005.
  - The guaraní has remained stable after an earlier appreciation against the U.S. dollar.
  - International reserves remain well above program projections.
- Fiscal policy:
  - Fiscal policy remains tight.
  - There was a recent reduction in the tax rate on advance payments on the corporate income tax (from 30 to 10 percent).
  - The 2005 fiscal objectives are expected to be met, mostly due to continued efforts on tax collections and expenditure restraint, including implementing a lower-than programmed level of public investment.
  - Note: The fiscal adjustment law (2004) anticipates reduction in the corporate income tax rate from 30 to 20 percent in 2005 and 10 percent in 2006; with the August reduction in advance payments, the average rate on 2005 advance payments will be 20 percent (some payments at 30 percent and others at 10 percent), and the average rate on 2006 advance payments will be 10 percent. Staff estimates the tax reduction in 2006 to amount to about 1¼ percent of GDP on an annual basis.
- External sector:
  - The current account has deteriorated mostly due to the oil shock.
  - Imports grew rapidly in 2005 due to higher oil prices, while exports remained subdued because of drought and low export prices.
- Contested legal claim:
  - In August 2005 the authorities issued decree 6295 in connection with a disputed claim arising from loans fraudulently contracted by a Paraguayan diplomat in the 1980s (Mr. Gramont-Berres).
  - This followed a Swiss Federal Supreme Court ruling in May 2005 in favor of a bank syndicate claiming US$85 million against Paraguay on a purported guarantee. The decree does not recognize the ruling nor liabilities arising from the fraud; the authorities are seeking a diplomatic solution. For program purposes, the claims currently continue to be treated as in dispute.

### Program Performance
- The program continues to be broadly on track.
- All quantitative performance criteria for end-June 2005 were observed and reported to the Board at the time of the last review in August.
- Latest information indicates key program variables remain on track consistent with program projections.
- Discussions on a possible successor arrangement are ongoing.
- Continuous performance criteria in the program on short-term external debt and zero-arrears and the standard performance criteria related to exchange and import restrictions continued to be observed.

### Structural Conditionality and Completion Status
- Two outstanding structural benchmarks have been observed:
  - Public enterprises:
    - The design of plans for private capital participation in ESSAP (water), COPACO (telephone) and PETROPAR (petroleum), involving outsourcing management to private-sector professionals under a performance contract, was completed in October.
  - Banking sector:
    - The development of an action plan to achieve program objectives of strengthening the banking system based on the FSAP recommendations was completed in November.
    - The plan, designed with MFD-financed advisor assistance, sequences actions for the Central Bank and Superintendency of banks to: strengthen monetary operations; redefine minimum capital requirements; set out a fit and proper test for issuing banking licenses; sharpen identification of corporate risk; and enhance sanction capabilities.
    - Authorities intend to build consensus within the banking community to support implementation.
- Note on audits: At the time of the fifth review, the authorities requested a waiver for non-observance of the structural performance criterion on conducting accounting audits of ANNP, DINAC, INC, and PETROPAR. Audits for ANNP, DINAC and PETROPAR had begun; the audit for INC began shortly after the fifth review. All these audits are expected to be finalized by end–2005.

### Staff Appraisal
- The staff welcomes the successful completion of the Fund-supported program.
- Main objectives—stopping the financial crisis, strengthening the fiscal position, and beginning structural reform—have essentially been achieved during the arrangement.
- Authorities implemented a demanding program under difficult political conditions; this was Paraguay’s first Fund arrangement in 35 years.
- Prospects for Paraguay remain positive, though long-standing vulnerabilities persist.
- The program has placed public finances on a sound footing and enhanced debt sustainability; the debt to GDP ratio is declining.
- The overall medium-term assessment is broadly unchanged from previous projections.
- Authorities remain committed to broad fiscal balance over the medium term.
- The staff welcomes authorities’ interest in developing a new medium-term program aimed at increasing growth and alleviating poverty; this is being developed in consultation with the Fund.
- The staff supports completion of the sixth and last review under the SBA given completion of remaining conditionality, development of the banking-sector action plan, reduced vulnerabilities, and continued satisfactory macroeconomic performance.

### Key Quantitative Performance Criteria (selected figures reported in the table)
- Fiscal targets (floor/ceiling, in billions of guaranies):
  - Overall balance of the central administration (floor): 2004 end-Mar. Target 240 / Actual 523; end-Aug. Target 430 / Actual 982; 2004 end-Dec. Target 55 / Actual 792; 2005 end-Mar. Target 105 / Actual 261; 2005 end-June Target 136 / Actual 652.
  - Wage bill of the central administration (ceiling): 2004 end-Mar. Target 650 / Actual 668; end-Aug. Target 1,791 / Actual 1,812; 2004 end-Dec. Target 3,010 / Actual 2,984; 2005 end-Mar. Target 754 / Actual 744; 2005 end-June Target 1,525 / Actual 1,509.
  - Overall balance of the public sector (floor): 2004 end-Mar. Target 250 / Actual 678; end-Aug. Target 500 / Actual 1,529; 2004 end-Dec. Target 130 / Actual 999; 2005 end-Mar. Target 174 / Actual 357; 2005 end-June Target 336 / Actual 678.
- Monetary targets:
  - Net international reserves (floor, in millions of U.S. dollars): 2004 end-Mar. Target 773 / Actual 1,016; end-Aug. Target 1,057 / Actual 1,141; 2004 end-Dec. Target 1,059 / Actual 1,168; 2005 end-Mar. Target 1,100 / Actual 1,189; 2005 end-June Target 1,175 / Actual 1,273.
  - Net domestic assets (ceiling, in billions of guaranies): 2004 end-Mar. Target -2,839 / Actual -4,264; end-Aug. Target -4,444 / Actual -5,231; 2004 end-Dec. Target -3,958 / Actual -4,848; 2005 end-Mar. Target -4,488 / Actual -5,247; 2005 end-June Target -5,168 / Actual -5,782.
- Public debt and arrears targets:
  - Contracting or guaranteeing of nonconcessional external debt by the NFPS (ceiling, in millions of US$): 2004 end-Mar. Target 50 / Actual 0; end-Aug. Target 200 / Actual 0; 2004 end-Dec. Target 200 / Actual 0; 2005 end-Mar. Target 200 / Actual 10; 2005 end-June Target 200 / Actual 47.
  - External payments arrears of NFPS (ceiling, in millions of US$): 2004 end-Mar. Target 75 / Actual 75; end-Aug. Target 5 / Actual 3; 2004 end-Dec. Target 0 / Actual 16; subsequent entries not reported in the table excerpt.
  - Central government floating debt (ceiling, in billions of guaranies): 2004 end-Mar. Target 350 / Actual 228; end-Aug. Target 297 / Actual 235; 2004 end-Dec. Target 320 / Actual 134; subsequent entries not reported in the table excerpt.
- Continuous performance criteria:
  - Contracted or guaranteed short-term external debt by the NFPS: Target and Actual listed as 0 for all reported dates.

### Selected Economic Indicators (annual growth, Jan–Sep)
- Production (manufacture): 2003 0.2; 2004 6.6; 2005 0.9.
- Agriculture: 2003 10.9; 2004 2.8; 2005 -10.2.
- Livestock: 2003 -1.2; 2004 9.0; 2005 26.4.
- Inflation (consumer prices): 2003 9.3; 2004 2.8; 2005 7.6.
- Monetary (base money 12-month growth rate e.o.p.): 2003 57.7; 2004 17.6; 2005 -5.1.
- Monetary (money supply 12-month growth rate e.o.p.): 2003 35.8; 2004 24.7; 2005 24.5.
- Public Finances (tax receipts): 2003 25.8; 2004 34.1; 2005 10.1.
- External (exports, registered trade): 2003 30.6; 2004 30.9; 2005 -0.8.
- External (imports, registered trade): 2003 23.5; 2004 42.2; 2005 8.7.
- Exchange rate (G/US$, 12-month growth rate e.o.p.): 2003 -13.3; 2004 2.8; 2005 2.8.
- NIR (billion US$): 2003 0.98; 2004 1.17; 2005 1.28.

*Source: _cr06100 - 1. Quantitative Performance Criteria ............................................................................9*

### 11. Non-accumulation of external debt arrears 5/

### 11. Non-accumulation of external debt arrears 5/

### Program conditionality and structural benchmarks
- Structural conditionality status (selected items, timing, comments):
  - A. Independent audits for ANNP, DINAC, INC, PC — April 30, 2005: In progress. "Audits began for all entities." PETROPAR: Waiver approved at 5th review.
  - B. Finalize plan for comprehensive civil service reform — SBApril 30, 2005: Done. "Plan approved by Cabinet reform in July."
  - C. Plan for private capital participation ESSAP, SB — August 31, 2005: Done. "Plan was submitted to staff COPACO, PETROPAR in early October."
  - D. Introduce prudential regulations to cooperatives — SBMarch 31, 2005: Done. "Introduced in December 2004."
  - E. Approval of public banking law (second tier) — SBMay 31, 2005: Done. "Approved by Congress in July."
  - F. Approval of new comprehensive banking legislation — PCJune 30, 2005: Modified. "Law was submitted to Congress in December 2004, but the authorities decided to review their legislative strategy." Waiver approved at the 5th review.
  - G. Submission of public banking law (first tier) and adopt commission's recommendations — PCJuly 30, 2005: Done. "Law was submitted to Congress in February 2005, and approved by the Senate in May 2005." Authorities considering veto due to changes in both chambers.
  - H. Develop an action plan for strengthening the banking system, maintaining objectives of the original draft law — SBSeptember 15, 2005: Done. "Plan was submitted to staff in November."

### Schedule of reviews and purchases (IMF arrangement, selected entries)
- Purchases available: 44.0 (Percent of Quota) / 44.0 (Millions of SDRs)
- Approval of arrangement — December 15, 2003: 30.0 / 30.0
- First review and end-December 2003 performance criteria — March 16, 2004: 4.0 / 4.0
- Second review and end-March 2004 performance criteria — July 30, 2004: 4.0 / 4.0
- Third review and end-August 2004 performance criteria — December 20, 2004: 3.0 / 3.0
- Fourth review and end-December 2004 performance criteria — March 30, 2005: 3.0 / 3.0
- Fifth review, and end-March 2005 and end-June 2005 performance criteria — August 22, 2005: 3.0 / 3.0
- Purchases to become available (sixth review and remaining structural benchmarks) — November 30, 2005: 3.0 / 3.0
- Total: 50.0 / 50.0

### Key social and demographic indicators (Table 4, selected)
- Area (thousand sq. km): 407
- Total population (in millions-2004): 5.7
- Rate of increase (percent a year): 1.9
- Density (per sq. km.): 14.1
- Life expectancy at birth (years): 70.6
- Crude birth rate (per thousand): 29.7
- Crude death rate (per thousand): 5.0
- Infant mortality (per thousand live births): 26.0
- Male literacy rate: 94 percent
- Female literacy rate: 92 percent
- Primary school enrollment: 92 percent
- Secondary school enrollment: 47 percent
- Access to a water source: 79 percent
- Access to a sanitation facility: 95 percent
- Income distribution:
  - By highest 20 percent of households: 61 percent
  - By lowest 20 percent of households: 2 percent
- Physicians per 1,000 people: 1.1
- Hospital beds per 1,000 people: 1.3
- Unemployment: 10.9

### Macroeconomic performance and projections (Selected national accounts and prices, Table 4 II)
- GDP at current prices (billions of guaraníes): 2002: 10.0; 2003: 24.2; 2004: 14.6; 2005 Prog.: 7.5; 2005 Rev.: 8.2; 2006 Proj.: 11.9
- GDP at constant prices (annual percent change): 2002: 0.0; 2003: 3.8; 2004: 4.1; 2005 Prog.: 3.2; 2005 Rev.: 3.0; 2006 Proj.: 3.5
- Per capita GDP (U.S. dollars, thousands): 2002: 0.9; 2003: 1.0; 2004: 1.2; 2005 Prog./Rev.: 1.2; 2006 Proj.: 1.3
- GDP deflator (percent change): 2002: 10.0; 2003: 19.6; 2004: 10.1; 2005 Prog.: 4.2; 2005 Rev.: 5.1; 2006 Proj.: 8.1
- Consumer prices (end-of-period) (percent): 2002: 14.6; 2003: 9.3; 2004: 2.8; 2005 Prog.: 6.0; 2005 Rev.: 10.0; 2006 Proj.: 5.0
- Real effective exchange rate (Average depreciation -): 2002: -18.6; 2003: -8.9; 2004: 3.5
- Real effective exchange rate (End-of-period depreciation -): 2002: -22.8; 2003: 9.1; 2004: -7.9

### External sector (selected levels and percent of GDP; Table 4 & Table 9)
- Net oil exports and imports (US$ millions): 2002: -239; 2003: -327; 2004: -434; 2005 Prog.: -510; 2005 Rev.: -554; 2006 Proj.: -574
- Current account (US$ millions): 2002: 93; 2003: 131; 2004: 110; 2005 Prog.: -27; 2005 Rev.: -177; 2006 Proj.: -174
- Current account (in percent of GDP): 2002: 1.8; 2003: 2.3; 2004: 0.1; 2005 Prog.: -0.4; 2005 Rev.: -2.4; 2006 Proj.: -2.2
- Exports, f.o.b. (percentage change): 2002: -1.6; 2003: 16.8; 2004: 27.2; 2005 Prog.: 3.0; 2005 Rev.: -4.9; 2006 Proj.: 3.0
- Imports, c.i.f. (percentage change): 2002: -14.6; 2003: 14.4; 2004: 29.2; 2005 Prog.: 6.2; 2005 Rev.: 2.1; 2006 Proj.: 2.4
- Terms of trade (percentage change): 2002: 7.3; 2003: 7.7; 2004: 2.4; 2005 Prog.: -5.4; 2005 Rev.: -9.9; 2006 Proj.: 0.7
- Gross reserves (in millions of U.S. dollars; Table 4 & 9): 2002: 641; 2003: 983; 2004: 1,168; 2005 Prog.: 1,220; 2005 Rev.: 1,250; 2006 Proj.: 1,288
- Gross reserves (in months of imports): 2002: 2.8; 2003: 3.4; 2004: 3.9; 2005 Prog.: 3.9; 2005 Rev.: 4.1; 2006 Proj.: 4.0
- External public debt (percent of GDP): 2002: 47.2; 2003: 46.5; 2004: 36.5; 2005 Prog.: 36.5; 2005 Rev.: 34.8; 2006 Proj.: 32.2

### Savings-investment and public finances (selected)
- Gross domestic investment (percent of GDP): 2002: 18.7; 2003: 21.0; 2004: 20.1; 2005 Prog.: 21.3; 2005 Rev.: 20.5; 2006 Proj.: 21.0
- Gross national savings (percent of GDP): 2002: 20.5; 2003: 23.3; 2004: 20.2; 2005 Prog.: 21.0; 2005 Rev.: 18.1; 2006 Proj.: 18.8
- Central government primary balance (percent of GDP): 2002: -1.9; 2003: 1.0; 2004: 2.7; 2005 Prog.: 0.7; 2005 Rev.: 1.1; 2006 Proj.: 1.1
- Central government overall balance (percent of GDP): 2002: -2.5; 2003: -0.3; 2004: 1.9; 2005 Prog.: -0.5; 2005 Rev.: -0.2; 2006 Proj.: 0.0
- Consolidated public sector primary balance 3/ (percent of GDP): 2002: -1.4; 2003: 2.5; 2004: 3.5; 2005 Prog.: 1.4; 2005 Rev.: 1.7; 2006 Proj.: 1.7
- Consolidated public sector overall balance 3/ (percent of GDP): 2002: -3.4; 2003: -0.1; 2004: 2.1; 2005 Prog.: 0.0; 2005 Rev.: 0.0; 2006 Proj.: 0.0
- Public sector debt (end-of-year, percent of GDP): 2002: 54.5; 2003: 51.7; 2004: 40.4; 2005 Prog.: 39.4; 2005 Rev.: 38.2; 2006 Proj.: 35.0
  - External: 2002: 47.2; 2003: 46.5; 2004: 36.5; 2005 Prog.: 36.5; 2005 Rev.: 34.8; 2006 Proj.: 32.2
  - Domestic: 2002: 7.3; 2003: 5.2; 2004: 3.9; 2005 Prog.: 3.4; 2005 Rev.: 3.4; 2006 Proj.: 2.8

### Central government operations (Table 5, selected levels and percent of GDP)
- Total revenues (in billion of guaraníes): 2002: 5,048; 2003: 6,001; 2004: 7,637; 2005 Prog.: 8,137; 2005 Rev.: 8,096; 2006 Staff Proj.: 9,516; Draft budget 2006: 8,976
- Tax revenues (in billion of guaraníes): 2002: 2,923; 2003: 3,676; 2004: 4,929; 2005 Prog.: 5,093; 2005 Rev.: 5,283; 2006 Staff Proj.: 5,876; Draft budget 2006: 5,765
- Current expenditures (in billion of guaraníes): 2002: 4,766; 2003: 4,981; 2004: 5,363; 2005 Prog.: 6,089; 2005 Rev.: 6,275; 2006 Staff Proj.: 7,001; Draft budget 2006: 6,785
- Wages and salaries (in billion of guaraníes): 2002: 2,582; 2003: 2,724; 2004: 2,984; 2005 Prog.: 3,328; 2005 Rev.: 3,321; 2006 Staff Proj.: 3,684; Draft budget 2006: 3,684
- Interest payments (in billion of guaraníes): 2002: 456; 2003: 489; 2004: 483; 2005 Prog.: 561; 2005 Rev.: 568; 2006 Staff Proj.: 553; Draft budget 2006: 562
- Capital expenditures and net lending (in billion of guaraníes): 2002: 1,281; 2003: 1,165; 2004: 1,625; 2005 Prog.: 2,287; 2005 Rev.: 1,895; 2006 Staff Proj.: 2,847; Draft budget 2006: 2,181
- Overall balance (in billion of guaraníes): 2002: -728; 2003: -116; 2004: 799; 2005 Prog.: -240; 2005 Rev.: -74; 2006 Staff Proj.: -331; Draft budget 2006: 10
- Overall balance (percent of GDP): 2002: -2.5; 2003: -0.3; 2004: 1.9; 2005 Prog.: -0.5; 2005 Rev.: -0.2; 2006 Staff Proj.: -0.7; Draft budget 2006: 0.0
- Memorandum primary balance (percent of GDP): -1.9 (2002); 1.0 (2003); 2.7 (2004); 0.7 (2005 Prog.); 1.1 (2005 Rev.); 0.4 (2006 Staff Proj.); 1.1 (Draft budget 2006)

### Consolidated public sector (Table 6, selected)
- Revenue (in billion of guaraníes): 2002: 6,160; 2003: 7,450; 2004: 8,960; 2005 Prog.: 9,665; 2005 Rev.: 9,686; 2006 Proj.: 10,748
- Current expenditure (in billion of guaraníes): 2002: 5,763; 2003: 6,247; 2004: 6,802; 2005 Prog.: 7,532; 2005 Rev.: 7,747; 2006 Proj.: 8,582
- Capital expenditure and net lending (in billion of guaraníes): 2002: 1,875; 2003: 1,819; 2004: 1,956; 2005 Prog.: 3,217; 2005 Rev.: 2,235; 2006 Proj.: 2,593
- Public enterprises' operating surplus (in billion of guaraníes): 2002: 458; 2003: 801; 2004: 583; 2005 Prog.: 1,063; 2005 Rev.: 306; 2006 Proj.: 447
- Overall balance (in percent of GDP): 2002: -3.4; 2003: 0.0; 2004: 2.1; 2005 Prog.: 0.0; 2005 Rev.: 0.0; 2006 Proj.: 0.0
- Memorandum primary balance (percent of GDP): 2002: -1.4; 2003: 2.5; 2004: 3.5; 2005 Prog.: 1.4; 2005 Rev.: 1.7; 2006 Proj.: 1.7

### Central Bank summary accounts (Table 7, selected)
- Currency issue (end-of-period, billions of guaraníes): 2003: 2,207; 2004: 2,488; 2005 Prog.: 2,816; 2005 Rev.: 2,736; 2006 Proj.: 2,974
  - Growth (percent): 29.9 (2003); 12.7 (2004); 10.0 (2005 Prog.); 10.0 (2005 Rev.); 8.7 (2006 Proj.)
- Net international reserves (in millions of U.S. dollars): 2003: 983; 2004: 1,168; 2005 Prog.: 1,220; 2005 Rev.: 1,250; 2006 Proj.: 1,288
- Net domestic assets (billions of guaraníes): 2003: -3,969; 2004: -4,848; 2005 Prog.: -4,844; 2005 Rev.: -5,114; 2006 Proj.: -5,114
- Net credit to the banking system (billions of guaraníes): -3,362 (2003); -4,376 (2004); -4,873 (2005 Prog.); -5,170 (2005 Rev.); -5,594 (2006 Proj.)
- Monetary base growth: 57.7 (2003); 17.6 (2004); 8.2 (2005 Prog.); 0.6 (2005 Rev.); 4.9 (2006 Proj.)
- Quasifiscal balance (billions of guaraníes): -390 (2003); -175 (2004); ... (2005 Prog. indicated as ...); -113 (2005 Rev.); -291 (2006 Proj.)
  - Quasifiscal balance in percent of GDP: -1.1 (2003); -0.4 (2004); ...; -0.3 (2005 Rev.); -0.6 (2006 Proj.)

### Banking system (Table 8, selected)
- Broad Liquidity (M4) (billions of guaraníes): 2002: 8,970; 2003: 10,558; 2004: 11,791; 2005 Prog.: 12,460; 2005 Rev.: 12,633; 2006 Proj.: 13,628
- Broad liquidity (M3) (billions of guaraníes): 2002: 8,539; 2003: 10,047; 2004: 11,285; 2005 Prog.: 11,745; 2005 Rev.: 12,158; 2006 Proj.: 13,072
- Money and quasi-money (M2) (billions of guaraníes): 2002: 3,839; 2003: 4,794; 2004: 5,974; 2005 Prog.: 6,018; 2005 Rev.: 6,512; 2006 Proj.: 7,092
- Foreign currency deposits (billions of guaraníes): 2002: 4,699; 2003: 5,253; 2004: 5,310; 2005 Prog.: 5,726; 2005 Rev.: 5,646; 2006 Proj.: 5,980
- Credit to the private sector (billions of guaraníes): 2002: 6,230; 2003: 5,081; 2004: 5,788; 2005 Prog.: 6,464; 2005 Rev.: 5,917; 2006 Proj.: 6,409
- Annual percentage change, credit to the private sector: -20.9 (2002); -18.4 (2003); 13.9 (2004); 10.2 (2005 Prog.); 2.2 (2005 Rev.); 8.3 (2006 Proj.)
- Ratio of foreign currency deposits to M3 (percent): 55.0 (2002); 52.3 (2003); 47.1 (2004); 48.8 (2005 Prog.); 46.4 (2005 Rev.); 45.8 (2006 Proj.)
- Share of nonperforming loans in total loans (percent, latest available data September 2005): 16.6 (2002); 16.5 (2003); 19.7 (2004); 20.6 (2005 Prog.); 10.8 (2005 Rev.); 8.9 (2006 Proj.) — Table 10 reports "Latest available data, September 2005."

### Balance of payments and external financing (Table 9, selected)
- Current account (US$ millions): 2002: 93; 2003: 131; 2004: 110; 2005 Prog.: -27; 2005 Rev.: -177; 2006 Proj.: -174
- Trade balance (US$ millions): 2002: -283; 2003: -280; 2004: -404; 2005 Prog.: -460; 2005 Rev.: -603; 2006 Proj.: -603
- Exports (US$ millions, registered and unregistered combined, selected): 2002: 185; 2003: 221; 2004: 632; 2005 Prog.: 751; 2005 Rev.: 282; 2006 Proj.: 820
  - Registered exports (selected): 2002: 95; 2003: 112; 2004: 142; 2005 Prog.: 162; 2005 Rev.: 163; 2006 Proj.: 167
  - Unregistered exports (selected): 2002: 90; 2003: 109; 2004: 122; 2005 Prog.: 611; 2005 Rev.: 90; 2006 Proj.: 88
- Imports (US$ millions): 2002: -2134; 2003: -2443; 2004: -3156; 2005 Prog.: -3280; 2005 Rev.: -3221; 2006 Proj.: -3299
  - Registered imports (selected): 2002: -1510; 2003: -1865; 2004: -2652; 2005 Prog.: -2713; 2005 Rev.: -2759; 2006 Proj.: -2839
- Capital and financial account (US$ millions): 2002: 53; 2003: 207; 2004: 135; 2005 Prog.: 66; 2005 Rev.: 100; 2006 Proj.: 202
- Overall balance (US$ millions): -83 (2002); 211 (2003); 265 (2004); 39 (2005 Prog.); 7 (2005 Rev.); 128 (2006 Proj.)
- Net international reserves (increase -) (US$ millions): 2002: 83; 2003: -302; 2004: -181; 2005 Prog.: -39; 2005 Rev.: -82; 2006 Proj.: -38

### Indicators of external vulnerability (Table 10, selected)
- Broad money (M3), percentage change: -0.5 (2000); 0.7 (2001); -21.0 (2002); 17.7 (2003); 12.3 (2004); 7.7 (2005 Proj.)
- Credit to the private sector, real (percentage change): -9.0 (2000); -8.7 (2001); -31.1 (2002); -25.5 (2003); 10.9 (2004); -7.1 (2005 Proj.)
- Share of nonperforming loans in total loans (percent) 2/: 16.6 (2002); 16.5 (2003); 19.7 (2004); 20.6 (2005 Prog.); 10.8 (2005 Rev.); 8.9 (2006 Proj.) — "Latest available data, September 2005."
- Average domestic lending rate, real 2/: 16.0 (2002); 22.5 (2003); 39.0 (2004); 19.3 (2005 Prog.); 17.4 (2005 Rev.); 23.0 (2006 Proj.)
- International reserves (millions of US$): 2000: 772; 2001: 723; 2002: 641; 2003: 983; 2004: 1,168; 2005 Proj.: 1,220
- External public debt (percent of GDP): 2000: 33.3; 2001: 35.6; 2002: 47.2; 2003: 46.5; 2004: 36.5; 2005 Proj.: 36.5; 2006 Proj.: 35.0
- Debt service (in percent of exports GNFS): 2000: 10.4; 2001: 10.8; 2002: 9.1; 2003: 11.7; 2004: 7.7; 2005 Proj.: 7.7; 2006 Proj.: 6.5
- Gross reserves (in US$) and months of imports of GNFS: 2000: 772 / 3.2 months; 2001: 723 / 3.5 months; 2002: 641 / 2.8 months; 2003: 983 / 3.4 months; 2004: 1,168 / 3.9 months; 2005 Proj.: 1,220 / 3.9 months; 2006 Proj.: 1,250 / 4.1 months

*Source: _cr06100 - 11. Non-accumulation of external debt arrears 5/ (Paraguayan authorities; and Fund staff estimates).*

### 1. As of September 30, 2005, the active loan portfolio amounts to US$567.4 million, with

### _cr06100 - 1. As of September 30, 2005, the active loan portfolio amounts to US$567.4 million, with

### Active Loan Portfolio and Technical Cooperation
- Active loan portfolio: US$567.4 million (as of September 30, 2005).
- Undisbursed balance: US$278.6 million.
- Active Technical Cooperation operations: 43 operations for US$17.9 million.
  - Undisbursed Technical Cooperation balance: US$9.5 million.

### New Strategy (IDB 2004–2008 for Paraguay)
- Strategic focus areas:
  - Strengthening governance by restoring the credibility of State institutions.
    - Objectives: enable the State to coordinate the economic development process; heighten efficiency and transparency of public administration; promote greater citizen participation; consolidate democratic institutions.
  - Laying the foundations for sustainable growth through consolidation of the market economy and greater regional and global integration.
    - Objectives: create conditions conducive to increased private-sector participation; greater competitiveness; deeper integration.
  - Reducing poverty and improving the quality of life of low-income sectors.
    - Objectives: development of human capital; provision of greater access to quality basic services.

### Lending Pipeline (2005)
- 2005-A lending program:
  - Strengthening of the Judiciary System II, US$10.8 million
  - Professionalism of the Civil Service, US$3.5 million
  - Asunción Coastal Development Program, US$80.0 million
  - Science and Technology Program, US$6.5 million
- 2005-B included operations:
  - Modernization of the Agriculture Public Sector Management, US$20 million
  - Programmatic Loan for Public Banking Reform, US$30 million

### Work Program and Missions (Selected Dates)
- Sixth SBA Review:
  - Board Meeting (if required, lapse of time basis) November 30, 2005
- Successor Arrangement:
  - Mission November 9-22, 2005
  - Board Meeting January 18, 2006
- First Review under a Successor Arrangement and the 2006 Article IV Consultation:
  - Mission April 19-May 3, 2006
  - Board Meeting June 16, 2006
- Memorandum items (selected approvals and reviews):
  - Approval of SBA December 15, 2003
  - First SBA Review April 12, 2004
  - Second SBA Review July 30, 2004
  - Third SBA Review December 20, 2004
  - Fourth SBA Review March 28, 2005
  - Fifth SBA Review August 22, 2005
- FSAP:
  - First Mission April 19–29, 2005
  - Second Mission Mid-July, 2005
  - Board Meeting January 18, 2005

### Statistical Issues (As of October 24, 2005)
- A. Real Sector
  - New national accounts series prepared with IDB expert assistance; includes more complete industry coverage, input-output matrix, expanded data sources, new benchmark and base year (1994).
  - Quarterly information recently became available for 1997–2001.
  - CPI base period: 1992; PPI base period: December 1995.
  - Change in CPI base period and basket scheduled after results of a new household income and expenditure survey covering 2001–02 become available.
  - Employment and unemployment statistics coverage and quality improved since a regular household survey introduced in 1998; frequencies remain annual and publication lag close to one year.
  - Wage indices updated twice a year.
  - Paraguay became a GDDS participant in 2001 with publication of its metadata on the Fund’s DSBB.
- B. Fiscal Sector
  - Reliable monthly data available on a timely basis for the central government.
  - Asset position of social security system available on a daily basis.
  - Paraguayan GFS not fully consistent with IMF GFSM 1986; example: nontax revenues include social security contributions.
  - Public enterprises and social security system use somewhat different classifications than central government.
  - Law (Ley 1535) passed in 2000 should allow closer integration by setting uniform standards and creating a database for the entire public sector.
  - Data on medium- and long-term external debt reliable and available monthly.
  - Internal debt data available on request but need fuller integration with external debt database.
  - Deficiencies remain in registration of short-term supplier and commercial credit of the public sector.
  - Discrepancy exists in fiscal data reported by monetary and fiscal authorities.
  - November 2003 decree by Ministry of Finance requires decentralized entities and public enterprises to provide updated monthly financial data and balance sheets to MOF.
  - Under the SBA, all public enterprises and the IPS are required to undergo a complete financial audit by an internationally-recognized auditor.
  - Annual data covering only budgetary central government through 2004 reported for publication in the 2005 edition of the GFS Yearbook.
  - Since 1994 no outstanding debt data and no breakdowns for expenditure by function data provided for publication in the GFS Yearbook.
  - Monthly and quarterly data are not reported for publication in IFS; resumption of reporting quarterly and monthly data for the IFS is highly recommended.
  - Data on local governments and public enterprises are deficient and not reported regularly.
- C. Money and Banking Sectors
  - Money and banking statistics broadly reliable following adoption in 1995 of new accounting plan for commercial banks and finance companies.
  - Paraguay completed establishment of a unified compilation and reporting system for monetary data following 2000 STA mission methodologies.
  - Revision of classification criteria led to marked reduction in discrepancies of interbank positions.
  - Lack of coverage of financial cooperatives remains a concern; cooperatives account for an important portion of liabilities of other depositary corporations.
  - Superintendency of banks publishes a detailed and informative report on the soundness of the financial system.
- D. External Sector
  - Quarterly and annual balance of payments and IIP statistics available from 2001 onwards on the central bank website and reported to STA.
  - Annual IIP data compiled and disseminated for 1995–2004.
  - Classification of balance of payments and IIP follows Balance of Payments Manual (5th edition).
  - STA technical assistance improved quality of capital flow data, especially coverage of foreign direct investment, and recording of external debt transactions in balance of payments and IIP.
  - Central bank produces a highly informative bulletin on balance of payments statistics.
  - Special studies improved estimation methods for remittances and unregistered trade, but serious deficiencies remain.
  - Deficiencies in recording private capital outflows due to liberal capital account.
  - Major recommendations of multisector statistics mission:
    - Introduce quarterly surveys for recording services, transfers, and financial transactions of the nonfinancial private sector.
    - Apply quality control procedures for surveys.
    - Revise and improve statistical techniques to account for unrecorded merchandise trade and smuggling.
    - Improve compilation procedures of several services and financial transactions.
    - Institute a system of coordination with other official agencies, and within the CBP, to promote intersectoral data consistency.
  - Sizable negative errors and omissions in recent years attributed mostly to unregistered trade and outflows of portfolio capital.

### Table of Common Indicators Required for Surveillance (As of October 12, 2005) — Selected items
- Exchange Rates: Date of latest observation 10/11/05; Date received 10/12/05; Frequency: Daily (D).
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 10/11/05; Date received 10/12/05; Frequency: Daily (D).
- Reserve/Base Money: Date of latest observation 10/11/05; Date received 10/12/05; Frequency: Daily (D).
- Broad Money: Date of latest observation 8/31/05; Date received 9/23/05; Frequency: Monthly (M).
- Central Bank Balance Sheet: Date of latest observation 9/30/05; Date received 10/05/05; Frequency: Daily (D).
- Consolidated Balance Sheet of the Banking System: Date of latest observation 8/31/05; Date received 9/23/05; Frequency: Monthly (M).
- Interest Rates: Date of latest observation 8/31/05; Date received 10/05/05; Frequency: Monthly (M).
- Consumer Price Index: Date of latest observation Sep. 2005; Date received 10/03/05; Frequency: Monthly (M).
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation Sep. 2005; Date received 10/06/05; Frequency: Monthly (M).
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation Sep. 2005; Date received 10/06/05; Frequency: Monthly (M).
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation March. 2005; Date received 6/01/05; Frequency: Quarterly (Q).
- External Current Account Balance: Date of latest observation June 2005; Date received 8/01/05; Frequency: Quarterly (Q).
- Exports and Imports of Goods and Services: Date of latest observation June 2005; Date received 8/01/05; Frequency: Monthly (M).
- GDP/GNP: Date of latest observation 2004; Date received 2/01/05; Frequency: Annually (A).
- Gross External Debt: Date of latest observation March. 2005; Date received 6/01/05; Frequency: Quarterly (Q).

### IMF Press Release (Press Release No. 06/26, February 7, 2006)
- IMF Executive Board completed the sixth review of Paraguay's performance under an SDR 50 million (about US$73.3 million) Stand-By Arrangement originally approved on December 15, 2003 for 15 months.
- Arrangement extensions:
  - Extended through September 30, 2005 on December 20, 2004.
  - Extended through November 30, 2005 on September 30, 2005.
- The later extension and the review were completed by the Executive Board on a lapse of time basis.
- Completion of the sixth review made a cumulative amount equivalent to SDR 50 million (about US$71.2 million) immediately available to Paraguay.
- Paraguay did not make any drawings under the arrangement.
- (This statement is being released for public record)

*Prepared by the staff of the IDB; IMF Press Release No. 06/26 (February 7, 2006).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06100.pdf_