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Paraguay’s Lea Giménez Duarte: Transparency Pays Off

April 26, 2018

Lea Giménez Duarte, Paraguay’s Finance Minister speaking at IMF World-Bank Spring meetings seminar Restoring Trust by Curbing Corruption. (IMF photo)

When people trust their government, good things happen. They’re much more likely to pay their taxes and support those large infrastructure investment projects that help economic growth. A new IMF paper on the institution’s role in governance issues shows that high corruption means less growth and more inequality. In this podcast, Lea Giménez Duarte talks about how Paraguay has benefited from a transparency law introduced in 2015. Giménez Duarte is Paraguay’s first ever woman finance minister, and joined a panel about transparency and corruption during the IMF World-Bank Spring Meetings.


Lea Giménez Duarte is Paraguay’s Finance Minister.

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Transcript

Transcript also available in Spanish and Portuguese 

Hello. I’m Bruce Edwards, and welcome to this podcast produced by the International Monetary Fund. In this program: Paraguay’s Finance Minister Lea Giménez Duarte explains why tackling corruption should always be at the top of the “to-do” list.

MS. DUARTE [soundbite]: Corruption has a way to hide in small, dark, little spots and spread around very quickly. And then once you notice it, it’s perhaps too late.

MR. EDWARDS: When people trust their government, good things happen. They’re much more likely to pay their taxes and support those large infrastructure investment projects that help economic growth. A new IMF paper on the institution’s role in governance issues shows that high corruption means less growth and more inequality.

Lea Giménez Duarte is Paraguay’s first-ever woman finance minister, and she joined a panel discussion about transparency and corruption during the 2018 IMF/World Bank Spring Meetings.

So, you’ve just recently stepped in as finance minister. What is the state of the economy of Paraguay?

MS. DUARTE: Yes, Paraguay is going through a very positive moment in terms of the economy, even as, like the rest of the region, we faced a 40 percent decline in commodity prices. At the start of the [new] government, that, of course, was a huge hit both to the economy as a whole, but also to the fiscal side. We had implemented a series of reforms starting in 2014/2015—the transparency law that we talked about in the recent [Spring Meetings] panel; the fiscal responsibility law; and others, for example, the PPP law…

MR. EDWARDS: The PPP?

MS. DUARTE: PPP—public-private partnerships. Yes, this is a new way—well, it’s not new, but new to us—to push forward large investment infrastructure projects. We started to rethink about how we manage the resources and why it’s important for people to know what we are doing with the resources. And this brought about a huge wave of change in many areas, thanks to transparency.

MR. EDWARDS: So, how did you go about doing that?

MS. DUARTE: First, what happened was, from managing the resources in complete darkness, we opened that up, sunlight came in, and people could see us naked. They could see the fat that was there. And you don’t want people to see fat, so we started to cut the fat—the budget fat.

And, that was a fantastic process because that allowed us to redirect resources to the areas that needed them most. Social programs: they increased by about 200 percent in terms of coverage, but they also increased about 250 percent in terms of their size. And that means we are covering a larger number of vulnerable people, but also, we are providing them with larger support.

Then, we also started to diversify the economy. On the economy—let’s say the period 2008 to 2012—you will see that the contribution of the agricultural sector to growth and GDP growth was about 35 percent. And. in the last period, 2013 to 2017, you see a decline of the agricultural sector from 35 percent to 19 percent, and you see new engines of growth.

We see, for example, construction; infrastructure. The level of infrastructure in Paraguay is really poor. We have a very large infrastructural gap. And this has always been: ‘yeah, we have very poor infrastructure, what are we going to do?’ Well, why don’t we build the infrastructure? Putting money into infrastructure generates jobs.

MR. EDWARDS: But, to collect the amount of revenues that you needed to rebuild the infrastructure, what was the challenge there? Did you have to regain the confidence of the people that these taxes would be spent responsibly?

MS. DUARTE: That’s right. You know, as soon as people hear PPP, they start to think: ‘are you going to privatize public infrastructure?’ And, this was a learning process, a learning curve, in terms of how we work within the public sector. I will not say it was easy; it was a very challenging process. And we have incurred very high costs: political costs; costs in terms of learning, etcetera.

But, I think it’s a no-brainer. We have to do this. We will never have enough resources in the public sector alone to finance the infrastructure that the country needs and, therefore, we have to go in this direction. And, at the same time, the freeing of fiscal space—cutting the fat—was really impressive. We were able to contain the wage bill and we were able to redirect resources truly to two areas: social programs, and infrastructure.

MR. EDWARDS: So, people have more trust in the government with their money?

MS. DUARTE: I think that’s an ongoing process. It doesn’t happen overnight. Imagine, in 2015, we had the transparency law working—2014 approved, and then in 2015/16 you started to see the impact of this law. It was huge. And, usually what happens when you approve a transparency law, the purpose of it is exactly to do what you said: to build the trust, the social fabric, if you will.

But, that is not an easy task. And that’s something—when the box was completely closed and then you open it up, obviously you will find things there that need change, and people get upset. People started getting upset about excess; about superfluous spending. And, therefore, that’s what I meant when I said that it has a very high political cost. People associate what they find with you, but it is in fact you who opened that box! And, it’s in your hands now to push forward the change, and change takes time. The fiscal side is a very large ship, and you start to turn the wheel, but it takes time for it to start switching directions. But, we do see that after three or four years of working on it.

MR. EDWARDS: So, something came up in the panel that I thought was interesting. I think it was Madam Lagarde who brought up that during the transition process in these reforms, it’s sometimes difficult to get things done because people are uncomfortable with what might come up. How difficult was it to actually get things done during that transition period?

MS. DUARTE: I think we are still in a transition period with regards to transparency. It’s an ongoing process. And, the more you see, the more you find, and the more you have to work on it, and the more challenges on more fronts. But at the start, we were thinking, ‘yeah, this will not last.’ The next government will come back and shut down the transparency, close the doors again.

But then, right now, as we are entering the electoral cycle and we are electing a new president, we saw that in the discourse, in the political dialogue, they were talking about transparency, and they were talking about fighting corruption, and they were talking about this ongoing process, and sort of reinforcing this idea. And, I don’t think any of the candidates ever proposed: ‘we will eliminate transparency.’ It’s just not possible. It sounds awful, right?

MR. EDWARDS: Once it’s out there, it’s there for good.

MS. DUARTE: Once it’s out there, I think it’s there for good. You can never take things for granted. We’ve seen in the past things changing for the worst in other countries, but I think it’s there to stay. Civil society is hungry for transparency.

MR. EDWARDS: One thing you said that struck me as surprising me was that the divorce rate went up. Talk to me about how that happened.

MS. DUARTE: That’s right. What happened was that people did not know how much the public employees were earning. And, obviously, as we saw from these divorce rates going up and also the publication—it becomes very public. We are a relatively small country, so people find out about it and then even you will see it in the papers.

The fact is that public workers have many, many, many benefits that people did not know about, and even their own spouses didn’t know about. So, therefore, as they started to find out, they started to get upset!

MR. EDWARDS: You’re here in Washington to discuss corruption and transparency. What do you think is the role of the international community—or at least, the international financial institutions—what is their role in trying to help countries like Paraguay deal with corruption and transparency?

MS. DUARTE: I think the IMF in particular could play a key role. I was very glad to hear Madam Lagarde mention that the IMF is moving in that direction. For me, as a relatively young person working in the public sector, and heading one of the perhaps most important institutions in the country, which is the Ministry of Finance, it is key to have the IMF ‘intruding,’ to put it somehow—I would love for the IMF to intrude in these matters because we truly want all the support we can get.

You can have very strong macro fundamentals, but you have to ensure that the foundations of that, the micro foundations, are strong. And, corruption has a way to hide in small, dark, little spots and spread around very quickly. And then once you notice it, it’s perhaps too late. Therefore, having indicators, having monitoring, and having someone overseeing this with a very ample view and linking it to the macro stability I think will be very useful.

MR. EDWARDS: Thank you very much.

MS. DUARTE: Thank you so much. Thank you, Bruce.

MR. EDWARDS: Lea Giménez Duarte is Paraguay’s finance minister, and she joined a panel discussion entitled “Restoring Trust by Curbing Corruption” at the 2018 IMF/World Bank Spring Meetings.

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