Press Release No. 04/230

An International Monetary Fund (IMF) mission was in Asunción during October 18-29, 2004 to conduct discussions for the third review under the Stand-By Arrangement (see Press Release No 03/218).

The main findings of the mission were:

• Macroeconomic indicators are better than anticipated under the program. The economy appears to be growing at about 2½ percent despite a drought (without which growth would have reached 3-3 ½ percent). Inflation has been reduced significantly and foreign exchange reserves have risen to almost US$1.2 billion, well above program projections.

• The macroeconomic program is on track. The fiscal accounts are broadly in balance while tax collections have grown vigorously. Most performance criteria under the IMF program have been observed, some with large margins. The mission commended the authorities for successfully implementing the program under difficult conditions. It will be important to continue to execute the program with strong determination so as to lay the basis for sustainable growth.

• Structural reforms are also critical. The authorities have taken important steps over the past year to implement a program of structural reforms. Such reforms—including in the area of the budget, the financial sector, public enterprises—are needed to address long-standing weaknesses that have inhibited investment and growth. Looking ahead, it will be important to build on this year's successes to develop growth-oriented policies that will raise living standards and reduce poverty.

The authorities expressed interest in extending the Stand-By Arrangement for six months—through end-September 2005—to give time to implement key structural reforms planned under the program and provide an adequate framework to conduct macroeconomic policies in 2005.

The mission made good progress in the discussions, reaching agreement ad referendum on macroeconomic targets for the first half of 2005 consistent with the 2005 budget submitted to congress in August. Discussions on the structural reform agenda are expected to continue in Washington in the near future, with a view to reaching understandings in coming weeks.

The mission would like to take this opportunity to thank the authorities of Paraguay for their hospitality and open dialogue.