Paraguay presidential hopeful has a plan to win investment-grade status

Opposition presidential candidate Efraín Alegre says Paraguay needs a judiciary overhaul to regain its status as an economic outperformer and finally win a much-desired investment grade status.

Abundant natural resources and a young workforce alone won’t guarantee sustainable development unless Paraguay cleans up its opaque system for appointing judges through fresh legislation or changing the selection process rules, Alegre said in an interview ahead of general elections April 30.

While the land-locked South American country has built a reputation among investors since first issuing international bonds in 2013, credit rating companies have long flagged weak institutions as a barrier to investment grade. Paraguay frequently ranks among the worst Latin American countries in Transparency International’s annual corruption perceptions index.

“What we need today is the rule of law,” Alegre, 60, said in a telephone interview from Asuncion. “If we can obtain investment grade, we know that we can make a great leap forward.”

He says winning investment grade could benefit the economy with as much as US$2.5 billion in additional investment. Paraguay received just US$122 million in foreign direct investment in 2021, according to the UN’s Economic Commission for Latin America and the Caribbean.

Recent polls show a tight race between Alegre, a career politician leading a coalition of conservatives and leftists, and the ruling Colorado Party’s candidate, Santiago Peña, ahead of the election. Peña’s staff declined an interview request.

A win by the opposition candidate would not only further a recent trend of incumbent parties losing office in Latin America, but also unseat the Colorados from power for just the second time since the end of the Alfredo Stroessner dictatorship in 1989.

Paraguay, a country of 7.5 million people about the size of California, is set to become the world’s third-largest exporter of soybeans this year after a deep drought curtailed production in neighbouring Argentina. It’s also a major exporter of beef and renewable energy from hydroelectric dams.

Still, about a quarter of the population lives in poverty and growth averaged just over one percent in the last five years after an average expansion of 4.3 percent in the decade through 2019, one of the best performances in the Americas. The US$43-billion economy is expected to bounce back and grow 4.5 percent this year, according to the International Monetary Fund.

The country’s bonds are rated BB at Standard & Poor’s, two levels below investment grade, while Moody’s and Fitch have them one notch higher.

Renewables, Taiwan

Alegre, a member of the conservative Authentic Radical Liberal Party since his youth, doesn’t fall into the mould of leftists leaders who in recent years won office in Latin American countries from Colombia to Chile. In fact, he has pledged to cut the fiscal deficit, promote foreign investment and keep taxes low.

He pitches his Concertación Para un Nuevo Paraguay, coalition as a stabilising force and agent of change amid US sanctions against senior Colorado leaders and says improving the selection system for the judiciary is key to fight corruption and illegality.

“We have to establish a process that guarantees the selection of the best and most capable” judges, he said during the interview.

Alegre also wants to create more manufacturing jobs by tendering renewable energy contracts to industrial firms. Paraguay’s cheap electricity and close proximity to Brazil and Argentina have nurtured a growing manufacture for export industry that shipped more than US$1 billion in goods last year.

Fulfilling his vision of an industrial revolution underpinned by clean energy will demand considerable political and diplomatic skills.

Alegre has promised to renegotiate a pact with Argentina governing the Yacyreta dam on the Paraná River.

He also plans to negotiate a new power distribution and rate agreement with Brazil for Itaipu, one of the world’s largest hydroelectric dams, early in his government. Itaipu provided almost 86 percent of Paraguay’s power in 2021.

“The fact that Lula is president again will facilitate this conversation,” Alegre said referring to Brazil’s Luiz Inácio Lula da Silva.

Yet his most controversial foreign policy proposal is his long-standing pledge to review Paraguay’s alliance with Taiwan if he wins office. The nation, which has held diplomatic relations with Taiwan since 1957, can’t directly sell its farm goods to China because of its ties with the island that Beijing views as a renegade province.

Alegre says that strategy means Paraguayan companies lose business opportunities, adding that he is in conversations with the Taiwanese government ahead of the vote.

“We are talking with Taiwan, with its ambassador. We haven’t taken a position. We have a critical view of how the relationship between Paraguay and Taiwan has been managed,” said Alegre, adding that his team currently isn’t negotiating with China.