Ian Herrick
April 4, 2008
Hartman
Macroeconomics
Paraguay
Paraguay is a small country located in South America. Paraguay borders Brazil, Argentina and Bolivia and is one of the few landlocked countries in South America. Paraguay is a relatively under populated country, which saw a large amount of growth in the 1970’s and 1980’s. Because Paraguay is so small, it’s GDP in 1986 was about $3.4 billion. This meant Paraguay had the lowest GDP of all countries in South America except for Bolivia. Paraguay began to grow in the 1970’s because of the Paraguayan-Brazilian project, which involved building the worlds largest hydroelectric plant. This plant supplied all the electricity that the country needed at the time and allowed them to export power. At the same time soybeans and cotton began to take over the agricultural aspect of Paraguay’s economy. In 1982 Paraguay’s economy was hit hard. The construction of the hydroelectric dam was finished, prices for soybeans and cotton dropped and there was a worldwide recession. This lasted for two years until 1984 when the economy recovered and continued to grow. (Hanratty &Meditz, 1988).
One difference between Paraguay and other South American countries was that Paraguay’s import taxes were very low. Paraguay’s deficit began to grow partly because there was no personal income tax and all other taxes did not bring in enough revenue. The amount of money the government took in each year was one of the lowest figures in the world considering how large the GDP was. Although the economy was growing, Paraguay’s wealth was not equally distributed. Much of rural Paraguay was in poverty (Hanratty &Meditz, 1988).
One of the main sectors in Paraguay’s economy is agriculture. There are no metals to be mined and little oil in the country. However, Paraguay does have very fertile soil and many rivers. Towards the end of the 1980’s 40% of Paraguay’s workforce worked in agriculture. This accounted for 23% of Paraguay’s GDP and 98% percent of it’s exports. Today Paraguay’s agriculture is still very important. It now contributes to 22% of the GDP (The World Factbook, 2008). The main crops grown are soybeans and cotton. Cotton is grown mainly is the eastern part of Paraguay and is an important export. Until the 1990’s, cotton was harvested and exported unprocessed. Then an Italian-Paraguayan company built a $10 million plant that processed the cotton. This computerized plant, which spun the cotton inside Paraguay, doubled the profit of the exported cotton. Most of the cotton was shipped to Italy and Paraguay’s neighbor, Brazil. As cotton harvesting continues to become more efficient and more mechanized many traditional farmers may face unemployment (Paraguay Agriculture, 2007).
Another major crop grown in Paraguay is the soybean. Along with cotton, soybeans make up two thirds of Paraguay’s agricultural exports. In the 1960’s the Colorado party had influence over the government, and purchased land to grow soybeans (Hanratty & Meditz, 1988). The companies that grew the soybeans were involved in international agriculture and had the money and resources to grow soybeans on a large scale. This helped deal with the overpopulation in the capital and opened up more jobs for Paraguayans (Hanratty & Meditz).
Other agricultural crops like coffee, corn, rice, wheat, citrus, sugarcane and peanuts account for about one third of the agricultural exports. Because agriculture is one of the main industries in Paraguay the country is almost self sufficient when it comes to food. Livestock make up a portion of the agricultural GDP for Paraguay. Cattle is raised on the west side of Paraguay and most of the livestock is used domestically and very little is exported. All these sectors of the agricultural industry made up about 22% of Paraguay’s GDP in 2007 (The World Factbook, 2008). Another important segment of Paraguay’s economy is industry. In the late 1980’s, Paraguay’s industry was mainly manufacturing and construction. At this time manufacturing accounted for 16.3% of the GDP (Hanratty & Meditz, 1988). In 2007 industry accounted for 18.7% of the GDP. (World factbook Paraguay) The first industries in Paraguay involved processing animal hides and tannin from quebracho trees. As the agricultural market grew, so did the need for plants to process meat, flour, oilseeds, sugar and pectin extract. In the 1970’s the Paraguayan government enacted law 550, which promoted export oriented industries. The main products manufactured were food, tobacco, clothing, leather, wood and chemicals. Because of Law 550, many foreign countries like Brazil, Portugal, Argentina and the United States invested money in Paraguayan businesses. This caused manufacturing to grow very quickly in the late 1970’s and early 1980’s (Hanratty & Meditz, 1988).
The largest sector in manufacturing involved processing agriculture. Coffee, leather, tobacco, sugar and flour along with meat and leather made up almost half of the manufactured products in Paraguay, while hardwood accounted for 15% of the manufacturing industry. Paraguay has many trees’ and a small population meaning there is not a large demand for wood. Much of the wood is processed at sawmills and exported. Paraguay’s large forests produce high quality hardwood, which many people around the world desire.
The third largest sector of Paraguay’s manufacturing is comprised of the production of clothing, shoes and textiles. Because Paraguay grows large amounts of cotton, most clothing is made from cotton. Accounting for less than five percent of manufacturing is chemicals and fertilizers. In 1987’s a Japanese company built a fertilizer plant, which produced 70,000 tons of fertilizer each year. Ethanol, along with paints and perfumes are also produced in small quantities (Hanratty & Meditz, 1988).
The service sector of Paraguay’s economy accounted for 59.4% of the GDP in 2007 (The World Factbook, 2008). The service sector is mainly comprised of trade and transport. Paraguay is a land locked country so it has no seaports. However, two major rivers go through Paraguay allowing goods to be transported around the country and to Paraguay’s neighbors. The Paraguay River and the Parana River have greatly increased the ease of transporting goods to and from the country. Because there is little oil in Paraguay it relies on imported petroleum. A search for possible petroleum deposits was conducted in the 1980’s but no oil was found. Paraguay now makes small amounts of ethanol but not nearly enough to eliminate the country’s dependence on imported fuel. Paraguay is only a country of about 6 million people so the tourist industry is small. It is slowly growing but outside of the capital, Asuncion, there is little services geared toward tourists (National Economies Encyclopedia, 2007).
Construction played a major part in Paraguay’s economy when Itaipu, the world’s largest hydroelectric plant was being built in 1973. The construction of the dam was part of the industry category for the GDP. The dam created more than 100,000 jobs for Paraguayans. This project lasted 11 years and helped stimulate the economy by creating so many jobs. In 1983 construction began on another dam named Yacyreta. This dam took 10 years to build and even though it was much smaller than Itaipu it also created man jobs for Paraguayans (Hanratty & Meditz, 1988).
The Itaipu dam was created to produce hydroelectric power for Paraguay and Brazil. The dam was located on the border between the two countries. After 11 years of construction, the dam was finally completed in 1983. It used 18 generators to produce electricity from the Parana River. In 2007 the dam created 70 billion kWh of electricity. Panama used only 6 kWh of this power and exported the rest to Brazil. To this day 99.9% of all electricity used in Paraguay is produced by hydroelectric plants (Hanratty & Meditz, 1988).
The total GDP of Paraguay for 2007 was $26.55 million, which was divided into three sectors. Agriculture made up 21.9% of the GDP, industry 18.7% and services 59.4% (The World Factbook, 2008). I believe these figures are very accurate because they are from the most recent data about Paraguay’s GDP and were published in the world fact book at cia.gov. Because the government published them, it is very likely that the figures are accurate. In 2002 Paraguay’s GDP was $25 million and it rose until 2004 when it was $29.93 million. It temporarily dropped off to $29.11 million in 2005 and it rose to $30.64 million in 2006. In 2007 the GDP dropped significantly to $26.55 million according to the CIA world fact book. (Paraguay-GDP (Billion $), 2007).
Although almost all of the numerical values for Paraguay’s GDP came from the CIA fact book, some of the numbers for individual industries may not be very accurate. Some of the sources did not say the exact year for numbers they were stating and some of them said the year but it was not very current. Paraguay is a very small country with a very small GDP. Many people have never heard of Paraguay or don’t know where it is making it hard to find accurate and current information about its GDP.
Works Cited
“Agriculture.” Nations Encyclopedia. 19 Mar. 2008 <http://www.nationsencyclopedia.com/economies/Americas/Paraguay-AGRICULTURE.html>.
Hanratty, Dannin M., and Sandra W. Meditz. “Agriculture.” Country Studies. 18 Mar-Apr. 2008 <http://countrystudies.us/paraguay/41.htm>.
Hanratty, Dannin M., and Sandra W. Meditz. “Growth and Structure of the Economy.” Country Studies. 18 Mar.-Apr. 2008 <http://countrystudies.us/paraguay/38.htm>.
Hanratty, Dannin M., and Sandra W. Meditz. “Itaipú, Yacyretá, and Corpus.” Country Studies. 18 Mar-Apr. 2008 <http://countrystudies.us/paraguay/49.htm>.
“Paraguay-GDP (Billion $).” Index Mundi. 1 Jan. 2007. 19 Mar. 2008 <http://www.indexmundi.com/g/g.aspx?c=pa&v=65>.
“The World Factbook Paraguay.” CIA. 6 Mar.-Apr. 2008. 19 Mar. 2008
<https://www.cia.gov/library/publications/the-world-factbook/print/pa.html>.
