inversores paris carlos fernandez valdovinos
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PARAGUAY
Investment opportunities
in a rising economy
September, 2014
Carlos G. Fernández Valdovinos
Central Bank of Paraguay
Roadmap
• Paraguay under the “new normal”
• Macro-advantages for investors
• Micro-advantages for investors
• Summary
Roadmap
• Paraguay under the “new normal”
• Macro-advantages for investors
• Micro-advantages for investors
• Summary
Challenges in the new global context
• Six years after the beginning of the largest economic
crisis in 80 years, some signs (green shoots) suggest
that the worst may be over.
• The “new” world:
– Widespread recovery on economic growth in 2014.
– Higher growth projections than in 2013.
– Still, recovery is uneven
• The Federal Reserve started the normalization of
monetary conditions in early 2014.
Challenges in the new global context
• This is a positive event, but increased financial market
and capital flow volatility is now a concern for emerging
markets.
• Warning: the rise in U.S. interest rates since May
triggered large changes in exchange rates, sovereign
spreads, stock markets, and gross portfolio inflows.
• Nevertheless, the impact was not homogenous across
countries: fundamentals matter.
US Treasury bond yields
Recovery is underway, but emerging
markets face new challenges...
Source: IMF-WEO update July-2014. Bloomberg.
May 21, 2013
Bernanke announces a
possible reduction in the
FED’s asset-purchase
program
Dec 18, 13
Bernanke announces the
withdrawal of the stimulus will
begin in early 2014.
Emerging Markets Bond s Index (EMBI)
1,6
1,8
2,0
2,2
2,4
2,6
2,8
3,0
3,2
21
-May-1
3
10
-Jun
-13
30
-Jun
-13
20
-Jul-
13
9-A
ug-1
3
29
-Aug
-13
18
-Sep
-13
8-O
ct-
13
28
-Oct-
13
17
-Nov-1
3
7-D
ec-1
3
27
-Dec-1
3
16
-Jan
-14
5-F
eb
-14
25
-Fe
b-1
4
17
-Mar-
14
6-A
pr-
14
26
-Apr-
14
16
-May-1
4
5-J
un-1
4
25
-Jun
-14
15
-Jul-
14
4-A
ug-1
4
%
336,9
322,7
220
240
260
280
300
320
340
360
380
400
2-J
an-1
322
-Jan
-13
11
-Fe
b-1
33-M
ar-
13
23
-Mar-
13
12
-Apr-
13
2-M
ay-1
322
-May-…
11
-Jun
-13
1-J
ul-1
321
-Jul-
13
10
-Aug
-13
30
-Aug
-13
19
-Sep
-13
9-O
ct-
13
29
-Oct-
13
18
-Nov-1
38-D
ec-1
328
-Dec-1
317
-Jan
-14
6-F
eb
-14
26
-Fe
b-1
418
-Mar-
14
7-A
pr-
14
27
-Apr-
14
17
-May-…
6-J
un-1
426
-Jun
-14
16
-Jul-
14
5-A
ug-1
4
Ba
sic
Po
ints
0,0
2,0
4,0
6,0
World Advanced Economies Emerging Economiesand Developing
Countries
GDP Growth (%)
2013 2014 2015
BRA
BGR
CHL
CHN
COL
HUN
IND
IDN
KOR
LTN
MYSMEX
PRYPER
PHL
POLROM
RUS
ZAFTHA
TUR
UKR
-5
0
5
10
15
20
0,0 0,5 1,0 1,5 2,0 2,5 3,0Exchange R
ate
Variation (
%)
(May 2
2,
2013 /
Aug 3
0,2
013
)
Variation in Treasury Yields (%)(May 22, 2013 / Aug 30, 2013)
Exchange Rate and Treasury Bond Yields
BRA
BGR
CHL
CHN
COL HUN
IND
IDN
KOR LTN
MYS
MEX
PRY
PER
PHL
POLROM
RUSZAF
THA
TUR
UKR
KAZ
-5
0
5
10
15
20
-2 0 2 4 6 8 10 12
Exchange R
ate
Variation (
%)
(May 2
2,
2013 /
A
ug 3
0,
2013)
Inflation (%) (Dec 2012)
BRA
BGR
CHL
CHN
COL
HUN
IND
IDN
KOR
MYS
MEX
PRYPER
PHL
POL
ROM
RUSZAF
THA
TUR
UKR KAZ
-5
0
5
10
15
20
-8 -6 -4 -2 0 2 4 6 8
Exchange R
ate
Variation (
%)
(May 2
2,
2013 /
Aug 3
0,
2013)
Current Account / GDP (%) (Dec 2012)
Exchange Rate Variation and
Inflation
Current Account and Exchange Rate Variation
Source: Bloomberg.
.
…still, fundamentals will matter
Roadmap
• Paraguay under the “new normal”
• Macro-advantages for investors
• Micro-advantages for investors
• Summary
Sound macro-foundations
to face headwinds
• Over the past decade, policy frameworks and economic
fundamentals have been strengthened.
• Macro-Policies: government finances are sound, inflation
is low, banks are strong, buffers are large, and a flexible
exchange rate regime is a useful tool to face external
shocks.
• Structural Reforms: tax reforms in 1993 and 2013,
passage of a fiscal responsibility law and the approval of a
PPP law.
• The Fed exit from unconventional monetary policy will be a
bumpy ride, but Paraguay is well prepared.
Strong economic growth, coupled with
low and stable inflation
Source: CBP.
0
10
20
30
40
50
jul-
89
jul-
90
jul-
91
jul-
92
jul-
93
jul-
94
jul-
95
jul-
96
jul-
97
jul-
98
jul-
99
jul-
00
jul-
01
jul-02
jul-
03
jul-
04
jul-
05
jul-
06
jul-
07
jul-
08
jul-09
jul-
10
jul-
11
jul-
12
jul-
13
jul-
14
%
YoY inflation
A history of stable prices
1,7
4,95,36,8
1,6
4,2
0,1
-1,4-2,3
-0,80,0
4,34,12,1
4,85,46,4
-4,0
13,1
4,3
-1,2
13,6
4,81,8
4,8
-5
0
5
10
15
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14*Ec
on
om
icG
row
th(%
)
GDP Average 1992-2002
Paraguay economic growth
1992-2014*
4,3
0
5
10
15
20
25
30
35
VEN ARG URY BRA BOL PRY ECU COL PER CHI
(%)
Inflation average
2009-2013
Large buffers to dampen
excessive FX volatility
International Reserves
(% of GDP)
Source: CBP and IMF-IFS. Year 2013, last data available.
Peru 31% Uruguay
29%
Paraguay20% Brazil
16%Chile 15% Colombia
11%
Argentina6%
Venezuela 2%
0%
5%
10%
15%
20%
25%
30%
35%
2013
80
130
180
230
280
Apr-
08
Ju
l-0
8
Oct-
08
Ja
n-0
9
Apr-
09
Ju
l-0
9
Oct-
09
Ja
n-1
0
Apr-
10
Ju
l-1
0
Oct-
10
Ja
n-1
1
Apr-
11
Ju
l-1
1
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-1
2
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-1
3
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-1
4
US
D e
xc
ha
ng
era
te(Í
nd
ex J
an
ua
ry2
00
8 =
10
0)
Guaraní (Paraguay)
Peso (Argentina)
Real (Brasil)
Peso (Chile)
Nuevo sol (Perú)
Peso (Colombia)
Peso (Uruguay)
-4000
-3000
-2000
-1000
0
1000
2000
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
2013
In U
SD
Millio
ns
Net External Creditor position
44%
35%
0%
10%
20%
30%
40%
50%
ma
r-9
4
ma
r-9
5
ma
r-9
6
ma
r-9
7
mar-
98
ma
r-9
9
ma
r-0
0
ma
r-0
1
ma
r-0
2
ma
r-0
3
ma
r-0
4
ma
r-0
5
ma
r-0
6
ma
r-0
7
ma
r-0
8
mar-
09
ma
r-1
0
ma
r-1
1
ma
r-1
2
ma
r-1
3
ma
r-1
4
Deposits/GDP
Source: CBP
A sound financial sector
to support growth
Increase in financial deepening Evolution of Non-performing loans
2,28%
3,91%
0,39%
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
3,50%
4,00%
Ju
n-0
8
Oct-
08
Feb
-09
Ju
n-0
9
Oct-
09
Feb
-10
Ju
n-1
0
Oct-
10
Feb
-11
Ju
n-1
1
Oct-
11
Feb
-12
Ju
n-1
2
Oct-
12
Feb
-13
Ju
n-1
3
Oct-
13
Feb
-14
Ju
n-1
4
NPL´s NPL´s in L.C. NPL´s in F.X.
Solvency Ratio17% 17%
16%15%
14% 14% 14%
PAR BRA ARG COL PER URU CHI
Average: 16%
0
1
2
3
4
5
6
7
Ju
n-0
5
De
c-0
5
Ju
n-0
6
De
c-0
6
Ju
n-0
7
De
c-0
7
Ju
n-0
8
De
c-0
8
Ju
n-0
9
De
c-0
9
Ju
n-1
0
De
c-1
0
Ju
n-1
1
De
c-1
1
Ju
n-1
2
De
c-1
2
Ju
n-1
3
De
c-1
3
Ju
n-1
4
Moody`s S&P Fitch
BB-
Ba2(+)
B3/B-
Caa1/CCC+
B2/B
B1/B+
Ba3/BB-
B3(+)
Caa1(+)
BB-(-)
B-
Caa1
B3
B1
Ba3Ba3
B+
B
BB-
BB- (+)
Source: Bloomberg
Ba2/BB
BB
Strong macro-policies led to steady
improvements in credit rating
6,96,6
5,55,35,25,1
4,44,0
3,63,3
2,92,5
1,7
0,9
-0,6
-1,7
-3,0
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
Nig
eria
Sri L
an
ka
Ang
ola
Para
gu
ay
Leso
tho
Boliv
ia
Suri
na
m
Gab
on
Geo
rgia
Costa
Ric
a
Gua
tem
ala
Tu
nis
ia
Arm
en
ia
El S
alv
ad
or
Hu
ng
ria
Cro
acia
GD
P g
row
th (
%)
Ave
rage
20
08
-20
13
Mediana=3,8
Source: FMI-WEO Apr-2014 and CBP.Countries with BB credit rating by Standard and Poors, Ba2 by Moody’s y BB- by Fitch
In fact, Paraguay has better fundamentals
compared to peers…
-10 -5 0 5 10
GEO
ARM
TUN
SLV
CRI
SUR
LKA
GTM
Mediana
PRY
LSO
HRV
AGO
HUN
BOL
NGA
GABCA Balance (% of GDP)
2015f
2014f
2013f
Paraguay experienced eight
consecutive years of fiscal
surpluses. This had allowed the
country to decrease its public
external debt from more than 50
percent of GDP to less than 10
percent, the lowest percentage
among pears
-
20
40
60
80
100
Ge
n G
ov
Gro
ss
Deb
t(%
of G
DP
)
2013 2015f
Despite strong growth expectations,
Paraguay will maintain an solid
external balance. This is crucial
given tightening external financing
conditions.
Source: FMI-WEO Abr-2014 and CBP.Countries with BB credit rating by Standard and Poors, Ba2 by Moody’s y BB- by Fitch
…with relatively better external
and fiscal positions
Sovereign Bonds
Prices and Yields
Source: Bloomberg
As a result, recent bond placements
were
quite successful
100,13
104,31
6,09
5,80
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
94
96
98
100
102
104
106
05
/14
05
/14
05
/14
05/1
4
05
/14
05
/14
06
/14
06
/14
06
/14
06
/14
06
/14
07
/14
07
/14
07
/14
07
/14
07
/14
08
/14
08
/14
08
/14
Yie
ldP
ric
e
Price 2013 Price 2014 Yield 2013 Yield 2014
Roadmap
• Paraguay under the “new normal”
• Macro-advantages for investors
• Micro-advantages for investors
• Summary
Source: Getulio Vargas Foundation. Bloomberg
0
20
40
60
80
100
120
140
160
Colo
mb
ia
Para
gu
ay
Peru
Boliv
ia
Uru
gua
y
Me
xic
o
Chile
Ecua
dor
Bra
zil
Arg
en
tin
a
Ven
ezue
la
Jan-14 Apr-14 Jul-14
Economic Climate Index
A competitive business climate…
1st WorldExporter
• Net electricity
• Organic sugar
2nd WorldProducer
• Stevia(and exporter)
• Tung
3rd World Fleet of Barges
• 2200 unitswith 200 tugs
4th WorldExporter
• Soy
• Charcoal
• Cassava starch
• Soybean Oil
5th WorldExporter
• Soybean meal
6th WorldProducer
• Soybeans
9th WorldExporter
• Meat
10th WorldExporter
• Wheat
…with an extraordinary
production capacity…
Source: MIC.
…located in a favorable
geographic position
Paraguay is located in the center of the
Region, with the highest income in South
America.
South America(100%)
MERCOSUR(70%)
Population(Mill. people)
405 281
Nominal GDP* (US$ Billion)
4.539 3.311
Average per capita GDP (US$)
7.946 10.402
Source: 2012 Latin American Statistic Yearbook - ECLAC www.eclac.org *Projection Yr. 2013 **In current US$ (2011)
213
205
187
186
163
147
129
112
111
82
- 50 100 150 200 250
Uruguay
Guatemala
El Salvador
Colombia
Brasil
Chile
Peru
México
Costa Rica
Paraguay
USD/MWh
Residential
213
204
192
183
156
139
135
105
72
57
- 50 100 150 200 250
Guatemala
Costa Rica
El Salvador
Brasil
Colombia
Uruguay
México
Chile
Peru
Paraguay
USD/MWh
Industrial
609,0
405,0 395,0
339,0
-
100,0
200,0
300,0
400,0
500,0
600,0
700,0
Argentina Uruguay Paraguay Brasil
Minimum Wage USD
102%
70%
48%
35%
0%
20%
40%
60%
80%
100%
120%
Brasil Argentina Uruguay Paraguay
Social charges and other benefits incidence
A country with low energy
and labor costs…
Source: MIC
0%• Imports of capital goods tariff
(Machinery and Equipment)
0%• Value Added Tax (VAT) on
purchasese of capital goods (within or outside the country)
0%
• Remittances and foreign payments for principal, interest and fees taxes(applies to investments of over $ 5 million.)
0%
• Dividend payment taxes and sending profits abroad (applied to investments of over $ 5 million within a span of 10 years)
...which also offers
important tax advantages…
Taxes PGY ARG URU BRA CHI
Business Income Tax
≤10% 35% 25% 34% 17%
Personal Income Tax
10% 35% 25% 27,5% 40%
Value AddedTax (VAT)
≤10% 21% 23% 25% 19%
Source: MIC,STP
25,9% 25,5% 24,5%
19,9%17,7%
15,6%13,5%
0%
5%
10%
15%
20%
25%
30% Comparative Tax Burden (% of GDP)
…trough several legislations
Laws and Other Tax Benefits
Law Nº 60/90 System of Fiscal Incentives for capital investment of domestic and foreign origin
Law Nº 1064/97 Maquiladora Export Industry
Law Nº 4427/12 Incentives for production, development, packaging of high-tech goods
Law Nº 4903/13 Industrial parks
Law Nº 5102/13Investment Promotion Act and public infrastructure expansion and improvement of goods and
services by the state (PPP Law)
Decree 11771/00 For the import of raw materials and supplies
Law 4427/12 High-tech assembly
Law 2422/04 Special customs regimes
Source: CBP
Source: MIC
Simplification of business
processes
National automotive
policy
National output
and
Employment
Law
60/90
Industries
registratio
nMaquila regime
Unified System for the
Opening and Closure of
Businesses
Roadmap
• Paraguay under the “new normal”
• Macro-advantages for investors
• Micro-advantages for investors
• Summary
Summary
• A normalization on monetary conditions in the US is
not necessarily a negative event: economic and
financial effects will depend on robustness of
economic policies.
• In Paraguay, fundamentals have improved over the
past decade and the economy is well prepared to face
external shocks.
• Paraguay improvements were reflected in recent and
successful bond issuances: market demand was 4.9
times the initial offer and yields lower than in countries
with the same credit rating (BB).
Summary
• In sum, the country offers to the private sector a stable
macroeconomic framework for the medium and long
term.
• This is crucial: it is a pre-requisite for individuals and
companies to extend their planning horizon and,
consequently, generate investments that will create
employment, production and income.
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