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South America's Star Economy Set to Vote to Keep It That Way

Poor But Booming Paraguay Set to Keep Ruling Party in Presidency

(Bloomberg) -- With Paraguay’s economy booming, this Sunday’s elections are less about policies and more about the candidates and their party machines.

In terms of growth, this landlocked country -- roughly the size of California -- is one of the few bright spots in Latin America in recent years. Barring an upset, Mario Abdo Benitez, a 46-year old former senator whose father was the secretary of long-serving dictator Alfredo Stroessner, looks set to retain the presidency for the conservative Colorado party. Recent polls put him well ahead of Efrain Alegre, a former minister backed by the Alianza Ganar, an unlikely alliance of right-wingers and leftists.

South America's Star Economy Set to Vote to Keep It That Way

The winner will inherit a $30 billion economy that’s expected to chalk up its sixth straight year of growth, with the central bank forecasting a 4.5 percent expansion this year. Since its debut on global debt markets in 2013, Paraguay has sold almost $3.5 billion in bonds, with an average yield of 4.97 percent, compared with the emerging market average of 5.82 percent. Its impressive growth rates, however, have done little to budge its high levels of poverty, with just over a quarter of the country’s 6.9 million people living below the poverty line.

Policy-wise, there’s little to choose between the two presidential candidates. Both have pledged to fight endemic corruption by overhauling an opaque judicial system, while spending more on education and healthcare. Both also say they can pay for it by doing a better job of collecting the country’s low taxes. While Abdo Benitez has said he will borrow to boost social spending, Alegre says there’s no need to take on debt when new tobacco taxes could raise as much as $800 million.

Speaking on the fringes of the IMF meeting in Washington, Paraguay’s Central Bank president Carlos Valdovinos said that investors need not fret about the result. "From an economic view, there is no change, at least on macro fundamentals," he said.

South America's Star Economy Set to Vote to Keep It That Way

History suggests that the Colorado candidate is tough to beat with the party having won all but one presidential election since the return to democracy in 1993. A recent poll by First Analisis y Estudios gave Abdo Benitez a 26 percentage point lead. Alegre, meanwhile, draws support from the conservative Authentic Radical Liberal Party and the left-wing Frente Guasu coalition of Fernando Lugo, the former priest-turned-president who was impeached in 2012. He’s since won election to the Senate, and remains an influential player.

South America's Star Economy Set to Vote to Keep It That Way

Also up for grabs Sunday are Paraguay’s 17 governorships and all seats in the senate and lower house. Polls suggest significant gains for the Alianza Ganar, but not an outright majority in a Congress where party loyalty is fluid and lawmakers frequently vote across party lines. That will likely force the next president to cut deals with the host of smaller parties that will win seats under Paraguay’s system of proportional representation.

Challenges Ahead

In spite of an impressive average growth rate of 6 percent between 2013 to 2017, there are some concerns over the country’s institutional stability.

Only Venezuela outranks Paraguay as the most corrupt nation in South America, according to Transparency International’s latest corruption perception index. The UN’s Office on Drugs and Crime states that that the country is also one of the world’s leading suppliers of marijuana.

In northern Paraguay, a self-proclaimed Marxist revolutionary group, the Ejercito del Pueblo Paraguayo, or EPP, has terrorized ranchers and farmers with impunity for years. Brazilian criminal gangs also operate in the border region.

In March last year, in a rare moment of civil unrest in Paraguay, the Congress building was torched in protest at a clumsy and ultimately unsuccessful attempt by allies of current President Horacio Cartes and Lugo to pass a deeply unpopular presidential re-election bill.

The next president faces the challenge of providing jobs, education and housing to the estimated 500,000 people, 75 percent of them millennials, that will swell the populations of the country’s largest cities in the next five years, said Daniel Correa, a former deputy finance minister and senior economic adviser to Abdo Benitez. Roughly half of the population is 24 years old or younger.

Paraguay “needs democratic leadership that can meet the demands of these millennials. That demographic bonus could be an asset or turn into a liability,” Correa warned.

--With assistance from David Biller

To contact the reporter on this story: Ken Parks in Montevideo at kparks8@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Bruce Douglas

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