President Horacio Cartes Monday vetoed the 2017 budget to avoid the risk of default after the Senate set a ceiling on the amount of debt the government could issue.
Under these conditions, the 2016 budget will remain in force unless the opposition puts together a two-thirds majority in both houses of Congress to override the presidential veto, which seems quite unlikely.
In a letter sent to Congress on Monday, the government said it decided to veto the budget because the debt limit would generate a risk to the ability of the state to comply with its obligations.
This has not been a simple decision, Finance Minister Santiago Peña wrote. We have evaluated all the alternatives, but ... the changes they have made place fundamental elements of the proper functioning of the economy at risk.
The Senate restricted the value of bonds the government could issue to $349 million, way below the $558 million proposed. The move would have slashed the amount of money the government could have raised to pay off existing debt, lowering it to $132 million from the $305 million proposed.
Paraguay has issued $1.88 billion in international bonds under Cartes, a former business magnate of the center-right Colorado Party. The veto comes amid a fight between Cartes, members of his own party and the opposition ahead of the next election in 2018 over a proposed constitutional amendment that would allow presidents in office to seek reelection.