MercoPress. South Atlantic News Agency

IMF aid for Paraguay

The Executive Board of the International Monetary Fund (IMF) approved a 15-month SDR 50 million (about US$73 million) Stand-By Arrangement for Paraguay to support the country's economic program.

The approval opens the way for the immediate release of SDR 30 million (about US$44 million). The authorities have indicated their intention to treat the arrangement as precautionary

Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"Paraguay has launched an ambitious reform program to stabilize the economy and begin a process of structural reform to raise growth, reduce poverty, and improve governance. The government has actively sought broad consensus from political parties and civil society for the key elements of its reform program, and this participatory approach should enhance prospects for successful program implementation.

"The stabilization effort is anchored on an ambitious fiscal agenda. The authorities are committed to eliminating the fiscal deficit in 2004, undertaking lasting reform of the institutions of the public sector, restructuring and reducing debt, and clearing all payment arrears.

"Strengthening revenues is a critical component of the program, and will be achieved through increasing key excise tax rates, broadening the base of the value-added tax and the income tax, implementing a new vehicles tax, and strengthening tax and customs administration.

"Efforts at fiscal consolidation will include spending austerity, redirecting spending to the social sectors and public investment, reforming the public employees' pension plan, and containing the losses of public enterprises through efficiency enhancement and adequate pricing policy for fuel and utilities. Expenditure management will benefit from the implementation of the recently approved Public Procurement Law, and the undertaking of external audits of public institutions.

"To ensure successful medium-term fiscal consolidation, the authorities intend to continue working on normalizing relations with external and domestic creditors, and to prepare reforms of the civil service, the social security system, and public enterprises.

"Paraguay's monetary policy will be geared to controlling inflation and allowing a freely floating exchange rate. The central bank will undertake institutional reforms to improve its ability to conduct an independent monetary policy. The authorities will also take important steps to improve the financial system. These measures include restructuring the public banks, strengthening the bank resolution framework, strengthening regulation and supervision of financial entities, including cooperatives, and requiring independent credit ratings of banks.

"With resolute implementation of the policies contemplated in the program and sustained efforts to improve transparency and governance, Paraguay should move into a period of greater economic stability and more robust growth. This, in turn, will contribute to reducing poverty and providing resources to address the country's social challenges" concluded Mr. Sugisaki.