MercoPress. South Atlantic News Agency

Paraguay faces double impact of the weakening US dollar

Paraguay is increasingly concerned with the weakness of the US dollar which together with the landlocked South American country commodities export boom is appreciating the local currency far above the Central Bank's target.

"Exchange rate volatility does not help business planning. We're trying to keep the US dollar in the range of 4.600 Guarani (local currency) but it now stands at 4.450 because of the weak US dollar", admitted President Nicanor Duarte during the inauguration of a remodeled and refurbished high school. The Paraguayan Central Bank has been forced to buy the excess US dollars in the local money market to keep the Guarani on target, and to prevent inflation has increased technical reserves private banks must hold in support of short and long term financial operations. "We're trying to achieve a balance so we can defend the interest of exporters, uphold our local currency and repeat the growth rate of the economy last year, 6.4%", added President Duarte in an attempt to bring relief to markets. However the fact is that if monetary authorities intervene with too much emphasis to uphold the exchange rate, "inflation could be triggered and inflation is the most evil of taxes for the poor and those living on fixed incomes", And why is the US dollar plunging? "Because the US financial system is collapsing, controls have failed, and for a small farm commodities export country such as Paraguay we're forced to avoid by all possible means the drastic plunge of the US dollar. Our international reserves have trebled and if we hadn't acted the US dollar would now stand at 3.600 Guarani, a nightmare for farmers". President Duarte recalled that when he took office in August 2003 Paraguay's international reserves totaled 600 million US dollars and they now stand at 2.5 billion, which has meant a surge for the Guarani. In 2003 the US dollar was equivalent to 7.800 Guarani while today 4.450 are needed to buy a greenback. "The strengthening of the Guarani has helped Paraguay and Paraguayans pay their debts in US dollars and has represented a significant saving for the government. A strong Guarani also makes imported goods cheaper helping to improve the quality of life, but we must not forget our basic economy, our exporters who also need to benefit and therefore it's essential a balance is reached between the two extremes", said President Duarte.