MercoPress. South Atlantic News Agency

Fitch foresees end of Colorado rule in Paraguay

The ANR has two prominent leaders singled out as most corrupt and is also going through an internal crack between those following Abdo and those supporting Cartes (or his protégé Peña)

A study by Fitch forecasts that next month's Presidential elections in Paraguay will mark the end of one of the two surviving conservative governments in the region. Should Santiago Peña of the Colorado Party be defeated on April 30 by Efraín Alegre of Concertación, Uruguay's Luis Lacalle Pou would become the only non-leftwing leader in all of South America.

According to Fitch Solutions, Alegre will defeat a candidate of a party that produced former president Horacio Cartes and current Vice President Hugo Velázquez, both of whom have been “distinguished” as highly corrupt by the United States, which combined with internal tensions within the National Republican Association (ANR - the Colorados' official name) between Cartes and current President Mario Abdo Benítez would prepare the ground for a change of political leadership.

“We maintain our opinion that the opposition candidate of the Concertación, Efraín Alegre, will defeat Santiago Peña, of the right-wing Colorado Party, which governed for a long time,” Fitch's report claims.

It also highlights that another element that weakens the ruling party is the “minimal fiscal support”, and qualifies Alegre as an “advocate of higher social spending”. Likewise, Fitch points out the liberal as a leftist candidate, which is why they give Paraguay a score of 55.4 out of 100 (previously 56) in their short-term Political Risk Index, since a president with that political line represents a risk for the continuity of this system, according to the report.

Cartes and Velázquez were blacklisted by the US government in July 2022 for corruption allegations, but these warnings were not heeded, the report notes, so both are now banned from accessing the country's financial system.

It also notes that the sanctions have worsened the relationship between the two leaders and divided the party, which is expected to undermine support for Peña, a protégé of Cartes'.

Analysts at the rating agency point out that the corruption accusations will generate dissatisfaction among Colorado Party voters, which will favor Concertación. They explain that Paraguay is coming out of an estimated 0.8% recession in 2022 and, throughout the year, the Abdo government kept fiscal stimulus limited despite low purchasing power. The agency also estimates GDP growth of 4.4% in 2023, but with inflation averaging 7.1% for the year, well above the ten-year pre-pandemic average of 4.2%.

Considering that the purchasing power is still weak and the Colorado government shows no signs of increasing spending, it is estimated that the population will prefer the candidate who promotes higher spending on social programs.

Fitch highlights that Colorado governments have maintained a score of 62.5 due to stability and low market regulation, relatively attractive for investments. The difference with Alegre, according to the rating agency, will be its social spending policy.

They also highlight that the possibility of the opposition candidate winning is due to a wave of progressive governments in the region. However, they estimate that Alegre's projects are blocked in Congress, which will limit his capacity for new policies, which is one of the reasons why the agency lowered the country's score.

For Fitch, Alegre's victory is likely to be narrow, as although sentiment against the ruling party increased in Latin America, the ANR remains the largest party in Paraguay.

“In the event that the Concertación wins, we cannot rule out that the colorado leaders will contest the elections or try to hold on to power, which would pose a considerable risk to the stability,” the study also warns.

Fitch Group is one of the most important risk rating agencies in the world, along with Moody's and Standard & Poors. (Source: Última Hora)