Paraguay s Fiscal and Monetary History

Transcription

1 Paraguay s Fiscal and Monetary History Carlos Javier Charotti Felipe Gonzalez Soley Central Bank of Paraguay January 8, 2015 Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

2 Contents 1 Overview of the Paraguayan economy 2 Narrative of the periods 3 The Budget Constraint Accounting for Paraguay 4 Periods of analysis Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

3 Overview of the Paraguayan economy Figure 1 : Inflation Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

4 Overview of the Paraguayan economy Figure 2 : Real GDP per capita detrended Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

5 Overview of the Paraguayan economy Figure 3 : External public debt Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

6 Overview of the Paraguayan economy Figure 4 : Real exchange rate Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

7 Overview of the Paraguayan economy Figure 5 : Average annual per capita GDP growth Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

8 Narrative of the periods Stroessners government priority was containing inflation, boost trade and strenghthen the economy. To attain this, and with the technical assistance from the IMF, a stabilization plan was implemented with the objective of restoring monetary and fiscal stability as the basis of economic growth The Stabilization Plan was not effective for several domestic reasons and external shocks. This period chracterized by an increase of inflation due to State-Owned Enterprises (SOE) deficits financed by the Central Bank, low real GDP growth, sustained current account deficits, reduction of foreign reserves and succesive devaluations of the nominal exchange rate. Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

9 Narrative of the periods The country went through a democratic transition period. Several fiscal and monetary policies were implemented. The period characterized by the liberalization of the economy, but without the proper regulatory framework, which resulted in a debt crisis and poor economic performance This period starts with an Stand by agreement with the IMF in December, This program was oriented to reduce tax evasion and reform the taxation system. Moreover, efforts were made to strengthen SOE and to reform public banking. Also, in this period an IT regime (2011) and a fiscal rule (2013) were implemented. Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

10 The Budget Constraint Accounting for Paraguay Following Kehoe, Nicolini and Sargent (2010), we modify the original budget constraint to incorporate Itaipu revenues as a source of government financing: E t Itaipu t + M t + b t E t = D t P t + DPE t P t + M t 1 + b t 1r t 1E t The budget constraint can be rewritten in terms of real GDP: ξ t (θ t θ t 1) + (m t m t 1 ) + m t 1 (1 1 g t π t ) + ξ t ϑ t = ξ t θ t 1( r t 1 g t π W t 1) + d t + dpe t where, ϑ t = (Itaipu t /P w t )/y t Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

11 Periods of analysis Figure 6 : Budget constraint Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

12 Periods of analysis Figure 7 : Inflation and central government primary deficit Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

13 Periods of analysis Figure 8 : Funding sources Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

14 Periods of analysis Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

15 Annex: Itaipu Itaipu Binational is an entity created in the 70s by the governments of Paraguay and Brazil. The idea was using water resources of the Parana River to generate hydroelectricity. Itaipu belongs to Brazil and Paraguay (50 percent each). The Itaipu Binational entity resorted to loans for the construction of the dam. The loans were mainly obtained from Brazil. Itaipu pays the loans from their revenues of their energy sales. Paraguay receives two types of financial compensations. First, for the export of energy to Brazil. Second, for the utilization of the natural resources (Parana river). The investment in construction was on average 10 percent of GDP per year. Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

16 Periods of analysis Figure 9 : Budget constraint Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

17 Periods of analysis Figure 10 : Inflation and central government primary deficit Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

18 Periods of analysis Figure 11 : Inflation and public sector deficit Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

19 Periods of analysis Figure 12 : Credits financed by the Central Bank Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

20 Periods of analysis Figure 13 : Funding sources Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

21 Periods of analysis Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

22 Periods of analysis Figure 14 : Budget constraint Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

23 Periods of analysis Figure 15 : Inflation and central government primary deficit Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

24 Periods of analysis Figure 16 : Funding sources Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

25 Periods of analysis Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

26 Periods of analysis Figure 17 : Budget constraint Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

27 Periods of analysis Figure 18 : Inflation and central government primary deficit Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

28 Periods of analysis Figure 19 : Funding sources Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

29 Periods of analysis Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30

30 Thanks Carlos Javier Charotti Felipe Gonzalez Soley (BCP) Central Bank of Paraguay January 8, / 30