Paraguay faces substantial political risks to investment. While the current pro-business president promises economic prosperity, he faces opposition within his party leading to political gridlock. Paraguay also has a large informal economy and agricultural sector dependent on neighboring countries. Corruption is high and operating firms face many barriers. Additionally, a guerrilla group threatens the agricultural economy by targeting large landowners. Due to these political and economic issues, as well as reliance on agriculture and volatility, Paraguay remains a risky country for investment.

1. WRITING SAMPLE I: PARAGUAY
POLITICAL RISK PROFILE
by Arjun Baragi
Political risk analysis submitted to the faculty of the School of Global Policy and Strategy
at the University of California, San Diego in fulfillment of the core curriculum course
Globalization, the World System, and the Pacific during Fall 2015
IRCO 412: Globalization, the World System, and the Pacific
Professor Barry Naughton
Fall 2015

2. Republic of Paraguay: Political Risk Profile
Risk Assessment: Substantial Risk to Investment
Political Factors
The Republic of Paraguay is a representative democratic republic. The current party in leadership
is the Colorado Party, a center right political party in Paraguay founded in the ideologies of
Republicanism, Nationalism, and Conservatism. The positive aspect of investing in Paraguay is
that the current president, Horacio Cartes is pro-free trade and has opposed withdrawing from
Mercosur, and stated that Paraguay should not be isolated in an increasingly globalized world.
Cartes’ political platform in the 2013 elections was based on bringing Paraguay onto a new path,
and promises of economic prosperity for all. This is a promising foundation to begin with in
respect to foreign direct investment and economic stability in Paraguay, however Cartes is facing
increasing opposition within his own party. However, political gridlock and a deteriorated
infrastructure hamper such reforms from happening in the short term.
Economic Factors
Paraguay’s economy has two large sectors. The first being its large informal sector based on re-
exporting imported goods. The second is Paraguay’s large agricultural sector, however much of
the agricultural sector is based on subsistence farming and small agribusinesses and is highly
dependent on the economies of its neighboring trade partners such as Brazil and Argentina.
Paraguay’s commercial environment remains poor, corruption levels are increasing, and firms
face many barriers when operating in Paraguay. Although the current party is pro-trade,
corruption, and counterparties make operation of firms in the country difficult. In addition to
these difficulties, Paraguay was suspended from Mercosur in 2012 with the impeachment of their
then president Fernando Lugo. Paraguay has been reintegrated back into Mercosur as of today,
however tensions still remain, as much of congress opposed Venezuela’s joining of Mercosur. In
regard to FDI, Paraguay has been doing better than in previous years, but complex political and
security issues threaten FDI in this country. The combination of these economic issues makes it a

3. difficult country to invest in and therefore, should not be invested in without careful
consideration.
Security Dilemma
In addition to corruption and organized crime, Paraguay faces a deteriorating security situation.
A significant threat to investment in Paraguay and Paraguay’s domestic economy comes from an
ongoing guerrilla movement in Paraguay. The Ejército del Pueblo Paraguayo (EPP) poses a real
threat to the Paraguayan economy due to the fact that these Agro-Marxist guerrillas target the
Paraguayan countryside. The EPP tends to attack large landowners who control much of the
agribusinesses in Paraguay. Since Paraguay’s economy is heavily agriculturally based, this is a
big problem. In addition to this, the group’s Marxist ideology will lead them to target foreign
companies more frequently.
Summary
While the business friendly government, large foreign reserves, and low external debt indicate
that future economic growth is possible; there are numerous political and economic barriers for
firms looking to invest in Paraguay and such growth is not sustainable. Paraguay remains one of
the poorest countries in Latin America. Due to its non-diverse economy, Paraguay relies heavily
on its agricultural sector, which in turn relies on favorable weather conditions. Additionally,
widespread corruption and poor rule of law make investment in the country extremely risky.
Furthermore, past trends indicate that Paraguay has experienced a highly volatile growth rate
over the past decade. While growth has reached up to +4.3% in 2015, this is only just below
Paraguay’s average and is expected to slow due to worsening economic conditions in Argentina
and Brazil, along with lower international commodity prices. Overall, downside risks to
investments in Paraguay are substantial and outweigh any upside risks.