Author: dev_

Paraguay is now close to investment grade as Moody's Investors Service has upgraded Paraguay's sovereign bond rating to Ba1 from Ba2, changing its outlook from stable to positive. 

According to the firm itself, “the decision to upgrade the rating is attributed to:

1. The implementation of the reform package enacted in 2013 that strengthens the fiscal framework and boosts infrastructure investment.

2. Efforts to diversify the economy that are producing positive results.

3. Improved governance and institutional strength.

BASIS FOR RATINGS

FIRST ELEMENT - Successful progress towards the implementation of the reforms

The government has made progress in implementing the reforms approved at the end of 2013, including: the fiscal responsibility law (FRL); income tax reforms; and the PPP framework to boost infrastructure investment. Despite the dissimilar application of the LRF, limits were observed in the containment of spending and salary increases in the 2015 budget, which is a significant improvement in contrast to the previous year's budget. Tax collection and tax revenues have improved substantially with the implementation of the new laws. While compliance with the limit on recurrent spending was significant, the actual budget deficit approved by Congress was well above the limit set by the LRF. At the same time, the fiscal target was partially met, through the exclusion of capital expenditures financed through the issuance of global bonds. While increased capital spending is desirable, this approach to meeting the fiscal target indicates that the transition to full compliance with the LRF is not yet complete. We expect continued and improved compliance with the LRF to contain recurrent spending and wage growth, creating fiscal space for growth-enhancing capital spending.

SECOND ELEMENT - Economic diversification is underway

Government and private sector-led initiatives are enhancing economic diversification by developing light manufacturing industries and raising the value added of agricultural exports. The government's strategy aims to improve Paraguay's integration into the regional supply chain by encouraging the establishment of maquilas, auto parts manufacturers, and other light manufacturing. We believe the expansion of light manufacturing industries is likely to continue due to Paraguay's competitive advantages relative to neighboring Brazil, which include low labor and energy costs and a more favorable fiscal environment. In addition, growth volatility typically has a limited impact on government revenues and banking sector performance.

THIRD ELEMENT - Improved governance and institutional strength

Government effectiveness has improved since the Cartes administration took office. The government was able to secure the approval of several key reforms, including; the LRF, the Law to Modernize the Financial Administration of the State, the APP Law, and a revision of the sovereign bond law, among others.

The stable outlook reflects our expectation that the government will continue to implement the various laws passed at the end of 2013 and maintain fiscal prudence, while at the same time expanding infrastructure investment in the medium term. We do not anticipate that Paraguay's rating could change in the short to medium term. Moreover, this upgrade would depend on a track record of improvement in the institutional framework, including compliance with the LRF, and sustained improvement in governance indicators compared to peers.

FACTORS THAT COULD RAISE/LOWER RATINGS

Upward rating pressure could result from: (i) track record of commitment to the fiscal responsibility law as a fiscal anchor; (2) successful implementation of growth-enhancing infrastructure investment; (3) continued economic diversification efforts; (4) improved institutional strength and governance indicators.

Downward pressure could result from: (1) the reversal of the government's prudent fiscal management (2) a significant and prolonged commodity shock driven by declining prices or adverse weather conditions; (3) recurring political instability.

TECHOS PAÍS

As a result of this rating action, the ceilings for long-term local currency bonds and deposits changed to Baa3 from Ba1, while the ceilings for short-term local currency bonds and deposits changed to P3 from Not Prime. The ceiling for long-term foreign currency deposits changed to Ba2 from Ba3, while the ceiling for short-term foreign currency deposits remains at Not Prime. The ceiling for long-term local currency bonds remains at Baa3, while the ceiling for short-term foreign currency bonds remains at P-3.

GDP per capita (PPP base, US$): 8,386 (2014 estimate) (also known as Income per Capita)

GDP growth (percentage change): 4.3% (2014 Estimate)

Inflation rate (percentage change dec/dec): 4.2% (2014 Estimate)

General Government Fiscal Balance/GDP: -–2.3% (2014 Estimate)

Current Account Balance/GDP-0.4% (2014 Estimated) (also known as External Balance Sheet)

External Debt/GDP: 52.7% (2014 Estimated)

Level of economic development: Low level of economic resilience

Delinquency history: At least one episode of delinquency recorded since 1983.

On March 29, 2015, a rating committee was convened to discuss the rating of the Government of Paraguay. The main points of the discussion centered on: the issuer's economic fundamentals, including its economic strength, have increased substantially. The issuer's institutional strength/framework has increased. The issuer's fiscal or financial strength, including its debt profile, has improved. An analysis of this issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate.”

On July 28, 2015, the members of the Board of Directors of the National Competition Commission (CONACOM) were appointed through Decree No. 3827/2015.

Carlos Alberto Filartiga Lacroix, Miguel Osmar Núñez Figueredo and Fabrizio Augusto Castiglioni Serafini were appointed as regular members. Mr. Mario Aníbal Romero Lévera was appointed as alternate member.

The appointment of a Research Director is still pending.

CONACOM is the enforcement authority of the Antitrust Law (Law No. 4956/2013).

Contact us for more information about this news or about the legal framework for antitrust matters.

Vouga Abogados represented the International Finance Corporation (IFC) in granting a loan of up to US$30 million to Banco Sudameris in Paraguay.

The purpose of the loan is to provide the borrower with a short-term revolving loan to be used to fund its lending operations to eligible sub-borrowers through the creation of a pool of eligible sub-loans secured by acceptable deposit warrants.

IFC's loan to Sudameris will enable it to provide financing to Paraguay's fastest-growing sector, which is the mainstay of the country's economy.

The Firm assisted IFC in all matters related to local laws and the agreement was finally executed on February 12.

Latin Lawyer reported:

“The International Finance Corporation (IFC) engages Vouga Abogados for the sale of its shares in Banco Continental for US$ 62 million.

Banco Continental retained Galeano Ríos, Morales y Asociados of Asunción to assist in the transaction, which was completed on February 9. The transaction was based on IFC's exercise of a put-back option right (put option) the shares it had acquired in 2009. [...]”

Reprinted with permission of Law Business Research Ltd. This article was first published in LATIN LAWYER. For more information please visit http://latinlawyer.com/features/article/47887/vouga-galeano-rios-ifc-share-sale/.

The Paraguayan state-owned Empresa de Servicios Sanitarios del Paraguay (ESSAP) has initiated a public bidding process for the construction of major sewerage and wastewater treatment systems worth more than US$500,000,000 for the Lambare, Luque and Mariano Roque Alonso basins in the metropolitan area of Asunción.

This project is executed under the modality foreseen in Law 5074/13 “Establishing the Public Works Regime”, according to which the bidder must also arrange for the financing of the works with first class institutions, with sovereign guarantee. Further details on the financing scheme will be published in the bidding documents. The sewer and wastewater system will be constructed under the engineering, procurement and construction (EPC) model.

According to the Invitation for Prequalification, the technical specifications of the project will include the following components:

a) Sanitary sewerage networks (primary, secondary and tertiary collectors and house connections);

b) Pumping Stations and Pumping Lines;

c) Wastewater Treatment Plants;

d) Sub-fluvial outfalls.

The project also includes the assisted operation of the Wastewater Treatment Plants for a minimum period to be established in the bidding process, in addition to the elaboration of an organizational strengthening plan that will include consulting services, provision of goods and services, execution of civil works and electromechanical assembly.

The public bidding is currently in the pre-qualification stage. At this stage bidders must provide information on their technical qualification and then the selected bidders will submit their bid for the engineering, procurement and construction of the sewerage and wastewater treatment system.

The deadline for submitting the pre-qualification application is March 09, 2015 at 9:00 a.m. (Paraguayan time) and the consultation period ends on March 02, 2015 at 12:00 noon (Paraguayan time). Subsequently, the government will select the companies that will be able to participate in the bidding process.

Public bidding is expected to be completed by July 2015 and construction of the project in 4 years.

If you would like to receive a copy of the Invitation for Prequalification or additional information, please do not hesitate to contact us at msalgueiro@vouga.com.py and rgvouga@vouga.com.py.

Mauricio Salgueiro – Rodolfo G. Vouga Z.

Last Friday, January 23, 2015, the Paraguayan Government launched the call for pre-qualification of companies interested in investing in the expansion of international routes 2 and 7, which connect Paraguay with Brazil, under the Public-Private Partnership (PPP) scheme.

The project contemplates the “design, construction, financing, operation and maintenance of the duplication and improvement of the existing 142 km stretch of National Routes N° 02 Mariscal José Félix Estigarribia and N° 07 Dr. Gaspar Rodríguez de Francia”, which represents an investment of approximately USD 350 million (according to government estimates). Among the works to be carried out are the widening of lanes (from 2 to 4), construction of a viaduct, construction of collector roads and the bypassing of several cities.

The government plans to cede the collection of tolls in the cities of Ypacaraí and Coronel Oviedo, which would be collected bi-directionally, for up to 30 years. Other state contributions will be defined at a later date.

Pre-qualification ends on March 16, 2015 at 2:00 p.m. and the consultation period on February 20, 2015. After the study of the documentation submitted, up to 10 companies will be prequalified to participate in the subsequent bidding process.

The tender is scheduled for June 2015 and the works are expected to take approximately three years to complete.

Should you wish to receive further information, including a copy of the bidding documents for the call for prequalification, please do not hesitate to contact us.

Last January 20, 2015, the Executive Branch of Paraguay officially published Law 5393/2015, on the law applicable to international contracts (the “Law”), thus putting an end to a long discussion held in academic and professional circles on the possibility of choosing the law governing international contracts.

The new law thus clearly allows the parties to agree on the application of the law they deem most convenient for their international contracts, thus providing greater predictability and confidence to international commercial transactions.

The Law is largely based on the draft Hague Principles on the Choice of Law Applicable to International Contracts (Hague Principles). However, there are some differences introduced by the Congress during the discussions on the draft Law.

Some of the most salient features of this legislation are as follows:

• Excluded from its scope of application are certain agreements such as: arbitration agreements, partnerships or other associations, agency contracts, international distribution, trusts, among others.
• It also contains provisions on police and public order laws, which generally prevail over the agreement of the parties.
• It recognizes the possibility of agreeing to the application of “rules of law”, i.e. non-state or state law. soft law.
• It includes a provision on equitable harmonization of interests, which is perhaps the most striking difference with the Hague Principles.

The entry into force of the Law grants Paraguay the role of “pioneer” - according to the recognition made by the Hague Conference on Private International Law itself - in the legislative incorporation of the Principles into local law. It remains to be seen how the courts and arbitrators in Paraguay will apply and interpret the new legislation.

“The best-kept secret in South America” is the title of the special report on Paraguay just published by the prestigious international magazine TIME. The report highlights the country's strategic location in the heart of South America, as well as its low energy costs and affordable tax burden, characteristics that seduce international investors.

The prestigious U.S. magazine refers to Paraguay as “A jewel waiting to be discovered”. It mentions as key factors the Public-Private Partnership and Fiscal Responsibility laws, as tools for the country's future and sustainable growth. It also indicates that the provision of physical infrastructure is boosting trade and favoring business.

TIME also praises Paraguay's climate and soil fertility, factors that give the country an important comparative advantage in agribusiness. It adds that the Itaipu dam, in addition to demonstrating its competence in terms of technological development, does a commendable job in caring for the environment, which allows Paraguay to obtain renewable and abundant energy at low cost.

Exports of products under the maquila regime increased 50% compared to September of the previous year and with an accumulated volume of 53% (January to September of this year), which is 14% higher than the total exports registered in 2013, according to a report issued by the National Council of Maquiladora Export Industries (CNIME).

In the month of September, exports amounted to USD 15,298,304. From January to September 2013, the accumulated amount of exported products was USD 118,881,074 and in 2014, it already amounts to USD 182,460,284.

The most important sectors in terms of job creation are: auto parts (46.2%), intangible services (19.3%), plastics and their manufactures (10.7%), clothing and textiles (9.7%), wood and its manufactures (6.5%), leather and its manufactures (5.8%) and other minor sectors (1.8%).

The total investments in the maquila regime generated a total of 3,084 new jobs in 2014.

Following the trend of growth and modernization, Paraguay ratified the Apostille Convention last year, which will enter into force at the end of August 2014.

Paraguay has taken an important step towards modernization by ratifying the Hague Convention Abolishing the Requirement of Legalization of Foreign Public Documents, also known as the Apostille Convention. Paraguay ratified the Apostille Convention through Law No. 4987/2013 last year and it will enter into force on August 30, 2014.

Please contact us for more information.