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Paraguay Opens Doors to Unregulated Foreign Investment

ASUNCION, Jul 27 2012 (IPS) - In his first month as president of Paraguay, Federico Franco has thrown open the doors of his country to foreign investments that have raised questions about environmental safety.

Among the measures taken by the new government were fast-track approval of the planting of transgenic cotton and authorisation of the construction of an aluminium plant.

Franco was named to replace Fernando Lugo after the centre-left former Catholic bishop was removed as president in a swift impeachment trial on Jun. 22. The government has failed to overcome its international isolation, having only been officially recognised by Taiwan and the Vatican.

“It is concerning that a government that was not elected by popular vote is giving the green light to these foreign investments, without any oversight or control,” Luis Rojas, an economist with BASE Investigaciones Sociales, a local non-governmental organisation, told IPS.

As an example, Rojas cited the government’s authorisation to plant Bollgard genetically modified cotton developed by U.S. biotech giant Monsanto, without waiting for the preliminary studies required by law.

Franco named Jaime Ayala, the president of an agrochemical company, to head the National Service for Plant and Seed Quality and Health (SENAVE). Ayala immediately included Bollgard in the national registry of commercial plant varieties (RNCC), which had rejected the genetically modified cotton a few weeks earlier on the grounds that the company had not met the requisites.

Rojas said the approval was illegal because the environment and health ministries had not yet issued their technical opinion, as required by law.

Civil society groups are also criticising plans for the construction of a 3.5 billion dollar aluminium plant by the Montreal-based mining and metals major Rio Tinto Alcan (RTA).

“The negotiations began practically the day after the change of government, indicating a total openness for the company to set up shop in Paraguay,” analyst José Carlos Rodríguez told IPS.

Lugo had set up a technical team to study the project. But after the impeachment trial, Franco immediately gave his consent for the start of negotiations, without waiting for the results of the study.

Rodríguez said the new government is not carrying out any cost-benefit analysis or studies of the economic and environmental implications of the installation in Paraguay of a potentially polluting operation like an aluminium plant.

The Franco administration defends the decision by arguing that the factory would generate some 4,000 direct jobs. But in December, then minister of public works Cecilio Pérez Bordón said the plant would only need 1,250 workers.

In a report presented at a public hearing, Pérez Bordón explained that all of the company’s raw materials and supplies would be imported. He also said RTA would use 9,000 gigawatt/hours (GWh) of electricity a year, and was seeking a power consumption contract that would last from 2016 to 2045, and which could be renewed.

Paraguay currently needs 11,000 GWh a year of energy, and produces 56,000, with a potential of around 7,500 megawatts (one gigawatt is 1,000 megawatts), including the Acaray hydroelectric dam and the 50 percent of output of the Itaipú and Yacyretá dams – shared with Brazil and Argentina, respectively – which corresponds to Paraguay.

That means the installation of the RTA plant would require more than twice the energy that this South American country currently consumes.

The then minister said it was important not to subsidise the cost of energy, and recommended that the firm pay the real cost of electrical service: 60 dollars per MW/hour.

“If energy is sold to RTA at 38 dollars per MWh for 30 years or more, Paraguay will lose between 195 million and one billion dollars annually, which means it will have to raise the rates for other users – including households, raise taxes, or cut public spending,” said Pérez Bordón.

Social organisations, which have stepped up their opposition to the Franco government, say that one of the underlying reasons for the impeachment of Lugo was to facilitate the entry of transnational corporations.

Rojas said: “The government is not a valid interlocutor because it is not interested in a dialogue with civil society; it only talks to business.”

Politician Bernardino Cano Radil said his party, the right-wing Colorado Party, has not discussed the case in enough depth to reach a position on the question.

Foreign investment is generally a positive thing, but a detailed study of the benefits for local companies and workers is needed, said Cano Radil, whose party first sought impeachment of Lugo at the start of his term in 2008, when the former bishop put an end to 60 years of government by the Colorado Party.

The new government has not been successful in its bid to get Mercosur (Southern Common Market) to lift its suspension of Paraguay from the bloc, a measure adopted by the three other members – Argentina, Brazil and Uruguay – at a summit in late June.

The government’s hopes are now set on the Organisation of American States (OAS), whose observers’ mission recommended that Paraguay not be suspended. But the decision has not yet been reached.

Analysts say Franco took over an economy that was in good shape. And now investment projects, donations and other initiatives for a combined total of at least 500 million dollars that were blocked during the Lugo administration have been approved.

In addition, personal income tax (IRP), with a fixed rate of 10 percent for people who earn more than 120 minimum monthly salaries a year – equivalent to some 45,000 dollars – has finally gone into effect after years of delays.

The bill to implement the IRP was blocked in Congress during the Lugo administration, and was not scheduled for debate until 2015. But it passed on Jul. 5 and was signed into law by Franco this week.

“This is only 10 percent of the surplus income of people who earn a lot of money” – a very small minority in this country, Rodríguez said.

In the initial stage, the tax will apply to 12,000 taxpayers in this country of 6.4 million people, where between one-third and two-thirds of the population lives below the poverty line, depending on the source of the statistic.

 
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  • Burn1938

    I would not use the word ” unregulated ” . The Government encourages foreign investment but it must follow normal rules protecting the environment . For example in the case of Rio Tinto Alcan the
    Government will seek a percentage of the company to ensure that normal international rules are applied.

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