The COVID-19 pandemic hit Paraguay’s economy very hard and just when the country was recovering after a period of stagnation (-3% year-to-date in the first half of 2019). 2019 wasn’t a good year for employment either, the combined unemployment and underemployment rate reaching 14.5% in the first half of the year and retracting to 12.9% in the second half. This favorable path continued during the first two months of 2020 but with the beginning of COVID in March, began to slow down. Social distancing measures have most severely affected the service sector although informal labor was also badly affected.
The Government and the Paraguayan Central Bank (BCP) adopted a series of exceptional measures to address the economic and financial needs of both individuals and companies. In this regard it’s worth mentioning the BPC’s decision to reduce the policy interest rate by 175 basis points to 2.25% and the temporarily relaxed provisioning rules not to penalize credit restructurings and prolongations as well as the Government’s anti-crisis fiscal package approved by Parliament.
Another measure to alleviate the crisis has been low interest loans granted by the National Development Bank (BNF) to finance MSME’s payroll during the outbreak; in line with this it is worth mentioning that in June credits granted to the private sector grew by 4.1% YtD and loans granted to MSMEs reached USD$217m in July, while in May they totalled USD£130m.
Nevertheless, in 2021-22 growth is expected to return to 4% due inter alia to consistent macroeconomic policies, anchored in inflation targeting and a gradual return towards the FRL ceilings. Another key role in economic recovery will and is being played by public investments particularly in public works.
The pandemic has represented an opportunity to introduce major and necessary changes that have helped modernize the local legal framework.
The Executive Branch enacted Decree 3605/2020 allowing PLCs to hold their board and shareholders meetings through telematic means provided that a series of requirements are met such as, inter-alia:
a) Real time presence and participation of authorized participants is ensured;
b) Meetings are recorded and kept within corporate files for 5 years and;
c) Mechanisms for the accreditation of rights to participate are established.
This provision represents a breakthrough in Paraguayan corporate practice and a clear advantage for foreign investors and shareholders as they can now take part in company decisions avoiding delays and fines especially during the pandemic. This exceptional measure will remain in force until 31 December 2020 and we are confident it will become a definitive practice.
Another important provision enacted is the suspension until 15 September 2020 of the application of fines and sanctions for non-compliance with the mandatory requirement of converting bearer shares into nominative shares.
This may be the field that saw the biggest changes. These sought to help businesses and employees cope with the crisis and reduce the negative impact on employment. Some of the most important decisions adopted by the Government are:
a) Contributions to the Social Security Institute (SSI) may be refinanced without interest for up to 18 months.
b) During the pandemic and whenever the nature of their work allowed, employers are encouraged to implement home and teleworking so as to avoid the spread of the virus; this measure is provisional and will last until the 31 December, nevertheless a draft bill has been presented to Congress in order to make it definitive.
c) A new regulation aimed at simplifying the application process for requesting employees’ job suspension was enacted. The procedure will remain in force during the pandemic and will benefit MSMEs only.
Anti-Trust and Regulatory Law
As a consequence of the COVID-19 crisis a lot of effort was made by the Government as well as the media and citizens in general aimed at controlling the public expenditure and public bidding processes. As a result of this, the National Competition Commission (CONACOM) undertook a series of formal investigations under Paraguayan Competition Law.
a) One was aimed at determining if prohibited agreements practices had been performed; the investigation was focused on public bidding processes for the purchase of medicines and medical related goods.
b) In another, CONACOM’s Investigation Department initiated preliminary investigation proceedings in order to identify possible violations of the Competition Law in connection with the latest operation involving a concentration proceeding between the biggest meat processing company and one of its competitors.
This is the first time CONACOM has used its investigative powers and its power to initiate ex officio proceedings; we believe this will improve the level of transparency of our public system and, at the same time, will force local businesses to strengthen their compliance policies, in particular those businesses in a dominant position.
Along with labor, tax law was the other field to see the greatest number of significant changes. During the crisis the Government enacted a series of important tax relief measures such as, inter alia:
a) Tax Deferrals;
b) Exception of penalties for late filing;
c) Exception of import duties and VAT reductions on all goods qualified as of first need;
d) Deadline extensions for filing and payment of the Withholding Tax on Dividends, Corporate Income Tax, Income Tax on Individuals, Income Tax on Agricultural Activities and Income Tax on Commercial, Industrial and Service Activities.
The Executive branch enacted the Law by which the Judiciary’s summer recess is suspended thus all judicial activities and deadlines remain.
A draft bill to modifying the bankruptcy law is being studied by the Legislative branch. The current law dates back to 1969 thus its modernization is seen as being key to improving the country’s business climate; the new law will allow companies at risk of insolvency to swiftly put their accounts in order and hence re-emerge more stably while also benefiting creditors. This law will be particularly important in the aftermath of the pandemic crisis.
Data Protection Law
Currently Paraguay does not have a general Data Protection Law, however, as a result of the increase in social and commercial activity on the internet due to social distancing measures it became apparent that the country could no longer remain without such an important provision; as a consequence a bill is currently being studied in Congress and is expected to be enacted by the end of 2020 or the beginning of 2021.
We cannot ignore the negative effects produced by COVID-19. However, we believe that Paraguay will re-emerge stronger wherever we can capitalize on the opportunities arising from the crisis aimed at accelerating the modernization process and increasing transparency of institutions.
So far, our country has taken adequate measures and has better coped with the crisis than some of the other countries in the region. In truth, the pandemic’s impact has been less harsh than in those countries whether in respect to fatalities and infections or in economic terms.
As for opportunities for the years ahead these will certainly come from the public sector particularly public works (civil and road) and from telecommunications as both sectors have shown a very dynamic performance over this period.