Paraguay: Is Good Macro Policy Enough to Ensure Adequate Resilience to Adverse External Shocks? How Does It Compare to Other Emerging Markets?

Liliana Rojas-Suarez

No 477, Working Papers from Center for Global Development

Abstract: This paper assesses the resilience of Paraguay’s economic and financial stability to external shocks. To this end, the paper expands on previous work by Rojas-Suarez (2015) and constructs a resilience indicator that has two dimensions: the first refers to the capacity of an economy to withstand the impact of a shock while the second signals the capacity of national authorities to quickly respond to its adverse effects. By applying the methodology of the resilience indicator to 22 emerging market economies, this paper reaches two main conclusions for Paraguay. The first is that the authorities’ efforts to improve the country’s macroeconomic stance since 2003 have paid off and will continue to do so if a new adverse external shock hits the economy. From the perspective of the second dimension of resilience, just as in the pre-global crisis period, Paraguay is now one of the most resilient countries among emerging markets. The second conclusion is that the first dimension of resilience, the economy’s capacity to withstand the impact of a shock, was not very strong in the pre-global financial crisis period and, relative to other emerging markets, has not improved since then. In the absence of reforms, Paraguay’s relatively weaker performance in structural variables (export concentration, national savings ratio, tax revenue collection, and financial depth) will severely limit the benefits of a strong macroeconomic stance to deal with the adverse effects of external shocks.

Keywords: Emerging markets; economic resilience; external shocks; Paraguay; convergence; fiscal management; macroeconomic policies; local finance; external position (search for similar items in EconPapers)
JEL-codes: G15 H60 O54 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2018-03-15
New Economics Papers: this item is included in nep-mac
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