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Last Updated: Saturday, 16 August, 2003, 00:31 GMT 01:31 UK
Paraguay president full of promises
By Andrea Machain
Asuncion, Paraguay

New Paraguayan President Nicanor Duarte Frutos' inauguration speech was full of promises. He said he would lead the country out of poverty and inequality.

The new president also attacked corruption and said it would not be allowed in his administration.

Mr Duarte, 46, also spoke against neo-liberalism in staunch terms.

New Paraguayan President Nicanor Duarte Frutos delivers his inauguration speech, 15 August 2003
The new president was elected in April with 38% of the vote
"Human beings are more than a market," he said. "Neo-liberalism has been a failure because it denies human dignity".

The new president is the first grassroots politician to arrive to the presidential seat since democracy was established in Paraguay in 1989.

From a humble peasant background, Mr Duarte worked his way up. He worked as a journalist until he was appointed education minister - a post he held for 10 years.

The fact that he had to face social exclusion himself makes him sensitive to social problems. But some fear his vision may be too optimistic.

Balancing the books

The new president belongs to the nationalist Colorado Party, which holds the world record for having been in power continuously, for the longest time (56 years).

Its members hold privileges and have often been linked with illegal activities. But Mr Duarte insists he owes no favours to powerful groups and has promised to start a war against mafia groups, drug smugglers and contraband goods.

This will not be an easy task.

But first, the new president has to put the country's finances in order. The administration has been rolling on a fiscal deficit of $150m.

It is late with its international public debt commitments and the state income (tax revenues) is spent mainly on government employees' salaries, which make up as much as 97% of the budget.

A better image alone will not be enough to convince creditors and investors
Two hundred thousand people hold state jobs and make up a good section of the Colorado Party supporters. The public administration is also criticised for being inefficient and corruption ridden. Official figures talk about a 70% tax evasion.

The government is also late with its payments to state providers. Paraguay will have to negotiate an urgent stand-by agreement with the International Monetary Fund (IMF).

Two attempts made last year failed after Paraguay could not meet the terms required by the international financial institution.

The first attempt collapsed in March 2002 after Mr Duarte opposed the selling of the public telephone company. Then, in December 2002, parliament failed to pass an economic transition law.

Economic stagnation

The new president's administration, headed by a respected team of technical experts, will project a better image than that of his scandal-hit predecessor, Luis Angel Gonzalez Macchi.

Mr Gonzalez Macchi gained international notoriety after it was found that he was using a stolen armoured BMW as his official car.

Although the former president was cleared of any wrongdoing regarding the case, he has been ordered to stay in the country while he is investigated in relation to the illegal transfer of $16m from two private banks in liquidation.

Mr Gonzalez Macchi would gain diplomatic immunity if he is appointed "senator for life" but that looks unlikely.

But a better image alone will not be enough to convince creditors and investors.

Aside from its deals with the IMF, the new administration will also be counting on the patience of its main creditor, Taiwan.

Taiwan granted Paraguay a $400m loan five years ago and another $25m last year - and now may be granting an extension to its South American ally to repay those loans.

Altogether, Paraguay's debt is $2.3bn - not a large amount if compared with the debt of other South American countries but important for Paraguay since it is over 50% of the country's GDP.

Paraguay will be the last country in South America, with the exception of Venezuela, to undertake structural reform. It has avoided doing that to respond to short-term political interests.

Its economy is largely dependent on whatever happens in Brazil and Argentina.

But stagnation caused by recent years of political unrest (Paraguay's vice president Luis Maria Argana was assassinated in 1999 and there were fights among different factions of the Colorado Party) has led the country to some of the worst social and economic indicators in the region.

Unemployment may be as high as 40% according to private economic studies and the economy has shrunk to its 1997 levels. More than 50% of the population lives below the poverty line.

Whatever Mr Duarte does, he will have to do it quickly.

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