By Eurasia Review
By Alberto Manuel Poletti Adorno
PARAGUAY: 25 YEARS OF FREEDOMS
As in every country, is not possible to understand its particularities and the legal system without knowing something of their history. Paraguay celebrated in Feb 3rd 2014 the 25th Anniversary of Paraguay’s Democracy. We are not here to talk about the past, but to mention why people should go to Paraguay and invest there. For that, it is essential to talk about the legal system and we can present some of the positive aspects that took place recently.
Some of these relate to the Administration and form of Government (I) and the other matters are concerning the recent legislations and answers to the Paraguayan society to social needs (II).
I) FORM OF GOVERNMENT
Like most occidental countries, Paraguay is a Republic with a Presidential System of Government and the common division of three branches of power1.
The Executive Power is exercised by the President of the Republic, a public office elected by direct vote. Elected for a five year term, and not entitled to reelection, the President represents the State, directs the nation’s general administration, obeys and executes the Constitution and the Law, directs external relations and is Commander in Chief of the Armed Forces.
The Legislative Power is exercised by the National Congress, constituted by the Chamber of Senators, also called the High Chamber; and the Chamber of Deputies, or Lower Chamber. The principal members of both chambers are elected directly by the people in general elections for five years, at the same moment of the Presidential Election. Senatorial elections are national, while elections for Deputies are departmental. Comparing to other system, the Congress of Paraguay disposes of large power and it is able to block and interfere with the work of Executive branch.
The Judiciary is exercised by the Supreme Court of Justice, the Tribunals and the Courts. Judges remain in the office for five years, later they need to approve a new exam of merits before acquiring stability until the age of 75 years.
It seems necessary to talk about the administration. As in the United States, the Ministers/Secretaries are in charge of different sectors of public administration. Their decisions are however subject to a judicial review and can be modified by the courts in some aspects.
There have been many changes since 1989. Eight Presidents have occupied the Seat in the Lopez Palace (the headquarters of the Presidency) after 6 General Elections and two Impeachment Processes.
Paraguay has started a process to finish with the isolation and to look for foreign direct investments. The country has increased the participation in international organizations and is a founding member of MERCOSUR, the integration process with other South American countries, as well as an observing member of the Pacific Alliance.
So we must mention which remedies have been used to try to solve most of the endemic problems: corruption (A) and poverty (B)
A) THE SHADOW OF CORRUPTION
It has been said that “Corruption in Paraguay became an art form under the Alfredo Stroessner military dictatorship when military officials helped organize and participated in the narcotics and contraband trade with complete impunity”2. I am not going to mention that Paraguay is a country free of corruption, but nevertheless, I will mention that there is a high possibility for suing corrupt officers in the country.
American legal students and lawyers will remember the case FILARTIGA VS. PEÑA IRALA that set in 1980 the precedent for United States federal courts to punish non-American citizens for tortious acts committed outside the United States that were in violation of public international law (the law of nations) or any treaties to which the United States is a party. It thus extends the jurisdiction of United States courts to tortious acts committed around the world. The case was decided by a panel of judges from the United States Court of Appeals in the Second Circuit.
Paraguay is probably still looking for its similar landmark decision since there are many people facing process that lacks condemnation. But many efforts were done.
Not only an entire reform of the Criminal system started in 1997 that allows oral and public hearing at the court were initiated but also some of the accused persons related to corruption and violation of human rights were put under bars.
The election of a new Supreme Court in 1995 partly renovated in some occasions from there established interesting decisions regarding the right of people to access to public information and also the fundamental rights of citizens.
Scholars have mentioned that the fight against corruption is related to human rights and should not be subject to prescription delays. However, the Congress established a period of three to four years of judgment. Some of the cases lasted for more than this period and the judges and prosecutors were not able to continue the cases.
It is also a question to inform that the Contraloría General de la República, an authority created by the current Constitution of 1992 is entitled to verify the accounts of public administration. But again, some judicial actions didn’t allow them to work properly. There is believed that the judicial branch should exclusively review this matter, so this may help to create confusion about the role of the Contraloría and its role of accounting. Nevertheless, this authority is accomplishing some of its duties as for example asking all civil servants to present a list of their property when entering and leaving office. Also, the Contraloría produce reports that they send to other authorities regarding the execution of the accounts.
Some bills are currently on the Congress to try to bring a solution to these problems. We may mention that the wrong use of public money leads also to another problem.
B) THE FIGHT AGAINST POVERTY
Poverty is not just an issue, is the biggest problem in Paraguay where 38% of its population lives in poverty, an average higher than other countries in the region whose percentage reaches to 29%.
Many situations are at the origins of this problem: the concentration of a big part of land in the hand of a small percentage of population, the lack of diversity in the production of agricultural products that are mainly primary goods without added value, and the reduced public works investment by the government.
Many of the governments tried to enact a reform in the distribution of lands that is prescribed in the Constitution. There have been advances in this aspect but the task is not finished.
According to some studies, Paraguay is one of the least industrialized nations in Latin America. Manufactured exports, by most definitions, accounted for less than 5 percent of total exports3. Also, a recent analysis of REDIEX shows that five Paraguayan enterprises generate more than 53% of the exported products.4
The World Bank mentioned that public expenditures in the social sectors have been lower in Paraguay than other countries of the region. The positive side of this outcome is that, in the absence of programs supported by the public sector, community participation has flourished. This suggests that, at least in the case of Paraguay, encouraging community participation and keeping income in the hands of those who earn it is more effective than giving it to the government for redistribution, as the example of Hogar del Paso5 that was mentioned during the Paraguay Economic Forum. In the last few years, however, social spending has been increasing drastically; unfortunately, there is little evidence that this has affected the quality or quantity of services delivered — higher expenditures have been tied to higher wages, and have been unrelated to productivity improvements6.
To solve these problems and to further reduce poverty, the World Bank report recommends maintaining a sound macroeconomic framework, and keeping the size of the public sector small (and lower tax burden). Indeed, there is good news from these measures: Paraguay’s economy grew 14% in 2013 maintaining a good performance that started years ago. Some of the laws enacted by the Congress also tried to amplify the numbers of tax payers without affecting the law burden. Just to give an example, Paraguay has a 10% tax on TVA and 1% in property tax in the cities, amount that may be even lower in the rural areas.
It is true that the main part of the national Budget is used in payment of salaries, not in creating infrastructure or destined to public expenditures. Something must be done in order to change this situation, but it requires political decision that may affect small groups, therefore it may be done progressively and with a huge consensus by the political class. There were some initiatives on this way but there is not yet an agreement.
The new President’s statement when he took office on August 15th, 2013 is that he wishes to reduce poverty. It is true that similar statements were made by all his predecessors. But Mr. Cartes has (until now) one point in favor: he still has the support of a simple majority of the Congress, which continues to follow his government programs.
II) RECENT LEGISLATIONS AND ANSWERS TO THE PARAGUAYAN NEEDS
In order to combat some of the problems of the Paraguayan administration, some initiatives were taken regarding the civil service (A), the access to public information (B) and security and infrastructure (C).
A) THE CIVIL SERVANT AND THE PUBLIC EXAM FOR ENTRANCE
In 2000 Paraguay adopted a Law that establishes the public exam of candidates to be admitted in a public office7. Nevertheless, there were so many exceptions to this norm caused by the lack of interest by many authorities who pointed out the need to work with “people of their confidence” and that it is still normal for many people to go into a public service thanks to personal friendship or political bindings.
Nevertheless, there are more and more public offices that prepare an exam for admittance and this leads to a better public service. This year, when the President received the National Budget, he ordered that, in order to receive any salary from this budget, the person should have passed through a public examination. This will lead to a high reduction in the public administration of workers without preparation.
Besides, due to problems of nepotism, some initiatives were adopted to restrain some of the high authorities to nominate relatives, friends or close relatives in their offices.
The Law 2777/2005 reaffirms the need of a public exam for entrance at the civil service and there are many bills in the Congress that are aimed to reduce the possibility to nominate people under the process of “people of their confidence”.
However, there are some places where it is extremely difficult to accomplish this reform. One of them is the Legislative branch, where many offices in both chambers nominate supporters or family members without a civil service exam. Also, an ambiguous norm of the Electoral Code was invoked to nominate adherents of political parties at the Electoral Courts. This leads to a number of workers that have a lot of work only on Elections, and remain in the public sector after the end of the electoral process, with a high cost for the public treasury.
Due to recent scandals in the Congress on this subject, a criminal judge required permission by the Senate to judge one of his members. It was not a surprise that the majority of the Senate decided to preserve the immunity of the Senator, considering that he was prosecuted for political reasons and that nominating a person of his entourage was a prerogative of the Legislative’s members. Senators did not expect a public indignation where even private business and supermarkets, restaurants, shopping malls and many other places declared that the members of the Senate who voted against the possibility of starting a judicial inquiry were “not welcomed”. This caused the Senate to review his decision and allow the prosecution. Actually, there are more members of both Chambers being investigated and subject to criminal procedures8.
B) THE ACCESS TO PUBLIC INFORMATION AND RESSOURCES
It is very common in all democratic governments to use the excuse of national security or privacy to hide information to its citizens. In a democracy, the citizens need to know all the details regarding public aspects of life and how the public money is used, is one of those issues.
As a result, two leading cases in 2008 and 2013 mentioned that there is not a valid argument to avoid giving making the information public about the use of money in local government and the amount of salary to public servants. Following a rule established by the Supreme Court, almost all of the administration offices published the list of workers and their wages.
Access to information procedure has also been ratified by recent laws. In 2012, Law 6979 establishes that every public administration must specify the entire process, step by step, since the presentation to its ending, establishing the name of the section, department and unity.
Recent laws adopted last year like budget responsibility and public private partnership for infrastructure works also stipulated the right of the citizen to ask for specific information.
But these are not the only things that deserve to be mentioned. Like many countries, Paraguay did not allow many funds for research. This year, the Congress allowed 97 millions of US$ Dollars for research development in the next five years9. The funds are already available and will help to improve the technological development and the conditions of the country. The Chancellor of the UNE has already spoken about it and we had the wonderful opportunity to set up a direct conference with Minister David Ocampos of the National Secretary of Technology, Communication and Information (SENATICS) from Paraguay.
C) TOWARDS MORE INFRASTRUCTURE AND SECURITY
Some studies show that, because of Paraguay’s position at an equidistant position from several of the main financial centers of the region (Sao Paulo, Buenos Aires, Santiago de Chile, among others) there is a strategic location which makes it a strong candidate to develop in it a services-based economy with a particular focus in services associated with transport and logistics. Its geographic location makes the country the best territory to articulate commercial traffic and goods exchanged between the Pacific and the Atlantic, as well as between the Northern and Southern regions in the Southern part of the hemisphere10.
But, in order to fulfill this potential transport and logistics-hub role, some conditions need to be satisfied, namely: a strong and reliable connectivity network; availability of sufficient resources and sufficient expertise to ensure the reliability of the network (ongoing maintenance), and; local policies oriented towards boosting transport and logistics services.
The Government has enacted a law that allows public private partnerships to take part into infrastructure works. It is expected to start building highways, trains, airports as well as other projects in an alliance between the State and private corporations.
There has been a debate about the authority who should decide on this subject. The Congress mentioned its constitutional duties stating that they must decide the public use of funds in each case. But finally, it was decided that the President would be on charge. This doesn’t mean of course that the Congress renounces to his prerogative of controlling public money, but only that the President will be in charge for most of the aspects of the process.
As mentioned at the beginning of this part, security is an important concern for investors. Paraguay does not have any conflicts of race or a higher rate of crime like other places, but there is still a high number of suspects in pre-trial detention11.There is a concern about only poor people go to prison while awaiting their trial. Nevertheless, heinous crimes and drug traffic laws don’t allow any bail to avoid prison.
Finally, we should mention that the investment law provides equal treatment to locals and foreigners. The income rate has fallen down from 30% to 10% when the Personal Income Tax was introduced on 2004 and there are several incentives in place, such as the “maquila” program12, free trade zones, Investment Incentive Act 60/90, as well as PPP mentioned above.
CONCLUSION
Paraguay has a good weather almost the entire year, which assures a high quality of life. Different governments have further improved a business-friendly environment, offering a wide range of opportunities with cheap non manufactured products, electric energy, land and other natural resources.
From 1989 to 2014, various governments enacted politics that ameliorate the security for the people and investments. There has not been a single project that has gone through public expropriation, as it has randomly happened in Venezuela and Argentina, neither we have had an unstable economy. Just to mention one important fact, Fitch and Moodys13 Ratings raised its outlook on Paraguay. The outlook for Paraguay’s double-B-minus ratings was recently raised to positive from its stable economy. The agency mentioned that economic problems of their main partners did not severely affect the country and recent laws help to ameliorate the perception of the country14.
We can only expect that all the benefits showed above will improve the decision of foreign financiers to invest in the country. You will find not only a bright sun during the entire year but also a majority of young people with different level of preparations that are able to work on different tasks, as well as good labor laws and the possibility to use either arbitration or the judiciary for the defense of the rights.
Finally, I would like to mention one phrase by a Paraguayan great writer, Augusto Roa Bastos. He has said that “Paraguay is an island surrounded by land”. It is true that there are many countries and places in the world that deserve to be visited and that there are still some difficulties for some persons to reach this country. All we can say is, that if you arrive there, we expect that this experience will change your life in a good way, not only because of the particularity of an island with no ocean, but mainly because of the things that you will see there.
This paper was presented by Alberto Manuel Poletti Adorno in the Paraguay Economic Forum, Milwaukee, United States, February 6th, 2014 (Alverno College).
ACKNOWLEDGMENTS
We would like to thank the warming receiving of the authorities of Alverno College at Wisconsin: the Dean Horton, Professor Carol Pope Vollmer, the students and Professors and especially Mr. Peter Tase and his family for their wonderful hospitality.
We have heard during the Forum so interesting information about History, Economics, Life Experiences and other things about Paraguay. Thanks to Professor and Chancellor Víctor Brítez Chamorro, Chancellor of the Universidad Nacional del Este, Mrs. Myrian Medina de Brítez, Mr. José Otaño, the Commercial Attaché of Paraguay in Miami, the MBA Students Alex Bartoszewicz, Sue DaBaco as well as all students for their remarks and for sharing with us their works.
Notes:
[1] For a view of the current Constitution enacted in 1992: http://pdba.georgetown.edu/constitutions/paraguay/para1992.html
[2] STADIUS, Eric: En Route to a Failed State—Corruption in the Paraguayan Legal System, the Illicit Market, and Transnational Security, COHA, July 10th, 2012. http://www.coha.org/en-route-to-a-failed-state-corruption-in-the-paraguayan-legal-system-the-illicit-market-and-transnational-security/
[3] Paraguay Country Data: http://www.country-data.com/cgi-bin/query/r-10135.html
[4] Paraguay Exporta, REDIEX, 2013: http://issuu.com/rediexparaguay/docs/exportaciones_2013
[5] Information provided by Dioceses of Ciudad del Este:
http://www.diocesiscde.info/index.php?option=com_content&view=article&id=3120:gran-apostolado-de-las-voluntarias-del-hogar-del-paso-sagrada-familia-en-la-diocesis&catid=232:noticias
[6] World Bank. Poverty Analysis on Paraguay: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/0,,contentMDK:20207843~isCURL:Y~menuPK:435735~pagePK:148956~piPK:216618~theSitePK:430367,00.html
[7]MANNING, Nick: Merit and responsiveness in public service, Secretaría de la Función Pública, Paraguay, 2008.
http://www.sfp.gov.py/pdfs/Simposio%20Internacional/EE%20UU/Merit_and_Responsiveness.pdf
[8] BBC News Latin America. Paraguay senator loses immunity after public pressure, Nov 28, 2013. Internet:
http://www.bbc.co.uk/news/world-latin-america-25148732
[9] ABC Color, 26 de diciembre de 2013. Política. Gobierno impulsa Prociencia. http://www.abc.com.py/edicion-impresa/politica/destinan-us-97-millones-a-investigacion-cientifica-1199938.html
[10]VOUGA, Rodolfo and LLAMOSAS, Cecilia: Latin America Infrastructure Investment Information, May 2012. http://www.liquarterly.com/108/institutions/an-optimistic-outlook-for-infrastructure-transport-and-logistics-services-in-paraguay.html
[11] Paraguay. Crime. http://www.nationmaster.com/red/country/pa-paraguay/cri-crime&all=1
[12] “Maquila” Regime, investors may import goods or products to be assembled, repaired, improved, worked on or processed with the purpose of exporting such goods or products, prior addition of value or the “Paraguayan component”
[13] Moodys Rating 2014. https://www.moodys.com/credit-ratings/Paraguay-Government-of-credit-rating-600044126
14 KELL, John: Fitch Raises Paraguay View as Economy Picks Up, The Wall Street Journal, January 31, 2014. Internet: http://online.wsj.com/article/BT-CO-20140131-709971.html
FOR MORE INFORMATION:
CAVALLARO, James; VILLAGRA DE BIEDERMANN, Soledad and others: Security in Paraguay, Analysis and Responses in Comparative Perspective, Harvard University Press, 2008
Spanish: http://pdba.georgetown.edu/Security/citizensecurity/paraguay/documentos/harvard.pdf
English:
http://www.hup.harvard.edu/catalog.php?isbn=9780979639500
MANNING, Nick: Merit and responsiveness in public service, Secretaría de la Función Pública, Paraguay, 2008.
http://www.sfp.gov.py/pdfs/Simposio%20Internacional/EE%20UU/Merit_and_Responsiveness.pdf
OAS: Legal system of Paraguay. http://www.oas.org/juridico/mla/en/pry/en_pry-int-des-sj.pdf
PWC: Investment and tax incentives for foreign investors in Paraguay, June 2013. http://www.pwc.com/es_PY/py/boletin-tributario-y-legal/assets/pwc-investment-and-tax-incentives-for-foreign-investors-vert.pdf
RURAL POVERTY PORTAL/IFAD: Rural poverty approaches, policies & strategies in Paraguay
http://www.ruralpovertyportal.org/country/approaches/tags/paraguay
ROLÓN, Ana: A Guide to the Legal System and Legal Research in Paraguay, Hauser Global Law School Program, New York University School of Law.
http://www.nyulawglobal.org/globalex/paraguay.htm
The article Interactions Between Law And Economy: The Case Of Paraguay – Analysis appeared first on Eurasia Review.