Arete Volume 3

Αρετή (Arete) Journal of Excellence in Global Leadership | Vol. 3 No. 1 | 2025

It is important to highlight that BCP has decided to move to an inflation targeting framework since 2011 (Cuevas, 2016), thus allowing the entity to better control this variable over time i.e., 6.9% in 2003-2011 versus 4.2% in 2012-2023 on average. At the same time, the institution was able to build on international reserves through time, jumping from only USD 600 million in 2002 to around USD 10 billion twenty years later, i.e., about 25% of the country’s (GDP) in 2022. This is higher than many countries in the South American landscape, as displayed in Figure 3 below.

Figure 3 Total Reserves (% of total external debt, period 2003-2022)

Note . Adapted from the International Debt Statistics (IDS), World Bank Group.

The financial sector in turn has benefitted from this more stable and predictable setting. Having strengthened its regulatory framework, while boosted by the creation of a Deposit Guarantee Fund (Law 2334 of December 2003) as well as of a second-tier development bank named Development Finance Agency (AFD), via Law 2640 of July 2005, the banking sector experienced solid conditions for operations in Paraguay (Cantero et al., 2018). This resulted in lower interest rates and longer maturities over the years, deepening the access to credit and savings through financial inclusion, while also providing a wider range of financial products e.g., “first house” soft loans via AFD and even greater liquidity levels to the market. In fact, only two financial entities went bankrupt after 2003 in Paraguay, with the default rate being only 3.4% for banks as of October 2023 (BCP, 2023). All these sound macroeconomic conditions then helped support Paraguay’s continuous growth in the coming years, until achieving the upper-middle income status in 2014 according to World Bank Group (WBG, 2014) member countries classification. In fact, Gross National Income in 2022 was approximately USD 5,920 per capita (current US dollars), while BCP (2023) estimates a real GDP growth of 4.5% for Paraguay in 2023. Data from the latter institution also reveals that GDP expanded at an average rate of 3.7% during the period 2003-2023, characterized by a faster pace

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