Paraguay's Growth Hides a Fiscal Crisis That Surrenders Real Sovereignty

Argentina's energy boom is the column's most visible temptation this week — Vaca Muerta records, Thiel buying Vista Energy, Harold Hamm arriving from Texas, YPF submitting a $51 billion LNG project. But that story resolves too neatly into a single narrative: foreign capital flows in, the government celebrates, and the only real question is whether the peso holds. The more genuinely contestable story is Paraguay's. Here is a country growing at 6.6% — the highest rate in the region by the World Bank's own account — receiving IMF praise, holding investment grade, and being cheered by multilaterals, while a former deputy finance minister is simultaneously calling it "the worst fiscal management since 2003," public debt rose $1.498 billion in just six months, interest payments are up 12.9%, and the government itself has admitted it cannot return to its own Fiscal Responsibility Law ceiling until 2028. That gap between the growth headline and the fiscal architecture underneath it is exactly the kind of contestable terrain that deserves a sharp argument.

When the IMF praises you and your own former officials call it the worst fiscal management in two decades, something is being lost in translation. Paraguay is living that contradiction right now, and the region — including those of us who spend our time defending Mercosur economies against external conditionality — should not look away simply because the growth numbers are flattering.

Let us be precise about what is actually happening in Asunción. The Banco Central del Paraguay reports GDP growth of 6.6% in 2025, the highest in South America. The IMF endorses the model. Moody's affirms investment grade. And yet: public debt has risen by $1.498 billion in six months. Interest payments are up 12.9%. Wage spending in the central administration grew 9.9% and now absorbs 53% of tax revenues. The annualized fiscal deficit stands at 2.6% of GDP — nearly double the 1.5% ceiling the country set for itself in the Fiscal Responsibility Law — and the Economy Minister has confirmed that the government does not expect to return to that ceiling until 2028, after passing through a projected peak of 3.9% of GDP in 2027. A former Deputy Finance Minister, not a foreign creditor or a Washington institution, used the phrase "worst fiscal management since 2003." That is not opposition hyperbole. It is an internal indictment.

The conventional sovereigntist reflex here would be to defend Paraguay against IMF pressure and celebrate the growth numbers as proof that the region can chart its own course. I am not going to do that. The growth is real, built on genuinely productive foundations: the soy complex injected $3.513 billion into the economy through July, beef exports contributed over a billion, remittances sustain household consumption and a housing market that is genuinely expanding. Manufacturing exports grew 35% in the same period. These are not mirages. But the fiscal architecture underneath is being hollowed out in a way that mirrors exactly the pattern we in this region have seen before — and which eventually hands leverage to the very external actors we claim to want to keep at arm's length.

Here is the mechanism: when a government with strong growth runs structural deficits, concentrates debt in wages and interest payments that absorb 70% of budget rigidity, and then signals that it needs to revise its own fiscal rules to accommodate what it has already spent, it narrows its room to maneuver. It becomes dependent on external debt markets. It goes to those markets with a request — Paraguay is currently sounding out investors for new sovereign bond placements even as Treasury bonds in the local market have already reached $1.2 billion. And the moment it depends on those markets, it has handed conditionality the key to the door it thought it had locked. Paraguay's government frames the review of the Fiscal Responsibility Law as pragmatism. International markets will frame it as a loosening of the anchor. The IMF will eventually frame it as an opportunity to be consulted. That sequence is not hypothetical; it is the history of this region.

There is a further detail that should concentrate minds: the $280 million in Ministry of Health liabilities that, by the former Finance Minister's own account, did not appear in official MEF records until it was too late. Not hidden by a foreign creditor, not imposed by a structural adjustment program — accumulated domestically, opaquely, through the ordinary mechanisms of a state that was spending faster than it was accounting. The current government paid $320 million to pharmaceutical suppliers to clean up that liability, an unbudgeted outlay that explains part of why the deficit is where it is. This is not the IMF's fault. It is not Washington's fault. It is the fault of a fiscal management that allowed liabilities to accumulate off the books in a country that prides itself on institutional credibility.

Genuine regional sovereignty — the kind worth defending — is not simply the freedom to do whatever you like with the public accounts and call the result independence. It is the capacity to build institutional frameworks strong enough that you never need to go hat in hand to external creditors. Paraguay had that framework. The Fiscal Responsibility Law, for all its imperfections, was the kind of self-imposed discipline that keeps the IMF at a negotiating distance rather than inside the room. Weakening it now, precisely at the moment the deficit is widening and debt is accelerating, is not an assertion of sovereignty. It is a surrender of it on the installment plan.

The growth is real. The fiscal deterioration is also real. Those two facts are not in contradiction — they are the same story at two different speeds. And the region should say so clearly, before someone else says it for us, with conditions attached.