Guaraní strength fractures Paraguay's exporters into warring camps

The guaraní has emerged this week as Latin America's best-performing currency, and that appreciation — far from being universally celebrated — is splitting Paraguay's productive sector into two camps with irreconcilable interests.

According to data reported by ABC Color, the exchange rate has fallen steadily against the dollar, driven by a robust inflow of foreign currency from exports. The Banco Central del Paraguay confirmed cumulative economic activity expansion of 5.7% through the end of August, and the IMF raised its growth projection for the year to 4.5%, nearly double the regional average. Optimism among private economic agents points to a year-end close near 5%. Against this backdrop, Economy Minister Óscar Lovera and BCP President Carlos Carvallo attended this week's annual meetings of the IMF and World Bank in Thailand, displaying macroeconomic credentials that, on paper, are enviable by regional standards.

But it is precisely that export strength that is generating the FX problem. The Unión de Gremios de la Producción publicly demanded that the economic team address the dollar's fall "without a parachute," a warning that reflects the anxiety of large agricultural producers who liquidate their earnings into an ever-stronger guaraní. At the same time, the motorcycle industry — one of the country's most dynamic manufacturing sectors — called for exchange rate predictability, arguing that the strength of the local currency is making their production more expensive relative to imported competition. The paradox is clear: the same export flow sustaining growth is eroding the competitiveness of both exporters and those competing with imports. The MEF placed G. 230.527 billion in Treasury Bonds this week, a sign that the local debt market continues to function smoothly, but FX pressure shows no sign of letting up.

This macroeconomic backdrop, however, is being overshadowed by the institutional crisis surrounding Ueno Bank, which has become the year's biggest financial controversy and threatens to turn into the most serious test yet of Paraguay's regulatory credibility. According to ABC Color investigations, the central bank detected maneuvers by Ueno Bank to conceal its ties with related companies, constituting a flagrant breach of banking transparency rules. Most troubling is the scale of the problem: Ueno manages more than USD 800 million in public deposits, and its depositors include funds from the binational entities, though Itaipú has so far refused to disclose how much money it holds at the institution. This opacity is doubly concerning given that, according to ABC Color, Itaipú's deposits in the Paraguayan banking system jumped from USD 57 million to USD 537 million over a recent period, and the binational stopped reporting which banks held those funds precisely when the amounts spiked. Former BCP President Benigno López called for greater clarity from the central bank and warned about the risk posed by the exposure of IPS — the public pension system — to Ueno. The head of the Unión Industrial Paraguaya was even more direct, warning that the crisis between the BCP and Ueno could negatively impact employment and the real economy if not handled transparently. The meeting convened between President Santiago Peña, the BCP and the system's main banks was the first attempt to contain the confidence contagion, but participants came away with more questions than certainties.

In parallel, fiscal policy is another front of tension. With three months to go before year-end, Central Administration has executed 62% of its budget through September, and the MOPC — the ministry in charge of road infrastructure and public works — faces legislative scrutiny over subsidies and public-private partnership contracts. Central Government social spending reached USD 4.816 billion over nine months, while salaries, pensions and debt service already account for nearly 70% of public financing, a structural rigidity that leaves little room to maneuver. Institutions are lining up in Congress for the 2027 Budget: the National University is requesting an additional USD 61 million, the Supreme Court is asking for USD 57 million more for 941 new positions and salary adjustments for 8,000 staff, and the MAG will have USD 71 million for agricultural programs though it is already warning about the potential impact of El Niño. Specialists cited by ABC Color flagged the combination of a wider deficit, rising debt and lower public investment as risks the 2027 PGN does not address with sufficient rigor.

On the trade front, exports have maintained their momentum through September, with non-traditional categories gaining ground alongside soy. Yacyretá, meanwhile, opened its spillway this week in response to rainfall that was five times above projections, with additional surges in the Paraná expected — a development that could affect binational power generation in the short term.

What will need to be watched closely in the coming weeks is whether the BCP decides to take more drastic measures against Ueno — including a possible intervention — and how that reverberates through confidence in the financial system as a whole. Itaipú's refusal to disclose its banking positions, coinciding with the advance of Bolsonarist factions in the Brazilian Congress that could render inoperative any Annex C agreement negotiated with the Lula government, adds a first-order geopolitical variable to an already complex bilateral energy equation. The exchange rate, meanwhile, will remain the most immediate barometer of the export sector's mood.