Argentina vs. Paraguay

Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. Although one of the world's wealthiest countries 100 years ago, Argentina suffered during most of the 20th century from recurring economic crises, persistent fiscal and current account deficits, high inflation, mounting external debt, and capital flight.

Cristina FERNANDEZ DE KIRCHNER succeeded her husband as president in late 2007, and in 2008 the rapid economic growth of previous years slowed sharply as government policies held back exports and the world economy fell into recession. In 2010 the economy rebounded strongly, but slowed in late 2011 even as the government continued to rely on expansionary fiscal and monetary policies, which kept inflation in the double digits.

In order to deal with these problems, the government expanded state intervention in the economy: it nationalized the oil company YPF from Spain's Repsol, expanded measures to restrict imports, and further tightened currency controls in an effort to bolster foreign reserves and stem capital flight. Between 2011 and 2013, Central Bank foreign reserves dropped $21.3 billion from a high of $52.7 billion. In July 2014, Argentina and China agreed on an $11 billion currency swap; the Argentine Central Bank has received the equivalent of $3.2 billion in Chinese yuan, which it counts as international reserves.

With the election of President Mauricio MACRI in November 2015, Argentina began a historic political and economic transformation, as his administration took steps to liberalize the Argentine economy, lifting capital controls, floating the peso, removing export controls on some commodities, cutting some energy subsidies, and reforming the country's official statistics. Argentina negotiated debt payments with holdout bond creditors, continued working with the IMF to shore up its finances, and returned to international capital markets in April 2016.

In 2017, Argentina's economy emerged from recession with GDP growth of nearly 3.0%. The government passed important pension, tax, and fiscal reforms. And after years of international isolation, Argentina took on several international leadership roles, including hosting the World Economic Forum on Latin America and the World Trade Organization Ministerial Conference, and is set to assume the presidency of the G-20 in 2018.

Landlocked Paraguay has a market economy distinguished by a large informal sector, featuring re-export of imported consumer goods to neighboring countries, as well as the activities of thousands of microenterprises and urban street vendors. A large percentage of the population, especially in rural areas, derives its living from agricultural activity, often on a subsistence basis. Because of the importance of the informal sector, accurate economic measures are difficult to obtain.

On a per capita basis, real income has grown steadily over the past five years as strong world demand for commodities, combined with high prices and favorable weather, supported Paraguay's commodity-based export expansion. Paraguay is the fifth largest soy producer in the world. Drought hit in 2008, reducing agricultural exports and slowing the economy even before the onset of the global recession. The economy fell 3.8% in 2009, as lower world demand and commodity prices caused exports to contract. Severe drought and outbreaks of hoof-and-mouth disease in 2012 led to a brief drop in beef and other agricultural exports. Since 2014, however, Paraguay's economy has grown at a 4% average annual rate due to strong production and high global prices, at a time when other countries in the region have contracted.

The Paraguayan Government recognizes the need to diversify its economy and has taken steps in recent years to do so. In addition to looking for new commodity markets in the Middle East and Europe, Paraguayan officials have promoted the country's low labor costs, cheap energy from its massive Itaipu Hydroelectric Dam, and single-digit tax rate on foreign firms. As a result, the number of factories operating in the country - mostly transplants from Brazil - has tripled since 2014.

Corruption, limited progress on structural reform, and deficient infrastructure are the main obstacles to long-term growth. Judicial corruption is endemic and is seen as the greatest barrier to attracting more foreign investment. Paraguay has been adverse to public debt throughout its history, but has recently sought to finance infrastructure improvements to attract foreign investment.