BREAKING FROM THE PAST

REPORT FOR AUGUST 2010 (#123)

Summary: President Lugo continued to improve relations with

the Liberal Party and the Congress and has moved forward with
a concessions plan for airport modernization. The Central Bank
reported that the economy may grow by 9% this year. On the
downside, the President was diagnosed as having cancer.
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Government : President Lugo was diagnosed in early August as suffering from

lymphatic cancer and has begun radiation therapy. According to medical personnel, it is
too soon to know the gravity of the illness. At this point the President says he will
complete his five year term in 2013.

The President sacked Defense Minister Luis Bareiro Spaini in the wake of growing
criticism from Lugo´s Liberal Party supporters that the leftist Minister was misusing his
office. Bareiro Spaini was also heavily criticized for sending an offensive letter, outside
of all protocol, to the U.S. Ambassador.

Ceferino Farias, the head of the civil aviation agency, was also fired for resisting the
President´s plan to develop a concessions program to finance the modernization of three
airports.

Politics:

President Lugo´s recent rapprochement with the Congress has been designed to increase
cooperation and move the Executive’s programs and appointments forward as he enters
the third year of his five-year term. He seems willing to pay a price by handing out more
government positions to the Liberals and establishing lines of communication with
smaller parties. The new Liberal Party leadership has called for a meeting of Party
members for September 1st to review their relations with Lugo and define how they will
work with him.
Private sector leaders have also become more supportive of the President.

Economy: General: More good news on the economic front. Standard and Poor´s
raised Paraguay´s risk rating from “B“ to “B+”, largely due to macroeconomic stability,
fiscal surpluses and political stability.
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Adding to the good news was a Central Bank report adjusting its GDP prediction upward
for 2010 from 6% to 9% due mainly to substantial improvements in all categories but
especially in agriculture. This contrasted with a negative 3.8% GDP in 2009. BBVA
released its report predicting 8.4% growth in 2010 and 4% in 2011.

Finance Minister Borda, in his yearly report, noted the positive information on the
economy but warned of inflationary pressures and of the tendency for demands to
increase for social spending which, if not curbed, could lead to a fiscal deficit in 2013 of
3.2%.

Meanwhile, inflation crept upward by 0.1% in July due to rises in food prices and
cooking gas. The year-to-date inflation rate through July was 2.4% and over the past 12
months at 4.4%. The Guarani remained stable at 4,775 to the dollar

Agriculture: Although soybean production has been the backbone of economic growth,
there are concerns that the climatic phenomena La Niña could bring a lengthy dry spell
that might affect negatively soybean production for 2011. The drought of 2009 damaged
about 50 percent of production.

The government agency assigned to monitor food quality and safety (Senave) has decided
to implement dormant legislation forbidding the planting of genetically treated corn.
Producers called for a halt to the destruction after government tractors plowed up 44
hectares of corn and promised to continue. Farm interests called for approval of pending
applications of over three years and the initiation of scientific experiments to ascertain if
a given variety of corn is unsafe. The head of Senave repeated his view that genetic
modification carries with it serious health problems for the poor in the countryside
despite evidence to the contrary from its neighbors, Brazil and Argentina, and the lack of
research in Paraguay.

Investment: The U.S. multinational ADM has begun construction of a processing plant
to produce soybean flour and soybean oil. The plant will have a capacity to process
3,300 metric tons per day.

Trade: India is the number one purchaser of Paraguayan soybean oil, buying up 29% of
Paraguay´s exports with Bangladesh a close second at 26%, according to a local report.

Reform: The Government, through the Public Works Ministry, has signed an accord
August 6 with the United States to do a feasibility study regarding financing three
Paraguayan airports through the use of concessions. In hopes of heading off negative
reaction from labor unions, Ministry officials took pains to explain that this was not a
privatization scheme.

International Relations:

United States: Frank Mora, Deputy Assistant Secretary for Western Hemisphere Affairs
in the Department of Defense and co author of the book, Paraguay and the United States,
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spent most of a week´s visit meeting high level public and private sector representatives.
The visit reflected good bilateral relations and a maturing political culture. In times past
the visit of a U.S. Defense Department official at the same time that the Paraguayan
Defense Minister was being removed, in part over criticism of the U.S. Ambassador,
would have caused a firestorm of news media speculation and innuendo. This time the
news media paid relatively little attention to the issue.

Qatar: The Emir of Qatar arrived on August 17 for a visit in which he signed a number
of investment accords with the President Lugo.

What to watch for in September:

… Results of liberal party caucus on how to work with President Lugo … the President´s
health … labor union reaction to a system of concessions for airport
modernization…release of draft 2011 budget …

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