Grow­ing pains as the econ­omy of Paraguay moves to mod­ern­iza­tion

The China Post - - WORLD BUSINESS - BY PETER PRENGAMAN

Verna Fra­gadas stands with her arms crossed in front of Friend­ship Bridge, which sep­a­rates this gritty, bustling Paraguayan city from Brazil and nearby Ar­gentina.

For decades, she and her hus­band sup­ported their five chil­dren by smug­gling com­put­ers, tele­vi­sions, shoes and other prod­ucts into the neigh­bor­ing coun­tries and selling them at stiff markups. Fra­gadas now passes her days chat­ting with other out-of-work smug­glers gath­ered at the bridge, oc­ca­sion­ally car­ry­ing small con­tra­band items into Brazil.

“I used to be able to make US$400 a day. Now, I’m not even mak­ing US$20,” Fra­gas said.

Set on the Parana River, across from Brazil and a stone’s throw from Ar­gentina, Ci­u­dad del Este long has been a transit point where Paraguayan smug­glers could buy pi­rated mer­chan­dise, some of it brought in by small boats dur­ing the night, then carry the goods across the bor­der.

For years, the city’s Wild West rep­u­ta­tion landed it a spot on the list of “no­to­ri­ous mar­kets” kept by the United States Trade Rep­re­sen­ta­tive.

But the gov­ern­ment is crack­ing down on black mar­ket trad­ing to spur le­git­i­mate growth and mod­ern­ize Paraguay’s econ­omy. Al­ready it is one of Latin Amer­ica’s fastest grow­ing economies, with a GDP that in­creased nearly 5 per­cent a year be­tween 2003 and 2013, ac­cord­ing to the World Bank.

These days, sus­pected smug­glers are searched by Paraguay’s bor­der guards, who refuse to let them pass if they be­lieve the elec­tron­ics, clothes and other goods they carry will be sold on the other side.

The crack­down has in­ten­si­fied since Pres­i­dent Ho­ra­cio Cartes was elected in 2013. Un­der pres­sure from mer­chants who lead Paraguay’s emerg­ing mid­dle class, the gov­ern­ment wants all ven­dors to pay taxes and halt sales of knock­off mer­chan­dise.

“As a coun­try, we can’t con­tinue with the piracy and con­tra­band,” said Felipe Acosta, whose Ci­u­dad del Este shoe store sells gen­uine Nike, Puma, Ree­bok and other top brands for more than US$100 a pair.

The city of 350,000 peo­ple is a hub for im­mi­grants from all corners, where the city streets buzz with ven­dors ne­go­ti­at­ing in Chi­nese, Ara­bic, Span­ish and in­dige­nous Guarani. Mil­lion­aire busi­ness­men drive Mercedes Benz sedans past shoe­less ven­dors who cart toys and cell­phone ac­ces­sories on don­keys. Guards with bul­let­proof vests and shot­guns stand out­side banks and multi-level stores selling elec­tron­ics and cloth­ing.

There are signs that smug­gling con­tin­ues. Streets near Friend­ship Bridge are strewn with clothes hang­ers and boxes emp­tied of Ap­ple com­put­ers and Barbie dolls, pack­ag­ing stripped away by smug­glers try­ing to hide the new-sta­tus of prod­ucts be­fore cross­ing the bridge.

“Few peo­ple here have jobs,” said Pe­dro Canyete.

He sup­ports him­self by bundling goods in plas­tic and load­ing them into ve­hi­cles that smug­glers try to drive across the bor­der. With less work, he said, his aver-

le­gal age daily in­come has dropped from US$40 to US$20.

Lit­tle of the mer­chan­dise be­ing smug­gled out can be sold in Paraguay, where nearly a quar­ter of the pop­u­la­tion lives in ex­treme poverty, ac­cord­ing to the World Bank. But there is a huge de­mand for such goods across the river in Brazil and Ar­gentina, where prod­ucts are ei­ther scarce or costlier due to high im­port taxes.

A new Dell lap­top com­puter, for ex­am­ple, can be bought in Paraguay for US$800, then walked 500 yards (a half kilo­me­ter) across the bridge and sold on the Brazil­ian black mar­ket for US$1,000, Fra­gadas said.

Smug­glers also profit by bring­ing items into Paraguay: mostly hard-to-find agri­cul­tural prod­ucts such as eggs, cheese, meat, milk and wool.

While the Cartes gov­ern­ment has been tough on mer­chan­dise go­ing out, big busi­ness own­ers say it’s not do­ing enough to stop the “paseros” who bring goods into the coun­try.

The gov­ern­ment has moved to en­force a monthly limit of US$ 10,000 worth of im­ported goods. In Fe­bru­ary, it also started re­quir­ing paseros to register with the health min­istry as food im­porters and ob­tain an iden­ti­fi­ca­tion card used to pay taxes.

Se­bas­tian Acha, a for­mer con­gress­man who runs Pro De­sar­rollo, a Paraguayan think tank fo­cused on eco­nomic trans­parency, called the ef­fort a “joke” that fails to stop paseros from skirt­ing the law.

“How can you jus­tify some­thing like this to le­git­i­mate busi­ness own­ers?” he said.

AP

In this May 13 photo, an elec­tric­ity worker climbs down a lad­der in Ci­u­dad del Este, Paraguay.

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