S&P ups Paraguay outlook to positive

Standard & Poor's said it revised its outlook on the Republic of Paraguay to positive from stable and affirmed the country's B- long-term and C short-term foreign currency and local currency sovereign credit ratings.

S&P said the revised outlook reflects the increasing likelihood that the improvement in Paraguay's economic and fiscal profile in recent years will continue over the medium term - supported by President Nicanor Duarte Frutos's leadership. Since taking office in August 2003, the current administration has approved a significant number of economic reforms, including changes to the tax structure, custom regulations, pension system and government-owned banks. Prudent fiscal management has resulted in two consecutive years of general government surpluses (2004 and 2005).

Despite the advances of the last three years, the agency said several factors will continue to constrain the ratings severely. Among them, underdeveloped political institutions, resulting from a long track record of political instability, are Paraguay's major credit weakness, as shown by the still very high perception of corruption. And although Paraguay has historically achieved only moderate fiscal deficits and debt levels have been traditionally low, fiscal flexibility remains extremely limited, as demonstrated by Paraguay's default on a domestic bond on February 2003.

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