Paso Yobai is historically known for the high quality of its production of yerba mate. Is also known for the production of sugar-cane, cotton and soy.

The story of this new Klondike-style gold rush begins with Ecuadorian who, on a trip to the Paraguayan capital Asunción, fell in love with a young lady from Paso Yobai – a fertile and green place with beautiful undulating hills. Shortly afterwards the two were married, and the Ecuadorian discovered gold in a stream on his father-in-law’s property. From there began the gold rush fever that changed the life of many local families, as well as investors around the world looking to profit from the spectacular rise in the gold price over the past ten years.

Mining activity started on a small scale. Local gold bugs known as “garimpeiros” are really artisan miners. It generally takes between one and two days for a small scale miner to extract a gram of gold. But this gram is difficult to obtain. A garimpeiro can gernerally survive strictly of their mining activities if he can obtain 25 grams or more of gold a months.
The grams of gold are sold locally to other companies who process and export it. From there, the gold may be used in industrial processes or more commonly it is stored in international banks and bullion dealers in the form of gold coins and gold bars for investment purposes. Gold, after all, is the only real international currency that cannot be devalued.

Anyway, I digress. Back to Paraguay! Although mining has brought increased prosperity to Paso Yobai, it has also created serious environmental issues. Miners use mercury to separate gold from sand an clay. Unfortunately, the mercury often enters and contaminates creeks. Arroyo Gasory, Paso Yobai’s largest creek, is now highly contaminated with mercury and the fish are unsafe to consume.

The Canadian TSX-quoted company Latin American Minerals Inc. bought a local mining company in 2007 and negotiated an agreement with the Paraguayan government to begin mining in the district. Latin American Minerals claims that that Paso Yobai may contain one of the largest gold veins of the world. Others talk of gold reserves in the huge and virgin Chaco.

It remains to be seen how Paraguay’s gold business develops over the coming decade. But I for one believe investing in an undiscovered, low cost country that is so rich in natural resources has to make very good sense. Paraguay has  water, clean electricity, oil, gas, gold and friendly people. Plus, it is an undiscovered tax haven. What more could a foreign investor want? Why not consider Living, Investing and Doing Business in Paraguay?

Paraguay’s suggestion was that Brazil take over 97 percent of the debt, leaving Paraguay with approximately $600 million, because Brazil uses almost all the power. Currently, the two countries both share responsibility for the deb  under the original treaty that resulted in the dam, completed in 1984, being constructed.  Brazil does not wish to renegotiate the treaty.

You might have seen something on the news about the protests in Paraguay. Protests seem to be a regular occurence in Asuncion, something that has not changed under the new Presidency. I was last there in November and saw thousands of people being bussed in from the countryside to protest about various matters. The most controversial lately was the story about Brazilian farmers taking over indigenous lands – and the legal victory of an indigenous tribe.

The first question many people ask when I talk about investing in Paraguay, particularly when it comes to land in the Chaco, is whether title is safe and new landowners won’t be accused in the way that happened with these high profile cases.

The answer is that the Chaco is an entirely different case. Generally, when people are looking at buying land in the Chaco, they are thinking of buying land on which there simply are no people, indigenous or otherwise. The Chaco is a vast, barren expanse, in no way comparable to the populated areas in the south and near the Brazilian border where the problems have occured.

Lugo, however, does give the impression that his initial strategy is to dig himself in politically, strengthening and reinforcing his political power. While this might well be necessary to get things done, it will not reassure his detractors abroad, who have watched how Chavez took over Venezuela using democratic institutions then changed things around to make his power absolute.

100 days is still a short time. We will reserve judgement. Anyway check the link to Muna’s blog above for more commentary from the Spanish language Paraguayan bloggers.

Things however are looking up. Pluna started service to Montevideo earlier this year. Even better however, next month TACA will start a direct flight route from Asuncion to Lima, hubbing in to TACA’s wide network with connections to South, Central and North America.

I’m also looking forward to the new Copa flight from Panama to Santa Cruz de la Sierra in Bolivia, that will hopefully connect to flights to Asuncion. That should reduce travel time significantly between Panama and Paraguay.

Most imported goods (the expensive things) in Paraguay are priced in dollars, whereas day to day purchases are priced in Guarani. ATM machines typically pay out cash in both currencies.

Of course, a national currency denomination is something like buying shares in the country. The same is true of both Paraguay and the United States. It’s my view that the dollar is going to tank again soon – after all, they just printed $700 billion more to bail out the banks, and when there’s more around of something, the price has to go down. Basic law of supply and demand.

An interesting factor for the Paraguayan economy is that it is a gold producing nation, albeit that the quantities are still miniscule in terms of the world market for gold and precious metals generally. Gold is currently down, but is set to head upwards in the not too distant future. There’s an interesting commentary on “The Trial of Gold” by David Galland of “Big Gold” experts Casey Research, recently submitted to the Free Articles area at Q Wealth Report.

“Just today we’ve seen the dollar dipping once again into its downward spiral,” says my colleague, friend and offshore banking guru Peter Macfarlane. “Don’t be misled by short term booms!” Peter also offers up further evidence on his blog that the big government’s conspiracy to control money is breaking. It makes interesting reading for those of us who want to study international currencies, particularly Latin American ones, and their relationship to the price of gold.

I’ve always said Paraguay is a speculative investment. But speculative investments are also the ones that can pay the biggest rewards, right?

The new President has named respected U.S.-educated economist Dionisio Borda as minister of finance and has vowed to pursue economic stability… yet at the same time has rushed to sign 13 cooperation agreements with Venezuela, and often comes across as flirting with the Chávez government. Well, I certainly wouldn’t blame him for that while the Chavez government is throwing money around… Paraguay needs all the investment it can get.

In other positive news, Lugo has signed an accord with Colombian police to help them combat the threat of kidnappings in Paraguay, and has moved to restrict land use for soybean production, in a move intended to protect soil fertility and combat poverty.

Paraguayans fondly describe their country as the heart of South America. Their neighbors, however, frequently use less flattering corporal analogies when referring to this small (by South American standards), little-known country sandwiched between Brazil, Argentina and Bolivia.

But that is changing. More and more smart investors in precisely those neighboring countries are benefitting from the head start they have simply from being nearby. Paraguay in 2008 looks increasingly attractive as a place to live and do business.

This article is about how you can become involved, whether you are looking for a place to live and retire, invest, save taxes or all three. Paraguay may be poor on the surface, but it is very rich in natural resources, which are only now attracting serious attention from outsiders. Paraguay has water, oil, iron ore, gold… and vast unexploited agricultural capacity. With commodity and food prices at record highs and still climbing, these factors mean Paraguay has suddenly popped up on the radar of international investors. By the way, it’s also one of the world’s few forgotten tax havens, with no personal income taxes.

For many years travellers had little reason to visit poor, empty, landlocked Paraguay. Those who did had specific reasons to seek out its remoteness and the resultant freedom and privacy. Varied immigrants included both the persecutors and the persecuted from European wars, as well as religious groups as varied as the Mennonites and the Moonies who searched for and found their safe havens.

In Paraguay, nobody really bothers you, or even watches what you are doing, provided you don’t upset locals. From that point of view it’s very much “live and let live.” There is no Big Brother in Paraguay. (The rumor of a secret American military base in Paraguay is not true – I checked it out personally)

Back in 1864-1870, around the time North America was embroiled in its own civil war, the second bloodiest war ever to be fought in the western hemisphere, The War of the Triple Alliance, was fought primarily over supposed gold and oil reserves in the Chaco, the name given to the vast plains that cover the northern part of the country. Unfortunately, having lost two thirds of its male population in the war, Paraguay was in no fit state to carry on exploration to confirm if the reserves really existed, much less to extract them and transport them hundreds of miles across virgin terrain, in a harsh climate of extreme temperatures and heavy rain.

Somehow, as the Paraguayan population slowly recovered, the world passed Paraguay by. A few million poor, mainly indigenous people were simply not worth a second look, as the world was far more concerned with the Eva Peron in Argentina or the bikinis on Brazilian beaches.

From 1954-1989, military man Alfredo Stroessner ruled Paraguay with an iron first, throttling all political opposition but dividing his significant financial gains enough to keep enough people happy. The country became still more isolated, relying mainly on smuggling. Luxury goods were extremely highly taxed in Brazil and Argentina, while Paraguay had only a few, very low taxes and a very liberal if under-developed economy.

Stroessner’s grand projet was the Itaipu power plant, the construction of which in the 1970s gave Paraguay the highest growth rate of all Latin America. Still today, Paraguay is the world’s largest exporter of hydro-electric power. Paraguay doesn’t need oil at all, because it already has far more electrical energy than it needs. That’s one reason why those hydrocarbon reserves in the Chaco were never really developed.

After Stroessner’s exile in 1989, his Colorado Party remained in power through a series of debatably-free elections. High levels of corruption have ensured that the country’s significant natural wealth has been concentrated in the hands of a few, maybe 500, families. This elite shipped nearly all their wealth out of the country, in the form of foreign investments and importation of luxury goods like cars.

Now fast forward to 2008, the end of the Colorado regime. The new President Lugo, a former Archbishop who was excommunicated by the Catholic Church, will be sworn in next month. Nobody I talked to will give a commital answer about Lugo. He might be the next ally of Hugo Chavez and neighbor Evo Morales. Then again, most signs point towards him following the successful, free market moderate stance of another ex Communist neighbour, Brazil’s President Lula.

On the other side we have first lady turned Presidenta Cristina Fernandez de Kirchner, running Argentina. Incredibly, she has all but banned export of one of Argentina’s major, well, exports – agricultural produce. Of course the wealthy Argentine farmers are furious and are fast buying up Paraguayan land over the border, with high commodity prices and lack of export taxes (or even income taxes, for that matter) making the small additional transport costs worthwhile.

Paraguay’s economy today is still hard to judge, because of the large informal sector. There is little industry, which I see as an opportunity over the longer term, as the country gradually grows wealthier.

Agriculture, too, is a great opportunity, in the shorter term. Many Argentine farmers have already noticed. Land prices in the Chaco have approximately doubled in the past year or so. That means they increased from $25 to $50 per acre. Yes, you read that right! European and American investors, too, have been quietly buying up vast tracts of virgin land recently.

Here are a few of the reasons why Paraguay is looking interesting:

· Water What will happen when the oil runs out? People will find renewable energy sources. What will happen when the water runs out? Some of the world’s biggest cities, for example Los Angeles and Mexico City, are perilously short of water already. Paraguay does not have this problem. There is plenty of water to go around, most of it in sparsely populated areas. This creates ideal conditions for agriculture.

· Electricity The Itaipu power plant is one of the seven wonders of the modern world. It produces 14 Megawatts of power (for comparitive purposes, that is four times as much as America’s largest coal power plant, Plant Scherer). In terms of power, the energy this monster dam creates every day is equivalent to 433,000 barrels of oil. Except, this is not oil. It is green, renewable energy. The total estimated hydropower potential of the River Pirana and its upstream tributaries is 40,000 megawatts. Wow! Paraguay is already the world’s largest exporter of hydroelectric power, but most of it is sold to Brazil at a fraction of market value as a result of cosy agreements made in the 1970s. The new government is determined to change this. This will be interesting to watch.

· Oil and Gas The Bolivian territory directly to the north-west of Paraguay has South America’s second largest natural gas reserves (second to Venezuela). It doesn’t take a genius to figure out that Paraguay’s northern Chaco bordering Bolivia might have similar resources. And that the country’s economy could transform almost overnight with a big find and the start of commercial production. The simple fact is there have been easier areas in the world for oil and gas exploration and distribution, which is why after the Suez Crisis big oil companies like Texaco who were looking for oil in Paraguay invested in exploration elsewhere. But with the high prices of today, exploration in remote areas is worthwhile, and technology makes it easier. Oil and gas companies like Pantera Petroleum from the USA and CDS Oil and Gas UK are already there exploring and claim already to have identified substantial reserves.

· Land This is another thing Paraguay has an abundance of. The land exists, is fertile and natural irrigation is easy. It is virgin. There are no people there. So nobody got around to developing it or putting in roads. High prices for soya, beef and other commodities have changed this. Argentina’s ban on beef exports has helped too… Argetinian farmers can’t export beef any more, so they are quietly exporting their whole beef industry with all its expertise instead… to Paraguay. Meanwhile Brazilian farmers, hurt by the strong real, are also looking to reduce costs without having to move far from their familiar territory. Where are they headed? You guessed it – Paraguay.

· Minerals Paraguay has established iron reserves, in the south of the country, along the Paraguay River and near the capital. It is likely that there is much more iron in the unexplored Chaco region. Once again, high iron ore prices are making exploration worthwhile. The new excitement, however, focuses on Gold and Uranium, which have been found in Paraguay and extracted informally by locals, but is not yet commercially mined. Most of the investment is coming from Canada, in particular the companies Latin American Minerals, Cue Resources and Crescent Resources. Cue’s COO Chris Healey was quoted as saying last month, to Business News Americas, “People are just starting to realize that there is something there. There is a lot of potential for gold, probably base metals, certainly uranium.” Of the new government, he says: “They are very keen on getting foreign investment and the new government is pretty favorable for us.”

These developments have not been lost on world markets. The Paraguayan currency, the Guarani, has long been the butt of jokes. But so far this year it has appreciated more than 25% against the dollar over the past year. Paraguay is a dual currency country. Day-to-day business in Paraguay is in Guaranies, but most higher-priced items are tagged in US dollars. ATM machines pay out both currencies.

As somebody told me last month, in Paraguay “everything is virgin.” That is the reason for investing in Paraguay right now. There is lots of opportunity in all areas. But our prediction is that for the next decade or so, natural resources will be the driving force in the economy.

How to invest in Paraguay? Coming soon. Add this site to your RSS feed to receive regular updates as we upload new material.