PARAGUAY: OPEN FOR BUSINESS

One of Paraguay’s attractions is undoubtedly its remoteness. But for those of us who like to fly in and out more or less regularly, the last few years have been difficult. Since Varig’s bankruptcy and American Airlines stopping their service, we were left with a TAM monopoly and then later some GOL connections via Curitiba.

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.

For a while over the past year, we became accustomed to the stratospheric rise of the Paraguayan local currency, the Guarani (currency code: PYG). At the end of October 2007, one US dollar bought 5000 Guarani. But by June 2008, your dollar bought less than 3800 Guarani – a huge increase in a little time. My consulting and investment clients who had bank accounts in Guaranis (for example, those applying for residence) were of course thrilled! As of today, however, the rate is hovering around 4,800, with Obama’s victory not having had a big impact either way on the dollar.

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?