Paraguay rushes out first bond issue (it tops Transparency International’s corruption index)

Yesterday I wrote about Paraguay and its piano and why investors should beware this dubious country planning to make its first public international bond issue ($500 million). Today I see that the deal is almost done and dusted. I also see that Barclays are the only ones to issue a word of caution.

I wonder why this has been rushed out only three months before a new government is elected in Paraguay, all the more since the country has a long history of one government repudiating the debts of a previous one.

I was forwarded a list of questions raised by an investor I know who invests his own money (and not earning management fees from handling other people’s). Having seen the preliminary prospectus, he had these questions for the Paraguayan Minister of Finance and Citibank (lead manager of the bond issue):

1 – Why were investors not told that Paraguay has for years kept its funds safe at the Bank for International Settlements (BIS) in Basle because it is immune from legal attachment from creditors (not vulture funds in the case of Paraguay)?

2 – Why were investors not told that Paraguay will continue to keep its money protected at the BIS and therefore, in the event of the new government reneging on payments for the bond, a judgment against it will be worthless for enforcement purposes?

3 – Although the prospectus did mention a list of problem creditors, why did it not state clearly that they all refer to undertakings by one government repudiated by another?

4 – In view of allegations by the leading candidate for the Presidency in Paraguay about corruption in the current government, what guarantee is there for investors that a new administration will not declare the bond issue fraudulent and that Citibank should have known better?

5 – Why were investors not told what it costs Paraguay to keep its money protected at the BIS?

6 – What difference would it make to the economy of Paraguay if the bond issue was delayed until after the elections in April and proceeded with the backing of the new government which should be in power for five years? After all the current government is temporary, its mandate dubious and not widely recognized until the elections in April.

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4 Responses to “Paraguay rushes out first bond issue (it tops Transparency International’s corruption index)”

  1. Rogelio A. Careaga Says:

    I like your article. The questions are incisive and legitimate.
    I would like to exchange emails with you. I’m a Paraguayan who shares the concern raised by your investor. I used to be an international banking officer at Wells Fargo Bank in charge of the bank’s dealing with a number of Latin American countries. My email is

  2. Rogelio A. Careaga Says:

    Mr. Ferrar:

    Brazil, I was told, is selling Itaipu debt, half of which is supposed to be Paraguay’s. However Paraguay disputes at least part of it. And American economist Jeffrey Sachs wrote a report in which he claims that Paraguay does not owe anything and that it has already paid the entire amount.

    I wonder if you have any comments on this matter.

    • mferrar Says:

      Dear Mr Careaga,

      I have read some articles about the Sachs report. From the publicly available information, it is not clear whether he works this out on the basis of the original contract with Brazil, reconciled with actual payments or if he considers that original interest rates and tariffs fixed in the contract are not fair. This need to be clarified before I can comment. However on the face of it does look like there might some merits to the Sachs claim. If you have the basis on which Sachs arrived at his conclusion, it would be helpful. However, I would add this. Paraguay has a history of refusing to make payments on liabilities incurred by a previous administrations, stretched any subsequent judicial process indefinitely and then ignored even judicially adjudicated decisions if such decisions were not in its favour. It would therefore be advised to handle this very carefully and diplomatically, maybe by way of international mediation or judicial process. The problem again is that before going for any mediation it has to explain why in the past it has chosen to ignore judicial decisions and why Brazil should not do the same if the decision is in favour of Paraguay.

      Kind regards,

      Marcus Ferrar ________________________________________

      • Rogelio A. Careaga Says:

        Dear Mr Ferrar: Tank you for your reply to my question.

        I will try to obtain a copy of Professor Sach’s Report. If I get it, I will forward it to you.

        I cannot address some of the interesting points you raised as I do not have the relevant information, but your question of why shouldn’t Brasil refuse to accept an adverse court judgment is thought provoking. In my view, once a country agrees to submit a matter to the jurisdiction of a court it has no choice but to accept its decision.

        Best regards,


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