| ASUNCION, April 7
ASUNCION, April 7 Paraguayan business groups are
urging the country's Congress to abandon a proposal that would
allow President Horacio Cartes to seek re-election, fearing
popular outrage could jeopardize his administration's progress
in attracting foreign investment.
While they generally back Cartes' center-right government,
they have said he should give up on running in 2018 for a second
five-year term to preserve economic growth in the world's No. 4
soy exporter and keep on track the country's progress towards a
coveted investment-grade credit rating.
Last Friday, a closed-door Senate vote approving a
constitutional amendment for presidential re-election drove
opponents to set fire to Congress. Police also stormed the
opposition Liberal Party's headquarters and shot dead one
"This harms the country's image. It conspires against our
narrative, and our plan of action," said Daniel Elicetche,
president of the Paraguayan-American Chamber of Commerce, which
includes local units of 3M Co, British American Tobacco
PLC and several major grains processors.
Fresh in the memory of the business sector is the 63.8
percent decline in net foreign direct investment after the
political chaos surrounding former socialist President Fernando
Lugo's 2012 impeachment.
Beltran Macchi, head of the Paraguay Association of Banks,
said the violence was a "warning sign" to investors. Members of
the association include Citigroup Inc, Itau Unibanco
Holding SA and BBVA.
Many businesses prefer the re-election amendment not be
enacted, at least for now. The congressional lower house still
has to vote on the measure.
In local newspaper ads, the Federation of Production,
Industry and Commerce urged politicians to not "try to change
the law in a time of social tension." The group includes the
local units of grains processors Archer Daniels Midland Co
, Bunge Ltd and Cargill Inc.
Elicetche and other business leaders said they would be open
to a reform allowing for consecutive re-election beginning with
the next president, and would even support a run by Cartes in
five years but were wary of what appeared to be an effort to
hold onto power. Paraguay's constitution does not allow for
consecutive or non-consecutive presidential terms.
The Senate vote and ensuing mayhem could pose a setback for
Paraguay's bid to promote an image of democratic stability
following the 35-year dictatorship of military strongman Alfredo
Stroessner, which ended in 1989.
Flourishing local businesses also want to overcome the
country's long-time reputation as a hotbed of contraband goods.
They seek to highlight the country's steady economic
expansion driven by higher prices for its soy and beef exports
and tax breaks attracting manufacturing companies mostly from
neighboring industrial powerhouse Brazil.
Cartes, a former soft-drink and tobacco businessman who took
office in 2013, has raised Paraguay's presence in international
bond markets. Last month, it sold $500 million in debt.
But the landlocked South American country of 6.8 million
people is not immune to political crises and the fallout on
Net Foreign Direct Investment (FDI) fell by $445 million in
2013 from the previous year when Lugo was impeached and removed
from office by Congress, central bank figures showed.
If the government does not withdraw the proposal, the effect
of the current crisis could resemble the FDI decline of five
years earlier, said corporate financial adviser Amilcar Ferreira
of the SEI consultancy in Asuncion.
"If the crisis deepens, Paraguay will go down a path of
substantial destabilization with unpredictable consequences,"
The president of the lower house said he would not call a
vote on the re-election amendment as long as the government's
dialogue with the opposition continued. These talks were
scheduled to go through at least Friday.
"It's still very early," said Samar Maziad, a sovereign
credit risk analyst with Moody's Investor Service, which
upgraded Paraguay to a Ba1 credit rating, one notch below
investment grade in 2015, and reaffirmed that in 2016.
"The country was making an effort to present Paraguay as a
destination for FDI, and investors, when they see uncertainty,
they hold back," she said.
Standard and Poor's and Fitch Ratings each peg Paraguay at
"BB," two notches below investment grade.
Investment grade ratings can unlock the door to many
foreign funds. They also tend to decrease the cost of borrowing.
(Reporting by Luc Cohen; Additional reporting by Daniela
Desantis and Monica Machicao; Editing by Caroline Stauffer)