Paraguay, underdog Trump ally in Latin America, becomes an investor magnet

Wedged between South American heavyweights Argentina and Brazil, Paraguay has long been ignored by the international community. Small, landlocked and poor, it was often seen as just a fly-over country.

So it’s a little surprising – to both those in the capital and in the region – that the country of 6.1 million people is suddenly having a moment.

Lured by low taxes, entrepreneurs from across Latin America are plowing in money and taking up residence, with applications surging more than 60% in 2025. Sleek towers and luxury car dealerships now dot Asunción, a city where infrastructure is still struggling to catch up. And Wall Street investors are snapping up Paraguay’s bonds as its conservative president, Santiago Peña, aligns his government with the Trump administration.

Though roughly the size of California, Paraguay’s US$47-billion economy is about one percent of the Golden State’s. But rapid growth and economic reforms in recent years helped the country win investment-grade credit status from Moody’s Ratings in 2024 and from S&P Global last year.

“We used to be like the ugliest girl at the ball,” said Selene Rojas, director of the upscale Shopping del Sol mall in the capital’s financial district. “Today, everyone’s asking us to dance.”

Peña, a 47-year-old economist turned politician, has travelled abroad more than 50 times since taking office in August 2023 to spread word that Paraguay is open for business. He’s openly backed Donald Trump’s push to strengthen Washington’s influence in the region. And this month, he was among the Latin American leaders the US president convened in Miami to coordinate on security. 

“Paraguay has been a very good friend of ours,” said US Deputy Secretary of State Christopher Landau. The US diplomat, citing the country’s voting record at the United Nations and continued recognition of Taiwan, added: “They’re not dancing to China’s tune.”

In a region dependent on Chinese trade and investment, Paraguay is the only South American nation that still has diplomatic ties with Taiwan. As a result it can’t sell its beef and soy to China, while also missing out on the billions of dollars Beijing has poured into infrastructure. Paraguay recognised Taiwan in 1957 and has stood by its decision ever since.

Washington isn’t rushing in with investments of its own, and there are still no direct flights to the US from Asunción. But the week after the Miami summit, Paraguayan lawmakers approved a defence agreement allowing US troops into the country.

Peña calls his MAGA-like vision for Paraguay “the rebirth of a giant.” It harks back to a period of mid-19th-century prosperity, when it was a regional leader with technological marvels such as an ironworks and a railroad, until a bloody war with its neighbours left it in ruins.

Then last century, it was run as a dictatorship for 35 years – one of the longest in the region, whose fall in 1989 was followed by a tumultuous transition to democracy. But Paraguay’s embrace of sound fiscal and monetary policies after its 2003 financial crisis is now paying off, with single-digit inflation and annual growth averaging around four percent over the past two decades.

“Paraguay will keep growing more than the other countries in South America,” Peña told Bloomberg Television in Washington last month. “Very soon it will have the highest per-capita income, above Uruguay and above Chile.”

Investors are also taking notice, pouring money into factories and real estate. Many of them are foreign, with migration authorities receiving nearly 50,000 residency applications last year. About half were Brazilians, though there were also large numbers of Argentines, Germans, Bolivians and Spaniards.

Felipe Bertolini, 24, from São Paulo, is one of them. He and his father, a port investor, spent three days in Asunción in late February applying to live in Paraguay. The tax regime at home, where the state takes about 40 percent of the revenue from his factoring and securitisation company, led Bertolini to consider moving next door.

“Brazil is pushing people toward Paraguay because its taxes make entrepreneurship unviable,” he said. “Companies shut down in Brazil and come here.”

The Portuguese-speaking country is the largest player in Paraguay. Brazil’s share of foreign direct investment climbed to about 15 percent at the end of 2024 from less than 12 percent four years prior, according to Central Bank data.

Factories that enjoy tax breaks under Paraguay’s manufacture-for-export, or maquila, rules are a magnet for investors. Maquila exports by companies like Blue Design, headed by Argentine textile entrepreneur Jorge Bunchicoff, have more than quadrupled in the last decade to about US$1.2 billion last year.

Bunchicoff ships about one million premium denim products, including jeans and jackets, annually from his state-of-the-art factory on the outskirts of Asunción to global markets including the United States, the United Kingdom and Japan. The company supplies high-end brands such as Lacoste and Good American, while its own brand, Dala, can sell for more than US$300.

“I could never have done this in Argentina” or Brazil because of high costs and toxic labour relations in both countries, said Bunchicoff, who has done business in Paraguay for 30 years. The secret to his success, he argued, is a compelling blend of low taxes, cheap energy and labour and predictability.

New arrivals to Paraguay are also fuelling consumption. About 120,000 people a week visit Shopping del Sol, up 30 percent over the past three years thanks in part to immigration, said Rojas, the mall director. “You can really see the arrival of foreigners,” she said. “Hotels are full. Restaurants are full. The car fleet has grown tremendously. Our airport can’t keep up.”

Still, Paraguay’s economic miracle faces headwinds that could curb growth and social mobility if left unattended. Only Venezuela outranks it as the most corrupt nation in South America, according to Transparency International’s latest index.

The Colorado Party retains a tight grip on power – it lost presidential elections only once since the end of Alfredo Stroessner’s rule – owing to entrenched client politics and a disorganised opposition. In 2024, the party used its congressional majorities to impeach a prominent opposition senator and pass a bill increasing government oversight of civil society, which critics denounced as democratic backsliding. And this year the United States removed one of Peña’s predecessors from a financial blacklist.

More than 60 percent of the workforce toils in the informal economy, according to government data. And while poverty has fallen sharply since the early 2000s, about a fifth of Paraguayans still live below the poverty line.

Nicolás Ozorio believes the economy’s strong performance isn’t reaching enough people. The 36-year-old builder wants the government to take a more active role in spreading the gains through social programmes. “That progress doesn’t reach the entire population,” he sad. “That’s where we are falling short. It cannot benefit just a few.”

Low taxes – a key selling point for investors – leave the government with little revenue for education, healthcare and infrastructure. Public works in Asunción are glaringly absent, with roads, sidewalks and drainage systems in disrepair even in wealthy neighbourhoods.

For Dionisio Borda, the former finance minister widely credited with engineering Paraguay’s post-default revival, the next government should consider raising more revenue. The state’s tax take as a share of the economy is too low to fund needed investment in people and infrastructure. “The regional average is 25 percent. Ours is 11.3 percent today and we have to get to at least 15 percent,” he said.

The push to make Paraguay more fiscally responsible is nonetheless paying off. 

Finance Minister Carlos Fernández said that during last month’s roadshow, investors were already so familiar with the country that they asked him to skip the opening presentation and go straight to questions. After pulling in about US$500 million in 2024 as part of its first global bond denominated in the local guaraní currency, Paraguay issued a record US$1 billion in guaraní debt last month. 

It’s a big change from a decade ago, Fernández said, when Paraguay’s first US$1-billion bond deal was in dollars. “That gives you a sense of how the credibility of the Paraguayan economy has evolved,” the finance minister added, describing the latest guaraní issuance as “a graduation diploma.”

Paraguay’s dollar bonds have returned almost 10 percent in the last 12 months, compared to a 13 percent gain for Latin American sovereign debt, according to a Bloomberg index. 

Despite that success, Fitch Ratings – the only major agency that still keeps Paraguay in speculative territory at BB+ with a positive outlook – isn’t in a rush to upgrade the country to investment grade.

Fitch has pointed to the need for large projects to advance, including the multi-billion-dollar Paracel pulp mill. Paracel declined to comment. Paraguay addressed one of Fitch's other concerns earlier this week by passing a pension reform for civil servants to help underpin growth and public finances.

Even as the country becomes better known outside Latin America, business leaders say Paraguay still undersells itself.

“Having two ratings agencies grant investment grade puts Paraguay more in the shop window,” said Hugo Pastore, executive director of grain and oilseed export group Capeco. “We do a lot right, but we don’t market it enough. We have to tell the world more about how well we do things.”