Transition and reform in a predatory state: the case of Paraguay

Abstract

This paper examines the problems of public and institutional reforms within the context of a so‐called predatory state. The predatory state is one that acts in the interest of an elite rather than pursue a coherent strategy for economic development. The argument is that, even after the process of political transition is begun, important reforms are blocked by a lingering institutional overhang that continues to serve the predatory elite. We examine the experience of Paraguay that disposed of its dictator in 1989 and began a democratic transition. The failure to implement needed reforms is shown to have blocked a revival of economic growth and development.

Keywords:

• Paraguay
• reform
• corruption
• predatory state
• privatization

JEL codes:

• B52
• D7
• H1
• O1
• O5
• P16

Notes

1. Abente (1995, p. 314) describes the “mayoría con prima” rule in which the party obtaining the largest share of the popular vote commands an absolute share (2/3) of the congressional seats as derived from similar electoral procedures in fascist Italy.

2. The reform also eliminated export taxes. For details and analysis of the reform and of the tax system see Richards (2001).

3. Lambert makes the point that military reform was executed under Rodríguez to strategically reorganize the armed forces by divisions and chains of command rather than to professionalize them. In his view the greater concern was to reconstitute the Colorado‐military alliance and support for the regime (1997, p. 205).

4. This is otherwise known as the highest averages system and allocates seats to the legislature by dividing the total vote count of a party by a sequence of divisors (i.e. 1, 2, 3, …) and apportioning seats according to the party lists with the highest mean until all seats are allocated. The method favors larger parties over smaller ones in the allocation of seats.

5. Borda and Masi (1998) report that between 1989 and 1993 there occurred 62 ministerial level changes in the central government, spread over 11 ministries. Over the same time period another 23 changes took place involving presidents of ten state enterprises.

6. Law 636/95 actually goes even further than this and requires that associated firms and their workers, e.g. those that provide inputs or services to the SOE that is considered for transfer to the private sector, must also be given the same purchase consideration as those workers in the affected SOE.

7. With nearly $60 million in debt for the five companies sold off, the net fiscal impact to the government as of 1997 was −$36.3 million (IMF 1998).

8. The advantage of calculating the primary deficit is that it provides a more accurate measure of the public sector’s performance in terms of discretionary spending. Discretionary spending, presumably, is that over which policy makers exercise control.