Paraguay’s PPP agenda affected by debt problems, political shakeup

Corruption allegations against Paraguay's political leadership could affect the country’s PPP agenda, while a mechanism the public works ministry (MOPC) and banks implemented to finance public works is deemed increasingly unsustainable. 

The US Treasury sanctioned former president Horacio Cartes and vice president Hugo Velázquez over alleged bribery and other acts of corruption, just months before the April 30 general elections.

The move re-opened a rift within the ruling Colorado party, whose factions are loyal to Cartes or President Mario Abdo. 

Abdo was quick to respond to the sanctions, saying he already highlighted Cartes’ links with corruption during the December 18 primaries, where Cartes ally Santiago Peña won against Arnoldo Wiens, who’s close to Abdo. 

Both Cartes and Velázquez were already targeted by US authorities in August, leading the latter to drop out of the presidential race.

Cartes’ allies questioned the veracity of the accusations, but the country’s public prosecutor requested US Treasury reports regarding the investigation.

Paraguay’s current PPP framework was developed and implemented during the Cartes administration, while Abdo’s government has also created an ambitious PPP agenda, though some tenders won’t launch before the next presidential term starts on August 15.

Analysts warned political scandals could put off investors.

DEBT WOES

Meanwhile, the public works ministry has incurred a US$300mn debt with banks that are financing public works contracts through a debt reassignment mechanism in which contractors transfer the right to charge for work certificates to local banks.

However, the ministry must reimburse the banks, but firms claim the mechanism is no longer sustainable, as banks are discounting interest from the payments for work certificates at rates contractors can’t work with. The Heroes del Chaco bridge and the coastal defense works at Pilar city are key works at risk of being halted due to the issue. 

“By repurchasing the credit rights from contractors, banks have funded public works, enabling the Paraguayan ministry of public works to pursue its PPP agenda. These structures are standard to project financing, for which lenders provide upfront liquidity and assume credit risks of the offtaker,” Vincent Detilleux, analyst at Moody’s Investors Service told BNamericas when asked about the risk the debt situation could pose for Paraguay’s PPP ambitions.