The recent news of Moody’s upgrading Paraguay’s credit rating from Ba1 to Baa3 is making waves. The Chilean private sector has also taken notice. Carlos Medina, executive director of the Chilean-Paraguayan Chamber of Commerce, recently shared his views with the Paraguayan newspaper La Nación/Nación Media.
Medina stated that the rating upgrade is likely the best economic news of the year. This decision will result in a lower interest rate on sovereign debt issuance. “This is an incentive to invest in Paraguay and create jobs. It benefits companies operating there or those considering doing so, especially those that decide to take on debt in international markets. Though it may seem like a distant, technical decision, it directly impacts the citizens,” he remarked.
Areas of Interest
Medina illustrated this point by citing a hypothetical Chilean entrepreneur who might invest in Paraguay to build a plant for producing frozen fruit pulps for export, thereby creating 300 jobs. Due to Paraguay’s current Moody rating, this entrepreneur would benefit from better financial market rates to fund the project, which would be a significant incentive to invest in Paraguay.
He mentioned that Chilean investments in Paraguay amounted to approximately USD 570 million in 2023, with expectations for a significant increase this year, particularly in sectors such as real estate, manufacturing, and agribusinesses. He revealed that a mission of agricultural entrepreneurs from southern Chile is projected to visit Paraguay in October.
He highlighted, “These entrepreneurs aim to invest in producing fresh and frozen fruits and vegetables for export. The potential in this sector is immense, and with the improved credit rating, Paraguay is well-positioned to become a global leader in subtropical fruit production. This potential, coupled with the improved credit rating, is an additional incentive to invest in Paraguay.”
Medina also noted Paraguay’s market openness and improvements in horticultural production quality compared to the genetic quality revolution in Paraguayan cattle farming that began 30 years ago.
Boric’s Visit to Paraguay
Regarding Chilean President Gabriel Boric’s recent visit to Asunción, Medina emphasized its value, as it bolstered bilateral trade and investment and focused on the Bioceanic Corridor. This corridor is South America’s most significant logistical project, connecting central Brazil, the Paraguayan Chaco, northern Argentina, and Chilean Pacific ports. “In 10 years, 40% of the region’s grain will be transported through this corridor,” he stressed.
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The benefits of a higher investment grade rating
An investment grade rating, such as the one recently achieved by Paraguay, offers several key benefits to companies operating in or considering investment in the country:
- Lower Borrowing Costs: Companies can access debt at lower interest rates. Investment grade ratings reduce perceived risk for lenders, leading to more favorable borrowing terms and lower interest rates on loans and bonds.
- Improved Access to Capital: Companies with a higher credit rating are more attractive to investors and lenders, making it easier to raise capital. This is crucial for funding expansion, new projects, or operational needs.
- Increased Investor Confidence: A strong credit rating signals economic stability and reliability, boosting investor confidence. This can lead to greater interest from both domestic and international investors.
- Enhanced Creditworthiness: Companies operating in investment-grade-rated countries benefit from an improved perception of creditworthiness. This can make it easier for them to secure financing and negotiate better terms.
- Greater Market Opportunities: Lower borrowing costs and increased access to capital can enable companies to pursue more ambitious projects and investments, potentially leading to growth and expansion into new markets.
- Economic Stability: Investment grade ratings reflect overall financial stability and sound fiscal management, which can create a more predictable and stable business environment. This stability can positively impact business operations and strategic planning.
- Attractive for Partnerships: Companies may find it easier to form partnerships and joint ventures with other firms or governmental entities, as a high credit rating indicates economic health and reliability.
Overall, an investment grade rating enhances the financial environment in which companies operate, making it more conducive to investment and business growth. The recent upgrade in Paraguay’s credit rating to Baa3 by Moody’s represents a significant milestone for the nation’s economic landscape. This advancement lowers sovereign debt costs and creates a compelling incentive to invest in Paraguay, particularly for international investors, including those from neighboring Chile. As highlighted by Carlos Medina, this upgrade could stimulate substantial foreign investment, potentially boosting job creation and economic growth. The improvements in Paraguay’s market openness and the strategic advantages offered by the Bioceanic Corridor further amplify the country’s attractiveness. With increased access to capital, enhanced creditworthiness, and greater investor confidence, Paraguay is poised to leverage these benefits for long-term economic development. The anticipated rise in Chilean investments, especially in agribusiness and real estate, underscores the positive ripple effects of this credit rating improvement. As Paraguay continues to enhance its economic infrastructure and investment climate, it positions itself as a burgeoning hub for international business and a key player in the regional economy, reinforcing the incentive to invest in Paraguay.
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