IFLR 1000
The Guide to the World's Leading Financial Law Firms

Paraguay's legal market comprises of a small group of almost exclusively local firms. The size of the firms that perform financial work ranges from staffs with a very small number of lawyers to those with a few dozen attorneys....

Paraguay's legal market comprises of a small group of almost exclusively local firms. The size of the firms that perform financial work ranges from staffs with a very small number of lawyers to those with a few dozen attorneys. Despite the size of the legal market and of the firms themselves, nearly every firm has at least some staff members who speak both Spanish and English, as both are often requirements for sophisticated transactional work in Latin America.

Distinguishing between individual firms can be difficult, although there are firms that are better known for work in certain practice areas or industries than others, so researching a firm's previous clientele is a good idea if the information is available. Agribusiness and commodities-related work are the most important drivers of transactions in Paraguay, so most financial firms are acquainted with those industries and the types of deals that accompany them.

One or two regional firms have established offices in Paraguay in recent years, although they are not large outposts as of yet. However, since assets are cheaper in Paraguay than in some neighbouring countries, regional investment is starting to pick up in the country, so regional law firms may find it a more attractive market, as well. For similar reasons, legal fees in Paraguay have, to this point, remained slightly lower than in other Latin American countries, although it is far from a hard-and-fast rule and may change in the near future.

CONTEXT AND TRENDS In June of this year the Paraguayan Congress impeached and removed from office the country's president, Fernando Lugo. Lugo, who was tried previously and thought to have been under scrutiny for some time, was charged with "poor performance in office" following an attempted police eviction of roughly 150 farmers squatting on a privately-owned farm....

In June of this year the Paraguayan Congress impeached and removed from office the country's president, Fernando Lugo. Lugo, who was tried previously and thought to have been under scrutiny for some time, was charged with "poor performance in office" following an attempted police eviction of roughly 150 farmers squatting on a privately-owned farm. Six policemen and 11 farmers were killed during the manoeuvre, giving the Paraguayan government what many believe was exactly the opportunity it was looking for to remove Lugo from office.

The impeachment's effect on the legal market has a lot to do with perception. There is significant fear among practitioners that due process was not properly observed in an impeachment procedure that took only 24 hours, that a possible constitutional breach has occurred, that an erstwhile coup d'etat was all but arranged and that the sanctity of Paraguayan rule of law may be in doubt.

Following Lugo's removal, then-vice president Frederico Franco took office and formed a new government. All of this took place only ten months prior to the end of Lugo's term as president and before the 2013 presidential elections. Paraguay was also suspended from the South American trading bloc Mercosur and from the Union of South American Nations (UNASUR) after the proceedings.

Financial firms in Paraguay seem optimistic that the economy, despite bad luck in the agricultural sector, remains fairly buoyant. They are definitely worried, however, that regional and foreign investors will take a relatively dim view of the recent upheaval in the country. Paraguay has been considered a relatively safe and profitable place to invest in recently, especially among the country's more expensive neighbours, so making sure that political fears do not lead to economic woes will be paramount in the coming months.

Paraguay experienced significant droughts in 2011, cutting its production of soybeans significantly (up to 50% by some estimates). Soybeans are among Paraguay's most important export products and have accounted for a very large share of the nation's economy in recent years as climbing global commodities prices have netted the country's producers major profits.

The Paraguayan beef market, another important source of export income, was hit last September with a major outbreak of Foot and Mouth Disease, as well. The country's beef production was slashed by roughly one-third and some extremely important regional clients stopped buying Paraguayan beef after the outbreak. Chile in particular, which traditionally purchases about a third of Paraguay's beef exports, stopped purchasing Paraguayan beef immediately upon the outbreak and though exports have picked up so far in 2012, it is expected that it may be as much as a year before the market is back to normal.

Although the low crop yield affected the soy industry and the outbreak of FMD effectively ended beef exports for a period, agribusiness remained a focal point for many firms this year as global food prices remained high: "We're seeing a lot of very big investments in agribusiness, in things like farming," notes one partner. "But also in infrastructure supporting those parts of the economy – things like grain crushing plants and processing facilities."

Another lawyer linked the agribusiness sector to some of the project finance activity in the region, commenting, "Soy is a highly important commodity here and the infrastructure for the market is extremely undercapitalised. Port investments in Paraguay are linked to this industry, as are roads and other projects. Almost all of it is for supporting the agribusiness industry."

Paraguayan firms generally believe that the country has numerous companies that have a real need for financing, but they also believe that many Paraguayan banks are not capable of providing the financing needed. The majority of the country's population still lacks access to the banking system, so banks cannot depend on deposits for much-needed capital: "Many banks here locally need to raise capital," a lawyer explains. "It's hard to raise domestically, so the major providers of this capital are foreign multilateral entities like the IDB, CAF, World Bank, and BBVA."

In order to find money for projects and other major investments, many financial firms have turned a hopeful eye toward other countries in the region. PPP's (public-private partnerships) are on the agenda all over Latin America, but Paraguay lacks a relevant law at this time. There has been great discussion on the topic in the legal community, and politicians have taken notice: "In April of next year [Paraguay is] having presidential elections and most candidates are using the possibility of a PPP program as a platform for their candidacy," states one lawyer. "There is a bill in Congress. I think in the next few years we'll see a law in place and it will be a big part of the Paraguayan economy."

For the immediate future, though, most lawyers hope only that the political turmoil will be minimised, that it won't have too deep an impact on the country's relatively stable economy and that President Franco will effectively right the ship: "The team the new president has is quite market-oriented and more progressive than [former president] Lugo, who was a little leftist," one practitioner remarks. "Some projects that have been held up may get back underway. I believe that the situation will calm down and hopefully the international community will begin to have a better idea of the situation here and see that there was no rupture of the constitutional system – that things will get back on line and a pro-business atmosphere will be re-established in Paraguay."