Author: dev_

On May 21, 2014, Law 5016/2014 was enacted, replacing the outdated previous regulation Decree No. 22,094/47 “General Road Traffic Regulations” of 1947, thus bringing Paraguay's regulations in line with its closest environment of MERCOSUR, and being the control of traffic accidents and the reduction of the mortality rate its inspiring principles.
 
The Standard presents the following new features, among others:

1. Creation of the National Agency of Traffic and Road Safety as the agency in charge of the application of the present National Law and of the future regulatory norms that may be dictated as a consequence. A period of 12 months is established to regulate it, which is important since there are several open points such as the Compulsory Technical Inspection of vehicles, compulsory insurance... The control of traffic on national and departmental roads will be in charge of the Highway Patrol under the MOPC, constituting a mere change in the name of the Highway Police as it is historically known. A National Registry of Driver's Licenses and Traffic Records will also be created, which will record the different infractions committed by the driver and of which we will explain some of the novelties below.
2. Regarding Commercial Advertising, a prohibition is established based on road safety reasons, preventing the placement of advertisements, posters or any other commercial propaganda on the public highway and the roadside in the following cases:Likewise, Art. 45 establishes the absolute prohibition of consuming alcohol on public roads or in commercial establishments that have direct access from highways, national routes, branch roads or departmental roads (the sale in these establishments is not prohibited, however), which may affect numerous premises since in Paraguay the main roads and routes generally constitute the circulation axis of many towns and cities of the Metropolitan area of Asuncion and the rural sector.
   1. Signs or advertising that resembles traffic signs (avoiding possible driver confusion);
   2. Place any type of advertising or publicity on the signs (since they weaken their vision);
   3. Placing advertisements that affect the visibility of the signs.
   4. It is established that it will be up to the authority to regulate the conditions of placement so that it does not affect the driver's visibility or the perception of signals.
   5. It is forbidden to advertise alcoholic beverages and driving.
3. Likewise, Article 45 establishes the absolute prohibition of consuming alcohol on public roads or in commercial establishments that have direct access from highways, national routes, branch roads or departmental roads (the sale of alcohol in these establishments is not prohibited, however), which may affect numerous premises, since in Paraguay the main roads and routes generally constitute the axis of circulation of many towns and cities of the Metropolitan area of Asunción and the rural sector.
4. An important novelty is the inclusion of the Compulsory Technical Inspection of Vehicles, bringing it into line with the rest of the countries in the region. This is motivated by active and passive safety factors as well as environmental factors. It should be noted that the entry into force of Law No. 3850/09, as amended by Law No. 4856/12, which regulates the ITV, was postponed until July 1, 2014, mentioning that this mandatory inspection may not even be carried out if the vehicle does not have the mandatory insurance, another important obligation established by this law (Art. 53).
5. In this sense, the Compulsory Traffic Accident Insurance is a vital issue for the prompt attention of the victims of road accidents (SOAT), it will be mandatory for all motor vehicles and mopeds of all types, covering expenses for medical and surgical care, pharmaceuticals, hospitalization, hospitalization, disability, as well as transportation for the immediate attention of the injured. Vehicles in charge of public passenger transportation, in addition to the SOAT, shall have a mandatory passenger care insurance. The term of the insurance will be annual and it may be contracted with any company established in the country and authorized to operate in the automobile industry. In addition, its regulations are similar to those of other countries, establishing for the companies the possibility of repeating against the insured who has acted with fraud or gross negligence and establishing a contribution (a percentage of the premium collected by the mandatory insurance) by the Superintendence of Insurance for the National Traffic and Road Safety Agency for the fulfillment of its purposes. This presents a great opportunity for insurance companies, which will necessarily see an increase in the number of policies.
6. Other novelties included is the creation of the Carnet por puntos, initially granting 20 points to all drivers, bringing back to the table the validity of this insurance whose Law was repealed at the beginning of 2014.
7. The penalties established are divided into minor, serious and very serious. In general terms, they are punished as follows:
   • Minor misdemeanor - punishable by a warning or a fine of up to 3 minimum wages (up to 210,465 guaraníes). Leaving aside the issue of alcohol abuse (to which we will make special mention), minor offenses are those that are not serious or very serious.
   • Serious misdemeanor - punishable by a fine of 4 to 10 minimum wages (up to 701,550 guaraníes), removal of 3 points or disqualification when applicable. Serious misdemeanors include, among others, the lack of required documentation, driving a vehicle without a license plate or without the mandatory insurance in force, driving faster than the allowed speed or using headphones and/or mobile communication systems of continuous manual operation, driving without any of the occupants wearing the mandatory seat belt or without lights when it is necessary to wear them.
   • Very serious misdemeanor: This is punishable by a fine of 11 to 20 minimum wages (up to 1,403,100 guaraníes), removal of 5 points or disqualification when appropriate. In the case of both minor and serious offenses, if there is voluntary acknowledgement, the fine is reduced by 25%. Examples of very serious offenses are offenses that have caused an accident resulting in bodily injury or property damage, failure to respect traffic lights or the STOP sign, fleeing or refusing to provide documentation when required.
8. With regard to the regulation of alcohol consumption: The following alcoholic beverages scales are established for the graduation of infractions and their corresponding penalties:
   • From 0.001 to 0.2 of alcohol in breathed air will be a minor offense.
   • From 0.2 to 0.799 of alcohol in breathed air will be serious misconduct.
   • The refusal to submit to the test or if the alcohol level decreases the psycho-physical conditions of the driver shall be a very serious offense. It is also a serious offense to consume alcohol on public roads or in commercial establishments with direct access from highways, national routes, branch roads or departmental roads.
9. Finally, the Penal Code is amended to punish with prison sentences of up to 2 years or a fine, among other conducts, when the alcohol level “notably or legally affects the ability to drive” and when driving without a license due to lack of it or having been deprived of it, also punishing the owner of the vehicle who tolerates such conducts.

International Finance Corporation (IFC) hired Vouga Abogados to grant different lines of credit to several banks in Paraguay for a total amount of USD 97 million.

Vouga Abogados has been continuously assisting IFC in the granting of a number of lines of credit to banks in Paraguay. On this occasion, Vouga Abogados again assisted IFC in granting lines of credit to BBVA, for an amount of up to USD 60 Million; BANCO REGIONAL, for an amount of up to USD 30 Million; and BANCOP, for an amount of USD 7 Million.

BBVA, REGIONAL and BANCOP received a total of US$97 million to provide financing to small and medium-size enterprises, which in turn will help Paraguay's economic development.

With the closing of these last credit lines, Vouga Abogados assisted IFC during the last three and a half years in granting loans to banks in Paraguay for approximately USD 262 million.

Vouga Aboagdos represents Archer Daniels Midland (ADM), a global leader in soybean trading and regional leader in the fertilizer business, in the sale of all assets related to the fertilizer business in Paraguay to the American company Mosaic. The transaction has been signed simultaneously in Paraguay and Brazil. This USD 350 million transaction represents the largest transaction of its kind in recent years in Paraguay, and involves ADM's fertilizer business in Paraguay and Brazil. The closing of the transaction will ultimately be subject to obtaining regulatory approvals in Paraguay and Brazil, as well as the fulfillment of certain conditions from both Paraguayan and Brazilian authorities.
 
In Brazil, ADM is represented by Machado, Meyer, Sendacz e Opice Advogados of São Paulo.

“According to the economic indexes calculated by the IFO Institute of Germany and the Getulio Vargas Foundation of Brazil, Paraguay is favorably positioned over the other regional countries with an Economic Climate Index (ECI) of 135.8, even above Brazil which, according to data counted up to April, has an average of 82.5.

A few days ago, the mayor of Asunción, Arnaldo Samaniego, highlighted this fact, arguing that the country is facing an economic policy in which “opportunities are opening up for Paraguay more than ever”.

In 2013, Paraguay achieved the third highest economic growth in the world, with 14.1%. For this year, the outlook is 5.5% to 7%, driven mainly by industry and construction.

According to the Ministry of Industry and Commerce, one of the pillars of this development is the so-called “maquiladoras”, companies that import parts and components of all products to be manufactured (assembled) in Paraguay and then exported.

Ernesto Paredes, executive secretary of the National Council of Maquiladora Industries, reported that 80% of exports are destined for Mercosur countries.

He detailed that up to May 15 of this year, maquiladora sales abroad amounted to close to US$ 80 million. In 2013, the total reached US$ 150 million.

The outlook, according to Paredes, is for continued growth: “Between last year and this year we have 17 new projects”.

Dear Friends,

We are pleased to announce the launch of our new website, institutional brochure and newsletter. On the website you will find updated information on the business climate in Paraguay, regulatory news, as well as recent activities of Vouga Abogados and its members.

Our brochure contains relevant information about our practice areas and reflects the values that identify us as a firm.

Finally, you will receive our newsletter from time to time, with the main business opportunities and other relevant news.

We hope you find it useful!

The Vouga Abogados Team

Moody's Investors Service has upgraded Paraguay's sovereign bond rating from Ba3 to Ba2, changing its outlook from stable to positive.

According to the firm itself, "the decision to upgrade Paraguay's rating is attributed to:

1. Improvement in the position of Paraguay's main fiscal indicators relative to the median of its peers in the 'Ba' rating category.
2. Strengthening of the institutional framework as a result of the legislative package approved last year.
3. Smooth political transition after the removal of former president Fernando Lugo in 2012.

In Paraguay, further developments are still awaited in relation to the second point. Among them, the regulatory decree of the Public-Private Partnership Law that will grant the possibility of making investments of this type in the country. The government estimates that the decree will be ready in early March.

RATIONALE FOR UPGRADING

FIRST ELEMENT - IMPROVED POSITION OF MAJOR FISCAL INDICATORS IN RELATION TO THE AVERAGE OF THEIR PEERS IN THE 'Ba' RATING CATEGORY

After the central government reported debt indicators of 18% of GDP and 112% of revenues on average during the 2003-2012 period, which compares to the median of 39% and 149% for countries rated in the 'Ba' category for the same period, these indicators declined to 12.7% of GDP and 79% of revenues in 2013. These levels are well below the median for the 'Ba' category of 36% and 151%, respectively. The financial burden of government debt, as measured by the interest payments to revenue ratio, is low with payments of less than 2% (Ba median: 7.7%) due to the concessional nature of Paraguay's debt. The average term of the country's debt is over 20 years.

While most of the government's debt is denominated in foreign currency, Paraguay has a natural hedge as revenues from hydroelectric power sales to Brazil and Argentina are denominated in U.S. dollars.

SECOND ELEMENT - STRENGTHENING THE INSTITUTIONAL FRAMEWORK

The government of President Horacio Cartes, who took office in August 2013, managed to pass several important bills within months of taking office. These include a tax reform, the Fiscal Responsibility Law, the Law for the Modernization of the Financial Administration of the State, the Public-Private Partnership (PPP) Law, and a revision to the Sovereign Bond Law.

THIRD ELEMENT - SMOOTH POLITICAL TRANSITION

The transition to power following the ouster of former president Fernando Lugo has been smooth, including the interim government of Luis Federico Franco and, more recently, the Cartes administration. There was no significant impact on the economy or the country's solvency during the transition period. In addition, Paraguay was ultimately reincorporated into MERCOSUR. During the transition period, the technical capacity of the Ministry of Economy and the Central Bank remained unchanged.

RATIONALE FOR POSITIVE OUTLOOK

The positive Ba2 rating outlook reflects our expectation that, while it will take time for the government to implement several laws passed in late 2013, it is likely to improve fiscal oversight (e.g., through the Fiscal Responsibility Law) and enable higher levels of infrastructure investments (e.g., through the PPP Law and/or the revision to the Sovereign Bond Law) in the medium to long term.

FACTORS THAT COULD RAISE/LOWER RATINGS

Upward rating pressure could result from: (i) successful implementation of the recently approved laws; (2) investments in the economy that diversify the economy and/or significantly improve infrastructure projects.

Downward pressure could result from: (1) a reversal in fiscal discipline; (2) a significant and prolonged commodity shock driven by either lower prices or adverse weather conditions; (3) sustained political instability.

TECHOS PAÍS

As a result of this rating action, the ceilings for long-term local currency bonds and deposits changed to Baa3 from Ba1, while the ceilings for short-term local currency bonds and deposits changed to P3 from Not Prime. The ceiling for long-term foreign currency deposits changed to Ba3 from B1, while the ceiling for short-term foreign currency deposits remains at Not Prime. The ceiling for long-term foreign currency bonds remains at Ba1, while the ceiling for short-term foreign currency bonds remains at Not Prime.

GDP per capita (PPP basis, US$): 6,053 (2012) (also known as Income per Capita)

GDP growth (percentage change): 13.6% (2013 Estimate)

Inflation rate (percentage change dec/dec): 4.2% (2013 Estimated)

General Government Fiscal Balance/GDP: -1.9% (2013 Estimate)

Current Account Balance/GDP: 0.8% (2013 Estimate) (also known as External Balance)

External Debt/GDP: 18.2% (2013 Estimate)

Level of economic development: Low level of economic resilience

Delinquency history: At least one episode of delinquency recorded since 1983.

On January 29, 2014, a rating committee of Moody's was convened to discuss the rating of the Government of Paraguay. The main points of the discussion focused on: The issuer's institutional strength/framework have grown significantly. The issuer's fiscal or financial strength, including its debt profile, has grown significantly. The issuer has become more susceptible to event risks. One analyst of the issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate. Other issues discussed include: The issuer's economic fundamentals, including its economic strength, have not changed significantly. The issuer's management and/or internal governance practices have not changed significantly. The systemic risk in which this issuer operates has not changed significantly.”

We represented Equifax Inc. a global leader in information solutions, in the acquisition of a majority stake in Informconf S.A., the dominant credit bureau in Paraguay with a market share of over 90%. The transaction represented one of the largest acquisitions of its kind in Paraguay in recent years, and makes Equifax a leader in the areas of credit reporting and consumer and commercial information in Paraguay.

One of the major roadblocks which has confronted investors interested in developing Paraguay’s natural resources is the fact that, often, there are no roads connecting those resources with the rest of the country. Now that Paraguay has passed new legislation governing public-private partnerships, the country’s lawyers are heralding both an infrastructure boom and a crucial new phase in the country’s economic development.

The new PPP law was enacted at the beginning of November as part of a government drive to develop an estimated US$10 billion worth of infrastructure in the country, including roads, ports, airport and power distribution networks. With the government’s coffers unable to fund the majority of the infrastructure projects that the country so desperately needs to keep pace with its economic growth, partnering up with the private sector could prove to be what Paraguay needs to kick-start development in a range of fledgling industries. «There is an imperative need in Paraguay to invest infrastructure,» says Ferrere Abogados (Paraguay) partner Carlos Vasconcellos. «It’s the lifeblood of the economy and it has been delayed by the government for a long time.»

Out of 80 projects pending, the government has already identified 10 which it considers suitable to be structured under a PPP. «It will be a very useful tool for the government to attract investment,» explains Ferrere partner Nestor Loizaga. Given that the projects will be large scale, Vouga Abogados partner Jorge Figueredo says he expects the law to be of benefit primarily to foreign companies, as their Paraguayan counterparts are unlikely to have the resources, access to financing or technical capabilities. Indeed, the PPP model has generated considerable interest among investors across Latin America, and its introduction in Paraguay will provide them with more of an incentive to look to one of the region’s poorest countries. Shortly after the legislation was announced, local newspapers reported that a series of meetings had taken place between the government and several companies from Spain, Brazil, Chile and Bolivia to discuss the country’s prospects.

The law contains a number of features similar to comparable legislation across the region. It imposes a minimum capital threshold for projects of US$4.8 million, and has allowed for the creation of a public-private partnership project unit to coordinate all related matters, although the Ministry of Finance will have final say on whether a project may be structured as a PPP. Companies are also able to submit proposals to the government, which will the conduct a feasibility study, and if accepted a public tender will be launched. If the party which initiated the process is not selected, it will have the right to compensation for all expenses.

Any bidder awarded a project will be required to establish a joint stock company within a period specified in the contract, in which the bidder must be the majority shareholder. The bidder may also be required to establish a trust. On the government’s side, it will also seek to provide companies with certainty over their investments by setting up government-funded trusts to guarantee all outstanding agreements. «This will act as a kind of insurance for the private sector,» says Loizaga.

Although it is officially enshrined in law, much remains to be ironed out. The legislation is still pending a decree, to be issued within 120 days of the enactment, which will lay out the regulations governing PPPs in Paraguay. According to Figueredo, one of the most important issues to be included in the decree which is currently under discussion is a standardised template for drafting contracts. «In PPP law the contracts are more important than the laws themselves,» he points out.

There are a handful of other aspects of the law which the lawyers think could result in potential hurdles. For one, the contracting authorities are entitled to modify PPPs on public interest grounds. While a structure for compensating the private party is in place, Loizaga cautions that this represents «a red flag» for the private sector.

Similarly, although the law outlines a number of investment protection mechanisms, such as the government trusts that will back the projects, Peroni, Sosa, Tellechea, Burt & Narvaja partner Enrique Sosa Arrúa warns that the decree will have to provide carefully drafted regulations to ensure investors feel secure. «The projects, including the studies, pledges and contracts, will have to be adequately structured and grant sufficient legal security, which will require the development of strong institutional capabilities,» he says.

Figueredo suggests that the best way to implement the new legislation would be for the government to bring on board a consulting group from the multilateral agencies such as the IADB or World Bank with a view to reproducing the best practices in the region – he points to Chile, Peru and Colombia – in a way that suits the Paraguayan reality. He adds that the government should consult foreign companies to find out what they expect from a PPP law.

Regardless of how the regulations play out, the lawyers predict that the new law will see the entry of a number of major regional players into Paraguay. «There’s a lot of excitement both abroad and locally,» says Figueredo. «This is perhaps the main, and the only, tool to bring Paraguay into the 21st century and narrow the huge gap we have in infrastructure and public services.»

That investor enthusiasm in turn will trickle down to the country’s lawyers. While Figueredo expects law firms which have a large number of foreign clients on their books to lead the way, he adds that the impact is likely to be so significant that there will be additional space for the smaller local firms. «Companies generally prefer the biggest firms which are used to sophisticated legal and financial tools, so they will have an advantage, but I’m sure there’s also a space for boutique firms that can set up this knowhow and be able to attract investors from abroad,» he says.

As Sosa, who is working on the drafting of the law, points out, «any new and powerful legal instrument without doubt has a great impact on the legal community.» He counsels lawyers interested in capitalising on work arising from the new law to carefully study the framework, as well as taking note of the experiences from other countries. «This will require a greater exchange of information among law firms,» he suggests.

In terms of practice areas which are likely to benefit, because of the provisions outlined in the law for the creation of trusts, this could prove an important area for lawyers to lend their skills to. Furthermore, arbitration lawyers will see their expertise in demand given that foreign companies will certainly request conflict resolution clauses in the PPP agreements.

More generally, Figueredo says he believes that the entry of foreign players will have an important impact on the legal profession. As local lawyers will be attending to demands of foreign clients, they will be brought up to speed on the more sophisticated legal structures that are common elsewhere.

Loizaga hopes that Ferrere will be able to capitalise on the work thanks to its Uruguayan branch, which has more experience of PPP projects and international investors, although all the country’s larger firms are likely benefit. «It will have a big impact,» he says. «Investors will for sure require legal advice in the bidding process and many aspects of the process which have previously been unheard of in Paraguay but which are common in the region.»

While Paraguay is set to benefit from the new legislation whatever happens, the key to the country’s development will be ensuring that it can keep reeling in foreign investment in the long term. Given that most major infrastructure projects have a duration of 15 to 20 years, they will not be started and finished under the current administration, meaning that Paraguay will have to convey a message to investors that it is a stable country in which to do business. «The success of this new framework will depend a lot on the government and what they convey to the private sector,» Loizaga says.