Paraguay had a long period of multiple and adjustable exchange rates with limited monetary policy, and a long period of gradual but erratic improvements in monetary operations together with unified and sometimes more flexible exchange rates plus significant dollarisation, before moving successfully to loose converging inflation targeting.

Years Targets and attainment Classification
1974-90 dual exchange market, official rate fixed to USD plus floating ‘free’ rate (from legalisation of previous parallel market); main monetary instruments include reserve requirements, selective credit controls and central bank rediscount facilities; growth of non-bank financial intermediaries not subject to credit or interest rate controls, plus relatively large informal sector; from early 1980s public sector deficits (initially of nonfinancial enterprises, later more from central bank losses due to forex subsidies) and monetary growth rise, while import controls, multiple exchange rates (repeatedly devalued) and direct attempts to control ‘free’ forex rate lead to growing unofficial (but tolerated) parallel market with rising premium; 1989 new government unifies exchange rates and allows float, starts liberalisation of monetary and forex arrangements unstructured discretion UD
1991-2011 exchange rate floating, with large movements 1990-2 followed by greater stability underpinned by intervention aimed at competitiveness; interest rates liberalised and credit controls abolished, rediscounting reduced; reserve requirements gradually rationalised and reduced (and reserves remunerated); OMOs in central bank bills from October 1990; fiscal deficit under control after end of central bank forex subsidies; some rise in central bank independence 1995; banking crises 1995 and 1997, largely due to poor regulation and supervision, key outcomes are decline in share of domestic banks in favour of foreign-owned banks, and sluggish credit growth; by end of 1990s exchange rate more strongly managed and fiscal deficits larger, while little further financial reform implemented; significant dollarisation; further financial crises 2002-3; from 2003-4, despite more exchange rate flexibility and more central bank autonomy, central bank objectives remain multiple and varying in priority, but including informal inflation targets with wide ranges, mostly missed or near missed; monetary transmission mechanism remains weak: banks have large excess reserves, interbank market is low-volume, policy interest rate is largely ineffective loosely structured discretion LSD
2012-17 move to formal inflation targeting announced 2011, from late 2011 gradually declining wide targets regularly met; moves to establish corridor around policy rate with well-functioning interbank market, to deal with bank liquidity, to reduce and increase policy predictability of forex intervention, to improve monetary policy transparency; ongoing but slow process of central bank recapitalisation; dollarisation down from 1990s but still significant loose converging inflation targeting LCIT

Selected IMF references: RED 1974 pp35, 46-50; RED 1977 pp17-18; RED 1978 p28; RED 1979 p18; RED 1984 pp41-4; RED 1985 pp29-31, 49-51; RED 1986 pp1-3, 26-8, 44-6; SR 1989 pp1-7; RED 1990 pp1-3, 22, 39; RED 1991 pp21, 24-7, 35-6; SR 1992 p9; RED 1994 p22; RED 1996 pp11-16; SISA 1997 pp6-12; SISA 2000 pp5-18; SI 2004 pp36-46, 53-5; SR 2004 pp14-15; SISA 2007 pp16-23; SR 2007 pp19, 20, 22; SI 2010 pp21-6, 35-6; SI 2011 pp31-3; SR 2011 pp11-12, 20; SR 2012 pp16, 25; SR 2014 pp13-15, 55-7; SR 2015 pp15-16; SR 2016 pp18-19; SR 2017 pp17-18.

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