US Fed helps Paraguay reserves reach record high

Paraguay's international reserves hit record highs late last year, nearly twice the national debt, thanks to higher commodity prices and the ripple effects from the United States Federal Reserve's US$600 billion bond-buying spree, the country's central bank said Monday.

Monetary reserves reached US$4.2 billion in November, almost double the amount of the South American nation's US$2.2 billion debt load, the bank reported.

Eduardo Feschenko, director of the bank's international economics office, told The Associated Press that the new high is based on about eight years of favourable economic conditions that have helped Paraguay emerge from near disaster in 2002, when the country was on the brink of default and had just US$600 million in available reserves.

Feschenko credited capital investments, inflation controls and higher prices for exports of soy, beef, wheat and sunflower and sesame products.

Paraguay's reserves include commercial bank deposits, US dollar deposits and investments in gold and multinational organisa-tions, said Luis Campos, a central bank board member who noted that the US economy has a huge influence on tiny Paraguay.

"Right now, Paraguay is benefiting from the decision at the end of 2010 by the US Federal Reserve to inject no less than US$600 billion into the market through June 2011 in an effort to revive its economy. So North American capital investors are less interested in investing in the United States, where their profit margin is low, and instead leave to invest in developing nations," Campos said.

- AP