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Paraguay's low participation in international financial markets has largely spared it from the effects of the global crisis, and the country's leading lawyers believe the recent regional drought will have a far deeper impact on the largely agrarian economy. As the third-largest soy exporter in the world, Paraguay has benefited from skyrocketing demand for the bean around the world but is challenged by growing competition and internal problems within the industry....

Paraguay's low participation in international financial markets has largely spared it from the effects of the global crisis, and the country's leading lawyers believe the recent regional drought will have a far deeper impact on the largely agrarian economy. As the third-largest soy exporter in the world, Paraguay has benefited from skyrocketing demand for the bean around the world but is challenged by growing competition and internal problems within the industry.

Agriculture export is the Paraguayan economy's life-blood, and deep-rooted issues of land rights, foreign intervention, pollution and sustainability plague the sector and the leftist administration of President Lugo. Financial lawyers see President Lugo's uneven environmental policies as exacerbating Paraguay's lack of foreign investment. A presidential decree restricting the use of pesticides was overruled by Paraguay's congress last July, and Lugo's proposed law limiting forestry and farmland expansion was amended by the legislature to ease restraints on lumber and farming operations.

The reversals come as a relief to the nation's corporate lawyers, who feel the President's policies are misguided and unnerving for investors. "After much arguing he seems to be rational," one attorney says of Lugo, "but he is definitely not business friendly."

The agricultural industry faces perhaps a greater problem in land disputes between small-scale local farmers, Brazilian farmers operating within Paraguay's borders, and multinational agricultural companies like Cargill, ADM and Louis Dreyfus. Local farmers have increasingly occupied properties claimed by Brazilian operators, emboldened by Lugo's campaign promises to redistribute lands.

The disputes are aggravated by fraudulent deeds and governmental land grants that override previously-held claims, and lawyers speculate there are far more entitled lands than the actual surface area of Paraguay. Still, taxes and prices for Paraguayan land remain incredibly low, and even last year's announced 1000% increase to agrarian land taxes will not affect the market to a great extent.

Lawyers admit the President can claim a victory in last July's negotiation of an agreement with Brazil that triples the amount of royalties the neighbouring country pays Paraguay for the energy it imports from vast hydroelectric operations along the border. Additionally, Paraguay will be allowed to offer excess power directly on the Brazilian market – rather than through the state-owned utility Electrobras – where energy can fetch a better price.

Last March Paraguay's telecoms commission Conatel announced the liberalisation of state monopolies on internet access, VoIP (voice over internet protocol) service and fibre-optics networks, and financial lawyers are predicting a good deal of activity in these sectors for 2010.