Study Finds Paraguay’s Illegal Economy Equal to 40% of GDP

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A new study estimates that Paraguay’s illegal economy was equal to 40 percent of the country’s GDP last year, a huge number that points to how pervasive a wide range of illicit activities are in this Southern Cone nation. 

A report (pdf) published by Pro Desarrollo Paraguay in partnership with the National University of Asunción found that the value of the country’s illegal economy was equal to $11.1 billion in 2015, or 40 percent of the gross domestic product. The size of the illegal economy actually decreased slightly from 2014 when it stood at $12 billion, according to Pro Desarrollo, but it has more than quadrupled since 2002. The association points to a similar expansion of the GDP as the main explanation behind the growth of the black market.

The illegal economy as defined by the report’s authors encompasses a vast array of illicit transactions, from minor bribes to more serious offenses such as drug trafficking and money laundering.

The study also concluded that the state lost $1.1 billion in revenue last year due to untaxed goods and services. Pro Desarrollo says that this loss is due to the combination of large corruption or criminal schemes and the sum of many small-scale informal or illegal transactions. The authors point to a general acceptance and normalization of these small-scale fraud operations. 

Pro Desarrollo is an association founded in 2012 to study and find solutions to contraband and tax evasion.

InSight Crime Analysis

An illegal economy equal to 40 percent of a country’s GDP certainly raises eyebrows, especially for Paraguay, which is not considered to be on the same level of criminal magnitude as other Latin American countries like Colombia or Mexico. While Paraguay’s relatively small GDP plays an important role, the 40 percent figure calls attention to the country’s booming marijuana production industry, the largest in South America. In 2014, InSight Crime estimated, based on figures from the country’s anti-drug czar at the time, that drug trafficking groups could earn up to $1 billion per year from the marijuana trade alone. Officials have also called the smuggling of otherwise legal items such as sugar and motor vehicles an “uncontrollable avalanche.”

In addition, Paraguay was rocked by a series of “narco-corruption” scandals last year, after several congressman and high-level security officials were linked to drug trafficking. 

SEE ALSO: Coverage of Paraguay

It’s possible that the numbers are an over-estimation, especially considering Pro Desarrollo is comprised of both local and multinational firms that have financial interests in cutting down on illicit activities such as contraband. Still, some of the study’s estimates are not too far off from those provided by international institutions such as the Inter-American Development Bank (IDB). The IDB estimated that Paraguay lost more than $1 billion from untaxed goods in 2014, similar to Pro Desarrollo’s recent findings for 2015.  

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