Institutional Arrangements to Ensure Willingness to Repay in Financial Markets: A Case Study of Paraguay

The paper examines the consequences of the deficiencies in the legal protection of creditors` rights and the low efficiency of judicial enforcement on the functioning of credit markets in Paraguay, as well as the solutions developed to compensate for the informality and enforcement flaws of financial contracts.

Informal Sector and Economic Growth: The Supply of Credit Channel

A standard view holds that removing barriers to entry and improving judicial enforcement would reduce informality and boost investment and growth. We show, however, that this conclusion may not hold in countries with a concentrated bank- ing sector or with low financial openness. When the formal sector becomes larger in those countries, more entrepreneurs become creditworthy and the higher pres- sure in the credit market increases the interest rate. This reduces future capital accumulation. We show some empirical evidence consistent with these predictions.

Governance in Water Supply

1 I would like to thank Guillermo Perry, as well as Phil Keefer, Ernesto Stein and participants at the workshop “Varieties of Governance: Effective Public Service Delivery “ in Kuwait City, for detailed and very useful comments on a previous version of this paper.

Political Firms, Public Procurement, and the Democratization Process

In 2008, an opposition coalition defeated the Paraguayan Colorado Party, which had been in power for 61 years, including 35 years of the longest dictatorship in South America. Using data of all the public procurement transactions from 2004 through 2011 and the political connections of the 700 largest public providers, this paper documents how the volume of contracts received by connected firms evolved after this landmark political change. It shows that firms connected with the first ring of power were punished and that there were efficiency gains, mostly in the form of institutions shifting to bigger and more competitive contracts, but that these gains were constrained by the scarcity of entrepreneurs able to step in to replace firms connected to the previous regime. This demonstrates that the potential economic benefits of democratization are hampered by the perverse rent-seeking entrepreneurial incentives created by a long-term single-party authoritarian regime