By Daniela Desantis and Lucinda Elliott

ASUNCION, March 11 (Reuters) - Paraguay is expected to tout an improved credit profile and economic momentum at multilateral lender IDB's annual meeting this week but nationwide blackouts and local debt woes have sparked concern about realities on the ground.

The Inter-American Development Bank (IDB) will hold its annual meeting in Asuncion from March 11–14, offering Paraguay a high‑profile stage to promote recent reforms and macro gains.

Blackouts have become increasingly common during high‑demand summer months, typically hitting pockets of metropolitan areas for more than a day, emblematic of wider doubts about whether economic improvements are being evenly spread.

A major outage during a February heatwave knocked out power to nearly 80% of the country, paralyzing traffic. The incident highlighted lingering infrastructure strains, with industry groups saying regulatory uncertainty has curbed investment in the power sector.

"We are concerned about electricity generation,” said Enrique Duarte, president of the Paraguayan Industry Union (UIP). "Low tariffs are useless to us if we end up with high bills because of the costs involved in restarting production after a blackout."

Duarte, who also heads the Federation of Production, Industry and Commerce, said businesses want improvements in labor productivity through better education, a reduction in red tape, and stronger legal certainty.

That sentiment is echoed by investors. Diego Area, President and CEO of Global Americans and co‑author of a new report on Paraguay, said the overall picture of the country has improved but investors still want stronger institutions and clearer evidence that economic gains are improving daily life.

“There’s a perception gap in international markets about where the country is today,” Area said in an interview. He said the government’s ability to deepen institutions and guarantee independence is “where the final push lies for investment to really flow.”

Area’s report urged reforms to the judicial system to address concerns over corruption, the process for appointing judges and weak accountability. Independent surveys show most Paraguayans remain dissatisfied with the rule of law.

LOCAL DEBT MARKET

Paraguay’s record $1 billion guaraní‑denominated sovereign bond issued in February underscored its rising profile with global investors, but the achievement contrasts with stresses at home, including the Municipality of Asuncion’s failure to meet payments on its own local bonds.

Frontera Capital, which has purchased Asuncion's municipal bonds since 2016, said the city had fallen behind on interest payments to the firm, worth about $20 million (130 billion guaranies). Official documents reviewed by Reuters show that the municipality has missed 11 interest payments totaling 130.368 billion guaranies.

A local rating agency, Solventa, has flagged high default risk in public statements.

Frontera has hired lawyers to assess its options and is in discussions with the municipality to find a solution.

Paraguay's finance ministry did not immediately respond to a request for comment.

The concerns over Asuncion’s bonds come as other Paraguayan issuers continue to access markets. Ueno Bank priced a debut $350 million bond last week — a rare deal amid global market turmoil linked to the Iran conflict. Analysts said the successful sale of the 2031 note, which pays 6.7% interest, reflected steady investor appetite.

Paraguay’s economy has expanded strongly in recent years. Real GDP grew 4% in 2024 and 6% last year, World Bank estimates show, driven by beef exports, construction and manufacturing.

The performance has impressed credit rating agencies: Moody’s granted Paraguay its first investment‑grade rating in July 2024, and S&P followed in December 2025.

Since former IMF economist Santiago Pena became president in 2023, foreign direct investment in Paraguay has picked up. Net FDI flows in 2024 rose 15% to $931 million, though lagging the country’s 2012 high. Two‑thirds of Paraguayans still work in the informal economy.

“Foreign investment seems to be coming in… yet the benefits aren’t showing up proportionally for people,” Area said.

(Reporting by Lucinda Elliott and Daniela Desantis. Additional reporting by Karin Strohecker in London. Editing by Cassandra Garrison.)

((Email: lucinda.elliott@thomsonreuters.com; Phone: +59892841642))