Paraguay is a small, South American country and member of MERCOSUR. Its economy depends largely upon agriculture, which represents one-quarter of the country’s economic activity and almost all of its exports. Following stagnant economic growth since the late 1990s, Paraguay has seen its economy rebound in recent years. The country’s real gross domestic product (GDP) grew by 3.3 percent in 2005, following growth of 2.9 percent in 2004. A combination of economic growth in neighboring Brazil and Argentina and high world prices for its agricultural exports have fueled Paraguay’s economic recovery.

Uruguay suffered through an economic crisis during 1999-2002, with average real gross domestic product (GDP) contraction of minus 4.7 percent per year during that period. Uruguay is a member of MERCOSUR, and its economy is highly integrated with those of its MERCOSUR partners; as a result, economic and financial instability in Brazil and Argentina, the two largest economies in MERCOSUR, was a prime cause of Uruguay’s economic troubles. In recent years, though, the economy has rebounded, with real GDP growth of 12.3 percent in 2004 and 5.2 percent in 2005. A reduction in inflation, increasing world prices for Uruguay’s agricultural exports, revived economic growth in other MERCOSUR economies, and a $2.9 billion aid package from the International Monetary Fund (IMF) have all driven Uruguay’s economic recovery.