Government expenditures in 1986 reached only 8 percent of GDP, a very low figure compared with those for many developing countries where state expenditures accounted for a third of GDP or more. Expenditures were separated into current and capital accounts. As a result of large fiscal deficits, mostly caused by parastatals, fiscal policy in the 1980s sought to cut public expenditures, primarily capital expenditures. The extremely sharp decline in capital expenditures in 1986 brought capital investment to less than 1 percent of GDP, a dangerously low level according to many economists. This decline signified that Paraguay was sacrificing long-term development for short-term corrections.

The two major segments of the current account were government salaries (39 percent) and subsidies and transfers (24 percent). Defense spending represented an additional 10 percent of total government expenditures (see Defense Spending , ch. 5). Unilateral transfers to individuals for social services were minimal, and the country's social security program, which served only one-fifth of the population, was essentially self-financed by workers and employers. Interest payments on the country's mounting debt, 4 percent of current expenditures in 1980, doubled to 8 percent by 1986. Most capital expenditures in the 1980s went toward stateowned enterprises. Other major infrastructural projects and development finance institutions absorbed the balance in widely varying percentages depending on the given year.

Data as of December 1988