December 26, 2016 / 2:07 PM / 7 months ago

Paraguay's president vetoes 2017 budget due to Senate debt limit

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ASUNCION, Dec 26 (Reuters) - Paraguayan President Horacio Cartes vetoed the country's 2017 budget on Monday, an unprecedented decision taken to avoid the risk of default after the Senate placed a limit on the amount of debt the government could issue.

The veto means the 2016 budget will remain in place for the coming year. Congress could still override the veto, but the opposition lacks the two-thirds majority in both chambers that would require.

In a letter sent to Congress on Monday, the government said it decided to veto the budget because the debt limit would generate "a risk to the ability of the state to comply with its obligations."

"This has not been a simple decision," Finance Minister Santiago Pena wrote in the message. "We have evaluated all the alternatives, but ... the changes they have made place fundamental elements of the proper functioning of the economy at risk."

The Senate restricted the amount of bonds the government could issue to $349 million, lower than the $558 million proposed. The move would have slashed the amount of money the government could have raised to pay off existing debt, lowering it to $132 million from the $305 million proposed.

The tiny South American nation has issued $1.88 billion in international bonds under Cartes, a former business magnate of the center-right Colorado party.

The veto comes amid a fight between Cartes, members of his own party and the opposition ahead of the next election in 2018 over a proposed constitutional amendment that would allow presidents to seek a second term. (Reporting by Daniela Desantis; Writing by Luc Cohen; Editing by Jonathan Oatis)

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