(Adds opposition quote, veto details, context)
ASUNCION Dec 26 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
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
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
"This has not been a simple decision," Finance Minister
Santiago Pena wrote. "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, well below 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.
With the veto, salary increases that had been approved for
teachers and health workers will not go into affect. Pena said
such measures did not take into account Paraguay's so-called
fiscal responsibility law, which mandates a maximum fiscal
deficit of 1.5 percent of gross domestic product.
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.
"This is a political failure and the executive has
demonstrated his inability to have a dialogue," said opposition
senator Hugo Richer.
"The problem at root is that we have to discuss that we're
going to continue to indebt ourselves due to the inability of
the executive power to collect more taxes."
Paraguay's central bank has forecast economic growth of 4
percent in 2017, with an inflation rate also around 4 percent.
(Reporting by Daniela Desantis; Writing by Luc Cohen and Gram
Slattery; Editing by Jonathan Oatis and Leslie Adler)