[16] Paraguay is a middle-income country that changed rapidly in the 1970s and 1980s as a result of hydroelectric development, agricultural colonization, construction, and cash crop exports.

The Paraguayan economic miracle of the 1970s came to a halt in 1982 because of the completion of construction at Itaipú, lower commodity prices for cotton and soybeans, and a global recession.

Government economic policies deviated little from 1954 to the late 1980s, consistently favoring a strong private-enterprise economy with a large role for foreign investment.

Unlike most other Latin American economies, in Paraguay import tariffs were generally low, fiscal deficits manageable, and exchange rates not overvalued.

These trends faltered in the 1980s as the government took a more active part in industry, deficits rose, and the national currency was generally overvalued and devalued numerous times.

Throughout the post-World War II era, Paraguay had no personal income tax, and government revenues as a percentage of GDP were among the lowest in the world.

Paraguay's poverty was mostly a rural phenomenon, which increasingly involved competition for land in the eastern region near the Brazilian border, especially in the departments (administrative divisions) of Alto Paraná, Canendiyú, and Caaguazú.

Paraguay contained little oil and no precious metals or sea coasts, but the country was self-sufficient in many areas and was endowed with fertile land, dense forests, and swift rivers.

The process of opening up the eastern border region to economic activity and continued agricultural expansion was expected to effect rapid changes in once-isolated Paraguay.

Likewise, the development of a series of hydroelectric plants along the Río Paraná linked Paraguay to its neighbors and provided it access to cherished energy resources and badly needed export revenues.

Three years after Paraguay overthrew Spanish authority and gained its independence, the country's economy was controlled by the autarkic policies of José Gaspar Rodríguez de Francia (1814–40), who closed the young nation's borders to virtually all international trade.

Landlocked, isolated, and underpopulated, Paraguay structured its economy around a centrally administered agricultural sector, extensive cattle grazing, and inefficient shipbuilding and textile industries.

Paraguay was occupied by its enemies in 1870; the countryside was in virtual ruin, the labor force was decimated, peasants were pushed into the environs of Asunción from the east and south, and the modernization of the preceding three decades was undone.

The country was slowly being repopulated by former Brazilian soldiers who had fought in the War of the Triple Alliance, and Paraguay's government encouraged European immigration.

During the 1930s and 1940s, the state passed labor laws, implemented agrarian reform, and assumed a role in modernization, influenced in part by the leadership of Juan Perón in Argentina and Getúlio Vargas in Brazil.

Reformist policies, however, did not enjoy a consensus, and by 1947 the country had entered into a civil war, which in turn initiated a period of economic chaos that lasted until the mid-1950s.

The first was the completion of the road from Asunción to Puerto Presidente Stroessner and to Brazilian seaports on the Atlantic, ending traditional dependence on access through Argentina and opening the east to many for the first time.

Beyond the obvious economic benefits of such a massive project, Itaipú helped to create a new mood of optimism in Paraguay about what a small, isolated country could attain.

Contraband trade became the dominant economic force on the border between the two countries, with Puerto Presidente Stroessner serving as the hub of such smuggling activities.

Law 550 opened Paraguay's doors even further to foreign investors by providing income-tax breaks, duty-free capital imports, and additional incentives for companies that invested in priority areas, especially the Chaco.

Those peasants who lacked proper titles to the lands they occupied were pushed to more marginal areas; as a result, an increasing number of rural clashes occurred, including some with the government.

The War of the Triple Alliance, however, devastated what little industry and infrastructure the country had, causing Paraguay to enter the twentieth century as an almost completely agricultural society.

After the early 1900s, small-scale manufacturing in all subsectors grew at a slow, but steady pace, with some of the fastest growth occurring because of the shortages during World War II.

It also provided liberal fiscal incentives for companies to develop specific areas of the country, especially the departments of Alto Paraguay, Nueva Asunción, Chaco, and Boquerón.

The dynamic processes of agricultural colonization and hydroelectric development, combined with such attractive industrial incentives, caused manufacturing to grow at an unprecedented rate in the late 1970s and early 1980s.

In the late 1980s, the major subsectors of manufacturing were food, beverages, and tobacco; textiles, clothing, leather, and shoes; wood and related products; and chemicals, petroleum, and plastics.

Some of the most common small-scale producers manufactured milled items, baked goods, sugar and molasses, dairy products, candy, manioc flour, vinegar, coffee, and tobacco.

As with so many other manufacturers, clothing companies met stiff competition from widespread unregistered imports, which often originated in Asia and typically entered across the Brazilian border.

One of Paraguay's fastest growing industries was the new, relatively modern plastics subsector, which supplied a wide variety of goods to the local market.

As a result of rising international prices and the recovery of important markets like Chile or Russia, Paraguay's meat exports rose to US$143 million in 2004.