Unions Mobilise Against Paraguay's Pension Overhaul

The Weekly Post | 02.02.26

Teachers’ unions protest pension reforms proposed by Paraguay’s government outside Congress on January 20. (Photo: OTEP)

TOP STORY

Paraguay’s pensions time bomb

Paraguay’s Congress has been recalled from its summer break for an extraordinary session this Thursday to deliberate a major pensions reform.

Outlined by Paraguay’s president, Santiago Peña, on December 30, the changes would impose a minimum retirement age of 57 for schoolteachers, university professors, judges, police officers, and soldiers, increase the amount they have to contribute to their pensions, and reduce eventual payouts.

The Peña administration says the reform is urgently needed to plug a $380m black hole in public finances. It claims the cost of supporting retirees from these professions — via a public pensions pot known as the caja fiscal — could swell to $10bn by 2030.

In a legislative proposal submitted to Congress, Peña and economy and finance minister Carlos Fernández Valdovinos cite the need to “grasp the rattlesnake” and “think of future generations” in order to “transform Paraguay into the great nation it is destined to become.”

Unions have reacted with fury to the proposals, calling them rushed, lacking in consensus, and unfair to hardworking people who have paid into the system for years. Teachers have declared themselves on a “war footing” and threatened to boycott classrooms when schools return at the end of the month.

Retired police and military associations have meanwhile called for taxes on producers of soybeans, one of Paraguay’s top agribusiness exports, to help pay for pensions. They are supported by José Rodríguez, a congressman from the ruling Colorado Party.

Carlos Fernández Valdovinos, Paraguay’s economy and finance minister, has suggested that the only alternative is to raise VAT from 10 to 14 percent — an outcome which he subsequently ruled out, saying “this government is not going to raise taxes.”

President Peña has made progress on reducing the fiscal deficit, the difference between annual government spending and income, to an official target of 1.5% of GDP. The deficit ended 2025 at 2% of GDP, down from 2.5% a year earlier.

But international lenders — including Peña’s former employer, the IMF — and credit ratings agencies like Fitch are pressuring him to maintain momentum. Both have warned that the ballooning caja fiscal could seriously deplete Paraguay’s treasury and ultimately damage its creditworthiness.

Paraguay’s corporate media and political class are also in broad agreement that the country’s complex tangle of public pensions perks represent a looming crisis, two decades in the making, which can no longer be kicked down the road. Some experts say the reforms need to go even further to truly cover the cost of an aging population.

But as local elections loom in October, soon followed by party primaries for national polls in 2028 — and with the Colorado Party splintering in Congress — the Peña administration may have left it too late to pull off its most controversial reform to date.

THE POST TAKE:

Told by politicians to make sacrifices for the common good, Paraguay’s law enforcement officials and educators could reasonably respond: you first.

While seeking to trim the entitlements of ordinary workers, Peña has continued to fund the caja parliamentaria, which allows senators and congressional deputies to draw a lifetime pension from the age of 55 after only 10 years of contributions.

This arrangement, branded “VIP retirement” by critics, has cost taxpayers $5m since 2015 — a figure which experts say could grow to $100m by 2040.

“We have to reflect deeply on our own privileges,” opposition congresswoman and Asunción mayoral pre-candidate Johanna Ortega said last week. “We can’t ask one or several groups to tighten their belts without thinking about ourselves.”

A video that circulated on Friday — showing Peña taking off from a golf course in an Air Force helicopter — has meanwhile redoubled criticism of the president’s lavish lifestyle, soaring personal wealth, and frequent taxpayer-funded travel at home and abroad.

Welcome back to The Weekly Post, your essential briefing on all things Paraguay.

Also in this issue:
Defending the dictator · Paraguay joins Board of Peace · Paraguay’s mining moment · Central Bank cuts rates · Direct flights to the US? · Cows on the Costanera

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