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Paraguay's MSME Formalization Law Faces Hurdles from Social Security, Banks, and Worker Hesitancy
🇵🇾 Paraguay /Economy & Trade

Paraguay's MSME Formalization Law Faces Hurdles from Social Security, Banks, and Worker Hesitancy

From ABC Color · () Spanish

Translated from Spanish, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Context piece
  • Paraguay's Ley Mipymes, intended to boost formalization and access to social security, faces operational hurdles.
  • Obstacles include banking system issues and worker reluctance to join social security due to perceived inadequate services from the Instituto de Previsión Social (IPS).
  • Microenterprises await updated data on formalization rates and face challenges in convincing workers of the benefits of social security contributions.

Paraguay's Ley Mipymes, designed to expand formalization and worker access to the Instituto de Previsión Social (IPS), is encountering operational "stumbles" that delay its implementation. Representatives from the micro, small, and medium-sized enterprise (MSME) sector highlight challenges within the banking system and a notable reluctance among workers to join social security.

The law, approved last year, aims to strengthen the MSME sector. One key provision allows microenterprises to calculate social security contributions based on 80% of the minimum wage for up to 36 months. However, Luis Tavella, president of the Paraguayan Federation of Micros, Small and Medium Enterprises (Fedemipymes), notes persistent doubts about the quality of IPS services. Many workers are hesitant to pay monthly contributions, estimated between G. 200,000 and G. 300,000, if they perceive the benefits as insufficient.

Today the IPS, with the new president, is giving signals that in the short or perhaps medium term the service will improve. That way people will be more willing to pay for social security.

— Luis TavellaPresident of Fedemipymes, commenting on worker willingness to contribute to social security.

Workers, particularly younger individuals with debts or negative credit histories, also resist formalization due to fears of salary garnishment or a lack of perceived value from social security. Tavella acknowledges these concerns, stating they are "an excuse, but it's the reality." He also pointed out a lack of updated data on how many microenterprises have successfully joined the new regime or are operating under the 80% contribution base.

Carla Bacigalupo, vice president of the Association of Micro, Small and Medium Enterprise Industrialists (Asomipymes), agrees that formalization must be paired with institutional improvements, especially within the IPS. "We all want workers to have social security, but it is also necessary for the IPS to function correctly," she stated. The sector is also planning export projects to Mercosur nations and Europe.

We all want workers to have social security, but it is also necessary for the IPS to function correctly.

— Carla BacigalupoVice president of Asomipymes, emphasizing the need for institutional improvements alongside formalization efforts.
DistantNews Editorial

Originally published by ABC Color in Spanish. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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