Political tensions will increase in the run-up to the presidential election to be held in April 2008. There will be four main presidential candidates: the nominee of the ruling Partido Colorado (PC), who will be chosen in primaries in December 2007; Fernando Lugo, a former priest; Lino Oviedo, a former general, and Pedro Fadul, leader of the Partido Patria Querida (PPQ), the third-largest party in Congress. Although the electorate has shown higher preference for Mr Lugo and Mr Oviedo, both of whom appeal most to the country's poor, the PC controls a powerful electoral machinery. Therefore, the Economist Intelligence Unit expects the vote to be fragmented, which may lead to political instability as there is no second round in Paraguay. We expect real GDP growth to remain relatively firm, expanding at an annual average of 4% in 2008-09. Year-end inflation will decline to 7.8% in 2008 and 6.6% in 2009 after reaching an estimated 10.2% in 2007. We forecast an annual average appreciation of 6.8% in the trade-weighted real exchange rate in 2008-09. The current-account deficit will narrow in 2008-09.