The announcement by Economy Minister Dionisio Borda revised economists' predictions the landlocked country of 6.3 million was headed for a deep recession after an economic downturn combined with lack of rain through 2009 that aggravated hardship.

President Fernando Lugo, a former bishop, steered the country through a trying period since he came to power in 2008, as the country's fledgling industries struggled through the downturn and effects of drought.

Analysts cautioned against some of Borda's projections, including his pledge that inflation would remain within control right up to 2013, when Lugo's term of office ends.

Borda said economic indicators for the first quarter of 2010 showed a growth of 10.9 percent in the first three months.

He indicated the government hoped the surge in growth would enable planners to push ahead with poverty reduction programs. Four out of 10 Paraguayans are classified as poor and their plight was made worse by last year's 3.8 percent contraction of the economy.

The government said it aims to cut poverty to 20 percent and extreme poverty to 10 percent of the population by 2013.

However, Borda said, the government faced a difficult Congress, currently dominated by the opposition and hoped a better working relationship could be worked out between the government and its opponents in the legislature.

"We must remember that mid-term development does not depend exclusively on government resources but rather on a confluence of political, economic and social players," said Borda.

He said positive growth projections notwithstanding, the government would continue to need funding and credits to finance the budget. He said the current budget was bloated and called for more prudent expansion of government spending programs and handling of the cash outlays.

Lugo has faced opposition criticism that his measures for economic reform aren't daring or drastic enough and that he needs to do more to wrest Paraguay out of its cycle of poverty and dependency on commodity crops such as soya.

Paraguay is the world's sixth largest producer and fourth largest exporter of soya. This year's harvest with adequate rainfall is expected to reach a record 7.4 million tons.

Efforts to introduce more industry and diversify the economy to create jobs have produced lackluster results.

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