This paper examines the possible impact of MERCOSUR on Paraguay's economic and educational systems. MERCOSUR is a trade agreement among Argentina, Brazil, Paraguay, and Uruguay, under which terms all import tariffs among the countries will be eliminated by 1994. The countries will enter into a common economic market. The worst-case scenario resulting from the agreement is one of negative growth in the region. If economic growth is limited to Paraguay's neighboring countries, migration of Paraguayans to those countries could occur. In the best-case scenario, Paraguay could benefit from expansion of exported agricultural products and livestock, which could result in progressive industrialization. However, given the lack of industrial development and education, most analysts believe that Paraguay could suffer when MERCOSUR is implemented fully. Therefore, the country will need to make the following fundamental changes in its educational policy to maintain or improve current standards of living under the trade agreement: (1) increase levels of spending on education; (2) shift to a curricular emphasis on the development of productive and managerial skills; and (3) place more emphasis on science and technology. Four tables are included. (LMI)