Uruguay’s growing economy and a tight labor market are keeping inflation above policy makers’ target, according to Economy Minister Mario Bergara.
Gross domestic product will expand about 3 percent this year, down from an estimated 4 percent in 2013, Bergara said in an interview at Bloomberg’s headquarters in New York yesterday.
Three straight years of full employment helped push inflation to a 15-month high of 9.1 percent last month, above the central bank’s target of no more than 7 percent, he said.
“We are having more constraints from the supply side,” Bergara, who was president of Uruguay’s central bank from 2008 to 2013, said. “We don’t export more beef, more soy, more rice because there’s not more to export.
We have a very strong and firm domestic demand. That makes it more difficult to fight inflation.” Bergara, who widened Uruguay’s inflation target by two percentage points to a range of 3 percent to 7 percent in June, said price increases were under control.
The 15 percent depreciation in the peso in the past year is in line with other emerging markets, he said. The peso weakened 0.2 percent today to 22.55 per dollar at 9:16 a.m. in New York.
Argentina devalued its peso 19 percent in January to help make exports more competitive and stem the biggest plunge in foreign reserves since 2002. Argentina’s default 12 years ago deepened an economic crisis in Uruguay that led to the country’s own devaluation and debt restructuring.
Uruguay, a nation of 3.3 million people wedged between South America’s two largest economies, has since become less dependent on trade with Argentina.
‘Reduce Vulnerabilities’
Argentina buys about 5 percent of Uruguay’s total exports, compared with about 25 percent before the last debt crisis, according to Bergara.
Deposits from Argentine residents in Uruguayan banks have fallen below 9 percent from 40 percent in the period, while loans to Argentines have dropped to near zero from about 20 percent, Bergara said.
“We learned how to navigate this issue by diversifying and trying to reduce vulnerabilities,” he said. “The concentration of regional risk proved to be a vulnerability for Uruguay and we explicitly designed policies in order to diversify our risks and opportunities in a global world.”
Uruguay’s overseas dollar bonds have returned 11.2 percent since the nation earned its first investment-grade rating in July 2011, while neighboring Brazil’s bonds returned 7.5 percent.
The extra yield investors demand to own Uruguayan bonds, which now have BBB- or equivalent ratings from Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, instead of U.S. Treasuries is 2.19 percentage points, compared with 2.63 for emerging markets on average.
bloomberg.com
Gross domestic product will expand about 3 percent this year, down from an estimated 4 percent in 2013, Bergara said in an interview at Bloomberg’s headquarters in New York yesterday.
Three straight years of full employment helped push inflation to a 15-month high of 9.1 percent last month, above the central bank’s target of no more than 7 percent, he said.
“We are having more constraints from the supply side,” Bergara, who was president of Uruguay’s central bank from 2008 to 2013, said. “We don’t export more beef, more soy, more rice because there’s not more to export.
We have a very strong and firm domestic demand. That makes it more difficult to fight inflation.” Bergara, who widened Uruguay’s inflation target by two percentage points to a range of 3 percent to 7 percent in June, said price increases were under control.
The 15 percent depreciation in the peso in the past year is in line with other emerging markets, he said. The peso weakened 0.2 percent today to 22.55 per dollar at 9:16 a.m. in New York.
Argentina devalued its peso 19 percent in January to help make exports more competitive and stem the biggest plunge in foreign reserves since 2002. Argentina’s default 12 years ago deepened an economic crisis in Uruguay that led to the country’s own devaluation and debt restructuring.
Uruguay, a nation of 3.3 million people wedged between South America’s two largest economies, has since become less dependent on trade with Argentina.
‘Reduce Vulnerabilities’
Argentina buys about 5 percent of Uruguay’s total exports, compared with about 25 percent before the last debt crisis, according to Bergara.
Deposits from Argentine residents in Uruguayan banks have fallen below 9 percent from 40 percent in the period, while loans to Argentines have dropped to near zero from about 20 percent, Bergara said.
“We learned how to navigate this issue by diversifying and trying to reduce vulnerabilities,” he said. “The concentration of regional risk proved to be a vulnerability for Uruguay and we explicitly designed policies in order to diversify our risks and opportunities in a global world.”
Uruguay’s overseas dollar bonds have returned 11.2 percent since the nation earned its first investment-grade rating in July 2011, while neighboring Brazil’s bonds returned 7.5 percent.
The extra yield investors demand to own Uruguayan bonds, which now have BBB- or equivalent ratings from Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, instead of U.S. Treasuries is 2.19 percentage points, compared with 2.63 for emerging markets on average.
bloomberg.com
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