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Montevideo, September 21st 2018 - 17:48 UTC

Uruguay pumps greenbacks to keep the US dollar rate on sliding stability

Wednesday, September 23rd 2015 - 07:17 UTC
Full article 3 comments
The Uruguayan central bank was forced to sell almost 65 million dollars to keep the US currency in the range of government's target The Uruguayan central bank was forced to sell almost 65 million dollars to keep the US currency in the range of government's target
Central bank president Bergara anticipated that the US dollar would continue to climb in Montevideo money exchange houses, but 'gradually' Central bank president Bergara anticipated that the US dollar would continue to climb in Montevideo money exchange houses, but 'gradually'
Brazil and China are Uruguay's main trade partners and both markets are going through difficulties plus a significant drop in commodities prices Brazil and China are Uruguay's main trade partners and both markets are going through difficulties plus a significant drop in commodities prices
With the cheaper Real, Uruguayan consumers are flocking across to Brazil to purchase staples, which are on average 45% cheaper. With the cheaper Real, Uruguayan consumers are flocking across to Brazil to purchase staples, which are on average 45% cheaper.

Uruguay's central bank was forced to sell almost 65 million dollars on Tuesday, the highest volume so far this year, to keep the US dollar from ballooning as fears of the collapse of the Brazilian economy are felt through the region. The dollar finally ended trading with a slight 0.12% increase at 28,826 Pesos to the greenback.

 The situation in Brazil and its depreciating currency seem to have no end after having broken the 4 Real barrier at 4.06, a reflection of the political and financial crisis facing embattled president Dilma Rousseff.

And analysts agree that things in Brazil will get worse before they begin to improve: the current recession (2.5% contraction this year) is expected to continue in 2016 when the economy estimated to also fall a further 0.5%.

Inflation is already close to 9% almost double the official target, unemployment has reached 8% and climbing, while the support for president Rousseff is at an all time low for any Brazilian leader, 7%.

Uruguay's central bank president Mario Bergara anticipated that the US dollar would continue to climb in Montevideo money exchange houses, and “the best that can happen to us is that it happens gradually, so that in the current context of exchange flexibility we have in Uruguay, all agents have adjusted their balance sheets, portfolios, their dollar position to a currency that will continue to strengthen, but not in leaps or abruptly, rather as said before, gradually”.

Brazil together with China are Uruguay's main trade partners, and both markets are going through difficulties plus a significant drop in commodities prices. To make things worse Uruguay and Brazil have a dry border, virtually open and with the strong devaluation of the Real, Uruguayan consumers are flocking across to purchase staples, which are on average 45% cheaper.

Brazil is also one of Uruguay's main competitors in beef and other agriculture produce, but given the difference in size of the two countries (203 million Brazilians against 3.5 million Uruguayans), Latin America's largest economy can better adapt its costs to the new reality. Uruguay with an open economy and very strong unions is condemned to domestic prices tied to the US currency, affecting its competitiveness.

Categories: Economy, Politics, Brazil, Uruguay.

Top Comments

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  • ChrisR

    Excellent article, pointing out the stranglehold the dead-headed unions have on the country. They are just like the old UK unions and know they can bring the country to the point of bankruptcy to further their claims.

    As for giving away dollars to support the Pesos Buggerituper (the dead headed Mujica appointee) needs to be very careful indeed.

    UYU have many laws on the books, many of them very sensible indeed, but (there's always a but in UYU) nobody takes any notice of them and there is very little enforced, if any. There is a law that decrees the Pesos must NOT be more than 25.000 to the dollar. As I write, it is 28.4, when we arrived here in 2011 it was 15.something, so much for that law.

    The Central Bank idiot is clearly in breach of the law.

    Sep 23rd, 2015 - 11:18 am 0
  • ynsere

    Shush Chris! Don't tell PIT-CNT about 1960s UK-version demarcation (you know, one worker to pour the tea and another to stir). Employment for three or four can be found in preparing a “mate”.

    Sep 24th, 2015 - 01:27 am 0
  • ChrisR

    @ 2 ynsere

    You are correct, but I never thought of it! :o)

    Sep 24th, 2015 - 07:27 pm 0
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