MercoPress. South Atlantic News Agency

Uruguay announces measures to counter effects of Argentine crisis

Uruguayan President Jorge Batlle yesterday night announced a series of austerity measures to counter the repercussions of the Argentine economic crisis, which he said he considered to be the “most ferocious financial attack” in Uruguayan history.

In a speech broadcast nationally by radio and television, Batlle said the people "fear that Uruguay could suffer the same fate as Argentina," and that he assumed "all the personal and political risks" his plan entails. He said urgent measures will be taken, like the government did in 1990 during the Argentine hyperinflation crisis and in 1995 in response to the so-called Mexican "tequila effect." Batlle also said the time is ripe to resolve old structural problems, like the state's excessive presence in productive activity.

Uruguay has a 1.2 million-person labor force, 330,000 state workers, 650,000 retirees, and some 220,000 people unemployed (14.4 percent of the active population).

"We have to put an immediate end to the negative impact on consumer confidence caused by the fiscal deficit," the president stated. In order to soften the consequences of an adjustment, Batlle claimed that the measures would be temporary and removed when the situation improved. He said the difficulties would be dealt with in the manner the government and Congress usually handles such situations: "with responsibility and attentive to how past troubles were resolved." Batlle reminded the people that the problems in the Southern Cone Common Market (MERCOSUR) started in 1999 when Brazil devaluated the real and Uruguay lost 50 percent of its exports to South America's largest nation.

He also talked about the damage caused by floods and excessive rains, which destroyed rice and barley crops. The price of crude oil, which is all imported, was also cited as a factor in the country's economic slowdown. But nothing, Batlle stated, "is comparable to the crisis that hit Argentina last year. First with the spread of foot and mouth disease, and then a 50 percent drop in tourism." He said that during the past five months, the country has dealt with the most ferocious financial attack ever, first with problems at the Banco de Galicia and then at the Banco Comercial, both of which have significant Argentine interests. That is why, "we have done nothing but deal with this tremendous setback," Batlle said.He said the proposed emergency legislation will be sent to Congress this week and that the government will also reduce spending.

The proposed measures include a higher capital gains tax, a 23 percent value added tax (VAT) on drinking water, a 14 percent VAT on public transport and higher taxes on personal income and retirement benefits.

"I am asking for an effort and I absolutely take all political and personal responsibility, because I believe in the effort if it is implemented quickly," Batlle said. He will also ask Congress to approve a law that will eliminate the fiscal deficit in order to receive a $1.2 billion loan negotiated this past week with the International Monetary Fund and World Bank.

Batlle also announced the sale of government shares in the national airline (PLUNA) and offered ideas on how to merge ministries and reduce the number of federal and local legislators in order to save money.