MercoPress. South Atlantic News Agency

Uruguayan economy robust but needs more “fiscal discipline”

The International Monetary Fund called on Uruguay for more “fiscal discipline” and reforms to the pensions and finance systems in the latest edition of its World Economic Outlook.

IMF forecasts the Uruguayan economy will expand 4% in 2006 and 3.5% in 2007, below the rates for 2005 (6%) and 2004 (12.3%) with an average inflation of 5.5%.

"Growth remains robust against the backdrop of subdued inflationary pressures and buoyant exports. While the economy's short term public debt vulnerabilities have declined, continued fiscal discipline will be necessary to ensure debt sustainability, complemented with reforms of the pensions and finance systems", reads the report.

During the recent Inter American Development Bank annual assembly in Brazil, Uruguay's Economy minister Danilo Astori said growth in the current year was expected to reach 5%.

The Uruguayan government also coincides with the IMF regarding the Consumer Prices Index for 2006: 5.5%, following 5.9% in 2005 and 7.6% in 2004. Inflation in 2007 is estimated in 4.9%.

The IMF estimates that Uruguay's current account deficit which in 2005 was equivalent to 2.4% of GDP, this year will reach 5.8%. However the situation will improve the following year, 2007, when the current account deficit is forecasted to reach 2.5%.

At the end of last March Uruguay cancelled in advance part of its debt with the IMF. Uruguay has one of the highest GDP/debt ratios following the concerted bail out effort of the US Treasury and the IMF in mid 2002 when the country was exposed to the contagion of the Argentine default and melting of the Argentine economy.

Uruguay is faced with the dilemma of "naturally" belonging to Mercosur but needs "pro-actively" to transform its insertion into the international economy, said Minister Astori to a gathering of businessmen in Montevideo.

"It's very dangerous to believe that because of our strong commitment to Mercosur and the region we can ignore the huge integration problems the block faces, which are not going to be easy to solve", said Astori.

"An essential ingredient for Uruguay to transcend its physical size and capture political and economic importance is to improve its economic insertion out of the region, proactively looking for trade and investment expansion and opportunities" he added.

The left leaning administration of Socialist president Tabare Vazquez is currently negotiating a trade expansion agreement with United States which is facing strong resistance inside the ruling coalition.