MercoPress. South Atlantic News Agency

Uruguay acts to contain US dollar fall in local market

Minister Danilo

Uruguay announced a package of measures to contain the effects of a collapsing US dollar in the local money market and to combat inflation. The local currency, Uruguayan peso, has appreciated almost 7% against the US dollar in the first four months of 2008 and has dropped to June 2002 levels which has caused concern among the country's exporters.

Higher private bank reserves; temporary payment of taxes and social security contributions in US dollars; purchasing with US dollars government bonds issued in Indexed Units and lifting all tariffs on fresh fruit and vegetable imports are among the measures announced by Economy minister Danilo Astori during a business lunch when he also made a review of his three years in office. Astori who has been tipped as the ruling coalition's presidential candidate next year said Uruguay was prepared to face the effects of the global slowdown and credit crunch, and underlined the "unique identity" of the current economic stance which is mainly guided to promote "social oriented policies". "The social option, the fiscal support, the financial emphasis from the very beginning and sustainable growth built on strong investment" has ensured such a goal, said Astori. He added that the social option means that economic policy is conditioned to such an objective "because we feel it's absolutely essential". "We're making compatible fiscal equilibrium with the management of outlays for the social option this government considers a priority" he said pointing out "this is the first time such a goal is achieved in Uruguay". However, Astori also cautioned that inflationary pressures will not go away easily and demand a "greater effort" both in the financial and economic fields. "Higher prices than expected are no surprise and are not exclusive of Uruguay. If compared with the rest of the region, inflation is low compared to growth rates. Actually these last three years we've had the best growth/inflation ratio in decades", said the Uruguayan minister. "It's a labor relations and incomes policy which is reflected in the priority of budget outlays". As to the US dollar Astori said that competitiveness levels "remain adequate" and the appreciation of the Peso against the "has not been as steep as with other currencies". However the head of the Uruguayan private banks association disagreed with some of the announcements. Economist Julio De Brum said that banks are being forced to share the cost of the current economic policy and is also a step back in the official policy of de-dollarizing the Uruguayan economy. "Higher reserves mean less liquidity and therefore the government does not need to purchase so many US dollars in money markets", said De Brum. Uruguay and its rich farmland have benefited from the soaring international prices of commodities enabling the economy to sustain a healthy growth for five years running.