MercoPress. South Atlantic News Agency

Uruguayan exporters' gruel government's economic policies

Uruguay's economic team defended the current government's policies and denied any loss of competitiveness, increased government expenditure or inflation out of control. However the Uruguayan business community was not entirely convinced with the arguments and complained about the inefficiency and high costs of energy and fuel provided by government monopolies.

Central Bank chairman economist Walter Cancela was the main speaker at "Export Day" an annual celebration where representatives from Uruguay's export industries have a chance to air their grievances and suggestions before the country's top economic and financial officials. On this occasion the debate was centered on the alleged distortions originated in the level of government expenditure, degree of competitiveness, increase in government costs, inflation and private sector labor costs. In his speech Cancela said that pressure on prices in Uruguay is caused mainly by a very strong recovery of domestic demand and the international increase in commodities prices and other farm inputs such as fertilizers. "If we hadn't adopted the special package of measures in 2007 such as opening the market to vegetable and fruit imports, lowering public utilities rates, inflation would have easily soared to 13%, 15% instead of 7.08% as was achieved last year", underlined Cancela who nevertheless admitted that the "historic and balanced inflation target for Uruguay, in the mid and long term should be 5%". Cancela also admitted there was a limit to using interest rates as an anti inflation tool when international rates are particularly low or have created a significant gap with Uruguay's basic call rate of 7.25%. "This gap has had a limited impact on impeding the depreciation of the US dollar in the local money market and if we insist with this tool it would have a contracting effect on the economy and could attract more capitals in search for higher returns, and therefore a more depreciated US dollar", added Cancela. Economy minister Danilo Astori also present at the event said that "this government will not allow a significant deterioration of the economy's (and exporters') competitiveness". "We believe the US dollar has stabilized in the local market", said Astori, while Cancela pointed out with graphs that if the Uruguayan peso is compared with the US dollar and a basket of currencies, the "exchange rate is virtually at the same level as in 2001, which exposes an amazing stability". But Cancela also admitted that "there's a slight loss of profitability for the export industry, but within the range of its historic average. We know some sectors are making much money, some less and a few even loosing". However what is important is that "this year's exports will reach 10 billion US dollars for the first time ever, in spite of global cost problems". Regarding the cost of public utilities rates, salaries and taxes, Cancela argued that rates "have actually dropped in real value" while labor costs and fiscal pressure remains at historic levels and "do not generate pressures or distortions in the market". However when Cancela stated that public utilities under government monopoly "have helped to mitigate inflationary pressures" it caused uproar from the audience with remarks such as "he must be talking about some other country". The fact is that before Cancela took the stand, the president of the Exporters Union Rodolfo Merzario illustrated his speech with graphs showing that since 2002 in US dollar prices the cost of electricity in Uruguay had soared 143%; diesel, 315% and private sector salaries 218%. Trade unions have a strong presence in the current left wing corporate coalition ruling Uruguay. Cancela also insisted that government expenditure remains "stable" in a GDP ratio of 29%, "historic average for Uruguay", and that the budget is "balanced". However, spending from the private sector has "soared since 2002" he claimed. "While the private sector is spending beyond its means, the government sector has been developing a contracting policy, a counter cycle policy. But since most of the private sector spending is for financing investments, this is good for the country since it will improve and expand production capacity".