MercoPress. South Atlantic News Agency

Uruguay's strong exchange rate favors most trade partners

Uruguay's exchange rate which has a significant influence for the country's exports has advanced strongly against virtually all of its trade partners with the exception of Brazil.

In the first five months of 2008 the global exchange rate (of countries trading with Uruguay) lost 5.7% against Uruguay's peso; regionally 4.2% and with its main trade partners such as Brazil, 2.6%; Argentina 8.8%; United States, 9.2% and China 8.5%. This in practical terms can be described as an erosion of competitiveness for Uruguay but other factors such as productivity and inflation must be taken into account before a definitive position on the issue can be established. Anyhow it's a tendency which demands greater efforts from Uruguayan exporters or the benefit of exceptionally high international prices for commodities with windfall earnings helping to mitigate the impact, which is the case for an important percentage of Uruguay's exports. Three time periods, based on official data from the country's Central Bank have been chosen to underscore the strengthening of the Uruguayan peso against most other currencies: (1) the first five months of 2008; (2) the last twelve months to June first 2008 and the evolution from (3) March 2005 to June 2008, which coincides with the taking office of the current government and its most orthodox approach. Globally, as announced above, in period (1) Uruguay's trade partners lost 5.7% against the Uruguayan peso; in the (2) period, 9.6% and in the 20005/2008 period, 11.8%, which means they are enjoying an exchange rate edge over Uruguay and which has been increasing. This is particularly evident when considering extra region and region percentages. Extra region in the three periods the Uruguayan peso advance has been 7.4%; 12.8% and 22%; while for the region (mainly Mercosur) the advance has been more modest given Brazil's similar policy with the Real which has more than doubled in value against the US dollar. The figures for the three periods considered are: 4.2%, 6.8% and a loss of 2.8%, mostly because of the ever appreciation of the Brazilian Real. More specifically with Argentina, Brazil, Mexico and United States the evolution in the three periods considered has been as follows: (1) 8.8%; 2.6%; 7.1% and 9.2%; (2) 17.5%, 2.5%; 15.9% and 19.4%; (3) 20.2%; --12.7%; 28.3% and 28.3%. In other words the sustained depreciation of the US dollar has significantly benefited United States and Mexico in trade terms with Uruguay to the extent that in three years it almost reached 30%. With Europe's main trade partners, UK, Germany, Spain and Italy, the percentages in the three periods are as follows: (1) 12.8%; 4.9%; 3.8% and 4%; (2) 20.8%: 8.3%; 6.8% and 7.7%; (3), 27.8%; 18.6%; 13.6%; and 18%. Finally with China the Uruguayan peso advanced 8.5%; 8.3% and 17.9% in the three periods under consideration. This means that between March 2005 and June 2008, in spite of world efforts to revalue the Chinese Yuan, as effectively happened but not as mush as desired, as far as Uruguay is concerned, Chinese products in Uruguayan pesos are nominally 17.9% cheaper.