MercoPress. South Atlantic News Agency

JP Morgan: Uruguay “exposed” to Argentine slowdown

US investment bank JP Morgan said the expected deceleration in Argentina will have an impact for the performance of neighboring Uruguay's economy, according to reports published in the Montevideo press.

"Even when the country had done a good job decoupling from its larger neighbors, what happens in Argentina continues as a risk factor for Uruguay", warns the JP Morgan report for investors released on Monday. The US bank argues that close financial and economic links between both countries continue to be relevant although far less relevant than before the melting of the Argentine economy and default in 2002. A week ago during a seminar Deputy Economy minister Mario Bergara anticipated that a strong deceleration of the Argentine economy "could have a full percentage point incidence in Uruguay's GDP growth". In the report JP Morgan states that Uruguayan bonds are "fairly valued" in spite of the improvement in the country's economic fundamentals. Uruguayan officials said there are signs of a weakening of economic activity in Argentina but there are also other conflicting indicators. However Economy Minister Danilo Astori, and presidential hopeful for 2009, back from a tour to Israel and South Korea said during a conference in Colonia to Argentine businessmen that the Uruguayan economy was performing "better than expected and forecasted", and anticipated he would be announcing this week the reviewed growth estimate for 2008 "which will the highest of the four years" he has been in office. Nevertheless Uruguayan officials from the Commerce Department said that even when the percentage of exports to Argentina during the last fiscal year has diminished "trade relations taking into account both sales and imports have intensified". Furthermore although there have been attempts to diversify the origin of tourists to the country, 70% still come from neighboring Argentina. But apparently Uruguayan authorities are confident of a "low financial impact" given the very low exposure of Uruguayan banks to the Argentine risk and the fall in the number of Argentine depositors in the Uruguayan system. "Uruguayan banks have the sufficient liquidity to address all the withdrawals that the Argentine depositors might wish to do", underlined Bergara. Uruguayan opposition has repeatedly said that the economic scheme mounted by Minister Astori is "unsustainable" since it is based on windfall earnings from commodity exports, with a significant percentage going to finance a burgeoning budget. In the most recent budget review last week, the last of the current ruling coalition, the government, which has a majority in Congress, approved contracting 7.000 public employees. In the last four years Uruguay has managed a comfortable "primary surplus", but no simple budget surplus in spite of strong economic growth.