MercoPress. South Atlantic News Agency

Uruguay’ government gross debt ballooned 31.5% in 2009, to 69% of GDP

The budget deficit and a massive influx of foreign capital distorted Uruguay’s finances in the electoral year 2009

Uruguay’s government overall debt skyrocketed 31.5% during 2009 according to the latest data released by the country’s Central Bank. This marks a complete reversal from the previous four years that could be described as very prudent.

In effect the Uruguayan government’s total gross debt stood at 21.73 billion US dollars December 2009 which is 5.2 billion USD higher than at the end of 2008, representing an increase of 31.5%. Gross debt increased 215 million USD in 2008

This also had an immediate effect on what was considered one of the macro-economic achievements of the administration of President Tabare Vazquez: reducing the debt/GDP ration which had fallen to 53% but at the end of 2009, an electoral year in Uruguay had soared to 69%.

As to the government’s net debt, (gross debt minus public sector assets) it also climbed by 2.87 billion US dollars, 35%, during 2009 and at the end of December stood at 11.123 billion US dollars or 35.3% of GDP.

At domestic level debt also increased 660 million US dollars which is just below the cap imposed by Parliament, 700 million USD, representing 5.2% increase over 2008.

The surge in gross debt can be attributed to an increase in international financing and loans (1.357 billion US dollars) and the issuing of bonds equivalent to 996 million USD.

The skyrocketing indebtedness helped finance the ballooning budget deficit and in several government companies. The 2009 international slowdown plus the cost of energy (Uruguay is a net importer of oil) exposed several government companies (mainly fuel refining and electricity generation) to significant misbalances forcing them to take hundreds of millions of dollars in loans.

Another issue was the massive influx of foreign currency into the country attracted by higher yields than in developed countries, which then forced the Central Bank to sterilize the additional liquidity in pesos by issuing local papers (mostly indexed). This was done to help rein in inflation (also fuelled by the budget deficit) and avoid the Uruguayan peso from further appreciation and the loss of international competitiveness for exporters.

Increased indebtedness from the Central government and public sector in 2009 totalled 2.9 billion USD (up 23%) and the Central Bank, 1.87 billion USD (up 66%).-