MercoPress. South Atlantic News Agency

Uruguay targeting a US dollar at 21/22 Pesos to help exporters

Uruguay will take ‘all the necessary measures’ to target the US dollar at 21/22 Pesos, its equilibrium point to help boost exports, according to Deputy Minister of Economy Pedro Buonomo.

“Our working models indicate that the equilibrium price for the US dollar lies between 21 and 22 pesos, given the fundamentals of the Uruguayan economy and global tendencies following recent international events”, said Buonomo. The US dollar was operating until last week between 18.90 and 19.20 Pesos, and exporters have long been complaining of its impact on Uruguayan competitiveness.

“We’ll take all the necessary measures to have it at that equilibrium point, maybe and additional 4.7%. Anyhow the US dollar is cheap and given the small size of the Uruguayan market and the influence of government purchases, we believe it is an attainable target in the short term”, underlined Buonomo.

The Uruguayan peso was one of the currencies which had most appreciated this year against the US dollar but following the latest announcements that index dropped to 2.22%, in line with Brazil which is the country’s main trade partner.

Uruguay’s foreign exchange market is nourished by the inflow of foreign capital attracted by the relatively low risk of the country and the primary budget surplus which in the last twelve months stands at 2.04% of GDP compared to 1.26% of GDP a year ago.

Buonomo also anticipated that if the higher US dollar has an impact on prices and inflation the government would counter by lowering public utility rates, most of which in Uruguay are government monopolies such as power, fuel and drinking water or with a dominant market influence in insurance, cement and the so called soft loans.

However, “currently inflation in under control and we are not seeing any inflationary pressures” said Buonomo.

However Central bank governor said that inflationary pressures (positive or negative) must be managed with special care and “the necessary equilibrium”.

“World prices are recovering, particularly of those products Uruguay exports. In some cases we have price-levels similar to those before the crisis, and domestic demand has not contracted, so we don’t anticipate inflationary or deflationary pressures in the mid term”, said Mario Bergara, central bank president.

Uruguayan exporters of commodities have benefited from windfall prices but local manufacturing for overseas markets has suffered the double impact of lower income (fewer pesos for US dollars) and higher costs in US dollars because of the appreciation of the local currency.

The US dollars at the end of 2008 when the crisis and at the beginning of 2009 was selling at 24 Uruguayan pesos, but since begun to steadily drop until May 2010 when it plunged below 19 Pesos.