Under the heading of “Latin America’s impressive little guys, Uruguay and Paraguay”, the Financial Times praises the two countries for “punching above their weight” and catching the attention of foreign corporate investors.
“Talk about Latin America’s rising stars and the focus is often on Peru and Colombia. But don’t overlook the little countries: Paraguay and Uruguay are punching above their weight, and both have just been upgraded by rating agency Standard & Poor’s”.
“Uruguay rode out the global crisis without recession and Paraguay is growing at its fastest rate in 30 years and rising ratings”, points out the article credited to Jude Webber.
After 2.9% growth in 2009, Uruguay is now on course for 6.5% this year and even when the country still has its weaknesses - the ratio of government debt to GDP is one -, S&P has moved its sovereign debt rating to double B.
That’s two notches of investment grade, which is what Uruguay lost in 2002 during an economic crisis that spilled over from neighbouring Argentina. A former guerrilla leader of the late sixties, President Jose Mujica (75) wants to regain the status before his term ends in 2014.
S&P expects Uruguay’s fiscal deficit to remain close to 1% of GDP this year, which is within the government’s target.
Uruguay last month hosted a business promotion seminar organized by the Council of Americas whose president Susan Segal said US investors were looking with interest in agriculture, biotechnology and technology exchange opportunities in the Atlantic coast country.
Uruguay sees natural resources as key to future growth: it is already exploiting a gap in the market left by declining Argentine beef production, and is seeking to develop what it believes are large offshore hydrocarbons resources. But Mujica has also appealed for young people to “fall in love with maths and scientific analysis” to lay the foundations for a tech-savvy future.
Paraguay, a landlocked country is also emerging as a promising investment destination. Rio Tinto Alcan is planning to invest 2.5 billion US dollars in an aluminium smelter - a massive project for the poor country and a diversification into industry from its current strengths in soy, beef and electricity.
The huge Itaipu dam, the world’s operationally largest, shared with Brazil, makes Paraguay one of the few countries with an energy surplus.
The Rio Tinto-Alcan project investment in numbers is equal to virtually half the reserves of the Paraguayan central bank.
What’s more Paraguay economy is on fire, set to grow around 9% this year, a 30 year high according to Gabriel Torres, analyst at Moody’s Investor Service.
Central bank reserves have doubled in the last three years and political stability has increased under the presidency of former Catholic bishop Fernando Lugo (*) who took office in 2008 after 61 years of one-party rule.
Against that backdrop, S&P upgraded Paraguay last month to B plus from B, its first upgrade since 2007.
According to S&P, since 2007 “when we raised the ratings to B from B-, the central government has largely run fiscal surpluses, which helped to a decline in the net general government debt burden to an estimated 4% of GDP in 2010 from 22% in 2007”.
(*) President Lugo is currently undergoing six sessions of chemotherapy to combat a lymphatic cancer.