MercoPress. South Atlantic News Agency

Uruguayan exporters and government officials clash over costs and the US dollar

Alejandro Bzurovski, President of Uruguay Exporters’ Union

Uruguayan exporters and government officials clashed over the (depressed) value of the US dollar in the local market and its impact on overseas sales competitiveness and profits. The differences surfaced during the celebration of “Exporters Day”.

Alejandro Bzurovski, president of Uruguay’s Exporters Union admitted the country has diversified exports and markets and has managed to increase overseas sales but warned that in an ever more competitive world “we must look at numbers very closely”.

“Ten of Uruguay’s 20 main export items in the last five months have increased in US dollars but fallen in volume, five of them particularly, meats, grains, wool, plastic and skins. This is a signal that the current level of prices does not let us see with clarity real events”, said Bzurovski.

“If prices in dollars are up, so are costs in dollars and this is not synonymous of competitiveness and profits. On the contrary one of the main concerns of exporters is the collapse of the US dollar in the local market, and the growing costs of utility rates, salaries, social security contributions and other domestic prices”, added the president of the exporters.

However Uruguay’s central bank president Mario Bergara rejected the argument profits are down because of an increase in domestic costs.

Bergara suggested exporters should make more use of the US dollar forward market (to safeguard from foreign exchange rates alterations) and argued that in spite of the sustained depreciation of the US dollar, Uruguayan exports have consistently increased in the last eight years “so maybe we are not using the right competition-gauge”.

Appealing to graphics and a power point Bergara argued that income from exports has been growing and is at levels similar to those of the last 15/20 years while the evolution of costs since 2002/2003 have virtually undergone the same evolution which means “no deterioration of earnings”.

Bergara then showed an indicator of earnings by sectors and compared them with the evolution of the real exchange rate. He argued that “profitability has remained relatively stable since 2003 while the exchange rate is falling” and similarly it can be showed that when the exchange rate was at its peak, “profitability was not that high”.

However he did admit that the increase in prices in Uruguay is “one of the main risks for competition” because it hinders the “investment climate” and promised to continue working to have them under control.

Precisely on this point Bzurovski said that as long as the main effort to combat inflation is “based on the monetary policy (strengthening of the Uruguayan peso) it’s hard to see how this tendency can be reversed”.

He insisted that besides a more transparent exchange rate, the reimbursement of certain taxes and a reduction in contributions to social security “could be a good help for exporters”.

Bzurovski forecasted that Uruguayan exports in 2011 would expand 10% at current US dollars, but with “a 7% depreciation of the US dollar”. He added that 2011 exports are marked by “good international prices” which Uruguay does not control and this “makes us more vulnerable to international turbulences”.

According to the latest foreign trade numbers, Uruguay’s exports in the first two weeks of June dropped 6% compared to a year ago, the first time this happens since November 2009. Main export ítems: soy-beans, 19.6%; meats, 9.1% and wood, 4.8%. Main markets, Brazil, 17.7%; China, 14.9%; Argentina, 7.4%. Imports during the first two weeks of June soared 41.4%.