MercoPress. South Atlantic News Agency

Uruguay lost competitiveness for sixth month running in April with main trade partners

Brazil is Uruguay’s main trading partner and the value of the Real is crucial

External competitiveness of Uruguayan goods dropped for the sixth month running in April because locally produced goods’ prices in US dollars dropped less than those of its main trade partners according to figures released by the Central bank.

This in practical terms means that in spite of a surge of the exchange rate during April, which was higher than the month’s inflation, in Uruguay’s main trade partners that difference was even greater.

Central bank stats show that the Real Exchange Rate dropped 1.13% during April and 6.83% in the last twelve months and 3.77% so far this year.

The loss of competitiveness during April was due mainly to a fall in the Real Exchange Rate with regional trade partners (-1.45%) particularly with Brazil, which recorded the greatest loss (-2.74%), while with Argentina the loss was only 0.10%. Brazil, China and Argentina are Uruguay’s main trade partners.

Out of the region the Real Exchange Rate dropped 0.49%, the largest fall was with Mexico, 2.71% followed by China, 1.61% and Germany, 0.11%. At the opposite end Uruguayan goods competitiveness advanced compared to the UK, 1.76%; Spain, 1.15%; US, 0.24% and Italy, 0.21%.

Following the strict restrictions imposed in Argentina for the purchase of US dollars and Brazil’s radical change of policy, letting its currency loose ground, operating at 2.05 to 2.10 Reais to the greenback to help boost exports and the economy, Uruguay’s is facing a dilemma as to how address the situation without slowing the economy or poking inflation.

Only a few weeks ago the Brazilian Real was trading at 1.75 to 1.80 the dollar, and even when Uruguay’s macro economic numbers look healthy, most manufactured goods from the country have limited markets, mainly Brazil and Argentina.

These latest competitiveness numbers show Uruguay is loosing its edge mainly with Brazil, and also China (although less significant because China buys mainly commodities). No need to mention Argentina which has virtually frozen imports or delayed and restricted them to such a point that they are in a process of consultations with the EU in the framework of the World Trade Organization.

The Uruguayan Peso so far in June has lost 0.92% against the US dollar and 7.7% in the first five months of the year.