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Montevideo, December 11th 2023 - 03:11 UTC



Uruguay’s fiscal performance exposed to “political limitations”, says S&P report

Wednesday, June 27th 2012 - 17:19 UTC
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Danilo Astori and Fernando Lorenzo, Uruguayan full economy ministers in the last eight years Danilo Astori and Fernando Lorenzo, Uruguayan full economy ministers in the last eight years

Risk rating agency Standard & Poor’s praised Uruguay’s fiscal moderation in the last eight years since the budget’s fiscal deficit has been below 2% of GDP but criticized the “political limitations” which impede the achievement of a better performance.

“In the last eight years, the Uruguayan government has had a performance of healthy fiscal results”, said S&P in its report on Uruguay and published in the Montevideo press.

“Economic growth undoubtedly helped but the commitment of the government was also important in containing pressures to increase spending”.

However,” while the commitment for the government to contain larger deficits is still strong, political limitations are also preventing Uruguay from exhibiting improved results”, according to the report.

These limitations in recent years have promoted a pro-cyclical fiscal policy and limited the potential benefits that could have further diminished the level of indebtedness of the government”, adds the report from the S&P analyst for Uruguay, Sebastián Briozzo.

Hopefully “given the limitations of monetary policy, the government can make a fiscal adjustment if faced with a negative external shock”.

S&P praised the “successful strategy” of pre-financing maturing debt which it underlined is crucial “to facilitate transition during periods of major international financial instability”.

The report also points out Uruguay has sufficient resources to address the government’s debt service for the “next 18 months”.

Finally the solid relation of the Uruguayan government with multilateral credit organizations considerably increases the chances for Uruguay to obtain additional financial if necessary.

“Although Uruguay has no formal open negotiation with the IMF, we believe that it is one of the countries that could easily qualify for the new IMF ‘flexible’ credit lines which would represent an additional option in a stress situation”.

In related news the Economic activity tendency index, ITAE from the local Centre for Economic Investigations, CINVE, said the “Uruguayan economy continues with an expansionary tendency in the second quarter, just below 1%, but the full twelve months tendency is 4.3%”.

However the report admits “ambiguous signals” because of the negative international indicators based on the volatility and uncertainty about the Euro zone and new financial problems in Spain.

Regionally “indicators continue positive although growth estimates for 2012 are more modest than at the beginning of the year”, and in Uruguay “there is an increase in expectations from the manufacturing sector, even if it remains negative terrain”.

However the ITAE for the second quarter contrasts with that from another local economic research centre, CERES, which said activity in Uruguay in April, was down 0.1% over March, when it also contracted 0.1% following two years and nine consecutive months of expansion.

“April’s data is another signal of a possible contraction of the Uruguayan economy during the second quarter of 2012”, says CERES, which nevertheless points out that three consecutive falls in its index are needed to anticipate a fracture in the economic activity expansion cycle.

Fernando Lorenzo was an analyst at Cinve before taking the post of Economy minister of the current government.

Categories: Economy, Politics, Uruguay.

Top Comments

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  • ChrisR

    CERES mentioned again. 'Experts' who do not have to take the decisions themselves are good at handing out 'advice' without responsibility.

    Until the bloated public sector is put under a lens (the problem is bigger than needing a microscope to find it) which seeks to reduce the headcount and transfer it to the commercial, productive area, things will never improve.

    Just try and get service from ANY of the publicly owned companies and see how long you have to wait, only to be told to 'come back tomorrow'.

    Mañana was one of the first words we learnt when we arrived 13 months ago.

    Jun 27th, 2012 - 08:00 pm 0
  • Des

    I prefer a thousand times a “come back tomorrow” from a publicly owned company, rather than “we can't provide you health care because you don't have insurance”, how it happens in the US.
    At least in Uruguay people don't go bankrupt when they get sick...I take that any day of the week...even at the cost of a bloated public sector.

    Jun 28th, 2012 - 01:27 pm 0
  • ChrisR

    @2 Des

    I understand what you are getting at, but I think you do not quite get what I am saying: for that I apologise.

    I am British and have retired to Uruguay, which I think is a fabulous country populated by lovely people.

    I am informed that anyone with a job WILL pay taxes on their earnings as well as the IVA, over-the-top fuel and utility prices. I made no comment about the public health system which, again, I can only say what my Uruguayo friends tell me. It seems it is very variable, depending on where you are in the country.

    People who are employed by the government also 'pay' taxes: but where does it come from? Yes, they pay out of their remuneration and most likely believe THEY are paying income taxes, but they are not.

    Governments do not 'earn' money, they spend the taxes paid by people working in the private sector and, some would say, have the 'profits' of the likes of UTE, OSE, ANTEL, ANCAP, BSE, etc. But these are illusionary, and here is why.

    It frustrates me enormously that the lowly paid are carrying an unnecessary burden of tax. Would you like to pay HALF the tax you presently pay and have BETTER SERVICES? Impossible? No it is not.

    The government is presently saying that they cannot entice more investment into the country without a bigger workforce. Wrong, it is already here and working for the government. By retraining half of their present headcount in all public businesses (not army, police and medical employees) to be useful private sector workers they could take in more companies who WANT to come here, and who would not?

    These people would halve the fiscal drag of the government and by investing in new computers, MRI scanners, etc. they would be more effective at what they do. The taxes from the new workers would pay for this.

    Also, Ministers need to understand that praising UTE for coping with rising costs by INCREASING PRICES is nothing other than extremely inflationary and frankly the economics of the madhouse.

    Jun 28th, 2012 - 07:58 pm 0
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