MercoPress. South Atlantic News Agency

Uruguay ruling coalition warned about budget deficit and loss of labour productivity

Masoller: ‘Uruguay has no room to expand social expenditure or continue with redistribution policies’

Uruguayan economic officials have warned the ruling coalition Broad Front about the regional risk-situation in complex Argentina and stalled Brazil, and its influence on Uruguay which needs to lower its budget deficit and improve labour productivity and competitiveness.

“Argentina only managed to expand 0.5% in the first two months of the year and even when an abundant soy crop could help, Argentine economists forecast a continuity of the trade, financial and foreign exchange restrictions, because of the need of hard currency to pay for the energy bill”, cautioned Andres Masoller head of the Macroeconomic Desk at Uruguay’s Economy ministry.

Masoller also pointed out that Brazil has also failed to achieve growth targets in the first quarter; in effect while the private sector was forecasting 0.9%, the official stats office reported 0.6% expansion in the first three months of this year over the last quarter of 2012.

“Because of this complex regional situation, Uruguay does not have room to expand social expenditure or continue with redistribution policies through the budget”, added Masoller.

“We simply can’t keep increasing social investment, we have to be most careful with the budget deficit which was 2.8% of GDP in 2012, and labour productivity must improve if we want to remain competitive”, Masoller told the Broad Front 2014 Economy Program committee.

Uruguay’s Vice-president Danilo Astori has also warned about the situation and despite statements from some cabinet members, insists that the trade and financial situation with Argentina continues to worsen and admitted that the volatility of the US dollar in Argentina is cutting exports and attracting thousands of Uruguayans to go shopping in Buenos Aires.

Jose Notaro an economist from the 2014 Broad Front Economy Program Committee went further and said that although the Uruguayan economy has grown strongly and sustainedly in the last decade, “there are serious problems with the exchange rate and the ‘primarization’ of the economy”. (Exports are overwhelmingly commodities with little or no added value).

“The current macroeconomic policy is reaching a point where the strong Uruguayan currency is helping to tame inflation, but at what price? This has a very high cost, a cheap dollar discourages manufacturing, increases the foreign debt and there is a growing percentage of government expenditure needed to comply with interests and capital”, said Notaro.

He added that without wanting to be alarmist, “I have the feeling this administration has planted a time bomb for the next government that could go off sometime in the next five years”.

Uruguay will be holding presidential and parliamentary elections October 2014. Public opinion polls indicate that the ruling coalition (with two different administrations) which has been in office since 2005 could again win but without the legislative majority enjoyed so far.