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Uruguay will appeal to a cut in state-run utilities rates, if necessary, to keep inflation under control

Monday, February 17th 2014 - 10:00 UTC
Full article 18 comments
Mujica blamed inflation on the success of the Uruguayan development model Mujica blamed inflation on the success of the Uruguayan development model

Uruguayan President Jose Mujica admitted that annual inflation would likely remain between 7 and 9% for the rest of his administration, above the government's target maximum, but he will appeal to a cut in state-run utilities rates if necessary to keep the index under control.

 The rise in consumer prices, one of the biggest headaches for Uruguay, reached 8.5% last year, the third year in a row it has been above the target range of 4 to 6% and the third highest on the continent, after Venezuela and Argentina.

“I don't think we can return to 4 or 5%” Mujica admitted to a foreign news agency with immediate echo in the local media. “But neither will we pass the current limit,” said Mujica, whose term ends in March 2015.

Inflation will be “between 7 and 9%,” he added. “I think we can be there, pivoting, because we have resources we can use” and then mentioned appealing to a cut in state-run utilities rates a mechanism which his government implemented in 2012 and 2013.

This basically meant reducing power rates (a government monopoly) in November and December, allegedly benefiting the 'good clients' who during the last twelve months helped by saving and keeping their bill's consumption on average.

Half of Uruguay's electricity is hydro and thus much dependent on rainfall, and when insufficient must appeal to thermal generation which is extremely expensive because the country has no oil or gas.

Ultimately the government's power company, UTE, deficit is absorbed by the treasury, but the mechanism helps keep the inflation index below the double figure and ensuring an only annual salaries bargaining round, in a country where unions are particularly strong.

The government also manages fuel, drinking water and sewage prices and rates. so these are usually 'adjusted' in January, February, helping November and December to register a strong fall in the annual inflation growth tendency. In these cases the treasury also absorbs the deficit which many times is soaked into the accountancy item 'investment'.

“I'm not saying we will do that, but I am saying that we have those tools, and have used them in the past. We are not a government that is unarmed in that way. If we need to we can throw all we've got at it”, said Mujica who also anticipated that his administration is planning to widen its target range on inflation to between 3 and 7% later this year.

Inflationary pressure was “a consequence of the success” of the Uruguayan model, he said, pointing to “strong domestic demand, improved salaries, full employment and formalizing jobs in the underground economy”.

“Maybe the increase in our productivity and other factors at play are not moving at the same speed. But I think it's manageable”

Finally Mujica also mentioned that neighboring Argentina, struggling with an inflation in the range of 30% is also a problem for Uruguay.

“The difficulties of our relationship with Argentina hurt us,” said Mujica. “Argentina is a very important country for Uruguay, not just for our exports but for everything put together, which includes services, tourism, ports' activities”.

Top Comments

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  • ElaineB

    State-fun utilities sound intriguing.

    Feb 17th, 2014 - 12:23 pm 0
  • redp0ll

    Elaine, I assure it's no fun when the electricity Bill comes in at the end of the month

    Feb 17th, 2014 - 12:58 pm 0
  • ChrisR

    This stupid, Tupamaro, illiterate commie bastard has NO understanding of finance as anybody who does can see for themselves with this “announcement”.

    Robbing Peter to pay Paul is what they did this year and they thought they had “contained inflation”, not realiosing that all they had done was stoked it up for January and February bills. This is the cretin who, without discussing with ANCAP or anybody else announced that fuel was going up 10%. It is now more expensive per gallon than the UK!

    And this is beyond a joke:
    “Inflationary pressure was “a consequence of the success” of the Uruguayan model, he said, pointing to “strong domestic demand, improved salaries, full employment and formalizing jobs in the underground economy”.

    “Maybe the increase in our productivity and other factors at play are not moving at the same speed. But I think it's manageable”

    Now just look at the REAL meaning here: increased salaries (but no increase in productivity to pay for it) and as for other factors he should close his ridiculous “Social Inclusion Programme” which gives money to people who have NEVER worked (at school or anywhere else) NOT to work at the expense of those who DO work and pay taxes.

    The fundamental problem is that the government has so many illiterate and innumerate Tupamaros who, like Pepe never finished school in places of power or in NGO’s drawing real money out of the treasury for nothing or worse. And I can prove that; the “Director” of Toxicology at Maldonado is an ex-Pizza parlour manager. But of course to make sure she doesn’t kill anybody with her “decisions” she has ADDITIONAL technically competent people on the payroll to “advise her”.

    And this fiasco is what “Free energy Stevie” would have us believe is better than anything else for Uruguay.

    Mad house or what?

    Feb 17th, 2014 - 03:32 pm 0
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