MercoPress. South Atlantic News Agency

Despite inflation Astori argues that cutting government spending is not the solution

The Uruguayan Vice-president insists that government spending is needed to finance infrastructure and social policies

It is a mistake to blame government expenditure for the increase of prices, as is the concept that inflation can be defeated by cutting government spending, said Uruguayan Vice-president and economist Danilo Astori, who argued that in many cases these funds are essential to finance public investments and social policies.

 Uruguay is closely monitoring the evolution of prices and “we can address inflation, we have margin for such a move, and monetary instruments to implement, through a disciplined policy in this field as well as fiscal measures” said Astori when asked about the surge of inflation in the first two months of the year.

“When I mention fiscal resources I mean government revenue as well as government expenditure which must be managed with caution, as has been the characteristic of the economic policy this government has been applying”, added the former Economy minister and the second strongest man in the Uruguayan administration.

In this context Astori said that the diversity of tools to combat inflation is significant and “we continue with the range target of 3% to 7% and now our immediate objective is to bring the index down to an annualized 7%.

As to the argument of reducing government expenditure to mitigate the increase of prices, as suggested by opposition analysts, Astori insisted: ”I think it would be a mistake to blame overall government expenditure to explain inflation, as it would also be a mistake to believe that inflation can be battled by reducing government expenditure which in many cases is absolutely essential both for public works investments, as for the financing of very important social policies“.

To that effect Astori continued and argued that ”we don't have as target reducing government spending but yes to extreme the relation between expenditure and GDP. If you analyze the percentage of expenditure vis-à-vis GDP, you will see that Uruguay has been very cautious. We must not forget that many of those resources went to overall social policies but also to such priorities as financing education“.

Thus concluded Astori, it is absolutely essential for Uruguay to keep that conduct along that path of caution.

”Inflation is the main macroeconomic problem of Uruguay but it's not the main problem that the country must face or its main priority. It must balance those concerns with the support needed for essential activities”, in reference among other investments to infrastructure outlays.