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Uruguay announces controversial massive infrastructure investment program

Wednesday, July 29th 2015 - 07:10 UTC
Full article 9 comments
President Vazquez and his cabinet during the announcement of the infrastructure investment plan for the next four years President Vazquez and his cabinet during the announcement of the infrastructure investment plan for the next four years
Uruguay is facing strong head winds and the economy's numbers and budget inherited from the Mujica administration need a strong austerity adjustment  Uruguay is facing strong head winds and the economy's numbers and budget inherited from the Mujica administration need a strong austerity adjustment

Uruguayan President Tabare Vazquez announced on Monday a controversial plan for 12.37 billion in infrastructure investment over the next four years. Two-thirds of the investment will come from the government, Vazquez told a news conference. Where the other third was to come was not confirmed.

 The president said $4.33 billion will be earmarked for the energy sector, $2.36 billion for roads, $1.87 billion for social infrastructure and $1.32 billion for housing. Smaller amounts will go toward upgrading communications, water and sewers, ports and railroads.

These investments “will help to optimize Uruguay's productive capacity, will allow us to advance in the strategic project for the country to become a logistics hub for the region,” Vazquez said.

Though he did not offer a figure for the number of jobs that could potentially be created by the effort, the president said the investment is vital to keep Uruguay's economy growing.

The plan will not require tax increases, Vazquez said, while Economy Minister Danilo Astori discounted any risk that the additional spending would spur inflation.

Asked whether the government would seek loans from international institutions to fund the program, the minister said that “indebtedness is not the basis of this plan.”

The planned $12.37 billion in spending is equivalent to 21.5% of Uruguay's gross domestic product in 2014.

However the announcement has stirred surprise since part of the funds are expected to come from the private pension funds (anywhere from 3 to 3.5bn dollars), and a significant number of lawmakers and union leaders (inspired in neighboring Argentina and ideological sweetheart Venezuela ) are proposing that the 'abundant' central bank international reserves (in the range of 18bn dollars) be invested in the infrastructure plan.

Minister Astori and his orthodox group, which have been running the Uruguayan economy and finances since 2005 do not support such an initiative but don't necessary have the sufficient votes to impede a congressional advance on that direction.

Furthermore despite almost ten years of uninterrupted growth of the Uruguayan economy boosted by the strong global demand and prices for the country's commodities, the national budget has repeatedly been in the red, particularly during the last five years which coincide with the administration of former president Jose Mujica.

This has been reflected in inflation rates: just on the fringe of double digit, but nevertheless the highest in the region behind Venezuela and Argentina.

The admitted 2014 budget deficit reached over 3.5% of GDP, and the government's main companies, working on a monopoly basis in the small Uruguayan economy, have been showing strong deficits, when traditionally the public-service rates (fuel, power, drinking water, insurance, communications, ports, urban and long distance land transport, milk) have been used by the different administrations to help the national budget with their surpluses.

In the last five years the fuels' monopoly Ancap, despite the fall in oil prices has repeatedly shown deficits; the same can be said of the power company UTE, although mitigated because at times there was insufficient water supply for the dams; not even the boom in cellular phones and all the new gadgetry helped Antel balance its accounts, rather the contrary.

Summing up, when the Uruguayan government companies (monopolies with administered public-service rates) are supposed to contribute with 1% to 1.5% of budget surplus, exactly the contrary has happened in recent years: they added 1% to 1.5% to the overall deficit.

No wonder then that some economists and analysts wonder how the Uruguayan government which with a strong tail wind was not able to save for leaner years or invest sufficiently when the boom, is now going to manage such a sum of funds in infrastructure, facing a formidable head wind and when interest rates are expected to begin climbing after years of flatness.

Top Comments

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  • Klingon

    About time they put down the Mate cup and put in a 40 hour week at least.
    All that's missing is the will to work harder.

    Jul 29th, 2015 - 11:05 am 0
  • ynsere

    Actually, Klingon, many Uruguayans have two jobs and work well over 40 hours a week. Also, Uruguayans don't drink mate out of a cup: a gourd is used.

    Jul 29th, 2015 - 11:38 am 0
  • ChrisR

    Without doubt the murdering commie bastard 'No Money Pepe' fucked the country up from top to bottom.

    450,000 people are on his family hand-out scheme and only since Vasquez appointed a new head have the facts begun to emerge. The scheme participants (the stinking poor) had to sign that they would ensure their children enrolled and went to school before they received the money. It is also a condition of the scheme that they continue to attend school. Only one problem: the one that Uruguay always falls into: NOBODY checked until the new head arrived. According to El Pais 25,000 families have been chucked off the scheme due to non-compliance with the terms of the agreement that they signed.

    Oh what an embarrassment to 'No Money Pepe' who is now doing his best to stymie Vasquez in Congress.

    The police must have been complicit in allowing this murdering bastard to live: six bullets and he still “recovered”? Yeah, like that one will fly.

    So with the 600,000 government and government owned monopoly “workers” on the same tit, those of us who are private investors or private businessmen or private workers (who DO work hard in my experience) are carrying 1,000,000 NON earners in tax terms.

    Great eh? I bet the unions are proud. At least I can afford it unlike some of my business friends whose businesses are on the point of failing due to the rise in taxes under Pepe.

    And it could all have been so better if only the unions were emasculated some years ago. I for one think at least 30 years is needed to turn around the upside down economy that we are presently faced with, if they start NOW. At 69 I shall never see it, if in fact anybody bothers to correct it.

    Ha, ha, ha. As if that will happen.

    Jul 29th, 2015 - 01:13 pm 0
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