Uruguay tightens focus on pro-integration investment rules as elections loom

Officials at IDB approved a second US$250mn loan for Uruguay to help finance an overhaul of the country's investment, trade and innovation framework.

A central aim of the government initiative is to consolidate the nation's position as a player on the international trade stage.

The first loan was approved at the end of 2017.

IDB's announcement comes just days after the finance ministry unveiled a package of measures, targeting 14 sectors, to spur economic activity.

Growth has been flagging in Uruguay, with sluggish private investment being a contributing factor, while fiscal strength has weakened. However, a US$3.0bn investment by Finnish pulp firm UPM will support an uptick in economic growth over the coming years.

In a statement on the US$250mn loan, IDB said: “The program will support efforts to consolidate far-reaching sectoral reforms in order to strengthen the overall framework for policies that encourage investment, trade, and innovations.

“Its specific goals are to improve the country’s investment and international trade performance and boost corporate innovation and technological adoption to maximize the local impact of investments.”

Earlier this year Alejandro Chafuen, managing director, international, at US think-tank Acton Institute, called on Uruguay to sharpen its focus on pro-growth, pro-free market policies.

Structural economic and fiscal reforms are seen as necessary to strengthen the finances of the country.

Moody's forecasts that GDP growth will reach 0.5% this year, down from 1.6% in 2018. Growth will average 1.8% in 2017-20, the rating agency said last month in a statement affirming the government's debt rating at ‘Baa2’.

The country’s fiscal deficit is around 5.0% of GDP.

Uruguay’s three biggest exports are beef, soybeans and wood pulp, accounting for US$159mn, US$139mn and US$128mn in August, according to government data. 

The main destination of its goods is China, which accounted for 22% of Uruguayan exports, or US$168mn, in August.

Uruguay, with strong public institutions largely respected by its citizens, is one of Latin America’s most stable countries. It has also been praised for tackling poverty and for the coverage rates achieved by its pension system.  

Social security reform – to help ease pressure on state coffers – is seen as necessary.

STIMULUS MEASURES

Earlier this week finance minister Danilo Astori unveiled the government's package of stimulus measures. These include tax benefits for exporters, sugar importers and the construction sector, as well as a measure to spur development of the national farm machinery manufacturing industry by scrapping import tax on the likes of parts and components. The government also announced tax benefits for companies engaging in R&D and those that develop, or set up shop in, industrial parks.

Among other measures, the ministry said stimulus measures for the auto industry had been drawn up, without providing further details.

ELECTIONS

Uruguayans head to the voting booths in October to choose their next president. Recent polls show incumbent center-left coalition Frente Amplio, represented by Daniel Martínez, in the lead. His main opponent is seen as center-right Luis Lacalle Pou of Partido Nacional.

One polling company, Factum, puts Frente Amplio at 39%, followed by Partido Nacional at 26% and center-left/centrist Ernesto Talvi of Partido Colorado at 18%.

Frente Amplio is currently led by President Tabaré Vásquez, who was also in office 2005-10. Frente Amplio has been in power since 2005. Apart from the economy, crime levels is an issue in this cycle.

Picture credit: Pablo Porciuncula Brune / AFP