Finance Minister Lorenzo: Uruguay is “prepared” to face enormous volatility

Uruguay’s Minister of Economy and Finance, Fernando Lorenzo, said yesterday that in the next two months “there is going to an enormous amount of volatility and confusion in the markets” due to speculation on when the US Federal Reserve will end its economic stimulus policies. Lorenzo went on to say the “Uruguay is prepared to confront it”.

Lorenzo emphasized the progress Uruguay has made in reducing “macroeconomic risks” and achieving “high rates of liquidity” which allowed Uruguay to access “contingency loans” (lines of credit) that today clear up concerns about Uruguay’s debt payments and how the country will finance spending.

The economy and finance minister made these statements during his speech to the first Latin American banking and economic conference organized by FELABAN and Banco República.

This Uruguayan Business Reports news article is a translation of a news article that appeared in the Uruguayan newspaper El Pais. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Uruguay Business Brief: Head of Montevideo Stock Exchange Resigns

The president of the Montevideo Stock Exchange (BVM), Pablo Montaldo, formally resigned from the position on August 4 because of differences with the stock exchange’s board of directors. Pablo Sitjar, the vice-president of the exchange will take his place.

Montaldo confirmed his resignation yesterday to the Uruguayan newspaper El Observador. He did not give any details about the motivation for his departure. A source a the Exchange told El Observador that “the door isn’t closed but it would be very difficult to reconsider his position”.

Montaldo had been president of the exchange since February 2011.

This Uruguayan Business Reports news article is a summarized translation of a news article that appeared in the Uruguayan newspaper El Observador. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Uruguay News Brief: “11% or 12%” of bank deposits in Uruguay belong to Argentineans

Mario Bergara, the head of Uruguay’s Central Bank reported on Sept. 27 that between 11% and 12% of bank deposits in Uruguay belong to Argentineans.

Mr. Bergara explained that, while the number of deposits belonging to non-residents has increased, the pace of growth is “normal”. It is consistent with the rate of growth in non-resident deposits seen in the last few years.

The percentage of non-residents deposits has actually fallen as more Uruguayans begin trusting bank accounts with their savings.

The percentage of Uruguayan bank accounts belonging to Argentineans is four times smaller than during Argentina’s financial crisis in 2001.

This Uruguayan Business Reports news brief is a translation of an article that appeared on Radio Uruguay’s website. The original article is available here. Uruguay business reports translation by Donovan Carberry.

OCDE recognizes Uruguay’s step towards financial transparency; Uruguay will move on to phase II

The approval for Uruguay to enter Phase II of the Global Forum on Fiscal Transparency, “shows the seriousness and ability with which [Uruguay] has worked”

The OCDE’s decision was expected after Uruguay signed tax information exchange treaties with various different countries and passed the identification law for corporate shareholders.

The government had predicted that the tax information exchange treaty with Argentina, which is still under discussion in Uruguay’s parliament, would contribute greatly to whether the OCDE’s decision to elevate Uruguay’s status. However, Uruguay has achieved Phase II without it.

After learning the news, Pablo Ferreri the head of Uruguay’s tax agency known as the DGI, wrote on his twitter account: “It is good news and shows the seriousness and ability with which [Uruguay] has worked. This recognizes that the Uruguayan regulatory framework allows you to comply with international transparency standards”.

The second step, Phase II, as the OCDE calls it, will begin at the start of 2014 and will involve reviewing if Uruguay’s rules on tax information are actually followed and enforced.

The OCDE’s decision, according to Ferreri, will help Uruguay capture serious investments because it shows that Uruguay has internationally recognized rules on fiscal transparency.

It also ensures that Uruguay has more work to do. Items still on the agenda include signing the tax information exchange treaty with Argentina and creating another one with Brazil.

This Uruguay Business Reports news article is a translation of a news story that appeared in the Uruguayan newspaper Unoticias. The original Spanish language article is available here. Uruguay Business Reports news translation by Donovan Carberry.

Uruguay News Brief: Second Ratings Agency calls Uruguay’s debt investment grade

The rating agency Moody’s raised its rating of Uruguay’s sovereign debt following Standard & Poor’s earlier move to restore the country to investment grade. The ratings agency attributed the rise to a “a sovereign debt profile that in general terms has aligned itself with Baa investment grade coutries”. At the same time, they recognized “continuing improvement in fiscal indicators” and “less credit vulnerability to regional shocks”. Moody’s had previously rated Uruguay Ba1 the highest speculative grade. They raised Uruguay’s debt rating to Baa3 the lowest investment grade.

This Uruguay Business Reports news article is a translation of an article that appeared in the Uruguayan newspaper El Observador. The original Spanish language article is available here. Uruguay Business Reports translation by Donovan Carberry.

Ancap authorizes Dusca to issue $30 million in corporate bonds

At the latest Dusca director’s meeting Ancap authorized a corporate bond issue up to $30 million USD although the company does not have to issue to the entire amount.

The money will be added to Dusca’s working capital and to new investment projects such as the construction of logistics centers in Conchillas and Nueva Palmira, both in Colonia.

Dusca is planning on constructing large service stations with extensive parking lots for cargo vehicles and food courts along the route between the port at Nueva Palmira and the future wood pulp plant.

Up till now, Dusca previously obtained financing through Uruguayan banks, but the authorities wanted to enter the corporate bond market in order help it develop in Uruguay.

Currently, Dusca is studying how to regulate the purchase of its bond issues since there is an interest in allowing small investors to purchase the bonds and ANCAP does not want all the bonds to be purchased by the state-run pension fund company, AFAP

Additionally, they are waiting to see if the Banco Central del Uruguay will be authorized to begin making these types of purchases.

While the bond issue will stimulate Uruguay’s stock market, Dusca will only be issuing financing and not listing the price of shares on the exchange as had been announced by the president last year.

At that time, the government stated it wanted state businesses that are private companies, such as Dusca, list between 20% and 30% of their shares on the Bolsa de Valores. The government’s objective was to increase transparency in the management of state-owned businesses.

Dusca indicated that the business is doing well financially although it lamented the recent labor conflict. Authorities said that it still has not recorded the losses due to the labor strike but ruled out that this could affect the company’s end of the month numbers.

This Uruguay Business Reports news article is a translation of a news story which appeared in the Uruguayan newspaper El Pais. The original article is available here. Uruguay Business Reports translation by Donovan Carberry.

After sharp rise, the dollar has stabilized at $21.641 Uruguayan Pesos

The dollar has risen substantially against the peso recently. The bottom lists the date. The left side lists price of dollar in pesos. Red is average price. Blue is closing price (Source: BSVA)

The US dollar has risen 1.191% against the peso since the start of June and has increased 8.76% since the start of the year.

The price of the dollar held steady Thursday trading at an average of $21,641 Uruguayan pesos on the Electronic Stock Exchange (BEVSA). 22 transactions were completed on BESVA’s currency exchange market for a total equivalent to $6.1 million USD with prices moving between $21.58 USD to $21.70 USD.

Money Market

During the Uruguayan peso market working day there were 18 transactions for a total of $2,340 Uruguayan pesos at an effective average annual rate of 8.75%.  The average yield of these positions in CALL so far this year is 8.75%. The amount clearing Montevideo was 324 million pesos, less than the day before by 178 million pesos.

The primary money market for Uruguayan currency operates through Deposit Certificates (CD) which completed 1,632 million pesos worth of transactions at effective annual rates between 7.4% and 8.75%. Issues of certificates in Uruguayan currency are made in installments of 1 to 7 days.

Issuing by the Central Bank

Today the Central Bank has not issued any currency and there were no expirations.

This Uruguayan Business Reports news article is a translation of a article that appeared in the Uruguayan newspaper El Pais. That article is available here. Uruguayan Business Reports translation by Donovan Carberry.

Uruguayan banks are in a good position to confront the global financial crisis

Banking system performed well on the Central Bank of Uruguay’s stress test

Uruguayan banks are in “good condition” to confront an adverse macroeconomic change according the Central Bank.

In its report on financial stability the Central Bank of Uruguay said, after applying two adverse scenarios (stress tests)  to every bank  “the banking institutions of Uruguay are in good condition to withstand adverse macroeconomic changes”. The reason is “the regulatory capital in the whole banking system as of November 2011 constituted 14.2% of all risk-weighted assets, more than twice the regulatory minimum”.

According to the stress test, adverse economic conditions would reduce regulatory capital  to 8.7% of risk-weighted assets, but in both simulations the regulatory capital remained above the required minimum.

The adverse situation scenario included a 3.6% decrease in GDP, a 13% change in the exchange rate and  9.4% inflation among other things. In the crisis scenario GDP fell 8%, the exchange rate changed 31.7% and inflation rose 12.9%.

This Uruguay Business Reports news article is a translation of an article which appeared in the Uruguayan newspaper El Pais. That Spanish language article is available here. Uruguay Business Reports translation available here.

 

Uruguay’s inflation rate was over 8% during the last 12 months

With Uruguay’s consumer price index rising .39% in May, the indicator is up 8.06% over the last 12 months

The consumer price index (CPI) grew .39% in May bringing inflation over the past year to 8.06%. The rise in May was more than, but similar to, last years increase in May (.33%).

During the first 5 months of the last 12 month period the consumer prices  increased 3.82%.

The data shows an increasing gap between actual inflation and the target of 4% to 6% inflation over 18 months.

The categories of consumer goods with higher prices in May where housing, transportation, and to a lesser degree, clothes and footwear. The increases in these areas were partly offset by the decreases in the price of food and nonalcoholic beverages.

Housing cost increases in May can be explained by rent adjustments (1.15%), taxes on homes (3.42%) and rising energy costs (rates were adjusted on April 10th) and firewood.

Transportation costs were also influenced by the increase in ANCAP’s gas prices which led to higher taxi fares as well as higher priced bus and airplane tickets, and higher costs for drivers.

The decrease in food prices was the result of falling meat (-1.5%) and vegetable prices (-2.56%).  Milk and fruit prices increased 1.13% and 2.32%.

May’s price increase came during a period when the dollar has been gaining strongly against the peso, especially in the month’s second half. The dollar’s appreciation will add more inflationary pressure by increasing the cost of imported goods.

This Uruguay Business Reports news article is a translation of a news article that appeared in El Observador. The original Spanish language news article can be found here. Uruguay Business Reports translation by Donovan Carberry.

CERES says public spending will leave Uruguay vulnerable to the economic crisis

“The countries that were big winners will be the hardest hit” says expert Ernesto Talvi

The Uruguayan economy is passing through an exceptional moment: there is strong economic growth, drastically falling unemployment and a historic reduction in the level of poverty. This is not just the scenario in Uruguay; it is the scenario in all the countries categorized as “dynamic emerging markets”. It is not even unique in Uruguay’s history: it has happened before and it has never ended well.

This is how the academic director for the Center for Current Economic and Social Studies (CERES), Ernesto Talvi, referred to the current economic situation at a conference titled “The Global Economy, the Region, and Uruguay: Where are we now and what can we expect?” which took place yesterday at the Club de Golf.

According to the expert, Uruguay and the region are exposed to external conditions. A bad ending to the European debt crisis would expose Uruguay’s weaknesses as well as those of neighboring countries. “The hardest hit will be those [businesses] that gained the most” from weaker developed economies, the influx of cheap capital, and increasing demand for Uruguayan exports, he explained.

Vulnerabilities

The principal weakness detected by CERES is the structural imbalance in the public accounts. The latest Economy Ministry estimates show a fiscal deficit through March equivalent to 2.7% of GDP. However, considering the state’s income potential, and taking into account sustainable longterm economic growth levels, Talvi predicts that the deficit will shoot up to 6.1% of GDP.

“These silver sweet periods of high commodity prices are periods of euphoria, of exuberance, and a great sensation of wellbeing. We begin to think there is something good that we are doing now that we weren’t doing before” said Talvi.

He compared the effects of Lehman’s collapse with other earlier crises that had produced similar results in the region.

With regards to economic growth, currency exchange, inflation, public spending and poverty; the countries in the region behaved similarly during different periods of capital influx. One example is that in the exchange market, large depreciations against the dollar coincide with periods of large capital inflows.

Talvi explained that Uruguay “is pretty much aligned with the rest of the region” in terms of exchange rates. He added that “the largest devaluations are produced when there is strong misalignment” in the region and which he assured “is not the case today”.

The worst case scenario

If the euro falls apart and as a repercussion emerging countries have a liquidity problem, the period of abundant capital in the region will come to an end. And like in all the previous examples, it will have un desired consequences for Uruguay and the region, he explained.

In the past,  93% of the countries that had massive capital inflows eventually had to face a severe reversal in those flows. As a result economic activity in 69% of those was strongly affected and 77% faced severe depreciation. Additionally, 49% suffered banking crises and 33% were forced to restructure their debt. In fact 17% of these countries ended with a “quadruple crisis”. One of these was Uruguay. Talvi explained that today, before there is a reversal in the flow of investments, the country should correct its level of government spending and its exchange rate, but does not need to make changes to the banking system or public debt. “This is good news” he emphasized “a crisis in the those two can really kill countries”.

This Uruguay Business Reports article is a translation of a news story which appeared in the Uruguayan newspaper El Observador. That article, in Spanish, is available here. Uruguay Business Reports news translation by Donovan Carberry.