He dollar in Uruguay It is going through an unusually positive October for what its performance has been during the year, with an appreciation of 3.47% so far this month; but, in parallel, the interest of investors in securities both in pesos like in Indexed Units (UI) is reduced. An alarm for the government regarding the sovereign debt management?
The government expanded its Treasury Note in UI expiring in 2034 with a tender for a total amount of 275 million UI – equivalent to 39.9 million dollars – but the demand did not meet the supply: 262 million UI – 38.1 million dollars – were proposed, so the call was declared desert.
This is almost a surprise considering how, just a few months ago, the tenders in this unit were strongly demanded by investors, who saw good opportunities for performance and profit in both the Indexed Units and the pesos; to the point that for him Ministry of Economy and Finance (MEF) The usual thing was to double the amounts awarded in relation to those initially offered.
The deserted tender in UI adds to the poor performance of the reopening of the Treasury Note Series 10 last week, when the final award was just 93 million pesos when the initial offer reached 600 million pesos and the demand, 393 million pesos.
These two situations show a scenario of reduced interest on the part of investors in instruments in pesos and UI, mainly due to the rise that the dollar has experienced in recent weeks, in parallel with the cut in the Monetary Policy Rate TPM) by the Central Bank of Uruguay (BCU). Both factors contribute to reducing the performance of the Uruguayan peso, so markets are leaning towards alternatives that generate greater gains — especially at a time when the global dollar is undergoing a considerable recovery.
For the head of the financial table Gastón Bengochea, Francisco Echegoyen, It is also a sign that investors are possibly “demanding higher interest rates,” as he explained to Ambit.
Loss of appetite and debt management
While the market reduces its interest or appetite for investment instruments in local currency, it is not possible to forget the importance that placements in pesos and UI have for the sovereign debt management strategy of the national government.
In March, the International Monetary Fund (IMF) had warned about the historically high levels at which the debt in relation to the Gross Domestic Product (GDP) of Uruguay. A situation in which the MEF economic team worked conscientiously to increase the funding in pesos through the placement of bonds in the local and international market. On this, there was also a bet on the increase in secondary markets – with Treasury Notes linked mainly to the Indexed Units – and on the special issuance of domestic debt in pesos, UI and also Pension Units (UP).
The solidity of the Uruguayan economy was maintained even through the worst drought of the last century and the investments necessary to guarantee both agricultural production and the supply of drinking water in the most affected areas of the country. But these factors also had an impact on the public debt, which, according to data from the Catholic University of Uruguay (BCU) It reached 68.5% of GDP at the end of the first half of the year. Here also influenced drop in tax collection due to the diversion of consumption towards Argentina by exchange difference.
Considering that this last element will be a constant presence for a while longer – in the face of the economic crisis of the neighboring country and the greater devaluation that is expected after its presidential elections -, and with the current addition of the reduced investor interest by two of the main instruments of sovereign debt management, the government must take measures so that the situation does not end up affecting the outstanding economic solidity of Uruguay.
Source: Ambito
