In a few months the Uruguayans will define which government will take the reins of the powers of the State. The economy It is a central issue in the political-electoral discussion and that is good: although not everything depends on economic issues, ignoring its basic foundations is a sure path to frustration and Social problemsas we have seen on the other side of the river.
Before analyzing the progress of the activity itself, it is worth highlighting what happened last week. Uruguay successfully reissued debt in global financial markets. The Uruguayan State has a significant debt (US$53.2 billion, gross) and its good management is key to saving resources and providing stability, a task of the MEF Debt Unit, who has been doing a very good job. Its management also has the objective of lengthening deadlines and reducing the debt in foreign currency. That is why a new Bond was issued in pesos indexed to 2045 and the bond was extended in current pesos to 2033, at a rate lower than the initial issuance (9.15 vs 9.75%), a positive reflection of the decrease in the inflation. Keep the investor grade of the country and good financial management is key to the rest of the economic policy decisions.
The other key indicator that is proving less encouraging is the fiscal deficit, which rose to 4% of GDP in the last measurement. It is true that the impact of the Argentine crisis Last year’s collection was strong and a reversal can be expected this year; In addition, greater economic growth is expected due to the agriculture, UPM 2 and the change in relative prices with Argentina. But, even so, the drop in inflation and the real increase in wages and retirements In the State it generates an inertia of expenses that is difficult to compensate quickly.
So the fiscal situation will surely continue to condition the steps of the next government, despite the fact that no party or candidate says that it will make an adjustment to the state accounts. An additional shadow on this plane is the almost certain plebiscite promoted by the PIT-CNTwhich proposes a social security reform with an expansion of unsustainable deficit. Luckily, almost the entire political spectrum (only certain sectors of the FA), It is against.
The third issue is that of competitiveness. He real exchange rate in Uruguay is between 12 and 15% below its fundamental level, according to the bank’s own estimates. BCU. In recent months, price relations with Argentina have been significantly corrected, but with countries outside the region the deterioration continues to be significant, with exceptions that confirm the rule.
Real exchange rate April 2024.jpg
The loss of price competitiveness was an expected cost of the contractionary monetary policy to combat inflation. But an acceptable and manageable impact on activity is one thing, and a noticeable impact on employment is another thing. That’s where some doubts and concerns emerge. He Work market shows an auspicious year-on-year expansion of 40,000 jobs, but the unemployment rate rose to 9% in March. At the same time, there are several cases of companies that lower the curtain, not only the emblematic FNC in Minas. Each case may have a particular explanation, but when episodes accumulate, we must think that there are more fundamental and general problems. Price-competitiveness (which, in essence, responds to the relative price of wages and their productivity) is a problem.
An economy can weather job losses in certain sectors if others compensate. So far, it has happened, with sectors like Information technologycertain agribusiness and others, dynamic. But employment as an indicator responds late to competitiveness problems. The risk is reacting late.
Given this scenario of strengths and weaknesses, in the electoral campaign – especially from the ruling party – “second generation” proposals are announced, assuming that the economic fundamentals have already been guaranteed. In the Broad Front opposition there are similar proposals; and in fact the FA (when it entered its second and third government) also proposed ambitious advances, which later turned out to be difficult to achieve.
The fact is that, despite the good will and optimismalong with certain “Political activism”, sometimes risky, the economic fundamentals must be maintained permanently and cannot be taken for granted. Everything indicates that the next government will begin with affected competitiveness and a difficult fiscal situation. Issues that will have to be resolved before moving to more ambitious objectives, if we do not want to go backwards.
Source: Ambito
