IMF Executive Board Concludes 2011 Article IV Consultation with Uruguay

Public Information Notice (PIN) No. 11/154
December 9, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 5, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the 2011 Article IV consultation with Uruguay.1


Uruguay’s strong economic growth in recent years has produced significant welfare gains. Per capita income in purchasing power terms has doubled from its pre-2002 crisis levels, unemployment has fallen to record lows, and social indicators have improved further. The key factors behind this performance include important policy reforms, prudent macroeconomic policies, social policies and a favorable external environment.

The growth momentum has continued into 2011 but a slowdown is underway led by weaker exports and slower public investment. Real Gross Domestic Product (GDP) growth is projected at 6 percent in 2011 and 4.25 percent in 2012. Inflation at 7.9 percent in October remains above the target range (4-6 percent). The central bank tightened monetary policy in the first half of 2011 but it has left the tightening cycle in pause since late September to allow the global outlook to become clearer. The fiscal deficit has narrowed, and the gross public debt has continued to fall (to 55 percent of GDP in June).

The baseline outlook is positive but with downside risks stemming from the highly uncertain global outlook. Uruguay’s economic and financial vulnerabilities are modest, and the government has reduced debt vulnerabilities significantly and built important financial buffers; still the spillovers of a deteriorating global outlook could be significant. A long-term policy challenge is to sustain strong and balanced growth with less volatility than in the past.

Executive Board Assessment

Executive Directors commended the authorities’ skillful macroeconomic management that has underpinned Uruguay’s excellent economic performance, lowered public indebtedness, and strengthened buffers against shocks. Uruguay’s economic outlook is positive, although with downside risks stemming from the uncertain outlook for advanced economies.

Directors agreed that the main near term challenge will be to frame domestic policies to address both the cyclical requirements and the risk of negative spillovers from abroad. A flexible approach to policymaking will be crucial in the period ahead. For the longer term, Directors stressed that further fiscal and structural reforms are needed to secure a stable high growth path.

Directors welcomed the monetary tightening in the first half of 2011 to bring inflation toward the target range. They agreed that a “wait and see” approach is appropriate at present, given lack of clarity about the general direction of the global economy. A resumption of the tightening cycle will be warranted if global risks recede. Directors agreed that the central bank could explore ways to better anchor inflation expectations by communicating more clearly its inflation forecast and its responses to shocks. Directors considered that the flexible exchange rate regime has served Uruguay well, and encouraged the authorities to limit market intervention to smoothing operations.

Directors generally agreed that maintaining a broadly neutral fiscal stance is appropriate, although automatic stabilizers should be allowed to operate as developments warrant, so long as debt dynamics remain favorable. Directors commended the authorities’ public debt management, and supported their goal to further reduce the public debt ratio over the medium term. They also welcomed progress on the public private partnership framework to tackle infrastructure gaps.

Directors saw merit in ongoing initiatives to upgrade workers’ skills, but noted that other recent reforms may have reduced the flexibility of the labor market. They stressed the importance of reforms that support a dynamic economy while fostering equity. A few Directors cautioned that widespread indexation in wage agreements would complicate inflation targeting and could undermine competitiveness.

Directors welcomed the announced reforms to strengthen banks’ capital and improve dynamic provisioning. They supported closer monitoring of credit card companies, and encouraged more extensive information requirements for non banks. Directors encouraged the authorities to continue their efforts to promote de dollarization.

Uruguay: Basic Data
  2006 2007 2008 2009 2010 2011 2012
(Annual percent change, unless otherwise specified)

Real GDP

4.3 7.3 8.6 2.6 8.5 6.0 4.2

Real consumption

5.9 6.3 8.2 2.3 10.1 8.3 3.5

Real investment

16.8 8.1 28.9 -12.7 13.2 12.6 6.9



CPI inflation (average)

6.4 8.1 7.9 7.1 6.7 8.0 6.9

CPI inflation (eop)

6.4 8.5 9.2 5.9 6.9 8.0 6.4

Terms of trade

1.6 2.3 -1.2 6.7 0.4 3.9 -0.3
(In percent of GDP)

Public sector finances


Total revenues

28.0 28.0 26.2 27.9 28.8 28.3 28.9

Non-interest expenditure

24.6 24.8 25.1 27.2 27.2 27.0 27.3

Primary balance

3.6 3.5 1.3 1.1 1.7 1.5 1.8

Overall balance

-0.5 0.0 -1.5 -1.7 -1.2 -1.4 -1.1

Gross public sector debt

70.3 63.2 61.7 61.0 57.1 51.8 49.4

Outstanding external debt

54.3 47.4 44.9 39.3 35.1 32.9 33.5

Of which: Public external debt

47.9 42.9 40.1 35.6 32.1 29.9 28.9
(Annual percent change, unless otherwise specified)

Money and credit 1/


Base Money (eop)

10.3 16.4 29.3 6.5 16.2 11.4


20.1 29.4 18.6 12.2 33.5 17.9


21.7 30.6 17.1 15.0 30.3 24.6


11.6 3.8 28.6 -2.6 22.1 10.0

Credit to the private sector (constant exchange rate)

17.3 22.1 28.0 -7.5 21.3 23.8
(In percent of GDP, unless otherwise indicated)

Balance of payments


Current account balance

-2.0 -.09 -5.5 -0.4 -1.2 -2.0 -3.0

Merchandise exports, fob

22.2 21.4 22.8 20.5 20.0 20.5 20.5

Merchandise imports, fob

24.7 23.6 28.3 21.3 20.7 22.7 23.9

Services, income, and transfers (net)

2.1 2.9 2.4 3.0 2.6 3.0 3.3

Capital and financial account

2.7 6.3 9.9 4.3 3.8 6.7 3.4

Foreign direct investment

7.5 5.6 6.8 5.1 5.9 5.0 7.2

Overall balance of payments (in millions of U.S. dollars)

-15.4 1,005.4 2,232.4 1,588.3 -360.8 2,217.2 195.1

Gross official reserves (in millions of U.S. dollars) 2/

3,085.0 4,124.0 6,362.0 8,040.0 7,655.0 9,872.0 10,068.0

In percent of short-term debt

491.2 471.8 797.2 772.3 318.8 683.3 448.4

In percent of short-term debt and FX deposits

101.3 117.2 151.4 162.6 112.1 163.2 140.1

External debt service (percent of exports of goods and services)

8.6 26.1 21.7 22.9 28.5 27.2 18.2

Sources: Banco Central del Uruguay, Ministerio de Economía y Finanzas, Instituto Nacional de Estadística, and IMF staff calculations.

1/ August/September data for 2011.

2/ Includes reserves buildup through reserve requirements of resident financial institutions.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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