Press Release: Statement by IMF 2010 Article IV Mission to Uruguay

IMF News, December 14, 2010

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Canonical URL: Press Release: Statement by IMF 2010 Article IV Mission to Uruguay

Issued December 14, 2010.
Article IV mission headed by Ulric Erickson von Allmen, advisor in the IMF’s Western Hemisphere Department.
Assessment covers Uruguay’s recovery since its crisis in 2002 and the recent impact of the 2009 global shock.

Economic growth performance during the last seven years described as "impressive."
Recovery from the country’s crisis in 2002 highlighted as "remarkable."
Noted exposure to the global crisis in 2009 but a "quick and strong" rebound driven by vigorous growth in exports and domestic demand.
Unemployment has fallen to record lows.
Some sectors experiencing shortages, "in particular of skilled labor."
Inflationary pressures are rising.

Staff projects real gross domestic product (GDP) growth at 8-8½ percent in 2010.
Projected moderation to 5 percent in 2011.
Projected growth of 4 percent thereafter.
Medium-term growth objective: "Sustaining growth at 4 percent a year over the medium term will require investments to overcome infrastructure gaps and enhance the skills of the labor force."

Immediate challenge: ensure conditions for a soft landing of the economy.
Risk identified: "a worse global or regional economic outlook."
Medium-term task: ensure Uruguay enjoys rapid, sustained growth with less volatility than in the past.

Fiscal and monetary policies should temper domestic demand growth to steer the economy away from a boom/bust path.
Policies should create policy space through lower debt and lower inflation to respond to future shocks.
Investment required to address infrastructure gaps and enhance labor force skills to sustain medium-term growth.

Staff welcomes the 2010–14 budget’s focus on reducing the public debt and its broad spending priorities (infrastructure, education).
Staff welcomes creation of a fund to shield the budget from weather-induced fluctuations in the cost of producing electricity.
Recommendation: "A more conservative fiscal stance in 2011–14—via slower growth in current expenditures—would be feasible and would help moderate domestic demand further, reduce real exchange rate appreciation pressures, and reinforce the government’s objective of reducing the public debt."

Noted action: increase in the monetary policy rate last September by 25 basis points to 6.5 percent was "a welcome step."
Recommendation: "Booming domestic demand and the risk of inflation expectations becoming entrenched above official targets call for a continued measured normalization of interest rates."

Staff welcomes initiatives to boost long-term growth prospects, with planned infrastructure investments focusing on energy and transportation.
Government plan to use public-private partnerships (PPP) for some investments is "welcome" and can harness capital inflows into productive investment.
Conditions for PPPs emphasized:
- Maintain a fair balance of risks between the government and the private sector.
- Establish limits on the stock and flow of the PPP-related liabilities.
- Ensure proper and transparent recording.

To maintain a vibrant economy, keep inflation in check, and avoid erosion in export competitiveness, the mission highlights:
- Importance of a dynamic labor market.
- Importance of prudent wage agreements.

Press Release No. 10/491 — Statement by IMF 2010 Article IV Mission to Uruguay (December 14, 2010).