June 5, 2005
Markets take heart as Uruguay breaks leftwing mould
Danilo Astori is sitting at an imposing table in his oak-panelled office
in Montevideo, filling the air with softly spoken words about his
excellent relationship with the International Monetary Fund, improving
the business environment and the inevitable end of Uruguay's state
The tone is not what you might expect from the economy minister of a
leftwing government that includes communists and former guerrillas. But
less than 100 days after the Broad Front coalition took power, Mr
Astori's words are heartening markets and impressing Wall Street.
His approach, with its emphasis on macroeconomic discipline and
recognition of the need to attract private capital, is increasingly
viewed as evidence that the left in Latin America has finally come of age.
The task he faces is great. The tiny country of 3.4m is recovering
vigorously from a severe financial crisis in 2002, but 30 per cent of
Uruguayans remain in poverty. It also has a public debt that approached
100 per cent of gross domestic product at the start of this year.
Mr Astori, a 65-year-old economist, is under no illusions about the
challenges. The election of a leftwing government the first in more than
170 years of independence has heightened hopes of effective social
Meanwhile, the debt has placed an immense burden on the new
administration headed by President Tabaré Vázquez. Interest payments
alone will eat up 5.1 per cent of GDP this year.
That has led more radical factions of the left to conclude that Uruguay
was wrong to have negotiated an amicable debt-restructuring with its
creditors in 2003. They say Montevideo should have copied Argentina's
approach of bullying investors to obtain higher levels of debt forgiveness.
Mr Astori dismisses such ideas. "Uruguay chose the best strategy for its
interests, and it has earned us profound respect in the rest of the
world. This is a small, fragile country but we have an intangible
capital asset, which is our seriousness."
Today, Mr Astori says, Uruguay is reaping at least two benefits from the
decision to maintain good relations with its creditors. The first is an
agreement in record time with IMF staff the board is expected to give
its approval on Wednesday that will last three years and allow the
country to roll over 60 per cent of IMF loans maturing during the
programme. Uruguay owes the institution about $2.7bn (€2bn, Ł1.5bn) in
In return, Uruguay has promised a primary fiscal surplus this year
equivalent to 3.5 per cent of GDP (another 0.4 per cent of GDP will go
towards a social assistance emergency plan), rising to 4 per cent by
2007. Mr Astori plans to end the government's five-year term with the
debt at 60 per cent of GDP.
Mr Vázquez's administration has also set out a structural reform agenda
that includes financial sector reform in particular giving the central
bank greater independence and improving the business environment. "We
share much of the same vision [with IMF staff]," says Mr Astori as he
sips mate, a popular local herbal infusion.
One of his obsessions is to correct low levels of investment by pushing
through parliament an agreement with the US on investment protection.
Another is to set up a one-stop shop for companies seeking to invest in
Uruguay. The second benefit from Uruguay's healthy relations with
investors is full access to capital markets. Last month the country
issued $300m in sovereign bonds, which covers most of its financing
needs for this year. The issue was a resounding success, says Mr Astori.
The government will return to the markets, probably in August, to issue
$200m of debt. The biggest immediate challenge, though, is to push the
five-year budget through parliament. It "will contain important
restrictions in terms of spending" and getting it through parliament "is
going to be a complex task". Yet even here Mr Astori is confident:
"Everyone knows we have to be very cautious for the first half of our
government and we have a lot of support. "You can divide our five-year
term into two halves, and in the first half there is absolutely no room