Uruguay keeps eye out for potential fallout from Argentine economic crisis

By Federico Anfitti Montevideo —  Uruguay is watching the economic crisis unfold in Argentina with a mixture of concern and confidence due to the decoupling of its economy from that of its neighbor in a year in which both countries will elect new presidents.

While Argentina is dealing with turmoil in the currency market, rising country-risk premiums on its debt and surging inflation, Uruguay appears to offer a more stable economic panorama despite having to juggle a budget deficit that has expanded in recent years.

While Uruguay has long been affected by what happens in Argentina and Brazil, government officials said the latest Argentine crisis was not expected to be as harmful as past economic meltdowns.

At the start of this century, Uruguay experienced one of the worst economic downturns in its history due, in part, to the collapse of Argentina’s economy.

Regarding the turmoil in Argentina’s financial markets over the past few days, Deloitte Uruguay economic analyst Florencia Carriquiry told EFE that the “very negative” results for President Mauricio Macri’s governing party in last Sunday’s primaries had not been “the most likely scenario.”

“The effect of the political surprise was to have a big shock. We knew on Sunday night that we were going to have a complicated Monday in terms of the financial variables in Argentina. It was to be expected that there would be turmoil on Monday in terms of the dollar, the stock market (and) the country risk,” Carriquiry said.

The economist said the measures announced by Macri on Wednesday to help workers and the middle class “do not change the scenario substantially” heading into the Oct. 27 general elections.

In Sunday’s primaries, Peronist presidential candidate Alberto Fernandez, according to provisional election results, finished 15 percentage points ahead of Macri.

Fernandez and vice presidential running mate Sen. Cristina Fernandez, who governed Argentina from 2007 to 2015, got 47.65 percent of the vote on the ticket of the Peronist Frente de Todos.

The 60-year-old Macri, who headed the ticket of the Juntos por el Cambio party, received just 32.08 percent of the vote, suffering a serious blow to his re-election chances.

Since taking office in 2015, Macri has carried out structural reforms and implemented market-friendly economic policies.

“These are not measures that will substantially change either the political scenario or the economic (scenario) in general terms for Macri’s administration from here to October. These are negative factors for the fiscal outlook, it has much more political than economic logic. This is clearly an effort to improve (the president’s) chances heading into October,” the economic analyst said.

Among the measures announced by Macri was a hike in the minimum wage to an unspecified level, a move that will benefit about 2 million workers.

Macri said the government would increase funding for the Progresar scholarship program by 40 percent and freeze fuel prices for 90 days.

Public sector employees, armed forces members and security forces personnel will get a bonus of 5,000 pesos per month, the president said.

Macri said the measures were also aimed at helping small- and mid-sized businesses.

Carriquiry said that while Uruguay was “less dependent” on Argentina than in the past, it would be “too much” to say that the nation was “completely separated” from what happens in the neighboring country.

“Uruguay itself today, in fact, has (economic) fundamentals that are much more deteriorated, so the capacity to absorb new negative shocks from the region is much lower too,” the economic analyst said.

While Carriquiry said she did not expect an economic meltdown in Uruguay similar to that in Argentina, she did warn that some sectors, such as the tourist industry, might experience a “negative shock.”

“Argentina is going to have a much higher real exchange rate for a longer time, so Uruguay will be very expensive in relation to Argentina for, probably, a long time. That not only means a strong shock for tourism, but for some sectors of industry,” Carriquiry said. EFE

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