Uruguay finance chief reassures investors
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Emerging Markets

Uruguay finance chief reassures investors

The country will preserve its investor-friendly status following the election of president Jose Mujica and the installation of the new cabinet this month, finance minister Fernando Lorenzo has said

Uruguay will preserve its investor-friendly status following the election of president Jose Mujica and the installation of the new cabinet this month, finance minister Fernando Lorenzo has said.

“President Mujica stated it very clearly: why change what we already know is working well?” Lorenzo told Emerging Markets in an interview yesterday in Cancun.

The 74-year old leftist president has acted rapidly to dispel fears that he would move away from the cautious policies adopted by his predecessor, Tabaré Vasquez, who came from a more moderate wing of the ruling Frente Amplio [broad-front] coalition.

He appointed Lorenzo at the finance ministry to allay investors’ fears that he would adopt heterodox policies.

Indeed, Lorenzo was previously a close adviser to vice president Danilo Astori, another moderate figure who was finance minister in the previous government, and is also considered a reassuring figure in financial circles.

Uruguay weathered the global financial crisis rather well, with 2% GDP growth last year and looks forward to expand by a more than 4% in 2010, according to official forecasts. “Uruguay has been growing above the average of the region for seven years”, Lorenzo said.

Nevertheless, inflation is becoming a concern. In December, the central bank of Uruguay cut interest rates aggressively, by 175 basis points to 6.25%, and is now expected to reverse the course. The 12-month consumer price index rose to 6.9% in February, above the inflation target range of between 4% to 6%.

Agricultural exports are the main driver of the small Uruguayan economy, and that sector has been keen on attracting investments.

The government now intends to increase the investment rate from 18% of GDP at present to 30% of GDP by 2015, mainly through investment in infrastructure. “We are considering using public-private partnerships very intensively and other projects exclusively designed by the private sector,” said Lorenzo.

“We are going to use PPPs both in the structuring and the financing of projects in road, rail infrastructure, and ports, as well as in renewable energy, where Uruguay already has a record of private sector involvement in electricity generation.

“We especially intend to boost wind energy and biomass, which are abundant in our country and cost effective,” he said.

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