Uruguay is seeking to act as a broker within the Mercosur regional trade zone to contain a wave of protectionism that has seen tensions rise across South America, according to senior government figures.
The performance of the Uruguayan economy is highly dependent on those of its neighbours, Brazil and Argentina.
But these two giant economies along with their northern neighbour Mexico have taken action to defend their domestic markets in recent weeks.
The country, which has hosted the Inter-American Development Bank meetings this weekend, has been at pains to contain the latest wave of protectionism “We would not like any country to succumb to the protectionist temptation,” said Fernando Lorenzo, finance minister of Uruguay, who called for a “patient, persistent and permanent” approach.
“Market access for Uruguayan exports is a fundamental pillar of our growth,” he told Emerging Markets.
The government expects economic growth to fall to around 4% this year from 5.8% in 2011. In the first quarter of the year, GDP expanded by 2.9% quarter on quarter, but although officials reckon the impact of the protectionist measures will be limited, a significant part of the economy will be hard hit.
Argentina has been Uruguay’s main supplier, accounting for some 15% of its imports. Half of tourists who visit Uruguay come from Argentina. “When Argentina does well, we do well; when they do poorly, we do poorly,” President José Mujica told Emerging Markets in an exclusive interview last week.
Uruguay itself has announced a series of measures to try and cushion the impact of Argentina’s trade policy, after it stepped up its border controls dramatically to protect its own domestic market.
These include subsidies for the textile and garment industry, and some tax relief, but officials admit these are palliative measures.
But Mujica said the real risk lay in Brazil, and not Argentina. “If Brazil is astute and intelligent with its policies, it will take the rest of Latin America along with it,” he said.
“If Brazil adopts a nationalist approach it will have endogenous development,” he said after Brazil forced Mexico to renegotiate an automotive free trade agreement this week.
Instead, a new system of quotas was put in place. Mexico’s finance secretary José Antonio Meade reacted bluntly. “We view with concern a tendency that has included a protectionist response and not a commitment with trade, which has been shown to be a sustainable means to growth,” he told Emerging Markets in an exclusive interview.
“We believe that our response to the challenges we face cannot be protectionism, but a stronger commitment to international trade as a measure to accelerate a world recovery.”
Meanwhile, attempts by some Latin American countries to promote regional trade in local currency appear stalled. Uruguay says it is keen on pooling foreign reserves and trading in local currency South American nations, as discussed within Mercosur.
Lorenzo noted however that the Brazilian congress has yet to ratify the move. Brazil and Argentina already can buy and sell goods in local currency, but the trade has remained incipient in recent years.