EX-99.D 2 d375607dex99d.htm DESCRIPTION OF REPUBLICA ORIENTAL DEL URUGUAY, DATED JULY 20, 2012 Description of Republica Oriental del Uruguay, dated July 20, 2012

Exhibit 99.D

Description of

República Oriental del Uruguay

July 20, 2012

 

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TABLE OF CONTENTS

 

     PAGE  

Introduction

     D-3   

Summary

     D-5   

República Oriental Del Uruguay

     D-6   

The Economy

     D-11   

Gross Domestic Product and Structure of the Economy

     D-22   

Foreign Merchandise Trade

     D-35   

Foreign Trade on Services

     D-39   

Balance of Payments

     D-41   

Monetary Policy and Inflation

     D-46   

The Banking Sector

     D-52   

Securities Markets

     D-64   

Public Sector Finances

     D-65   

Fiscal Policy

     D-70   

Public Sector Debt

     D-74   

Tables and Supplemental Information

     D-87   

 

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INTRODUCTION

All references in this document to the “government” are to the government of the República Oriental del Uruguay (“Uruguay”) and references to the “central government” are to the central government of Uruguay (which includes governmental agencies and subdivisions and excludes financial and non-financial public sector institutions). All references in this document to the “consolidated public sector” are to the central government and financial and non-financial public sector institutions, excluding Banco de la República Oriental del Uruguay and Banco Hipotecario.

The terms set forth below have the following meanings for the purposes of this document:

 

   

Gross domestic product, or GDP, means the total value of final products and services produced in Uruguay during the relevant period, using nominal prices. Real GDP instead measures GDP based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central del Uruguay (“Banco Central”) in March 2009) to eliminate distortions introduced by changes in relative prices.

 

   

Imports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon entry of goods into Uruguay on a cost, insurance and freight included basis (referred to as CIF basis) and (2) for purposes of balance of payments, statistics collected on a free on board basis at a given departure location (referred to as FOB basis).

 

   

Exports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon departure of goods from Uruguay on a free on board, or FOB, basis and (2) for purposes of balance of payments, statistics collected on a free on board, or FOB, basis.

 

   

Rate of inflation or inflation rate is measured by the December to December percentage change in the consumer price index or CPI, unless otherwise specified. The CPI is calculated on a weighted basket of consumer goods and services using a monthly averaging method. December to December rates are calculated by comparing the indices for the later December against the indices for the prior December.

References herein to “US$,” “$,” “U.S. dollars” or “dollars” are to United States dollars. References herein to “Uruguayan pesos,” “pesos,” or “Ps.” are to the lawful currency of Uruguay. Unless otherwise stated, Uruguay has converted historical amounts translated into U.S. dollars or pesos at historical annual average exchange rates. References to “Euro” or “€” are to the lawful currency of the Member States of the European Union that have adopted the single currency in accordance with the treaty establishing the European Community, as amended by the Treaty on European Union. References to “JPY” or “yen” or “¥” are to Japanese yen. Translations of pesos to dollars, Euros or yen (or dollars to Euros or yen) have been made for the convenience of the reader only and should not be construed as a representation that the amounts in question have been, could have been or could be converted into dollars or yen at any particular rate or at all.

 

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The Federal Reserve Bank of New York does not report a noon buying rate for Uruguayan pesos.

The fiscal year of the government ends December 31. Accordingly, all annual information presented herein is based upon January 1 to December 31 periods, unless otherwise indicated. Totals in some tables in this document may differ from the sum of the individual items in those tables due to rounding.

Uruguay’s official financial and economic statistics are subject to a review process by Banco Central and the Uruguay National Statistics Institute. Accordingly, the financial and economic information in this document may be subsequently adjusted or revised. Certain of the information and data contained herein for 2008, 2009, 2010 and 2011 is preliminary, and subject to further adjustment or revision. The government believes that this practice is substantially similar to the practices of many industrialized nations. The government does not expect revisions to be material, but cannot assure you that material changes will not be made.

 

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SUMMARY

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  
     (in millions of US$, except as otherwise indicated)  

THE ECONOMY

          

GDP (in millions of US$ at nominal prices)(2)

   US$ 23,468      US$ 30,387      US$ 30,519      US$ 39,429      US$ 46,735   

Real GDP (in thousands of constant 2005 pesos)(2)

   Ps. 471,380      Ps. 505,207      Ps. 517,422      Ps. 563,446      Ps. 595,564   

% change from prior year

     6.5     7.2     2.4     8.9     5.7

Consumer price index or CPI (annual rate of change)

     8.5     9.2     5.9     6.9     8.6

Wholesale price index or WPI (annual rate of change)

     16.1     6.4     10.5     8.4     11.1

Unemployment rate (annual average)(3)

     9.5     7.7     7.3     6.8     6.0

Balance of payments(4)

          

Trade balance (merchandise)

     (546     (1,714     (272     (282     (1,070

Current account

     (221     (1,729     92        (446     (875

Capital and financial account net

     1,505        3,098        1,380        1,521        3,058   

Errors and omissions(5)

     (279     864        300        (1,435     381   

Overall balance of payments excluding impact of gold valuation adjustment

     1,005        2,232        1,588        (361     2,564   

Change in Banco Central international reserve assets (period end)

     (1,005     (2,232     (1,588     361        (2,564

Banco Central international reserve assets (period end)(6)

     4,121 (7)      6,360 (8)      7,987 (9)      7,656 (10)      10,302 (11) 

PUBLIC FINANCE

          

Non-Financial Public Sector Revenues

     6,713        8,161        8,780        11,732        13,486   

Non-Financial Public Sector Primary Expenditures

     5,936        7,821        8,536        11,075        12,648   

Public Sector Primary Balance

     843        417        358        756        928   

Public Sector Overall Balance (surplus/(deficit))

     2        (473     (523     (430     428   

PUBLIC DEBT

          

Consolidated public sector debt

          

Debt with non-residents(12)

     11,065        10,736        12,769        12,822        14,055   

Debt with residents

     5,258        5,805        9,121        10,105        12,016   

Total

     16,323        16,541        21,891        22,927        26,070   

As a % of GDP

     68.1     53.2     69.6     56.6     54.0

Consolidated public sector debt service

          

Amortizations

     361        750        438        926        1,939   

Interest payments

     670        604        527        580        595   

Total

     1,031        1,354        965        1,506        2,534   

As a % of exports of goods and services

     15.1     14.4     11.2     13.2     19.9

 

(1) 

Preliminary data.

(2) 

Figures are not adjusted by purchasing power.

(3) 

Unemployment population as percentage of the labor force.

(4) 

Calculated in accordance with the methodology set forth in the IMF Balance of Payments Manual (Fifth Edition).

(5) 

Constitutes a residual item, which is periodically revised as additional information regarding the current and capital and financial accounts becomes available.

(6) 

As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31, 2007, 2008, 2009, 2010 and 2011.

(7) 

This amount includes US$1,753 million of reserves and voluntary deposits of the Uruguayan banking system, including US$868 million of Banco de la República, with Banco Central.

(8) 

This amount includes US$3,156 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,416 million of Banco de la República, with Banco Central.

(9) 

This amount includes US$2,521 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,138 million of Banco de la República, with Banco Central.

(10) 

This amount includes US$1,590 million of reserves and voluntary deposits of the Uruguayan banking system, including US$789 million of Banco de la República, with Banco Central.

(11) 

This amount includes US$2,350 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,707 million of Banco de la República, with Banco Central.

(12) 

Excludes interest on non-resident banking deposits.

Source: Banco Central.

 

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REPÚBLICA ORIENTAL DEL URUGUAY

Territory and Population

Uruguay is located in the southern, subtropical zone of South America, bordering Argentina to the west and Brazil to the northeast. Its territory covers an area of approximately 176,000 square kilometers with a 500-kilometer coastline along the Atlantic Ocean and the Río de la Plata. Uruguay’s major cities are Montevideo, the nation’s capital and main port, Paysandú, Salto and Las Piedras.

According to the 2004 national census, Uruguay’s population of approximately 3.4 million is primarily of European origin and has a literacy rate above 98%. Approximately 89% of the population lives in urban areas and about 40% of the population resides in the Montevideo metropolitan area. The population growth rate averaged 0.5% per year for the period from 1985 to 2004, and is the lowest in South America. Uruguay is generally considered a middle-income developing country. The following table sets forth comparative gross national income (“GNI”) figures and selected other comparative statistics as of December, 2011, unless otherwise indicated.

 

     Uruguay     Brazil     Chile     Venezuela     Mexico     United
States
 

Per capita GNI(1)

   US$ 11,860      US$ 10,720      US$ 12,280      US$ 11,920      US$ 9,240      US$ 48,450   

PPP GNI per capita(2)

   US$ 14,740      US$ 11,500      US$ 16,160      US$ 12,620      US$ 15,120      US$ 48,890   

Life expectancy at birth(3)

     76        73        79        74        77        78   

Adult illiteracy rate(4) (5)

     1.7     9.6     2.9     4.8     6.2     n.a.   

Infant mortality per 1000 live births(6)

     9        17        8        16        14        7   

 

n.a. = not available.
(1) 

World Bank Atlas method.

(2) 

Current US$, adjusted for purchasing power parity.

(3) 

2010 data. In years.

(4) 

Percentage of people ages 15 and older.

(5) 

2010 data, except for United States.

(6) 

2010 data.

Source: The World Bank—World Development Indicators database and CEPAL.

Constitution, Government and Political Parties

Uruguay is organized politically as a republic and is geographically divided into 19 departments (districts). The 1967 Constitution, which was last amended in 2004, provides for a presidential system of government composed of three branches: executive, legislative, and judiciary. The president heads the executive branch and is chief of staff and commander of the armed forces. The president is elected by direct popular vote for a period of five years and may not seek re-election for consecutive terms. Under Uruguay’s electoral system established under the 1996 constitutional reform, each political party selects a single candidate for presidential elections. If no candidate wins more than 50% of the vote in the first round of elections, a run-off between the two leading candidates is held. The legislative branch is composed of a 31-member Senate and a 99-member Chamber of Deputies, which together constitute the Congress. Members of Congress are elected every five years by direct popular vote under a system of proportional representation. The Supreme Court is composed of five judges appointed for 10-

 

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year terms by the Congress. The Supreme Court has jurisdiction over selected constitutional matters and appellate jurisdiction over decisions rendered by lower courts. Uruguay’s judicial system consists of trial and appellate courts with jurisdiction in each case over civil, criminal, family and labor matters. In addition, Uruguay has an administrative court system with jurisdiction over a number of public sector matters.

Uruguay has been a democratic country throughout most of its history since it became an independent nation in 1825. The country’s democratic tradition was interrupted twice during the last century: once briefly in the 1930’s and again during the period from 1973 to 1985. In June 1973, a military junta took over power, dissolved Congress, and suspended all voting activity. Military rule continued until November 1984, when democratic elections were held and voters elected Julio María Sanguinetti as president.

Politics in Uruguay are dominated by three political parties: the Frente Amplio (Broad Front), the Partido Colorado and the Partido Nacional. Since appearing on Uruguay’s political landscape in 1971 as a coalition of, among others, the Christian Democratic, Socialist and Communist parties, the Frente Amplio gained increasing support and, in October 2004, won victories in the presidential and the congressional elections.

Until the 2004 presidential and congressional elections, Uruguay’s two traditional political parties, the Partido Colorado and the Partido Nacional, had alternated holding the presidential office. Each of these two parties is composed of multiple political factions, typically with different political orientations, but without strong ideological differences. The Partido Colorado and the Partido Nacional, which were formed in the 1830s, are both market-oriented and favor trade liberalization and reducing the government’s role in the economy, although some factions within each of those parties favor moderate trade protection and some degree of government intervention. Traditionally, the Partido Nacional has had a strong rural constituency, while the Partido Colorado has drawn most of its support from urban areas. The Frente Amplio advocates a moderate social welfare platform. A fourth political party, the Partido Independiente, is a center-left group which split from the Frente Amplio prior to the 1989 elections.

Presidential elections were held on October 25, 2009. Mr. José Alberto Mujica from Frente Amplio received 47.96% of the votes cast, Mr. Luis Alberto Lacalle from Partido Nacional received 29.07% of the votes cast, and Mr. Pedro Bordaberry from Partido Colorado received 17.02% of the votes cast. Based on these results, Mr. Mujica and Mr. Lacalle participated in the runoff election on November 29, 2009, and Mr. José Alberto Mujica of the Frente Amplio won the national presidential election with approximately 52% of the votes cast. Mr. Mujica took office in March 1, 2010 succeeding Mr. Tabaré Vázquez who is also a member of Frente Amplio. In the Congressional elections also held on October 25, 2009, the Frente Amplio retained a majority of both houses of Congress.

 

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The Congressional representation of each of the four parties for the 2010-2015 term is as follows:

 

     Senate     Chamber of Deputies  
     Seats      %     Seats      %  

Frente Amplio

     17         55     50         50.5

Partido Nacional

     9         29        30         30.5   

Partido Colorado

     5         16        17         17   

Partido Independiente

     0         0        2         2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total(1)

     31         100     99         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

The Vice President, currently Danilo Astori of the Frente Amplio, occupies the thirty-first seat in the Senate.

Although the Frente Amplio retained majorities in both houses of Congress, Mr. Mujica, has expressed an intention to seek consensus with the Partido Colorado, the Partido Nacional and the Partido Independiente with respect to key areas of government, including macroeconomic and social policies, education and foreign relations.

Since 2005, the Frente Amplio maintains the following goals of economic policy:

 

   

reaching a sustainable level of economic growth supported by a steady development of Uruguay’s productive capacity and productivity;

 

   

reducing unemployment and improving the quality of employment; and

 

   

advancing the quality of life of the population, focusing on the urgent need to improve the living conditions of the poorest segments of the population.

Foreign Policy and Membership in International and Regional Organizations

Uruguay has had no significant regional or international conflicts in recent years. The Republic has focused its foreign policy on international economic, political and legal issues and on the development of international arrangements aimed at improving economic cooperation among nations, conflict resolution and international law. Uruguay maintains diplomatic relations with 137 countries and is a member of 105 international organizations, including:

 

   

the United Nations (founding member), including many of its specialized agencies;

 

   

the Organization of American States;

 

   

the World Trade Organization;

 

   

the International Monetary Fund or the IMF;

 

   

the International Bank for Reconstruction and Development or the World Bank;

 

   

the International Finance Corporation;

 

   

the Multilateral Investment Guaranty Agency;

 

   

the International Centre for Settlement of Investment Disputes;

 

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the Inter-American Development Bank or the IADB;

 

   

the Inter-American Investment Corporation; and

 

   

the Corporación Andina de Fomento or the CAF.

Uruguay maintains close ties to its neighboring countries and participates in several regional arrangements designed to promote cooperation in trade and investment. It has been the host country for the Latin American Integration Association, a regional external trade association that includes ten South American countries in addition to Mexico, Cuba, Panamá and Nicaragua since its creation in 1960.

In March 1991, the governments of Argentina, Brazil, Paraguay and Uruguay signed the Mercosur Treaty. Under the Mercosur Treaty, these four countries originally pledged:

 

  (1) to create a full common market in goods, services and factors of production by eliminating or significantly reducing, in some cases over a period of years, import duties, tariffs and other barriers to trade among members; and

 

  (2) to establish common external tariffs for trade with non-members.

In December 1994, the four members of Mercosur signed an agreement establishing January 1, 1995 as the deadline for the implementation of a common external tariff intended to transform the region into a customs union. However, it was also agreed that each member country would be entitled to take exceptions to the common external tariffs for a transitional period scheduled to end in 2008 for Argentina and Brazil, and in 2010 for Paraguay and Uruguay. These periods have recently been extended, allowing Argentina and Brazil to maintain their list of exceptions until December 31, 2015, Uruguay until December 31, 2017, and Paraguay until December 31, 2019. Accordingly, the full implementation of a customs union has been deferred. See “The Economy—The Mercosur Agreements.”

In December 1995, Mercosur and the European Union signed a framework agreement for the development of free trade between them. In 1996, Chile and Bolivia agreed to participate in the Mercosur arrangements pursuant to separate free trade agreements. On April 5, 2004, the Andean Community (a customs union among Venezuela, Ecuador, Colombia, Peru and Bolivia) concluded a free trade agreement with Mercosur. The agreement, which was originally agreed to in principle at a summit of the two trading blocs in July 2003, resulted in the creation of a South American free trade area. Mercosur and the European Union are currently engaged in the negotiation of a free trade agreement. While the parties have made progress in several areas, Mercosur has conditioned the agreement upon the European Union making significant concessions with respect to trade in agricultural products and the EU’s common agricultural policy, at least insofar as it impacts Mercosur. Mercosur and the United States, which had suspended negotiations in 2004, have resumed negotiations surrounding the hemisphere-wide Free-Trade of the Americas Agreement (FTAA) pursuant to the 1991 “Four Plus One” Agreement. The negotiations have revealed important differences between the parties, and there can be no assurance that an agreement will be reached within the near term, as originally contemplated. Also during 2004, Mercosur signed framework agreements for the development of bilateral trade with each of India and the Southern African Customs Union. In December 2005, the four original members of Mercosur admitted the Republic of Venezuela to the bloc, with a right to attend all presidential and ministerial level meetings but without the right to vote until all negotiations relating to the adoption by Venezuela of Mercosur’s common external tariff

 

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are completed. On December 8, 2005, Mercosur and Israel signed a three-year framework agreement to strengthen relations between the parties, promote the expansion of trade and provide the conditions and mechanisms to negotiate a free trade agreement, which was finally signed in December 2007. Mercosur signed free trade agreements with Egypt in August 2010 and with Palestine in December 2011.

Significant trade imbalances among Mercosur countries developed over time as a result of various factors. These imbalances have prompted discussions and negotiations among the members of the member states that to date have not resulted in the convergence of the national economies, an objective stated on several occasions pursued. Argentina’s crisis in 2001 and its long-lasting effects have adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. It also triggered the adoption of various safeguard measures and caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by its member states. Uruguay continues to support the long-term objectives contemplated in the Mercosur Treaty, while pursuing measures intended to maximize access to export markets by Uruguayan products in the short and medium term.

Uruguay has entered into the following bilateral treaties related to trade and investment:

 

2004                        United Mexican States    Free Trade Agreement
2004    Iran    Bilateral Trade Framework Agreement
2006    United States of America    Bilateral Investment Promotion Treaty
2007    United States of America    Trade and Investment Framework Agreement
2008    United States of America    Cooperation Agreement in Science and Technology
2008    India    Bilateral Investment Treaty
2009    South Korea    Bilateral Investment Treaty
2009    Chile    Public Procurement Agreement
2009    Vietnam    Bilateral Investment Treaty
2009    Venezuela    Economic Cooperation Agreement
2010    Chile    Bilateral Investment Treaty

In March 2009, Uruguay and Brazil signed an energy cooperation agreement for the development of an electrical transmission line between the two countries, to facilitate the energetic interconnection between both countries. Construction of the line is expected to be completed by the end of 2012 and the line is expected to be functioning by the end of 2013 with a capacity of 500MW of electric energy. See “Gross Domestic Product and Structure of the Economy—Principal Sectors of the Economy – Electricity, Gas and Water.”

 

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THE ECONOMY

History and Background

In the 1980’s, Uruguay’s economy was affected by a crisis of its financial system, followed by a severe recession. A deterioration in its external debt to GDP and exports ratios led the Republic to negotiate a rescheduling of its maturing debt obligations within the framework of the Brady Plan in 1991. In the early 1990’s, the government took steps to increase private sector involvement in the economy (including foreign investment in previously restricted areas), and reduced the size and influence of the public sector in the economy. Following a modest 0.9% increase in real GDP in 1990, a new recovery began in mid-1991, and real GDP increased steadily between 1991 and 1994 at an average cumulative annual rate of 5.2%.

The economic liberalization policies of the 1990s, while stimulating improvements in productivity and economic growth, also increased the exposure of Uruguay’s economy to regional and international economic developments. The absence of capital controls facilitated a gradual dollarization of the assets and liabilities of the banking system. A loss of investor confidence in certain countries in the region, capital flight and a resulting contraction of economic activity followed the Mexican peso devaluation in December 1994. Argentina, one of Uruguay’s principal trading partners and sources of direct foreign investment, was particularly affected. The contraction in aggregate demand in neighboring countries, particularly Argentina, was coupled with a decrease in Uruguay’s private demand and public sector investment. In 1995, real GDP contracted by 1.4% as compared to 1994.

Uruguay’s economy recovered with real GDP growth of 5.6% in 1996 and 5.0% in 1997. This improvement was mainly a result of the increased exports and growth in gross fixed investment, particularly private sector investment, which in turn stimulated private consumption. Improvement continued in 1998 with real GDP growth of 4.5%. Domestic private consumption increased slightly as a percentage of GDP in 1998, although it remained below 1994 levels. Gross fixed investment also increased as a percentage of GDP in 1998, slightly above 1994 levels. The rate of gross domestic savings as a percentage of GDP increased in 1998, compared to 1997, 1996 and 1995. For the period from 1994 to 1998, private gross fixed investment grew faster than GDP (except in 1994), increasing at an average annual rate of 10.5% from 1994 to 1998. During this period, the financial and insurance services sector grew in real terms and as a percentage of GDP.

The Mercosur Agreements

The execution and implementation of Mercosur represented Uruguay’s single most important foreign trade endeavor, as it was expected to offer Uruguayan companies access to a common market of approximately 200 million people. On January 1, 2000, internal tariff rates among Mercosur countries were reduced to zero, with the exception of sugar and automobiles.

With the establishment of the common external tariff in January 1995, the members of Mercosur agreed to cause a gradual convergence of their respective external trade regulations over a five-year period. A common external tariff became effective on January 1, 2001. However, each member of the Mercosur retained some degree of flexibility intended to gradually allow certain industries to enhance their competitiveness, and had the ability to take specific exceptions to the common external tariff (initially 300 each) over a transitional period. Argentina and Brazil are currently entitled to 100 exceptions each and Uruguay and Paraguay are

 

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currently entitled to 225 and 649 exceptions, respectively. In the case of capital goods, telecommunications and information technology products, the Mercosur agreed that Uruguay and Paraguay could take exception from the common internal tariff (with rates of 0% until 2013 and 2% until 2016, respectively) with respect to tariff imports of non-Mercosur origin. In addition, the Mercosur countries have agreed to coordinate policies in certain areas, including agriculture, industry, transport and trade in services, to reduce or eliminate imbalances, and several working groups are currently engaged in policy coordination negotiations.

In March 2001, Argentina unilaterally increased import tariffs on consumer goods to 35% and eliminated all import tariffs on capital goods, in each case for non-Mercosur products and on a transitional basis. In June 2001, Argentina further modified its foreign exchange regime to subsidize exports and tax imports. The devaluation of the Argentine peso in January 2002, and other measures taken by the Argentine government brought Argentina’s foreign trade to a virtual standstill in the first quarter of 2002. The Argentine crisis adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. Uruguay maintains certain duties affecting imports of certain Argentine products whose producers are entitled to regional or sectoral subsidies. It also caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by the December 2000 understanding on common macroeconomic targets. Uruguay continues to support the long-term objectives contemplated in the Mercosur Treaty and the December 2000 understanding, recognizing the short and medium-term need to maximize access to other export markets by Uruguayan products.

Certain barriers to the comprehensive regional integration initiated by Mercosur continue to exist. Agriculture border inspections and other bureaucratic border procedures still lack uniformity among Mercosur member countries and are onerous in many instances, causing delays in trade. Rules on intellectual property, antitrust and the environment, among other things, are different in each of the Mercosur countries, and while certain mechanisms for dispute resolution have been established, comprehensive mechanisms are still under development. In December 2002, Mercosur approved common antitrust procedures implementing a 1996 Antitrust protocol. This agreement constitutes a step towards the elimination of antidumping claims among members. Trade in services, such as financial and banking services, has not been uniformly liberalized, with countries like Uruguay having a financial system which is open to non-Uruguayan participants while countries like Brazil allow only limited participation of non-Brazilian banks in their financial system. Roads, bridges and railways must also be developed to further facilitate trade. In December 1997, the Mercosur members agreed to a framework agreement for the liberalization of the provision of services, access to markets and freedom of establishment. The members of the Mercosur meet annually to negotiate the implementation of the 1997 framework agreement. A protocol regarding the provision of services entered into effect in December 2005 and was ratified by Argentina, Brazil and Uruguay. It contemplates the complete elimination of intra–Mercosur restrictions by 2015. The liberalization is effected gradually on the basis of negotiation rounds intended to result in eliminating restrictions by segments with a view to reaching complete liberalization by no later than 2015. See “República Oriental del Uruguay. Foreign Policy and Membership in International and Regional Organizations.”

 

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1999-2002: Recession and Crisis in the Banking System

Between 1999 and 2002, a series of external factors, including most significantly the economic crisis that affected Argentina severely in 2001 and 2002, had material adverse consequences for Uruguay’s economy.

During 1999, Uruguay’s economy was adversely affected by the devaluation of the Brazilian currency, a strong recession in Argentina, which caused a contraction in Argentine demand for Uruguay’s products and tourism-related services, declining international prices for several of Uruguay’s commodity exports, an increase in the price of oil and derivative products, the appreciation of the U.S. dollar (to which the Uruguayan peso was linked), which caused Uruguay’s export products to become less competitive in several of its traditional export markets and increases in international interest rates.

As a result of these circumstances, in 1999 real GDP decreased by 2.8%, domestic private consumption declined 1.5% and private gross fixed investment fell by 14.0%. Exports of Uruguayan goods and services also declined by 7.4%. The recession affected most sectors of the economy. The consolidated public sector deficit increased from 0.9% of GDP in 1998 to 3.6% of GDP in 1999, reflecting a decrease in public sector revenues (including social security revenues) and increases in public sector spending, attributable to a number of infrastructure projects undertaken by the government to mitigate the impact of the recession.

During 2000, most of the adverse conditions that caused real GDP to contract in 1999 continued, including high oil prices, a strong U.S. dollar, Argentina’s recession and increases in international interest rates. Heavy rains in the last quarter of 1999 also adversely affected the agricultural sector. In 2000, real GDP declined by 1.4%, domestic private consumption decreased by 1.6%, private fixed investment declined 14.5%, and government consumption contracted by 0.3%. Inflation for 2000, as measured by the CPI, reached 5.1%, reflecting the impact of increasing international oil prices on the Uruguayan economy. However, the peso depreciated 7.8% in real terms with respect to the U.S. dollar. The consolidated public sector deficit in 2000 reached 3.8% of GDP, as public sector revenues contracted at a faster pace than public sector primary expenditures.

Adverse external factors continued through 2001. Argentina’s third year of recession and the slowdown in the rate of economic growth of industrialized nations adversely affected Uruguay’s economy. Virtually all sectors of the economy experienced the impact of the recession, with government and private consumption and fixed investments all contracting for a second consecutive year. The recession adversely affected public sector revenues, and the measures taken by the government to reduce expenditures were insufficient to prevent a further deterioration of public sector finances. Real GDP contracted by 3.4%. Domestic private consumption decreased by 2.0%, government consumption decreased by 2.9% and private fixed investment decreased by 8.8%. The consolidated public sector deficit for 2001 reached 3.9% of GDP. On June 19, 2001, Banco Central adjusted the rate of devaluation of the Uruguayan peso from 0.6% to 1.2% per month through December 31, 2001 and widened the band of fluctuation for the peso to U.S. dollar exchange rate from 3.0% to 6.0%. In spite of these adjustments, domestic inflation for 2001, as measured by the CPI, remained at 3.6%, and the peso depreciated 13.0% in real terms with respect to the U.S. dollar. Foreign trade also deteriorated in 2001, with exports contracting by 10.5% (measured in U.S. dollars) and 7.7% in real terms, and imports contracting by 11.7% (measured in U.S. dollars) and 8.8% in real terms, with respect to 2000.

 

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Nevertheless, the continued recession appeared not to undermine confidence in Uruguay’s banking system, which continued to attract deposits from residents and non-residents, particularly as volatility in Argentine increased. As of December 31, 2001, approximately 87.3% of total credit extended to the private sector and 91.3% of total deposits held in the private banking system were denominated in foreign currencies (principally the U.S. dollar).

On December 1, 2001, the Argentine government froze deposits held with Argentine banks and introduced exchange controls restricting capital outflows. On December 23, 2001, the Argentine government announced its decision to default on Argentina’s foreign debt. Argentina suffered significant economic, political and social deterioration during 2002. In addition to the government, a significant portion of the country’s large corporate debtors defaulted on all or a substantial part of their financial liabilities. In response to the crisis, the Argentine government undertook a number of far-reaching initiatives, including a mandatory conversion of foreign currency-denominated debts and bank deposits into Argentine pesos and the devaluation of the Argentine peso after ten years of parity with the U.S. dollar.

In 2002, Uruguay’s economy experienced its most significant setback since 1982, with real GDP contracting by 11.0%. The proximate causes of Uruguay’s 2002 economic crisis are associated with Argentina’s economic deterioration during that time. Uruguay’s fiscal imbalances, its dependence on Argentina and Brazil as its principal trading partners and sources of foreign revenues, and rigidities that limited the ability of the economy to absorb and adapt to external factors, added to the severity of the crisis.

Uruguay’s banking system confronted its worst crisis since the 1982-83 crisis. At December 31, 2002, total U.S. dollar deposits of the non-financial private sector with the banking system (excluding off-shore institutions) were US$7.3 billion (of which US$2.4 billion were of non-residents), compared to US$14.2 billion as of December 31, 2001 (of which US$6.6 billion were of non-residents). Initially, the increase in deposit withdrawals affected primarily Banco de Galicia Uruguay, or BGU, and Banco Comercial, the country’s two largest private banks, both affiliated with Argentine banks. Banco Central took control of BGU and suspended its operations.

The deposit outflow spread through the rest of Uruguay’s financial system in the second quarter of 2002 leading to the closure of Banco Montevideo/La Caja Obrera, Uruguay’s third largest private bank in June 2002. Although the government received approximately US$500.0 million from the IMF on June 29, 2002, and provided liquidity assistance to the local banks, confidence in the Uruguayan financial system continued to erode.

The Uruguayan authorities sought the financial assistance of the IMF, the World Bank and the IADB for a program that would safeguard Uruguay’s payment and financial system. On August 4, 2002, Congress passed Law 17,523, known as the Law for the Strengthening of the Financial System. The law (i) provided for the establishment of a fund for the stability of the Uruguayan banking system, the Fondo de Estabilidad del Sistema Bancario, or FESB, (ii) extended to three years the maturities of all U.S. dollar-denominated time deposits held with Banco de la República and Banco Hipotecario, (iii) transferred foreign currency-denominated liabilities of Banco Hipotecario to Banco de la República, and (iv) facilitated the liquidation of insolvent banks.

 

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In furtherance of the program agreed with the IMF, in December 2002, Congress enacted amendments to the banking law aimed at strengthening the banking system. Following the enactment of these amendments, the government completed the reorganization of Banco Comercial, Banco Montevideo and La Caja Obrera into a new commercial bank, Nuevo Banco Comercial. The non-recoverable assets of the three liquidated banks are held by liquidation funds, and the proceeds have been earmarked to satisfy deposits of the liquidated banks that were not assumed by Nuevo Banco Comercial.

Between January 1, 2002 and February 28, 2003, depositors withdrew approximately US$6.8 billion from the Uruguayan banking system. Banks responded to depositors’ demands by withdrawing approximately US$1.1 billion in reserves and voluntary deposits held with Banco Central and reducing to practically none the availability of credit. The financial system received assistance for approximately US$2.0 billion from the Uruguayan authorities.

In 2002, the government adopted a series of initiatives intended to reduce the deficit of the public sector. It relied on access to funding by the IMF and other multilateral agencies to shore up Banco Central’s international reserve assets with the expectation that confidence in the banking system would thereby be restored.

The 2002 economic crisis had profound effects on Uruguay’s monetary and exchange rate policy. The continued devaluation of the Argentine peso and growing uncertainties as to the future of the Brazilian economy increased the risk of a speculative run on the peso. On June 19, 2002, Banco Central allowed the peso to float, abandoning the “crawling peg” system. The devaluation of the peso accelerated in July 2002, dropping to its lowest value of Ps.32.33 per US$1.00 on September 10, 2002. As of December 2002, the peso had depreciated 94.0% in comparison to December 2001, although the year-to-year inflation rate for the same period only reached 25.9%. The depreciation of the peso in turn caused a further deterioration in the quality of the foreign currency-denominated loan portfolio of several financial institutions. It also caused Uruguay’s foreign currency-denominated debt to GDP ratio to rise to 89.1% as of December 31, 2002, while the foreign currency-denominated debt service to exports ratio for 2002 was 33.6%.

The decrease in tax collections attributable to the reduction of GDP, together with the increase in debt service requirements (measured as a percentage of GDP) caused primarily by the devaluation (nearly all of Uruguay’s debt is denominated in foreign currency), practically neutralized the savings achieved by the central government during 2002. As a result, the consolidated public sector deficit for 2002 was approximately 4.1% of GDP. Nevertheless, by reducing expenditures (excluding interest payments), Uruguay’s public sector generated a primary surplus equal to 0.5% of GDP.

2003-2011: Recovery and Economic Growth

Uruguay’s economy stabilized during the second quarter of 2003 and began to recover during the balance of 2003, recording an annual real GDP growth of 0.8%. Growth accelerated in 2004, with real GDP increasing by 5.0%. This improvement was mainly a result of an increase in external demand driven primarily by Argentina’s economic recovery, an increase in the prices of commodities exported by Uruguay, the opening of the U.S. market to Uruguayan beef exports and a recovery in domestic demand spurred by improved consumer and investor confidence. GDP grew at a rate of 7.5% in 2005, and continued to grow at rates of 4.1% in 2006, 6.5% in 2007, 7.2% in 2008, 2.4% in 2009, 8.9% in 2010 and 5.7% in 2011.

 

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In 2007, domestic private consumption increased by 7.1% in real terms compared to 2006 and represented 70.0% of GDP. In 2008, domestic private consumption increased by 9.1% in real terms compared to 2007 and represented 69.4% of GDP. In 2009, domestic private consumption decreased by 0.3% compared to 2008 and represented 66.3% of GDP. In 2010, domestic private consumption grew by 13.7% compared to 2009 and represented 67.7% of GDP. In 2011, domestic private consumption grew by 8.2% compared to 2010 and represented 67.9% of GDP.

In 2007, gross fixed investment increased by 9.3% compared to 2006, representing 18.6% of GDP, with private gross fixed investment increasing by 6.4%. In 2008, gross fixed investment increased by 19.3% compared to 2007, representing 20.6% of GDP, with private gross fixed investment increasing by 18.7%. In 2009, gross fixed investment decreased by 4.9% compared to 2008, representing 19.3% of GDP, with private gross fixed investment decreasing by 10.8%. In 2010, gross fixed investment increased again by 11.8% compared to 2009, representing 18.8% of GDP, with private gross fixed investment increasing by 18.0%. In 2011, gross fixed investment increased by 5.5% compared to 2010, representing 19.0% of GDP, with private gross fixed investment increasing by 8.5%.

Gross domestic savings represented 16.9% of GDP in 2007, 15.9% of GDP in 2008, 17.8% of GDP in 2009, 16.4% of GDP in 2010 and 16.5% of GDP in 2011.

Exports of goods and services grew by 4.8% in 2007, 8.5% in 2008, 5.7% in 2009, 6.0% in 2010 and 5.8% in 2011. Imports of goods and services grew by 5.9% in 2007 and 24.4% in 2008, decreased by 6.8% in 2009 and increased again by 14.4% in 2010 and 11.2% in 2011.

The reprofiling of the government’s foreign currency denominated debt in June 2003 assisted in reducing the uncertainties and volatility that had affected the Uruguayan banking system. The deposits held by the non-financial private sector with the banking system (excluding deposits held with off-shore banks and financial houses), have recovered since the 2002 crisis and stood at US$10.6 billion at December 31, 2007, US$12.8 billion at December 31, 2008, US$15.3 billion at December 31, 2009, US$17.9 billion at December 31, 2010 and US$20.6 billion at December 31, 2011. Approximately 73.6% of those deposits were denominated in foreign currencies (primarily U.S. dollars) as of December 2011. During 2003, volatility diminished and the annual consumer price inflation rate dropped to 10.2% compared to 25.9% in 2002. At December 31, 2003, the peso had lost 7.8% of its nominal value with respect to the dollar compared to December 31, 2002, which nevertheless amounted to an appreciation of the peso in real terms. In 2004, annual consumer price inflation fell further to 7.6% in part reflecting the appreciation of the peso. The decline of the U.S. dollar in the international markets as well as the general improvement of the Uruguayan economy contributed to a significant appreciation of the peso in 2004. The downward trend in consumer price inflation continued in 2005, recording an annual rate of 4.9%. Starting in 2006, the annual rate of inflation accelerated, reaching 6.4% in 2006, 8.5% in 2007 and 9.2% in 2008. However, in 2009, the annual rate of consumer price inflation decreased to 5.9%. In 2010 and 2011, the annual rate of consumer price inflation increased to 6.9% and 8.6% respectively. The rate of inflation for the twelve month period ended May 31, 2012 was 8.1% as measured by the consumer price index. For a discussion of Uruguay’s current monetary policy see “Monetary Policy and Inflation—Monetary Policy.”

During 2002 and 2003, Uruguay received assistance from the international financial institutions and applied the proceeds to overcome certain of the constraints on Uruguay’s foreign currency reserves imposed by the crisis affecting the banking sector.

 

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Between March 2002 and December 2004, Uruguay received disbursements for a total of approximately US$3.8 billion from the IMF and other multilateral organizations, and made total principal payments to such entities of only US$744.0 million.

Since the reprofiling of its foreign currency denominated debt in 2003, Uruguay has implemented a liability management policy that prioritizes stretching out maturities, minimizing refinancing risks and reducing overall interest expense.

Uruguay accessed IMF funds through several stand-by facilities, initially agreed for a duration of three years in June 2005, for a total of Special Drawing Rights (“SDR”) 766.3 million (approximately US$1.1 billion) (the “2005 Stand-By Facility”). However, in August and November 2006 Uruguay made two prepayments to the IMF of SDR619.9 million (approximately US$916.4 million) and SDR727 million (approximately US$1.1 billion), respectively, thereby discharging in full all of Uruguay’s outstanding obligations to the IMF. Funds for the prepayment of the obligations were obtained by issuing bonds in the international capital markets as well as from reserves. Subsequent to the IMF’s completion of its final review under the 2005 Stand-By Facility on December 22, 2006, at the request of the Uruguay, the facility was terminated.

In May 2007, the World Bank’s Board of Executive Directors approved a US$100 million credit line for Uruguay under the First Programmatic and Reform Implementation Development Policy Program. The program seeks to support the implementation of the government’s economic and social reforms. The World Bank made the proceeds, denominated in Unidades Indexadas (“UI”), linked to CPI, available to Uruguay in 2008. This was the first time that the World Bank provided local currency financing to a member country. In February 2009, the World Bank approved a US$400 million credit line under the Second Programmatic and Reform Implementation Development Policy Program to support the government’s reform program and confront the impact of the international economic crisis.

On July 10, 2008, CAF approved a credit line for up to US$400 million to support the government’s liability management efforts. Uruguay drew US$280 million under this facility in February 2009, which were repaid in 2011.

In April 2009, the IADB approved a US$285 million loan to support the modernization and consolidation of Uruguay’s tax administration and to strengthen the management of the central government administration and the efficiency of public expenditure. In June 2009, Uruguay drew the full amount of the loan.

To provide liquidity to the global economic system, in August, 2009 the IMF approved a general allocation of funds to all of its members. Under this allocation, Uruguay received SDR227 million (approximately US$355.5 million) in August 2009, and an additional SDR16 million (approximately US$25.3 million) in September 2009.

In addition, in September 2009, Uruguay accessed the international capital markets issuing US$500.0 million aggregate principal amount of its 6.875% bonds due 2025.

In 2010, Uruguay prepaid loans with the IADB for an aggregate principal amount of US$300 million.

On October 14, 2010, the World Bank approved a new Strategic Partnership with Uruguay for the 2010-2015 period, allocating US$700.0 million to its implementation. Under this partnership, the World Bank approved an advance under the Second Programmatic and

 

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Reform Implementation Development Policy Program for an aggregate amount of US$100 million, to consolidate public administration efficiency, promote macroeconomic stability, increase Uruguay’s competitiveness, and generate greater social inclusion. This loan was disbursed in full in February 2011. On October 25, 2011, the World Bank approved an additional advance under the Second Programmatic and Reform Implementation Development Policy Program for an aggregate amount of US$260.0 million. This loan, which is available for disbursement for a period of three years, has not yet been disbursed.

Between May 2010 and January 2011, Uruguay issued, and offered in the domestic market, different series of medium and long term notes in pesos and in pesos linked to UI, for an aggregate principal amount equivalent to US$1.3 billion. Investors paid for an aggregate principal amount equivalent to US$1.1 billion of such bonds by tendering short-term securities of Banco Central.

On May 27, 2011, Uruguay issued a 1.64% Japanese Yen Bond due 2021 for an aggregate principal amount of ¥40.0 million (equivalent to US$491.0 million) guaranteed by the Japan Bank for International Cooperation.

In December 2011, Uruguay completed a series of liabilities management transactions, including the issuance of peso denominated linked to UI Global Benchmark Bonds due 2028, for an aggregated principal amount of US$2.0 billion. US$1.0 billion out of the proceeds of the issuance was applied to purchase certain dollar and Euro denominated short and medium-term bonds and an additional aggregate principal amount of US$725 million of UI Global Benchmark Bonds were issued in exchange for UI bonds due 2018.

In March 2012, Uruguay issued and offered bonds denominated in pesos and in pesos linked to UI in the domestic market for an aggregate principal amount equivalent to US$826 million. Investors paid for an aggregate principal amount equivalent to US$447 million of such bonds by tendering short-term securities of Banco Central.

The Economic Policies of the Mujica Administration

Continuing with the macroeconomic and fiscal policies of the Vázquez administration, the Mujica administration has prioritized macroeconomic stability and adjusted existing policies to the extent needed to pursue its main objectives, which include:

 

   

maintaining a prudent fiscal stance, which it recognizes as a condition to long term fiscal sustainability;

 

   

preserving the value of the currency and introducing inflation targeting as its principal monetary policy; and

 

   

strengthening commercial and political relationships with the Mercosur member countries while continuing to promote opportunities for Uruguayan exports and foreign direct investment in Uruguay in the context of bilateral arrangements that are consistent with the Mercosur agreements.

On December 27, 2010, President Mujica signed into law the five-year budget for the period 2010-2014. The budget reflects the government’s priorities of achieving long-term growth and debt-sustainability balanced with increases in infrastructure and social spending. See “Public Sector Debt—External Debt”.

 

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The Mujica administration continues to implement the “Plan de Equidad” (Fairness Plan) established by the Vázquez administration in 2007 to mitigate social and economic marginalization. The Fairness Plan involves a long-term effort to provide for care and development of children and teenagers. By supporting families in the lowest 20% of income distribution, the Plan seeks greater integration of this target population into the formal educational system as a means of combating poverty. It also provides support for impoverished elderly citizens, and seeks to improve medical support for the poor and to assist impoverished unemployed workers.

Privatizations

While privatizations have not been a major focus of Uruguay’s economic policy, the government has divested or privatized certain state-owned enterprises, such as the gas company servicing Montevideo in 1993, and has taken measures to transfer certain activities, such as sewage, garbage collection, road maintenance and the administration of certain ports and airports, to the private sector through concessions and other similar arrangements. Legislation has also been enacted enabling the government to open various components of the telecommunications and energy and gas sectors to private investment. Proceeds from privatizations have been immaterial to date.

The government is committed to improving the competitiveness of the Uruguayan economy and encouraging private investment by continuing to open a number of areas of the economy previously reserved to public sector enterprises to private investment. Through the Administración Nacional de Telecomunicaciones, or ANTEL, the local telecommunications company, several revenue sharing arrangements with private companies for the installation and operation of certain new telecommunication facilities have been implemented. In February 2001, Congress approved the licensing of cellular phone services and data transmission to private sector providers and opening the telecommunications sector (other than local fixed line services but including long distance) to private sector providers. In December 2002 and May 2004, licenses were granted to foreign telecommunications companies, to provide mobile telephone services. The government has also approved the provision of long distance international telephone services by 18 companies in competition with ANTEL. Fourteen of those companies have commenced operations.

The government also granted the Corporación Nacional Para el Desarrollo, or CND, a state-owned investment corporation, overall responsibility for the administration of a program of public works to be undertaken between 2003 and 2018. CND currently owns the concessions as well as 100% of the shares of Corporación Vial del Uruguay S.A, or CVU, a special-purpose company responsible for the projects. CVU and private companies have to date signed 50 contracts worth US$109 million for the construction of bridges and highways.

In 2001, the government issued a decree approving the provision of postal services by private sector entities in competition with the state-owned postal service. There are numerous companies currently operating in the Uruguayan postal service market.

In 2002, Congress passed a law authorizing the national oil refinery Administración Nacional de Combustibles, Alcohol y Portland, or ANCAP, to associate with private sector enterprises for the purpose of jointly carrying out oil refining and crude oil import activities, and doing away with the existing monopoly by 2006. However, the law was repealed in a plebiscite held on December 7, 2003.

 

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In September 2003, the government granted a 30-year concession to Puerta del Sur S.A. for the management and administration of the Montevideo airport.

In October 2004, a constitutional referendum was approved providing that only state-owned entities may provide services in the water and sewage sectors, however the state is permitted to employ private sector sub-contractors to complete portions of the work.

In July 2007, the government sold 75% of the equity of Pluna Airlines to Leadgate Investment Corporation (45%) and to Sociedad Aeronáutica Oriental S.A. (30%), and retained a 25% stake in the airline. The new company is called Pluna Líneas Aéreas S.A.

In 2011, Pluna incurred severe losses, and its liquidity and financial condition deteriorated severely. On June 15, 2012, Leadgate —the controlling shareholder—transferred all of its shares in Pluna to a trust under the surveillance of the Uruguayan government. In July 2012 Pluna suspended all flights and initiated a judicial reorganization procedure. The government submitted a bill to Congress proposing to reorganize the operations of the airline, including by disposing of the portion of Pluna’s fleet under pledge agreements. Under the proposed bill, the buyer of the airplanes will be given an option to acquire the routes and workforce from Pluna and to assume Pluna’s liabilities that have been assumed or guaranteed by the government. In addition, the bill proposes to create a US$9.3 million fund funded by the government to cover certain employee liabilities of Pluna. On July 16, 2012 Congress passed the bill.

In May 2008, the Executive Power enacted Decree 239/08 creating the “Uruguay Round 2009” program to be implemented by ANCAP, aimed at awarding private sector enterprises with hydrocarbon exploration and exploitation contracts in off-shore Uruguayan areas, totaling approximately 74,000 square meters. The areas were divided into 11 blocks, each ranging between 4,000 and 8,000 square kilometers in water depths between 50 and 1,450 meters, situated in the Punta del Este basin, the southernmost region of the Pelotas basin and the Oriental Del Plata basin. On December 9, 2009, under the “Uruguay Round 2009” program, ANCAP granted hydrocarbon exploration and exploitation contracts to a consortium comprising Repsol YPF (40%), Petroleo Brasileiro (40%) and Galp Energía (20%) to explore blocks 3 and 4 located in the Punta del Este basin. ANCAP has reserved the right to perform exploratory work in other blocks.

In September 2011, the Executive Power enacted Decree 259/11 creating the “Uruguay Round II” program to be implemented by ANCAP, aimed at hydrocarbons exploration and exploitation contracts in off-shore areas. In March 2012, ANCAP received 19 offers for off-shore oil exploration and exploitation on eight of the 15 blocks offered. These eight blocks cover more than 50% of the total area offered and were awarded to the British companies British Petroleum and British Gas, the French company Total and the Irish company Tullow Oil. Once the final approval is granted by the Uruguayan government, ANCAP will enter into contracts with such companies by September 2012. In addition, ANCAP entered into an agreement with the US company Schuepbach Energy and the Argentine company YPF S.A. to begin on-shore exploration for oil and gas in the north and centre of the country.

 

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The government does not have the current intention to seek any other amendment of the legal framework governing ANCAP’s activities, although it may still encourage ANCAP’s association with private sector firms in line with the current legal framework.

On August 11, 2011, the government enacted Law No. 18,786, creating and regulating public-private participation contracts for infrastructure and related services. This law establishes a new type of participation scheme between private investors and the government. The government believes this law will encourage foreign investment, mainly in infrastructure and energy projects.

Environment

The principal environmental concerns in Uruguay consist of industrial and urban pollution of water and soil. The Uruguayan Constitution provides for the right to a clean environment and Congress has enacted enabling legislation for the protection of the environment, including legislation which created the Ministry of Housing, Zoning and the Environment (Ministerio de Vivienda, Ordenamiento Territorial y Medio Ambiente) in 1990. Under a 1994 environmental law, potentially hazardous projects must be approved by the Ministry of Housing, Zoning and the Environment prior to their implementation. In addition to the Ministry of Housing, Zoning and the Environment, environmental supervision and regulation is carried out through many of the departments of the central government and state and municipal governments. In March 2000, Congress enacted a law creating a National System of Protected Natural Areas and granting the Executive Power the authority to incorporate, by decree, areas into this system and limit or prohibit certain activities within and around these protected areas.

Uruguay has received financing from the IADB for purposes of improving municipal infrastructure services for garbage collection and sewage treatment. The government presently requires environmental studies to be presented in connection with any proposals for construction and other projects. In addition, all projects financed by the IADB currently require environmental impact studies. Beginning in the late 1980’s, Uruguay also received a series of loans from the IADB to undertake cleaning up Montevideo’s coast, including the shoreline along the Río de la Plata.

In May 2006, Argentina brought a claim to the International Court of Justice (“ICJ”) against Uruguay under the Treaty of the Uruguay River, alleging that by authorizing the construction of certain pulp mills in the Fray Bentos region, along the shores of the Uruguay river, Uruguay failed to honor its obligations under the treaty.

On April 20 2010, the ICJ issued its final ruling on this dispute. Although the ICJ ruled that Uruguay breached certain procedural obligations under the Treaty of the Uruguay River, it did not find that any of the environmental damages claimed by Argentina had been proved and did not impose any remedial sanction on Uruguay. See “Balance of Trade—Foreign Investment.”

 

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GROSS DOMESTIC PRODUCT AND STRUCTURE OF THE ECONOMY

The following tables set forth information regarding GDP and expenditures for the periods indicated. The figures included in the table entitled “Gross Domestic Product by Expenditure” are based on current (nominal) prices for each year, whereas the percentage figures included in the table entitled “Change in Gross Domestic Product by Expenditure” are based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central in March 2009) to eliminate distortions introduced by changes in relative prices.

GDP and Expenditures

(thousands of 2005 pesos, except as otherwise indicated)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

GDP

   Ps.     471,380      Ps.     505,207      Ps.     517,422      Ps.     563,446      Ps.     595,564   

Imports of goods and services

     148,276        184,507        171,964        196,743        218,753   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total supply of goods and services

     619,656        689,714        689,386        760,189        814,317   

Exports of goods and services

     143,004        155,204        163,991        173,893        184,050   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total goods and services available for domestic expenditures

   Ps. 476,652      Ps. 534,510      Ps. 525,395      Ps. 586,295      Ps. 630,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allocation of total goods and services:

          

Consumption (public and private)

     386,088        421,305        421,796        472,259        508,228   

Gross investment (public and private)

     90,564        113,205        103,599        114,036        122,039   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic expenditures

   Ps. 476,652      Ps. 534,510      Ps. 525,395      Ps. 586,295      Ps. 630,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GDP growth (%) (2)

     6.5     7.2     2.4     8.9     5.7

 

(1) Preliminary data.
(2) % change from previous year, 2005 prices.

Source: Banco Central.

Gross Domestic Product by Expenditure

(% of total nominal GDP, unless otherwise indicated)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Government consumption

     11.5     12.2     13.4     12.9     13.0

Private consumption

     70.0        69.4        66.3        67.7        67.9   

Gross fixed investment

     18.6        20.6        19.3        18.8        19.0   

Public sector (% of gross fixed investment)

     4.2        4.8        6.1        5.2        4.7   

Private sector (% of gross fixed investment)

     14.4        15.7        13.2        13.6        14.3   

Exports of goods and services

     29.1        30.2        28.0        26.8        27.1   

Imports of goods and services

     30.1        35.0        27.2        26.0        27.3   

Savings

     16.9        15.9        17.8        16.4        16.5   

 

(1)

Preliminary data.

Source: Banco Central.

 

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Change in Gross Domestic Product by Expenditure

(% change from previous year except as otherwise indicated, 2005 prices)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Government consumption

     4.7     9.3     3.1     0.8     3.0

Private consumption

     7.1        9.1        (0.3     13.7        8.2   

Gross fixed investment

     9.3        19.3        (4.9     11.8        5.5   

Public sector (% of gross fixed investment)

     20.7        21.4        15.6        (4.7     (4.3

Private sector (% of gross fixed investment)

     6.4        18.7        (10.8     18.0        8.5   

Exports of goods and services

     4.8        8.5        5.7        6.3        5.8   

Imports of goods and services

     5.9        24.4        (6.8     14.4        11.2   

 

(1)

Preliminary data.

Source: Banco Central.

Principal Sectors of the Economy

In spite of the adverse international economic and financial environment, GDP increased by 5.9% in real terms in 2011, after growing by 8.9% in 2010 and by 2.4% in 2009, in each case with respect to the prior year. High commodity export prices have supported the improved performance of the agriculture, livestock and fishing and the manufacturing sectors since 2006. However, the Uruguayan economy relies heavily on services, including the commerce, restaurants and hotels sector, which involves a wide range of tourism services, the financial and insurance sector, the real estate and business services sector and the government sector. In all, services accounted for approximately 43.4% of GDP in 2011. Manufacturing and agriculture, livestock and fishing accounted for 19.8% of GDP in 2011.

In 2011, growth was driven mainly by internal and external demand of products and services. The most significant sectors that contributed to GDP growth were commerce, restaurants and hotels, and transportation, storage and communications. Commerce, restaurants and hotels grew by 9.9% compared to 2010 mainly due to an increase in consumption of fuel and imported products and growth in tourism activities. Transportation, storage and communications grew by 12.6% mainly driven by communications, reflecting a growth in the use of mobile communication.

The following tables set forth the components of Uruguay’s GDP and their respective growth rates for the periods indicated. The discussion of the various sectors follows the order in which the sectors are presented in the tables. The percentages and figures included in the table entitled “Gross Domestic Product by Sector” are based on current (nominal) prices for each period, whereas the percentage figures included in the table entitled “Change in Gross Domestic Product by Sector” are based on 2005 prices to eliminate distortions introduced by changes in relative prices.

 

D-23


Gross Domestic Product by Sector

(in millions of US$ and % of GDP, nominal prices)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Agriculture, livestock and fishing

   US$ 1,995         8.5   US$ 2,786         9.2   US$ 2,514         8.2   US$ 3,139         8.0   US$ 3,953         8.5

Mining

     62         0.3        90         0.3        92         0.3        110         0.3        134         0.3   

Manufacturing

     3,223         13.7        4,542         14.9        4,011         13.1        4,741         12.0        5,281         11.3   

Electricity, gas and water

     756         3.2        228         0.8        434         1.4        1,264         3.2        923         2.0   

Construction

     1,507         6.4        2,058         6.8        2,248         7.4        2,945         7.5        3,829         8.2   

Commerce, restaurants and hotels

     3,184         13.6        4,381         14.4        4,312         14.1        5,537         14.0        6,854         14.7   

Transportation, storage and communications

     1,823         7.8        2,287         7.5        2,212         7.2        2,787         7.1        3,112         6.7   

Real estate and business services

     3,235         13.8        4,227         13.9        4,501         14.7        5,858         14.9        7,057         15.1   

Financial and insurance services

     1,138         4.8        1,321         4.3        1,317         4.3        1,683         4.3        1,997         4.3   

Services of the government

     1,984         8.5        2,606         8.6        2,949         9.7        3,652         9.3        4,324         9.3   

Other community, social and personal services

     1,984         8.5        2,693         8.9        2,851         9.3        3,621         9.2        4,328         9.3   

Net adjustments for payments made by financial institutions and import tariffs

     2,577         11.0        3,167         10.4        3,078         10.1        4,094         10.4        4,945         10.6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

GDP (in millions of US$ at nominal prices)(2)

   US$ 23,468         100.0   US$ 30,387         100.0   US$ 30,519         100.0   US$ 39,429         100.0   US$ 46,735         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

GDP per capita

   US$ 7,060         US$ 9,114         US$ 9,124         US$ 11,747         US$ 13,874      

 

(1)

Preliminary data.

(2)

Figures are not adjusted by purchasing power.

Source: Banco Central.

Change in Gross Domestic Product by Sector

(% change from previous year, 2005 prices)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Agriculture, livestock and fishing

     (10.2 )%      2.1     1.6     0.5     4.4

Mining

     6.3        1.7        0.3        2.1        7.3   

Manufacturing

     8.3        8.1        (3.7     3.6        1.2   

Electricity, gas and water

     50.2        (51.1     15.6        88.0        (25.6

Construction

     9.3        2.6        0.7        3.7        6.5   

Commerce, restaurants and hotels

     8.7        11.9        1.4        13.6        9.9   

Transportation, storage and communications

     16.1        30.7        12.5        17.6        12.6   

Real estate, business, financial and insurance services

     2.6        4.5        1.5        4.5        7.7   

Other services(2)

     3.6        4.6        3.8        1.8        2.7   

Total GDP

     6.5     7.2     2.4     8.9     5.7

 

(1)

Preliminary data.

(2)

Includes public sector services and other services.

Source: Banco Central.

Agriculture, Livestock and Fishing

Uruguay’s territory consists primarily of vast plains, which, combined with its temperate climate, make the country well suited for agriculture and livestock. This sector grew between 2007 and 2011 driven by cereal and oil production fueled by high international commodity prices, as well as by milk production. Cereal and oil production grew 3.1% (2007), 24.1% (2008) and 17.6% (2009) primarily as a result of increased soybean production during these years and record production of wheat in the years 2007, 2008 and 2009. In 2010, cereal and oil production contracted by 6.7%, mainly as a result of the decrease in wheat production. However, in 2011, cereal and oil production increased by 17.3% driven again by a recovery in wheat production. Although the existing cattle stock satisfied the increasing external demand from 2007 through 2011, milk and cattle production were affected by adverse climate conditions and a

 

D-24


contraction of international markets in 2007 and in the first half of 2009. Growth in milk production recovered in 2010 with a 4.3% increase. Growth in milk production continued in 2011, increasing by 16.6% compared to 2010. From 2007 to 2010 cattle production remained stable. However, during 2011 cattle production contracted 1.5% primarily due to the effects of droughts.

The following table sets forth the production of selected primary goods for the periods indicated.

Selected Primary Goods Production

(in millions of US$, except as otherwise indicated)

 

     2007      2008(1)      2009(1)      2010(1)      2011(1)  

Cereals and oil products

   US$ 1,068       US$ 2,013       US$ 1,740       US$ 1,760       US$ 2,473   

Rice

     231         392         300         399         425   

Wheat

     209         542         499         329         622   

Soybean

     166         321         409         548         636   

Pastures

     251         395         224         217         264   

Vegetables and fruits

     360         430         436         468         523   

Milk

     333         533         320         481         731   

Livestock except milk

     1,375         1,692         1,364         1,832         2,276   

Cattle

     1,139         1,352         1,031         1,440         1,825   

Wool

     80         72         55         61         90   

Forestry

     211         318         280         393         413   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total agricultural production

   US$ 3,347       US$ 4,985       US$ 4,140       US$ 4,933       US$ 6,415   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cattle (in thousands of heads slaughtered)

     2,255         2,276         2,326         2,248         2,011   

Milk (in millions of liters)

     1,328         1,531         1,473         1,552         1,851   

Wool (in tons)

     40,953         36,246       US$ 35,623       US$ 30,100       US$ 30,700   

 

(1)

Preliminary data.

Source: Banco Central.

The following tables set forth percentage changes from prior years for agricultural and livestock production for the periods indicated, based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Agricultural and Livestock Production

(% change from previous year, 2005 prices)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Cereals and oil products

     (0.3 )%      24.1     17.6     (6.7 )%      17.3

Rice

     7.1        2.0        (5.3     24.6        2.7   

Wheat

     15.2        90.8        37.0        (24.5     48.6   

Soybean

     (14.6     40.7        58.6        10.3        (1.9

Pastures

     4.5        (9.0     (27.2     (2.5     0.2   

Vegetables and fruits

     (1.1     (8.3     (3.3     4.2        (2.0

Milk

     (10.9     19.3        (3.1     4.3        16.6   

Livestock except milk

     (3.8     (1.7     1.4        0.3        (1.5

Cattle

     (2.8     (5.6     (3.4     3.3        (2.3

Wool

     (6.9     (11.5     (3.8     (15.5     2.0   

Forestry

     7.5        11.8        0.2        9.8        0.0   

Total agricultural production

     (2.5 )%      8.3     6.2     (1.1 )%      7.1

 

(1)

Preliminary data.

Source: Banco Central.

 

D-25


Mining

The mining sector mainly consists of stone and sand quarries. These products are used primarily in construction. Other contributors to the mining sector include smaller operations for the mining of gold and semi-precious stones, such as agate and amethyst. Mining has remained relatively constant as a percentage of GDP from 2007 through 2011 at approximately 0.3%. Uruguay has no known oil or natural gas reserves, although exploratory work has been undertaken in the coastal region. Several projects have been developed in Uruguay over the past years for the mining of nickel, copper and diamonds, without any findings. At present, a project for the mining of iron ore is being developed.

Manufacturing

Manufacturing is an important sector of Uruguay’s economy, accounting for 11.3% of GDP in 2011. In 2007, manufacturing grew by 8.3% in real terms compared to 2006, driven by an increase in foodstuffs and chemical production. In 2008, the manufacturing sector grew by 8.1% in real terms compared to 2007. Growth was fueled by pulp and paper activities, resulting from a pulp mill coming on line in mid-November 2007, foodstuffs and oil refined products. In 2009, however, as a result of the impact of the international economic crisis on trade, the manufacturing sector contracted by 3.7% in real terms. In 2010, manufacturing grew by 3.6%, compared to 2009, mainly due to increased production of pulp, paper and chemicals. In 2011, manufacturing grew in real terms by 1.2% driven by foodstuffs and chemicals production, which increased by 3.6% and 11.0%, respectively, offsetting decreases in oil and refined products, and textiles.

The following tables set forth information regarding goods production for the periods indicated.

Selected Manufacturing Goods Production

(in millions of US$)

 

     2007      2008(1)      2009(1)      2010(1)      2011(1)  

Foodstuffs:

              

Processed meats

   US$ 1,710       US$ 2,357       US$ 2,058       US$ 2,536       US$ 3,063   

Dairy products

     651         1,025         779         1,014         1,393   

Wheat and rice mills

     485         793         682         663         791   

Baked goods

     450         647         653         809         913   

Other foodstuffs

     993         1,210         1,446         1,242         1,470   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total foodstuffs

     4,288         6,031         5,318         6,264         7,629   

Beverages

     427         603         591         666         797   

Tobacco

     69         77         85         69         80   

Textiles

     724         781         540         571         631   

Leather goods

     365         307         203         235         376   

Chemicals

     1,298         1,662         1,455         1,830         2,276   

Oil and refined products

     992         1,740         1,246         1,434         1,255   

Machinery

     726         938         810         883         1,002   

Other industries

     1,862         3,032         2,386         3,286         3,522   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 10,752       US$ 15,170       US$ 12,634       US$ 15,237       US$ 17,568   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Preliminary data.

Source: Estimates based on data of Banco Central and the National Statistics Institute.

 

D-26


Manufacturing Production

(% change from previous year, 2005 prices)

 

     2007     2008(1)     2009(1)     2010(1)     2011(1)  

Foodstuffs:

          

Processed meats

     (10.2 )%      1.4     6.6     (2.1 )%      (2.3 )% 

Dairy products

     3.9        11.0        1.4        1.7        20.3   

Wheat and rice mills

     13.0        4.7        10.0        (9.1     13.3   

Baked goods

     9.6        5.0        1.9        2.6        (0.7

Total foodstuffs

     0.5        5.2        3.6        (1.6     3.6   

Beverages

     5.4        6.1        1.6        1.9        1.2   

Tobacco

     3.0        (6.0     (3.2     5.6        1.4   

Textiles

     4.0        (4.3     (24.2     (5.8     (5.9

Leather goods

     (1.7     (19.7     (22.5     5.8        29.8   

Chemicals

     10.0        4.4        (2.2     13.8        11.0   

Oil and refined products

     (16.4     30.5        (5.0     (1.8     (27.6

Machinery

     12.1        5.6        (7.9     (0.8     2.4   

Total

     2.5     11.5     (3.4 )%      3.0     1.3

 

(1)

Preliminary data.

Source: Banco Central.

Electricity, Gas and Water

Energy consumption in Uruguay consists of oil and gas, electricity and wood. Electricity is produced primarily from hydroelectric sources and is provided by Usinas y Transmisiones Eléctricas or UTE, a state-owned entity. Electricity can be imported freely and Uruguay imports electricity from Argentina and Brazil. In 2009, Uruguay and Brazil agreed to build an electrical transmission line between San Carlos (Uruguay) and Candiota (Brazil), with an intermediate frequency converter in Cerro Largo (Uruguay), with financing expected to be provided by the Structural Funds of the Mercosur and the Banco Nacional de Desenvolvimiento Economico e Social of Brazil or another Brazilian financial institution. The Uruguayan government expects this line to be operative in 2013. The country imports all of its oil and gas supplies from various international sources and has a state-owned oil refining company, ANCAP. Uruguay’s economy is therefore vulnerable to increases in international oil prices. With a view to reduce oil imports, ANCAP invested in biodiesel plants that became operative in 2009. To increase its fuel transportation capacity, ANCAP has also recently invested in vessels. The government also launched the Uruguay Round 2009 and the Uruguay Round II, and during 2009 and 2012, respectively, awarded private sector enterprises with hydrocarbon exploration and exploitation contracts in off shore Uruguayan areas. See “The Economy – Privatizations”. Natural gas can be imported freely, and its distribution and transportation have been opened to private investment. In February 2011, Uruguay and Argentina signed a memorandum of understanding for the construction of a regasification vessel to be located near the city of Montevideo, which will provide approximately 10 million cubic meters of natural gas to both countries on a daily basis for 15 years, beginning in 2013.

 

D-27


The electricity, gas and water sector’s performance has varied over the past five years, mainly as a result of the electricity sector’s performance, which in turn depends on the type of electricity generated (thermoelectric and/or hydroelectric). In 2007, the electricity, gas and water sector grew by 50.2% in real terms driven by a generalized increase in production of all items, which improved its performance compared to 2006. The improved results in the electricity segment in 2007 were largely attributable to increased production of hydroelectric energy, sold in the domestic market as well as abroad. In 2008, the electricity, gas and water sector decreased as compared to its previous year. This was caused by an increase in thermoelectric generation, due to insufficient hydroelectric generation as a result of droughts. In 2009, the electricity, gas and water sector grew by 15.6% in real terms, driven primarily by the shift from oil-based to hydroelectric sources of generation as a consequence of the end of the drought that affected the Uruguayan basin in 2008. In 2010, the sector grew by 88.0% in real terms due to an increased use of hydroelectric source of electricity generation. In 2011, droughts affected the Uruguayan basin again and the electricity, gas and water sector contracted by 25.6% in real terms compared to 2010.

Construction

The construction sector grew at annual rates of 9.3%, 2.6% 0.7% 3.7% and 6.5% in real terms, in 2007, 2008, 2009, 2010 and 2011, respectively, fueled by public and private sector investment, including in 2007 the construction of a paper pulp mill in Fray Bentos, and more recently commercial real estate in Maldonado.

Commerce, Restaurants and Hotels

In 2007, the commerce, restaurants and hotels sector grew by 8.7%, driven by an increase in the average expenditure by tourist as well as by demand for these services by local households. In 2008, the sector grew by 11.9% in real terms, driven primarily by an increase in wholesale and retail trade services (mainly imported goods) and an expansion of the restaurants and hotels activities. In 2009, this sector grew only 1.4%, recording an increase in local demand for restaurants and hotel services which was practically offset by the contraction of tourist demand, reflecting the impact of the international crisis on tourism generally. In 2010, the sector grew by 13.6% in real terms, driven primarily by higher sales of motor vehicles and imported goods, and by an increase in the number of tourists and in expenditures by tourists. In 2011, this sector grew by 9.9% in real terms mainly due to the increase in consumption of fuel and imported products and growth in tourism activities. The commerce, restaurants and hotels sector accounted for approximately 14.7% of GDP in 2011.

Transportation, Storage and Communications

In 2007 this sector grew by 16.1%, due to both an increase in transportation (mainly of passengers) as well as communications activities. In 2008 and 2009, the sector grew at rates of 30.7% and 12.5% in real terms, respectively, primarily due to the increase in the demand for mobile phone services. In 2010 and 2011, the sector grew by 17.6% and 12.6% in real terms, respectively, mainly due to an increase in communications (as a consequence of the continued investment in mobile technologies) and transportation activities (primarily supporting and auxiliary transport activities).

 

D-28


Real Estate, Business, Financial and Insurance Services

The real estate and business sector and the financial and insurance services sector grew by 20.06% in the 2010-2011 period. This growth was driven primarily by the financial and insurance services sector and by the business services segment, as a result of a trend in the manufacturing sector to sub-contract administrative, maintenance and cleaning services. Real estate services also grew during this period driven by tourism rentals and purchases.

Uruguay established a strong reputation as a regional financial center in the early 1980’s, primarily due to its free foreign exchange and capital markets, which were liberalized in 1974, its banking and tax reporting secrecy legislation, and its low tax rates. During periods of economic turmoil in the region, such as 1995, 1998 and 2001, Uruguay’s financial sector saw deposits from foreign sources increase as depositors sought a safer haven for their savings.

Beginning in 2002, Uruguay’s financial sector was significantly affected by Argentina’s crisis. Large withdrawals of deposits during 2002 significantly exceeded the liquidity of four private banks (including the two largest private banks which were branches of Argentine based banks), which ceased to operate and entered a liquidation stage. Through multilateral financial support from the IMF, the World Bank and the IADB, the government was able to provide the necessary liquidity to government-owned banks and to the three largest private banks to honor sight deposits existing as of July 30, 2002, thereby mitigating to some extent the impact of the crisis of the banking sector on the economy as a whole.

The financial and insurance services sector’s contribution to GDP has grown at a slower pace since 2002 compared to other sectors of the economy. However, since 2008, the financial and insurance services sector’s contribution to GDP has been improving.

Role of the State in the Economy

The government continues to participate in the economy through state ownership of certain companies. The government, however, has emphasized its willingness to prepare state-owned companies for competition, as it takes measures to reduce further barriers to trade and to deregulate markets. It has also stated its intention to draw clearer distinctions between the role of the state as a regulator and as a shareholder or owner of commercial enterprises. In that respect, a number of regulatory entities were created to monitor the telecommunications, water, electricity, railway freight, oil and sanitation sectors. Since 1999, legislation has been passed to allow the private sector to participate in the provision of telephone (other than fixed line) and railroad services, in the administration of maritime ports, in the importation and distribution of natural gas and in certain other areas of the economy previously restricted to the public sector.

At present, the government owns:

 

1. the local telecommunications company (ANTEL);

 

2. the oil refinery company (ANCAP);

 

3. the electric power utility (UTE);

 

D-29


4. the water and sewage authority, Obras Sanitarias del Estado (OSE);

 

5. Administración Nacional de Puertos (ANP), which operates most of Uruguay’s ports;

 

6. Administración de Ferrocarriles del Estado (AFE), which operates railway freight services;

 

7. Banco de la República and Banco Hipotecario (state-owned financial institutions);

 

8. Banco de Seguros del Estado (an insurance company); and

 

9. Administración Nacional de Correos, a postal services company that competes with several private sector companies.

UTE provides electric power and services to Uruguay. With the exception of Salto Grande, a binational hydroelectric facility jointly owned by the Uruguayan and Argentine governments, UTE owns and operates all of the hydroelectric generation plants in Uruguay. It also owns and operates several thermoelectric and gas facilities and all of Uruguay’s electricity transmission assets. UTE currently provides all of the domestic electricity services in Uruguay, although under recent legislative measures and presidential decrees the private sector may engage in generation activities and industrial consumers should soon be able to purchase energy directly from foreign sources taking advantage of interconnection arrangements with Brazil and Argentina.

ANTEL has been the traditional provider of domestic and international long-distance telephone services in Uruguay. The company also provides basic telephone service in localities outside major urban areas, and has developed rural telephone services.

OSE is Uruguay’s largest water company, providing water and sanitation services to all of the country and sewage services outside Montevideo.

ANCAP is the national oil refinery, responsible for processing the crude oil imported by Uruguay and marketing refined products.

Uruguay imports all the natural gas it consumes. ANCAP and privately owned companies run the gas transportation and distribution business within a regulatory framework based on the granting of concessions contracts and decrees of the government. With the aim of diversifying the energy matrix and obtaining a constant supply of natural gas, a joint commission was established with representatives from the governments of Uruguay and Argentina to implement actions for the construction of a liquid natural gas production plant in Uruguay.

For a description of the functions and operations of Banco de la República and of Banco Hipotecario, see “The Banking Sector.”

During the past ten years, non-financial state-owned enterprises have in the aggregate recorded operating profits in spite of the slowdowns experienced in the energy sector, affecting mainly ANCAP and UTE, during 2008. In 2008, UTE’s costs of operations were adversely affected by the combination of high oil prices and a severe drought, which heavily affected UTE’s results given the impossibility of fully passing the increased generation costs on to

 

D-30


consumers. Record high crude oil prices during 2008 also impacted on ANCAP’s oil refinery costs generating an operating deficit during 2008. This situation was reversed in 2009 and both enterprises recorded a surplus.

During 2010, the government focused on the long-term management of the results of operations of the state-owned enterprises and established an energy stabilization fund to reduce the impact of droughts and mitigate the need to introduce abrupt rate adjustments affecting consumers. UTE made an initial contribution of US$150.0 million to the fund. In 2010, the current primary result of the state-owned enterprises continued to recover, particularly UTE. Due to favorable weather conditions, UTE was able to meet demand for electricity through hydro-generation, reducing to a minimum the use of its power stations. By maintaining its pricing policy, aligned to the cost structure of generation, UTE was able to restructure its assets and cancel liabilities incurred in 2009.

In 2011, ANCAP recorded losses mainly as a consequence of the partial absorption by ANCAP of the increased cost of crude oil imports (the balance being covered by the energy stabilization fund created in 2010). In addition, in a context of high oil prices, ANCAP’s refinery plant was shut down for several weeks to build a desulfuration facility, which in turn required ANCAP to import additional volumes of refined products. In 2011, UTE recorded gains, although significantly lower than in 2010, as a consequence of the increased cost of fuel power generation.

On August 11, 2011, the government enacted Law No. 18,786, creating and regulating public-private participation contracts for infrastructure and related services. This law establishes a new type of participation scheme between private investors and the government. The government believes this law will encourage foreign investment, mainly in infrastructure and energy projects.

At this time the government has no plans to privatize any public sector enterprises.

The following table sets forth selected financial data for the principal state-owned enterprises as of the dates and for the periods indicated.

 

D-31


Principal Public Sector Enterprises

(in millions of US$)(1)

 

     Total Assets      Total Liabilities      Net Profits     Percentage of
State Ownership
 

ANCAP(2)

     2,555         1,417         (95     100

ANP(2)

     783         87         13        100

AFE(1)

     208         19         (33     100

ANTEL(2)

     1,991         228         156        100

OSE(2)

     1,885         317         55        100

UTE(2)

     5,812         942         142        100

 

(1) Preliminary data.
(2) Data as of and for the year ended December 31, 2011. Converted into U.S. dollars at the rate of Ps.19.898 per US$1.00, the market rate on December 31, 2011.

Source: Financial statements of each public enterprise.

Employment, Labor and Wages

Employment

The employment rate rose to 56.7% in 2007, 57.7% in 2008, 58.5% in 2009, 58.4% in 2010, reaching 60.7% in 2011. Unemployment declined steadily from 9.5% in 2007 to 6.0% in 2011. The continued recovery of the economic activity in Uruguay since 2004 explains the continued decrease in the nationwide unemployment rate to date.

The following table sets forth certain information regarding employment and labor in Uruguay as of the dates indicated.

Employment and Labor

(% by population)

 

     As of December 31,  
     2007     2008     2009     2010     2011  

Nationwide:

          

Participation rate(1) (2)

     62.7     62.5     63.1     62.7     64.5

Employment rate(3)

     56.7        57.7        58.5        58.4        60.7   

Unemployment rate(4)

     9.5        7.7        7.3        6.8        6.0   

Montevideo:

          

Participation rate(1) (2)

     64.3        63.8        64.8        64.9        66.8   

Employment rate(3)

     58.4        59.2        59.9        60.4        62.6   

Unemployment rate(4)

     9.1        7.3        7.6        6.9        6.2   

 

(1) 

To be considered employed, a person above the minimum age requirement (14 years old) must have worked at least one hour with remuneration or fifteen hours without remuneration during the preceding week.

(2) 

Labor force as a percentage of the total population above the minimum age requirement.

(3) 

Employment as a percentage of the total population above the minimum age requirement.

(4) 

Unemployed population as percentage of the labor force.

Sources: Instituto Nacional de Estadística (INE) and Banco Central.

The composition of employment by activities in Uruguay generally reflects the composition by activities of the GDP. Unionized labor in Uruguay is concentrated primarily in the public sector and the manufacturing, construction and financial services sectors of the economy.

 

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The following table sets forth information regarding the percentage of the labor force by sector of the economy for the periods indicated.

Labor force (1)

(% by sector)

 

     2007     2008     2009     2010     2011  

Agriculture, livestock, fishing and mining

     5.2     4.9     4.9     4.9     4.2

Manufacturing, electricity, gas and water, and construction services

     22.5        22.3        21.9        22.3        22.2   

Services

     72.3        72.8        73.3        72.8        73.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Refers to population in cities over 5,000 inhabitants.

Source: Instituto Nacional de Estadística (INE).

Since Uruguay’s return to democratic rule, unions have declined in power and importance. Nonetheless, strikes and other actions by unions have occurred on occasion, normally in the form of general, one-day strikes. In cases of strikes which threaten to have a material adverse effect on private or public sector functions, the government can declare that the labor functions which are the subject of the strike provide “essential services” to the country, thereby making the strike illegal. In various instances during the past ten years, the government has threatened to disband or in fact disbanded strikes on the basis that the services provided were essential to the country. According to the “Indice de conflictividad laboral” (labor conflict index) published by Universidad Católica del Uruguay, conflicts increased during 2007 and 2008 as a result of labor union demands for improvements in salaries and working conditions. In 2009, labor conflicts decreased compared to 2008. In 2010 conflicts increased as compared to 2009, in anticipation of the negotiations of the collective bargain agreements that preceded the presidential election. In 2011 conflicts increased slightly as compared to 2010.

Wages

The following table sets forth information about wages for the periods indicated.

Average Real Wages

(annual average % change from previous year,

unless otherwise indicated)

 

     2007     2008     2009     2010     2011  

Average real wages

     4.8     3.5     7.3     3.3     4.0

Public sector

     5.2        3.6        6.0        2.8        2.6   

Private sector

     4.5        3.5        8.0        3.6        4.9   

 

Source: Instituto Nacional de Estadística (INE).

After 2006, increases in real wages were discussed within the context of a collective bargaining mechanism involving the principal sectors of the economy, with government participation in the negotiations. During 2007, the increase in real wages in the public sector was 5.2% and real wage increases for the private sector was 4.5%, while in 2008 the average increase in public sector real wages was 3.6% and 3.5% in private sector real wages. Real wages increased 7.3% during 2009 due to an increase of 6.0% in public sector wages and 8.0% in private sector wages. In 2010, real wages increased by 3.3% on average, with an increase in

 

D-33


public sector real wages of 2.8% and an increase in private sector real wages of 3.6%. In 2011, real wages increased by 4.0% on average, with an increase in public sector real wages of 2.6% and an increase in private sector real wages of 4.9%. Under the collective bargaining rules, each private sector of the economy negotiates wage increases twice a year while the public sector does it once a year.

Poverty and Income Distribution

Poverty levels in Uruguay have decreased sharply in recent years due to the economic recovery. According to the most recent estimates of the National Statistics Institute, the percentage of Uruguayan urban households with an income below the minimum amount needed to purchase essential food and non-food requirements was 9.5% in 2011, compared to 21.9% in 2007.

While Uruguay has disparities in the distribution of wealth and income, which decreased in recent years, such disparities are of a lesser magnitude than those of other Latin American nations such as Brazil, Colombia, Chile, Argentina, Mexico and Venezuela. As set forth in the table below, in 2010, 32.0% of the income in urban households in Uruguay was concentrated in the hands of the top 10.0% of the economically active population as compared to 46.1% of the income in urban households for Brazil, 36.0% for Costa Rica, 36.1% for Mexico, 42.9% for Chile and 39.7% for Argentina (the percentages of Brazil and Chile are for the year 2009).

The following table outlines the data on income distribution for the periods indicated.

Evolution of Income Distribution of Urban Households Population of Uruguay

(% of national income)(1)

 

Income Group

   2005     2007     2008     2009     2010  

Lowest 40%

     13.9     13.8     14.2     14.9     15.4

Next 30%

     23.3        23.1        23.7        23.9        24.2   

Next 20%

     28.1        28.5        28.4        28.2        28.4   

Highest 10%

     34.7        34.7        33.7        33.0        32.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) No information available for 2006 and 2011

Source: CEPAL.

The government has sought to address problems relating to poverty through health care accessibility and other measures. See “The Economy – The Economic Policies of the Mujica Administration.” Uruguay has a public health system that gives access to services on a sliding-scale basis, where fees are based on a citizen’s ability to pay, and guarantees medical care for workers. The government also maintains funds for the extraordinary medical expenses of the needy.

 

D-34


FOREIGN MERCHANDISE TRADE

Uruguay’s exports primarily comprise commodities (farm products and paper pulp).

In 2007, merchandise exports increased by 14.1% (measured in U.S. dollars) compared to 2006, driven by the increase in exports of chemical and meat products. In 2008, merchandise exports increased by 37.8% (measured in U.S. dollars) compared to 2007, mainly as a result of exports of paper pulp, processed meat and agricultural products. In 2009, merchandise exports decreased by 8.4% (measured in U.S. dollars) compared to 2008, as a result of a decrease in exports of manufactured products. In 2010, merchandise exports increased by 25.5% (measured in U.S. dollars) compared to 2009, as a result of the increase in exports of paper pulp, processed meat, agricultural products and dairy products. In 2011, merchandise exports increased by 15.7% (measured in U.S. dollars) compared to 2010, mainly due to an increase in exports of processed meats, dairy products and motor vehicles and parts.

In 2007, merchandise imports grew by 17.1% (measured in U.S. dollars) compared to 2006, driven by a general increase in all imported items, especially the intermediate goods. In 2008, merchandise imports increased by 61.1% (measured in U.S. dollars) compared to 2007. In 2009, merchandise imports decreased by 23.9% (measured in U.S. dollars) compared to 2008, due to a significant decrease in imports of intermediate goods. In 2010, merchandise imports increased by 24.8% (measured in U.S. dollars) compared to 2009, as a result of a general increase in all imported items, mainly motor vehicles and consumption goods. In 2011, merchandise imports grew by 24.4% (measured in U.S. dollars) compared to 2010, driven by an increase across all imported items, which was particularly strong for intermediate and consumption goods.

A significant portion of Uruguay’s merchandise trade has involved its neighbors and principal trading partners, Argentina and Brazil. With the initial consolidation of the Mercosur in the 1990’s, Brazil and Argentina became Uruguay’s principal trading partners. By 1998, those two countries together accounted for more than 50% of Uruguay’s exports. This regional concentration has subjected Uruguay’s economy to the volatility that has characterized the economies of Uruguay’s neighbors. To mitigate the adverse impact on Uruguay’s foreign trade resulting from imbalances that develop within Mercosur, the government has actively promoted Uruguayan exports in markets outside Mercosur within the framework of regional as well as bilateral agreements. The increased competitiveness of Uruguayan exports since 2002 initially resulted in exports to the region becoming less significant as a percentage of Uruguay’s total exports. In addition to its bilateral free trade agreement with Mexico, which became effective on July 15, 2004, on June 11, 2004 Uruguay and Iran signed a framework agreement to promote bilateral trade. Uruguay will also seek to take advantage of opportunities to increase its exports that may arise from the agreements reached by Mercosur with each of Israel and Venezuela in 2005, with Egypt in 2010. In December 2011, Mercosur members entered into a free trade agreement with Palestine.

Mercosur member states remain the main destination of Uruguay’s exports and source of its imports. Exports to Argentina and Brazil accounted for 24.1% of total exports in 2007, 22.2% in 2008, 23.4% in 2009, 25.8% in 2010 and 24.7% in 2011. Even more significantly, Argentina and Brazil accounted for 45.7% of total imports in 2007, 42.6% in 2008, 44.7% in 2009, 35.3% in 2010 and 38.1% in 2011. In 2011, exports to Brazil included plastics, cereals, milk and dairy products, exports to Argentina were concentrated in motor vehicles and parts, paper and plastics, and Venezuela was the destination primarily of milk and dairy products.

 

D-35


The United States is another of Uruguay’s major trading partners. While Uruguay’s merchandise imports from the United States have fluctuated in recent years (as a percentage of total imports) decreasing to 6.8% in 2005 and recovering to 7.3% in 2007, the United States attracted an increasing percentage of Uruguay’s total merchandise exports after the 2002 crisis reaching a historical record of 21.1% of total exports in 2005, and accounting for 10.1% of total exports in 2007. Exports to United States declined significantly in 2008, accounting for only 3.2% of total exports due to a decline in the demand by the United States mainly of processed meats. In 2009, the weight of exports to the United States decreased further to 2.9% of total exports, while imports of goods from the United States accounted for 8.2% of total imports. In 2010, exports to the United States once again decreased to 2.5% of total exports while imports accounted for 9.9% of total imports. In 2011, the weight of exports to the United States slightly increased to 2.7% of total exports whereas imports accounted for 10.3% of total imports.

Uruguay has diversified and increased substantially its merchandise exports over time. After peaking at US$2.8 billion in 1998, merchandise exports decreased to US$1.9 billion in 2002, primarily due to the impact of the uncertainties affecting the Brazilian economy and the recession affecting Argentina. Merchandise exports began to recover in 2003, increasing initially primarily due to the improved competitiveness created by the real devaluation of the peso and as a result of increased demand for Uruguayan exports and elevated prices for several of Uruguay’s commodity exports. In 2007, merchandise exports amounted to US$4.9 billion driven by a significant increase in non-traditional exports. In 2008, merchandise exports totaled US$6.7 billion, increasing by 37.8% compared to 2007. The trend was reversed in 2009, with merchandise exports totaling US$6.2 billion, a decrease of 8.4% compared to 2008. In 2010, merchandise exports increased by 25.5% compared to 2009, to US$7.7 billion, mainly due to an increase in non-traditional exports. In 2011, merchandise exports totaled US$9.0 billion, a 15.8% increase compared to 2010, primarily due to the growth in non-traditional exports.

Merchandise exports have historically been concentrated on agriculturally based traditional and manufactured products, such as wool, meat, rice and textiles. Uruguay was first declared free of foot and mouth disease in 1995. This measure granted Uruguay access to broader markets and allowed it to obtain higher prices for its beef. Uruguay’s traditional export markets include Brazil, Chile, Israel and the European Union. Exports of Uruguayan beef (in U.S. dollars) decreased by 10.3% in 2007 compared to 2006 but recovered by 46.5% in 2008 compared to 2007. Since 2008, paper pulp accounts for a significant portion of Uruguay’s exports, representing 8.0% of total exports in 2011. In 2009, exports of agricultural products increased by 38.1% and other foodstuffs increased by 12.3%. However, exports of all other products, except for wheat and rice, decreased in 2009 compared to 2008. In 2010, exports of agricultural products, dairy products and processed meat increased by 43.7%, 40.5% and 14.7%, respectively, compared to 2009. Exports of wheat and rice in 2010 decreased by 15.2% compared to 2009. In 2011, exports of processed meat, dairy products and motor vehicles and parts increased by 19.0%, 32.9% and 61.2% respectively, compared to 2010, while exports of paper pulp decreased by 5.3% compared to 2010.

 

D-36


Imports have increased over time and become more diverse due to a combination of factors, including increased production and economic activity and the reduction of tariff and non-tariff import barriers. In 2007, total imports increased by 17.1%, of which 21.3% represented consumer goods, 65.9% intermediate goods and 12.8% capital goods. In 2008, total imports increased by 61.2%, of which 17.6% represented consumer goods, 67.4% intermediate goods and 15.0% capital goods. In 2009, total imports decreased 23.9%, of which consumer goods accounted for 22.0%, intermediate goods accounted for 62.2% and capital goods accounted for 15.8%. In 2010, total imports increased by 24.8%, of which 23.5% represented consumer goods, 59.7% intermediate goods and 16.8% capital goods. In 2011, total imports increased by 24.4%, of which 23.4% represented consumer goods, 61.6% intermediate goods and 14.9% capital goods.

The following tables set forth information on exports and imports for the periods indicated.

Merchandise Trade

(in millions of US$ and % of total exports/imports)

 

     2007     2008     2009     2010(1)     2011(1)  

EXPORTS (FOB)

                    

Agricultural products

   US$ 376        7.7   US$ 599        8.9   US$ 827        13.4   US$ 1,188        15.3   US$ 1,259        14.1

Processed meats

     1,021        20.9        1,496        22.2        1,237        20.0        1,419        18.3        1,689        18.9   

Dairy products

     337        6.9        429        6.4        371        6.0        521        6.7        692        7.7   

Wheat and rice mills

     287        5.9        463        6.9        466        7.6        396        5.1        486        5.4   

Other foodstuffs

     432        8.8        476        7.1        535        8.7        572        7.4        651        7.3   

Textiles

     203        4.2        189        2.8        144        2.3        190        2.5        241        2.7   

Leather goods

     298        6.1        249        3.7        163        2.6        198        2.6        228        2.5   

Paper pulp

     51        1.0        512        7.6        483        7.8        754        9.7        714        8.0   

Chemicals

     290        5.9        392        5.8        339        5.5        414        5.3        512        5.7   

Oil and refined products

     126        2.6        188        2.8        75        1.2        127        1.6        56        0.6   

Plastic products

     127        2.6        152        2.3        138        2.2        164        2.1        204        2.3   

Motor vehicles and parts

     124        2.5        165        2.5        132        2.1        191        2.5        308        3.4   

Other

     1,213        24.8        1,424        21.2        1,260        20.4        1,606        20.7        1,919        21.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total exports

   US$ 4,885        100.0   US$ 6,734        100.0   US$ 6,170        100.0   US$ 7,740        100.0   US$ 8,959        100.0
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

IMPORTS (CIF)

                    

Consumer goods

   US$ 1,198        21.3   US$ 1,598        17.6   US$ 1,520        22.0   US$ 2,025        23.5   US$ 2,514        23.4

Intermediate goods

     3,711        65.9        6,109        67.4        4,293        62.2        5,148        59.7        6,612        61.6   

Capital goods

     718        12.8        1,362        15.0        1,093        15.8        1,449        16.8        1,600        14.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total imports

   US$ 5,627        100.0   US$ 9,069        100.0   US$ 6,906        100.0   US$ 8,622        100.0   US$ 10,726        100.0
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Merchandise trade balance:

   US$ (546     US$ (1,714     US$ (272     US$ (282     US$ (1,070  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

(1)

Preliminary data.

Source: Banco Central.

 

D-37


Geographical Distribution of Merchandise Trade

(in millions of US$, unless otherwise indicated)

 

     2007     2008     2009     2010(1)     2011(1)  

EXPORTS (FOB)

                         

Americas:

                         

Argentina

   US$ 446         9.1   US$ 507         7.5   US$ 347         5.6   US$ 573         7.4   US$ 588         6.6

Brazil

     732         15.0        988         14.7        1,098         17.8        1,421         18.4        1,624         18.1   

United States

     493         10.1        214         3.2        177         2.9        195         2.5        244         2.7   

Other

     781         16.0        1,057         15.7        758         12.3        930         12.0        1,161         13.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Americas

     2,451         50.2        2,766         41.1        2,380         38.6        3,119         40.3        3,617         40.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Europe:

                         

European Union:

                         

France

     35         0.7        34         0.5        28         0.5        31         0.4        41         0.5   

Germany

     205         4.2        212         3.2        158         2.6        238         3.1        303         3.4   

Italy

     100         2.1        143         2.1        115         1.9        144         1.9        158         1.8   

United Kingdom

     120         2.5        172         2.6        142         2.3        109         1.4        122         1.4   

Other EU

     349         7.1        558         8.3        367         6.0        441         5.7        524         5.8   

Total EU

     810         16.6        1,120         16.6        811         13.1        963         12.4        1,149         12.8   

EFTA(2) and other

     268         5.5        536         8.0        391         6.3        646         8.3        752         8.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Europe

     1,078         22.1        1,656         24.6        1,201         19.5        1,609         20.8        1,901         21.2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Africa

     157         3.2        210         3.1        210         3.4        216         2.8        289         3.2   

Asia

     387         7.9        435         6.5        462         7.5        603         7.8        826         9.2   

Middle East

     160         3.3        303         4.5        349         5.7        234         3.0        304         3.4   

Free Trade Zone(3)

     341         7.0        790         11.7        765         12.4        1,015         13.1        1,012         11.3   

Other

     310         6.3        572         8.5        803         13.0        945         12.2        1,009         11.3   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   US$ 4,884         100.0   US$ 6,732         100.0   US$ 6,170         100.0   US$ 7,740         100.0   US$ 8,958         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

IMPORTS (CIF)

                         

Americas:

                         

Argentina

   US$ 1,255         22.3   US$ 2,250         24.8   US$ 1,628         23.6   US$ 1,469         17.0   US$ 2,004         18.7

Brazil

     1,314         23.4        1,618         17.8        1,460         21.1        1,578         18.3        2,082         19.4   

United States

     413         7.3        530         5.8        564         8.2        855         9.9        1,101         10.3   

Other

     885         15.7        1,073         11.8        845         12.2        1,241         14.4        1,088         10.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Americas

     3,868         68.7        5,471         60.3        4,497         65.1        5,143         59.6        6,275         58.5   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Europe:

                         

European Union:

                         

France

     84         1.5        102         1.1        83         1.2        137         1.6        187         1.7   

Germany

     112         2.0        142         1.6        168         2.4        198         2.3        258         2.4   

Italy

     94         1.7        117         1.3        119         1.7        161         1.9        148         1.4   

United Kingdom

     43         0.8        56         0.6        52         0.8        72         0.8        125         1.2   

Other EU

     223         4.0        315         3.5        278         4.0        364         4.2        564         5.3   

Total EU

     556         9.9        733         8.1        700         10.1        931         10.8        1,282         12.0   

EFTA(2) and other

     249         4.4        53         0.6        352         5.1        397         4.6        327         3.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Europe

     805         14.3        785         8.7        1,052         15.2        1,328         15.4        1,609         15.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Africa

     55         1.0        309         3.5        123         1.8        408         4.7        541         5.0   

Asia

     860         15.3        1,359         15.0        1,161         16.8        1,652         19.2        2,196         20.5   

Middle East

     16         0.3        37         0.4        49         0.7        63         0.7        69         0.6   

Other

     25         0.4        1,108         12.2        25         0.4        28         0.3        37         0.3   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   US$ 5,628         100.0   US$ 9,069         100.0   US$ 6,907         100.0   US$ 8,622         100.0   US$ 10,727         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Preliminary data.

(2)

European Free Trade Association.

(3)

Reflects exports from Uruguay to the free trade zones within its territory, for further export, typically as part of a manufactured good comprising inputs produced in third countries, to destinations of which Uruguay does not maintain statistics.

Source: Banco Central

 

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FOREIGN TRADE ON SERVICES

Uruguay’s services trade has traditionally been heavily concentrated on Argentina and Brazil and has been driven principally by tourism, transportation and financial services and, since 2007, transactions made from free economic zones.

Gross tourism receipts increased by 35.3% in 2007 and 29.9% in 2008 in spite of the fact that the number of tourist arrivals decreased by 0.5% in 2007. Gross tourism receipts and the number of tourists arrivals increased by 24.8% and 5.1%, respectively, in 2009. Also a higher per capita level of expenditures has contributed to improve gross tourism receipts. In 2010 and 2011, gross tourism receipts and the number of tourists arrivals increased again by 14.0% and 46.2% and by 14.7% and 22.9%, respectively.

Revenues from Tourism

 

     Number of
Tourist Arrivals

(in thousands)
     Gross Tourism
Receipts

(in  millions of US$)
 

2007

     1,815         809   

2008

     1,998         1,051   

2009

     2,099         1,312   

2010

     2,408         1,496   

2011

     2,960         2,187   

 

Source: Banco Central.

During the 1990s, Uruguay’s tourism sector benefited from the improving economic situation in the region, particularly in Brazil and Argentina, and the increased sophistication of the services offered, including increased and diversified offerings of cultural, social and sports activities. There was an increase in repeat weekend travelers to Punta del Este, and through 1997 an increase in ownership of houses and apartments in this beach area mainly by tourists from Argentina, followed by others from Brazil, Paraguay the United States and, in third place, European countries. New tourism services in regions outside of Punta del Este have also developed, in particular in the northern part of Uruguay where there are several thermal baths and tourist “estancias,” or ranches, which attract tourists from regional and urban areas and from Europe and the United States during Uruguay’s low season in winter. The total number of tourists has increased steadily since 2007 increasing by 10.1%, 5.1%, 14.7% and 22.9% in 2008, 2009, 2010 and 2011, respectively. Tourism from, as well as trade with or transiting through, Argentina during the period 2007-2010 was adversely affected by the interruption of international traffic caused by Argentine demonstrators opposing the construction of the pulp mill in the Fray Bentos region. This interruption ceased at the end of 2010.

The following table sets forth the percentage of tourist arrivals from Argentina, Brazil and other countries for the periods indicated.

Tourist Arrivals

(% by country)

 

     2007     2008     2009     2010     2011  

Argentina

     50.0     52.4     54.8     52.4     58.2

Brazil

     15.8        14.9        12.6        15.7        14.4   

Other

     34.2        32.7        32.6        32.0        27.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Sources: Banco Central and the Ministry of Tourism.

 

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Until the 2002 banking crisis, financial and insurance services, primarily banking and corporate services, contributed to the growth in services exports. Uruguay’s bank secrecy laws and the ability of companies to issue bearer shares attracted foreign funds. Deposits by non-residents with the financial sector totaled approximately US$6.6 billion at December 31, 2001. In 2002, deposits by non-residents with the financial sector decreased significantly to less than US$2.3 billion at December 31, 2002, including approximately US$1.2 billion held with BGU, Banco de Crédito, Banco Montevideo and Banco Comercial, all of which had their operations suspended and have since been liquidated or, in the case of BGU, closed. Following the banking crisis in 2002, deposits by non-residents began to recover, reaching US$3.2 billion as of December 2011, representing 21.2% of total foreign currency deposits held by the non-financial private sector with the Uruguayan banking system (excluding deposits held with banks in liquidation).

In 2012, as part of Uruguay’s efforts to enhance tax transparency, Congress enacted a law to improve access to information regarding share ownership of Uruguayan companies. This law creates a registry to be held with Banco Central where every holder of bearer shares of a Uruguayan company will have to be registered. In addition, in 2012 the tax authorities of Uruguay and Argentina entered into a cooperation agreement to facilitate sharing of tax information. This agreement was submitted to Congress for approval and is currently under consideration by Congress.

 

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BALANCE OF PAYMENTS

In 2011, Uruguay’s balance of payments registered a surplus of US$2.6 billion compared to a deficit of US$360.8 million in 2010, a surplus of US$1.6 billion in 2009, a surplus of US$2.2 billion in 2008 and a surplus of US$1.0 billion in 2007. Banco Central’s international reserve assets stood at US$10.3 billion at December 31, 2011, compared to US$7.7 billion at December 31, 2010, US$8.0 billion at December 31, 2009, US$6.4 billion at December 31, 2008 and US$4.1 billion at December 31, 2007.

Balance of Payments(1)

(in millions of US$)

 

     2007     2008     2009(2)     2010(2)     2011(2)  

Current Account

          

Merchandise trade balance

   US$ (545.5   US$  (1,714.2   US$ (272.3   US$ (282.1   US$ (1,070.0

Exports

     5,099.9        7,095.5        6,391.8        8,030.2        9,341.1   

Imports

     (5,645.4     (8,809.7     (6,664.1     (8,312.3     (10,411.1

Services, net

     703.4        753.4        930.2        1,028.1        1,437.3   

Interests and dividends

     (515.9     (916.6     (887.5     (1,310.3     (1,368.3

Current transfers(3)

     137.5        148.4        138.0        118.0        126.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current account

   US$ (220.5   US$ (1,729.0   US$ (91.6   US$ (446.4   US$ (875.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital and Financial Account

          

Capital transfers

   US$ 3.7      US$ 0.2      US$ —        US$ —        US$ —     

Direct Investment

     1,240.1        2,116.6        1,603.5        2,527.0        2,526.7   

Portfolio Investment(4)

     1,150.5        (557.7     (716.1     (547.7     1,446.7   

Other medium and long term capital

     (3     442.9        928.9        (548.1     (281.1

Other short term capital

     (886.2     1,095.6        (435.9     89.5        (634.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital and financial account, net

   US$ 1,505.2      US$ 3,097.6      US$ 1,380.4      US$ 1,520.7      US$ 3,057.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Errors and Omissions(5)

   US$ (279.3   US$ 863.7      US$ 299.5      US$ (1,435.1   US$ 381.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total balance of payments

   US$ 1,005.4      US$ 2,232.4      US$ 1,588.3      US$ (360.8   US$ 2,564.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in Banco Central reserve assets(6)

   US$ (1,005.4   US$ (2,232.4   US$ (1,588.3   US$ 360.8      US$ (2,564.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gold(7)

     0.1        (0.0     (0.0     (0.0     (0.0

SDRs

     (0.7     4.0        380.9        0        0.1   

IMF Position

     —          —          —          95,0        50,4   

Foreign Exchange

     319.6        (401.5     712.0        (1,370.2     1,122.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other holdings

     686.5        2,630.0        495.4        914.4        1,391.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   US$ 1,005.4      US$ 2,232.4      US$ 1,588.3      US$ (360.8   US$ 2,564.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Calculated in accordance with the methodology set forth in the IMF Balance of Payments Manual (Fifth Edition).

(2) 

Preliminary data.

(3) 

Current transfers consist of transactions without a quid pro quo.

(4) 

Includes public bonds, commercial paper, notes and commercial banks’ foreign portfolio investment.

(5) 

Constitutes a residual item, which is periodically revised as additional information regarding the current and capital and financial accounts becomes available.

(6) 

Change in Banco Central international reserve assets does not reflect adjustments in the value of gold.

(7) 

As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31 of each year.

Source: Banco Central.

Current Account

Uruguay’s current account consists of the merchandise trade balance, foreign trade on services net, interest and dividend payments, and current transfers.

 

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In 2007, the current account recorded a deficit of US$220.5 million. This deficit was attributable mainly to the continued growth in merchandise imports, which was partially offset by an improvement in inflows generated by foreign trade on services, net.

In 2008, the current account recorded a deficit of US$1.7 billion. The significant increase in the trade deficit was attributable mainly to imports of oil for electricity generation, required to cover the power generation deficit that resulted from the impact of the drought on domestic hydroelectric generation capacity.

In 2009, the current account deficit dropped to US$91.6 million, reflecting mainly a significant decrease in the merchandise trade deficit. While both exports and imports of goods and services contracted as a result of the adverse global economic environment in 2009, exports contracted at a slower pace than imports, at rates of 9.7% and 24.4%, respectively.

In 2010, the current account recorded a deficit of US$446.4 million. The trade deficit was attributable to an increase in interest and dividend payments, primarily due to increased remittance of corporate profits to foreign shareholders of direct investments made in prior years.

In 2011, the current account recorded a deficit of US$875.0 million. The increase in the current account deficit was mainly attributable to a decrease in the merchandise trade deficit while interest and dividend payments and current transfers did not record significant changes. The increased deficit in merchandising trade was partially offset by an increase in the inflows from foreign trade on services, net.

Capital and Financial Account

Uruguay’s capital and financial account includes capital transfers, direct investments, portfolio investments, other medium- and long-term capital and other short term capital.

In 2007, Uruguay’s capital and financial account recorded a surplus of US$1.5 billion, mainly related to private capital and financial inflows. After financing the current account deficit, the difference represents net funding for the public sector, which in turn increased the foreign currency position of the public sector.

Capital and financial inflows increased significantly in 2008 as foreign direct investment reached US$2.1 billion, offsetting net portfolio investment outflows of US$557.7 million. Uruguay’s capital and financial account recorded a surplus of US$3.1 billion in 2008.

The outburst of the international financial crisis in September 2008 resulted in a decrease in capital inflows. Furthermore, capital inflows during the fourth quarter of 2008 comprised primarily proceeds of short-term loans made to the public sector by multilateral financial institutions, while net portfolio investments became negative as investors reacted to volatility in the capital markets during that period.

In 2009, Uruguay’s capital and financial account recorded a surplus of US$1.4 billion, reflecting a decrease in capital and financial inflows to both the public and the private sector.

 

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Capital inflows to the public sector comprised primarily the proceeds of financing provided by multilateral financial institutions and borrowings from the international capital markets. On the other hand the private sector, registered substantially lower capital inflows as a result of the slowdown of foreign direct investment which totaled US$1.3 billion in 2009. In 2009, net portfolio divestments continued to grow, totaling US$716.1 million and short-term capital resulted in outflows of US$435.9 million.

In 2010, Uruguay’s capital and financial account recorded a surplus of US$1.5 billion. mainly resulting from an increase in foreign direct investment, which offset the decrease in portfolio investments and in other medium and long-term capital.

In 2011, Uruguay’s capital and financial account recorded a surplus of US$3.1 billion mainly as a result of inflows generated by foreign direct investment, which reached US$2.5 billion and a surge of portfolio investment reflecting improved conditions in the risk perception of Uruguay’s sovereign debt in the international capital markets.

International Reserves

As of December 31, 2011, the international reserve assets of Banco Central stood at US$10.3 billion, compared to US$7.7 billion at December 31, 2010. The following table shows the composition of the international reserve assets of Banco Central, and the banking system at each of the dates indicated.

International Reserve Assets of the Banking System(1)

(in millions of US$)

 

     As of December 31,  
     2007     2008     2009     2010     2011  

Banco Central

   US$  4,121 (2)    US$  6,360 (3)    US$  7,987 (4)    US$  7,656 (5)    US$  10,302 (6) 

Of which gold represents

     7        7        9        12        12   

Banco de la República

     2,091        1,857        1,656        2,133        1,490   

Private Banks

     2,945        3,506        4,525        5,301        4,124   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

International reserve assets

   US$ 9,157      US$  11,723      US$  14,168      US$  15,090      US$ 15,916   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

All figures are at market value as of the date indicated.

(2) 

This amount includes US$1,753 million of reserves and voluntary deposits of the Uruguayan banking system, including US$868 million of Banco de la República, with Banco Central.

(3) 

This amount includes US$3,156 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,416 million of Banco de la República, with Banco Central.

(4) 

This amount includes US$2,521 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,138 million of Banco de la República, with Banco Central.

(5) 

This amount includes US$1,590 million of reserves and voluntary deposits of the Uruguayan banking system, including US$789 million of Banco de la República, with Banco Central.

(6) 

This amount includes US$2,350 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,707 million of Banco de la República, with Banco Central.

Source: Banco Central.

As of May 31, 2012, Banco Central’s international reserve assets totalled US$11.9 billion, including US$2.8 billion in reserves and voluntary deposits of the Uruguayan banking system, of which US$1.1 billion were claims of Banco de la República.

 

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The voluntary deposits and reserves held with Banco Central by the Uruguayan banking system can be withdrawn by banks at any time. Changes in Banco Central’s policies and other external factors, including interest rates, affecting the banks’ medium- and long-term portfolio decisions could cause and, in the past, have caused the banks to withdraw these voluntary deposits. Variations in commercial bank reserves and voluntary deposits of the Uruguayan banking system with Banco Central, cause Banco Central’s international reserve assets to fluctuate from time to time.

Foreign Investment

Uruguay has a legislative framework that ensures equal treatment of foreign and local investors and foreign access to all economic sectors. Foreign investments in Uruguay generally do not require prior governmental authorization, and foreign investors are not required to register investments with the government and can freely remit their profits and capital investments abroad. Investment in certain sectors, including financial services, requires prior authorization on the same terms as domestic investors.

In each of 2007, 2008, 2009, 2010 and 2011, estimated foreign direct investment accounted for US$1.2 billion, US$2.1 billion, US$1.6 billion, US$2.5 billion and US$2.5 billion, respectively, of Uruguay’s balance of payments.

Foreign investment in Uruguay has been traditionally directed towards the industrial, construction and tourism related sectors and, since 2003, land. In 2004, however, European pulp manufacturers announced investments in the pulp industry in Uruguay in the range of US$1.3 billion over a two-year period. Since 2005, Argentine demonstrators opposed to the construction of the wood pulp mills have repeatedly obstructed international traffic to Uruguay and into Argentina, which flows through two bridges on the Uruguay River that link Argentina with Uruguay. Uruguay sought to initiate dispute resolution proceedings contemplated in the Mercosur framework for Argentina’s failure to ensure free access to the bridges and uninterrupted flow of international traffic to and from Uruguay. No agreement with respect to Uruguay’s claims was reached within the terms contemplated in Mercosur’s dispute resolution framework. In May 2006, Argentina brought a claim to the ICJ against Uruguay under the Treaty of the Uruguay River, alleging that by authorizing the construction of certain pulp mills in the Fray Bentos region, along the shores of the Uruguay River, Uruguay had acted in breach of its obligations under the treaty. Argentina claimed that the pulp mills would irreparably harm the Uruguay River shore. Uruguay rejected Argentina’s claims.

The ICJ issued its final ruling on the dispute between Uruguay and Argentina on April 20, 2010. The ICJ found that Uruguay breached certain procedural obligations under the Treaty of the Uruguay River, by issuing the initial environmental authorizations to construct the pulp mills without first informing the Administrative Commission of the Uruguay River. However, the ICJ held there was no reason to order the dismantling of the pulp mill because its commissioning and construction did not breach any of Uruguay’s substantive obligations under the Treaty of the Uruguay River and no environmental damage has been demonstrated. The ICJ imposed no additional remedial action on Uruguay. Argentine demonstrators dissatisfied with the ICJ ruling repeatedly obstructed traffic across international bridges in protest. In June 2010, the demonstrators agreed to cease the obstruction to facilitate ongoing negotiations seeking to resolve the situation. On August 30, 2010, Uruguay and Argentina signed an agreement

 

D-44


providing for the creation of a scientific committee within the Administrative Commission of the Uruguay River. This committee was created to monitor the Uruguay River and the industrial and agricultural businesses and cities on both margins of the Uruguay River that discharge effluents into the river.

 

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MONETARY POLICY AND INFLATION

Banco Central was established in 1967 and is in charge of issuing currency, managing foreign exchange reserves, regulating the financial and insurance system, as well as pension funds and the securities market, and evaluating and advising the government regarding the establishment of new banks. Banco Central has the principal responsibility for the implementation of monetary policy, intervening in the money market and advising the government on monetary and credit matters in accordance with general objectives set by the government. In addition, it trades in the foreign exchange market and is responsible for the observance of foreign exchange regulations.

Banco Central’s charter was most recently amended in 2010. Under the current charter, the Board of Directors of Banco Central is composed of three members, each serving a five-year term. Each new president of Uruguay is entitled to appoint a new Board of Directors, subject to ratification by the Congress.

Banco Central’s charter defines Banco Central’s monetary and foreign exchange management capacity and its supervisory powers. Under its charter, Banco Central cannot finance the activities of the government except to the extent that it may hold government securities having an aggregate principal amount of up to 10.0% of the central government’s previous year’s expenditures net of interest payments on public debt. However, Banco Central can serve as a financial agent of the government under article 49 of its charter and has a duty under article 3 to ensure the orderly functioning of the payments system.

Law 18,401 created the Corporación de Protección al Ahorro Bancario or Corporation for the Protection of Bank Savings as an agency independent of Banco Central, removing Banco Central’s responsibility for the administration of the mandatory deposit insurance program introduced in 2002. Law 18,401 placed under a single agency, the Superintendencia de Servicios Financieros, the supervision and regulation of the banking sector, and under the Superintendencia de Seguros, Fondos de Pensión y Mercado de Valores, the regulation of insurance companies, the stock market and pension funds.

Monetary Policy

Until June 2002, Banco Central managed Uruguay’s inflation stabilization policy by setting a peso/U.S. dollar exchange rate band that drifted at a present monthly rate of devaluation and allowed the peso/U.S. dollar exchange rate to fluctuate within a band without prompting Banco Central intervention in the foreign exchange markets. This “crawling peg” system succeeded in reducing inflation from a rate of 129.0% (as measured by the CPI) in 1990 to 3.6% in 2001. In June 2001 and January 2002, Banco Central widened the band and accelerated the rate of devaluation of the peso in an attempt to mitigate the ongoing adverse effects on Uruguay’s economy, first of Brazil’s 1999 devaluation and subsequently of Argentina’s devaluation in January 2002. Inflation targets were administered through a foreign exchange policy.

Sensitive to the risk of a run on the currency and to avoid the need to adopt exchange controls and restrict capital flows, Uruguay completed its transition to a fully floating exchange system and floated the peso effective June 20, 2002. Since the peso was allowed to float, Banco

 

D-46


Central pursued interventions solely to ensure the orderly operation of the foreign exchange market. As of December 2002, the nominal exchange rate had risen 94.0% in comparison to December 2001. The year-to-year inflation rate for the same period was 25.9%.

Having relinquished the use of exchange rate policies to determine inflation objectives, Banco Central adopted the peso monetary base as a nominal anchor and committed to a monetary base increase one year ahead consistent with the inflation objective set for the period. In 2003 the program was designated to generate an inflation rate between 17.0% and 23.0% and the policy was successful in the sense that the target on monetary base was achieved and inflation rate was lower than projected (10.2%). In the first quarter of 2004 a target range for the monetary base was introduced, which implied more flexibility in the intermediate target and more commitment with inflation itself. Since then, the inflation objective was set to a range with floors and ceilings that declined from quarter to quarter, from 9.0-14.0% in the third quarter of 2004 to 4.5-6.5% by the end of 2006.

In September 2007, Banco Central began defining monetary policy by reference to short term interest rates as the new intermediate target. As a consequence, Banco Central introduced a short-term interest rate that was initially set at 5.0% and established the average money market rate as the instrument to monitor its new inflation target. The interest rate band was set at 4.0-6.0%.

In October 2007, Banco Central set the monetary policy rate at 7.0%, and shifted the band to 6.0-8.0% for deposit and lending facilities. In November 2007, in light of continuing inflationary pressures, the monetary policy rate was set at 7.25%. In January 2008, the monetary policy rate was kept constant, but the tolerance of the inflation target range was changed to 3.0-7.0% in recognition of the difficulties to keep a close track of this target in a context of high volatility in commodity and asset prices. On October 3, 2008, the monetary policy rate was increased to 7.75%, taking into account the strong domestic demand compared to aggregate supply in a context of international uncertainty.

In light of the deepening international financial markets crisis, Banco Central decided, in the last quarter of 2008, to allow a broader fluctuation of the average money market rate. It also established a Program to repurchase Peso denominated Monetary Regulation Bills, giving holders the option to elect the currency of redemption, to reduce volatility in the foreign exchange market. As financial markets recovered stability, Banco Central once again focused on monetary policy rate as an operational target and the monetary policy rate was raised to 10.0% in January 2009, given the persistent inflationary pressures. In March 2009, the global economic recession scenario, along with the decrease of inflationary expectations in the middle term, contributed to the decision of lowering the monetary policy rate to 9.0%. In June 2009, the authorities decided to lower the monetary policy rate again to 8.0% considering inflation performance and as aggregate demand pressures diminished. As inflationary pressures returned in the second half of 2009, the monetary policy rate remained unchanged until December 2009. At that time, Banco Central decided to lower the rate to 6.25%, taking into account the decrease of uncertainty in the international context and a favorable assessment of domestic risks. Additionally, in December 2009, it narrowed the inflation target range from 3.0-7.0% to 4.0-6.0%. In September 2010, Banco Central raised the monetary policy rate to 6.50% to mitigate increasing inflationary pressures. In March 2011, Banco Central once again increased the monetary policy rate to 7.50% in response to prevailing inflation expectations for the subsequent

 

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18 months, attributed primarily to inflationary pressures generated by the international markets and a growing domestic demand. In June 2011, Banco Central increased the monetary policy rate from 7.5% to 8.0% in response to prevailing inflation expectations. In December 2011, Banco Central again increased the monetary policy rate to 8.75%. In March 2012, Banco Central decided to maintain the monetary policy rate at 8.75%.

To regulate liquidity in the market, Banco Central conducts periodic auctions of Banco Central notes in domestic currency. The ability of Banco Central to implement an effective monetary policy is curtailed by the high degree of dollarization of the Uruguayan economy. While during the past eight years (with the exception of 2008), foreign currency deposits held with the banking system as a percentage of total deposits declined, as of December 31, 2011, 73% of all deposits held with the banking system continued to be denominated in foreign currencies (primarily U.S. dollars).

Liquidity and Credit Aggregates

The following tables set forth the composition of Uruguay’s monetary base (expressed in terms of Banco Central’s monetary liabilities) as of the dates indicated.

Monetary Base(1)

(in millions of US$(2))

 

     As of December 31,      As of May 31,  
     2007      2008      2009      2010      2011      2012  

Currency, including cash in vaults at banks

   US$  1,145       US$  1,161       US$  1,629       US$  1,899       US$  2,271       US$  1,953   

Other

     322         514         584         613         705         960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Monetary base

   US$ 1,467       US$ 1,675       US$ 2,213       US$ 2,512       US$ 2,976       US$ 2,913   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Preliminary data.

(2) 

Exchange rate at the end of the period.

Source: Banco Central.

The following tables show selected monetary indicators and liquidity and credit aggregates for the periods indicated.

Selected Monetary Indicators

(percentage change based on peso-denominated data)

 

     2007     2008     2009     2010     2011     For the Twelve months
ended April 2012(1)
 

M1 (% change)(2)

     32.0     17.9     15.2     30.0     20.8     23.8

M2 (% change)(3)

     31.0        17.3        14.9        31.0        22.1        21.6   

Credit from the financial system (% change)

     22.1        58.7        (13.1     24.1        14.1        19.4   

Average annual peso deposit rate (end period)

     4.4        5.4        4.9        4.8        5.5        5.6   

Monetary policy rate (TPM)

     7.25        7.75        6.25        6.50        8.75        8.75   

Average money market rate (TMM) (period end)

     7.25        4.99        6.20        6.20        8.75        8.75   

 

(1) 

Preliminary data.

(2) 

Currency in circulation plus peso-denominated demand deposits.

(3) 

M1 plus peso-denominated savings deposits.

Source: Banco Central.

 

D-48


Liquidity and Credit Aggregates

(in millions of US$(1))

 

     2007      2008      2009(2)      2010(2)      2011(2)  

Liquidity aggregates (at period end):

              

Currency, excluding cash in vaults at banks

   US$ 879       US$ 879       US$ 1,238       US$ 1,469       US$ 1,761   

M1(3)

     2,740         2,852         4,075         5,174         6,310   

M2(4)

     3,283         3,399         4,845         6,200         7,647   

M3(5)

     10,292         11,696         14,105         16,851         20,080   

Credit aggregates (at period end):

              

Private sector credit

     6,177         7,585         7,842         9,281         11,051   

Public sector credit

     72         19         1,269         599         1,302   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic credit

   US$ 6,249       US$ 7,604       US$ 9,111       US$ 9,880