EX-99.D 2 y91888exv99wd.htm EX-99.D exv99wd
Exhibit 99.D
Description of
República Oriental del Uruguay

July 1, 2011

D-1


 

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-45
The Banking Sector
  D-51
Securities Markets
  D-63
Public Sector Finances
  D-64
Fiscal Policy
  D-69
Public Sector Debt
  D-73
Tables and Supplemental Information
  D-86

D-2


 

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.

D-3


 

     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 2006, 2007, 2008, 2009, and 2010 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.

D-4


 

SUMMARY
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
            (in millions of US$, except as otherwise indicated)          
THE ECONOMY
                                       
GDP (in millions of US$ at nominal prices)(2)
  US$ 19,853     US$ 23,935     US$ 31,198     US$ 31,345     US$ 40,284  
Real GDP (in thousands of constant 2005 pesos)(2)
  Ps. 443,402     Ps. 475,922     Ps. 516,834     Ps. 530,176     Ps. 575,069  
% change from prior year
    4.3 %     7.3 %     8.6 %     2.6 %     8.5 %
Consumer price index or CPI (annual rate of change)
    6.4 %     8.5 %     9.2 %     5.9 %     6.9 %
Wholesale price index or WPI (annual rate of change)
    8.2 %     16.1 %     6.4 %     10.5 %     8.4 %
Unemployment rate (annual average)(3)
    10.9 %     9.5 %     7.7 %     7.3 %     6.8 %
Balance of payments(4)
                                       
Trade balance (merchandise)
    (499 )     (546 )     (1,714 )     (252 )     (256 )
Current account
    (392 )     (221 )     (1,480 )     207       (160 )
Capital and financial account net
    528       1,505       2,801       1,000       (59 )
Errors and omissions(5)
    (152 )     (279 )     911       382       (142 )
Overall balance of payments excluding impact of gold valuation adjustment
    (15 )     1,005       2,232       1,588       (361 )
Change in Banco Central international reserve assets (period end)
    15       (1,005 )     (2,232 )     (1,588 )     361  
Banco Central international reserve assets (period end)(6)
    3,091 (7)     4,121 (8)     6,360 (9)     7,987 (10)     7,656 (11)
 
                                       
PUBLIC FINANCE
                                       
Non-Financial Public Sector Revenues
    5,569       6,711       8,165       8,751       11,944  
Non-Financial Public Sector Primary Expenditures
    4,882       5,935       7,825       8,526       11,283  
Public Sector Primary Balance
    723       843       417       340       764  
Public Sector Overall Balance (surplus/(deficit))
    (106 )     2       (473 )     (541 )     (447 )
 
                                       
PUBLIC DEBT
                                       
Consolidated public sector debt
                                       
Debt with non-residents(12)
    9,311       11,065       10,736       12,769       12,977  
Debt with residents
    4,405       5,258       5,805       9,121       10,208  
Total
    13,717       16,323       16,541       21,891       23,185  
As a % of GDP
    68.5 %     68.1 %     53.2 %     69.6 %     57.4 %
Consolidated public sector debt service
                                       
Amortizations
    4,211 (13)     361       750       438       923  
Interest payments
    655       670       595       513       581  
Total
    4,866       1,031       1,346       951       1,504  
As a % of exports of goods and services
    83.9 %     15.1 %     14.4 %     11.1 %     14.3 %
 
(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 accounts becomes available.
 
(6)   As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31, 2006, 2007, 2008, 2009 and 2010.
 
(7)   This amount includes US$1,750 million of reserves and voluntary deposits of the Uruguayan banking system, including US$792 million of Banco de la República, with Banco Central.
 
(8)   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.
 
(9)   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.
 
(10)   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.
 
(11)   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.
 
(12)   Excludes interest on non-resident banking deposits.
 
(13)   Includes US$2,970 million prepaid by Uruguay to the IMF, the World Bank and the IADB between August and November 2006.
Source: Banco Central.

D-5


 

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.
     Uruguay’s population of approximately 3.4 million is primarily of European origin and has a literacy rate of 98%. Approximately 89% of the population lives in urban areas and about 40% of the population resides in the Montevideo metropolitan area. According to the most recent national census, 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 April 2011, unless otherwise indicated.
                                                 
                                            United  
    Uruguay     Brazil     Chile     Venezuela     Mexico     States  
Per capita GNI(1)
  US$ 9,010     US$ 8,070     US$ 9,470     US$ 10,090     US$ 8,960     US$ 46,360  
PPP GNI per capita(2)
  US$ 12,900     US$ 10,160     US$ 13,420     US$ 12,220     US$ 14,020     US$ 45,640  
Life expectancy at birth(3)
    76       73       79       74       75       79  
Adult illiteracy rate(4) (5)
    1.7 %     9.6 %     2.9 %     4.8 %     6.2 %     n.a.  
Infant mortality per 1000 live births
    11       17       7       15       15       7  
 
n.a. = not available.
 
(1)   World Bank Atlas method.
 
(2)   Current US$, adjusted for purchasing power parity.
 
(3)   In years.
 
(4)   Percentage of people ages 15 and older.
 
(5)   November 2010 data, except for United States.
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-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.

D-6


 

     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.
     Newly elected members of Congress took office on February 15, 2010. 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.

D-7


 

     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;
 
    the Inter-American Development Bank or the IADB;
 
    the Inter-American Investment Corporation; and
 
    the Corporación Andina de Fomento or the CAF.

D-8


 

     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 and Cuba 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 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. In August 2010, Mercosur signed a free trade agreement with Egypt.

D-9


 

     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(1)   Bilateral Investment Treaty
2009
  South Korea(1)   Bilateral Investment Treaty
2009
  Chile(1)   Public Procurement Agreement
2009
  Vietnam(1)   Bilateral Investment Treaty
2009
  Venezuela   Economic Cooperation Agreement
2010
  Chile(1)   Bilateral Investment Treaty
 
(1)    Subject to approval by Congress.
     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.
     See “Gross Domestic Product and Structure of the Economy — Principal Sectors of the Economy — Electricity, Gas and Water.”

D-10


 

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 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.

D-11


 

     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.”

D-12


 

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 most 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. 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).

D-13


 

     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.
     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.

D-14


 

     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 its deficit of the public sector. It relied on the 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.
2003-2010: 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 4.3% in 2006, 7.3% in 2007, 8.6% in 2008, 2.6% in 2009, and 8.5% in 2010.

D-15


 

     In 2006, domestic private consumption increased by 5.8% in real terms compared to 2005, and represented 71.2% of GDP. In 2007, domestic private consumption increased by 6.5% in real terms compared to 2006, and represented 70.4% of GDP. In 2008, domestic private consumption increased by 8.7% in real terms compared to 2007, and represented 70.4% of GDP. In 2009, domestic private consumption grew 2.1% compared to 2008 and represented 68.9% of GDP. In 2010, domestic private consumption grew 11.4% compared to 2009 and represented 68.6% of GDP.
     In 2006, gross fixed investment increased by 17.4% compared to 2005, representing 18.6% of GDP, with private gross fixed investment increasing 16.6%. In 2007, gross fixed investment increased by 11.4% compared to 2006, representing 19.0% of GDP, with private gross fixed investment increasing by 7.3%. In 2008, gross fixed investment increased by 19.6% compared to 2007, representing 20.4% of GDP, with private gross fixed investment increasing by 19.0%. In 2009, gross fixed investment decreased by 6.3% compared to 2008, representing 18.8% of GDP, with private gross fixed investment decreasing by 12.8%. In 2010, gross fixed investment increased again by 14.4% compared to 2009, representing 18.8% of GDP, with private gross fixed investment increasing by 19.9%.
     Gross domestic savings represented 15.9% of GDP in 2006, 17.7% of GDP in 2007, 15.9% of GDP in 2008, 16.4% of GDP in 2009 and 16.2% of GDP in 2010.
     Exports of goods and services grew by 3.2% in 2006, 7.4% in 2007, 10.0% in 2008, 2.5% in 2009 and 9.1% in 2010. Imports of goods and services grew by 15.3% in 2006, 5.3% in 2007, and 22.1% in 2008, decreased by 8.6% in 2009 and increased by 16.5% in 2010.
     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$7.7 billion at December 31, 2003, US$8.2 billion at December 31, 2004, US$8.6 billion at December 31, 2005, US$9.4 billion at December 31, 2006, US$10.6 billion at December 31, 2007, US$12.8 billion at December 31, 2008, US$15.3 billion at December 31, 2009 and US$17.9 billion at December 31, 2010. Approximately 74.2% of those deposits were denominated in foreign currencies (primarily U.S. dollars) as of December 2010. 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 9.12% in 2008. However, in 2009, the annual rate of consumer price inflation decreased to 5.9%. In 2010, the annual rate of consumer price inflation increased to 6.9%. The rate of inflation for the twelve month period ended May 31, 2011 was 8.5% as measured by the consumer price index. For a discussion of Uruguay’s current monetary policy see “Monetary Policy and Inflation—Monetary Policy.”

D-16


 

     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.
     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 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 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, the CAF approved a credit line for up to US$400 million to support the government’s liability management efforts. Uruguay drew US$200 million under this facility in February 2009.
     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.

D-17


 

     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 a Programmatic Development Policy Loan 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.
     In 2010, Uruguay prepaid loans with the IADB for an aggregate principal amount of US$300 million.
     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 Indexed Units linked to CPI, for an aggregate principal amount equivalent to US$1.3 billion. Notes for an aggregate principal amount of US$1.1 billion were exchanged for short term securities issued by 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.
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”.
     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.

D-18


 

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.
     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.

D-19


 

     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 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.
     The government does not have any 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 accordance with the current legal framework.
     On May 11, 2011, the Chamber of Deputies approved a bill for the promotion of public-private participation schemes, which is now under consideration by the Senate. This bill sets forth certain procedures, obligations and liabilities of public and private investors. The government believes the law, when and if passed, 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.

D-20


 

     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 filing 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.”

D-21


 

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)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
GDP
  Ps. 443,402     Ps. 475,922     Ps. 516,834     Ps. 530,176     Ps. 575,069  
Imports of goods and services
    139,565       146,959       179,487       164,075       191,148  
 
                             
Total supply of goods and services
    582,967       622,881       696,321       694,251       766,218  
Exports of goods and services
    133,319       143,191       157,495       161,418       176,073  
 
                             
Total goods and services available for domestic expenditures
  Ps. 449,648     Ps. 479,691     Ps. 538,826     Ps. 532,834     Ps. 590,145  
 
                             
Allocation of total goods and services:
                                       
Consumption (public and private)
    361,807       384,719       416,415       425,956       469,135  
Gross investment (public and private)
    87,842       94,972       122,411       106,877       121,010  
 
                             
Total domestic expenditures
  Ps. 449,648     Ps. 479,691     Ps. 538,826     Ps. 532,834     Ps. 590,145  
 
                             
GDP growth (%) (2)
    4.3 %     7.3 %     8.6 %     2.6 %     8.5 %
 
(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)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Government consumption
    11.3 %     11.3 %     11.9 %     13.0 %     12.7 %
Private consumption
    71.2       70.4       70.4       68.9       68.6  
Gross fixed investment
    18.6       19.0       20.4       18.8       18.8  
Public sector (% of gross fixed investment)
    3.9       4.7       5.1       5.7       5.4  
Private sector (% of gross fixed investment)
    14.6       14.3       15.3       13.1       13.4  
Exports of goods and services
    29.6       28.5       29.1       26.7       25.9  
Imports of goods and services
    31.4       29.5       33.7       25.8       25.0  
Savings
    15.9       17.7       15.9       16.4       16.2  
 
(1)     Preliminary data.
Source: Banco Central.

D-22


 

Change in Gross Domestic Product by Expenditure
(% change from previous year except as otherwise indicated, 2005 prices)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Government consumption
    6.7 %     5.6 %     5.6 %     3.9 %     2.2 %
Private consumption
    5.8       6.5       8.7       2.1       11.4  
Gross fixed investment
    17.4       11.4       19.6       (6.3 )     14.4  
Public sector (% of gross fixed investment)
    20.2       27.2       21.5       13.9       1.3  
Private sector (% of gross fixed investment)
    16.6       7.3       19.0       (12.8 )     19.9  
Exports of goods and services
    3.2       7.4       10.0       2.5       9.1  
Imports of goods and services
    15.3       5.3       22.1       (8.6 )     16.5  
 
(1)     Preliminary data.
Source: Banco Central.
Principal Sectors of the Economy
     In spite of the adverse international economic and financial environment, GDP increased by 8.5% in real terms in 2010, after growing by 2.6% in 2009 and by 8.6% in 2008, 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 and the real estate and business services sector. In all, services accounted for approximately 67.9% of GDP in 2010. Manufacturing and agriculture, livestock and fishing also play an important role in the Uruguayan economy and accounted for 21.4% of GDP in 2010.
     In 2010, growth was driven mainly by internal demand of services. The sectors growing at a pace faster than GDP, were electricity, gas and water, commerce, restaurants and hotels and transportation, storage and communications. The fastest growing sector of Uruguay’s economy in 2009 was the electricity, gas and water sector (90.2% in 2010) driven primarily by the shift from oil-based to hydroelectric sources of generation due to the end of the drought that affected the Uruguayan basin in 2008. Growth in commerce, restaurants and hotels (14.8% in 2010) is attributable to higher sales of motor vehicles and imported goods. Growth in transportation, storage and communications (14.6% in 2010) was driven by an increase in communications (as a consequence of the continued investment in mobile technologies) and transportation activities (primarily supporting and auxiliary transport activities).
     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)
                                                                                 
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Agriculture, livestock and fishing
  US$ 1,644       8.3 %   US$ 2,095       8.8 %   US$ 2,919       9.4 %   US$ 2,603       8.2 %   US$ 3,327       8.3 %
Mining
    58       0.3       77       0.3       110       0.4       109       0.4       134       0.3  
Manufacturing
    3,035       15.3       3,427       14.3       4,973       15.9       4,537       14.5       5,277       13.1  
Electricity, gas and water
    404       2.0       785       3.3       189       0.6       462       1.5       1,275       3.2  
Construction
    1,171       5.9       1,451       6.1       2,018       6.5       2,199       7.0       2,901       7.2  
Commerce, restaurants and hotels
    2,573       13.0       3,277       13.7       4,686       15.0       4,514       14.4       5,796       14.4  
Transportation, storage and communications
    1,606       8.1       1,815       7.6       2,272       7.3       2,176       6.9       2,707       6.7  
Real estate and business services
    2,743       13.8       3,310       13.8       4,231       13.6       4,510       14.4       5,852       14.5  
Financial and insurance services
    1,003       5.1       1,118       4.7       1,296       4.2       1,310       4.2       1,696       4.2  
Services of the government
    1,641       8.3       1,984       8.3       2,644       8.5       2,991       9.5       3,680       9.1  
Other community, social and personal services
    1,713       8.6       2,014       8.4       2,630       8.4       2,789       8.9       3,510       8.7  
Net adjustments for payments made by financial institutions and import tariffs
    2,262       11.4       2,582       10.8       3,228       10.3       3,144       10.0       4,128       10.2  
 
                                                           
GDP (in millions of US$ at nominal prices)(2)
  US$ 19,853       100.0 %   US$ 23,935       100.0 %   US$ 31,198       100.0 %   US$ 31,345       100.0 %   US$ 40,284       100.0 %
 
                                                           
 
                                                                               
GDP per capita
  US$ 5,990             US$ 7,201             US$ 9,357             US$ 9,371             US$ 12,001          
 
(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)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Agriculture, livestock and fishing
    3.4 %     (6.8 )%     5.5 %     2.9 %     0.9 %
Mining
    21.4       13.3       10.1       (2.5 )     4.6  
Manufacturing
    8.1       7.1       17.3       (3.7 )     3.7  
Electricity, gas and water
    (28.6 )     57.8       (52.6 )     10.9       90.2  
Construction
    9.2       6.2       8.5       1.4       4.3  
Commerce, restaurants and hotels
    6.8       13.4       11.3       0.6       14.8  
Transportation, storage and communications
    8.2       18.1       35.5       14.4       14.6  
Real estate, business, financial and insurance services
    0.6       3.5       4.4       1.4       4.9  
Other services(2)
    3.3       3.8       4.8       4.1       0.7  
Total GDP
    4.3 %     7.3 %     8.6 %     2.6 %     8.5 %
 
(1)   Preliminary data.
 
(2)   Includes public sector services and other services.
Source: Banco Central.

D-24


 

     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 2006 and 2010 driven by cereal and oil production fueled by high international commodity prices, as well as by milk and cattle production. Cereal and oil production grew 15.5% (2006), 3.1% (2007), 23.7% (2008) and 22.4% (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 3.8%, mainly as a result of the decrease in wheat production. Although the existing cattle stock satisfied the increasing external demand from 2006 through 2010, milk and cattle production were affected by adverse climate conditions and a contraction of international markets in 2007 and in the first half of 2009. Growth recovered in 2010, with a 3.1% increase in milk production (in liters) and, despite the slight decrease in heads slaughtered, a 2.4% increase in livestock, mainly due to improvements in climate conditions and international demand.
     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)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Cereals and oil products
  US$ 756     US$ 1,086     US$ 2,107     US$ 2,040     US$ 2,123  
Rice
    170       231       392       268       309  
Wheat
    116       209       546       499       361  
Soybean
    168       317       581       853       1,060  
Pastures
    127       143       250       142       146  
Vegetables and fruits
    254       362       402       413       462  
Milk
    251       344       552       331       492  
Livestock except milk
    1,201       1,256       1,574       1,320       1,774  
Cattle
    924       949       1,217       961       1,340  
Wool
    65       80       79       60       67  
Forestry
    165       207       322       280       399  
 
                             
Total agricultural production
  US$ 2,628     US$ 3,255     US$ 4,957     US$ 4,384     US$ 5,250  
 
                             
 
                                       
Cattle (in thousands of heads slaughtered)
    2,667       2,255       2,276       2,326       2,204  
Milk (in millions of liters)
    1,420       1,328       1,531       1,473       1,530  
Wool (in tons)
    44,959       40,953       36,246       35,623       30,101  
 
(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)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Cereals and oil products
    15.5 %     3.1 %     23.7 %     22.4 %     (3.8 )%
Rice
    (6.3 )     7.1       2.0       (8,2 )     16.8  
Wheat
    31.3       15.2       90.8       37.0       (26.7 )
Soybean
    26.0       8.1       20.0       59.2       17.4  
Pastures
    8.5       (5.5 )     (2.1 )     (27.2 )     3.5  
Vegetables and fruits
    (3.5 )     (3.3 )     (14.5 )     (1.9 )     7.7  
Milk
    5.1       (10.9 )     19.3       (3.1 )     3.1  
Livestock except milk
    1.3       (10.1 )     1.3       2.3       (0.5 )
Cattle
    (0.4 )     (11.0 )     1.9       (1.2 )     2.4  
Wool
    1.6       (6.9 )     (11.5 )     (3.8 )     (15.5 )
Forestry
    12.4       7.6       15.8       0.2       10.3  
Total agricultural production
    5.6 %     (4.5 )%     9.4 %     8.4 %     (0.1 )%
 
(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 2006 through 2010 at approximately 0.3-0.4%. 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 13.1% of GDP in 2010. In 2006, manufacturing grew by 8.1% in real terms, primarily due to an increase in foodstuffs and other industries. In 2007, manufacturing grew by 7.1% in real terms compared to 2006, driven by an increase in foodstuffs and chemical production. In 2008, the manufacturing sector grew by 17.3% in real terms compared to 2007, increasing the sector’s contribution to GDP. 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 2010, manufacturing grew by 3.7%, compared to 2009, mainly due to increased production of pulp, paper and chemicals.
     The following tables set forth information regarding goods production for the periods indicated.
Selected Manufacturing Goods Production
(in millions of US$)
                                         
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Foodstuffs:
                                       
Processed meats
  US$ 1,704     US$ 1,638     US$ 2,296     US$ 2,003     US$ 2,465  
Dairy products
    510       650       1,003       762       996  
Wheat and rice mills
    356       432       750       649       630  
Baked goods
    343       448       652       658       815  
Other foodstuffs
    779       938       1,114       1,083       1,196  
 
                             
Total foodstuffs
    3,691       4,106       5,815       5,155       6,101  
Beverages
    349       427       639       624       704  
Tobacco
    63       72       80       87       71  
Textiles
    601       663       717       495       521  
Leather goods
    318       395       370       241       287  
Chemicals
    1,094       1,300       1,734       1,531       1,901  
Oil and refined products
    1,211       1,052       1,785       1,276       1,471  
Machinery
    603       775       993       862       944  
Other industries
    1,681       2,007       3,150       2,547       3,374  
 
                             
Total
  US$ 9,610     US$ 10,798     US$ 15,285     US$ 12,819     US$ 15,375  
 
                             
 
(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)
                                         
 
  2006(1)   2007(1)   2008(1)   2009(1)   2010(1)
 
                   
Foodstuffs:
                                       
Processed meats
    7.8 %     (12.5 )%     1.9 %     6.6 %     (2.1 )%
Dairy products
    3.3       4.9       11.1       1.4       1.7  
Wheat and rice mills
    1.4       0.9       13.7       10.2       (9.4 )
Baked goods
    10.2       9.6       5.0       1.9       2.6  
Total foodstuffs
    7.4       10.1       7.8       (1.8 )     (3.5 )
Beverages
    6.6       (1.9 )     6.2       3.6       (2.1 )
Tobacco
    1.5       11.0       14.7       1.6       1.8  
Textiles
    (3.4 )     3.5       (5.2 )     (3.2 )     5.6  
Leather goods
    (3.2 )     5.9       (4.5 )     (24.2 )     (5.9 )
Chemicals
    4.9       13.7       (13.7 )     (22.5 )     5.8  
Oil and refined products
    2.2       11.2       5.6       (2.7 )     12.8  
Machinery
    (8.1 )     (13.2 )     30.5       (5.0 )     (1.8 )
Total
    15.0 %     12.4 %     5.9 %     (7.3 )%     (0.6 )%
 
(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. Uruguay and Brazil plan 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 2012. 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 during 2009 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.
     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 57.8% 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

D-27


 

in the domestic market as well as abroad. In each of 2008 and in 2006, 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 10.9%, 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 90.2% due to an increased use of hydroelectric source of electricity generation.
     Construction
     In 2006, the construction sector grew at an annual rate of 9.2%, primarily driven by the construction of a paper pulp mill in Fray Bentos and commercial real estate in Maldonado. Growth continued through 2007, 2008, 2009 and 2010, at annual rates of 6.2%, 8.5%, 1.4% and 4.3% respectively, fueled by public and private sector investment.
     Commerce, Restaurants and Hotels
     In 2006, the commerce, restaurants and hotels sector grew by 6.8% in real terms, primarily due to the recovery of the commercial activities. In 2007, this sector expanded by 13.4%, 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 11.3% 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 0.6%. During 2009 an increase in local demand for restaurants and hotel services 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 14.8%, 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. The commerce, restaurants and hotels sector accounted for approximately 14.4% of GDP in 2010.
     Transportation, Storage and Communications
     In 2006 and 2007 this sector grew by 8.2% and 18.1% respectively, 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 35.5% and 14.4%, respectively, primarily due to the increase in the demand for mobile phone services. In 2010, the sector grew by 14.6%, 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).
     Real Estate, Business, Financial and Insurance Services
     The real estate and business sector and the financial and insurance services sector grew 14.8% in real terms in the period 2006 — 2010. 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 also grew during this period driven by tourism rentals and purchases.

D-28


 

     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 declined since 2002 as other sectors of the economy have grown at a faster pace in relative terms. The decline of the contribution of the financial and insurance services sector to the GDP is attributable to a change in the methodology of the calculations.
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);
 
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;

D-29


 

  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. 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.
     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 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 in the restructuring of the results of operations of the state-owned enterprises and established an energy stabilization fund to reduce the impact of hydrological deficits and mitigate the risk of 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 the liabilities incurred in 2009.
     At this time the government has no plans to privatize any public sector enterprises.

D-30


 

     The following table sets forth selected financial data for the principal state-owned enterprises as of the dates and for the periods indicated.
Principal Public Sector Enterprises
(in millions of US$)(1)
                                 
                            Percentage  
                            of State  
    Total Assets     Total Liabilities     Net Profits     Ownership  
ANCAP(2)
    2,114       990       73       100 %
ANP(2)
    666       69       14       100 %
AFE(2)
    210       20       (33 )     100 %
ANTEL(2)
    1,768       214       183       100 %
OSE(3)
    1,593       272       57       100 %
UTE(2)
    5,215       851       416       100 %
 
     
(1)   Preliminary data.
 
(2)   Data as of and for the year ended December 31, 2010. Converted into U.S. dollars at the rate of Ps.20.094 per US$1.00, the market rate on December 31, 2010.
 
(3)   Data as of and for the year ended December 31, 2009. Converted into U.S. dollars at the rate of Ps.19.627 per US$1.00, the market rate on December 31, 2009.
 
Source:   Financial statements of each public enterprise.
Employment, Labor and Wages
     Employment
     The employment rate rose to 54.1% in 2006, 56.7% in 2007, 57.7% in 2008, 58.5% in 2009, reaching 58.4% in 2010. Unemployment declined steadily from 10.9% in 2006, reaching 6.8% in 2010. The continued recovery of the economic activity in Uruguay since 2004 explains the continued decrease in the nationwide unemployment rate to date.

D-31


 

     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,  
    2006     2007     2008     2009     2010  
Nationwide:
                                       
Participation rate(1) (2)
    60.8 %     62.7 %     62.5 %     63.1 %     62.7 %
Employment rate(3)
    54.1       56.7       57.7       58.5       58.4  
Unemployment rate(4)
    10.9       9.5       7.7       7.3       6.8  
Montevideo:
                                       
Participation rate(1) (2)
    61.7       64.3       63.8       64.8       64.9  
Employment rate(3)
    55.1       58.4       59.2       59.9       60.4  
Unemployment rate(4)
    10.6       9.1       7.3       7.6       6.9  
 
(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.
     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)
                                         
    2006     2007     2008     2009     2010  
Agriculture, livestock, fishing and mining
    4.8 %     5.2 %     4.9 %     4.9 %     4.9 %
Manufacturing, electricity, gas and water, and construction services
    22.1       22.5       22.3       21.9       22.3  
Services
    73.1       72.3       72.8       73.3       72.8  
 
                             
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. During 2007 and 2008, labor unions increased their demands for improvements in salaries and working conditions. However according to “Indice de conflictividad laboral” (labor conflict index) published by Universidad Católica del Uruguay, conflicts have decreased 54.0% in 2009 in comparison to 2007.

D-32


 

     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)
                                         
    2006     2007     2008     2009     2010  
Average real wages
    4.4 %     4.8 %     3.5 %     7.3 %     3.3 %
Public sector
    3.3       5.2       3.6       6.0       2.8  
Private sector
    5.0       4.5       3.5       8.0       3.6  
 
Source:   Instituto Nacional de Estadística (INE).
     The real wage increase in the public sector during 2006 was 3.3%, whereas the real wage increase for the private sector was 5.0%. 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 public sector real wages of 2.8% and an increase in private sector real wages of 3.6%. Under the collective bargaining rules, which were not followed during the 1990s, 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 12.6% in 2010, compared to 25.7% in 2006.
     While Uruguay has disparities in the distribution of wealth and income, which increased 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 2009, 33.0% of the national income in Uruguay was concentrated in the hands of the top 10.0% of the economically active population as compared to 46.1% of the national income for Brazil, 37.9% for Costa Rica, 39.8% for Mexico, 42.9% for Chile and 39.2% for Argentina (the percentage of Mexico is for the year 2008).

D-33


 

     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)
                                         
Income Group   2004     2005     2007     2008     2009  
Lowest 40%
    13.6 %     13.9 %     13.8 %     14.2 %     14.9 %
Next 30%
    22.9       23.3       23.0       23.7       23.9  
Next 20%
    27.9       28.1       28.5       28.4       28.2  
Highest 10%
    35.6       34.7       34.8       33.7       33.0  
 
                             
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 
                             
 
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 2006, merchandise exports increased by 18.0% (measured in U.S. dollars) compared to 2005, largely as a result of continued increases in exports of meat and other traditional products. 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 8.1% (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 25.4% (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 2006, merchandise imports increased by 23.9% (measured in U.S. dollars) compared to 2005, primarily due to the significant increase in imports of intermediate goods. 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 23.8% (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.
     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 and with Egypt in 2010.
     Mercosur member states remain the main destination of Uruguay’s exports and source of its imports. Exports to Argentina and Brazil accounted for 20.8% of total exports in 2006, 24.1% of total exports in 2007, 22.2% of total exports in 2008 and 23.4% total exports in 2009. Even more significantly, Argentina and Brazil accounted for, 45.6% of total imports in 2006, 45.7% of total imports in 2007, 42.6% of total imports in 2008 and 44.7% of total imports in 2009. In 2008, exports to Brazil included wood pulp, malt, plastics and cereals, exports to Argentina were concentrated in oil refined products, plastics and auto parts, and Venezuela was the destination primarily of milk and dairy products. In 2010, the Mercosur members remained Uruguay’s main export market and source of imports. Exports to Argentina and Brazil accounted for 25.7% of total exports. More significantly, Argentina and Brazil accounted for 35.3% of total imports in 2010.

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 2.6% of total exports while imports accounted for 9.9% 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 to US$2.2 billion in 2003, primarily due to the improved competitiveness created by the real devaluation of the peso and further increased to US$2.9 billion in 2004, mainly as a result of increased demand for Uruguayan exports and elevated prices for several of Uruguay’s commodity exports. The real appreciation of the peso during 2005 did not adversely impact exports, which reached US$3.6 billion, mainly due to the growth in export sales of meat, rice and dairy products. In 2006, exports totaled US$4.3 billion, due to an increase in exports of traditional products and 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 8.1% compared to 2008. In 2010, merchandise exports increased by 25.4% compared to 2009, to US$7.8 billion, mainly due to an increase 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) increased by 23.0% in 2005 compared to 2004, and by 25.5% in 2006 compared to 2005. Beef exports 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 approximately 8.0% of Uruguay’s exports reaching a 9.7% of total exports in 2010. In 2009, exports of agricultural products increased by 38.1% and other foodstuffs increased by 12.4%. 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 45.3%, 40.4% and 14.7%, respectively, compared to 2009. Exports of wheat and rice in 2010 decreased by 15.0% compared to 2009.

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 2006, total imports increased by 23.9% compared to 2005, of which 21.3% represented consumer goods, 65.9% intermediate goods and 11.1% capital goods. This trend continued in 2007 with an increase of 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 23.8%, of which consumer goods accounted for 22.0%, intermediate goods accounted for 62.1% 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.
     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)
                                                                                 
    2006     2007     2008     2009(1)     2010(1)  
EXPORTS (FOB)
                                                                               
Agricultural products
  US$ 247       5.8 %   US$ 376       7.7 %   US$ 599       8.9 %   US$ 827       13.4 %   US$ 1,202       15.5 %
Processed meats
    1,138       26.6       1,021       20.9       1,496       22.2       1,238       20.0       1,420       18.3  
Dairy products
    257       6.0       337       6.9       429       6.4       371       6.0       521       6.7  
Wheat and rice mills
    224       5.2       287       5.9       463       6.9       466       7.5       396       5.1  
Other foodstuffs
    326       7.6       432       8.8       476       7.1       535       8.6       572       7.4  
Textiles
    182       4.2       203       4.2       189       2.8       144       2.3       190       2.4  
Leather goods
    296       6.9       298       6.1       249       3.7       163       2.6       199       2.6  
Paper pulp
    54       1.3       51       1.0       512       7.6       482       7.8       754       9.7  
Chemicals
    224       5.2       290       5.9       392       5.8       339       5.5       414       5.3  
Oil and refined products
    135       3.2       126       2.6       188       2.8       75       1.2       127       1.6  
Plastic products
    107       2.5       127       2.6       152       2.3       138       2.2       164       2.1  
Motor vehicles and parts
    111       2.6       124       2.5       165       2.4       132       2.1       191       2.5  
Other
    976       22.8       1,213       24.8       1,424       21.2       1,275       20.6       1,607       20.7  
 
                                                           
Total exports
  US$ 4,279       100.0 %   US$ 4,884       100.0 %   US$ 6,732       100.0 %   US$ 6,186       100.0 %   US$ 7,756       100.0 %
 
                                                                     
 
IMPORTS (CIF)
                                                                               
Consumer goods
  US$ 960       20.0 %   US$ 1,198       21.3 %   US$ 1,598       17.6 %   US$ 1,520       22.0 %   US$ 2,025       23.5 %
Intermediate goods
    3,314       69.0       3,711       65.9       6,109       67.4       4,293       62.2       5,148       59.7  
Capital goods
    532       11.1       718       12.8       1,362       15.0       1.093       15.8       1,449       16.8  
 
                                                           
Total imports
  US$ 4,806       100.0 %   US$ 5,628       100.0 %   US$ 9,069       100.0 %   US$ 6,907       100.0 %   US$ 8,622       100,0 %
 
                                                                     
 
Merchandise trade balance:
  US$ (499 )           US$ (546 )           US$ (1,714 )           US$ (252 )           US$ (256 )        
 
                                                                     
 
(1)   Preliminary data.
 
Source:   Banco Central.

D-37


 

Geographical Distribution of Merchandise Trade
(in millions of US$, unless otherwise indicated)
                                                                                 
    2006     2007     2008     2009(1)     2010(1)  
EXPORTS (FOB)
                                                                               
Americas:
                                                                               
Argentina
  US$ 302       7.1 %   US$ 446       9.1 %   US$ 507       7.5 %   US$ 347       5.6 %   US$ 574       7.4 %
Brazil
    584       13.7       732       15.0       988       14.7       1,098       17.8       1,422       18.3  
United States
    523       12.2       493       10.1       214       3.2       177       2.9       198       2.6  
Other
    670       15.6       781       16.0       1,057       15.7       758       12.3       923       11.9  
 
                                                           
Total Americas
    2,079       48.6       2,451       50.2       2,766       41.1       2,380       38.5       3,116       40.2  
 
                                                           
Europe:
                                                                               
European Union:
                                                                               
France
    33       0.8       35       0.7       34       0.5       28       0.5       32       0.4  
Germany
    165       3.9       205       4.2       212       3.2       159       2.6       238       3.1  
Italy
    113       2.6       100       2.1       143       2.1       115       1.9       145       1.9  
United Kingdom
    96       2.2       120       2.5       172       2.6       143       2.3       110       1.4  
Other EU
    257       6.0       349       7.1       558       8.3       366       5.9       442       5.7  
Total EU
    664       15.5       810       16.6       1,120       16.6       811       13.1       966       12.5  
EFTA(2) and other
    430       10.0       268       5.5       536       8.0       390       6.3       646       8.3  
 
                                                           
Total Europe
    1,094       25.6       1,078       22.1       1,656       24.6       1,201       19.4       1,612       20.8  
 
                                                           
Africa
    183       4.3       157       3.2       210       3.1       209       3.4       215       2.8  
Asia
    361       8.4       387       7.9       435       6.5       462       7.5       603       7.8  
Middle East
    179       4.2       160       3.3       303       4.5       349       5.6       234       3.0  
Free Trade Zone(3)
    271       6.3       341       7.0       790       11.7       780       12.6       1,015       13.1  
Other
    111       2.6       310       6.3       572       8.5       804       13.0       960       12.4  
 
                                                           
Total
  US$ 4,279       100.0 %   US$ 4,884       100.0 %   US$ 6,732       100.0 %   US$ 6,185       100.0 %   US$ 7,756       100.0 %
 
                                                           
IMPORTS (CIF)
                                                                               
Americas:
                                                                               
Argentina
  US$ 1,103       23.0 %   US$ 1,255       22.3 %   US$ 2,250       24.8 %   US$ 1,628       23.6 %   US$ 1,469       17.0 %
Brazil
    1,084       22.6       1,314       23.4       1,618       17.8       1,460       21.1       1,578       18.3  
United States
    326       6.8       413       7.3       530       5.8       564       8.2       855       9.9  
Other
    799       16.6       885       15.7       1,073       11.8       845       12.2       1,241       14.4  
 
                                                           
Total Americas
    3,313       68.9       3,868       68.7       5,471       60.3       4,497       65.1       5,143       59.6  
 
                                                           
Europe:
                                                                               
European Union:
                                                                               
France
    82       1.7       84       1.5       102       1.1       83       1.2       137       1.6  
Germany
    99       2.1       112       2.0       142       1.6       168       2.4       198       2.3  
Italy
    82       1.7       94       1.7       117       1.3       119       1.7       161       1.9  
United Kingdom
    46       1.0       43       0.8       56       0.6       52       0.8       72       0.8  
Other EU
    160       3.3       223       4.0       315       3.5       278       4.0       364       4.2  
Total EU
    469       9.8       556       9.9       733       8.1       700       10.1       931       10.8  
EFTA(2) and other
    89       1.9       249       4.4       53       0.6       352       5.1       397       4.6  
 
                                                           
Total Europe
    559       11.6       805       14.3       785       8.7       1,052       15.2       1,328       15.4  
 
                                                           
Africa
    172       3.6       55       1.0       309       3.5       123       1.8       408       4.7  
Asia
    603       12.5       860       15.3       1,359       15.0       1,161       16.8       1,652       19.2  
Middle East
    142       3.0       16       0.3       37       0.4       49       0.7       63       0.7  
Other
    17       0.4       25       0.4       1108       12.2       25       0.4       28       0.3  
 
                                                           
Total
  US$ 4,806       100.0 %   US$ 5,628       100.0 %   US$ 9,069       100.0 %   US$ 6,907       100.0 %   US$ 8,622       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

D-38


 

FOREIGN TRADE ON SERVICES
     Uruguay’s services trade has traditionally been heavily concentrated in Argentina and Brazil and has been driven principally by tourism, transportation and financial services and, since 2007, transactions made from free zones.
     After increasing only by 0.7% in 2006, 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 24.7% and 5.1%, respectively, in 2009. Also a higher per capita level of expenditures has also contributed to improve gross tourism receipts. In 2010, gross tourism receipts and the number of tourists arrivals increased again by 12.1% and 14.7%, respectively.
Revenues from Tourism
                 
    Number of     Gross Tourism  
    Tourist Arrivals     Receipts  
    (in thousands)     (in millions of US$)  
2006
    1,824       598  
2007
    1,815       809  
2008
    1,998       1,051  
2009
    2,099       1,311  
2010
    2,408       1,469  
 
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 declined in 2006 and 2007 but increased by 10.0%, 5.1% and 14.7% in 2008, 2009 and 2010, respectively. Tourism from, as well as trade with or transiting through, Argentina during the period 2006-2010 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. See “Balance of Payments—Foreign Investment.”

D-39


 

     The following table sets forth the percentage of tourist arrivals from Argentina, Brazil and other countries for the periods indicated.
Tourist Arrivals
(% by country)
                                         
    2006     2007     2008     2009     2010  
Argentina
    53.4 %     50.0 %     52.4 %     54.8 %     52.4 %
Brazil
    12.5       15.8       14.9       12.6       15.7  
Other
    34.0       34.2       32.7       32.6       32.0  
 
                             
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 
                             
 
Sources: Banco Central and the Ministry of Tourism.
     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$3.1 billion as of December 31, 2010, representing 22.5% of total foreign currency deposits held by the non-financial private sector with the Uruguayan banking system (excluding deposits held with banks in liquidation).

D-40


 

BALANCE OF PAYMENTS
     In 2010, Uruguay’s balance of payments registered an overall deficit of US$361.0 million compared to a surplus of US$1.6 billion in 2009, a surplus of US$2.2 billion in 2008, a surplus of US$1.0 billion in 2007 and a deficit of US$15.0 million in 2006. Banco Central’s international reserve assets stood at US$7.7 billion at December 31, 2010, compared to US$8.0 billion at December 31, 2009, US$6.4 billion at December 31, 2008, US$4.1 billion at December 31, 2007 and US$3.1 billion at December 31, 2006.
Balance of Payments(1)
(in millions of US$)
                                         
    2006     2007     2008     2009(2)     2010(2)  
Current Account
                                       
Merchandise trade balance
  US$ (499 )   US$ (546 )   US$ (1,714 )   US$ (252 )   US$ (256 )
Exports
    4,400       5,100       7,096       6,408       8,061  
Imports
    (4,898 )     (5,645 )     (8,810 )     (6,660 )     (8,317 )
Services, net
    409       703       822       990       1,067  
Interests and dividends
    (428 )     (516 )     (736 )     (671 )     (1,094 )
Current transfers(3)
    126       138       148       140       122  
 
                             
Total current account
  US$ (392 )   US$ (221 )   US$ (1,480 )   US$ 207     US$ (160 )
 
                             
Capital and Financial Account
                                       
Capital transfers
  US$ 7     US$ 4     US$ 0     US$ 0     US$ 0  
Direct Investment
    1,495       1,240       1,820       1,257       1,633  
Portfolio Investment(4)
    1,686       1,151       (558 )     (706 )     (537 )
Other medium and long term capital
    (2,983 )     (3 )     443       929       (557 )
Other short term capital
    323       (886 )     1,096       (480 )     (598 )
 
                             
Total capital and financial account, net
  US$ 528     US$ 1,505     US$ 2,801     US$ 1,000     US$ (59 )
 
                             
 
                                       
Errors and Omissions(5)
  US$ (152 )   US$ (279 )   US$ 911     US$ 382     US$ (142 )
 
                             
Total balance of payments
  US$ (15 )   US$ 1,005     US$ 2,232     US$ 1,588     US$ (361 )
 
                             
 
                                       
Change in Banco Central reserve assets(6)
  US$ 15     US$ (1,005 )   US$ (2,232 )   US$ (1,588 )   US$ 361  
 
                             
Gold(7)
    0       0       0       0       0  
SDRs
    (6 )     (1 )     4       381       0  
IMF Position
                            95  
Foreign Exchange
    146       320       (402 )     712       (1,370 )
 
                             
Other holdings
    (156 )     686       2,630       495       914  
 
                             
Total assets
  US$ (15 )   US$ 1,005     US$ 2,232     US$ 1,588     US$ (361 )
 
                             
 
(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 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.

D-41


 

     Current Account
     Uruguay’s current account consists of the merchandise trade balance, foreign trade on services net, interest and dividend payments, and current transfers.
     In 2006, the current account recorded a deficit of US$392 million. The deficit was attributable mainly to the rapid growth in merchandise imports, which exceeded 2005 levels by US$1.1 billion. Imports of consumer and capital goods increased 22.9% and 17.5% respectively, during 2006, while imports of intermediate goods grew 25.3%.
     In 2007, the current account recorded a deficit of US$221 million. This improvement in the current account balance was attributable mainly to the improvement in inflows generated by foreign trade on services, net.
     In 2008, the current account recorded a deficit of US$1.5 billion. The significant increase of 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 recorded a surplus of US$207 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 dropped 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$160 million. The trade deficit was attributable to an increase in deficit derived from interest and dividend payments. This result was primarily due to increased corporate profits obtained by foreign direct investors.
     Capital and Financial Account
     Uruguay’s capital and financial account includes direct investments, portfolio investments, short-, medium- and long-term indebtedness, and capital transfers.
     In 2006, Uruguay’s capital and financial account recorded a surplus of US$528 million. An unprecedented level of foreign direct investment, amounting US$1.5 billion, in addition to US$1.7 billion in borrowings by the government from the international capital markets, allowed Banco Central and the government to cancel loans for US$2.4 billion, including the early repayment of outstanding obligations with the IMF.
     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$1.8 billion. Uruguay’s capital account recorded a surplus of US$2.8 billion in 2008.
     Since the outburst of the international financial crisis in September 2008, capital inflows decreased. Furthermore, capital inflows during the fourth quarter of 2008 comprised primarily proceeds of loans made to the public sector by multilateral financial institutions, while foreign direct investment and portfolio investments decreased during that period.

D-42


 

     In 2009, Uruguay’s capital and financial account recorded a surplus of US$1.5 billion, reflecting a decrease in capital and financial inflows to both the public and the private sector.
     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. However, the financial flows from foreign direct investment companies provided funding for over US$1.3 billion in 2009.
     In 2010, Uruguay’s capital and financial account recorded a deficit of US$59.0 million, mainly resulting from the repayment of loans to multilateral agencies by the public sector. These outflows were offset by inflows generated by foreign direct investment.
     International Reserves
     As of December 31, 2010, the international reserve assets of Banco Central stood at US$7.7 billion, compared to US$8.0 billion at December 31, 2009. The following table shows the composition of the international reserve assets of Uruguay’s Banco Central and the banking system at each of the dates indicated.
International Reserve Assets of the Banking System(1)
(in millions of US$)
                                         
    As of December 31,  
    2006     2007     2008     2009     2010  
Banco Central
  US$ 3,091 (2)   US$ 4,121 (3)   US$ 6,360 (4)   US$ 7,987 (5)   US$ 7,656 (6)
Of which gold represents
    5       7       7       9       12  
Banco de la República
    1,376       2,091       1,857       1,656       2,133  
Private Banks
    3,062       2,945       3,506       4,525       5,301  
 
                             
International reserve assets
  US$ 7,529     US$ 9,157     US$ 11,724     US$ 14,168     US$ 15,090  
 
                             
 
(1)   All figures are at market value as of the date indicated.
 
(2)   This amount includes US$1,750 million of reserves and voluntary deposits of the Uruguayan banking system, including US$792 million of Banco de la República, with Banco Central.
 
(3)   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.
 
(4)   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.
 
(5)   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.
 
(6)   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.
Source: Banco Central
     As of May 31, 2011, Banco Central’s international reserve assets totalled US$8.7 billion, including US$1.7 billion in reserves and voluntary deposits of the Uruguayan banking system, of which US$888.0 million were claims of Banco de la República.
     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.

D-43


 

     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 2006, 2007, 2008, 2009 and 2010, estimated foreign direct investment accounted for US$1.5 billion, US$1.2 billion, US$1.8 billion, US$1.3 billion and US$1.6 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 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 that discharge effluents into the Uruguay River.

D-44


 

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. Until Law 18,401 is fully implemented, the Corporacion de Protección al Ahorro is functioning under the aegis of the Banco Central. 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.

D-45


 

     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 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 December 2005, Banco Central also changed the intermediate objective, shifting from the growth rate of monetary base to the growth rate of M1. The annual rates of inflation for 2005 and 2006, standing at 4.9%, and 6.4% respectively, were below the target range set by Banco Central. During 2006, Banco Central announced the broadening of its target range horizon to 18 months and maintained the target range.
     In September 2007, Banco Central began defining monetary policy by reference to short term interest rates as the new intermediate target, in lieu of M1. As a consequence, Banco Central introduced an interest rate that was set at 5.0% and established the average money market rate as the instrument to monitor its new 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 freer movement of the average money market rate, and to establish a Re-purchasing Program of Monetary Regulation Bills in domestic currency, giving holders the option to choose the currency of redemption. The purpose was 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. Nevertheless, as inflationary pressures returned, the monetary policy rate actually 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 reduced the breadth of the inflation target range from 3.0-7.0% to 4.0-6.0%. In September 2010, Banco Central decided to raise the monetary policy rate to 6.50% to mitigate 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 18 months, taking into account inflationary pressures generated by the international markets and domestic demand.

D-46


 

     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 declined, as of December 31, 2010, 74.2% 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
March 31,
 
    2006     2007     2008     2009     2010     2011  
Currency, including cash in vaults at banks
  US$ 904     US$ 1,145     US$ 1,161     US$ 1,629     US$ 1.899     US$ 1.876  
Other
    207       322       514       583       419       716  
 
                                   
Monetary base
  US$ 1,111     US$ 1,467     US$ 1,675     US$ 2,213     US$ 2.318     US$ 2.592  
 
                                   
 
(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)
                                                 
                                            For the
 
                                            Twelve months
ended March,
 
    2006     2007     2008     2009     2010     2011(1)  
M1 (% change)(2)
    24.1 %     32.0 %     17.9 %     11.7 %     34.0 %        15.1 %
M2 (% change)(3)
    22.1       31.0       17.3       12.0       34.4       22.4  
Credit from the financial system (% change)
    29.2       22.1       58.7       (13.1 )     24.1       17.0  
Average annual peso deposit rate (end period)
    2.2       3.1       4.9       5.3       4.8       4.8  
Monetary policy rate (TPM)
          7.30       7.80       6.25       6.50       7.50  
Average money market rate (TMM) (period end)
          7.30       5.00       6.20       6.20       7.50  
 
(1)   Preliminary data.
 
(2)   Currency in circulation plus peso-denominated demand deposits.
 
(3)   M1 plus peso-denominated savings deposits.
Source: Banco Central.

D-47


 

Liquidity and Credit Aggregates
(in millions of US$(1))
                                         
    2006     2007     2008     2009(2)     2010  
Liquidity aggregates (at period end):
                                       
Currency, excluding cash in vaults at banks
  US$ 661     US$ 879     US$ 879     US$ 1,116     US$ 1,469  
M1(3)
    1,830       2,740       2,852       3,952       5,174  
M2(4)
    2,208       3,283       3,399       4,723       6,200  
M3(5)
    8,742       10,292       11,696       13,983       16,852  
 
                                       
Credit aggregates (at period end):
                                       
Private sector credit
    4,847       6,177       7,585       7,842       9,281  
Public sector credit
    347       72       36       1,269       599  
 
                             
 
                                       
Total domestic credit
  US$ 5,195     US$ 6,249     US$ 7,621     US$ 9,111     US$ 9,880  
 
                             
 
                                       
Deposits:
                                       
Uruguayan Peso deposits
  US$ 1,547     US$ 2,404     US$ 2,520     US$ 3,607     US$ 4,731  
Foreign currency deposits
    8,851       9,648       11,686       13,143       14,582  
 
                             
Total deposits
  US$ 10,497     US$ 12,052     US$ 14,206     US$ 16,750     US$ 19,313  
 
                             
 
                                       
Deposits of non-residents
  US$ 2,416     US$ 2,638     US$ 3,389     US$ 3,883     US$ 3,095  
 
(1)   Exchange rate at the end of the period
 
(2)   Preliminary data.
 
(3)   Currency in circulation plus peso-denominated demand deposits.
 
(4)   M1 plus peso-denominated savings deposits.
 
(5)   M2 plus deposits of residents in foreign currency, principally U.S. dollars.
Source: Banco Central.
     Inflation
     The following table shows changes in the CPI and the WPI for the periods indicated.
                 
    Percent Change from  
    Previous Year at Period End  
    Consumer     Wholesale  
    Prices     Prices  
2006
    6.4 %     8.2 %
2007
    8.5       16.1  
2008
    9.2       6.4  
2009
    5.9       10.5  
2010
    6.9       3.6  
For the 12 months ended March 31, 2011
    8.2       2.6  
 
Source: National Institute of Statistics.

D-48


 

     In 2006, inflation (as measured by consumer prices) increased to 6.4% and in 2007 it reached 8.5%. In spite of the monetary measures implemented in the fourth quarter of 2007, which started to show their effects during the first quarter of 2008, inflation rates in 2008 reflected the significant impact of increased oil and food prices. While supply pressures began to weaken in September 2008, domestic demand remained strong and the annual inflation rate reached 9.2% in 2008. In 2009, inflation began to decline, mainly influenced by lower government regulated prices. These fiscal measures assisted in keeping inflation in line with the expectations that supported the monetary policy measures adopted by Banco Central in January 2009. The global economic downturn in 2009 further contributed to reducing inflationary pressure. The inflation rate for 2009 ended at 5.9%. In 2010, the inflation rate increased to 6.9%, reflecting the inflationary effects of the recovery in prices of oil and agricultural products. This situation was offset in part by the appreciation of the peso against the U.S. dollar. The inflation rate exceeded the target range and reached 8.2% for the twelve months period ending March 31, 2011, prompting Banco Central to increase the monetary policy rate to 7.5%. Banco Central monitors developments in monetary demand with a view to avoiding further increases in inflation rates and medium term expectations.
     The weighted average interest rate for 91 to 180 day term deposits in U.S. dollars in the banking system was 1.8% in December 2006 and December 2007, and fell to 1.2%, 0.6% and 0.5% in December 2008, December 2009 and December 2010 respectively. The weighted average interest rate for 91 to 180 day term deposits in pesos in the banking system was 2.3% in December 2006. In December 2007, this rate increased to 2.9%, mainly as a consequence of the measures to contain monetary growth adopted by Banco Central. This rate stood at 5.2% in December 2008, December 2009 and December 2010 and at 5.1% in March 2011.
     The decrease in the level of deposits held with the Uruguayan banking system and the uncertainties affecting the economy in 2002 and early 2003 resulted in significant increases in loan default rates and insolvencies with virtually no credit being extended to local businesses by local financial institutions. Since the beginning of 2003, the number of loan defaults and insolvencies has abated. While the ratios of non-performing loans (“NPLs”) to total loans and of provision for NPLs (provision for NPLs in relation to total gross loans) were 26.0% and 15.0% respectively in 2002, these ratios declined steadily through 2005, when they stood at 7.0% and 11.0% respectively. Banco Central adopted stricter requirements in terms of provisioning and disclosure, which became applicable during the second quarter of 2006. As a consequence of these requirements, the ratio of NPLs to total loans decreased at a pace faster than the level of provisions. At December 31 2006, 2007 and 2008, the ratio of NPLs to total loans was 3.6%, 1.1% and 1.0% respectively, while the provision for NPLs ratio decreased at a slower pace, standing at 9.9%, 6.7% and 6.8% respectively. At the end of 2009, the NPLs ratio registered a slight increase, reaching 1.2%, mainly due to the performance of non-corporate credit, while the provision for NPLs ratio stood at 6.4%. At December 31, 2010, the ratio of NPLs to total loans decreased to 1.0% while the provision for NPLs ratio decreased to 6.2%.
     For a discussion of Uruguay’s past policies regarding inflation see “The Economy—1999-2002: Recession and Crisis in the Banking System” and “The Economy—2003-2010: Recovery and Economic Growth,” and for a discussion of Uruguay’s current monetary policy, see “Monetary Policy and Inflation—Monetary Policy.”

D-49


 

     Foreign Exchange
     Between 1990 and June 2002, the Uruguayan peso was devalued relative to other currencies on a gradual basis. Banco Central allowed the peso/U.S. dollar exchange rate to fluctuate within a band of its value (initially set at 3.0% and increased to 6.0% in June 2001) and the bounds of the band were adjusted upward by 0.6% (1.2% after June 2001) each month. Interest rates for deposits in foreign currencies generally tracked movements in international interest rates. Interest rates for deposits in pesos, however, fell during the first months of 2000.
     In January 2002, Banco Central adjusted the monthly rate of devaluation of the Uruguayan peso from 1.2% to 2.4% and the width of the band of fluctuation for the peso to U.S. dollar exchange rate from 6.0% to 12.0%, responding to Argentina’s economic crisis and its impact on the region as a whole. The continued devaluation of the Argentine peso, and increasing 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. A steep devaluation of the peso followed, reaching its lowest point on September 10, 2002, when the exchange rate reached Ps.32.325 per US$1.00. From 2003 through 2006, the peso strengthened versus the U.S. dollar. In 2007 and 2008, exchange rate volatility increased, although on average the peso continued to appreciate. In 2008, the appreciation of the peso was interrupted by the financial crisis, but once the uncertainty decreased, the peso began to appreciate versus the U.S. dollar and as of March 31, 2011 the exchange rate stood at Ps. 19.20 per US$1.00.
     Since the mid-1970’s, Uruguay has not imposed foreign exchange convertibility or remittance controls. Uruguayan residents are permitted to buy or sell foreign exchange without restriction, and there are no restrictions on the repatriation in foreign currency of capital or dividends by foreign investors.
     The following table shows the high, low, average and period-end peso/U.S. dollar exchange rates for the dates and periods indicated.
Exchange Rates(1)
(pesos per US$)
                                 
    High     Low     Average     Period-End  
2006
    24.400       23.700       24.012       24.400  
2007
    24.450       21.500       23.414       21.500  
2008
    24.550       19.079       20.935       24.350  
2009
    24.520       19.534       22.553       19.627  
2010
    24.135       19.400       21.609       20.094  
For the 12 months ended March 31, 2011
    21.330       19.040       20.020       19.190  
 
(1)   Daily interbank end-of-day bid rates.
Source: Banco Central.

D-50


 

THE BANKING SECTOR
     Prudential Regulation, Supervision and Financial System
     Banco Central supervises the banking system and requires regular monthly filings of balance sheets, income statements and statements of stockholders’ equity, as well as daily reports on foreign exchange exposure and other information from the banks in the Uruguayan financial system. According to Banco Central’s charter as most recently amended, Banco Central exercises its supervision and inspection powers over public and private financial institutions through the Superintendencia de Servicios Financieros or Financial Services Superintendency. Although the Superintendency has technical and operational autonomy, Banco Central retains certain powers in relation to receivership of impaired institutions and revocation of banking licenses. Following international best practices, supervision of financial institutions by Banco Central is based both on the level of risk that each bank adopts and the management of those risks evidenced by each institution. To improve the supervision of local financial institutions that are affiliated with Spanish financial groups, the Superintendency entered into a Memorandum of Understanding with the supervisory authorities of Spain, Banco de España, that allows both agencies to share relevant information.
     The Financial Services Superintendency imposes lending limits and cash and liquidity reserve requirements, among other requirements. Financial institutions are required to classify loans made to non-financial borrowers in accordance with the following criteria that, in addition to the performance of payment obligations, factor in the borrower’s projected ability to remain current:
  Category 1A:   Loans secured with liquid collateral. This category includes loans secured by highly liquid collateral which banks can have access to through the exercise of set-off rights. No provisions are required for this category.
 
  Category 1B:   Financial sector borrowers including non-resident banks and other financial institutions, whose payments are not past due and have an international credit score rated between BBB- and BBB.
 
  Category 1C:   Borrowers with strong ability to repay their obligations. Payment obligations may not be past due by more than 10 days. In addition, based on the bank’s assessment, the borrower should be expected to remain current on its payment obligations even under extremely adverse scenarios. Provisions of 0.5% are required for this category.
 
  Category 2A:   Borrowers with adequate ability to repay their obligations. Payment obligations may not be past due by more than 30 days. In addition, based on the bank’s assessment, the borrower should be expected to remain current on its payment obligations under adverse circumstances. Provisions of 3.0% are required for this category.

D-51


 

  Category 2B:   Borrowers with potential financial difficulties. Payment obligations may not be past due by more than 60 days. In addition, based on the bank’s assessment, the borrower should be expected to remain current on its payment obligations under somewhat adverse circumstances. Provisions of 7.0% are required for this category.
 
  Category 3:   Borrowers with an impaired ability to repay their obligations. Payment obligations may not be past due by more than 120 days. In addition, based on the bank’s assessment, the borrower would have difficulty in repaying its obligations on the original terms under moderately adverse circumstances. Provisions of 20.0% are required for this category.
 
  Category 4:   Borrowers with a substantially impaired ability to repay their obligations. Payment obligations may not be past due by more than 180 days. In addition, based on the bank’s assessment, the borrower would have a high probability of defaulting on its future obligations. Provisions of 50.0% are required for this category.
 
  Category 5:   Irrecoverable: Borrowers included in this category have payment obligations past due by more than 180 days and based on the bank’s assessment are unable to repay the loan. Provisions of 100.0% are required.
     Home loans and consumer loans must also be classified and reserved in accordance with the prior classification taking their specific characteristics into consideration.
     Banco Central substantially adheres to the requirements of the Basle Committee on Capital Adequacy of the Bank of International Settlement and, as a general rule, since September 1998 has required ratios of total capital to risk-weighted assets equivalent to 8.0% in the case of banks, financial cooperatives, financial houses and off-shore banks, and 12.0% in case of financial cooperatives holding a limited license. Minimum capital requirements must cover credit risk requirements and market risk requirements under the Basle I Capital Amendment.
     In order to mitigate the exposure of Uruguayan banks to the foreign exchange risk created by the denomination of a significant portion of their loan portfolio in U.S. dollars, – impact on the creditworthiness of borrowers that could arise from volatility in foreign exchange rates – loans denominated in foreign currency are given a weight of 125% instead of the normal 100% applied to loans denominated in pesos and significant shifts in the dollar/peso exchange rate should be taken into consideration by the banks in assessing the borrowers’ ability to repay their obligations (and in order to classify the foreign currency-denominated loans in accordance with the categories described above).
     Banco Central requires banks and cooperatives that apply for licenses to have a minimum capital (“responsabilidad patrimonial básica”) in UIs, of UIs.130 million. The minimum capital required for financial houses, cooperatives with limited licenses and off-shore banks is UIs.91 million, UIs.19.5 million and US$4.5 million respectively. At December 31, 2010, one UI was equal to Ps.2.139.

D-52


 

     As of December 31, 2010, financial institutions had on average a total capital to risk-weighted assets ratio above the 8% required by Banco Central.
     In early 2003, the government began a restructuring of Banco Hipotecario’s operations and modification of its sources of funding. Banco Hipotecario ceased taking deposits other than pre-saving deposits denominated in local currency with respect to amounts intended to be applied together with the proceeds of a mortgage loan to purchase or build a property. In addition, Banco Hipotecario’s lending capacity was suspended by Banco Central while the restructuring process was underway and has recently been reestablished with respect to loans denominated in local currency only. The restructuring of Banco Hipotecario’s operations entailed a significant reduction of its payroll and branches throughout the country. To improve its capital structure, the government acquired from Banco Hipotecario several portfolios of non-performing and low quality loans and, in consideration of such assets, assumed certain liabilities incurred by Banco Hipotecario with Banco de la República in connection with the transfer of U.S. dollar-denominated deposits in 2003. Additional transfers of assets to the government and further assumption of Banco Hipotecario liabilities by the government were completed in 2010. As of December 31, 2010, Banco Hipotecario had US$1.4 billion of assets and US$529.2 million of capital. To determine a bank’s regulatory capital, Banco Central recognizes 50% of retained earnings until an external auditor certifies a bank’s financial statements. Due to the lack of audited financial statements Banco Hipotecario is still not able to compute its complete capital base as regulatory capital and therefore it is not fully in compliance with capital prudential regulations of Banco Central. Banco Hipotecario expects to be in full compliance with current minimum capital requirements once its external auditor certifies its financial statements.
     Due to difficulties in achieving a capital to risk-weighted asset ratio in compliance with the capital adequacy regulations, and as a consequence of a significant run by depositors in January 2006, Banco Central suspended the activities of COFAC, Uruguay’s largest credit association, focused on retail banking and small businesses, as of February 1, 2006. Depositors were given access to the deposit insurance scheme administered by the Superintendency for the Protection of Bank Savings (SPAB) (Corporation for the Protection of Bank Savings – COPAB from 2009), in March 2006. Banco Bandes Uruguay S.A. a subsidiary of Venezuela’s development bank incorporated as a bank in Uruguay, acquired the assets and remaining deposits of COFAC after its business plan and operations were approved by the Superintendency of Financial Institutions. The plan contemplated a possible need for further capitalization of the new institution, which occurred in January 2007, after the capital adequacy ratio had fallen below 8.0% in December 2006. As of December 2010, Banco Bandes Uruguay S.A. showed a capital to risk weighted assets ratio of approximately 31%.
     The Uruguayan Banking System
     Commercial banks in Uruguay typically provide full-service banking. Of the 12 private banks operating in Uruguay as of December 31, 2010, nine are Uruguayan corporations (eight of them owned by foreign banks) and three are branches of foreign banks. In accordance with current legislation, the Republic guarantees the deposits of Banco de la República, Banco Hipotecario and of Banco Central, and the performance and payment obligations of Banco de Seguros del Estado. The operations of Banco Hipotecario are limited to taking local currency denominated deposits and making local currency denominated mortgage loans.

D-53


 

     Nuevo Banco Comercial, which was created by the government with the purpose of acquiring the recoverable assets of three banks that were liquidated in December 2002, is subject to the laws and regulations applicable to private financial institutions, and its deposits are not guaranteed by the Republic. In June 2006, 100% of its common shares (representing 60.0% of Nuevo Banco Comercial’s equity) were acquired by a group of international investors led by Advent, an investment fund manager.
     Under Uruguayan banking legislation, banks organized in Uruguay are considered national banks even if their capital is held by a foreign bank. Foreign banks may set up branches in Uruguay that enjoy the same operating privileges as banks incorporated in Uruguay. Financial houses, the majority of which are owned by foreign banks, may conduct any type of financial operations except those reserved exclusively to banks, such as accepting demand deposits both from Uruguayan residents and from nonresidents and time deposits from Uruguayan residents. Financial cooperatives are financial institutions organized as cooperatives, which can only provide banking services to their members. There are two kind of licenses granted to financial cooperatives – the first limiting its financial operations to operating predominantly in pesos and imposing a fixed ceiling on the amount of individual loans, and the second having a broader scope and allowing cooperatives to perform the same operations as banks, and as a result of that making them subject to the same regulatory requirements. Following the suspension of COFAC’s operations, there are no savings associations holding broad banking licenses in Uruguay.
     Banco de la República serves as the government’s commercial bank and also operates as a commercial and development bank for industrial and farming activities. As of December 31, 2010, Banco de la República held approximately 41% of deposits of the private non-financial sector with the financial system (excluding off-shore banks and financial houses). Following the financial crisis of the early 1980s, Banco de la República enhanced its position as the predominant provider of long-term financing and of promotional medium-term loans for industrial and farming activities, as many private banks geared their business toward short-term loans. Certain private banks have extended medium-term loans to corporations and individuals, primarily to purchase goods, and long-term mortgage loans in connection with the purchase of real estate.
     The 2002 Banking Crisis
     Volatility in Argentina at the end of 2001 initially caused an increase in deposits by non-residents with the Uruguayan banking system. As of December 31, 2001, U.S. dollar deposits in the financial system totaled US$14.2 billion compared to US$12.4 billion as of December 31, 2000. However, Uruguay’s two largest private banks were affiliated with Argentine banks and experienced an increase in deposit withdrawals in December 2001 and January 2002. Between December 2001 and January 2002, depositors withdrew a total of US$564 million those two institutions.
     As of December 31, 2001, a subsidiary of Banco de Galicia y Buenos Aires S.A., was the second largest private bank in Uruguay, with assets of approximately US$1.7 billion and deposits of approximately US$1.3 billion. The adoption of foreign exchange controls by the Argentine authorities in December 2001 severely limited that entity’s access to liquidity. It depleted its liquid assets in January 2002 and did not qualify to receive liquidity assistance from

D-54


 

Banco Central. Banco Central took control of the entity on February 13, 2002 and instituted a suspension of its operations. In May 2004, Banco Central revoked the entity’s banking license.
     Banco Comercial was the largest private bank in Uruguay with US$2.0 billion in assets and US$1.3 billion in deposits as of December 31, 2001. Banco Comercial was the Uruguayan private bank with the largest branch network in the country. It provided payment services to numerous Uruguayan entities. Out of total deposits held with Banco Comercial as of December 31, 2001, approximately 25.0% were placed by non-residents. Banco Comercial was also affected by the Argentine crisis and, to an even greater extent, by the implication of a former board member and shareholder in alleged fraudulent activities involving the bank and its Argentine affiliate, Banco General de Negocios, as well as Compañía General de Negocios, a Uruguayan affiliate. On February 28, 2002, Uruguay and Banco Comercial’s three other shareholders (JP Morgan Chase, Credit Suisse First Boston and Dresdner Bank) each contributed US$33 million to the bank in exchange for 25.0% of the bank’s equity and replaced management. Banco Comercial also received US$10 million (net of repayments) in emergency liquidity lines from Banco Central and direct financial support from the Uruguayan government for an additional US$277 million. The capital contributions, together with the financial assistance, allowed Banco Comercial to continue operating during the first seven months of 2002. Banco Comercial lost approximately US$787 million (56.0% of its total deposits held for the non-financial sector) in U.S. dollar-denominated deposits between January 1, 2002 and July 30, 2002, when Banco Central declared a bank holiday and instituted a suspension of Banco Comercial’s operations. See “The Banking Sector—Banco Comercial Shareholder Dispute.”
     The deposit outflow spread through the rest of the financial system in the second quarter of 2002 as the contagion effects of Argentina became clearer. On June 21, 2002, Banco Central took control of Banco Montevideo/La Caja Obrera, Uruguay’s third largest private bank, and removed its management.
     Although the government received approximately US$500 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. Between June 1 and July 30, 2002, total deposits in the financial system decreased by US$2.2 billion. On July 30, 2002, after a sharp decrease in Banco Central’s international reserve assets to approximately US$650 million, the government declared a bank holiday (which ultimately continued for four business days).
     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 without unnecessarily channeling additional resources to support financial institutions that had become insolvent. The cornerstone of Uruguay’s program consisted of providing the liquidity needed by the two state-owned banks (Banco de la República and Banco Hipotecario) and the three banks under the control of Banco Central at the time (Banco Comercial, Banco Montevideo/La Caja Obrera and Banco de Crédito) to honor sight deposits existing as of July 30, 2002. The IMF program also contemplated a mandatory rescheduling of U.S. dollar-denominated time deposits held with Banco de la República and Banco Hipotecario and the suspension of the activities of Banco Comercial, Banco Montevideo/La Caja Obrera and Banco de Crédito.

D-55


 

     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 FESB, (ii) extended the maturities of all U.S. dollar-denominated time deposits held with Banco de la República and Banco Hipotecario to three years, (iii) transferred foreign currency-denominated liabilities of Banco Hipotecario to Banco de la República, and (iv) facilitated the liquidation of insolvent banks.
     On August 4, 2002, Uruguay gained access to US$1.4 billion of additional assistance from the IMF, the World Bank and the IADB. The proceeds of this financing were contributed by the government to the FESB, thereby providing the liquidity needed by Banco de la República, Banco Hipotecario, Banco Comercial, Banco Montevideo/La Caja Obrera and Banco de Crédito to honor sight deposits existing as of July 30, 2002 and thereby prevent a meltdown of Uruguay’s payment system.
     On December 27, 2002, Congress enacted an amendment to the banking law (Law 17,613) aimed at strengthening the banking system. The law imposed reporting obligations on bank employees that acquire knowledge of irregularities, authorized the Superintendency of Financial Institutions to impose fines on the state-owned banks, and created a public register for bank shareholders. The law also provided the basis for the liquidation of the four private banks whose operations were discontinued in connection with the bank holiday declared on July 30, 2002 and the creation of a new financial institution with the portfolio of recoverable assets previously owned by the liquidated banks, expanded the powers of Banco Central in connection with the liquidation of financial institutions and the application of prudential regulations to state-owned banks, and mandated a deposit insurance program (which was implemented in March 2005). Following the adoption of the law, the government completed the reorganization of the discontinued banks into a new commercial bank, Nuevo Banco Comercial. Nuevo Banco Comercial, which was set up as a private bank, although its capital was initially owned by the government, acquired the recoverable assets of three of the liquidated banks (Banco Comercial, Banco Montevideo and La Caja Obrera), assumed certain deposits and commenced its operations in March 2003. The non-recoverable assets of the three liquidated banks are held by liquidation funds, which were initially managed by Banco Central and were subsequently transferred to a private asset management company following a public bidding process. Deposits of the liquidated banks that were not assumed by Nuevo Banco Comercial entitle depositors to a pro rata share of the assets held by the corresponding liquidation fund.
     During the 2002 crisis, with the exception of the country’s two largest banks, foreign-owned banks in Uruguay funded deposit outflows from their own resources.
     The share of NPLs on total loans issued to the non-financial sector increased during the 2002 crisis. For all active private institutions excluding off-shore banks, NPLs increased from 5.0% to 16.0% on a net basis (from 10.0% to 25.0% on a gross basis) from December 2001 to December 2002. The deterioration of the loan portfolio can be attributed to the deepening of the recession and the devaluation of the peso. Devaluation affected the ability of local borrowers that did not have access to foreign exchange revenues to pay back their debts, which were mostly denominated in dollars. The increase of NPLs also, however, reflected the effect of the dramatic reduction of the stock of credit, from US$3.2 billion in December 2001 to US$2.0 billion in

D-56


 

December 2002. In order to fund the deposit outflow, most banks ceased extending loans, thereby contributing to the increase in the share of NPLs.
     Banco Central took measures to improve the soundness of the banking system, raising the minimum capital required to hold a license to operate as a financial intermediary institution (“responsabilidad patrimonial básica”) and also issuing instructions to banks requiring that the value of any collateral be reappraised after July 30, 2002 so as to factor into such valuation the impact of the devaluation of the peso.
     Uruguay’s Banking System Following the 2002 Crisis
     During 2003 Uruguay’s banking system gradually recovered stability. While a gradual recovery of deposits by the banking system noted during the last quarter of 2002 was suddenly reversed with the withdrawal of approximately US$353 million of deposits between January 30 and February 7, 2003, beginning in March 2003, the level of deposits by the non-financial private sector started to increase. By December 2003 such deposits had reached US$7.6 billion (excluding deposits held with off-shore banks and financial houses). The successful reprofiling of the government’s foreign currency-denominated debt in June 2003 assisted in reducing the uncertainties and volatility that had affected Uruguay’s banking system since the end of 2001.
     On February 28, 2003, Banco Central decided to liquidate Banco de Crédito, whose operations were suspended in August 2002. The decision was adopted after attempts to reach an agreement to transfer control to the minority shareholder failed. Banco Central had conditioned the transfer of control on a significant capital contribution and a strict business plan.
     In 2003, the authorities introduced special liquid asset requirements with respect to deposits by non-residents to mitigate risks that could arise if runs on such deposits comparable to those observed during the 2002 crisis recurred.
     The government also implemented certain structural reforms affecting state-owned banks. Following the transfer of all deposits to Banco de la República during the last quarter of 2002, the government streamlined the operations of Banco Hipotecario and limited its license to receive deposits. In December 2003, Banco de la República transferred a portion of its loan portfolio, comprised mainly of past due loans, to a financial trust. A special vehicle was established to administer the transferred loans under the terms of the arrangements setting up the financial trust, Banco de la República was entitled to receive proceeds arising from recoveries under the transferred the loans in accordance with a pre-set cash flow schedule. The government guaranteed the recovery rate contemplated in the trust agreement and agreed to cover any deficit if the recovery rate were not realized. This transfer improved Banco de la República’s percentage of NPLs to 1.3% in December 2009. The guarantee was never called upon and it was released in December 2006 as Banco de la República achieved better than expected cash flows, from the recoveries.
     At December 31, 2004, the non-financial private sector’s deposits held with the banking system (excluding deposits held with off shore banks and financial houses), of which 89.5% were denominated in foreign currencies, stood at US$8.2 billion. Approximately 54.3% of those deposits were held with Banco de la República, Banco Hipotecario and Nuevo Banco Comercial. The improved liquidity of the financial institutions also extended to Banco de la República,

D-57


 

which was able to commence the repayment of the deposits whose maturity had been extended in August 2002 on an accelerated basis.
     As inflation rates dropped and the peso appreciated, interest rates declined, but this did not result in an immediate expansion of bank credit. See “Monetary Policy and Inflation.”
     The weighted average interest rate for term deposits denominated in U.S. dollars increased from about 1.3% in 2005 to 2.5% in 2007, decreasing to 1% in 2008 and to 0.5% in 2009. Sight deposits, which accounted on average for 79% of total deposits, paid minimal interest in case of current accounts denominated in pesos and rates below 0.5% for savings accounts denominated in U.S. dollars. During the same period, real interest rates for deposits denominated in pesos (nominal rate minus inflation) remained negative.
     Deposits during 2005 were largely denominated in foreign currencies, primarily U.S. dollars. In March 2005, the government established a deposit insurance regime to protect holders of U.S. dollar-denominated deposits of up to US$5,000 and peso-denominated deposits of up to the current equivalent of US$20,000 coverage in the event of a liquidation of the bank where such deposits are held. The government provided initial support for this regime through a US$20 million loan plus an additional credit line of US$40 million which are expected to be replaced over time by insurance premiums to be paid by the financial institutions on account of deposits taken.
     In the first quarter of 2005 Banco de la República completed the repayment of time deposits whose maturity was extended in August 2002 as part of the solution of the banking crisis. Since 2004, when Banco de la República commenced the repayment of these deposits, amounts exceeding 90.0% of the deposits repaid have been voluntarily deposited with Banco de la República.
     During 2005, the non-financial private sector’s deposits with the banking system and solvency ratios improved and the share of NPLs on total loans, decreased. Deposits (including deposits in off-shore banks) increased by US$222 million in 2005, to a total of US$9.4 billion as of December 31, 2005. Despite the increase in deposits, credit extended to the non-financial sector remained relatively stable during 2005. Solvency ratios of the banking system on average remained above the 10.0% total capital to risk-weighted asset ratio required by Banco Central and 6.4% above the level at December 31, 2004. At December 31, 2005, the regulatory capital of private banks (including Nuevo Banco Comercial) was 2.2 times above the minimum regulatory requirement, while capital of the Banco de la República was at 2.1 times the minimum requirement. Finally, the share of NPLs on total loans (based on payment delinquencies) of private banks (including Nuevo Banco Comercial) decreased from 7.6% in December 2004 to 3.6% in December 2005, while it remained within a range of 7.0% and 8.0% in 2005 for Banco de la República.
     In March 2005, the operations of COFAC were first suspended by Banco Central when it became apparent that its capitalization was insufficient to support its continued operations. After a US$39 million increase in COFAC’s equity (resulting primarily from the capitalization of certain creditors’ deposits), the rescheduling of a portion of the time deposits held at COFAC, the amendment of their corporate governance rules and the approval of a plan to reduce costs by 30%, the Uruguayan bank supervisory authority allowed COFAC to resume its operations. On

D-58


 

February 1, 2006, Banco Central suspended COFAC’S activities for a second time following a run on its deposits in January 2006. COFAC also failed to meet the conditions imposed by Uruguayan bank regulators in March 2005, which included maintaining its net worth over the minimum capital requirements established by prudential regulation and reducing its operational deficit when COFAC confronted a liquidity crisis. On March 9, 2006, for the first time since it was established in 2005, the SPAB began honoring insurance claims for deposits made with COFAC covering substantially all eligible deposits within a period of two months for an amount totaling nearly US$50 million. After the analysis of a business plan submitted by the Venezuelan government-owned development bank – BANDES – in connection with an application made for a license to operate as a bank in Uruguay, the authorized new institution, Bandes Uruguay S.A., purchased most of COFAC’s assets and remaining deposits. Bandes Venezuela discharged all amounts COFAC owed the SPAB.
     During 2006, the non-financial private sector deposits with the banking system increased, solvency ratios improved and the share NPLs on total loans, decreased. Deposits (including deposits in off-shore banks) increased by US$845 million to a total of US$10.2 billion as of December 31, 2006. Credit extended to the non-financial sector recovered substantially in 2006, increasing by US$545 million to a total of US$4.6 billion. Solvency ratios of the banking system on average remained above the 8.0% total capital to risk weighted assets ratio and at a level similar to that of December 2005. At December 31, 2006, the regulatory capital of the banking system (excluding Banco Hipotecario) was 2.1 times above the minimum regulatory requirement. Finally, the share of NPLs on total loans (based on payment delinquencies) of private banks fluctuated between 3.6% and 4.3% in 2006 and decreased from 8% in 2005 to 2.9% for Banco de la Republica.
     In 2007, deposits of the non-financial sector with the banking system grew by US$1.3 billion, representing a nearly 13% increase over the previous year, up to US$11.5 billion (approximately 79.0% denominated in U.S. dollars). Credit to the private sector by the banking system increased in 2007, reaching US$5.4 billion as of December 31, 2007. Regulatory capital as of December 31, 2007, represented 18.0% of risk-weighted assets (excluding Banco Hipotecario del Uruguay). The share of NPLs on total loans (based on payment delinquencies) of private banks declined from 3.6% as of December 31, 2006, to 1.1% as of December 31, 2007. Finally, the share of NPLs to total loans (based on payment delinquencies) decreased from 8.0% in 2005 to 2.9% in 2006 and further to 1.3% in 2007 for Banco de la República. During 2007, bank credit to enterprises and individuals increased to approximately 26% of Uruguay’s GDP.
     In 2008, the Uruguayan financial system suffered some of the impacts of the global financial crisis, mainly affecting bank earnings. Deposits of the non-financial sector with the financial system (excluding the central government and social security agencies) increased in 2008 by 19.0% or US$2.1 billion up to US$13.3 billion and grew again in 2009 by 19.0%, or US$2.6 billion, totaling US$15.9 billion as of December 31, 2009. Credit extended to the domestic private sector by the banking system also increased from US$6.9 billion in 2008 to US$7.2 billion in 2009. The share of NPLs to total loans (based on payment delinquencies) stood at 1.7% as of December 31, 2009.

D-59


 

     Regulatory capital as of December 31, 2009 increased with respect to 2008, representing 16.7% of risk-weighted assets (excluding Banco Hipotecario). During 2009, bank credit to enterprises and individuals represented approximately 25% of Uruguay’s GDP.
     In 2010, deposits of the non-financial private sector with the banking system increased by 17.0% or US$2.6 billion to US$17.9 billion (74.2% denominated in U.S. dollars) as of December 31, 2010. Credit extended to the domestic private sector by the banking system also increased in 2010 from US$7.2 billion in 2009 to US$8.6 billion in 2010. The share of NPLs to total loans (based on payment delinquencies) stood at 1.1% as of December 31, 2010.
     Regulatory capital as of December 31, 2010 increased with respect to 2009, representing 16.8% of risk-weighted assets (excluding Banco Hipotecario). During 2010, bank credit to enterprises and individuals represented approximately 22% of Uruguay’s GDP.
     The authorities continue to monitor the overall condition of the banking sector closely with a view to taking early action on a case-by-case basis and correcting any trend that could adversely affect the banking system as a whole.
     The following tables set forth classifications of loan assets of the Uruguayan banking system as of February 28, 2011:
Classification of Aggregate Assets of the Uruguayan Banking System(1)
(as of February 28, 2011 in millions of Uruguayan pesos)
                                                                         
    1A     1B     1C     2A     2B     3     4     5     Total  
Banco de la República
    60,903       818       48,992       7,148       5,439       6,819       3,490       1,278       134,888  
Privately owned banks
    71,584       4,051       67,967       18,655       13,391       4,439       3,341       825       184,252  
Financial houses
    1,568       116       1,307       215       241       266       61       8       3,782  
Off-shore banks
    5,396       120       384       1,224       81       128       362       48       7,743  
Cooperatives
    34             191       2       11       19       8       12       277  
 
                                                     
Total
    139,485       5,104       118,841       27,243       19,164       11,672       7,261       2,171       330,942  
 
                                                     
Percentage
    42.0 %     2.0 %     36.0 %     8.0 %     6.0 %     4.0 %     2.0 %     1.0 %     100.0 %
 
                                                                     
 
(1)   Classification based on credit risk analysis. Gross credit and contingent risks to the financial and non-financial sector.
Source: Banco Central.
Credit Classification of the Banking System(1)
(Based on payment behavior of clients)
(as of December 31, 2010)
                 
    Performing    
Institution Type   Loans   NPLs
Banco de la República
    99.5 %     0.5 %
Banco Hipotecario del Uruguay
    76.8       23.2  
Private banks
    99.5       0.5  
Cooperatives
    96.1       3.9  
Financial houses
    99.6       0.4  
Off-shore banks
    97.1       2.9  
Total
    97.6 %     2.4 %
 
(1)   Loans to both financial and non-financial sector, net of provisions.
Source: Banco Central.

D-60


 

Total Provisions of the Banking System for
Gross NPLs
(1)
(as of December 31, 2010)
         
Institution Type   Provisions
Banco de la República
    614 %
Banco Hipotecario del Uruguay
    95  
Private banks
    638  
Cooperatives
    200  
Financial houses
    1020  
Total
    198 %
 
(1)   Total provisions as a percentage of gross NPLs loans to financial and non-financial sector.
Source: Banco Central.
     The following table shows the number of financial institutions and percentage of loans and deposits corresponding to each category.
The Uruguayan Financial System
                                                         
    As of December 31,  
    2006     2007     2008     2009     2010  
    (Number)     (Number)     (Number)     (Number)     (Number)     (Loans)(3)     (Deposits)(4)  
Financial Institutions:
                                                       
State-owned(1)
    2       2       2       2       2       45.7 %     40.5 %
Privately-owned(2)
    25       25       21       21       21       54.2 %     59.4 %
Cooperatives(5)
    2       2       1       1       1       0.1 %     0.1 %
 
                                         
Total
    29       29       24       24       24       100.0 %     100.0 %
 
                                         
 
(1)   Banco de la República, Banco Hipotecario and Nuevo Banco Comercial until 2005.
 
(2)   At December 31, 2010, includes 12 banks, five financial houses and four off-shore agencies (IFEs).
 
(3)   Loans to non-financial sector, net of provisions.
 
(4)   Non-financial private sector deposits.
 
(5)   COFAC represented more than 90.0% of credits and deposits of this category up to 2006.
Source: Banco Central.
     The following table shows the bank credit provided to the private sector by Uruguay’s financial system for the periods shown.
Bank Credit to the Private Sector
(% of total credit)
                                                 
    As of December 31,  
                    Private     Banco de la  
    Banco Central     Commercial Banks(1)     República  
            Foreign             Foreign             Foreign  
    Pesos     Currency     Pesos     Currency     Pesos     Currency  
2006
    1.4 %     0.2 %     10.2 %     54.0 %     13.9 %     20.3 %
2007
    1.3       1.1       12.3       54.5       14.7       16.1  
2008
    0.9       0.7       13.7       55.3       12.7       16.7  
2009
    1.0       0.8       16.0       46.5       17.8       17.9  
2010
    0.8       0.1       16.3       44.4       21.6       16.8  
 
(1)   Includes private banks, financial houses and financial cooperatives.
Source: Banco Central.

D-61


 

     Since the early 1980’s, the majority of bank credit provided in Uruguay has been denominated in foreign currency, principally in U.S. dollars. At December 31, 2010, the amount of credit denominated in foreign currencies represented 50.3% of total credit to the non-financial private sector (58.8% excluding Banco Hipotecario).
     The Uruguayan financial sector also includes five domestic and 11 foreign insurance companies (including the state-owned insurance company). Insurance companies are regulated on a variety of matters by Law 16,426, dated October 14, 1993, Decree 354/94, dated August 17, 1994, and several circulars issued by the Superintendencia de Servicios Financieros of Banco Central.
     Banco Comercial Shareholder Dispute
     JP Morgan Chase (through a subsidiary), Credit Suisse First Boston and Dresdner Bank (through a subsidiary), the three former shareholders of Banco Comercial, brought a suit before an arbitration panel alleging that Uruguay failed to comply with certain obligations assumed by the Republic in connection with the February 2002 agreement relating to the capitalization of Banco Comercial and claimed US$100 million plus certain ancillary expenses. In December 2004, the arbitration panel ruled in favor of the former shareholders and, in January 2005, the former shareholders petitioned the United States Court for the Southern District of New York to confirm the arbitration award. On March 25, 2005, the District Court confirmed the arbitral award as well as interest and litigation expenses. Uruguay’s subsequent request to stay the court’s decision was denied. In April 2005, Uruguay filed an appeal with the United States Court of Appeals for the Second Circuit seeking reversal of the judgment confirming the arbitration award. The Court of Appeals rejected Uruguay’s appeal. It noted, however, that since the judgment issued by the District Court did not direct present payment, the conflict claimed by Uruguay with an attachment order issued against the former shareholders by an Uruguayan court did not exist at that time. Concurrently, litigation is pending in a Uruguayan court against the recipients of the arbitral award and, in connection with that action, the proceeds of any payment by Uruguay of the arbitral award have been attached by the parties bringing that Uruguayan legal action.
     In addition, in 2005, Uruguay filed a summons with notice in the United States against the three former shareholders and three former directors of Banco Comercial alleging intentional misconduct in the administration of Banco Comercial. In response, the defendants initiated arbitration before the ICC, based on the terms of a February 2002 agreement and asserting that Uruguay had violated the terms of such agreement in several respects. In addition, the banks and former directors successfully moved to have the proceeding in the United States stayed in favor of resolving all claims in arbitration. As a result, Uruguay’s claim for intentional misconduct was introduced as a counter claim in the arbitration in 2006. On May 7, 2008, the arbitral tribunal issued its award rejecting the claims of both parties practically in all respects, and considering that the Republic’s defense and counterclaim were not frivolous and that there were reasonable grounds to have introduced the counterclaim, only imposing on Uruguay the obligation to pay two-thirds of the expenses incurred by the banks and former directors.
     On April 7, 2011, Uruguay and the three former shareholders of Banco Comercial entered into a global settlement agreement as a first step towards the termination of all mutual claims. The closing of this agreement is subject to certain conditions.

D-62


 

SECURITIES MARKETS
     Until 1994, the Montevideo Stock Exchange was the only stock exchange in Uruguay. In September 1994, BEVSA, the Electronic Stock Exchange, was established for use exclusively by banks and other financial institutions. Foreign exchange transactions and certificates of deposit account for substantially all of the total amount traded in the Electronic Stock Exchange.
     As of December 31, 2006 and 2007, the aggregate securities trading volume on both exchanges totaled US$7.6 billion and US$10.0 billion, respectively. Total volume traded decreased to US$8.8 billion in 2008, and decreased again to US$7.6 billion in 2009, mainly due to differences in the issuance of certificates of deposit by private banks. In 2010, total trading volume increased again to US$8.9 billion.
Consolidated Montevideo Stock Exchange &
Electronic Stock Exchange Securities Trading Volume

(in millions of US$)
                                         
    2006     2007(1)     2008     2009     2010  
Private sector securities:
                                       
Equities
  US$ 2     US$ 2     US$ 8     US$ 0     US$ 4  
Bonds
    23       143       52       124       20  
Certificates of deposit and other
    6,555       8,693       7,717       5,999       7,417  
 
                             
Total private sector securities(1)
  US$ 6,580     US$ 8,837     US$ 7,777     US$ 6,123     US$ 7,441  
 
                             
Public sector securities:
                                       
Central Government
    1,014       1,138       1,058       1,471       1,438  
Public enterprises
    4       4       2       1       56  
 
                             
Total public sector securities
    1,018       1,142       1,060       1,472       1,494  
 
                             
Total
  US$ 7,597     US$ 9,979     US$ 8,837     US$ 7,595     US$ 8,935  
 
                             
 
                                       
Number of listed companies:
                                       
Equities
    13       12       10       10       10  
Bonds and other debt issuers
    40       43       44       47       50  
 
                             
Total
  US$ 53     US$ 55     US$ 54     US$ 57     US$ 60  
 
                             
 
(1)   The increased trading volume of private sector securities is attributable to a requirement that pension funds invest in certificates of deposit exclusively through an authorized exchange.
Source: Banco Central, based on reports of the Montevideo Stock Exchange and Electronic Stock Exchange.
     The Uruguayan securities market has been undergoing institutional, legal and operational changes aimed at attaining greater levels of activity. Banco Central, through the Superintendencia de Servicios Financieros, has the power to regulate and supervise the securities markets, including setting professional ethical standards, requiring information, such as periodic reports from listed companies, setting controls and penalties and regulating the relationship between issuers and investors in the stock market. The basic regulatory framework for the Uruguayan securities market is set forth in Law No. 18,627 (issued in 2009 to replace Law No. 16,749) governing public and private offerings of equity and debt securities in Uruguay, and Law No. 16,774 defining the necessary characteristics and terms for the regulation and supervision of mutual funds and providing management guidelines and professional secrecy and adequacy standards.

D-63


 

PUBLIC SECTOR FINANCES
     The Uruguayan public sector comprises the central government, local governments, non-financial public sector institutions (including government-owned companies), financial public sector institutions (including Banco Central, Banco de la República and Banco Hipotecario), and a state-owned insurance company, Banco de Seguros del Estado. The Uruguayan public sector accounts reflect the revenues and expenditures of the central government, including local governments, non-financial public sector institutions, Banco de Seguros del Estado and financial public sector institutions. Central government expenditures are financed chiefly through tax collections, domestic and external borrowings, and transfers from state-owned companies. Tax collections comprise value-added taxes, excise taxes, corporate income taxes, net worth taxes, tariffs and other minor taxes. Since the July 2007 tax reform, income tax (personal and corporate) became an important source of central government revenues. Borrowings were constrained in 2002 and early 2003 until a reprofiling of the government’s outstanding debt was completed. In recent years, central government expenditures have consisted primarily of wages, salaries and transfers to the social security system, with interest on public debt and the purchase of goods and services accounting for most of the balance. Banco Central generally runs deficits principally due to interest payments on deposits of the financial sector net of remunerated assets, and its own operational costs.

D-64


 

     The following table sets forth a summary of public sector accounts (calculated on a cash basis) and as a percentage of GDP for the periods indicated.
Public Sector Finances
(in millions of US$ and % of total GDP)
                                                                                 
    2006     2007     2008(1)     2009(1)     2010(1)  
NON FINANCIAL PUBLIC SECTOR REVENUES
  US $5,569     28.0 %   US $6,711     28.0 %   US $8,165     26.2 %   US $8,751     27.9 %   US $11,944     29.1 %
 
                                                                               
Central Government
    4,247       21.4       4,924       20.6       6,246       20.0       6,428       20.5       8,506       20.7  
Value-added taxes
    1,936       9.8       2,400       10.0       3,111       10.0       3,120       9.9       3,995       9.7  
Other taxes on goods and services
    580       2.9       763       3.2       729       2.3       771       2.5       1,044       2.5  
Income taxes (corporate and personal)
    734       3.7       827       3.5       1,414       4.5       1,508       4.8       2,015       4.9  
Taxes on capital
    254       1.3       253       1.1       308       1.0       371       1.2       441       1.1  
Foreign trade taxes
    250       1.3       302       1.3       339       1.1       312       1.0       430       1.0  
Other
    494       2.5       378       1.6       344       0.9       346       1.1       582       1.4  
Social Security Revenues (BPS)
    1,048       5.3       1,216       5.1       1,661       5.3       1,904       6.1       2,525       6.2  
Public Enterprises Primary Balance
    274       1.4       571       2.4       259       0.8       419       1.3       913       2.2  
 
                                                                               
NON FINANCIAL PUBLIC SECTOR PRIMARY EXPENDITURES
  US $4,882     24.6 %   US $5,935     24.8 %   US $7,825     25.1 %   US $8,526     27.2 %   US $11,283     27.5 %
 
                                                                               
Central Government — Banco de Previsión Social (BPS) Current Primary Expenditure
    4,373       22.0       5,246       21.9       6,811       21.8       7,462       23.8       9,831       24.0  
Wages and salaries
    907       4.6       1,080       4.5       1,396       4.5       1,574       5.0       1,991       4.9  
Non personnel expenditures
    831       4.2       977       4.1       1,166       3.7       1,150       3.7       1,491       3.6  
Pension payments(2)
    1,768       8.9       1,989       8.3       2,514       8.1       2,737       8.7       3,604       8.8  
Transfers(2)
    867       4.4       1,200       5.0       1,735       5.6       2,002       6.4       2,745       6.7  
 
                                                                               
Investment(3)
    509       2.6       688       2.9       1,014       3.3       1,063       3.4       1,453       3.5  
 
                                                                               
Local Governments Primary Balance(4)
    72       0.4       45       0.2       44       0.1       95       0.3       (9 )     0.0  
 
                                                                               
Banco de Seguros del Estado (BSE) Primary Balance(4)
    (4 )     0.0       53       0.2       74       0.2       49       0.2       147       0.4  
 
                                                                               
NON FINANCIAL PUBLIC SECTOR PRIMARY BALANCE
  US $754     3.8 %   US $874     3.7 %   US $458     1.5 %   US $369     1.2 %   US $799     1.9 %
 
                                                                               
Banco Central Primary Balance
    (31 )     (0.2 )     (31 )     (0.1 )     (41 )     (0.1 )     (29 )     (0.1 )     (35 )     (0.1 )
 
                                                                               
PUBLIC SECTOR PRIMARY BALANCE
  US $723     3.6 %   US $843     3.5 %   US $417     1.3 %   US $340     1.1 %   US $764     1.9 %
 
                                                                               
Interest Payments
    830       4.2       841       3.5       890       2.9       881       2.8       1,210       3.0  
Central Government
    828       4.2       886       3.7       875       2.8       863       2.8       974       2.4  
Public Enterprises
    32       0.2       31       0.1       30       0.1       43       0.1       55       0.1  
Local Governments
    8       0.0       8       0.0       7       0.0       6       0.0       7       0.0  
Banco Central
    (20 )     (0.1 )     (61 )     (0.3 )     11       0.0       12       0.0       229       0.6  
Banco de Seguros del Estado
    (0 )     0.0       (23 )     (0.1 )     (32 )     (0.1 )     (0 )     0.0       (55 )     (0.1 )
 
                                                                               
PUBLIC SECTOR OVERALL BALANCE (SURPLUS/(DEFICIT))
  US$ (106 )     (0.5 )%   US$ 2       0.0 %   US$ (473 )     (1.5 )%   US$ (541 )     (1.7 )%   US$ (447 )     (1.1 )%
 
(1)   Preliminary data.
 
(2)   Prepayments made between April 2007 and March 2009 are reflected under “Transfers”.
 
(3)   Includes investments by state-owned enterprises.
 
(4)   Primary balance by funding sources (Source: Banco Central).
Source: Tesorería General de la Nación, Contaduría General de la Nación, Banco de Previsión Social, Oficina de Planeamiento y Presupuesto and Banco Central.

D-65


 

     In the late 1980’s the government had large deficits, and by 1989 public sector finances had deteriorated considerably. During the early 1990s, the government tightened fiscal policies and improved its financial condition. However, until 1995, the consolidated public sector deficit grew due primarily to higher transfers to social security and greater public expenditures generally. Although after 1995 the consolidated public sector deficit was reduced, in 1999 a recession affected the Uruguayan economy and had an adverse impact on public sector accounts. While revenues decreased as a result of the contraction of the economy overall, expenditures were not adjusted downwards and instead increased. In 2000, 2001 and 2002 public sector finances deteriorated further. During 2003, in the aftermath of the economic and financial crisis of 2002, the government adopted measures intended to generate sustainable primary surpluses. During 2003 and 2005, the government achieved non-financial primary surpluses.
     In 2006, non-financial public sector primary expenditures totaled US$4.9 billion, an increase of 15.7% compared to 2005. Non-financial public sector revenues in 2006 totaled US$5.6 billion, an increase of 14.4% compared to 2005. In 2006, the public sector overall balance recorded a deficit of US$106.0 million (0.5% of GDP). The public sector primary balance recorded a surplus equivalent to 3.6% of GDP. In August and November 2006, the government prepaid SDR619.9 million (approximately US$916.4 million) and SDR727 million (approximately US$1.1 billion), respectively, advanced by the IMF under the 2005 Stand-By Facility as part of its overall debt strategy.
     In 2007, non-financial public sector primary expenditures totaled US$5.9 billion, an increase of 21.6% compared to 2006. Non-financial public sector revenues in 2007 totaled US$6.7 billion, an increase of 20.5%, compared to 2006. The public sector overall balance recorded a surplus of US$2.0 million (0.0% of GDP). The public sector primary balance was showed a surplus equivalent to 3.5% of GDP.
     In 2008, non-financial public sector primary expenditures totaled US$7.8 billion, an increase of 31.9% compared to 2007. Non-financial public sector revenues in 2008 totaled US$8.2 billion, an increase of 21.7% compared to 2007. As a percentage of GDP, non-financial public sector revenues fell by 1.8%, while primary expenditures increased by 0.3%. In 2008, the public sector overall balance recorded a deficit of US$473.0 million (1.5% of GDP), while the public sector primary balance fell to 1.5% of GDP.
     In 2009, non-financial public sector primary expenditures totaled US$8.5 billion, an increase of 8.9% compared to 2008. Non-financial public sector revenues in 2009 totaled US$8.8 billion, an increase of 7.2%, compared to 2008. The public sector overall balance registered a deficit of US$541.0 million (1.7% of GDP), while the public sector primary balance dropped to 1.1% of GDP. The increase in the fiscal deficit was principally due to the impact of the drought that affected the Uruguayan basin and the global financial crisis.
     In 2010, non-financial public sector primary expenditures totaled US$11.3 billion, an increase of 32.3% compared to 2009. Non-financial public sector revenues in 2010 totaled US$11.9 billion, an increase of 36.5%, compared to 2009. The public sector overall balance registered a deficit of US$447.0 million (1.1% of GDP), while the public sector primary balance registered a surplus of US$764.0 million (1.9% of GDP).

D-66


 

     The following table sets forth the composition of the government’s tax revenues for the periods indicated:
Composition of Tax Revenues
                                         
    2006     2007     2008(1)     2009(1)     2010(1)  
Value-added taxes (VAT)
    52.0 %     55.6 %     56.2 %     54.9 %     54.0 %
Other taxes on goods and services
    17.7       17.7       13.2       13.6       14.1  
Income taxes (corporate)
    19.9       19.1       25.6       26.6       27.2  
Taxes on capital
    6.5       5.9       5.6       6.5       6.0  
Foreign trade taxes
    6.7       7.0       6.1       5.5       5.8  
Other taxes
    5.6       2.8       0.9       0.9       0.5  
Tax refunds
    (8.4 )     (8.0 )     (7.6 )     (8.0 )     (7.6 )
 
                             
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 
                             
 
(1)   Preliminary data.
Source: Ministry of Economy and Finance.
     In 2006, central government revenues increased primarily driven by value-added tax collections. This trend continued during 2007. In July 2007, a tax reform created a new income tax (both personal and corporate) and eliminated certain small taxes. Given the strong economic activity, revenues grew sharply in 2008, driven by value-added and income taxes. In 2009, central government revenues increased again, driven by income and capital tax collections, representing 19.2% of GDP. In 2010, central government revenues continued to increase due to higher tax collection, mainly driven by goods and services taxes (including VAT) and income taxes collections.
     Value-added taxes on manufactured products are levied at scheduled rates at each stage of the production and distribution process. Following the 2007 tax reform, most products and services are taxed at a rate of 22%, while certain basic goods, including most basic foodstuffs, are taxed at a lower rate of 10%, and certain other products and services, including securities, precious metals and export services, are exempted from value-added tax. Excise taxes are levied at scheduled rates on automobiles, gasoline, certain beverages, tobacco, cosmetics and certain other products. The corporate income tax in Uruguay is currently levied at a flat rate of 25.0%, taxing all corporate profits of a Uruguayan source. Import and export taxes are based on published tariff schedules. The 2007 tax reform introduced personal income taxes on a progressive scale, covering revenues of Uruguayan source, with rates ranging from 10% to 25%. As initially adopted, the personal income tax introduced in July 2007 applied to all taxpayers, including retirees. Numerous claims challenging the constitutionality of the measure were brought and, initially, the Uruguayan Supreme Court ruled in favor of the plaintiffs but it later reversed its rulings and upheld the tax reform. However, the government derogated the initial regulation and submitted a bill reducing the impact of personal income tax on retirees. Congress approved the bill, which became effective in July 2008.
     During 2010, the public sector financed its net borrowing requirements and reserve accumulation of 1.0% of GDP through monetary liabilities, the issuance of treasury bonds and bills and international reserves. During 2010, Uruguay repaid loans for US$414 million, which includes the prepayment of loans with the IADB for an aggregate principal amount of US$300.0 million. These sources of financing resulted in a decrease of net international reserves in an amount equal to 0.8% of GDP in 2010.

D-67


 

     The following table sets forth public sector borrowings and repayments for the periods indicated:
Public Sector Borrowings and Repayments(1)
(in millions of US$ and % of total GDP)
                                                                                 
    2006     2007     2008     2009     2010  
Monetary liabilities(2)
  US$ 49       0.3 %   US$ 86       0.4 %   US$ 466       1.6 %   US$ 204       0.6 %   US$ 118       0.3 %
Treasury bonds & bills
    2,484       12.5       1,467       6.1       99       0.0       1,150       3.7       1,543       3.8  
Brady Bonds
    (24 )     (0.1 )     (3 )     0.0       0       0.0       0       0.0       0       0.0  
Loans(3)
    (2,080 )     (10.5 )     346       1.4       490       1.6       1,567       5.0       (414 )     (1.0 )
Net deposits(4)
    (112 )     (0.6 )     175       0.7       1,204       3.7       95       0.3       (818 )     (2.0 )
Net international reserves
    (702 )     (3.5 )     (1,779 )     (7.4 )     (1,536 )     (4.6 )     (1,633 )     (5.2 )     335       0.8  
Other(5)
    481       2.4       (269 )     (1.1 )     (276 )     (0.8 )     (810 )     (2.6 )     (352 )     (0.9 )
 
                                                           
Net borrowing requirements
  US$ 96       0.5 %   US$ 23       0.1 %   US$ 448       1.6 %   US$ 573       1.8 %   US$ 413       1.0 %
 
                                                           
 
(1)   Represents aggregate borrowings in year indicated less aggregate repayments for such year. Negative numbers represent net repayments by the Public Sector, while positive numbers mean net borrowings by the Public Sector. The overall balance reflects the Net Borrowing Requirements of the Public Sector.
 
(2)   Monetary Liabilities include Monetary Base, Call and reserve deposits in pesos and Treasury Bills in pesos.
 
(3)   “Loans” includes both domestic and foreign loans. Since August 2002 includes loans related to the FSBS.
 
(4)   “Net deposits” means deposits by public sector with banking sector net of credits.
 
(5)   “Others” includes the remaining fluctuations in assets and liabilities of the Non Financial Public Sector and Banco Central.
Source: Banco Central.

D-68


 

FISCAL POLICY
2010-2014 Budget
     The Ministry of Economy and Finance and the Office of Budget and Planning are responsible for the preparation of the budget of the central government and a report on the budget prepared by the judiciary, the public education system and certain other agencies, which are submitted to the Congress every five years for its approval.
     The Ministry of Economy and Finance presents an annual report on the government’s fiscal performance to Congress, at which time the budget may be updated and adjusted. The Constitution expressly forbids the executive from requesting, and Congress from passing, expenditure increases during an election year or in the year immediately following. Once Congress has approved the budget and appropriated monies for the different public expenditures, the Ministry of Economy and Finance provides funds to certain agencies of the central government and monitors expenditures. Since 1986, public expenditure estimates are periodically corrected for expected inflation. The Ministry of Economy and Finance also has the authority to review the budgets submitted for approval by the financial and non-financial public sector institutions. Municipal governments prepare their own budgets, which are reviewed by their municipal legislative councils. Congress has the authority to resolve any disputes on the budgetary process between the financial and non-financial public sector institutions and the Ministry of Economy and Finance, and between the municipal governments and the municipal legislative councils.
     On December 27, 2010, President Mujica signed into law the five-year budget for the 2010-2014 period. The budget reflects the government’s priorities of achieving long-term growth and debt-sustainability balanced with an increase in infrastructure and social spending. The 2010-2014 budget is based on a medium-term macroeconomic framework and contains revenue projections and expenditure ceilings. See “Public Sector Debt – External Debt.”
     The budget establishes a plan for decreasing consolidated public sector deficit from 1.2% of GDP in 2010 to 0.7% of GDP in 2015, and reducing public debt from 69.0% of GDP in 2009 to 40.0% of GDP in 2015. The budget contemplates a decline in interest payments as a percentage of GDP, stipulates periodic revenue performance assessments and authorizes the government to lower spending should revenues be less than budgeted for any given period. The budget also contemplates an increase in primary surplus from 2.0% of GDP in 2010 to 2.3% of GDP in 2015. The government seeks to earmark increased revenues for expanded infrastructure investments and social expenditures.
     The government’s medium-term strategy, as outlined in the 2010-2014 budget, is divided into seventeen program areas (“Program Areas”) providing for policies that are expected to continue to transcend the term of the current administration. These Program Areas reflect fiscal policy’s ultimate goals, provide additional elements to analyze the budget and public spending in general, and facilitate the population’s monitoring of government decisions. The projected funding for the Program Areas is consistent with the objective of reducing public debt and strengthening the fiscal policy.

D-69


 

     In terms of budget allocation, education, infrastructure, public safety and housing are the most important Program Areas and governmental action to further their development entails:
    achieving high quality public education through broad access to education, a commitment to innovation and the promotion of scientific and technological knowledge, with an annual budgetary allocation equivalent to 4.5% of GDP;
 
    repairing and maintaining road infrastructure, as well as extending the road network;
 
    designing and executing public safety policies, professionalizing law enforcement and improving police personnel’s working conditions and remuneration;
 
    improving housing conditions, through significant investment under a Five-Year Housing Plan, as well as tax incentives to promote construction of affordable housing;
 
    promoting public-private partnerships to undertake a broad range of investments in logistic, port and airport infrastructure, aimed at consolidating Uruguay as a regional logistics hub;
 
    transforming and strengthening institutions and improving governance, and
 
    innovating human resources policies, related to income, mobility and training of public officials, by establishing variable pay depending upon performance.
     In 2010, fiscal deficit decreased by 29.4% to 1.1% of GDP, compared to 1.7% of GDP in 2009.
     In June 2011, the government submitted its annual report on the execution of the Budget 2010-2014 (“Rendición de Cuentas”) for fiscal year 2010 to the Congress. The Congress has not approved the Rendición de Cuentas yet.
     The following table shows the government’s main macroeconomic assumptions and policy targets for 2011.
Main Macroeconomic Assumptions and Policy Target for 2011
         
Real GDP growth
    6.0 %
Domestic Inflation (CPI)
    4.0 – 6.0 %
Public Sector Primary Balance
  1.2% of GDP
Public Sector Overall Balance
  (1.6)% of GDP
Real Wage Growth
    4.3 %
Current Account Balance
  (1.4)% of GDP
Increase in Banco Central International Reserve Assets
     
 
Source: Ministry of Finance.
     The government targets a primary public sector surplus of 1.2% of GDP for 2011, compared to 1.9% of GDP in 2010 and 1.1% of GDP in 2009 and a public sector deficit of approximately 1.6% of GDP for 2011, compared to 1.1% of GDP in 2010 and 1.7% of GDP in 2009. Interest payments on public debt are expected to represent 2.8% of GDP in 2011.

D-70


 

     The figures set forth above represent the government’s forecast with respect to the Uruguayan economy for 2011. While the government believes that these assumptions and targets were reasonable when formulated, some are beyond its control or significant influence, and actual outcomes will depend on future events. Accordingly, no assurance can be given that economic results for 2011 will not differ materially from the figures set forth above.
Social Security
     Since 1987, the government has been making efforts to reform Uruguay’s social security system, which is characterized by a structural deficit and which for many years absorbed an increasing percentage of Uruguay’s GDP. Uruguay’s social security system was until recently a government administered “pay-as-you-go” system, financed by a combination of contributions from employees, employers and the government. As the ratio of retirees to active workers increased, the government had to increase its contributions to cover the system’s growing structural deficit.
     In September 1995, Congress enacted legislation proposed by the government to reform the social security system. The main features of that legislation are:
    replacing the old pooled-resource system with a system designed to develop over the years in which a portion of each worker’s contribution will be deposited in individual investment accounts;
 
    increasing the minimum number of work years for eligibility of benefits to 35 years;
 
    making the capitalization regime mandatory for those forty years old or younger; and
 
    producing incentives for workers to continue working past the minimum retirement age by increasing benefits according to a formula based on age of retirement and number of years worked.
     Individual contributions to the social security system are administered and invested by private pension fund administrators, or pension fund administrators. The regulatory framework for pension fund administrators was adopted in the first quarter of 1996 and four pension fund administrators are in operation. Pension fund administrators were required to invest 80% of their holdings in Uruguayan government bonds during their first year of operation. Since then, they have been permitted to decrease these holdings by 5% to 10% per year up to a lower limit of 30%. Currently, pension fund administrators may not invest more than 40% of their holding in Uruguayan government bonds.
     A system that permits the tracking of individual contributions, which is essential for improving the administration of contributions and pension benefits, has also been established. The operations of Uruguay’s bank for social welfare and the state pension fund administration are also being modernized and decentralized. Because a substantial portion of the social security system will continue to operate as a “pay-as-you-go” system, these reforms are not expected to provide a short-term solution to the structural deficit of Uruguay’s social security system, but are intended to reduce the deficit over time. In addition, the reforms are expected to induce savings and enhance the development of a domestic securities market.

D-71


 

     The number of Uruguayans over the age of 65 has increased during the last two decades. The following table sets forth historical and projected information regarding Uruguayans above retirement age for the periods indicated.
                                         
    Uruguayans Above Retirement Age  
    1975     1985     2000     2010     2025  
65-79 years
    226,034       268,154       334,633       336,917       401,695  
80 years and above
    46,782       60,736       94,537       119,587       149,281  
 
                             
Total
    272,816       328,890       429,170       456,504       550,976  
 
                             
 
Source: National Statistics Institute.
     The increase in the number of Uruguayans above retirement age raises concerns regarding the consequent increased demand on the social security system. Significantly increased demand is not expected until the period 2010–2015. Relatively high rates of emigration of Uruguayans during the 1960’s and 1970’s and a prior reform of the social security system in 1979 contributed to easing the pressure on the social security system.

D-72


 

PUBLIC SECTOR DEBT
     On July 8, 2009, Congress passed Law No. 18,519, which amended National Debt Law No. 17,947. Under the National Debt Law, as amended, the government may incur debt, provided that the net debt of the government on the last day of the prior fiscal year shall not exceed by an amount set forth in the National Debt Law for each fiscal year the outstanding net public debt as of the last day of the preceding fiscal year. The amounts set forth in the National Debt Law for any given year can be doubled if extraordinary and unforeseen circumstances occur. For 2009, and subsequent years until a new law is passed, the amount of debt over and above the net debt outstanding as of the last day of the prior fiscal year contemplated in the National Debt Law is US$350.0 million.
     In the Rendición de Cuentas for fiscal year 2010 relating to the 2010-2014 budget submitted to Congress, the government has proposed to increase this amount for the years 2011 to 2014 to 5.5 billion UIs (equivalent to approximately US$670 million as of June 30, 2011). This proposal is under consideration of the Congress.
Domestic Debt
     Uruguay defines domestic debt as all peso-denominated debt and foreign currency-denominated debt known to be held by Uruguayan residents. Uruguay’s consolidated public sector deficits have been financed primarily through the issuance of U.S. dollar-denominated Treasury bills and bonds placed in the domestic market, as well as multilateral financing. In 1993, the government covered part of the deficit by drawing on Banco Central. Treasury bills and bonds dominate the local financial market where the government has issued both short-and long-term instruments. Short-term instruments are issued in U.S. dollars (with current maturities of up to 2 months) and pesos (with a wide variety of maturities). The government is authorized to issue a debt instrument named “bonos previsionales” for an amount not to exceed 80% of the transfers received by the pension fund administrators, with maturities of up to 20 years. The bonos previsionales can be denominated in pesos as well as foreign currencies, and can also be indexed based on the rate of adjustment of nominal wages. The bonos previsionales are intended to help the government close the gap generated by the reduction in the collection of social security contributions which are currently being transferred to pension fund administrators.
     In April 2002, the government suspended auctions of Treasury bills denominated in U.S. dollars due to unfavorable market conditions. However, Banco Central began auctioning Treasury bills denominated in pesos to conduct open market operations in the framework of the new monetary policy. See “Monetary Policy and Inflation—Monetary Policy.” In January 2003, Banco Central resumed auctioning 1-year Treasury bills denominated in U.S. dollars as financial agent of the government and, in March 2004, the monetary authority began auctioning 3-year CPI-indexed (UI) Treasury bills. In April 2004, Banco Central commenced auctioning 11/2-year Treasury bills denominated in U.S. dollars. During 2005, Banco Central issued instruments denominated in U.S. dollars, pesos and UIs, with varying maturities which were determined taking into account market conditions as well as monetary policy objectives. From 2006 to 2009, Banco Central continued to issue UI and peso-denominated bills, for its own account and on behalf of the government. UI denominated securities were issued as instruments of monetary policy as well as to raise revenues for the government.
     In July 2009, the government accessed the domestic capital markets, and issued securities in that market for a total of US$113.9 million through December 2009, for the first time since September 2008. In 2010, the government issued treasury notes in domestic currency indexed to UI for a total of US$582.0 million.

D-73


 

     The following table sets forth information regarding the stock of gross public domestic debt of the government outstanding on the dates indicated.
Gross Public Domestic Debt
(in millions of US$)
                                         
    As of December 31,  
    2006(1)     2007(1)     2008(1)     2009(1)     2010(1)  
Treasury bills(2)
  US$ 334     US$ 70     US$ 0     US$ 0     US$ 0  
Treasury bonds(3)
    2,896       3,361       3,821       5,089       4,943  
Other liabilities(4)
    1,175       1,827       1,984       4,032       5,265  
 
                             
Total
  US$ 4,405     US$ 5,258     US$ 5,805     US$ 9,121     US$ 10,208  
 
                             
 
(1)   Preliminary data.
 
(2)   Includes foreign and local currency-denominated Treasury bills.
 
(3)   Includes foreign and local currency-denominated Treasury bonds and Eurobonds.
Source: Banco Central.

D-74


 

     The following table sets forth information regarding the amortization of Uruguay’s gross public domestic debt in the periods indicated.
Amortization of Gross Public Domestic Debt
(in millions of US$)
                                                                         
    Outstanding                                                                
    as of                                                                
    December 31,                                                             2018 to  
    2010(1)     2011     2012     2013     2014     2015     2016     2017     Final Maturity  
Treasury bills(2)
  US$ 0     US$ 0     US$ 0     US$ 0     US$ 0     US$ 0     US$ 0     US$ 0     US$ 0  
Treasury bonds(3)
    4,943       389       241       156       81       272       39       278       3,486  
Other liabilities(4)
    5,265       2,094       1,151       61       465       608       449       9       428  
 
                                                     
Total
  US$ 10,208     US$ 2,483     US$ 1,393     US$ 217     US$ 546     US$ 880     US$ 488     US$ 288     US$ 3,914  
 
                                                     
 
(1)   Preliminary data.
 
(2)   Includes foreign and local currency-denominated Treasury bills.
 
(3)   Includes foreign and local currency-denominated Treasury bonds and Eurobonds.
 
(4)   Includes Credits net of Deposits (a net concept) and Brady Bonds.
Source: Banco Central.
External Debt
     Uruguay’s total gross public sector external debt consists of all debt of the central government, local governments, public sector enterprises and Banco Central not known to be held by Uruguayan residents, which is denominated either in domestic or foreign currencies. Gross public sector external debt totaled US$9.3 billion (or 46.0% of GDP) as of December 2006, US$11.1 billion as of December 2007 (or 46.0% of GDP), US$10.7 (or 35.0% of GDP) billion as of December 2008, US$12.8 billion (or 41.0% of GDP) as of December 2009 and US$13.0 billion (or 32.0% of GDP) as of December 2010. The interest expense on Uruguay’s gross public external debt in 2010 represented 1.4% of GDP.
     As of December 31, 2010, Uruguay’s gross public external debt comprised direct loans in the amount of approximately US$3.1 billion and Treasury bonds (including Eurobonds) in an outstanding aggregate amount of approximately US$7.5 billion.
Total Gross Public External Debt
(in millions of US$, except percentages)
                                         
    As of December 31,  
    2006     2007     2008     2009(1)     2010(1)  
Public sector:
                                       
Financial public sector (Banco Central)
  US$ 50     US$ 105     US$ 155     US$ 619     US$ 838  
Non-financial public sector
    9,262       10,960       10,581       12,150       12,138  
Of which:
                                       
Treasury notes and bonds
    6,306       7,637       6,962       7,168       7,517  
 
                             
Total(2)
  US$ 9,311     US$ 11,065     US$ 10,736     US$ 12,769     US$ 12,977  
 
                             
Total gross public external debt/GDP
    46.0 %     46.0 %     35.0 %     41.0 %     32.0 %
Total public external debt/exports
    160.8 %     159.5 %     114.5 %     149.6 %     122.9 %
 
(1)   Preliminary data
 
(2)   Data as of December 31, 2009 includes SDR243 million (US$380.8 million) advanced by the IMF, to reflect liabilities incurred in connection with SDR allocations. SDR allocations are recorded as an increase in gross reserve assets and in long-term liabilities.
Source: Banco Central.

D-75


 

     The following table sets forth the total public external debt, net of international reserve assets and certain other assets of Banco Central, as of the dates indicated.
Total Public External Debt, Net of International Reserve Assets
(in millions of US$)
                                         
    As of December 31,  
    2006     2007     2008     2009(1)     2010(1)  
Total gross public external debt(2)
  US$ 9,311     US$ 11,065     US$ 10,736     US$ 12,769     US$ 12,977  
Less external assets:
                                       
Non-financial public sector
    218       482       277       528       375  
Banco Central
    3,382       5,288       7,207       8,819       8,562  
Of which:
                                       
Banco Central international reserve assets(3)
    3,091       4,121       6,360       8,037       7,744  
Other assets
    291       1,167       847       782       818  
 
                             
Total public external debt, net of assets
  US$ 5,711     US$ 5,295     US$ 3,251     US$ 3,423     US$ 4,040  
 
                             
 
(1)   Preliminary data.
 
(2)   Data as of December 31, 2009 includes SDR243 million (US$380.8 million) advanced by the IMF, to reflect liabilities incurred in connection with SDR allocations. SDR allocations are recorded as an increase in gross reserve assets and in long-term liabilities.
 
(3)   Gold valued for each period at London market prices at end of period.
Source: Banco Central.
     Uruguay’s public external debt is held by a variety of multilateral, bilateral and private commercial bank creditors, as well as a large number of non-resident institutions and individuals. Commercial bank creditors and multilateral organizations accounted for 27.0% of Uruguay’s public external debt at December 31, 2006, 22.9% at December 31, 2007, 28.1% at December 31, 2008, 34.4% at December 31, 2009 and 30.4% at December 31, 2010.
     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.
     On June 8, 2005, the Executive Board of the IMF approved its 2005 Stand-By Facility for Uruguay. The agreement was due to run for 36 months beginning in June 2005, provided for disbursements of up to SDR766.3 million (approximately US$1.1 billion) and contemplated repayments of at least US$1.9 billion during the whole period. As part of its debt management strategy, 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 2005 Stand-By Facility was terminated. As part of reforms taken under the 2005 Stand-By Facility, Uruguay implemented a comprehensive tax reform, improved its budgetary framework and upheld strict spending controls, adjusting public tariffs on a timely basis, and reforming the specialized pension funds.
     In May 2007, the World Bank’s Board of Executive Directors approved a US$100 million credit line for Uruguay under the First Programmatic 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

D-76


 

in UIs, linked to CPI, available to Uruguay in 2008. In February 2009, the World Bank approved a US$400 million credit line under the Second Programmatic 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$200 million under this facility in February 2009.
     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, 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, on September 2009, Uruguay accessed the international capital markets issuing US$500.0 million aggregate principal amount of its 6.875% bonds due 2025.
     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 a Programmatic Development Policy Loan 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.
     In 2010, Uruguay prepaid loans with the IADB for an aggregate principal amount of US$300 million.
     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 Indexed Units linked to CPI, for an aggregate principal amount equivalent to US$1.3 billion. Notes for an aggregate principal amount of US$1.1 billion were exchanged for short term securities issued by 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.
     Uruguay expects to continue to seek the support of the World Bank and the IADB from time to time through lending programs to be available for the implementation of certain structural reforms.
     Uruguay continues pursuing reforms to its financial system, building on the crisis resolution efforts of recent years, with a view to creating the necessary infrastructure of financial intermediation to support sustained private-sector-led growth. Priorities include the continued

D-77


 

reform of public banks (Banco de la República and Banco Hipotecario del Uruguay), further improving the supervisory framework, and overhauling the bank liquidation framework to ensure rapid and efficient resolution of banking problems should they occur. See “The Banking Sector – Prudential Regulation, Supervision and Financial System – The Uruguayan Banking System” and “Monetary Policy and Inflation.”
Gross Public Sector External Debt, By Creditor
(in millions of US$ at period end)
                                         
    2006     2007     2008     2009(1)     2010(1)  
Multilateral organizations:
                                       
IBRD (World Bank)
  US$ 667     US$ 681     US$ 736     US$ 1,098     US$ 1,025  
IADB
    1,807       1,797       2,006       2,261       1,901  
IMF
    0       0       0       458       452  
Other
    45       54       269       577       561  
Total multilateral organizations
    2,519       2,532       3,011       4,394       3,939  
Bilateral creditors
    163       157       144       125       107  
Commercial banks
    18       16       103       194       71  
Other non-resident institutions
    6,306       7,700       6,980       7,188       7,802  
Of which holdings of:
                                       
Treasury bills
    8       3       0       0       0  
Treasury bonds
    6,298       7,634       6,962       7,168       7,517  
Suppliers
    304       659       497       869       1,058  
 
                             
Total
  US$ 9,311     US$ 11,065     US$ 10,736     US$ 12,769     US$ 12,977  
 
                             
 
(1)   Preliminary data.
Source: Banco Central.
     The following table sets forth public external debt denominated in foreign currency, by currency as of the date indicated.
Summary of Public External Debt Denominated By Currency
(in millions of US$, except percentages)
                 
    As of
December 31,
2010
    %  
Uruguayan pesos
  US$ 1,760       13.6 %
U.S. dollars
    9,747       75.1  
Euros
    449       3.5  
Japanese yen
    544       4.2  
SDRs
    458       3.5  
Other
    19       0.1  
 
           
Total
  US$ 12,977       100.0 %
 
           
 
Source: Banco Central.

D-78


 

Amortization of Gross Public External Debt
(in millions of US$)
                                                                         
    Outstanding as of                                                           2018
    December 31,                                                           to Final
    2010(1)   2011   2012   2013   2014   2015   2016   2017   Maturity
Central Government
                                                                       
Multilateral organizations
  US$ 3,086     US$ 213     US$ 234     US$ 225     US$ 224     US$ 225     US$ 224     US$ 319     US$ 1,423  
Bilateral creditors
    58       8       7       4       4       4       4       4       23  
Commercial banks
    31       1       2       1       1       1       1       1       24  
Treasury bills
    0       0       0       0       0       0       0       0       0  
Treasury bonds
    7,518       339       40       33       22       159       299       759       5,867  
Other creditors
    0       0       0       0       0       0       0       0       0  
Suppliers
    0       0       0       0       0       0       0       0       0  
Total
    10,693       559       282       263       252       389       527       1,082       7,337  
 
                                                     
Banco Central
                                                                       
Multilateral organizations
    553       7       34       2       0       0       0       0       509  
Bilateral creditors
    0       0       0       0       0       0       0       0       0  
Commercial banks(1)
    0       0       0       0       0       0       0       0       0  
Banco Central bills
    285       208       67       0       2       3       2       0       3  
Suppliers
    0       0       0       0       0       0       0       0       0  
Total
    838       215       102       2       2       3       2       0       512  
 
                                                     
Non-Financial
Public Enterprises
                                                                       
Multilateral organizations
    299       37       18       33       34       34       24       21       99  
Bilateral creditors
    48       11       10       10       10       1       1       1       5  
Commercial banks
    40       14       12       2       2       2       2       0       3  
Suppliers
    1,058       411       39       48       48       48       48       48       369  
Total
    1,445       474       79       93       94       85       75       70       475  
 
                                                     
Total
  US$ 12,977     US$ 1,249     US$ 463     US$ 358     US$ 348     US$ 477     US$ 604     US$ 1,153     US$ 8,324  
 
                                                     
 
(1)   Preliminary data.
Source: Banco Central.
     The following table sets forth information regarding total external public debt service for the periods indicated.
Total External Public Debt Service(1)
(in millions of US$, except percentages)
                                         
    2006 (2) (3)     2007(2)     2008(2)     2009(2)     2010(2)  
Interest payments
  US$ 655     US$ 670     US$ 595     US$ 513     US$ 581  
Amortization
    4,211       361       750       438       923  
 
                             
Total
  US$ 4,866     US$ 1,031     US$ 1,346     US$ 951     US$ 1,504  
 
                             
Total debt service/exports of goods and services
    83.9 %     15.1 %     14.4 %     11.1 %     14.3 %
 
(1)   Excludes interest on non-resident banking deposits.
 
(2)   Preliminary data.
 
(3)   During 2006 the Republic applied US$2,970 million to prepay loans to the IMF, the World Bank and the IADB.
Source: Banco Central.

D-79


 

Total Public Debt
     The following tables set forth a list of Uruguayan public bonds issued and publicly held as of December 31, 2010.
Public Internal Bonds Issued Within Uruguay
(in millions of US$)
             
    Annual   Date of   Amount outstanding
Title   interest rate (%)   final maturity   as of December 31, 2010
UI Bond
  Various   Various 2011 - 2025   1,937
Zero-coupon bond
  8.25% US$   Various 2014 - 2020   1.56
2012 Fixed Rated Bond
  7.63%   March 2012   43.59
2018 Fixed Rate Bond
  8.00%   February 2018   40.61
2019 Fixed Rate Bond
  7.50%   March 2019   280.51
2020 Fixed Rate Bond
  9.75%   February 2020   21.89
2011 Fixed Rate Bond
  4.00%   November 2011   15.60
 
           
2011 Floating Rate Bond
  Libor + 1.5   August 2011   18.57
2017 Floating Rate Bond
  Libor + 1   June 2017   13.89
2018 Floating Rate Bond
  Libor + 2   March 2018   2.57
2013 Step-Up Bond
  Starting from 4% + 0.5%
annual until 2009 reaching 7%
  May 2013   178.79
2018 Step-Up Bond
  Starting from 4% + 0.5%
annual until 2009 reaching 7%
  April 2018   189.98
2019 Fixed Rate Bond
  7.5%   July 2019   113.89

D-80


 

Public External Bonds Issued Outside Uruguay
(in millions of US$)
             
Title   Annual interest rate (%)   Date of final maturity   Amount outstanding(1)
Global Bond 2027
  7.875% US$   July 2027   23.15
Global Bond 2012
  7.625% US$   January 2012   1.81
Eurobonds — Euros 2001 1a
  7% EUROS   June 2011   55.35
Bond 2017 9.25%
  9.250%   May 2017   457.40
MatExt Bonds 7% 01/04/2013
  7.000%   April 2013   39.00
Mat Ext Bond 7.875% 25/03/2014
  7.875%   March 2014   5.58
Mat Ext Bond 7.25% 4/05//2014
  7.250%   May 2014   17.05
Mat Ext Bond 8.75% 22/06/2015
  8.750%   June 2015   20.47
Mat Ext Bond 7.625% 20/01/2017
  7.625%   January 2017   14.42
Mat Ext Bond 8.375% 26/09/2011
  8.375%   September 2011   28.41
 
Benchmark 7.875 PIK 15/01/33
  Max 7.875%; from 3.875%+1% annual to 2007   January 2033   1,128.23
Benchmark Bond 7.5% 15/03/2015
  7.500%   March 2015   269.68
Benchmark Bond 7.25% 15/02/2011
  7.250%   February 2011   91.85
Sec USD 200:0 Global 2022
  8.000%   November 2022   1,804.86
Global Bond 2036
  7.63%   March 2036   1,420.63
Bond Yen 3rd series due 2011
  2.500%   March 2011   168.37
Global Bond in Yen Series A
  2.230%   March 2017   366.97
Global Bond 2025
  6.875%   September 2025   500.00
Mat Ext Bond 7% 26/09/2012
  7.000%   September 2012   111.44
Mat Ext Bond 7% 28/06/2019
  7.000%   June 2019   22.30
Deutsche — UBS euros 300:
  6.875%   January 2016   315.12
 
Mat Ext Bond 6.375% UF 15/3/16
  6.375%   March 2016   3.14
 
UI Global Bond 2nd series
  5.000%   September 2018   1,119.97
UI Global Bonds 3rd series
  4.250%   April 2027   787.61
UI Global Bonds 4th series
  3.700%   June 2037   754.09
UI Global Bonds 5th series
  4.000%   July 2030   857.36
 
(1)   Valued at December 31, 2010.
Source: Banco Central.

D-81


 

     The following table sets forth information regarding total gross public debt as of the dates indicated.
Total Gross Public Debt
(in millions of US$)
As of December 31,
                                         
    2006     2007     2008(1)     2009(1)     2010(1)  
Gross public external debt(2)
  US$ 9,311     US$ 11,065     US$ 10,736     US$ 12,769     US$ 12,977  
Gross public domestic debt(3)
    4,405       5,258       5,805       9,121       10,208  
Banco Central
    1,726       2,603       2,689       4,087       5,230  
Non-financial public sector
    2,679       2,655       3,116       5,034       4,978  
 
                             
Total gross public debt
  US$ 13,717     US$ 16,323     US$ 16,541     US$ 21,891     US$ 23,185  
 
                             
 
(1)   Preliminary data.
 
(2)   Data as of December 31, 2009 includes SDR243 million (US$380.8 million) advanced by the IMF, to reflect liabilities incurred in connection with SDR allocations. SDR allocations are recorded as an increase in gross reserve assets and in long-term liabilities.
 
(3)   Public debt with Uruguayan residents excluding Treasury bonds and Treasury bills held by the public sector.
Source: Banco Central.
     The following table sets forth the outstanding amount of Uruguayan Treasury securities in circulation as of the dates indicated (in millions of U.S. dollars).
                                         
            Foreign Currency     Pesos  
As of December 31,   Total     Treasury bonds     Treasury bills(1)     Treasury bonds     Treasury bills(1)  
2006
    9,902       7,609       430       1,862       0  
2007
    11,475       7,722       87       3,666       0  
2008
    11,188       7,457       0       3,731       0  
2009
    12,848       7,970       0       4,878       0  
2010
    13,247       7,788       0       5,459       0  
 
(1)   Nominal value.
Source: Banco Central.
     The following table sets forth information regarding the amortization of total gross public debt.
Amortization of Total Gross Public Debt
(in millions of US$)
                                                                         
    Outstanding as of                                                                
    December 31,                                                             2018 to Final  
    2010(1)     2011     2012     2013     2014     2015     2016     2017     Maturity  
Gross public external debt(2)
  US$ 12,977     US$ 1,249     US$ 463     US$ 358     US$ 348     US$ 477     US$ 604     US$ 1,153     US$ 8,324  
Gross public domestic debt
    10,208       2,369       1,421       224       575       909       509       288       3,914  
 
                                                     
Total
  US$ 23,185     US$ 3,618     US$ 1,884     US$ 582     US$ 923     US$ 1,387     US$ 1,113     US$ 1,440     US$ 12,238  
 
                                                     
 
(1)   Preliminary data.
 
(2)   Data as of December 31, 2009 includes SDR243.0 million (US$380.8 million) advanced by the IMF, to reflect liabilities incurred in connection with SDR allocations. SDR allocations are recorded as an increase in gross reserve assets and in long-term liabilities.
Source: Banco Central.

D-82


 

Debt Service and Debt Restructuring
     Uruguay has a long-standing tradition of prompt service of its external debt obligations, interrupted only in the 1930s when the severe worldwide economic contraction led to the delay of some payments and very briefly in mid-1965 when Banco de la República incurred some arrears for approximately two to three months. The regional debt crisis, which started in 1982, resulted in growing unwillingness on the part of foreign commercial banks to lend to the region. Reduced new lending led Uruguay to seek the renegotiation of repayment obligations to commercial banks in 1983, 1986 and 1988, but unlike several other countries in the region, during this period Uruguay did not have any arrears of either interest or principal.
     In 1983, Uruguay rescheduled US$693 million of principal falling due between 1983 and 1984. Uruguay also obtained US$230 million of new lending and maintained US$87 million in public and private sector short-term trade lines. In 1986, negotiations with commercial bank creditors resulted in the rescheduling of US$2.1 billion of principal due between 1985 and 1989 and in new lending totaling US$45 million. In 1988, US$1.8 billion of debt originally due between 1985 and 1991 was rescheduled. The 1988 refinancing agreement also reduced the spread over 3-month LIBOR on the debt covered by the 1986 agreement to 0.875% from 1.375% and extended the maturity schedule from 1996 to 2004.
     A debt-to-equity swap program, established in 1987, provides a means for the cancellation of debt owed to international commercial banks. Since 1988, a total of US$168 million of external debt has been cancelled through the debt-to-equity swap program and an additional US$15 million of external debt has been extinguished through a related operation. Most of the investments under this program have involved tourism and forestry activities.
     In the last quarter of 1990, under the initiative of U.S. Secretary of the Treasury Nicholas Brady, Uruguay began to negotiate a restructuring program with its commercial bank creditors to reduce its debt burden, lengthen the maturity profile of its debt and obtain new sources of funds in order to be able to channel necessary resources into projects for further economic growth and development. In January 1991, Uruguay reached agreement with its commercial bank creditors covering US$1.6 billion in debt, representing 21.7% of its total gross external debt and 100% of the public sector debt owed to commercial banks.
     Of the US$1.6 billion of commercial bank debt covered by Uruguay’s restructuring program:
    US$530 million was converted into 30-year bonds (par bonds, collateralized with U.S. Treasury bonds and enhanced by rolling interest rate guarantees) with a fixed annual interest rate of 6.75%;
 
    US$448 million was converted into debt conversion notes maturing in February 2007 with a coupon of LIBOR plus 0.875% and a seven-year grace period as to the amortization of principal; and
 
    the remaining US$633 million was repurchased for cash at a cost of US$354 million.

D-83


 

     Under this program, Uruguay also obtained new funds through the issuance of bonds due 2006 having an aggregate principal amount of US$89.0 million. The Bonds due 2006 had a seven-year grace period as to the amortization of principal and accrued interest at six-month LIBOR plus 1.0%.
     After 1991, Uruguay’s public sector benefited from lower debt service costs resulting from the reduced amount of net debt outstanding, the lower interest rate on the Bonds and the extension of the country’s debt-maturity profile. In October 1999, Uruguay consummated an exchange offer of US$85.0 million of its 30-year collateralized par Bonds due 2021 for US$85.0 million of its uncollateralized 7 7/8% Bonds due 2027. In December 2001, Uruguay repurchased and cancelled US$115 million of Banco Central’s outstanding Debt Conversion Bonds due 2007. In 2003, Uruguay exchanged US$24 million principal amount of Par A and Par B Bonds for US$11.5 million cash and UI Bonds due 2012 for the UI equivalent of US$11.5 million.
     On April 10, 2003, the Republic launched two concurrent offers inviting owners of certain of the Republic’s and Banco Central’s foreign currency-denominated bonds to tender their old bonds in exchange for newly issued bonds. Uruguay also solicited the consent of holders of a Yen denominated bond to amend the terms and conditions of that bond. The transactions were designed to adjust Uruguay’s debt profile and make it sustainable. Uruguay attracted the support of holders of 92.8% of its debt subject to the offers and consent solicitation, which resulted in the issuance of 18 new series of debt securities.
     Since the completion of its 2003 debt reprofiling, Uruguay has accessed the international capital markets repeatedly and applied the proceeds raised to gradually lengthen its debt maturity profile.
     On October 19, 2006, Uruguay launched an exchange offer to holders of certain series of its outstanding bonds (with maturities from 2008 through 2027) to tender their bonds in exchange for newly issued bonds or, in certain cases, for cash. Concurrently, Uruguay issued US$500.0 million of its 8.00% bonds due 2036. The transactions were designed to improve Uruguay’s debt profile. Uruguay attracted the support of holders of 52%, or US$1.2 billion aggregate principal amount, of the bonds invited to participate in its offers. In the case of the holders of the bonds due 2011 and 2015, the levels of participation were approximately 60% of the outstanding principal amount of those bonds.
     In December 2007, Uruguay cancelled the equivalent of approximately US$240 million of its outstanding debt securities, which were acquired from the market through international and domestic cash tender offers.
     In November 2008, Banco Central cancelled the equivalent of US$224 million of its outstanding debt instruments issued in Indexed Units and in pesos, acquired in the local market.
     In December 2010, Uruguay prepaid loans with the IADB for an aggregate principal amount of US$300.0 million.
     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 Indexed Units linked to

D-84


 

CPI, for an aggregate principal amount equivalent to US$1.3 billion. Notes for an aggregate principal amount of US$1.1 billion were exchanged for short term securities issued by Banco Central.
          From time to time, Uruguay engages in liability management transactions as part of its overall debt management strategy.
Debt Record
     Uruguay has regularly met all principal and interest obligations on its external debt for over 30 years. Prior to that, Uruguay had payment arrears on external debt in 1965 for a short period of months and in the 1930’s during the international economic recession.

D-85


 

TABLES AND SUPPLEMENTAL INFORMATION
Table 1: Gross Public Debt
(in millions of US$)
                                         
    Amount     Of which:        
    outstanding     Internal Debt     Internal Debt     External Debt     Gross Public Debt  
    as of Dec. 31, 2010     (with residents)     (with public sector)     (with non-residents)     as of Dec. 31, 2010  
Direct Debt of Central Government of which:
  US$ 16,319     US$ 4,943     US$ 787     US$ 10,589     US$ 15,532  
 
                                       
Direct Loans
    3,072       0       0       3,072       3,072  
Treasury Bonds and Eurobonds
    13,248       4,943       787       7,518       12,460  
Treasury Bills
    0       0       0       0       0  
 
                                       
Other public debt of which:
  US$ 8,453     US$ 5,265     US$ 801     US$ 2,388     US$ 7,653  
 
                                       
Banco Central Bills
    5,848       4,762       801       285       5,047  
Guaranteed Debt
    945       0       0       945       945  
Other External Debt
    1,157       0       0       1,157       1,157  
Other Domestic Debt
    503       503       0       0       503  
 
                             
 
                                       
Total(1)
  US$ 24,773     US$ 10,208     US$ 1,588     US$ 12,977     US$ 23,185  
 
                             
 
(1)   Totals may differ due to rounding.
Source: Banco Central.

D-86


 

Table 2: Direct Loans
(in millions of US$)
                 
                Amount Outstanding
Lender   Interest Rate   Issue Date   Final Maturity   as of 12/31/2010
Bank of China
  5   07/11/1988   31/12/2020   4.54
Interamerican Development Bank
  2   29/03/1984   29/03/2014   1.91
Interamerican Development Bank
  2   24/07/1984   24/07/2014   1.36
Interamerican Development Bank
  2   26/07/1984   26/07/2014   1.26
Interamerican Development Bank
  2   26/07/1984   26/07/2014   0.02
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.75
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.78
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.04
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.10
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.01
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.20
Interamerican Development Bank
  2   15/08/1984   15/08/2014   0.06
Interamerican Development Bank
  2   20/05/1986   20/05/2011   0.16
Interamerican Development Bank
  2   20/05/1986   20/05/2011   0.01
Interamerican Development Bank
  2   20/05/1986   20/05/2011   0.03
Interamerican Development Bank
  2   20/05/1986   20/05/2011   0.02
Interamerican Development Bank
  2   20/05/1986   20/05/2011   0.01
Interamerican Development Bank
  2   31/10/1988   31/10/2018   0.76
Interamerican Development Bank
  4.03   27/12/1993   27/12/2018   12.68
Interamerican Development Bank
  4.03   08/04/1994   08/04/2019   12.80
Interamerican Development Bank
  4.02   18/03/1996   18/03/2021   23.33
Interamerican Development Bank
  4.02   07/04/1997   07/04/2022   33.97
Interamerican Development Bank
  4.02   14/03/1998   14/03/2018   7.61
Interamerican Development Bank
  4.02   09/12/1998   09/12/2018   77.34
Interamerican Development Bank
  4.02   21/12/1998   21/12/2018   8.16
Interamerican Development Bank
  4.02   30/07/1999   30/07/2024   43.87
Interamerican Development Bank
  4.02   15/12/2000   30/07/2026   3.50
Interamerican Development Bank
  4.02   17/03/2001   17/03/2021   15.01
Interamerican Development Bank
  4.02   30/07/2001   30/07/2021   3.79
Interamerican Development Bank
  4.02   28/09/2001   28/09/2021   110.00
Interamerican Development Bank
  4.02   28/09/2001   28/09/2021   2.36
Interamerican Development Bank
  4.02   08/11/2001   08/11/2021   55.00
Interamerican Development Bank
  4.02   21/12/2001   21/12/2026   68.15
Interamerican Development Bank
  0.261   18/06/2002   15/08/2022   106.52
Interamerican Development Bank
  4.02   20/12/2002   15/12/2027   34.74
Interamerican Development Bank
  8.526   21/11/2003   21/11/2023   173.33
Interamerican Development Bank
  4.02   15/12/2003   15/12/2028   50.83
Interamerican Development Bank
  4.02   17/11/2004   17/11/2024   61.94
Interamerican Development Bank
  4.02   22/08/2005   22/08/2025   250.00
Interamerican Development Bank
  4.02   22/08/2005   22/08/2025   11.87
Interamerican Development Bank
  4.02   08/12/2005   08/12/2030   1.75
Interamerican Development Bank
  4.02   26/07/2006   15/06/2031   4.54
Interamerican Development Bank
  4.02   26/08/2006   15/06/2031   1.05
Interamerican Development Bank
  4.02   26/10/2006   26/10/2031   2.92
Interamerican Development Bank
  4.02   12/12/2006   04/11/2031   50.00
Interamerican Development Bank
  4.02   28/12/2006   15/12/2031   28.92
Interamerican Development Bank
  4.02   22/01/2007   22/01/2032   1.36
Interamerican Development Bank
  4.02   14/03/2007   10/10/2031   2.44
Interamerican Development Bank
  4.02   18/03/2007   18/03/2032   75.00
Interamerican Development Bank
  1.42   21/06/2007   15/04/2022   4.01
Interamerican Development Bank
  4.02   20/08/2007   10/04/2032   4.27
Interamerican Development Bank
  4.02   25/09/2007   25/09/2032   1.67
Interamerican Development Bank
  4.02   26/10/2007   26/10/2032   3.21
Interamerican Development Bank
  4.02   08/04/2008   08/04/2033   4.67
Interamerican Development Bank
  4.02   08/04/2008   08/04/2033   1.61
Interamerican Development Bank
  4.02   07/11/2008   07/11/2033   10.50
Interamerican Development Bank
  0.283   30/12/2008   15/12/2033   25.98
Interamerican Development Bank
  4.02   30/12/2008   15/12/2033   22.47
Interamerican Development Bank
  4.02   10/02/2009   15/08/2033   0.24
Interamerican Development Bank
  0.283   17/04/2009   17/04/2033   4.00
Interamerican Development Bank
  5.573   11/05/2009   11/05/2029   285.00
International Bank for Reconstruction and Development
  0.283   09/02/2010   09/02/2035   0.30
International Bank for Reconstruction and Development
  0.283   09/02/2010   09/02/2035   0.53

D-87


 

                 
                Amount Outstanding
Lender   Interest Rate   Issue Date   Final Maturity   as of 12/31/2010
International Bank for Reconstruction and Development
  0.261   22/04/2010   22/04/2040   0.20
International Bank for Reconstruction and Development
  0.283   08/12/2010   15/12/2035   3.50
International Bank for Reconstruction and Development
  0.92   01/07/1997   15/04/2012   10.46
International Bank for Reconstruction and Development
  3.42   26/02/1998   15/12/2012   21.99
International Bank for Reconstruction and Development
  0.92   06/10/1998   15/10/2013   19.35
International Bank for Reconstruction and Development
  0.92   06/10/1998   06/10/2013   8.91
International Bank for Reconstruction and Development
  0.92   08/03/2000   15/12/2014   32.36
International Bank for Reconstruction and Development
  0.92   08/08/2001   15/03/2016   10.20
International Bank for Reconstruction and Development
  0.92   22/08/2001   15/08/2016   1.90
International Bank for Reconstruction and Development
  0.92   17/06/2002   15/04/2017   29.18
International Bank for Reconstruction and Development
  3.701   08/08/2002   15/10/2017   106.06
International Bank for Reconstruction and Development
  3.701   15/04/2003   15/10/2018   64.06
International Bank for Reconstruction and Development
  3.651   16/06/2005   15/03/2020   71.61
International Bank for Reconstruction and Development
  3.651   16/06/2005   15/04/2020   22.74
International Bank for Reconstruction and Development
  3.651   16/06/2005   15/04/2020   57.67
International Bank for Reconstruction and Development
  3.42   28/03/2007   15/10/2021   4.69
International Bank for Reconstruction and Development
  1.42   21/06/2007   15/04/2017   100.00
International Bank for Reconstruction and Development
  1.42   21/06/2007   15/04/2022   4.17
International Bank for Reconstruction and Development
  1.42   13/12/2007   15/04/2022   2.03
International Bank for Reconstruction and Development
  0.92   10/02/2009   15/02/2029   400.00
International Bank for Reconstruction and Development
  0.92   24/02/2010   15/02/2032   9.73
Corporacion Andina De Fomento
  2.052   02/03/2009   02/03/2019   200.00
Corporacion Andina De Fomento
  2.052   08/06/2009   08/06/2018   80.00
Credit National Paris
  2   05/12/1984   31/12/2015   0.46
Credit National Paris
  2   05/12/1984   31/12/2016   3.35
Credit National Paris
  2   28/08/1989   31/12/2021   0.60
Credit National Paris
  2   28/08/1989   30/06/2021   0.11
Credit National Paris
  2   28/08/1989   31/12/2022   1.76
Credit National Paris
  2   28/08/1989   30/09/2020   1.00
Credit National Paris
  2   28/08/1989   30/06/2022   0.33
Credit National Paris
  2   28/08/1989   31/03/2023   0.51
Credit National Paris
  2   28/08/1989   30/09/2022   0.43
Credit National Paris
  2   28/08/1989   31/12/2021   0.42
Eximbank Wdc
  3.18   26/12/1997   26/12/2012   5.55
Fondo Internacional de Desarrollo Agricola
  8   20/05/1993   01/07/2011   0.40
Fondo Internacional de Desarrollo Agricola
  3.42   04/07/2001   01/01/2019   6.44
Fondo para Desarrollo de la Cuenca del Plata
  7   29/06/1993   13/09/2013   3.76
Instituto Crédito Oficial del Reino de España
  1.25   02/10/1992   26/10/2022   5.85
Instituto Crédito Oficial del Reino de España
  1.25   23/03/1993   20/04/2023   1.81
Instituto Crédito Oficial del Reino de España
  1.25   12/05/1993   15/05/2023   20.41
Instituto Crédito Oficial del Reino de España
  1.25   01/07/1994   01/08/2024   4.82
Instituto Crédito Oficial del Reino de España
  1.25   01/07/1994   03/08/2024   1.70
Instituto Crédito Oficial del Reino de España
  1.25   01/07/1994   12/07/2024   8.54
ITALIAN BANK ARTIGIANCASSA SPA
  0.1   09/09/2004   09/09/2043   7.96
ITALIAN BANK ARTIGIANCASSA SPA
  0.1   02/12/2005   02/12/2047   14.18
Kreditanstalt Fur Wieteraufbau
  2   23/11/1993   30/12/2023   4.12
Kreditanstalt Fur Wieteraufbau
  4.5   23/11/1993   30/12/2013   0.52
The Overseas Economic Cooperation Fund Tokio
  4   09/10/1989   20/11/2014   0.41
The Overseas Economic Cooperation Fund Tokio
  3.25   09/10/1989   20/10/2014   0.02
Total Direct Debt
              3,072

D-88


 

Table 3: Treasury Bonds and Eurobonds
(in millions of US$)
                                                         
                                    Of Which:  
                                            Internal        
Foreign Currency                           Amount     Internal     Debt     External  
Denominated Bonds:                           Outstanding     Debt     (with     Debt  
Treasury Bonds and             Issue       Final     as of:     (with     public     (with non  
Eurobonds Series     Interest Rate       Date       Maturity     31/12/2010     residents)     sector)     residents)  
30 a. FIX
    7.50%       03/23/01       03/23/11       0.48       0.00       0.00       0.48  
37a.var
    Libor + 1.5%     09/27/94       09/27/04       0.09       0.00       0.00       0.09  
49a.var
    Libor + 1%     06/30/97       06/30/12       0.27       0.00       0.00       0.27  
50a.var
    Libor + 1%     08/15/97       08/15/12       0.01       0.00       0.00       0.01  
51a.var
    Libor + 1%     09/22/97       09/22/12       0.25       0.00       0.00       0.25  
53a.var
    Libor + 1.75%     03/23/01       03/23/11       0.10       0.00       0.00       0.10  
 
                                                       
2012 Fixed Rate Bond
    7.63%       05/29/03       03/05/12       43.59       19.96       0.00       23.62  
2018 Fixed Rate Bond
    8.00%       05/29/03       02/25/18       40.61       28.80       0.00       11.81  
2019 Fixed Rate Bond
    7.50%       05/29/03       03/23/19       280.51       161.84       14.99       103.67  
2020 Fixed Rate Bond
    9.75%     05/29/03       02/28/20       21.89       9.83       3.02       9.06  
2011 Fixed Rate Bond
    4.00%       07/01/04       11/30/11       15.60       12.42       0.56       2.62  
2008 Floating Rate Bond
    Libor + 1.75     05/29/03       12/21/08       0.21       -64.78       0.00       64.99  
2009 Floating Rate Bond
    Libor + 1.5     05/29/03       11/27/09       0.06                          
2010 Floating Rate Bond
    Libor + 1.5     05/29/03       09/29/10       0.96       0.00       0.00       0.96  
2011 Floating Rate Bond
    Libor + 1.5     05/29/03       08/20/11       18.57       18.39       0.05       0.12  
2017 Floating Rate Bond
    Libor + 1     05/29/03       06/30/17       13.89       12.85       0.23       0.81  
2018 Floating Rate Bond
    Libor + 2     05/29/03       03/24/18       2.57       2.16       0.02       0.39  
2010 Incremental Rate Bond
    Starting from 4% + 0.5% annual until 2009 reaching 7%     05/29/03       06/15/10       2.18       0.00       0.00       2.18  
2013 Incremental Rate Bond
    Starting from 4% + 0.5% annual until 2009 reaching 7%     05/29/03       05/15/13       178.79       175.65       1.65       1.49  
2018 Incremental Rate Bond
    Starting from 4% + 0.5% annual until 2009 reaching 7%     05/29/03       04/15/18       189.98       148.73       4.15       37.09  
2019 Fixed Rate Bond
    7.50%       07/21/09       07/21/19       113.89       76.40       0.00       37.49  
 
                                                       
UI Bond
    7.000%       11/06/02       11/06/12       1,937.38       1,494.60       428.12       14.66  
 
                                                       
Zero-coupon Bond
    8.25%       Vs 1999/2000     Vs 2014/2020     1.56       1.56       0.00       0.00  
Global Bond 2027
    7.88%       07/15/97       07/15/27       23.15       0.00       0.00       23.15  
Global Bond 2012
    7.63%       11/21/01       01/20/12       1.81       0.00       0.00       1.81  
 
                                                       
Eurobonds — Euros due 2011
    7.00%       06/28/01       06/28/11       55.35       0.00       0.00       55.35  
 
                                                       
Bond due 2017 9.25%
    9.250%       05/17/05       05/17/17       457.40       71.54       12.42       373.44  
Mat.Ext. Bonds 7% 01/04/2013
    7.00%       05/29/03       04/01/13       39.00       8.76       2.16       28.08  
Mat Ext Bonds 7.875% 25/03/2014
    7.88%       05/29/03       03/25/14       5.58       0.57       0.00       5.01  

D-89


 

                                                         
                                    Of Which:  
                                            Internal        
Foreign Currency                           Amount     Internal     Debt     External  
Denominated Bonds:                           Outstanding     Debt     (with     Debt  
Treasury Bonds and           Issue     Final     as of:     (with     public     (with non  
Eurobonds Series     Interest Rate     Date     Maturity     31/12/2010     residents)     sector)     residents)  
Mat Ext Bonds 7.25%
4/05//2014
    7.25%     05/29/03       05/04/14       17.05       4.10       0.01       12.93  
Mat Ext Bonds 8.75%
22.06.2015
    8.75%     05/29/03       06/22/15       20.47       4.37       0.00       16.10  
Mat Ext Bonds 7.625%
20.01.2017
    7.63%     05/29/03