EX-99.D 2 d611672dex99d.htm EXHIBIT 99.D Exhibit 99.D

Exhibit 99.D

Description of

República Oriental del Uruguay

September 28, 2018

 

D-1


TABLE OF CONTENTS

 

     PAGE  

Recent Developments

     D-3  

Introduction

     D-10  

República Oriental Del Uruguay

     D-13  

The Economy

     D-18  

Gross Domestic Product and Structure of the Economy

     D-24  

Foreign Merchandise Trade

     D-36  

Foreign Trade on Services

     D-40  

Balance of Payments

     D-41  

Monetary Policy and Inflation

     D-45  

The Banking Sector

     D-50  

Securities Markets

     D-57  

Public Sector Finances

     D-58  

Fiscal Policy

     D-62  

Public Sector Debt

     D-65  

Tables and Supplemental Information

     D-77  

 

D-2


RECENT DEVELOPMENTS

The information contained in this section supplements the information about Uruguay corresponding to the headings below that are contained in this Exhibit 99.D to Uruguay’s annual report on Form 18-K for the fiscal year ended December 31, 2017.

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 “GDP by Expenditure” are based on current (nominal) prices for each year, whereas the percentage figures included in the table entitled “Change in GDP 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(1)

(millions of 2005 pesos, except as otherwise indicated)

 

     As of June 30,  
     2017      2018  

GDP

     Ps.342,122.2        Ps.350,212.4  

Imports of goods and services

     104,858.2        109,750.3  
  

 

 

    

 

 

 

Total supply of goods and services

     446,980.4        459,962.6  

Exports of goods and services

     105,251.9        103,699.6  
  

 

 

    

 

 

 

Total goods and services available for domestic expenditures

     Ps.341,728.6        Ps.356,263.1  
  

 

 

    

 

 

 

Allocation of total goods and services:

     

Consumption (public and private)

     287,744.1        294,564.7  

Gross investment (public and private)

     53,984.5        61,698.4  
  

 

 

    

 

 

 

Total domestic expenditures

     Ps.341,728.6        Ps.356,263.1  
  

 

 

    

 

 

 

 

(1)

Preliminary data.

Source: Banco Central.

Nominal GDP by Expenditure(1)

(% of total nominal GDP, unless otherwise indicated)

 

     As of June 30,  
     2017     2018  

Government consumption

     10.6     10.4

Private consumption

     73.5       73.7  

Gross fixed investment

     15.8       17.6  

Public sector (% of gross fixed investment)

     15.4       17.2  

Private sector (% of gross fixed investment)

     84.6       82.8  

Exports of goods and services

     30.8       29.6  

Imports of goods and services

     30.6     31.3

 

(1)

Preliminary data.

Source: Banco Central.

Change in GDP by Expenditure

(% change from previous period, 2005 prices)

 

     January/June
2017/2018(1)
 

Government consumption

     0.7

Private consumption

     14.3  

Gross fixed investment

     (0.8

Public sector

     10.2  

Private sector

     (2.9

Exports of goods and services

     (1.5

Imports of goods and services

     4.7

 

(1)

Preliminary data.

Source: Banco Central.

 

D-3


Principal Sectors of the Economy

The following tables set forth the components of Uruguay’s nominal GDP and their respective growth rates as of the dates and for the periods indicated.

Nominal GDP by Sector(1)

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

 

     As of June 30,  
     2017     2018  

Primary activities(2)

   US$ 1,690.9        5.9   US$ 1,753.6        5.8

Manufacturing

     3,363.3        11.7       3,575.7        11.8  

Electricity, gas and water

     866.5        3.0       816.4        2.7  

Construction

     2,452.3        8.5       2,602.8        8.6  

Commerce, restaurants and hotels

     3,920.3        13.6       4,155.7        13.7  

Transportation, storage and communications

     1,586.9        5.5       1,616.2        5.3  

Other services (3) (4)

     12,220.6        42.4       12,789.8        42.3  

Net adjustments(5)

     2,690.6        9.3     2,930.3        9.7

Total Nominal GDP

     28,791.0          30,242.8     

 

(1) 

Preliminary data.

(2) 

Data includes agriculture, livestock, fishing and mining.

(3) 

Includes public sector services and other services.

(4) 

Includes real estate, business, financial and insurance services.

(5) 

Payments made by financial institutions and import tariffs.

Source: Banco Central.

GDP by Sector

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

 

     January/June
2017/2018(1)
 

Primary activities(2)

     (3.7 )% 

Manufacturing

     4.8  

Electricity, gas and water

     (5.2

Construction

     1.9  

Commerce, restaurants and hotels

     3.3  

Transportation, storage and communications

     5.6  

Other services(3)(4)

      

Total GDP

     2.4

 

(1) 

Preliminary data.

(2) 

Data includes agriculture, livestock, fishing and mining.

(3) 

Includes public sector services and other services.

(4) 

Includes real estate, business, financial and insurance services.

Source: Banco Central.

Uruguay’s GDP increased 2.4% during the six-month period ended June 30, 2018 compared to the same period in 2017. The sectors that primarily contributed to real GDP growth were transportation, storage and communications, manufacturing, commerce, restaurants and hotels and construction.

Growth in the transportation, storage and communications sector (5.6% in the six-month period ended June 30, 2018 compared to the same period in 2017) was mainly driven by an increase in the use of data services.

Growth in the manufacturing sector (4.8% in the six-month period ended June 30, 2018 compared to the same period in 2017) was mainly the result of the ANCAP refinery resuming operations after a scheduled maintenance shutdown between February and September 2017.

Growth in the commerce, restaurants and hotels sector (3.3% in the six-month period ended June 30, 2018 compared to the same period in 2017) was mainly due to a growth in real terms in the commerce sector due to an increase in imports, especially consumer goods, facilitated by the appreciation of the Uruguayan peso vis-à-vis the U.S. dollar.

 

D-4


Growth in the construction sector (1.9% in the six-month period ended June 30, 2018 compared to the same period in 2017) was mainly driven by an increase in construction in Montevideo.

The agriculture, livestock and fishing sector, however, contracted by 3.7% in the six-month period ended June 30, 2018 compared to the same period in 2017, mainly due to the long-term effects of a severe drought that affected Uruguay during the 2017/2018 harvest and caused a drop in soybean production, and due to a decline in cattle slaughter. This decrease was partially offset by growth in the livestock and forestry sectors.

The electricity, gas and water sector contracted 5.2% in the six-month period ended June 30, 2018 compared to the same period in 2017, mainly due to a decrease in the added value of electricity generation and distribution, driven by a change in the composition of energy resources.

Role of the State in the Economy

On July 3, 2018, three individuals alleging to be investors of Minera Aratirí S.A. (“Aratirí”), a company incorporated in Uruguay, presented a claim against the Republic before the United Nations Commission on International Trade Law, alleging a violation by Uruguay of the Treaty of Protection and Promotion of Investments between the Republic and the United Kingdom. The claim relates to an iron ore project submitted in 2011 by Aratirí and claims compensation for approximately US$3.5 billion. As of the date of this annual report, Uruguay’s response was pending. Uruguay intends to reject the allegations and oppose all available defenses.

On April 13, 2018, Congress passed Law No.19,608 creating a new daily accounting unit (Unidad Previsional, the “Pension Unit”) that tracks changes to the average nominal wage index. The Pension Unit took its initial value of one peso (Ps.1.00) on April 30, 2018. With the creation of the Pension Unit, the government seeks to promote the development of financial instruments that allow public and private insurance companies, among other agents, to better match the currency-denomination of their obligations, which are indexed to the evolution of the average nominal wages as mandated by the Uruguayan Constitution.

Employment, Labor and Wages

Employment

According to estimates by the National Statistics Institute, the employment rate stood at 56.5% in July 2018 compared to 58.3% in July 2017 and the unemployment rate stood at 7.8% in July 2018, compared to 7.6% in July 2017.

Wages

In 2015, the government introduced new wage-setting guidelines for the private sector, to moderate the indexation of wages to past inflation and reduce inflation inertia. The government’s guidelines proposed a 3-year declining path of wage increases set in nominal terms, that varied by sector depending on growth performance.

A new round of wage negotiations will take place during 2018. In March 2018, the government introduced a new set of guidelines under the same wage-setting scheme, this time incorporating lower nominal wage increases (compared to 2015) in the context of reduced inflation. For the first year of the three-year cycle, the nominal wage adjustment proposed to unions and companies is 6.5% (low-growth sectors), 7.5% (medium-growth sectors) and 8.5% (dynamic sectors). For the second year, the proposed nominal wage adjustment is 6%, 7% and 8%, respectively, and for the third year, 5%, 6% and 7%, respectively.

For the 12-month period ended July 31, 2018, average real wages increased by 1.7% compared to a 2.7% growth for the 12-month period ended July 31, 2017.

FOREIGN MERCHANDISE TRADE

Merchandise exports for the 12-month period ended July 31, 2018 totaled US$7.8 billion, compared to US$7.4 billion for the same period in 2017. Merchandise imports totaled US$8.4 billion for the 12-month period ended July 31, 2018, compared to US$7.6 billion for the 12-month period ended July 31, 2017.

 

D-5


Merchandise trade for the 12-month period ended July 31, 2018 recorded a deficit of US$614 million, compared to a deficit of US$279 million for the 12-month period ended July 31, 2017.

FOREIGN TRADE ON SERVICES

During the 12-month period ended March 31, 2018, gross tourism receipts increased by 1.1% and the number of tourist arrivals increased by 10.2%, mainly driven by a 10.9% increase in visitors from Argentina.

BALANCE OF PAYMENTS

Current Account

Uruguay’s current account for the 12-month period ended March 31, 2018 recorded a surplus of US$881 million, compared to a surplus of US$585 million for the 12-month period ended March 31, 2017. The surplus was mainly attributable to the merchandise trade balance.

Financial Account

During the 12-month period ended March 31, 2018, the financial account (including non-registered movements recorded as errors and omissions), recorded a surplus of US$1.5 billion, compared to a surplus of US$349 million during the 12-month period ended March 31, 2017. This surplus increase was mainly due to an increase in international reserve assets of Banco Central, driven by an increase in foreign currency purchases (totaling US$3.8 billion), which was partially offset by a decrease in private banking deposits, mainly during the first quarter of 2018.

International Reserves

As of August 31, 2018, Banco Central’s international reserve assets totaled US$17.2 billion (of which gold represented US$4 million). This amount includes US$6.1 billion of reserves and voluntary deposits of the banking sector, including US$3.6 billion of public banks, with Banco Central.

MONETARY POLICY AND INFLATION

Monetary Policy

Aggregate M1’ annual average growth during the second quarter of 2018 stood at 11.5%, in line with the target range set by Banco Central of 11%-13%.

Inflation

The following table shows changes in consumer prices (CPI) and wholesale prices (WPI) for the period indicated.

Changes in CPI and WPI

(% change from previous year at period end)

 

     CPI     WPI  

For the twelve months ended August 31, 2018

     8.3     13.1

 

Source: National Institute of Statistics.

For the 12-month period ending August 31, 2018, the inflation rate rose to 8.3%, mainly due to an increase in food prices caused by adverse weather conditions and pass-through effects of the depreciation of the peso.

The weighted average annual interest rate for 91 to 180 day term deposits in U.S. dollars in the banking system was 0.3% and 0.2% in July 2018 and July 2017, respectively. The weighted average annual interest rate for 91 to 180 day term deposits in pesos in the banking system was 6.0% and 5.4% in July 2018 and July 2017, respectively.

 

D-6


The following table shows the value in pesos of the UI as of August 31, 2018:

 

     UI  

Value in pesos as of August 31, 2018

     Ps.3.9555  

 

Source: National Institute of Statistics.

Foreign Exchange

The following table shows the high, low, average and period-end peso/U.S. dollar exchange rates for the period indicated.

Exchange Rates(1)

(pesos per US$)

 

     High      Low      Average      Period-End  

For the 12 months ended August 31, 2018

     32.339        28.151        29.474        32.339  

 

(1)

Daily interbank end-of-day bid rates.

Source: Banco Central.

FISCAL POLICY

On June 30, 2018, the government submitted to Congress a draft bill containing the fiscal performance report for fiscal year 2017 (the “2017 Rendición de Cuentas”). The report included adjustments to the 2015-2019 budget, as previously adjusted by the 2015 Rendición de Cuentas (as defined below), introduced to reflect adverse impacts from macroeconomic shocks (regional and in Uruguay’s trade partners) on Uruguay’s economy and the government’s fiscal performance, while preserving certain social expenditures. In particular, the report deferred to 2020 the targeted reduction of the overall public sector deficit to 2.5% of GDP, from 2019 as originally contemplated in the 2015 Rendición de Cuentas. On August 17, 2018, the Chamber of Deputies approved the 2017 Rendición de Cuentas and the Senate approved the report on September 26, 2018, subject to revisions, which need to be considered by the Chamber of Deputies.

The following table shows the government’s main macroeconomic assumptions and policy targets for 2018.

Main Macroeconomic Assumptions and Policy Target for 2018.

 

Real GDP Growth

     2.5%  

Annual Average Domestic Inflation (CPI)

     6.8%  

Public Sector Primary Balance

     0% of GDP  

Public Sector Overall Balance

     (3.3)% of GDP  

Real Wage Growth

     1.3%  

Current Account Balance

     0.7% of GDP  

 

Source: Ministry of Economy and Finance.

The government targets a primary public sector balance of 0% of GDP for 2018, and a public sector deficit of approximately 3.3% of GDP. Interest payments on public debt are expected to represent 3.3% of GDP in 2018.

While the government believes that these assumptions and forecasts for the Uruguayan economy were reasonable when formulated, actual outcomes are beyond its control or significant influence, and will depend on future events. Accordingly, no assurance can be given that economic results and the government’s performance in 2018 will not differ materially from the figures set forth above.

 

D-7


PUBLIC SECTOR FINANCES

In the 12-month period ended July 31, 2018, Uruguay’s overall public sector deficit represented approximately 3.9% of GDP, compared to an overall public sector deficit of 3.6% of GDP for the 12-month period ended July 31, 2017.

In August 2018, the Energy Stabilization Fund had assets that exceeded the fund’s annual coverage target (Valor Objetivo de Cobertura del Fondo). The excess portion will be transferred to the Uruguayan Treasury.

PUBLIC SECTOR DEBT

Central Government Debt

The following table sets forth information regarding the debt of the central government outstanding as of June 30, 2018.

 

     As of
June 30,
2018
 

Gross Debt

   US$ 28,970  

Of which

  

(% in foreign currency)

     53

(% in local currency)

     47

Of which

  

Nominal

     11

CPI-linked

     32

Wage-linked

     4

Average maturity (in years)

     14.4  

Net Debt

   US$ 25,424  

 

Source: Ministry of Economy and Finance.

As of June 30, 2018, the central government’s liquid assets available to discharge obligations stood at approximately US$2.7 billon. In addition, credit lines available to Uruguay’s central government from CAF, FLAR (Latin American Reserve Fund), IADB and the World Bank grant Uruguay access to contingency financing for approximately US$2.2 billion. As of June 30, 2018, the central government’s debt service obligations for the next 12 months, capital payments and interest expenses, stood at approximately US$ 3.9 billion.

The following table reflects the central government’s uses and sources of funds projected for 2018 and 2019, as stated on the 2017 Rendición de Cuentas that the central government submitted to Congress on June 30, 2018.

Central Government Uses and Sources of Funds

(in millions of US$)

 

     2018      2019  

Uses

   US$ 3,443      US$ 3,143  

Interest Payments

     1,676        1,723  

Amortizations

     1,712        1,635  

Primary Deficit

     54        (215

Sources

     3,443        3,143  

Multilateral Disbursements

     350        350  

Bond Issuance(1)

     2,700        2,950  

Net Others

     171        186  

Use of Assets(2)

   US$ 222      US$ (343

 

(1) 

Includes domestic and external debt issuances.

(2) 

Positive value indicates a reduction in Central Government’s assets.

Source: Ministry of Economy and Finance.

 

D-8


Between December 31, 2017 and August 31, 2018, the central government issued peso-denominated treasury notes linked to the average nominal wage index and CPI-linked treasury notes for an aggregate principal amount equivalent to US$486.8 million.

Public Sector External Debt

In April 2018, Uruguay completed a series of transactions, including the issuance of United States Dollar Bonds due 2055, for an aggregate principal amount of US$1.75 billion.

The following table sets forth the total public sector external debt, net of international reserve assets and certain other assets of Banco Central, as of March 31, 2018.

Total Public External Debt, Net of International Reserve Assets

(in millions of US$)

 

     As of
March 31,
2018(1)
 

Total gross public sector external debt

   US$ 18,254  

Less external assets:

  

Non-financial public sector

     109  

Banco Central

     17,296  

Of which:

  

Banco Central international reserve assets(2)

     16,397  

Other assets

     899  

Total public sector external debt, net of assets

   US$ 849  

 

(1) 

Preliminary data.

(2) 

Gold valued for each period at London market prices at end of period.

Source: Banco Central.

Total Debt

The gross public sector debt totaled US$40.3 billion as of March 31, 2018, compared to US$38.7 billion as of December 31, 2017.

As of March 31, 2018, 40.1% of the total gross public sector debt was denominated in foreign currencies and 59.9% in Uruguayan pesos, compared to 41.7% and 58.3%, respectively, as of December 31, 2017.

OTHER RECENT DEVELOPMENTS

Money Laundering Law.

On December 20, 2017, Congress enacted Law No. 19,574, with the aim of consolidating existing regulations on money laundering into one single legal text. Further, Law No. 19,574 expanded the list of transactions that require reporting, as well as the entities required to report suspicious transactions of the non-financial sector.

 

D-9


INTRODUCTION

All references in this document to the “government” are to the government of the República Oriental del Uruguay (“Uruguay” or the “Republic”) 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 “overall 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 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 latest 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, euros or yen at any particular rate or at all. References herein to “UIs” are to Unidades Indexadas. UIs are inflation-indexed monetary units. The UI is calculated by the National Institute of Statistics (Instituto Nacional de Estadística or INE) as provided and published monthly in advance for each day from the 6th day of each month to the 5th day of the following month by INE and Banco Central del Uruguay. The UI changes on a daily basis to reflect changes in the consumer price index (Indice de Precios al Consumo or IPC), which is measured by the INE. The UI for each day is set in advance based on changes in previous months’ inflation.

References herein to the Uruguayan “public sector” includes the central government, Banco Central, public enterprises, local governments and other public sector entities.

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.

 

D-10


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 information and data contained herein for 2013, 2014, 2015, 2016 2017 and 2018 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.

Historically, deposits of the non-financial public sector held with Uruguay’s banking system were deducted from Uruguay’s gross public sector debt. According to the methodology adopted by the government in March 2013, deposits of the non-financial public sector held with Uruguay’s banking system are not deducted from Uruguay’s gross public sector debt and are recorded as non-financial public sector assets. Data for prior years has been restated following this methodology.

 

D-11


SUMMARY

 

     2013     2014     2015     2016(1)     2017(1)  
     (in millions of US$, except as otherwise indicated)  

THE ECONOMY

          

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

   US$ 57,482     US$ 57,277     US$ 53,273     US$ 52,825     US$ 59,227  

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

   Ps. 646,842     Ps. 667,792     Ps. 670,268     Ps. 681,594     Ps. 699,702  

% change from prior year

     4.6     3.2     0.4     1.7     2.7

Consumer price index or CPI (annual rate of change)

     8.5     8.3     9.4     8.1     6.6

Wholesale price index or WPI (annual rate of change)

     6.3     10.6     6.6     (1.9 )%      5.4

Unemployment rate (annual average)(3)

     6.5     6.6     7.5     7.8     7.9

Balance of payments(4)

          

Trade balance (merchandise)

     1,078       1,980       1,268       2,041       2,896  

Current account

     (2,079     (1,809     (511     410       879  

Capital account

     204       15       175       17       5  

Financial account, net

     (1,150     (1,596     (761     (269     1,767  

Errors and omissions(5)

     726       198       (425     (696     883  

Change in Banco Central international reserve assets (period end)

     2,981       1,372       (1,677     (2,189     2,449  

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

     16,290 (7)       17,555 (8)       15,634 (9)       13,472 (10)       15,963 (11)  
           

PUBLIC FINANCE

          

Non-Financial Public Sector Revenues

     16,948       16,669       15,456       15,471       17,717  

Non-Financial Public Sector Primary Expenditures

     16,735       16,869       15,337       15,770       17,775  

Public Sector Primary Balance

     222       (354     (9     (288     (125

Public Sector Overall Balance (surplus/(deficit))

     (1,335     (1,984     (1,905     (2,032     (2,072

PUBLIC DEBT

          

Total public sector debt

          

Debt with non-residents(12)

     17,559       18,406       18,058       17,117       17,888  

Debt with residents

     15,543       15,120       13,338       16,233       20,855  

Total

     33,102       33,525       31,396       33,350       38,743  

As a % of GDP

     57.6     58.5     58.9     63.1     65.4

Total public sector external debt service

          

Amortizations

     3,211       3,305       2,965       692       1,469  

Interest payments

     691       731       809       854       825  

Total

     3,902       4,036       3,774       1,546       2,294  

As a % of exports of goods and services

     21.6     22.0     24.2     10.6     14.1

 

(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 (Sixth Edition).

(5) 

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

(6) 

As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31, 2013, 2014, 2015, 2016, and 2017.

(7)

This amount includes US$5,299 million of reserves and voluntary deposits of the Uruguayan banking system with Banco Central, including US$2,184 million of other public sector financial institutions.

(8)

This amount includes US$6,768 million of reserves and voluntary deposits of the Uruguayan banking system with Banco Central, including US$2,771 million of public sector financial institutions.

(9)

This amount includes US$6,584 million of reserves and voluntary deposits of the Uruguayan banking system with Banco Central, including US$2,457 million of public sector financial institutions.

(10)

This amount includes US$5,542 million of reserves and voluntary deposits of the Uruguayan banking system with Banco Central, including US$2,481 million of public sector financial institutions.

(11)

This amount includes US$5,558 million of reserves and voluntary deposits of the Uruguayan banking system with Banco Central, including US$2,461 million of public sector financial institutions.

(12)

Excludes interest on non-resident banking deposits.

Source: Banco Central

 

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REPÚBLICA ORIENTAL DEL URUGUAY

Territory and Population

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

According to the 2011 national census, Uruguay’s population of approximately 3.3 million is primarily of European origin and has a literacy rate above 98%. Approximately 95% of the population lives in urban areas and about 40% of the population resides in the Montevideo metropolitan area. The population growth rate averaged 0.2% per year for the period from 1985 to 2011, and is the lowest in South America. Uruguay is generally considered a high-income country. The following table sets forth comparative gross national income (“GNI”) figures and selected other comparative statistics as of December 31, 2017, unless otherwise indicated.

 

     Uruguay     Brazil     Chile     Mexico     United
States
 

Per capita GNI(1)

   US$ 15,250     US$ 8,580     US$ 13,610     US$ 8,610     US$ 58,270  

PPP GNI per capita(2)

   US$ 21,870     US$ 15,160     US$ 23,150     US$ 17,740     US$ 60,200  

Life expectancy at birth(3)

     77       76       80       77       79  

Adult literacy rate(4)(5)

     98.5     91.7     96.6     94.5     N.A.  

Infant mortality per 1000 live births(6)

     8       14       7       13       6  

 

N.A. = Not Available.

(1) 

World Bank Atlas method.

(2) 

Current US$, adjusted for purchasing power parity.

(3) 

In years. 2016 data.

(4) 

Percentage of people ages 15 and older.

(5) 

2016 data, except for Chile data, which corresponds to 2015. CEPAL does not prepare statistics on the United States’ adult literacy rate.

(6) 

2016 data.

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

Constitution, Government and Political Parties

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

Uruguay has been a democratic country throughout most of its history since it became an independent nation in 1825. The country’s democratic tradition was interrupted twice during the last century: once briefly in the 1930s 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.

 

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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 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. The Partido Independiente is a center-left group which split from the Frente Amplio prior to the 1989 elections. A fifth political party, the Unidad Popular, is a left-wing party formed in 2013 by several smaller left-wing political groups.

Presidential elections were held on October 26, 2014. Mr. Tabaré Vázquez Rosas from Frente Amplio (who was president between 2005 and 2010) received 47.81% of the votes cast, Mr. Luis Lacalle Pou from Partido Nacional received 30.88% of the votes cast, and Mr. Pedro Bordaberry from Partido Colorado received 12.89% of the votes cast. Based on these results, Mr. Vázquez Rosas and Mr. Lacalle Pou participated in the runoff election on November 30, 2014, and Mr. Tabaré Vázquez Rosas of the Frente Amplio won the national presidential election with 52.8% of the votes cast. Mr. Vázquez Rosas took office for a second non-consecutive term on March 1, 2015, succeeding Mr. José Alberto Mujica Cordano, who is also a member of Frente Amplio.

On September 9, 2017, Raúl Sendic resigned from the office of Vice President of Uruguay, amidst accusations that he misused public funds while he was president of ANCAP, from 2008 to 2013. On September 13, 2017, Mrs. Lucía Topolansky Saavedra assumed as Vice President of Uruguay.

In the congressional elections also held on October 26, 2014, the Frente Amplio retained a majority of both houses of Congress. The congressional representation of each of the five parties elected for the 2015-2020 term is as follows:

 

     Senate     Chamber of
Deputies
 
     Seats      %     Seats      %  

Frente Amplio

     15        51.6     50        50.5

Partido Nacional

     10        32.2       32        32.3  

Partido Colorado

     4        12.9       13        13.1  

Partido Independiente

     1        3.2       3        3.03  

Unidad Popular

     —          —         1        1.01  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total(1)

     31        100     99        100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

The Vice President, currently Mrs. Lucía Topolansky Saavedra of the Frente Amplio, occupies the thirty-first seat in the Senate.

Although the Frente Amplio retained majorities in both houses of Congress, the ruling party has expressed an intention to seek consensus with the Partido Colorado, the Partido Nacional, the Partido Independiente and Unidad Popular 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

 

D-14


   

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 172 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.

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

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

 

  (1)

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

 

  (2)

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

In December 1994, the four members of Mercosur signed an agreement establishing January 1, 1995 as the deadline for the implementation of a common external tariff intended to transform the region into a customs union. The common external tariff regime became effective on January 1, 2001. However, it was also agreed that each member country would be entitled to take exceptions to the common external tariff 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, 2021, Uruguay until December 31, 2022 and Paraguay until December 31, 2023. Accordingly, the full implementation of a customs union has been deferred. See “The Economy — The Mercosur Agreements.”

 

D-15


In July 2012, Mercosur members (other than Paraguay) admitted the Republic of Venezuela as a full member of Mercosur. In December 2013, Paraguay acknowledged the admission of Venezuela as a full member of Mercosur. In July 2015, Bolivia signed a Protocol to become a full member of Mercosur. The Protocol provides that Bolivia will gradually adopt the regulations of Mercosur over a period of four years following the entry into force of the Protocol. Within the same period of time, Bolivia is expected to adopt the Mercosur Common Nomenclature (NCM), the Common External Tariff and Mercosur’s Origin Regime. In December 2016, Venezuela’s status as a full member was temporarily suspended by the other Mercosur members, after it was considered to have failed to implement Mercosur regulations, in accordance with the undertakings assumed in 2012 in connection with its admission to Mercosur.

Since the establishment of Mercosur, the following trade agreements have become effective for Mercosur members:

 

Year
Signed

  

Year
Effective

  

Country/Economic Region

  

Description of Agreement

1996    1996    Chile    Free trade zone starting in 2014
1996    1997    Bolivia    Free trade zone starting in 2006
2003    2005    Colombia, Ecuador and Venezuela    Gradual free trade zone for certain goods until 2020
2005    2006    Peru    Gradual free trade zone for certain goods until 2021
2006    2008    Cuba    Tariff elimination for certain goods
2007    2009    Israel    Gradual free trade zone for certain goods until 2019
2004    2009    India    Tariff reduction for certain goods
2008    2016    Southern African Customs Union (“SACU”)    Tariff reduction for certain goods
2010    2017    Egypt    Gradual establishment of a free trade zone for certain goods by 2027

In December 1995, Mercosur and the European Union signed a framework agreement for the development of free trade. While the parties have made progress in several areas, Mercosur 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. Negotiations were suspended from 2004 to 2010. In May 2016, Mercosur and the EU exchanged proposals on the open issues and have achieved significant advances since then. As of the date of this annual report, negotiations continued.

Mercosur also initiated negotiations for the establishment of a free trade zone with the European Free Trade Association (“EFTA”). In January 2017, representatives of Mercosur and EFTA announced the commencement of negotiations in the World Economic Forum’s Annual Meeting in Davos. In February 2017, Mercosur and EFTA approved the agenda and structure of the negotiations and held four negotiation rounds since then. A fifth negotiation round is scheduled for October 2018.

In March 2018, Mercosur and Canada began negotiating a comprehensive free trade agreement. The fourth negotiation round is scheduled for December 2018. Further, in September 2018, Mercosur and South Korea also began negotiating a comprehensive free trade agreement.

Mercosur and the United States, which had suspended negotiations in 2004, sought to resume negotiations relating to the hemisphere-wide Free-Trade of the Americas Agreement (FTAA) pursuant to the 1991 “Four Plus One” Agreement. The negotiations 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.

 

D-16


Significant trade imbalances among Mercosur countries developed over time as a result of various factors. These imbalances have prompted discussions and negotiations among 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 bilateral treaties related to trade and investment, including the following:

 

Year
Signed

  

Year
Effective

  

Country/Economic Region

  

Descriptions of Agreement

2003    2004    United Mexican States    Free Trade Agreement
2004    2007    Iran    Bilateral Trade Framework Agreement
2005    2006    United States of America    Bilateral Investment Promotion Treaty
2007    2007    United States of America    Trade and Investment Framework Agreement
2008    2011    United States of America    Cooperation Agreement in Science and Technology
2008    —      India    Bilateral Investment Treaty
2008    2009    Venezuela    Economic Cooperation Agreement
2010    2012    Chile    Bilateral Investment Treaty
2009    2011    South Korea    Bilateral Investment Treaty
2009    2012    Chile    Public Procurement Agreement
2009    2012    Vietnam    Bilateral Investment Treaty
2015    2017    Japan    Bilateral Investment Treaty
2016    —      Chile    Free Trade Agreement

In March 2009, Uruguay and Brazil signed an energy cooperation agreement for the development of an electrical transmission line, to facilitate interconnectivity of both countries’ energy networks. A line with a transmission capacity of 500MW was completed in 2016 and on May 2, 2017, Uruguay began exporting electricity to Brazil. See “Gross Domestic Product and Structure of the Economy — Principal Sectors of the Economy — Electricity, Gas and Water.”

 

D-17


THE ECONOMY

History and Background

In the 1980s, 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 1990s, 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 5.0% on average from 1996 to 1998 fueled mainly by increased exports and growth in gross fixed investment, particularly private sector investment, which in turn stimulated private consumption. 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. With respect to imports of capital goods, telecommunications and information technology products of non-Mercosur origin, the members of Mercosur agreed that all of them could take exception from the common external tariff, Argentina and Brazil until 2021 and Uruguay and Paraguay until 2022 and 2023, respectively, and Venezuela until 2022 (although Venezuela’s membership was suspended in December 2016). The Mercosur member states 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.

The devaluation of the Argentine peso in January 2002, and other measures taken by the Argentine government during this period (including unilateral increases in import tariffs on consumer goods and the elimination of import tariffs on capital goods, for non-Mercosur products) 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 sectorial 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.

 

D-18


Certain barriers to the comprehensive regional integration initiated by Mercosur continue to exist. Fitosanitary 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 and cooperation 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, Paraguay and Uruguay. The liberalization is expected to be effected gradually on the basis of negotiation rounds intended to result in eliminating restrictions by segments with a view to reaching complete liberalization. In December 2017, Mercosur members signed a Cooperation and Facilitation Investment Protocol and a Government Procurement Protocol. As of the date of this annual report, both protocols were pending ratification.

1999-2002: Recession and Crisis in the Banking System

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

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 were associated with Argentina’s economic crisis 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 1982-83. 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). In the second quarter of 2002, a deposit outflow affected Uruguay’s financial system leading first to the suspension of Banco Galicia de Uruguay, or BGU, and Banco Comercial, Uruguay’s two largest private banks (both affiliated with Argentine banks) and soon thereafter 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 to safeguard Uruguay’s payment and financial system. On August 4, 2002, Congress passed Law No. 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 economic 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-19


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

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

The 2002 economic crisis had profound effects on Uruguay’s monetary and exchange rate policy. The continued devaluation of the Argentine peso and growing uncertainties as to the future of the Brazilian economy increased the risk of a speculative run on the peso. On June 19, 2002, Banco Central allowed the peso to float, abandoning the “crawling peg” system. The devaluation of the peso accelerated in July 2002, dropping to its lowest value of Ps.32.33 per US$1.00 on September 10, 2002. The depreciation of the peso resulted in Uruguay’s foreign currency-denominated debt to GDP ratio rising 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 contraction 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 was denominated in foreign currency), practically neutralized the savings achieved by the central government in 2002. As a result, the overall 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.

2003-2017: Recovery and Economic Growth

Uruguay’s economy stabilized during the second quarter of 2003 and began to recover, recording an annual real GDP growth of 0.8% and 5.0% in 2003 and 2004, respectively. 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. Between 2005 and 2010 GDP grew at an average rate of 6.2%, and continued to grow at rates of 5.2% in 2011, 3.5% in 2012, 4.6% in 2013 and 3.2% in 2014. Commencing in 2015, the rate of economic growth decelerated reflecting the impact of slower economic growth and recession affecting Uruguay’s main regional trade partners and a decrease in the prices of Uruguay’s export commodities. Real GDP grew by 0.4% in 2015, 1.7% in 2016 and 2.7% in 2017.

In 2013, domestic private consumption grew by 5.2% compared to 2012 and represented 66.5% of GDP. In 2014, domestic private consumption grew by 4.2% compared to 2013 and represented 67.1% of GDP. In 2015, domestic private consumption decreased 0.5% compared to 2014 and represented 66.8% of GDP. In 2016, domestic private consumption grew by 0.1% compared to 2015 and represented 66.1% of GDP. In 2017, domestic private consumption grew by 4.4% compared to 2016 and represented 66.8% of GDP.

In 2013, gross fixed investment increased by 3.8% compared to 2012, representing 21.8% of GDP, with private gross fixed investment increasing by 2.1%. In 2014, gross fixed investment increased by 2.4% compared to 2013, representing 21.4% of GDP, driven by public gross fixed investment since private gross fixed investment decreased by 2.8%. In 2015, gross fixed investment (both public and private) decreased by 9.2% compared to 2014, representing 19.8% of GDP. In 2016, gross fixed investments decreased by 1.6% compared to 2015, representing 19.0% of GDP. In 2017, gross fixed investments decreased by 15.5% compared to 2016, representing 16.7% of GDP. Gross domestic savings represented 16.5% of GDP in 2013, 16.0% of GDP in 2014 and 16.8% of GDP in 2015. Gross domestic savings data for 2016 and 2017 will not be available until Banco Central conforms its balance of payments and international investment position data to the principles outlined in the sixth edition of the International Monetary Fund’s Balance of Payments Manual (BPM6), a process that is scheduled to be completed in 2019. See “Balance of Payments.”

Exports of goods and services decreased by 0.1% in 2013, grew by 3.5% in 2014, decreased by 0.6% in 2015 and 0.2% in 2016, and grew by 7.6% in 2017. Imports of goods and services increased by 2.8% in 2013 and 0.8% in 2014, but decreased by 7.3% in 2015, 6.2% in 2016 and 0.4% in 2017.

 

D-20


Deposits held by the non-financial private sector with the banking system (excluding deposits held with off-shore banks and financial houses), stood at US$25.3 billion at December 31, 2013, US$26.9 billion at December 31, 2014, US$27.9 billion at December 31, 2015, US$28.2 billion at December 31, 2016 and US$28.4 billion at December 31, 2017. Approximately 73.3% of those deposits were denominated in foreign currencies (primarily U.S. dollars) as of December 31, 2017, compared to 77.3% as of December 31, 2016. Foreign currency deposits held by non-residents decreased by 21.5% in 2017, following the implementation by Argentina of its tax amnesty in 2016. The annual rate of consumer price inflation reached 8.5% in 2013, 8.3% in 2014, 9.4% in 2015, 8.1% in 2016, and 6.6% in 2017. For a discussion of Uruguay’s current monetary policy see “Monetary Policy and Inflation —Monetary Policy.”

The Economic Policies of the Vázquez Administration

The Vázquez administration has continued to prioritize 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; 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.

In December 2015, President Vázquez signed into law the five-year budget for the period 2015-2019. The budget reflects the government’s priorities of achieving long-term growth and debt-sustainability objectives while continuing to invest in infrastructure and maintaining social spending. See “Fiscal Policy — Budget.”

The Vázquez administration has announced the implementation of a “Sistema Nacional Integrado de Cuidados” (National Care System) to promote and gradually implement public policies addressing the needs of people that are not in a position to fend for themselves, including early childhood through the age of three, disabled people and elders who cannot fend for themselves.

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, 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 not been material 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 of 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 also charged the Corporación Nacional Para el Desarrollo, or CND, a state-owned investment corporation, with overall responsibility for the administration of a program of public works designed for the 2003 – 2018 period. 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 investments are financed through toll collections, loans from multilateral agencies, government subsidies and debt issuances in the domestic capital market. In April 2017 and 2018, CVU issued bonds totaling the equivalent of US$100 million and US$185 million, respectively, in the domestic capital market, corresponding to the first two issuances of a US$450 million debt program. In 2017, CVU investments amounted to US$367 million, compared to US$150 million in 2016.

 

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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 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 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 under Pluna Ente Autónomo (Pluna Autonomous Entity). The new company was called Pluna Líneas Aéreas S.A. In 2011, Pluna incurred severe losses, and its liquidity and financial condition deteriorated severely. On June 15, 2012, Leadgate — the controlling shareholder — transferred all of its shares in Pluna to a trust under the surveillance of the Uruguayan government. In July 2012, Pluna suspended all flights and initiated a judicial reorganization procedure. Thereafter, Congress passed Law No. 18,931 to reorganize the operations of the airline, including by disposing Pluna’s assets. In October 2012, through a trust created pursuant to Law No. 18,931, the government conducted an auction for the sale of seven of Pluna’s aircrafts. The auction was initially awarded to Cosmo S.A., a company organized under the laws of Spain, however, the transaction was not completed. In December 2013, the Supreme Court of Uruguay declared several provisions of Law No. 18,931 unconstitutional. As a result, the transfer of the Pluna aircrafts to the trust was reversed and they remained property subject to liquidation by Pluna’s receiver until their sale in 2014 to Strategic Air Finance (SAF) for US$77 million. On December 9, 2016, the Juzgado Letrado de Concurso de Primer Turno (Insolvency Procedure Court) approved a distribution agreement among Pluna Airlines’ creditors. On December 6, 2017, Congress enacted legislation suppressing Pluna Ente Autónomo as of December 31, 2017 and transferring its remaining assets, liabilities and personnel to the Uruguayan government.

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

In July 2015, the government announced a plan to improve the infrastructure of roads and highways that entails a US$2.4 billion investment over five years. In 2015 and 2016, investments of approximately US$253 million and US$299 million, respectively, were made in the rehabilitation of roads. In 2017, the government and the private sector jointly invested approximately US$531 million in the rehabilitation of roads under this plan.

For a description of government participation in Uruguayan economy see “Gross Domestic Product and Structure of the Economy — Role of the State in the Economy.”

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 by 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 government 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 currently 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 1980s, Uruguay also received a series of loans from the IADB to undertake the cleaning up of Montevideo’s coast, including the shoreline along the Río de la Plata.

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

 

D-22


On April 20 2010, the ICJ issued its final ruling on this dispute. Although the ICJ ruled that Uruguay breached certain procedural obligations under the Treaty of the Uruguay River, it did not find that any of the environmental damages claimed by Argentina had been proved and did not impose any remedial sanction on Uruguay. On August 30, 2010, Uruguay and Argentina signed an agreement providing for the creation of a technical committee within the Administrative Commission of the Uruguay River (“CARP”). This committee was created to monitor the Uruguay river and the industrial and agricultural businesses and cities on both margins of the Uruguay river that discharge effluents into the river.

 

D-23


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 “Nominal GDP by Expenditure” are based on current (nominal) prices for each year, whereas the percentage figures included in the table entitled “Change in GDP 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

(millions of 2005 pesos, except as otherwise indicated)

 

     2013     2014     2015(1)     2016(1)     2017(1)  

GDP

   Ps. 646,842     Ps. 667,792     Ps. 670,268     Ps. 681,594     Ps. 699,702  

Imports of goods and services

     251,369       253,271       234,871       220,291       219,471  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total supply of goods and services

     898,211       921,063       905,139       901,885       919,173  

Exports of goods and services

     190,419       197,112       195,929       195,621       210,441  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total goods and services available for domestic expenditures

   Ps. 707,792     Ps. 723,952     Ps. 709,210     Ps. 706,264     Ps. 708,732  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allocation of total goods and services:

          

Consumption (public and private)

     555,204       571,347       570,406       572,901       593,749  

Gross investment (public and private)

     152,588       152,604       138,805       133,363       114,983  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic expenditures

   Ps. 707,792     Ps. 723,952     Ps. 709,210     Ps. 706,264     Ps. 708,732  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GDP growth (%)(2)

     4.6     3.2     0.4     1.7     2.7

 

(1)

Preliminary data.

(2)

% change from previous year, 2005 prices.

Source: Banco Central.

Nominal GDP by Expenditure

(% of total nominal GDP, unless otherwise indicated)

 

     2013     2014     2015(1)     2016(1)     2017(1)  

Government consumption

     13.5     13.7     13.8     14.5     14.3

Private consumption

     67.0       67.1       66.8       66.1       66.8  

Gross fixed investment

     21.8       21.4       19.8       19.0       16.7  

Public sector (% of gross fixed investment)

     4.2       4.9       4.6       4.8       3.9  

Private sector (% of gross fixed investment)

     17.6       16.6       15.2       14.2       12.8  

Exports of goods and services

     23.4       23.5       22.5       21.4       21.6  

Imports of goods and services

     26.4       25.5       22.9       19.9       18.4  

Gross Domestic Savings(2)

     16.5     16.0     16.8     N.A.       N.A.  

 

N.A. = Not Available.

(1) 

Preliminary data.

(2) 

Gross domestic savings data for 2016 and 2017 will not be available until Banco Central conforms its balance of payments and international investment position data to the principles outlined in the sixth edition of the International Monetary Fund’s Balance of Payments Manual (BPM6), a process that is scheduled to be completed in 2019. See “Balance of Payments.”

Source: Banco Central.

Change in GDP by Expenditure

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

 

     2013     2014     2015     2016(1)     2017(1)  

Government consumption

     4.9     2.5     2.2     2.9     (1.3 )% 

Private consumption

     5.5       3.0       (0.5     0.1       4.4  

Gross fixed investment

     3.8       2.4       (9.2     (1.6     (15.5

Public sector (% of gross fixed investment)

     13.6       28.7       (12.2     10.9       (29.6

Private sector (% of gross fixed investment)

     2.1       (2.8     (8.5     (4.8     (11.3

Exports of goods and services

     (0.1     3.5       (0.6     (0.2     7.6  

Imports of goods and services

     2.8     0.8     (7.3 )%      (6.2 )%      (0.4 )% 

 

(1) 

Preliminary data.

Source: Banco Central.

 

D-24


Principal Sectors of the Economy

The Uruguayan economy relies heavily on services, including the commerce, restaurants and hotels sector, which involves a wide range of tourism services, the financial and insurance sector, the real estate and business services sector and the government sector.

In 2017, GDP increased by 2.7% in real terms, after growing by 1.7% in 2016, 0.4% in 2015, 3.2% in 2014 and 4.6% in 2013, in each case with respect to the prior year. In 2017, services accounted for approximately 70.6% of GDP, while the manufacturing and agriculture, livestock and fishing sectors together accounted for 16.9% of GDP.

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 “Nominal GDP by Sector” are based on current (nominal) prices for each period, whereas the percentage figures included in the table entitled “Change in GDP by Sector” are based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Nominal GDP by Sector

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

 

     2013     2014     2015(1)     2016(1)     2017(1)  

Agriculture, livestock and fishing

   US$ 4,378        7.6   US$ 3,858        6.7   US$ 3,266        6.1   US$ 3,112        5.9   US$ 3,056        5.2

Mining

     283        0.5       264        0.5       228        0.4       238        0.5       250        0.4  

Manufacturing

     6,476        11.3       6,955        12.1       7,055        13.2       6,771        12.8       6,933        11.7  

Electricity, gas and water

     1,279        2.2       1,341        2.3       1,181        2.2       1,401        2.7       1,628        2.7  

Construction

     5,568        9.7       5,588        9.8       5,089        9.6       5,080        9.6       5,570        9.4  

Commerce, restaurants and hotels

     7,896        13.7       7,677        13.4       6,945        13.0       6,871        13.0       8,331        14.1  

Transportation, storage and communications

     3,443        6.0       3,268        5.7       2,979        5.6       2,844        5.4       3,205        5.4  

Real estate and business services

     9,251        16.1       9,342        16.3       8,939        16.8       8,801        16.7       9,970        16.8  

Financial and insurance services

     2,523        4.4       2,550        4.5       2,447        4.6       2,513        4.8       2,790        4.7  

Services of the government

     5,351        9.3       5,426        9.5       5,024        9.4       5,157        9.8       5,783        9.8  

Other community, social and personal services

     5,508        9.6       5,585        9.8       5,271        9.9       5,346        10.1       6,198        10.5  

Net adjustments for payments made by financial institutions and import tariffs

     5,525        9.6       5,423        9.5       4,849        9.1       4,689        8.9       5,514        9.3  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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

   US$ 57,482        100.0   US$ 57,277        100.0   US$ 53,273        100.0   US$ 52,825        100.0   US$ 59,227        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Nominal GDP per capita

   US$ 16,709        US$ 16,584        US$ 15,365        US$ 15,179        US$ 16,955     

 

(1) 

Preliminary data.

(2) 

Figures are not adjusted by purchasing power.

Source: Banco Central.

 

D-25


Change in GDP by Sector

(% change from previous year, 2005 prices)

 

     2013     2014     2015(1)     2016(1)     2017(1)  

Agriculture, livestock and fishing

     2.0     0.3     (1.2 )%      2.5     (0.7 )% 

Mining

     2.5       (10.8     (15.5     18.2       (21.0

Manufacturing

     1.2       4.2       4.9       0.7       (3.5

Electricity, gas and water

     54.7       15.7       (6.7     9.6       1.2  

Construction

     0.9       0.7       (6.1     (2.6     (6.0

Commerce, restaurants and hotels

     8.0       (0.6     (4.0     (2.8     7.5  

Transportation, storage and communications

     6.9       7.4       4.8       8.1       8.5  

Real estate, business, financial and insurance services

     4.0       3.7       2.7       0.8       (1.2

Other services(2)

     2.7       2.9       0.1       (0.3     (0.3

Total GDP

     4.6     3.2     0.4     1.7     2.7

 

(1) 

Preliminary data.

(2) 

Includes public sector services and other services.

Source: Banco Central.

The most significant sectors that contributed to GDP growth in 2017 were transportation, storage and communications and commerce, restaurants and hotels. The transportation, storage and communications sector grew by 8.5% in real terms with respect to 2016, mainly due to an increase in communications as a result of an increase in the use of data services. The commerce, restaurants and hotels sector grew by 7.5% in real terms compared to 2016, mainly due to a growth in real terms in the commerce sector due to an increase in imports, especially consumer goods, facilitated by the appreciation of the Uruguayan peso vis-à-vis the U.S. dollar.

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. In 2013, the sector grew by 2.0% compared to 2012, mainly due to the increase in agricultural production fueled by high international commodity prices and favorable weather conditions, especially for wheat and soybean. In 2014, the sector grew by 0.3% due to the increase in cattle production, which mitigated the adverse impact of a decrease in the production of wheat and soybean. In 2015, the sector contracted by 1.2%, mainly due to the decrease in agricultural production which offset increases in forestry and cattle production. In 2016, the sector grew by 2.5%, as a result of increases in cattle slaughter and exports of live cattle, which was partially offset by the decrease in cereals and oil and milk production. In 2017, the sector contracted by 0.7% mainly due to a decrease in soybean production, as described below.

In 2013, cereal and oil production increased by 12.2%, mainly as a result of an increase in the production of both wheat and soybean. In 2014, cereal and oil production decreased by 13.7%, mainly as a result of decreased production of wheat and soybean. In 2015, cereal and oil production decreased by 9.4%, mainly as a result of decrease in rice and soybean production. In 2016, cereal and oil production increased by 3.6%, mainly as a result of increase in soybean production. In 2017, droughts caused cereal and oil production to decrease by 12.2%, mainly reflected in wheat and soybean production.

Milk production grew by 3.4% in 2013 compared to 2012. Milk production decreased by 0.7% in 2014 and by 2.2% in 2015 in each case with respect to the prior year. In 2016, milk production decreased by an additional 7.2% compared to 2015 as a result of a drop in international prices. In 2017, milk production grew by 7.4%. In 2013, livestock production decreased by 1.4% compared to 2012. In 2014, 2015 and 2016, livestock production recovered, growing 1.2%, 4.3% and 2.6%, respectively. In 2017, livestock production grew by 1.2%, mainly due to opportunities created in the export market, primarily in Asia.

 

D-26


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)

 

     2013      2014      2015(1)      2016(1)      2017(1)  

Cereals and oil products

   US$ 3,463      US$ 2,607      US$ 2,016      US$ 1,945      US$ 1,695  

Rice

     395        361        285        261        244  

Wheat

     692        342        258        139        91  

Soybean

     1,629        1,315        866        929        826  

Pastures

     409        368        374        361        372  

Vegetables and fruits

     653        641        555        627        566  

Milk

     846        846        583        514        667  

Livestock

     2,436        2,342        2,375        2,158        2,183  

Cattle

     1,886        1,868        1,884        1,759        1,768  

Wool

     82        75        65        65        71  

Forestry

     318        379        435        415        438  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total agricultural and livestock production

   US$ 7,717      US$ 6,815      US$ 5,963      US$ 5,659      US$ 5,549  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cattle (in thousands of heads slaughtered)

     2,009        2,115        2,212        2,264        2,346  

Milk (in millions of liters)

     2,018        2,014        1,974        1,775        1,882  

Wool (in tons)

     30,984        27,693        23,419        24,805        24,568  

 

(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 attributable to changes in relative prices.

Agricultural and Livestock Production

(% change from previous year, 2005 prices)

 

     2013     2014     2015(1)     2016(1)     2017(1)  

Cereals and oil products

     12.2     (13.7 )%      (9.4 )%      3.6     (12.2 )% 

Rice

     1.2       (1.0     (1.6     3.6       (4.5

Wheat

     63.4       (43.5     1.1       (32.4     (40.5

Soybean

     7.1       (8.2     (20.0     8.7       (8.9

Pastures

     6.5       (4.0     4.1       4.7       1.7  

Vegetables and fruits

     (12.1     7.5       (5.0     2.6       0.7  

Milk

     3.4       (0.7     (2.2     (7.2     7.4  

Livestock

     (1.4     1.2       4.3       2.6       1.2  

Cattle

     (2.3     4.2       3.7       4.3       1.8  

Wool

     10.7       (10.6     (15.9     6.2       2.5  

Forestry

     12.2       38.9       17.3       1.8       (0.4

Total agricultural and livestock production

     4.9     (3.3 )%      (1.5 )%      2.0     (3.6 )% 

 

(1) 

Preliminary data.

Source: Banco Central.

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 2013 through 2017 at approximately 0.5%. 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.

In September 2013, Congress passed legislation regulating large-scale mining projects (Ley de Minería de Gran Porte), setting the conditions under which large mining exploitation concessions will be granted. The law defines large-scale mining projects as those: (i) occupying an area of at least 400 hectares, (ii) involving an investment of at least UI 830 million or (iii) having an annual commercialization value (in exports or sales in the domestic market) in excess of UI 830 million. It also established the Intergenerational Sovereign Investment Fund (Fondo Soberano Intergeneracional de Inversión) to foster the sustainable development of large-scale mining

 

D-27


without compromising equal rights of future generations. The Intergenerational Sovereign Investment Fund receives 70% of total government mining revenues while the remaining 30% constitutes budgetary revenues. The latter is used to finance infrastructure, housing and social projects, productive activities and educational projects and to enhance the technical capabilities of enforcement agencies in charge of monitoring these projects.

Manufacturing

Manufacturing is an important sector of Uruguay’s economy, accounting for 11.7% of GDP in 2017. In 2013, the manufacturing sector grew by 1.2% in real terms compared to 2012, primarily as a result of increased production of wood, pulp, paper and oil and refined products. In 2014, this sector grew by 4.2% in real terms mainly due to increased production of paper pulp following the start of the Colonia “Montes del Plata” paper pulp mill’s operations in the third quarter of 2014. In 2015, the manufacturing sector grew by 4.9% in real terms compared to 2014, mainly due to increased production of pulp, paper and oil and refined products. In 2016, the manufacturing sector grew by 0.7%, in real terms, compared to 2015, mainly due to increased processed meat and paper pulp production. In 2017, the manufacturing sector decreased by 3.5% in real terms compared to 2016, mainly due to a scheduled maintenance shutdown of the ANCAP refinery between February and September 2017.

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

Selected Manufacturing Goods Production

(in millions of US$)

 

     2013      2014      2015(1)      2016(1)      2017(1)  

Foodstuffs:

              

Processed meats

   US$ 3,139      US$ 3,380      US$ 3,224      US$ 3,101      US$ 3,261  

Dairy products

     1,682        1,758        1,332        1,156        1,497  

Wheat and rice mills

     827        836        640        699        724  

Baked goods

     1,159        1,179        1,092        1,072        1,161  

Other foodstuffs

     1,567        1,614        1,539        1,504        1,568  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total foodstuffs

     8,374        8,767        7,827        7,533        8,211  

Beverages

     959        876        777        753        838  

Tobacco

     150        168        143        131        126  

Textiles

     686        571        476        406        385  

Leather goods

     355        390        360        360        353  

Wood, pulp and paper

     1,679        1,866        2,157        2,082        2,145  

Chemicals

     2,557        2,472        2,399        2,315        2,543  

Oil and refined products

     2,058        1,872        1,661        1,689        779  

Machinery

     1,068        1,125        960        903        908  

Other industries

     2,308        2,178        1,817        1,451        1,561  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 20,194      US$ 20,285      US$ 18,577      US$ 17,623      US$ 17,849  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Preliminary data.

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

 

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Manufacturing Production

(% change from previous year, 2005 prices)

 

     2013     2014     2015(1)     2016(1)     2017(1)  

Foodstuffs:

          

Processed meats

     (0.3 )%      4.5     2.8     4.4     3.5

Dairy products

     1.2       3.0       (6.6     (3.5     6.3  

Wheat and rice mills

     1.5       0.5       (13.4     18.1       2.9  

Baked goods

     1.5       1.7       (0.9     (1.3     (4.7

Total foodstuffs

     (0.4     2.9       (0.2     2.6       1.9  

Beverages

     (0.4     (5.1     (5.5     (1.4     4.0  

Tobacco

     (7.7     8.1       (13.1     (4.6     (1.4

Textiles

     (6.8     (14.3     (13.3     (13.1     (7.9

Leather goods

     0.8       4.5       2.8       4.4       (10.0

Wood, pulp and paper

     6.9       25.2       25.4       3.0       1.0  

Chemicals

     3.4       (1.0     1.1       (0.1     2.5  

Oil and refined products

     4.3       (4.9     7.9       7.3       (60.1

Machinery

     (4.1     4.4       (6.5     (1.3     (3.4

Total

     2.3     2.6     1.8     0.2     (6.1 )% 

 

(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 has imported electricity from Argentina and Brazil. In March 2009, Uruguay and Brazil agreed to build an electrical transmission line between San Carlos (Uruguay) and Candiota (Brazil), with an intermediate frequency converter in Cerro Largo (Uruguay), with financing provided by the Structural Funds of the Mercosur, the CAF and the National Treasury of Brazil. The building of the line, with a transmission capacity of 500MW, was completed in 2016 and Uruguay made its first exports of electricity to Brazil in May 2017. Uruguay also exports electricity to Argentina. Uruguay 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 reducing 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. ANCAP also awarded private sector enterprises with hydrocarbon exploration and exploitation contracts in on-shore and off-shore Uruguayan areas. Natural gas can be imported freely, and its distribution and transportation have been opened to private investment. The government is considering different actions aimed at increasing the supply of liquid natural gas (LNG) in Uruguay to diversify the energy matrix and obtain a stable supply of natural gas. See “— Role of the State in the Economy.”

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 2013 and 2014, the electricity, gas and water sector grew by 54.7%, and 15.7% respectively, in real terms, driven primarily by an increase in rainfall, which allowed UTE to increase its supply of hydroelectricity. The generation cost of hydroelectric energy is significantly lower than the cost for thermoelectric energy, as a result, the lower generation cost prompted an improvement in the performance of this sector. In 2015, the electricity, gas and water sector contracted by 6.7%, in real terms, as electricity generation shifted back to hydrocarbon-based facilities due to water shortages caused by droughts. In 2016, the electricity, gas and water sector grew by 9.6%, in real terms, driven primarily by an increase in the generation of electricity using renewable sources, primarily wind farms. In 2017, the electricity, gas and water sector grew by 1.2% in real terms. This growth was mainly driven by the generation of electricity, of which 95% corresponded to renewable sources (50% hydroelectric, 22% wind, 21% wood and biomass waste and 2% solar) and the remainder 5% corresponded to non-renewable energy sources (3% gas oil, 1% fuel oil and 1% natural gas).

Construction

In 2013 and 2014, the construction sector grew by 0.9% and 0.7% in real terms, respectively, as compared to the prior year. The slower growth in 2013 and 2014 is mainly attributable to the completion of the construction of the “Montes de Plata” paper pulp mill in Colonia, which became operational in the third quarter of 2014. In 2015,

 

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the construction sector contracted by 6.1% mainly due to a decrease both in public and private sector investments. In 2016, the construction sector contracted by 2.6%, in real terms, mainly due to a decrease in the level of public and private investments. In 2017, the construction sector contracted by 6.0% in real terms, mainly due to a decrease in the level of public and private sector investments.

Commerce, Restaurants and Hotels

In 2013, the commerce, restaurants and hotels sector grew by 8.0% in real terms, respectively, driven primarily by an increase in wholesale and retail trade services (mainly involving imported goods). In 2014 and 2015, the sector decreased by 0.6% and 4.0% in real terms, respectively, mainly as a result of a deceleration in wholesale services (driven by lower imports of goods) in both years, a decrease in sales of motor vehicles in 2014 and a decrease in retail sales in 2015. The commerce, restaurants and hotels sector accounted for 13.0% of GDP in 2015 compared to 13.4% of GDP in 2014. In 2016, the commerce, restaurants and hotels sector decreased by 2.8%, in real terms, and accounted for 13.0% of GDP. In 2017, the commerce, restaurants and hotels sector grew by 7.5% in real terms, and accounted for 14.1% of GDP.

Transportation, Storage and Communications

In 2013, 2014 and 2015, the transportation, storage and communications sector grew by 6.9%, 7.4% and 4.8% in real terms, respectively, primarily driven by an increase in telecommunications services. In 2016 and 2017 the transportation, storage and communications sector grew by 8.1% and 8.5% in real terms, respectively, mainly due to an increase in the use of data services.

Real Estate, Business, Financial and Insurance Services

The real estate, business, financial and insurance services sector grew by 6.0% in the 2013-2017 period. This growth was driven primarily by the financial and insurance services sector and by the business services segment, as a result of a trend in the manufacturing sector to sub-contract administrative, maintenance and cleaning services. Real estate services also grew during this period driven by tourism rentals and purchases.

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

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

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

The real estate and business sector accounted for approximately 16.8% of GDP in 2017. The financial and insurance services sector accounted for approximately 4.7% of GDP in 2017.

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 continue preparing 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

 

D-30


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. In addition, in 2011, the government enacted Law No. 18,786, creating and regulating public-private participation contracts for infrastructure and related services. This law establishes a new type of arrangement designed to allow private investors and the government to invest in different areas of the economy, primarily the energy and infrastructure sectors, requiring significant investments.

At present, the government owns:

 

  1.

the local telecommunications company (ANTEL);

 

  2.

the electric power utility (UTE);

 

  3.

the oil refinery company (ANCAP);

 

  4.

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

 

  5.

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

 

  6.

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

 

  7.

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

 

  8.

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

 

  9.

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

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

UTE provides electric power and services to Uruguay. With the exception of Salto Grande, a bi-national 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. To complement traditional energy sources, UTE is implementing actions to develop wind power. These actions include launching bidding processes for the construction, operation and maintenance of wind farms. UTE is also financing with its own resources the development of seven wind farms with an installed generation capacity of 553 MW. As of December 2017, the installed wind power generation capacity was approximately 1,511 MW, representing approximately 33.2% of the country’s installed generation capacity. For more information about electricity production in Uruguay, see “— Electricity, Gas and Water.”

ANCAP is the national oil refinery, responsible for processing the crude oil imported by Uruguay and marketing refined products. Uruguay has no known oil reserves.

In May 2008, the government enacted Decree 577/08 creating the “Uruguay Round 2009” program to be implemented by the national oil refinery 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

 

D-31


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 YPF S.A. (formerly, Repsol YPF) (40%), Petroleo Brasileiro (40%) and Galp Energía (20%) to explore blocks 3 and 4 located in the Punta del Este basin. ANCAP has reserved the right to perform exploratory work in other blocks.

In September 2011, the government enacted Decree 316/11 creating the “Uruguay Round II” program to be implemented by ANCAP, aimed at awarding hydrocarbon exploration and exploitation contracts to private sector companies in off-shore areas. In March 2012, ANCAP received 19 offers for off-shore oil exploration and exploitation over eight of the 15 blocks offered. These eight blocks cover more than 50% of the total area offered and were awarded to the British Petroleum and British Gas (UK), Total (France) and the Tullow Oil (Ireland). On October 5, 2012, ANCAP entered into a contract with these companies, committing to invest approximately US$1.6 billion in the aggregate in exploration and development activities without recourse to ANCAP or the government for any risks and costs incurred in connection with activities associated with the project. ANCAP and the government intend to implement a third round of auctions (the “Uruguay Round III”) seeking to award new exploration and exploitation contracts to private companies in other off-shore areas.

In April 2013, ANCAP authorized three international companies to commence oil and gas on-shore exploration in the north of the country. Total, Geoquim S.A. and Petrina were awarded these exploration and exploitation concessions, involving an aggregate investment of US$4.2 million.

In addition, ANCAP, and privately owned companies run the gas transportation and distribution business within a regulatory framework based on the granting of concessions, contracts and decrees by the government. Uruguay imports all the natural gas it consumes.

On January 4, 2016, Congress approved the capitalization of UIs 5.7 billion of claims held by the government against ANCAP.

In February 2018, the government enacted Decree 42/018 creating the “Uruguay Round III” program to be implemented by ANCAP, aimed at awarding hydrocarbon exploration and exploitation contracts to private sector companies in off-shore areas. Although two companies, presented documentation to qualify for Uruguay Round III, none submitted an offer. In April 2018, ANCAP declared the round void after receiving no offers.

To diversify the energy matrix and obtain a constant supply of natural gas, the government is considering different actions for the production of LNG in Uruguay. In August 2012, Uruguay initiated an international bidding process for the construction and operation of Gas Sayago, a LNG regasification facility in Montevideo with a processing capacity of 10 million cubic meters of gas per day and a storage capacity of 267 million cubic meters. The regasification plant, once operational, is expected to inject natural gas to the local distribution network for homes, industries, transportation and electrical energy generation. In May 2013, the government awarded a 20-year concession to Gas Sayago S.A. (owned by UTE and ANCAP) and Gas Natural Licuado del Sur S.A. (“GNLS”), a consortium comprised of GDF Suez S.A. and the Japanese company Marubeni, for the construction and operation of Gas Sayago. The terms of the award required the LNG regasification facility to be operative in 2016. The agreement between Gas Sayago S.A. and GNLS was terminated in September 2015 following an impossibility to perform by GNLS’s subcontractor, OAS S.A. Under the terms of that same agreement, the Republic was paid US$100 million by GNLS on account of such termination. As of the date of this annual report, the government had decided to sell Gas Sayago’s main assets.

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

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

Results of Non-Financial State-Owned Enterprises

During the past ten years, non-financial state-owned enterprises have in the aggregate recorded operating profits.

 

D-32


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)

 

     Total
Assets
     Total
Liabilities
     Net
Profits
(Losses)
     Percentage
of State
Ownership
 

ANCAP

     1,762        992        39        100

ANP

     816        106        51        100

AFE(2)

     202        31        (23      100

ANTEL

     1,697        370        129        100

OSE

     1,881        545        69        100

UTE

     9,025        4,619        487        100

 

(1) 

Data as of and for the year ended December 31, 2017. Converted into U.S. dollars at the rate of Ps.28.764 per US$1.00, the market rate on December 31, 2017.

(2) 

Data for 2016.

Source: Financial statements of each public enterprise.

Public-Private Partnerships

In December 2012, the government announced the first project under the public-private participation framework involving the construction, operation and maintenance of a prison with capacity for 1,960 inmates. The project, which required an investment of US$100 million, was completed in January 2018. During 2017, projects involving the construction of roads began, with investments estimated at US$75 million.

On November 8, 2017, the government and the Finnish company UPM entered into a memorandum of understanding outlining the terms for the construction of a new pulp mill with a 2 million tons annual production capacity. According to UPM’s estimates, the plant will require an on-site investment of €2 billion.

On December 5, 2017, the government called for bids under a PPP financing scheme for the construction of a new railway line connecting the center of the country with the port of Montevideo, and the related transportation infrastructure. The railway line seeks to generate the necessary conditions for the new paper pulp mill to be built by UPM, which is expected to be located in the center of the country. The government estimates that the new railway line will require investments of approximately US$825 million and will have capacity to transport approximately 4.5 million tons of paper pulp per year. The bidding process received several offers. However, only Grupo Via Central (comprised of Saceem, Berkers, Sacyr and NGE) and a consortium led by Spanish construction firm Acciona reached the final stage of presenting an economic proposal. In August 2018, the Ministerio de Transporte y Obras Públicas (Ministry of Transport and Public Works) disqualified Acciona’s offer for failure to meet the bidding process requirements. In September 2018, Acciona filed two administrative appeals challenging the bidding process, alleging that Acciona had been improperly disqualified. Such appeals do not have the legal effect of suspending the bidding process, which the Ministry of Transport and Public Works is still conducting. As of the date of this annual report, the Ministry of Transport and Public Works was reviewing Grupo Via Central’s economic proposal.

As of August 2018, there were additional significant PPP infrastructure projects under review involving roads (with investments estimated at US$474 million) and educational infrastructure (with investments estimated at US$323 million).

Employment, Labor and Wages

Employment

The employment rate decreased from 59.5% in 2013 to 57.9% in 2017. Unemployment rose from 6.5% in 2013 to 7.9% in 2017.

 

D-33


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,  
     2013     2014     2015     2016     2017  

Nationwide:

          

Participation rate(1)(2)

     63.6     64.7     63.8     63.4     62.9

Employment rate(3)

     59.5       60.4       59.0       58.4       57.9  

Unemployment rate(4)

     6.5       6.6       7.5       7.8       7.9  

Montevideo:

          

Participation rate(1)(2)

     65.1       66.4       65.7       65.8       65.2  

Employment rate(3)

     60.9       62.0       60.6       60.4       59.9  

Unemployment rate(4)

     6.5     6.7     7.8     8.2     8.2

 

(1) 

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

(2) 

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

(3) 

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

(4) 

Unemployed population as percentage of the labor force.

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

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

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)

 

     2013     2014     2015     2016     2017  

Agriculture, livestock, fishing and mining

     9.6     9.4     9.0     8.4     8.9

Manufacturing, electricity, gas and water, and construction services

     21.3       20.8       20.3       19.9       19.6  

Services

     69.1       69.8       70.7       71.7       71.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Data refers to total country population.

Source: Instituto Nacional de Estadística (INE).

Since Uruguay’s return to democratic rule, strikes and other actions by unions have occurred on occasion, normally in the form of general, one-day strikes. In cases of strikes which threaten to have a material adverse effect on private or public sector functions, the government can declare that the labor functions which are the subject of the strike provide “essential services” to the country, thereby making the strike illegal. In various instances during the past ten years, the government has threatened to disband or in fact disbanded strikes on the basis that the services provided were essential to the country. According to the “Indice de conflictividad laboral” (labor conflict index) published by Universidad Católica del Uruguay, conflicts increased in 2013 compared to 2012 as a consequence of some general strikes and a rise in sectorial conflicts. In 2014, conflicts decreased compared to 2013, registering a single general strike in 2014 and reaching the lowest level in the last five years. In 2015, the labor conflict index increased compared to 2014 mainly due to the labor unions’ general opposition to measures contemplated in the five-year budget of the Vázquez administration that are designed to reduce the public sector deficit and the impact of the 2015 economic slowdown. In 2016, the labor conflict index evidenced a decrease in conflict compared to 2015, mainly due to wage improvements. In 2017, the labor conflict index again evidenced a decrease in conflict compared to 2016, mainly due to improvements in wages and safer working conditions.

 

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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)

 

     2013     2014     2015     2016     2017  

Average real wages

     3.0     3.4     1.6     1.6     3.0

Public sector

     2.1       2.2       0.9       1.9       1.9  

Private sector

     3.5     4.0     1.9     1.4     3.5

 

Source: Instituto Nacional de Estadística (INE).

Since 2005, increases in real wages have been discussed within the context of a collective bargaining mechanism involving the principal sectors of the economy, with government participation in the negotiations and frequently providing for backward-indexation of wages. In 2013, real wages increased by 3.0% on average, with an increase in public sector real wages of 2.1% and an increase in private sector real wages of 3.5%. In 2014, real wages increased by 3.4% on average, with an increase in public sector real wages of 2.2% and an increase in private sector real wages of 4.0%. In 2015, real wages increased by 1.6% on average, with an increase in public sector real wages of 0.9% and an increase in private sector real wages of 1.9%. In 2016, real wages increased by 1.6% on average, with an increase in public sector real wages of 1.9% and an increase in private sector real wages of 1.4%. In 2017, real wages increased by 3.0% on average with an increase in public sector wages of 1.9% and an increase in private sector real wages of 3.5%. Under the collective bargaining rules, each private sector of the economy negotiates wage increases twice a year while the public sector does it once a year.

Poverty and Income Distribution

Poverty levels in Uruguay have decreased sharply in recent years due to the economic recovery. According to the most recent estimates of the National Statistics Institute, the percentage of Uruguayan urban households with an income below the minimum amount needed to purchase essential food and non-food requirements was 5.2% in 2017, compared to 7.8% in 2013.

While Uruguay has disparities in the distribution of wealth and income, which decreased in recent years, such disparities are of a lesser magnitude than those of other Latin American nations such as Brazil, Colombia or Chile. As set forth in the table below, in 2017, 27.3% of the income in households in Uruguay was concentrated in the hands of the top 10.0% of the economically active population as compared to 35% of the income in urban households for Brazil, 34% for Colombia and 31% for Chile in 2016.

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

   2013     2014     2015     2016     2017  

Lowest 40%

     18.3     18.5     18.5     18.8     18.8

Next 30%

     26.3       26.3       26.3       26.4       26.3  

Next 20%

     28.0       28.0       27.9       27.8       27.7  

Highest 10%

     27.4       27.2       27.3       27.0       27.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Source: Instituto Nacional de Estadísticas.

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 Vázquez 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.

 

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FOREIGN MERCHANDISE TRADE

Uruguay’s exports primarily comprise commodities (farm products, such as meat and grains, and paper pulp).

In 2013, merchandise exports increased by 4.1% (measured in U.S. dollars) compared to 2012, as a result of an increase in exports of agricultural products, dairy products and paper pulp. In 2014, merchandise exports increased by 1.0% (measured in U.S. dollars) compared to 2013, as a result of an increase in exports of processed meats, paper pulp, leather goods and oil and refined products. In 2015, merchandise exports decreased by 11.8% (measured in U.S. dollars) compared to 2014, mainly as a result of a decrease in export prices of agricultural products, processed meats, dairy products and wheat and rice mills and, to a lesser extent, a 0.5% decrease in the aggregate volume of exports. In 2016, merchandise exports decreased by 7.1% (measured in U.S. dollars) compared to 2015, mainly as a result of a decrease in exports of agricultural products. In 2017, merchandise exports increased by 9.8% (measured in U.S. dollars) compared to 2016, mainly of agricultural products.

In 2013, merchandise imports slightly decreased by 0.1% (measured in U.S. dollars) compared to 2012, as a result of a decrease in imports of intermediate goods. In 2014, merchandise imports decreased by 1.3% (measured in U.S. dollars) compared to 2013, as a result of a decrease in imports of intermediate goods, which more than offset decreases in imports of capital goods and, to a lesser extent, consumer goods. In 2015, merchandise imports decreased by 17.4% (measured in U.S. dollars) compared to 2014, mainly as a result of decreases in imports of intermediate goods, but also with decreased imports of consumer goods and capital goods. In 2016, merchandise imports decreased by 14.2% (measured in U.S. dollars) compared to 2015, mainly as a result of a decrease in imports of intermediate goods. In 2017, merchandise imports increased by 3.9% (measured in U.S. dollars) compared to 2016, mainly of consumer and intermediate 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 1990s, 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. See “República Oriental del Uruguay — Foreign Policy and Membership in International and Regional Organizations.” The increased competitiveness of Uruguayan exports in the global economy since 2002 resulted in exports to the region becoming less significant as a percentage of Uruguay’s total exports.

Mercosur member states remain the main destination of Uruguay’s exports and source of its imports. Exports to Argentina and Brazil accounted for 22% of total exports in 2013, 20.2% in 2014, 17.1% in 2015, 19.7% in 2016 and 19.1% in 2017. Even more significantly, Argentina and Brazil accounted for 30.0% of total imports in 2013, 29.7% in 2014, 30.1% in 2015, 31.3% in 2016 and 32.1% in 2017. In 2013, exports to Brazil included plastics, milk and dairy products, cereals and motor vehicles, and exports to Argentina included motor vehicles, machinery, paper, medical equipment and plastics. The primary destination of milk and dairy products continued to be Venezuela, followed by Brazil and Russia. In 2014, exports to Brazil included plastics, motor vehicles, meat, cereals and milk and dairy products, and exports to Argentina included motor vehicles, electrical energy, parts of vehicles and machinery. Venezuela remained the primary destination of milk and dairy products, followed by Brazil, Russia and China. In 2015, exports to Brazil, which declined significantly compared to prior years, included milk and dairy products, plastics, meat and motor vehicles, exports to Argentina included pulp, wire and plastics and exports to Venezuela consisted mainly of milk and dairy products and chemicals. In 2016, exports to Brazil included milk and dairy products, plastics and cereals, exports to Argentina included wire, motor vehicles and parts, and chemicals, and exports to Venezuela consisted mainly of chemicals and rice. In 2017, exports to Brazil included milk and dairy products, plastics and cereals, exports to Argentina included wire, motor vehicles and parts, and chemicals. Although Uruguay’s dependence on regional trade has lessened, a continued slowdown in Argentina and Brazil could continue to significantly weigh on Uruguay’s economy. Despite significant international reserves and a robust debt profile, Uruguay’s fiscal imbalances and other economic rigidities could hamper the economy’s ability to absorb regional and other external shocks.

 

D-36


The United States is another of Uruguay’s major trading partners. The United States has attracted an increasing percentage of Uruguay’s total merchandise exports in recent years. In 2013, the weight of exports to the United States increased to 3.5% of total exports, whereas imports from the United States decreased to 8.7% of total imports. In 2014, the weight of exports to the United States increased to 4.1% of total exports, while imports from the United States decreased slightly to 9.4% of total imports. In 2015, the weight of exports to the United States increased to 5.9% of total exports, while imports from the United States decreased slightly to 9.0% of total imports. In 2016, the weight of exports to the United States decreased to 5.4% of total exports while imports from the United States accounted for 6.9% of total imports. In 2017, the weight of exports to the United States decreased to 5.0% of total exports whereas imports accounted for 10.9% of total imports.

In 2013, merchandise exports totaled US$10.0 billion, representing a 4.1% increase compared to 2012, due to an increase in non-traditional exports which, as in 2012, more than offset a decrease in traditional exports. In 2014, merchandise exports totaled US$10.1 billion, representing a 1.0% increase compared to 2013, mainly due to an increase in certain traditional exports (cattle, processed meats and paper pulp). Beginning in 2015, exports of paper pulp increased significantly, compensating for decreased exports of other goods. In 2015, merchandise exports totaled US$8.9 billion, representing a 11.8% decrease compared to 2014, mainly due to a decrease in the price of non-traditional exports. Exports of paper pulp accounted for 14.1% of Uruguay’s total exports in 2015. In 2016, merchandise exports totaled US$8.3 billion, representing a 7.1% decrease compared to 2015, primarily due to a decrease in non-traditional exports. Exports of paper pulp accounted for 15.7% of Uruguay’s total exports in 2016. In 2017, merchandise exports totaled US$9.1 billion, representing a 9.8% increase compared to 2016, primarily due to an increase in certain traditional exports (processed meats and paper pulp).

Merchandise exports have historically been concentrated on agriculturally based traditional and manufactured products, such as wool, meat, rice, textiles and more recently, paper pulp. 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. Since 2008, paper pulp accounts for a significant portion of Uruguay’s exports. The government has promoted pulp mills to increase and diversify exports, increase productivity and long-term prospects for Uruguay’s economy. See “Balance of Payments — Foreign Investment.” In 2013, exports of motor vehicles and parts, agricultural products and paper pulp increased by 109.4%, 18.2% and 17%, respectively, each as compared to 2012. Exports of oil and refined products, however, decreased 73.0%, compared to 2012. In 2014, exports of oil and refined products, paper pulp and leather goods increased by 150.0%, 23.8% and 17.6%, respectively, compared to 2013; however, exports of agricultural products and dairy products decreased by 12.5%, and 8.9%, respectively, each as compared to 2013. In 2015 exports of paper pulp and other foodstuffs increased by 41.9% and 8.7%, respectively, compared to 2014, while exports of agricultural products, dairy products and wheat and rice decreased by 33.3%, 23.7% and 32.2%, respectively, each as compared to 2014. In 2016, exports of oil and refined products, wheat and rice, and chemicals increased by 54.5%, 13.1% and 9.7%, respectively, each as compared to 2015, while exports of motor vehicles and parts, plastic products, agricultural products and textiles decreased by 58.3%, 21.6%, 18.6% and 15.3%, respectively, each as compared to 2015. In 2017, exports of agricultural products, processed meats, dairy products, wheat and rice mills, textiles, paper pulp, plastic products, motor vehicles parts and others increased by 26.6%, 6.6%, 4.8%, 14.1%, 9.5%, 3.5%, 17.2%, 53.8% and 23.2% respectively, each as compared to 2016, while exports of leather goods, chemicals, oil and refined products and other foodstuffs decreased by 13.5%, 1.9%, 50.0% and 7.1% respectively, each as compared to 2016.

In 2013, total imports decreased by 0.1% compared to 2012, of which 24.3% represented consumer goods, 59.1% intermediate goods and 16.6% capital goods. In 2014, total imports decreased by 1.3% compared to 2013, of which 25.5% represented consumer goods, 56.1% intermediate goods and 18.4% capital goods. In 2015, total imports decreased by 17.4% compared to 2014, of which 28.3% represented consumer goods, 52.6% intermediate goods and 19.1% capital goods. In 2016, total imports decreased by 14.3% compared to 2015, of which 30.7% represented consumer goods, 50.1% intermediate goods and 19.1% capital goods. In 2017, total imports increased by 3.9% compared to 2016, of which 33.6% represented consumer goods, 53.1% intermediate goods and 13.3% capital goods.

 

D-37


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)

 

     2013     2014     2015(1)     2016     2017(1)  

EXPORTS (FOB)

                    

Agricultural products

   US$ 2,395       24.0   US$ 2,096       20.8   US$ 1,396       15.7   US$ 1,104       13.3   US$ 1,398       15.4

Processed meats

     1,706       17.1       1,872       18.6       1,762       19.8       1,752       21.2       1,868       20.6  

Dairy products

     894       8.9       814       8.1       623       7.0       564       6.8       591       6.5  

Wheat and rice mills

     505       5.1       518       5.1       350       3.9       396       4.8       452       5.0  

Other foodstuffs

     621       6.2       657       6.5       711       8.0       707       8.5       657       7.2  

Textiles

     196       2.0       190       1.9       190       2.1       158       1.9       173       1.9  

Leather goods

     267       2.7       314       3.1       294       3.3       275       3.3       238       2.6  

Paper pulp

     715       7.2       885       8.8       1,255       14.1       1,296       15.7       1,342       14.8  

Chemicals

     549       5.5       530       5.3       517       5.8       463       5.6       454       5.0  

Oil and refined products

     24       0.2       60       0.6       22       0.2       34       0.4       17       0.2  

Plastic products

     196       2.0       194       1.9       148       1.7       116       1.4       136       1.5  

Motor vehicles and parts

     291       2.9       286       2.8       245       2.8       80       1.0       123       1.4  

Other

     1,631       16.3       1,678       16.6       1,488       15.7       1,324       16.0       1,631       18.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total exports

   US$ 9,990       100.0   US$ 10,093       100.0   US$ 8,905       100.0   US$ 8,269       100.0   US$ 9,080       100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

IMPORTS (CIF)

                    

Consumer goods

   US$ 2,825       24.3   US$ 2,929       25.5   US$ 2,683       28.3   US$ 2,500       30.7   US$ 2,844       33.6

Intermediate goods

     6,833       59.1       6,440       56.1       4,991       52.6       4,079       50.1       4,489       53.1  

Capital goods

     1,933       16.6       2,115       18.4       1,815       19.1       1,557       19.1       1,125       13.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total imports

   US$ 11,642       100.0   US$ 11,485       100.0   US$ 9,489       100.0   US$ 8,137       100.0   US$ 8,458       100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Merchandise trade balance

   US$ (1,652     US$ (1391     US$ 584       US$ (132     US$ (622  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

(1)

Preliminary data.

Source: Banco Central.

 

D-38


Geographical Distribution of Merchandise Trade

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

 

    2013     2014     2015     2016     2017(1)  

EXPORTS (FOB)

                   

Americas:

                   

Argentina

  US$ 493       4.9   US$ 440       4.3   US$ 390       4.4   US$ 429       5.2   US$ 437       4.8

Brazil

    1,711       17.1       1,609       15.9       1,133       12.7       1,200       14.5       1,299       14.3  

United States

    352       3.5       417       4.1       525       5.9       446       5.4       455       5.0  

Other

    1,205       12.1       1,316       13.0       1,062       11.9       852       10.3       827       9.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Americas

    3,760       37.6       3,783       37.4       3,109       34.9       2,928       35.4       3,018       33.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Europe:

                   

European Union:

                   

France

    33       0.3       38       0.4       37       0.4       32       0.4       34       0.4  

Germany

    312       3.1       292       2.9       257       2.9       214       2.6       198       2.2  

Italy

    145       1.5       131       1.3       81       0.9       79       1.0       86       0.9  

United Kingdom

    86       0.9       87       0.9       70       0.8       62       0.7       47       0.5  

Other EU

    499       5.0       460       4.6       429       4.8       517       6.2       498       5.5  

Total EU

    1,075       10.8       1,008       10.0       874       9.8       904       10.9       864       9.5  

EFTA(2) and other

    469       4.7       434       4.3       322       3.6       388       4.7       407       4.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Europe

    1,544       15.5       1,442       14.2       1,196       13.4       1,292       15.6       1,271       14.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

    290       2.9       218       2.2       201       2.3       131       1.6       274       3.0  

Asia

    1,584       15.9       1,543       15.3       1,335       15.0       1,119       13.5       1,712       18.9  

Middle East

    425       4.3       524       5.2       335       3.8       216       2.6       283       3.1  

Free Trade Zone(3)

    923       9.2       961       9.5       1,227       13.8       1,273       15.4       1,233       13.5  

Other

    1,464       14.7       1,619       16.1       1,502       16.9       1,311       15.9       1,299       14.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 9,990       100.0   US$ 10,093       100.0   US$ 8,905       100.0   US$ 8,269       100.0   US$ 9,080       100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

IMPORTS (CIF)

                   

Americas:

                   

Argentina

  US$ 1,656       14.2   US$ 1,458       12.7     US$ 1,235       13.0   US$ 1,084       13.3   US$ 1,064       12.6

Brazil

    1,836       15.8       1,948       17.0       1,626       17.1       1,462       18.0       1,646       19.5  

United States

    1,010       8.7       1,083       9.4       850       9.0       561       6.9       921       10.9  

Other

    1,232       10.6       1,237       10.8       812       8.6       669       8.2       660       7.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Americas

    5,733       49.2       5,726       49.9       4,523       47.7       3,776       46.4       4,291       50.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Europe:

                   

European Union:

                   

France

    241       2.1       196       1.7       130       1.4       109       1.3       107       1.3  

Germany

    294       2.5       468       4.1       404       4.3       386       4.7       205       2.4  

Italy

    193       1.7       181       1.6       160       1.7       132       1.6       140       1.7  

United Kingdom

    164       1.4       86       0.7       180       1.9       148       1.8       90       1.1  

Other EU

    684       5.9       765       6.7       727       7.7       686       8.4       767       9.1  

Total EU

    1,576       13.5       1,695       14.8       1,602       16.9       1,461       18.0       1,309       15.5  

EFTA(2) and other

    248       2.1       161       1.4       171       1.8       147       1.8       146       1.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Europe

    1,824       15.7       1,857       16.2       1,773       18.7       1,608       19.8       1,454       17.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

    951       8.2       765       6.7       474       5.0       533       6.6       242       2.9  

Asia.

    2,853       24.5       2,969       25.8       2,587       27.3       2,089       25.7       2,329       27.5  

Middle East

    217       1.9       118       1.0       100       1.1       93       1.1       111       1.3  

Other

    65       0.6       50       0.4       33       0.3       38       0.5       31       0.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 11,642       100.0   US$ 11,485       100.0     US$ 9,489       100.0   US$ 8,137       100.0   US$ 8,458       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-39


FOREIGN TRADE ON SERVICES

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

In 2013, gross tourism receipts and the number of tourist arrivals decreased by 7.5% and 1.1%, respectively, reflecting Argentina’s deteriorating economic conditions, which caused the number of tourists from Argentina to decrease by 6.5%.

In 2014, gross tourism receipts decreased by 8.4% and the number of tourist arrivals decreased by 0.2%, mainly due to a 10.2% reduction in tourists arriving from Argentina. However, the increase of tourists from Brazil (16.4%) and Europe (8.5%) partially offset the decline in tourism originated in Argentina.

In 2015, gross tourism receipts increased by 0.3% and the number of tourist arrivals increased by 5.5%, mainly driven by a 15.3% increase in tourists arriving from Argentina. In 2016, gross tourism receipts increased by 3.3% and the number of tourist arrivals increased by 12.3%, mainly driven by an increase in tourists arriving from Argentina. In 2017, gross tourism receipts increased by 27.9% and the number of tourist arrivals increased by 18.4% mainly driven by an increase in tourists arriving from Argentina.

Revenues from Tourism

 

     Number of
Tourist Arrivals

(in thousands)
     Gross Tourism
Receipts

(in millions of US$)
 

2013

     2,815        1,922  

2014

     2,810        1,760  

2015

     2,965        1,766  

2016

     3,328        1,824  

2017

     3,941        2,334  

 

Source: Banco Central.

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

Tourist Arrivals

(% by country)

 

     2013     2014     2015     2016     2017  

Argentina

     58.5     52.7     57.6     64.3     67.4

Brazil

     14.0       16.4       14.5       13.0       12.8  

Other

     27.5       30.9       28.0       22.7       19.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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. 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 recovered, reaching US$2.8 billion as of December 2017, representing 13.4% of total foreign currency deposits held by the non-financial private sector with the Uruguayan banking system (excluding deposits held with banks in liquidation). In 2012, the tax authorities of Uruguay and Argentina entered into a cooperation agreement to facilitate sharing of tax information. This agreement was ratified by Congress in January 2013. Similar agreements were concluded with Iceland, Denmark, Norway and Canada (in 2012, 2013 and 2014, respectively).

 

D-40


BALANCE OF PAYMENTS

On September 29, 2017, Banco Central released a new version of balance of payments and international investment position data, with revised information going back to 2012. The new data conforms to the principles outlined in the sixth edition of the International Monetary Fund’s Balance of Payments Manual (BPM6). Further, Banco Central took advantage of the opportunity to make other improvements to its data collection methodology, including widening the sample of firms surveyed, from approximately 200 corporate groups to approximately 490.

An important source of compositional changes in the balance of payments data occurs through new coverage of intermediation activities by so-called “merchanting” firms in the new surveys. Resident merchanting firms purchase goods (mostly commodities) from non-residents and subsequently resell them to non-residents, without the goods entering the economic territory of Uruguay. These international trade intermediation activities were not accounted for under the previous methodology.

In 2017, Uruguay’s balance of payments (variation in Banco Central reserve assets) registered a surplus of US$2.4 billion compared to a deficit of US$2.2 billion in 2016, a deficit of US$1.7 billion in 2015, a surplus of US$1.4 billion in 2014 and a surplus of US$3.0 billion in 2013. Banco Central’s international reserve assets stood at US$15.9 billion at December 31, 2017, US$13.5 billion at December 31, 2016, US$15.6 billion at December 31, 2015, US$17.5 billion at December 31, 2014 and US$16.3 billion at December 31, 2013.

Balance of Payments(1)

(in millions of US$)

 

     2013(2)     2014(2)     2015(2)     2016(2)     2017(2)  

Current Account

          

Merchandise trade balance

   US$ 1,077.7     US$ 1,980.1     US$ 1,268.0     US$ 2,041.1     US$ 2,895.8  

Exports

     13,277.3       13,763.4       11,106.3       10,504.3       11,561.0  

Imports

     (12,199.6     (11,783.3     (9,838.3     (8,463.2     (8,665.2

Services, net

     (266.9     (367.0     411.5       797.7       1,162.7  

Primary Income

     (3,069.8     (3,603.6     (2,367.3     (2,611.2     (3,450.0

Secondary Income(3)

     179.6       181.1       176.3       182.7       270.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current account

   US$ (2,079.4   US$ (1,809.5   US$ (511.5   US$ 410.3     US$ 878.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital Account

   US$ 203.6     US$ 14.9     US$ 175.5     US$ 16.9     US$ 4.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Account

          

Direct Investment

     (2,789.1     (2,511.9     (827.3     832.9       1,128.0  

Portfolio Investment(4)

     (1,765.9     (346.7     986.0       2,018.0       (1,905.4

Financial Derivatives

     31.5       32.6       (303.7     43.5       (53.9

Other investment

     392.7       (142.2     1,060.4       (974.5     149.7  

Variation in Banco Central reserve assets(5)

     2,980.9       1,371.7       (1,676.5     (2,188.5     2,448.7  

of which:

          

Gold(6)

     —         —         (5.4     (0.1     —    

SDRs

     0.1       —         —         (42.4     0.2  

IMF Position

     15.1       4.9       (24.8     (3.0     (44.3

Foreign Exchange

     186.9       (205.8     547.3       (1,014.7     1,241.2  

Other holdings

     2,778.9       1,572.6       (2,193.6     (1,128.3     1,251.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financial account, net

   US$ (1,149.9   US$ (1,596.4   US$ (761.1   US$ (268.7   US$ 1,767.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Errors and Omissions(7)

   US$ 725.9     US$ 198.2     US$ (425.0   US$ (695.9   US$ 883.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

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

(2) 

Preliminary data.

(3) 

Current transfers consist of transactions without a quid pro quo, including gifts.

(4) 

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

(5) 

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

(6) 

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

(7) 

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

Source: Banco Central.

 

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Current Account

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

In 2013, the current account recorded a deficit of US$2.1 billion, mainly due to a growing imbalance in trade services, particularly in the category of travel and other services, which contributed to increase the current account deficit. In contrast, the merchandise trade balance improved in 2013 compared to 2012.

In 2014, the current account recorded a deficit of US$1.8 billion. The US$270 million decrease in the current account deficit compared to 2013 was mainly attributable to an improvement in the merchandise trade balance.

In 2015, the current account recorded a deficit of US$511.5 million. The US$1.3 billion decrease in the current account deficit compared to 2014 was mainly attributable to an improvement in interest and dividends and trade of services.

In 2016, the current account recorded a surplus of US$410.3 million. The US$922 million increase in the current account balance compared to 2015 was mainly attributable to an improvement in the merchandise trade and trade of services balances.

In 2017, the current account recorded a surplus of US$878.9 million. The US$469 million increase in the current account surplus compared to 2016 was mainly attributable to an improvement in the merchandise trade and trade of services balances.

Financial Account

Uruguay’s financial account includes direct investment, portfolio investment, financial derivatives, other investment and variations in Banco Central reserve assets.

In 2013, Uruguay’s financial account recorded a negative balance of US$1.1 billion mainly as a result of foreign direct investment and portfolio investment net inflows, which totaled US$2.8 billion and US$1.8 billion, respectively. Foreign direct investment net inflows were driven by investments made in connection with the “Montes del Plata” paper pulp mill construction in Colonia and hydrocarbon exploration activities.

In 2014, Uruguay’s financial account recorded a negative balance of US$1.6 billion, mainly as a result of net inflows of foreign direct investment, which totaled US$2.5 billion.

In 2015, Uruguay’s financial account recorded a negative balance of US$761 million mainly as a result of net inflows of foreign direct investment, which totaled US$0.8 billion, and a US$1.7 billion decrease in Banco Central reserve assets driven by foreign currency sales.

In 2016, Uruguay’s financial account recorded net inflows of US$269 million, mainly due to a US$2.2 billion decrease in Banco Central reserve assets driven by a decrease in deposits of the banking system and other institutions with Banco Central, which was partially offset by a US$2.0 billion portfolio investment net outflows.

In 2017, Uruguay’s financial account recorded a positive balance of US$1.8 billion, mainly as a result of foreign direct investment net outflows, which reached US$1.1 billion and a US$2.5 billion increase in Banco Central reserve assets attributable to an increase in deposits of the banking system and other institutions with Banco Central.

Under regulations adopted in August 2012 by Banco Central, non-residents that purchase Banco Central bonds issued in pesos or UIs, through local financial institutions, must deposit with Banco Central a percentage of the investment made in Banco Central’s debt. This deposit cannot be withdrawn until the bond is redeemed by Banco Central or transferred to a Uruguayan resident or a foreign investor that has previously satisfied the prior-deposit requirements. The minimum percentage that investors are required to deposit with one or more local financial institutions was originally set at 40%. In June 2013, this percentage was raised to 50%.

 

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In June 2013, Uruguay implemented similar requirements for the purchase by non-residents of local treasury bills and bonds issued in pesos or UIs. The minimum percentage that non-residents must deposit with one or more local financial institutions is 50% of the investment made in these bills and bonds.

In September 2014, the Macroeconomic Coordination Committee, which is comprised of representatives of the Ministry of Economy and Finance and Banco Central, removed the reserve requirements for non-residents’ holdings of central government local currency-denominated securities and reduced the level of mandatory deposit requirements for investments in Banco Central’s short-term debt from 50% to 30%. On May 1, 2015, Banco Central removed all remaining reserve requirements on non-residents’ holdings of its securities.

International Reserves

As of December 31, 2017, the international reserve assets of Banco Central stood at US$16.0 billion, compared to US$13.5 billion at December 31, 2016. This increase in international reserve assets of Banco Central was mainly due to an increase in the deposits of the banking system and other institutions with Banco Central. The following table shows the composition of the international reserve assets of Banco Central, and the banking system at each of the dates indicated.

International Reserve Assets of the Banking System(1)

(in millions of US$)

 

     As of December 31,  
     2013     2014     2015     2016     2017  

Banco Central

   US$ 16,290 (2)     US$ 17,555 (3)     US$ 15,634 (4)     US$ 13,472 (5)     US$ 15,963 (6)  

Of which gold represents

     10       10       4       4       4  

Public Banks

     1,913       2,196       2,189       2,628       3,018  

Private Banks

     3,547       3,599       4,869       4,319       3,195  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

International reserve assets

   US$ 21,750     US$ 23,350     US$ 22,692     US$ 20,419     US$ 22,176  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

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

(2)

This amount includes US$5,299 million of reserves and voluntary deposits of the Uruguayan banking system, including US$2,184 million of public sector financial institutions, with Banco Central.

(3)

This amount includes US$6,768 million of reserves and voluntary deposits of the Uruguayan banking system, including US$2,771 million of public sector financial institutions, with Banco Central.

(4) 

This amount includes US$6,584 million of reserves and voluntary deposits of the Uruguayan banking system, including US$2,457 million of public sector financial institutions, with Banco Central.

(5) 

This amount includes US$5,542 million of reserves and voluntary deposits of the Uruguayan banking system, including US$2,481 million of public sector financial institutions, with Banco Central.

(6) 

This amount includes US$5,558 million of reserves and voluntary deposits of the Uruguayan banking system, including US$2,461 million of public sector financial institutions, with Banco Central.

Source: Banco Central.

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

Foreign Investment

Uruguay has a legislative framework that provides for the equal treatment of foreign and local investors and access by foreigners 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 2013, 2014 and 2015, estimated foreign direct investment accounted to net inflows of US$2.8 billion, US$2.5 billion and US$827 million, respectively, compared to net outflows of US$833 million and US$1.1 billion in 2016 and 2017, respectively.

 

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Foreign investment in Uruguay was traditionally directed towards the industrial, construction and tourism related sectors and land. However, since 2004, Uruguay has attracted significant foreign investment in paper pulp mills, renewable energy (wind) and real estate projects.

 

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 primary responsibility for implementing 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 Congress.

Banco Central’s charter defines Banco Central’s monetary and foreign exchange management capacity and its supervisory powers. Pursuant to its charter, Banco Central cannot finance the activities of the government except to the extent that it may hold government securities that have an aggregate principal amount of up to 10.0% of the 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 No. 18,401 created the Corporación de Protección al Ahorro Bancario or Corporation for the Protection of Bank Savings as an agency independent of Banco Central, removing Banco Central’s responsibility for the administration of the mandatory deposit insurance program introduced in 2002. Law No. 18,401 placed the supervision and regulation of the banking sector and the regulation of insurance companies, the stock market and pension funds under a single agency, the Superintendencia de Servicios Financieros.

Monetary Policy

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

Sensitive to the risk of a run on the currency and to avoid the need to adopt exchange controls and restrict capital flows, Uruguay completed its transition to a fully floating exchange system and floated the peso effective on 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 designed to generate an inflation rate between 17.0% and 23.0% and the policy was successful in the sense that the target on monetary base was achieved and inflation rate was lower than projected (10.2%). In the first quarter of 2004, a target range for the monetary base was introduced, which implied more flexibility in the intermediate target and more commitment with inflation itself. Since then, the inflation objective was set to a range with floors and ceilings that declined from quarter to quarter, from 9.0-14.0% in the third quarter of 2004 to 4.5-6.5% by the end of 2006.

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

 

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In January 2008, the monetary policy rate was kept constant at 7.25%, 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, Banco Central raised the monetary policy rate to 7.75%, taking into account the strong domestic demand compared to aggregate supply in a context of international uncertainty.

In light of the deepening international financial markets crisis, Banco Central decided, in the last quarter of 2008, to allow a broader fluctuation of the average money market rate. It also established a program to repurchase Peso-denominated Monetary Regulation Bills, giving holders the option to elect the currency of redemption, to reduce volatility in the foreign exchange market. As financial markets recovered stability, Banco Central once again focused on the monetary policy rate as an operational target and raised the rate 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 to lower the monetary policy rate to 9.0%. In June 2009, the authorities decided to lower the monetary policy rate further to 8.0% considering inflation performance and as aggregate demand pressures diminished. Although inflationary pressures emerged in the second half of 2009, the monetary policy rate remained unchanged until December 2009. At that time, Banco Central decided to lower the rate to 6.25%, taking into account the decrease of uncertainty in the international context and a favorable assessment of domestic risks. Additionally, in December 2009, it narrowed the inflation target range from 3.0-7.0% to 4.0-6.0%. In September 2010, Banco Central raised the monetary policy rate to 6.50% to mitigate increasing inflationary pressures. In March 2011, Banco Central once again increased the monetary policy rate to 7.50% in response to prevailing inflation expectations for the subsequent 18 months, attributed primarily to inflationary pressures generated by the international markets and a growing domestic demand. In June 2011, Banco Central increased the monetary policy rate from 7.5% to 8.0% in response to prevailing inflation expectations. In December 2011, Banco Central again increased the monetary policy rate to 8.75%. In March 2012, Banco Central decided to maintain the monetary policy rate at 8.75%. In October and December 2012, Banco Central increased the monetary policy rate to 9.0% and 9.25%, respectively, responding to increasing inflation expectations.

On June 28, 2013, Banco Central discontinued the use of a monetary policy rate determined by reference to a short-term interest rate as its principal monetary policy tool and reverted to using the monetary base by managing monetary aggregates, focusing on variables such as the amount of money in circulation and bank deposits levels to define monetary levels. Banco Central’s use of short-term interest rates as its main monetary policy tool in an international environment characterized by depressed interest rates was considered ineffective to control inflation. Capital inflows resulted in an appreciation of the Uruguayan peso.

Banco Central currently manages monetary aggregates (MI) to control inflation. Further, in July 2014, Banco Central broadened the inflation target range from 4.0-6.0% to 3.0-7.0% and has maintained that range to the date of this annual report. To regulate liquidity in the market, Banco Central conducts periodic auctions of Banco Central notes denominated 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. As of December 31, 2017, 72.0% of all deposits held with the banking system continued to be denominated in foreign currencies (primarily U.S. dollars).

 

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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

(in millions of US$(1))

 

     As of December 31,  
     2013      2014      2015      2016      2017  

Currency, including cash in vaults at banks

   US$ 2,783      US$ 2,594      US$ 2,276      US$ 2,372      US$ 2,658  

Other

     1,179        937        806        1,079        980  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Monetary base

   US$ 3,962      US$ 3,531      US$ 3,082      US$ 3,451      US$ 3,638  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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 year ended December 31,  
     2013     2014     2015(1)     2016(1)     2017(1)  

M1 (% change)(2)

     15.0     3.7     5.6     8.4     15.0

M2 (% change)(3)

     13.9       6.7       9.2       14.3       13.1  

Credit from the financial system (% change)

     19.8       14.7       20.0       7.5       6.1  

Average annual peso deposit rate (period end)

     5.1     8.5     7.9     6.0     5.3

 

(1) 

Preliminary data.

(2) 

Currency in circulation plus peso-denominated demand deposits.

(3) 

M1 plus peso-denominated savings deposits.

Source: Banco Central.

Liquidity and Credit Aggregates

(in millions of US$(1))

 

     2013      2014      2015(2)      2016(2)      2017(2)  

Liquidity aggregates (at period end):

              

Currency, excluding cash in vaults at banks

   US$ 2,107      US$ 1,975      US$ 1,702      US$ 1,786      US$ 1,960  

M1(3)

     7,504        6,841        5,883        6,514        7,619  

M2(4)

     9,160        8,591        7,638        8,916        10,260  

M3(5)

     24,737        25,905        26,109        27,710        28,729  

Credit aggregates (at period end):

              

Private sector credit

     14,103        14,658        14,549        15,209        15,478  

Public sector credit

     1,021        1,383        1,165        1,274        1,229  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic credit

   US$ 15,124      US$ 16,041      US$ 15,714      US$ 16,483      US$ 16,707  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Deposits:

              

Uruguayan Peso deposits

   US$ 7,053      US$ 6,616      US$ 5,936      US$ 7,130      US$ 8,300  

Foreign currency deposits

     19,568        21,571        23,060        22,372        21,276  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

   US$ 26,621      US$ 28,187      US$ 28,996      US$ 29,502      US$ 29,576  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Deposits of non-residents

   US$ 3,992      US$ 4,257      US$ 4,589      US$ 3,577      US$ 2,807  

 

(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.

 

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Inflation

Banco Central monitors developments in monetary demand with a view to moderating inflation rates and medium-term inflation expectations. In March 2014, the government sought to prevent further price increases on basic goods and reached an agreement with supermarkets and major retailers to maintain prices for a basket of basic products at January 2014 levels until June 2014. A similar agreement was reached in August 2015 for a 60-day period. In addition, the government decided to exempt from VAT fruit and vegetable sales as well as fixed-charge public utility services such as electricity, water and communications. The government continuously monitors the impact of fiscal policy measures and developments in the labor market on inflation.

The following table shows changes in the CPI and the WPI for the years indicated.

Changes in CPI and WPI

(% change from previous year at period end)

 

     CPI     WPI  

2013

     8.5     6.3

2014

     8.3       10.6  

2015

     9.4       6.6  

2016

     8.1       (1.9

2017

     6.6     5.4

 

Source: National Institute of Statistics.

The inflation rate in 2013 reached 8.5%, and the monetary policy rate remained at 9.25% until Banco Central discontinued its use on June 28, 2013 as a means of controlling inflationary pressures (see “Monetary Policy and Inflation — Monetary Policy.”). In 2015, the inflation rate reached 9.4%, mainly due to the inflationary effects of the depreciation of the peso. Inflation began to subside in 2016, decreasing to 8.1%, while the inflation rate for wholesale prices was negative by 1.9%. In 2017, the inflation rate reached 6.6%, mainly due to the stability observed in prices of non-tradable goods and the effects of the appreciation of the peso.

The weighted average annual interest rate for 91 to 180 day term deposits in U.S. dollars in the banking system was 0.3% in December 2013, December 2014 and December 2015, 0.2% in December 2016 and December 2017. The weighted average annual interest rate for 91 to 180 day term deposits in pesos in the banking system stood at 5.2% in December 2013, 6.6% in December 2014, 7.7% in December 2015, 5.9% in December 2016 and 5.2% at December 2017.

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. As of December 31, 2013, the ratio of non-performing loans (“NPLs”) to total loans was 1.8% while the provision for NPLs ratio stood at 4.7% (both including Banco Hipotecario). As of December 31, 2014, the ratio of NPLs to total loans was 1.7% while the provision for NPLs ratio stood at 5.1% (both including Banco Hipotecario). As of December 31, 2015, the ratio of NLPs to total loans was 2.1% while the provision for NPLs ratio stood at 5.3% (both including Banco Hipotecario). As of December 31, 2016, the ratio of NLPs to total loans was 3.2% while the provision for NPLs ratio stood at 5.8% (both including Banco Hipotecario). As of December 31, 2017, the ratio of NLPs to total loans was 3.4% while the provision for NPLs ratio stood at 6.3% (both including Banco Hipotecario). For a discussion of Uruguay’s current monetary policy, see “— Monetary Policy.”

 

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The following table shows the value in pesos of one UI as of the dates indicated:

 

Value in pesos as of December 31,

   UI

2013

   Ps.2.7421

2014

   Ps.2.9632

2015

   Ps.3.2426

2016

   Ps.3.5077

2017

   Ps.3.7275

 

Source: National Institute of Statistics.

Foreign Exchange

Between 1990 and June 2002, the Uruguayan peso gradually lost value relative to other currencies. 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. Starting in 2003, the peso strengthened against the U.S. dollar. In 2008, the appreciation of the peso was temporarily interrupted by the financial crisis. Between June 1, 2013 and April 26, 2016, the peso depreciated 57.3% in line with the fluctuation recorded in other emerging economies. From April 26, 2016 to December 31, 2017, the peso appreciated by 9.9% against the U.S. dollar.

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

(pesos per US$)

 

     High      Low      Average      Period-End  

2013

     22.646        18.858        20.496        21.389  

2014

     24.742        21.268        23.225        24.333  

2015

     29.873        24.075        27.318        29.873  

2016

     32.530        28.003        30.084        29.256  

2017

     29.663        27.809        28.654        28.764  

 

(1) 

Daily interbank end-of-day bid rates.

Source: Banco Central.

 

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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 1.5% are required for this category.
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 3.0% 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 17.0% 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.

 

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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 Basel 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, market and operational risk requirements under Basel II recommendations. In addition, Banco Central requires banks to maintain minimum capital requirement for systemic risk of up to 2% of the bank’s risk-weighted assets. Banco Central has maintained a maximum leverage ratio of 25 times capital and has defined a roadmap for the implementation of Basel III, which is currently scheduled to be fully implemented by the end of 2018.

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 must be taken into consideration by the banks in assessing the borrowers’ ability to repay their obligations (and classifying 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 and cooperatives with limited licenses is UIs 65 million, and for off-shore banks is US$4.5 million. As of December 31, 2017, one UI was equal to Ps.3.7275.

The Uruguayan Banking System

Commercial banks in Uruguay typically provide full-service banking. Of the nine private banks operating in Uruguay as of December 31, 2017, seven were Uruguayan corporations majority-owned by foreign banks and two were branches of foreign banks. In accordance with current legislation, the Republic guarantees up to US$10,000 of deposits in foreign currency and up to UIs 250,000 of deposits in pesos, including, in both cases, capital and accrued interests.

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, making them subject to the same regulatory requirements. As of December 31, 2017, there were no financial cooperatives 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, 2017, Banco de la República held approximately 44.8% of deposits of the private non-financial sector within 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.

 

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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 from those two institutions.

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. The rescheduled deposits were repaid commencing in 2004.

On August 4, 2002, Congress passed Law No. 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 No. 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, which was set up as a private bank, although its capital was initially owned by the government, and 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 the new commercial bank entitle depositors to a pro rata share of the assets held by the corresponding liquidation fund.

 

D-52


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 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

Beginning in March 2003, the level of deposits by the non-financial private sector started to increase and 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.

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. As of December 31, 2017, financial institutions had on average a total capital to risk-weighted assets ratio above the ratio required by Banco Central. As of December 31, 2017, Banco Hipotecario had US$1.98 billion of assets and US$903 million of capital. Further, as of December 31, 2017, Banco Hipotecario remained in full compliance with Uruguay’s current minimum capital adequacy ratios requirements.

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. 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, 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.”

 

D-53


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.

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 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.

In 2013, deposits of the non-financial private sector with the banking system increased by 8.9%, from US$23.2 billion as of December 31, 2012, to US$25.3 billion (75.3% primarily denominated in U.S. dollars) as of December 31, 2013. Credit extended to the domestic private sector by the banking system also increased from US$12.2 billion in 2012 to US$13.8 billion in 2013. The share of NPLs to total loans (based on payment delinquencies) stood at 1.8% as of December 31, 2013 (1.3% excluding Banco Hipotecario).

Regulatory capital as of December 31, 2013 represented 15.4% of risk weighted assets (including Banco Hipotecario). During 2013, bank credit to the non-financial sector represented approximately 25% of Uruguay’s GDP.

In 2014, deposits of the non-financial private sector with the banking system increased by 6.3%, from US$25.3 billion as of December 31, 2013, to US$26.9 billion (77.7% primarily denominated in U.S. dollars) as of December 31, 2014. Credit extended to the domestic private sector by the banking system also increased from US$13.8 billion in 2013 to US$14.4 billion in 2014. The share of NPLs to total loans (based on payment delinquencies) stood at 1.7% as of December 31, 2014 (1.5% excluding Banco Hipotecario).

Regulatory capital as of November 30, 2014 represented 13.7% of risk weighted assets (including Banco Hipotecario). During 2014, bank credit to the non-financial sector represented approximately 26% of Uruguay’s GDP.

In 2015, deposits of the non-financial private sector with the banking system increased by 4.0%, from US$26.9 billion as of December 31, 2014, to US$27.9 billion (80.9% primarily denominated in U.S. dollars) as of December 31, 2015. Credit extended to the domestic private sector by the banking system remained stable, totaling US$14.3 billion as of December 31, 2015. The share of NPLs to total loans (based on payment delinquencies) stood at 2.1% as of December 31, 2015 (2.0% excluding Banco Hipotecario).

Regulatory capital as of December 31, 2015 represented 12.9% of risk weighted assets (including Banco Hipotecario). During 2015, bank credit to the non-financial sector represented approximately 29% of Uruguay’s GDP.

In 2016, deposits of the non-financial private sector with the banking system increased by 1.0%, from US$27.9 billion as of December 31, 2015, to US$28.2 billion (77% primarily denominated in U.S. dollars) as of December 31, 2016, although deposits by non-residents decreased by approximately US$1.0 billion, mainly as a result of withdrawals following the implementation of Argentina’s tax amnesty law. Credit extended to the domestic private sector by the banking system increased, totaling US$15.0 billion as of December 31, 2016. The share of NPLs to total loans (based on payment delinquencies) stood at 3.2% as of December 31, 2016 (3.3% excluding Banco Hipotecario) mainly as a result of the economic deceleration.

 

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Regulatory capital as of December 31, 2016 represented 14.1% of risk weighted assets (including Banco Hipotecario). During 2016, bank credit to the non-financial sector represented approximately 28% of Uruguay’s GDP.

In 2017, deposits of the non-financial private sector with the banking system increased by 0.6% from US$28.2 billion as of December 31, 2016, to US$28.4 billion (73.3% primarily denominated in U.S. dollars) as of December 31, 2017. Credit extended to the domestic private sector by the banking system increased, by 1.5% totaling US$15.2 billion as of December 31, 2017. The share of NPL to total loans (based on payment delinquencies) stood at 3.4% as of December 31, 3017 (3.7% excluding Banco Hipotecario).

Regulatory capital as of December 31, 2017 represented 14.2% of risk weighted assets (including Banco Hipotecario). During 2017, bank credit to the non-financial sector represented approximately 26.6% 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 the dates indicated:

Classification of Aggregate Assets of the Uruguayan Banking System(1)

(as of May 31, 2018 in millions of Uruguayan pesos)

 

     1A     1B     1C     2A     2B     3     4     5     Total  

Banco de la República

     99,910       9       86,657       25,381       23,227       22,762       7,037       12,317       277,400  

Privately owned banks

     98,786       896       202,119       56,872       52,625       16,584       10,212       5,769       443,863  

Financial houses

     148       —         30       33       16       19       —         1       247  

Off-shore banks

     607       —         290       —         —         —         —         —         897  

Cooperatives

     66       —         385       2       39       71       10       76       649  

Total

     199,517       905       289,481       82,288       75,907       39,436       17,259       18,163       723,056  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage

     27.6     0.1     40.0     11.4     10.5     5.5     2.4     2.5     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The information presented in this table is classified on a quarterly basis on February, May, August and November of each year based on a 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, 2017)

 

Institution Type

   Performing
Loans
    NPLs  

Banco de la República

     98.6     1.4

Banco Hipotecario del Uruguay

     98.9       1.1  

Private banks

     99.4       0.6  

Cooperatives

     98.0       2.0  

Financial houses

     99.7       0.3  

Off-shore banks

     100.0       0.0  

Total

     99.1     0.9

 

(1) 

Loans to both financial and non-financial sector, net of provisions.

Source: Banco Central.

 

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Total Provisions of the Banking System for

Gross NPLs(1)

(as of December 31, 2017)

 

Institution Type

   Provisions  

Banco de la República

     169

Banco Hipotecario del Uruguay

     389  

Private banks

     199  

Cooperatives

     138  

Financial houses

     1,246  

Total

     190

 

(1) 

Total provisions as a percentage of gross NPLs 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 December31,  
     2013      2014      2015      2016      2017  
     (Number)      (Number)      (Number)      (Number)      (Number)(1)      (Loans)(2)     (Deposits)(3)  

Financial Institutions:

                   

State-owned

     2        2        2        2        2        40.5     47.1

Privately-owned(1)

     18        18        14        14        14        59.4       52.8  

Cooperatives

     1        1        1        1        1        0.1       0.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     21        21        17        17        17        100.0     100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) 

At December 31, 2017, includes nine banks, three financial houses and two off-shore agencies (IFEs).

(2)

Loans to non-financial sector, net of provisions.

(3)

Non-financial private sector deposits.

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)

 

     Banco Central     Private
Commercial
Banks
(1)
    Banco de la
República
 

As of December 31,

   Pesos     Foreign
Currency
    Pesos     Foreign
Currency
    Pesos     Foreign
Currency
 

2013

     0.5     0.3     18.5     45.3     19.4     16.9

2014

     —         —         18.3       46.2       18.4       17.1  

2015

     0.8       0.1       18.9       44.3       18.2       17.7  

2016

     0.3       0.1       21.3       44.1       19.0       15.3  

2017

     0.3     0.1     21.5     41.4     20.5     16.2

 

(1) 

Includes private banks, financial houses and financial cooperatives.

Source: Banco Central.

Since the early 1980s, the majority of bank credit provided in Uruguay has been denominated in foreign currency, principally in U.S. dollars. At December 31, 2017, the amount of credit denominated in foreign currencies represented 51.3% of total credit to the non-financial private sector, including Banco Hipotecario.

The Uruguayan financial sector also includes four domestic and eleven foreign insurance companies (including the state-owned insurance company). Insurance companies are regulated on a variety of matters by Law No. 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.

 

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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 most of the amount traded in the Electronic Stock Exchange.

As of December 31, 2013, the aggregate securities trading volume on both exchanges increased to US$40 billion, primarily as a result of changes to the regulatory framework that restricted the number of participants in the primary market of public sector securities with the aim of increasing secondary market transactions of public sector securities. From 2013 to 2016, total trading volume decreased to US$36.7 billion in 2014, US$32.7 billion in 2015 and US$27.1 billion in 2016, mainly due to a decrease in the issuance of government bonds and a decrease in transactions with certificates of deposit. In 2017, total trading volume increased to US$30.2 billion, mainly due to an increase in the issuance of certificates of deposit by the private sector.

Consolidated Montevideo Stock Exchange &

Electronic Stock Exchange Securities Trading Volume

(in millions of US$)

 

     2013      2014      2015      2016      2017  

Private sector securities:

              

Equities

   US$ 55      US$ 28      US$ 80      US$ 50      US$ 9  

Bonds

     4        196        247        61        15  

Certificates of deposit and other

     16,883        14,927        14,010        11,278        15,836  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total private sector securities(1)

     16,942        15,151        14,337        11,390        15,860  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Public sector securities:

              

Central Government

     23,018        21,280        17,803        15,695        14,150  

Public enterprises

     43        253        602        4        205  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total public sector securities

     23,062        21,533        18,405        15,700        14,355  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 40,004      US$ 36,684      US$ 32,742      US$ 27,090      US$ 30,215  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Number of listed companies:

              

Equities

     10        7        7        9        8  

Bonds and other debt issuers

     51        55        50        46        54  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     61        62        57        55        62  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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.

 

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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, income taxes, net worth taxes, tariffs and other minor taxes. Central government expenditures consist 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.

 

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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)

 

     2013     2014(1)     2015(1)     2016(1)     2017(1)  

NON FINANCIAL PUBLIC SECTOR REVENUES

   US$ 16,948       29.5   US$ 16,669       29.1   US$ 15,456       29.0   US$ 15,471       29.3   US$ 17,717       29.9

Central Government

     11,875       20.7       11,442       20.0       10,495       19.7       10,741       20.3       12,587       21.3  

Value-added taxes

     5,418       9.4       5,419       9.5       4,890       9.2       4,767       9.0       5,489       9.3  

Income taxes (corporate and personal)

     3,138       5.5       2,915       5.1       2,870       5.4       3,182       6.0       4,080       6.9  

Taxes on capital

     610       1.1       652       1.1       604       1.1       611       1.2       663.       1.1  

Other taxes on goods and services

     1,443       2.5       1,435       2.5       1,389       2.6       1,324       2.5       1,604       2.7  

Tax credit certificates

     (800     (1.4     (932     (1.6     (902     (1.7     (907     (1.7     (1,244     (2.1

Foreign trade taxes

     635       1.1       653       1.1       565       1.1       511       1.0       600       1.0  

Social Security Revenues (BPS)

     4,196       7.3       4,348       7.6       3,979       7.5       3,937       7.5       4,580       7.7  

Public Enterprises Primary Balance

     877       1.5       879       1.5       982       1.8       793       1.5       550       0.9  

NON FINANCIAL PUBLIC SECTOR PRIMARY EXPENDITURES

   US$ 16,735       29.1   US$ 16,869       29.5   US$ 15,337       28.8   US$ 15,770       29.9   US$ 17,775       30.0

Central Government - Banco de Previsión Social (BPS) Current Primary Expenditure

     14,764       25.7       15,018       26.2       14,104       26.5       14,489       27.4       16,543       27.9  

Wages and salaries

     2,841       4.9       2,882       5.0       2,659       5.0       2,720       5.1       3,106       5.2  

Non personnel expenditures

     2,110       3.7       2,120       3.7       1,998       3.7       2,056       3.9       2,188       3.7  

Pension payments(2)

     5,142       8.9       5,167       9.0       4,997       9.4       5,040       9.5       5,951       10.0  

Transfers(2)

     4,671       8.1       4,849       8.5       4,450       8.4       4.674       8.8       5,298       8.9  

Investment(2)

     1,971       3.4       1,851       3.2       1,233       2.3       1,280       2.4       1,231       2.1  

Local Governments Primary Balance(3)

     (38     (0.1     (86     (0.2     67       0.1       39       0.1       43       0.1  

Banco de Seguros del Estado (BSE) Primary Balance(4)

     88       0.2       (26     —         (145     (0.3     20       —         (65     (0.1

NON FINANCIAL PUBLIC SECTOR PRIMARY BALANCE

   US$ 263       0.5   US$ (312     (0.5 )%    US$ 41       0.1   US$ (239     (0.5 )%    US$ (79     (0.1 )% 

Banco Central Primary Balance

     (40     (0.1     (41     (0.1     (51     (0.1     (49     (0.1 )%      (45     (0.1 )% 

PUBLIC SECTOR PRIMARY BALANCE

   US$ 222       0.4   US$ (354     (0.6 )%    US$ (9     0.0   US$ (288     (0.5 )%    US$ (125     (0.1 )% 

Interest Payments

     1,557       2.7       1,631       2.8       1,896       3.6       1,745       3.3       1,947       3.3  

Central Government

     1,364       2.4       1,303       2.3       1,228       2.3       1,416       2.7       1,604       2.7  

Public Enterprises

     64       0.1       90       0.2       91       0.2       89       0.2       91       0.2  

Local Governments

     5       —         5       —         5       —         4       —         2       —    

Banco Central

     215       0.4       319       0.6       673       1.3       349       0.7       415       0.7  

Banco de Seguros del Estado

     (90     (0.2     (86     (0.2     (102     (0.2     (113     (0.2     (166     (0.3

PUBLIC SECTOR OVERALL BALANCE (SURPLUS/(DEFICIT))

   US$ (1,335     (2.3 )%    US$ (1,984     (3.5 )%    US$ (1,905     (3.6 )%    US$ (2,032     (3.8 )%    US$ (2,072     (3.5 )% 

 

(1) 

Preliminary data.

(2) 

Includes investments by state-owned enterprises.

(3)

Primary balance by funding sources (Source: Banco Central).

Source: Ministry of Economy and Finance based on Tesorería General de la Nación, Contaduría General de la Nación, Banco de Previsión Social, Oficina de Planeamiento y Presupuesto and Banco Central.

 

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In 2013, the public sector overall balance registered a deficit of US$1