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InterviewsNovember 25 2013

Uruguay's finance minister charts upwards growth path

Uruguay's finance minister, Fernando Lorenzo, tells The Banker how his country has managed to remain resilient in the face of the global economic crisis, and why he still longs for a more open Latin America.
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Uruguay's finance minister charts upwards growth path

Q: Will Uruguay be able to sustain economic growth at a time when many Latin American countries are slowing down?

A: During the world economic downturn of 2008 and 2009, Uruguay was one of the few economies in Latin America that kept on growing – by almost 3% in 2009. Uruguay has had gross domestic product [GDP] growth of 4% [in 2012, above the regional average] and even higher in recent times [GDP expanded 5.6% in the second quarter of 2013 compared with the same period in 2012, according to Reuters].

For the first time, growth is pushed in good measure by capital accumulation, which is improving productivity. It is not a case of growth led by spending, which could create real-estate bubbles. There has been no indication of vulnerability in the country’s growth process [that we have seen].

Q: What about the banking sector – what will drive banks’ growth?

A: Uruguay has a peculiar banking structure. The largest, best capitalised and most profitable bank is state-owned [Banco Republica]. The other lenders present in the country are international banks with different strategies and they account for about 60% of the market. Banks in the country are well capitalised, highly liquid with low non-performing loans and quality portfolios.

But Uruguay is underdeveloped compared with the rest of the region in terms of financial intermediation. We have low banking penetration in the economy, low levels of credit and consumer spending, and the banking sector is mainly concentrated in foreign trade. We are planning fiscal incentives to help to formalise [part of the economy] and the use of bank accounts. We are also pushing the expansion of e-payments. There will be changes to the law to extend banking products to more families, workers and corporates to include them in the formal financial system.

Q: What are the government’s main priorities?

A: Making sure that the current economic prosperity lasts. It is important that Uruguay’s economic progress includes larger portions of our population. So far, economic progress has happened at the same time as social progress and we want to make sure this continues.

[We want to develop] infrastructure and education, which are the basis of sustainable economic development. There is no alternative to opening up to international markets; we have a small population and limited natural resources.

Q: Are you concerned about the past slow progress of trade blocs in Latin America? And how do you see new regional integration plans such as the Pacific Alliance?

A: Uruguay is an observer in the Pacific Alliance. It is the only country of Mercosur [which also includes Brazil, Argentina, Paraguay and Venezuela, with Bolivia an accessing member] that has extensive commercial agreements with the four countries that form the Pacific Alliance. So from a commercial point of view, Uruguay has the tools to participate in the expansion of commercial agreements within the alliance.

Uruguay would like Mercosur’s policy to be more predisposed to negotiations with trade partners. At the moment, the one that is open and pending negotiation is the one Mercosur has with the EU – a negotiation that started more than a decade ago. Progress has been limited until now, but we’re at a crucial step. Uruguay intends to present a suitable offer to reach agreement. We are waiting to see the offers from other members of Mercosur, such as Argentina and Brazil. However, Uruguay would like to present its offer independently from other Mercosur members.

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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