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Argentine deterioration no threat to Uruguay, says FinMin Bergara

Feb 20, 2014

Uruguay will not repeat the economic and financial turmoil of a decade ago, even if Argentina’s currency woes deepen, Uruguay’s new finance minister Mario Bergara tells LatinFinance

Uruguay is in a strong position to dodge contagion from Argentina if its neighbor’s financial problems worsen, the country’s finance minister Mario Bergara told LatinFinance on Thursday.

Argentina’s financial crisis in 2001 and 2002 caused economic turmoil in Uruguay, forcing the country to restructure its debt. But this time around the Uruguayan economy is in much better health and it has less financial and trade ties with its troubled neighbor, Bergara said.

"In 2001 the problems were transmitted through the banking sector. Today, the deposits that Argentines have in the Uruguayan market represent 9% of the total," he said in an interview during a visit to New York. He added that Uruguayan banks hold liquid assets equal to half their total assets. "Therefore Uruguayan banks could deal with a massive outflow."

The former central bank head said that in 2001 40% of deposits in Uruguayan banks belonged to Argentines, and around 20% of credit from Uruguayan lenders went to Argentina — a figure that is now close to zero.

Argentina devaluated its currency in mid-January, raising volatility in emerging market currencies. The event went almost unnoticed in Uruguay because the local FX market had been trading in line with the black market exchange rate since late 2011, when the government of Cristina Fernandez tightened currency controls, said Bergara.

"The Argentine peso started trading at the parallel exchange rate almost immediately, therefore we have been dealing with the depreciation of the Argentine peso for two years and it hasn’t had any major effects," said Bergara, who became finance minister in December, having run the country's central bank since 2008.

In the past 10 years, the Uruguayan economy has expanded at an average of 5.5%, contributing to it getting a third investment grade rating last year. Meanwhile, Uruguay has diversified its economy from exports of certain agricultural products, making it less dependent on trade with Brazil and Argentina, the two largest economies in South America.

Around 25% of Uruguayan exports went to Argentina in 2001, that figure has shrunk to 5%. That means that a serious economic crisis in Argentina would have little impact on Uruguay’s trade balance, Bergara said. "There can be some impact in some specific sectors that export to Argentina specifically, but that will never have a macroeconomic impact," he said.

He said that he hoped Argentina would soon be able to fix the problems that prevent the country from normalizing its relationship with the capital markets and he would like to see Brazil’s economic growth pick up speed soon.

"The best thing that can happen to Uruguay is for its neighbors, Argentina and Brazil to be in a healthy situation in economic and financial areas. The best thing that could happen to Uruguay is to be part of a region that is solid and stable," he said. LF

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