Uruguay’s Refreshing River Run

Uruguayan President Mujica, an octogenarian former guerilla, visited Washington ahead of October elections to review bilateral trade and investment agreements and broader South American direction especially with partners Argentina and Brazil. His ruling coalition is favored in the upcoming poll on 3 percent GDP growth, despite inflation above the 6 percent upper target range and a current account gap at 5 percent of output mainly covered by mining FDI. Foreign reserves at over $15 billion are several times short-term external debt and international holders of investment-grade rated local instruments are kept in place by special set-asides and yields are negative. The peso has retraced 25 percent from last year’s level and the country has top governance and transparency rankings in contrast with its River Plate neighbor as Argentines seek financial and property havens from stagflation and capital controls. Despite the administration’s leftist rhetoric business policies have been pragmatic and the leadership represents continuity unlike alternatives like Panama, where the opposition just defeated the incumbent’s designated successor in a major surprise. Under President Martinelli, a wealthy grocery executive the offshore banking and construction sectors boomed but he was also linked to bribery allegations around Canal contracts and provoked resentment when his wife was named the recent ticket’s vice-presidential candidate. The winner Varela intends to maintain public outlays for 7 percent annual growth but envisions more social spending and food price curbs to address popular complaints. Canal expansion has been delayed by worker strikes over unresolved pay and safety issues, and he also wants to strengthen judicial powers of independent investigation which may reopen his predecessor’s abuse case.

Argentina’s bonds are up almost 50 percent the past year to cap the EMBI as $5 billion in paper for the Repsol expropriation settlement was easily offloaded with the sovereign still barred from US access by pending Supreme Court actions. Justices have heard the first dispute on asset collection efforts, and the second will treat the pari passu New York tribunal interpretation seizing existing bondholder payments for creditor claims. The GDP warrants from that exchange will not be triggered this year with the economy in recession, and the state statistical agency will not print annual inflation readings until 2015 under its new methodology developed with the IMF. Private estimates of around 35 percent are complicated by widespread controls and subsidies for the consumer basket which officials pledge to phase out over time. International reserve loss has been staunched with peso depreciation and new bank dollar position rules, despite a narrower trade surplus on energy imports. President Fernandez will exit in 2015 after two terms as her Brazilian counterpart attempts the same feat with her lead fading in opinion surveys. President Rousseff is now just 10 points ahead of PSDB standard-bearer Neves, a senator who recruited former central bank chief Fraga as an adviser. Socialist party entrant Campos has united with environmentalist Silva who ran previously to clean up Amazonian corruption scale.