Nearshore Americas

Uruguay’s New President Aims to Bring Down Inflation

Tabare Vazquez has taken office as the new president of Uruguay, vowing to bring down inflation and narrow fiscal deficit. Vazquez was elected in last December’s presidential election, defeating his rival Luis Lacalle Pou by about 10% of the vote.

A socialist leader, Vazquez is likely to continue the policies of his predecessor Jose Mujica. Some analysts say he will try balancing market-friendly policies with expansion of social welfare programs.

In a speech made after taking the oath of office on Sunday, Vazquez said he would reduce public spending but will make sure that social welfare programs do not run short of cash.

Soon after his election, Vazquez, who previously served as president from 2005 to 2010, spoke of investing more money in health and education.

Uruguay’s economy is not in crisis like that of its neighbor Argentina, but it is struggling with high inflation, ballooning fiscal deficit and a dramatic drop in agriculture prices. Recently, its inflation rose to 8%, while fiscal deficit equaled 3.3% of its gross domestic product.

But Vazquez can easily put the economy back on track, given the country’s strong structural factors, including a high per capita GDP and strong institutions. The new president is aiming to push inflation back to 7% or below.

As a small, open and commodity-dependent economy, Uruguay continues to strengthen its capacity to manage external shocks through the accumulation of international reserves, improved exchange rate flexibility and external financing flexibility.

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According to Fitch Ratings, reserves increased to US$17.6 billion in 2014, boosting the country’s buffers against potential vulnerabilities from decreasing foreign demand for its agriculture and mineral resources.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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