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Quiet Success in South America

The underappreciated economic achievements of Uruguay and Paraguay. (Spanish translation of this article can be found here.)

by
Jaime Daremblum

Bio

November 11, 2011 - 12:00 am
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With a combined population of only 10 million, and a combined GDP roughly equivalent to that of Ecuador, Uruguay and Paraguay don’t get much attention from foreign journalists or policymakers. Yet the two South American countries, though dwarfed in size and influence by their two massive neighbors (Brazil and Argentina), have quietly been growing at very fast rates, improving their economic stability, and boosting their credit ratings.

A year ago, Financial Times correspondent Jude Webber dubbed them “Latin America’s impressive little guys,” noting that both were “punching above their weight.” Uruguay is by far the richer and more developed nation. Its economy expanded by 8.5 percent last year, and it received 29 percent more foreign direct investment (FDI) in 2010 than in 2009, with total FDI surging to $1.6 billion. In January, a joint Chilean-Finnish venture announced that it would be constructing a $1.9 billion pulp mill in Uruguay, the single biggest private investment project in the country’s history. Unemployment has fallen to historic lows, and Uruguay is also experiencing a real-estate boom.

“Uruguay is likely to be viewed as one of the best-run countries in Latin America,” investment strategist Jim Barrineau told Reuters this past summer. “What debt it does have is not very actively traded because the fundamentals are so good that most managers buy and hold.” Within the last year, each of the Big Three credit-rating agencies — Moody’s, Fitch, and Standard & Poor’s — upgraded Uruguay’s status. “Uruguay’s external and fiscal vulnerabilities have reduced owing to improvements in its external and fiscal solvency ratios, strengthened external liquidity as well as better currency composition and maturity structure of government debt,” Fitch declared in July. “High GDP per capita income, strong social indicators, and a solid institutional framework underpin Uruguay’s creditworthiness.” As Bloomberg News recently reported, investors believe that Uruguay “is heading toward its first investment-grade rating since 2002.”

The Uruguayan economy depends heavily on exports — which grew by nearly 24 percent between 2009 and 2010 — particularly beef, grain, and soybean exports. Back in May, the U.S. agribusiness giant Archer Daniels Midland announced that it was building a new facility in the South American country: a massive grain export terminal with a storage capacity of 180,000 tons and an initial loading capacity of 2.8 million tons. Uruguay may also become one of the Western Hemisphere’s biggest gas exporters: The U.S. Energy Information Administration has projected that it is sitting on 20,580 billion cubic feet of natural-gas reserves.

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