Sources:
World Bank - Country Partnership Strategy for the Republic of Uruguay
World Bank - Uruguay: From Crisis to Opportunity
U.S. Dept of State - Uruguay's Economy
Uruguay has come a long way since 2002, when it faced one of the steepest economic and financial crises to hit the country in a decade. The Argentine withdrawals from Uruguayan banks and the devaluation of Brazil’s currency caused Uruguayan goods to become less competitive. All these factors, along with the outbreak of foot and mouth disease, led to massive amounts of borrowing from international institutions and financial instability in the country. However, despite the severity of the crisis, Uruguay’s economy has bounced back, in large part due to the aid of the World Bank.
According to a recent World Bank report, Uruguay has proven very successful in its implementation of the Bank’s initiatives to bolster economic and social recovery. Poverty rates have decreased, the national debt reduced, and the health care system underwent significant reforms. In addition, the Bank also helped Uruguay to eliminate foot and mouth disease, boosting the country’s image as a reliable beef exporter.
The reforms proposed by the World Bank included structural changes and short-term stabilization policies as a way to shield the country from external economic shocks. These policies included strengthening the financial sector through a flexible menu of lending and non-lending services, developing local capital markets through innovation and infrastructure, and finally, cutting the external debt and reducing the role of the US dollar in the local economy. The Bank also sought to provide financial and technical support to Uruguay by providing loans in local currency and lowering the cost of financing.
Supported by the Bank’s program, Uruguay’s economy achieved a 6.6 percent growth on average from 2004 to 2008 and poverty declined by nearly 39 percent over the last 8 years. Public debt had decreased from 79.3 percent of Gross Domestic Product in 2005 to 60 percent in 2009. Also, with the aid of the Bank-financed Non-Transmittable Diseases Project, Uruguay was able to restructure its health system in order to include more accessible primary care services to the population.
Showing posts with label Uruguay. Show all posts
Showing posts with label Uruguay. Show all posts
Thursday, July 07, 2011
Saturday, May 07, 2011
Diverging Views on Greek Debts
Sources:
Economist: A Question of Maturity; Latin Lessons
FT: Jump in Greek Yields Spurs Restructure Talk
WSJ: Greek Debt Talks Widen Divisions in the Euro Zone
In May 2005, the euro-zone governments and the International Monetary Fund (IMF) provided a bailout program of €110 billion ($162.9 billion) for Greece, hoping that Greece will be able to reduce its budget deficit and repay its public debts in full. Recently, however, yields on the Greek bonds, which are inversely related to bond prices, sharply rose to over 20 percent, reflecting investors’ fear that restructuring Greek debts is inevitable. Also, Greece’s budget deficit remained still high (10.5 percent) in 2010. While the German government is now open to a restructuring of Greek debts, other European policymakers including the European Commission and France still firmly oppose any type of restructuring, arguing that it will lead to the belief that Ireland and Portugal will follow the same path.
What German officials suggest is a voluntary debt restructuring by extending the maturity dates without a “haircut,” a debt reduction. In that case, Greece will have more time to repay its debts and avoid borrowing more loans from the euro-zone governments and the IMF. However, there is a concern that the extension of the maturity dates alone will not fundamentally solve the Greece’s insolvency problem. The German approach does not aim to restore Greece's solvency, but it is politically motivated to reduce the taxpayers’ burden to provide additional loans to Greece. If no measures of a debt restructuring or a haircut are introduced, taxpayers in euro-zone countries will have to pay about €142 billion by the end of 2013, according to David Mackie, an economist at J.P. Morgan. However, if the maturity dates of Greek bonds that come due in 2012 and 2013 are extended, taxpayers’ burden can be reduced to 77 billion.
Countries in Latin America offer examples of how to solve sovereign debt problems in Greece. In 2003, Uruguay negotiated its debts with its creditors and extended the maturity dates by five years without reducing the size of its debts. Such option was successful in that Uruguay was able to avoid default on its debts and minimize losses on creditors. However, the problem Greece faces is worse. Greece holds debts (145 percent of GDP at the end of 2010) twice the size of the Uruguay’s and its economic growth prospect is not as strong as Uruguay’s. According to the Economist, Greece will ultimately need to reduce its debts as Mexico did during the debt crisis in the 1980s. In the case of Mexico, a debt restructuring was the first measure taken in 1982, which only provided additional time without solving the problem. In 1989, another measure to reduce the size of the debts eventually had to be introduced.
Economists also believe that reducing the size of Greece debts is ultimately inevitable and any further delay will likely contribute to a worsening of the problem. However, whether policymakers in Europe will achieve political consensus remains to be seen.
Economist: A Question of Maturity; Latin Lessons
FT: Jump in Greek Yields Spurs Restructure Talk
WSJ: Greek Debt Talks Widen Divisions in the Euro Zone
In May 2005, the euro-zone governments and the International Monetary Fund (IMF) provided a bailout program of €110 billion ($162.9 billion) for Greece, hoping that Greece will be able to reduce its budget deficit and repay its public debts in full. Recently, however, yields on the Greek bonds, which are inversely related to bond prices, sharply rose to over 20 percent, reflecting investors’ fear that restructuring Greek debts is inevitable. Also, Greece’s budget deficit remained still high (10.5 percent) in 2010. While the German government is now open to a restructuring of Greek debts, other European policymakers including the European Commission and France still firmly oppose any type of restructuring, arguing that it will lead to the belief that Ireland and Portugal will follow the same path.
What German officials suggest is a voluntary debt restructuring by extending the maturity dates without a “haircut,” a debt reduction. In that case, Greece will have more time to repay its debts and avoid borrowing more loans from the euro-zone governments and the IMF. However, there is a concern that the extension of the maturity dates alone will not fundamentally solve the Greece’s insolvency problem. The German approach does not aim to restore Greece's solvency, but it is politically motivated to reduce the taxpayers’ burden to provide additional loans to Greece. If no measures of a debt restructuring or a haircut are introduced, taxpayers in euro-zone countries will have to pay about €142 billion by the end of 2013, according to David Mackie, an economist at J.P. Morgan. However, if the maturity dates of Greek bonds that come due in 2012 and 2013 are extended, taxpayers’ burden can be reduced to 77 billion.
Countries in Latin America offer examples of how to solve sovereign debt problems in Greece. In 2003, Uruguay negotiated its debts with its creditors and extended the maturity dates by five years without reducing the size of its debts. Such option was successful in that Uruguay was able to avoid default on its debts and minimize losses on creditors. However, the problem Greece faces is worse. Greece holds debts (145 percent of GDP at the end of 2010) twice the size of the Uruguay’s and its economic growth prospect is not as strong as Uruguay’s. According to the Economist, Greece will ultimately need to reduce its debts as Mexico did during the debt crisis in the 1980s. In the case of Mexico, a debt restructuring was the first measure taken in 1982, which only provided additional time without solving the problem. In 1989, another measure to reduce the size of the debts eventually had to be introduced.
Economists also believe that reducing the size of Greece debts is ultimately inevitable and any further delay will likely contribute to a worsening of the problem. However, whether policymakers in Europe will achieve political consensus remains to be seen.
Sunday, February 13, 2011
Uruguay to Expand Its Energy Options
Bernama: Uruguay Wind Farms to Supply 25% Electricity
LAWEA: About LAWEA
MercoPress: Tenders for Three Winds Farms In Uruguay Awarded
Although it is already the third-cleanest country in South America in terms of carbon emissions, Uruguay is seeking to increase its use of clean energy.
Uruguay recently announced plans to develop wind farms in hopes of ending its dependency on oil by 2013. During the 1970s, Uruguay’s oil usage peaked at about 70 percent of its total energy production. Today, oil is used to produce about 40 percent of Uruguay’s energy. Uruguay does not produce any oil, so it must import foreign oil for its needs. To reduce imports and decrease the negative effect of biofuels on the environment, Uruguay has developed new sources of energy production.
Hydroelectric power, which now accounts for almost half of the electricity produced in Uruguay, has helped to decrease oil consumption. However, Uruguay has exhausted its resources of hydroelectric power—its rivers are used to their maximum potential. Also, Uruguay has faced problems with hydroelectric power. Uruguay’s geographical position exposes it to the Niño-Niña, which causes variations in ocean temperatures that affect rainfall and, therefore, hydroelectric capacity. For example, for several weeks in 2008, there was only enough water in Uruguay’s reservoirs to operate three percent of its hydroelectric plants. Because these climate changes occur every five to eight years and are difficult to predict, the government is seeking more reliable options for energy.
Recently, the government announced plans to begin installing as many wind farms as its electricity grid can handle. Three developers so far have contracted to sell wind power at rates 40 percent cheaper than energy produced by oil. These developers have guaranteed the cheaper price will remain fixed for the next twenty years. These lower costs will make wind energy more competitive, helping drive down the demand for oil and encouraging further development of wind power.
The director of the Ministry of Industry, Energy and Mining, Ramón Méndez, predicts that Uruguay could generate 25-28 percent of its power from wind and from biomass (energy coming from the incineration of trash). However, he also warns that wind power is difficult to control. Mendez estimates that on a “blustery, summer night” wind power could generate up to 60 percent of the country’s electricity. But if the demand at that time is low, the surge in energy could cause problems, such as blackouts in the power grid.
Energy experts consider South American countries like Uruguay an untapped resource for wind energy production, which to date has been dominated by North America, Europe, and Asia. However, investors and governments are now realizing the potential of wind power in South America’s large, open spaces. Installation of wind power turbines also may help social and economic development of South America. By purchasing previously unused land or installing turbines on farmland, more capital will flow into South American economies, encouraging development.
Nonetheless, there are disadvantages to wind power. Some find turbines noisy and unattractive to the natural landscape. Many turbines are required to produce a usable amount of energy. Also, these turbines and wind power plants are expensive to construct. Finally, as Mendez points out, the wind is uncontrollable and thus not entirely reliable. If Uruguay relies too heavily on wind power, it may face blackouts during times of little wind or during wind gusts.
While there are disadvantages to wind power, Uruguay may be a model to other countries that want to decrease their dependency on foreign oil and encourage development of clean energy sources.
Discussion: Is the combination of hydro and wind power as the two main energy sources in Uruguay only possible because of its small size and geography, or could other, larger countries look to Uruguay as an energy example?
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