Source:
IFIs Latin American Monitor
Wed Oct 26 2005
The IMF mission completed the first review of the Stand-By arrangement with Uruguay, highlighting achievements and pointing out risks related to the country’s economic performance. In an official press release, the institution announced the modification of deadlines for implementing a tax reform, and some days later sent a technical mission to study the project.
According to the document released by the IMF, the Uruguayan economy is currently on a growth path. Inflation levels continue to be low and renewed access to international capital markets has been achieved. As a result, economic vulnerabilities have been reduced significantly.
With regards to the budget submitted to parliament in August - the first budget of the political party in power – the IMF stresses the importance of this document, since the economic team, thus reaffirms the government's commitment to strong macroeconomic policies.
It is worth mentioning the road travelled by the Executive Power in order to reach the final version of the budget document. The economic team had to respect the needs of each Ministry and the will of the President, which was no simple task at all. Economy Minister, Danilo Astori, tried to give priority to commitments undertaken with the IMF in terms of primary surplus levels and inflation; while the President, Tabaré Vázquez intended to fulfil his electoral promise to allocate 4.5% of GDP to public education. Upon this first conflict within the government, the will of the President prevailed and figures had to be adjusted according to his promise but also acknowledging agreements with the IMF.
For the Fund, now it is important to implement such budget and accelerate the fiscal reform process, which will supposedly increase income levels. As pointed out in the IMF document, the Uruguayan authorities are planning a comprehensive tax reform, a improvement in revenue administration, and reforms of pension funds. The IMF is committed to this goal on account of which it has sent a delegation made up of tax experts to review details of this reform. It is expected that the new system, which includes the resetting of the individual income tax, would become effective as of next year’s second semester.
Finally, as important achievements of the Uruguayan economy, the IMF highlights the progressive return to international capital markets, the monetary policy and the restructuring of the banking system. As it is noted, Uruguay has taken advantage of favourable external conditions to improve the structure of its public debt, it has been applying a monetary policy that maintains low inflation levels and is undergoing a process of strengthening the Central Bank.
However, the IMF underlines the existence of considerable risks, particularly, the high public debt, the weaknesses in the banking system and pressures to raise fiscal spending. The major warning consists in carefully monitoring potential inflationary pressures, in order to take steps aimed at ensuring a low inflation level.
According to the IMF release, the government strategy to achieve economic growth and social progress is focused on raising private investment, thus creating a favourable climate for such purpose, and providing support to vulnerable groups through a social assistance strategy also promised during the electoral campaign (“Emergencia Programme”).
Related Information:
IMF Press release
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