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LATIN AMERICA | 04-10-2019 07:00

As Argentina struggles, Uruguay worries about its own economy

With economic instability plaguing its neighbour across the River Plate, Uruguayans are wondering how keenly the downturn will be felt at home.

With economic instability plaguing its neighbour across the River Plate, Uruguayans – from government officials, businessmen, to presidential candidates – are wondering how keenly Argentina's collapse will be felt at home.

It's of crucial impotance: Argentina is a key customer for Uruguayan products. Above all, it is an important player in its third-largest labour sector: tourism.  

With summer around the corner and the country gripped in the middle of its own election campaign, presidential candidate and former Montevideo mayor Daniel Martínez, of the ruling Frente Amplio coalition, was quick to say recently that what happens in Argentina is "thousands of miles away." 

But is that really true? 

Close relationship

Despite the differences between the two economies, Uruguay is no longer as commercially dependent on its neighbour and traditional export markets as it was at the beginning of the 21st century.

It is however, highly dependent on services, especially tourism, which is where Argentina's crisis is being felt the most.  

“There aren’t many Argentines that come anymore. Last July they did, but by last summer [tourism] had already decreased” explained 32-year-old Noelia to AFP, who runs a traditional souvenir shop for tourists in the centre of Montevideo, the Uruguayan capital.

Noelia pointed out that the number of Argentine visitors who visit her shop is decreasing. It’s “really rare” to see tourists from the region, she said, and when they do, they buy “the bare minimum.”

The two countries share more than a common history; many Argentines have second homes or investments in Uruguay, which has always been more financially stable and predictable. 

The concern is evident among economists, small business owners and large corporations who sell to Argentina or depend on tourism. Yet both anti-establishment candidates and current administration officials are among those expressing concerns. 

Argentina has done little to soothe their worries. President Mauricio Macri’s decision to introduce capital controls was seen by many as the final straw. 

“Everything that we had thought of until now has had a radical change, to be quite frank, to something we didn’t expect” Uruguay's Tourism Minister Liliam Kechichián told reporters recently. She compared Macri’s exchange policies with those of Kirchner administrations in Argentina. 

From the Punta del Este Real-Estate Chamber, the goal is to implement a tax waiver that allows rental homeowners in Uruguay’s balnearios (resort towns along the coast) to lower prices during the summer season, said the group's President Javier Sena, indicating that measures are being taken.

The season will be “hard”, expressed Sena who argued the real-estate market is also trying to reduce prices for tourists.

“We’re trying to get the problem solved” before the start of summer rentals,” expressed Sena.  

Competition

While Argentina is only Uruguay’s fifth-largest export partner, demand in the market has exponentially decreased. August's exports were only at 35 percent of last year's level, exacerbating a growing tendency. 

To encourage exports and thus obtain dollars “Argentina’s exchange rate will have to increase,” former Argentine economy minister Ricardo López Murphy warned last month at a conference in Montevideo. 

“Currently, the Uruguayan peso is 30 percent more expensive than historical parity with its Argentine counterpart,” emphasized Ignacio Munyo, an economist at the Universidad de Montevideo and advisor to presidential candidate Luis Lacalle Pou, from the opposition Partido Nacional (“National Party”).

“Tourism and retail [excluding supermarkets] are the most affected sectors. The Uruguayan financial market is not threatened by Argentinian fluctuations,” he explained. 

Lacalle Pou, a centre-left candidate, polled second in the October polls, trailing at 22.4 percent from Martínez’s 40 percent.  

The two nations remain inextricably linked and next month both Argentina and Uruguay will hold presidential elections on the same day: first rounds will be held on October 27, with run-offs scheduled for November 24, if needed. 

by Mauricio Rabuffetti, AFP

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