Front Matter Page

© 2006 International Monetary Fund

December 2006

IMF Country Report No. 06/427

Uruguay: Selected Issues

This Selected Issues paper for Uruguay was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on June 15, 2006. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Uruguay or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

URUGUAY

Selected Issues

Prepared by Marco Piñón, Herman Kamil, Harald Finger, Alejandro Hajdenberg, Jorge Iván Canales-Kriljenko, Gastón Gelos, and Stephanie Eble

Approved by Western Hemisphere Department

June 15, 2006

Contents

• I. Overview

• II. Balance-Sheet Mismatches and Cross-Sectoral Vulnerabilities in a Highly Dollarized Economy: The Case of Uruguay

  • A. Introduction

  • B. Economy-Wide Indicators

  • C. Sectoral Balance Sheets

  • D. Cross-Sectoral Linkages

  • E. Exchange Rate-Induced Credit Risk of Domestic Banks

  • F. Conclusions

• Tables

• II. 1. Asset Composition of Pension Funds’ Portfolio

  • 2. Currency Composition of Pension Funds’ Portfolio

  • 3. Currency Composition and Maturity Structure of Financial Liabilities of the Corporate Sector in Uruguay: December 2004

  • 4. Dollarization and Residual Maturity of Total Liabilities of the Corporate Sector in Latin American Countries

  • 5. Holders of Central Government Bonds

  • 6. Share of Foreign Currency Credit of the Nontradable Sector in Total Credit

• Figures

• II. 1. Net External Debt Position of the Uruguayan Economy

  • 2. External Maturity Mismatch of the Uruguayan Economy

  • 3. Net Inward FDI Stock, as a share of Net Total External Financing

  • 4. Share of Foreign-Currency Denominated Debt in total Sovereign Debt, 2005

  • 5. Changes in Sovereign Debt Structure

  • 6. Share of Contractual Short-Term Debt in Total Sovereign Debt, 2005

  • 7. Foreign Currency Maturity Mismatch of the Consolidated Public Sector

  • 8. Share of Foreign Currency Deposits in Banking System, 2005

  • 9. Banking System’s Holdings of Sovereign Debt in selected Emerging Market Countries

• Appendices

• II. Corporate Vulnerability to Exchange Rate Devaluations: Sensitivity Test Results

• III. Assessing Competitiveness in Uruguay

  • A. Introduction

  • B. External Sector Performance

  • C. Competitiveness Indicators

  • D. Estimating an Equilibrium REER

  • E. International Competitiveness Rankings

  • F. Conclusions

• Tables

• III. 1. ADF Unit Root Tests

  • 2. Selected VECM Results

• Figures

• III. 1. Merchandise Trade and Current Account, 1997–2005

  • 2. Market Shares in Selected Export Destinations, 1997–2005

  • 3. Structure of Merchandise Exports, 1993 and 2005

  • 4. Tourism Receipts, 1997–2005

  • 5. Foreign Direct Investment, 1997–2005

  • 6. Ratio of Tradable to Non-Tradable Prices

  • 7. Export Price Ratios

  • 8. Real Exchange Rate Relative to Selected Trading Partners, 1997–2005

  • 9. Exchange Rate and Per-Capita GDP, 2001–05

  • 10. CPI-Based REER, 1985–2005

  • 11. Real Effective Exchange Rates, 1997–2005

  • 12. Actual and Estimated Equilibrium REER, 1998–2005

• IV. Post-Crisis Credit: Facts, Lessons, and Prospects

  • A. Introduction

  • B. Evolution of Credit to the Private Sector

  • C. Has There been a Credit Crunch?

  • D. Comparison with International Experience

  • E. What should be done?

• Figures

• IV. 1. Lending to Private Sector Around Selected Banking Crises

  • 2. Evolution of Deposits and Lending Around Selected Banking Crises

• Appendices

• IV. Estimation Results

• V. Options to Increase Infrastructure Investment in Uruguay

  • A. Introduction

  • B. Public Investment and Growth in the Literature

  • C. Investment Developments

  • D. Options to Promote High Quality Public Investment

  • E. Public-Private Partnerships

  • F. Concluding Remarks

• Boxes

• V. 1. Private Participation in Infrastructure in Uruguay

  • 2. PPPs

  • 3. PPPs in Colombia and Chile

• Tables

• V. 1. Selected Fiscal Indicators, 1999-2005

  • 2. Infrastructure Indicators, 1990 and 2002

• Figures

• V. 1. Public Investment in Selected Countries, 2005

  • 2. Public Investment in Uruguay, 1999–2005

  • 3. Average PPI in Latin America, 1990–2004

  • 4. Public Sector Expenditure in 2005

• VI. Uruguay’s Growth Story

  • A. Introduction

  • B. Volatility and Growth Trends—The Facts

  • C. Explaining Uruguay’s Growth—Traditional Models

  • D. Impact of External Factors on Uruguay’s Growth—A Closer Look

  • E. Conclusions—Looking Ahead

• Boxes

• VI. 1. Measures Taken to Reduce the Risks Associated with Financial Linkages

• Appendices

• VI. Tables