Political Risk Latin America Blog @PolRiskLatam

Brazilian “competitive devaluation” risk for Uruguay’s exports

Posted in News and Articles, Political Risk by politicalrisklatam on November 11, 2010

by Merco Press News, November 10th, 2010.

A leading Uruguayan economist warned Wednesday about the risks of being highly dependent on Brazil for foreign trade, particularly since the Uruguayan economy could “be trapped in a competitive edge island”.

Professor Gabriel Oddone said that the only trade partner with which Uruguay has gained a competitive edge in the last twelve months has been Brazil, but the neighbouring country’s “prices are not sustainable” and a “competitive devaluation is a less difficult option for Brazil than for Uruguay”, given its huge domestic market. Economist Oddone said that Uruguayan exports growth rate to Brazil in the last twelve months has been double the rate of the rest of Uruguay’s world trade partners.

In the meantime “Brazil’s fiscal deficit and trade surplus have deteriorated significantly”, possibly because of the electoral year and next January first president-elect Dilma Rousseff takes office with a stronger support in Congress, greater than when her mentor President Lula da Silva was first sworn in eight years ago.

“Brazil has become one of the most expensive countries in the world”, which has boosted Uruguayan sales to its neighbour, and therefore any change of policy could “significantly affect the local economy”, warned Oddone. (continue reading… )


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