Despite the unprecedented volatility and uncertainty of
recent years, the last decade has been a very good one for
Uruguay. Driven by a strong institutional framework and
macroeconomic policies oriented towards macroeconomic and
financial stability, Uruguay has enjoyed high economic growth
(3.5% a year on average over the last 10 years). This
performance has allowed a major reduction in poverty and a
generalised improvement in human development indicators.
The resilience of the Uruguayan economy was proven during
the 2008-09 global financial crisis, when it was one of the few
countries with positive growth (4.2% in 2009). Last year's
performance, even though below the long-term potential GDP
trend, stands out given the global and regional context. The
increasing openness of the economy, the search for new markets
and in particular, the recently signed trade agreement between
Mercosur and the EU will help to maintain this record.
Despite mounting pressures from anaemic regional growth,
prudent management remains the cornerstone of Uruguayan
macroeconomic policy. At the same time, a sound debt policy has
increased average maturities of public debt and the
participation of market debt in total public debt, while
decreasing the share of dollar-denominated debt from almost
100% in 2002 to 54% by 2018. All these efforts resulted in the
Uruguay's public debt being categorised as investment grade in
2012, a credit rating that has been recently confirmed by the
major international credit rating agencies and the market. The
Central Bank of Uruguay (BCU) has been a big contributor to
this successful landscape, on the monetary policy and the
financial stability fronts.
Inflation remains one of the BCU's main concerns, despite it
falling to 7.96% by end-2018, just above the ceiling of the
3-7% target range. In response to mounting inflation, mainly
driven by commodity and regional price shocks, and in an effort
to keep inflation expectations anchored, in 2013 the BCU
shifted to managing monetary aggregates. Consistent with
concerns over inflation, M1 yearly growth slowed from 11.5% in
Q2 2018 to under 10.0% in Q2 2019. The evolution of monetary
aggregates and the term structure of interest rates are both a
reflection of the monetary policy stance in the current phase
of the cycle.
Systemic risk is relatively low in the Uruguayan financial
system due to the large reduction of liability and deposit
dollarization, as well as enhanced regulations and supervision
of the financial system that followed the 2002 crisis.
Nowadays, the banking sector is consolidated, with an average
capital adequacy ratio of over 13%, short-term liquidity excess
above 42%, and non-performing loans of 3.7%.
To reduce risks embedded in the banking system, a Financial
Stability Committee started to operate in 2011. At the same
time, the BCU concentrated its efforts to enhancing financial
literacy to help domestic agents' financial decision-making.
Indeed, financial inclusion and education and the development
of the domestic market continue to be among the BCU's top
Consistent with the Financial Inclusion Law of 2013, which
aims to improve the efficiency of the payments system, the Bank
launched a digital currency pilot programme between November
2017 and April 2018. Evaluated positively, the experience of
the e-Peso has put the BCU on a pro-active footing for
its mandate in the digital era.