Brazil & Southern Cone - February 2014 (ISSN 1741-4431)

Uruguay’s new economy and finance minister, Mario Bergara, has come under immediate pressure after the latest (January) inflation figure brought the 12-month rate up to 9.10%, perilously close once again to politically unpalatable double digits. Bergara said that part of the trouble in devising a policy to try and reduce inflation was that Uruguay was hostage to international developments, in particular the unfolding situation in Argentina, where there is huge uncertainty over economic policy direction.

“Inflation of around 9% is not something which should satisfy us, not at all,” Bergara said on 10 February in his first interview, with local radio station El Espectador, since assuming his new role. “It is noticeably above what the authorities and society want, but,” he was careful to add, “it in no way constitutes a situation which implies a loss of control.”

Bergara, who served as president of the Uruguayan central bank until taking over as economy minister in December, when Fernando Lorenzo resigned after facing legal action over the government’s handling of the bankruptcy of the state airline Pluna, added that “price stability requires our full attention”. Inflation has remained stubbornly high, and well above the government’s target range of 4%-6%, ever since President José Mujica came to power in 2010, and it looks like something he will bequeath his successor in March 2015.

Bergara went on to explain that there were a number of factors for inflation picking up, such as higher international prices for Uruguayan exports, which were “very quickly” affecting domestic prices. But Bergara really opened up when it came to discussing Argentina, where the government of President Cristina Fernández is trying to rein in inflation after what was essentially a devaluation of the peso in January. Bergara said that the “loss of predictability” in Argentina was a real concern.

Second-guessing what the Casa Rosada chooses to do, however, is not a sound basis for policy-making, and Bergara was keen to emphasise that it was important to avoid “going crazy taking measures in the macroeconomic field” pre-emptively. “It should not be Argentina which guides Uruguay’s macro [economic] decisions,” Bergara added. Maybe not, but the 2002 economic crisis in Uruguay, a direct result of the 2001-2002 economic and financial meltdown in Argentina, remains all too fresh in the memory: there was a run on Uruguayan banks by Argentine citizens after bank deposits in Argentina were frozen, prompting a plunge in the Uruguayan peso; a banking crisis; a sharp economic contraction; soaring inflation and unemployment; and the doubling of the external debt burden. Uruguayan businesses are also very concerned that the sharp devaluation in Argentina’s currency will prompt a sudden influx of cheap goods.

First Lady and Senator Lucía Topolansky commented in a radio interview in late January that “when Argentina sneezes, we catch a cold”. For all of Uruguay’s attempts at diversification to build up immunity to viral contamination from Buenos Aires, when Argentina sneezes Uruguay does indeed still catch a cold. But this metaphor is too benign for the current circumstances and really needs to be extended: if Argentina has the flu, Uruguay is at risk of getting pneumonia too.

Bergara made no secret of his frustration with Argentina in his compellingly candid interview. At one point he said, “There are many economic decisions which have certainly been a bit held up (in Argentina) because the direction is unknown; announcing one measure on one day, dismantling it the next day; it’s not clear who is in charge, or what the logic of the economic course being set is”.

Bergara, a guileless technocrat rather than a politician more practiced at dissembling, paid a price for his sincerity in his first interview. Two days later Argentina’s cabinet chief, Jorge Capitanich, decried Bergara’s remarks as “inadmissible”. Capitanich went on: “We consider his comments unfortunate and an unwarranted interference in our sovereign affairs”.

Bergara subsequently sought to defuse any tension his remarks might have caused during an appearance before the permanent commission of congress on 13 February. Bergara was summoned by congress to discuss the government’s plans for the state-owned Banco de la República Oriental del Uruguay (Brou), whose president was caught up in the Pluna scandal, but inevitably he was also quizzed about his remarks on Argentina.

Bergara gave a somewhat scrambled defence. He said that he had meant to convey the need for Uruguay to analyse the present situation in relation to “links of a trade, finance and economic nature” because this was “vital as a diagnostic to evaluate Uruguay’s macro and micro policies”. He went on: “Just to clarify things, we were referring to the need to define our policies and in no way was any reference intended towards people or was any type of interference calculated. It would be extremely arrogant on our part to think that we have the capacity to influence or intervene in what happens in the processes of a neighbouring country.”

The Uruguayan weekly Búsqueda suggested that the damage had already been done. It argued that for the government the comments “broke the atmosphere of rapprochement”. Búsqueda said that the government had made tentative moves towards improving ties after President Mujica met President Fernández in Cuba on the sidelines of the summit of the Community of Latin American & Caribbean States (Celac) on 28 January.

Fernández granted Mujica a 40-minute meeting in Havana, the first between the two heads of state since the bilateral dispute over a Uruguayan pulp mill flared up once again shortly before Argentina’s legislative elections last October after Mujica decided to allow the Finnish owners of the pulp mill, UPM, to increase production. This prompted Argentina’s foreign minister, Héctor Timerman, to threaten a return to the International Court of Justice (ICJ) at The Hague, arguing that increased production would lead to additional pollution, contravening the terms of the original ruling.

Timerman’s threat still hangs in the air. Mujica had said at the time that he would sit down with Fernández after the country’s legislative elections to discuss the matter, but she took extended medical leave at the tail end of last year and no such meeting could be agreed until Havana. Just a week prior to the meeting in Havana, Uruguay’s foreign minister, Luis Almagro, who attended it, had returned from a meeting with Timerman in Buenos Aires declaring that “relations with Argentina have reached rock bottom”.

If the atmosphere between the two countries became sunnier after the Caribbean sojourn, no firm agreements were reached (see sidebar) and, pointedly, the ICJ threat was not removed. Timerman emerged from the meeting, saying merely that the two sides had agreed to set up a round table for dialogue, but there are no signs of compromise from either government and Timerman ratcheted up the pressure by saying that Argentina hoped to resolve the UPM issue by 2 April at the latest in order to avoid having to return to the ICJ. Bergara’s comments have caused fresh clouds to descend again over bilateral relations.

• Buquebús

In an incident that the Uruguayan press was quick to depict as symbolic of the friction between Uruguay and Argentina, the new high-speed catamaran cutting the journey time between Buenos Aires and Montevideo on 11 February broke its moorings in the harbour in the Uruguayan capital and hit the quayside, damaging the port side of the ship. Christened ‘Francisco’ in the Pope’s honour, the catamaran, owned by the binational maritime company Buquebus, was launched to much fanfare last September by Presidents Mujica and Fernández as a symbol of the two countries coming closer together.

• Port dispute

Another bone of contention discussed between Presidents Mujica and Fernández in Cuba was a resolution issued by Argentina’s national port authority last October stipulating that “export cargoes originated in Argentine ports can only be transhipped to other ports of Argentine jurisdiction or to ports from Mercosur and associate members which have cargo maritime transport agreements with Argentina”. Uruguay, pointedly, has no such maritime agreement. The Uruguayan government considers the resolution to be “arbitrary” and retaliation for its decision to allow an increase in pulp production. It is estimated that the Uruguayan ports of Montevideo and Nueva Palmira could lose US$100m a year to Argentine ports as a result of the measure.