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A solid regulator

Interview - May 25, 2015

Founded in 1967, Uruguay's central bank (BCU) regulates the country's banking and financial system. It issues currency and controls money supply by setting interest rates; regulates credit; and oversees the currency exchange and the nation's private commercial banks.

MR. MARIO BERGARA, PRESIDENT OF THE CENTRAL BANK OF URUGUAY
MR. MARIO BERGARA | PRESIDENT OF THE CENTRAL BANK OF URUGUAY

To begin, we would like to ask for your opinion about where Uruguay will be heading to in the next five years. What do you think will be the challenges that President Tabare Vazquez will face?

Uruguay about twelve years ago had a crisis whose epicenter was in the banking sector, but quickly moved to the productive sector and had an impact on the social sector, reflecting its significance on each indicator. That was the starting point for the Frente Amplio's [Broad Front] administration, which formed an economic team that currently remains in force, a fact that shows that the determination to face these problems is an attitude held until today. Then, in the context given by the rise in commodity prices and the influx of foreign investment, the suitable administration of these factors helped reverse the situation in our economy and its growth, making it able to even pass tests such as 2008 crisis and the recent regional slowdown. One of our biggest challenges was managing the debt, which was dollarized, matching the GDP of the country and with a horizon of impending deadlines, we reversed this situation through proper management of monetary policy, fiscal policy and reserves.

Today we find a country that has grown throughout the last decade by over 5%, with a huge increase in exports, reducing vulnerabilities and diversifying our production and our business relationships. This diversification is also reflected in the investment that we have been receiving the last eight years, both in its sources and destination sectors. Great part of the responsibility of this change lies with the Investment Promotion Act, which accompanied the rest of the reforms and modernization of economic rules, macro and micro. All this policies had a positive impact on society: a clear indication of this is that the poverty rate stands at around 6%, while inequity was reduced by a quarter, making out of Uruguay the most equitable country in the region. In this context of achievement while facing external inflationary pressure due to the dollar appreciation, one of the challenges of macroeconomic management is to control inflation. Even when we would like it to be smaller, the inflation is being managed through a scheme of predictability and stability that allows economic decisions to maintain its fluidity.

On the fiscal side, we have a fully sustainable accounts management to be maintained and that today is reflected in the budget debate that is being conducted these days and will set the guidelines for the next five years. Among the reforms mentioned earlier, we have changed the operation of the financial and banking system -including the Central Bank- and the stock market became regulated. In this area, the system is ready to face a number of issues, such as rising interest rates driven from abroad that we expect for the coming months. Regarding infrastructure, the investment on this field is projected for the next years and focused on ports, roads and railways. Within the overall picture, we will continue to grow at lower rates but sustaining this growth, exports, investment and social improvement, and that is the main challenge and objective of this government for the coming years.

What would be your appreciations to share on the bilateral relations held by Uruguay and the United States?

Our relations are very good. Even when it is hoped to include more access to the American market -that has many protection schemes-, any scheme of access and tariff reduction posed by the United States would have an impact on Uruguay and benefit many sectors. Under the TIFA, a framework for investment and trade between both countries, these issues are gradually being negotiated. In this space we seek to create opportunities for access and appreciation of our exports. Our political ties are also very good, very healthy and fraternal, full of positive prospects. There is American investment in Uruguay, in diplomatic terms bonds are also growing: a contingent of Uruguayans is living in the United States, as well as a small American community living here. All these ties are fair and balanced, which is vital for the development of the relationship between the two countries, whether in the commercial, political and diplomatic aspect.

In terms of the private banking sector, what benefits would concentration bring?

Actually I think it is a very relative question, the number of competitors is not necessarily synonymous with competitive intensity. In the banking system there is the Bank of the Republic which represents a 40% and a number of private banks, all of them solid, with good backups set on a strong regulatory framework according to international standards. Before there were more banks, in number, but least of them were able to compete in the market because of their size, in terms of the system they were rather intermediate or small. The process of concentration and takeovers that took place in recent years, from my perspective, created a much a more competitive framework. This is because now, the total number of banks is smaller, but proportionately many more of them reach an intermediate size and have more aggressive strategies in market competition. So, today competition increased compared to a few years ago even when the number of players has decreased.

As a policy, we also promote a scheme of financial inclusion for this sector, which is one of the strategies of development prioritized by the government so that there is more competition in the banking sector and the broader financial system, as banks feel the competitive pressure from non-bank agents. The encouragement of electronic means of payment, issuance of electronic money, brings many benefits such as safety, efficiency and information among others. While this change we are trying to propose is cultural, it also involved a major focus on the infrastructure; therefore, beyond the normative it must be accompanied by a series of fiscal and tax benefits to encourage the use of cards and others as current means of payment. All these reforms we seek under the financial inclusion scheme have a positive direct impact on the reputation and credibility of the system, both locally and internationally as they promote transparency and viability in accountability.

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