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Banking

Fast-growing Uruguay is still an underperformer

In the past few years the country has reduced its dependence on offshore banking and links to Argentina and has grown its exports of agricultural produce and position as an important entrepôt. But its capital markets remain severely undeveloped, a situation that might be improved by a programme of privatization. Jason Mitchell reports from Montevideo.

URUGUAY WANTS TO reform its banking secrecy laws so that the Organization for Economic Cooperation and Development removes it from its grey list of tax havens, a sign of the declining importance of offshore banking to the country and the robust growth of many other industrial sectors.

This small, beautiful Latin American nation, with a population of 3.3 million, has one of the fastest-growing economies in the region and attracts a healthy rate of foreign direct investment as a percentage of GDP. The economy, which was worth $31.5 billion last year, grew by 10.4% in the second quarter of 2010. Local analysts are now forecasting that it will grow by more than 7.5% in the year as a whole. It expanded by 6.1% a year between 2004 and 2009 and was one of the countries in the region least affected by the international financial crisis. Inflation is at 6.25% and central bank reserves are $8 billion.

Uruguay received foreign direct investment of $1.26 billion last year and $1.84 billion in 2008; last year, FDI as a proportion of GDP was 4%, compared with 3.8% for Chile, 1.6% for Brazil and 1.1% for Argentina. Traditionally, Montevideo, the country’s capital, has been the main offshore financial centre of South America but that industry is now of less significance, as so many other sectors have expanded rapidly during the past decade, including tourism, agribusiness, forestry and logistics.

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