The Uruguayan peso, denoted UYU, is the official currency of Uruguay. The currency is subdivided into 100 centésimos, and the version of the peso that we know today replaced what is known as the "new" Uruguayan peso (UYN) on March 1, 1993 (at the rate 1,000 UYN = 1 UYU). A key characteristic of the currency is its instability factor, which peaked in Spring 2002, during Uruguay's worst ever-financial crisis. Uruguayans have become accustomed to the constant devaluation and instability of their currency, and have as a result developed a fitting lingo. Periods of real appreciation, for example, are called "atraso cambiario," which literally means, "the exchange rate is running late". Because the local currency is so unstable, prices for most big-ticket items (real estate, cars and at times, salaries) are denominated in US dollars. The UYU had a crawling peg to the United States Dollar (USD) during military rule, and the government published a table of the future values of the dollar, called the "tablita," daily. When the currency was devalued in 1982, it was said, "the tablita was broken." Thousands of companies were thrown into bankruptcy at this time, but Uruguay made changes. In the 1990s, a sliding range mechanism-geared towards providing predictability-was introduced. The sliding range was comprised of top and bottom margins at which the government would intervene. In 2002, after the banking crisis, the currency was again allowed to float. Uruguayans found hope for their currency in 2004 when it appreciated against the USD. The government hopes that a floating currency will "de-dollarize" the economy.
Sovereign Ratings for Uruguay
| Moody's Rating |
| B3 |
| S&P Rating |
| B- |
|
Sovereign credit ratings play an important part in determining a country's access to international capital markets, and the terms of that access. Sovereign ratings help to foster dramatic growth, stability, and efficiency of international and domestic markets. |
What does it look like?
Political Structure
The Republic of Uruguay is divided into 19 departments. The government consists of three branches: the executive, the legislative and the judicial. The executive branch is led by the President and Vice President of the Republic (and the President, with parliamentary approval, appoints the cabinet). The legislature is a bicameral General Assembly that consists of a 30-seat Chamber of Senators and a 99-seat Chamber of Representatives. Both senators and representatives are elected to five-year terms by popular vote. The judiciary branch is essentially the Supreme Court, consisting of judges appointed by the President and elected by the General Assembly for 10-year terms.
Prominent Figures
The President of Uruguay is Tabare Vasquez. He took office in January of 2005 as the first leftist president in Uruguay's history. The central bank in Uruguay is Banco Central del Uruguay, and is led by bank President Walter Cancela.
Unique Characteristics
The Uruguayan peso is sensitive to several factors outside of Uruguay, mostly to those in Argentina and Brazil. The economic problems existing in these neighboring countries have been known to spill over and affect Uruguay and its currency.
In addition, the exchange rate of the Uruguayan peso itself has the capability of affecting domestic prices. The elasticity of domestic prices with respect to the exchange rate or the Uruguayan peso is said to be around 0.50. Thus the exchange rate policy can be a very powerful instrument in controlling inflation.
Key Economic Factors
Uruguay's economy relies heavily on agriculture. Although agricultural production makes up only 95 USD of the GDP, agricultural-related goods including meat processing, agribusiness, wool, leather production and textiles, make up approximately half of the countries exports. Recently, Uruguay has been troubled by economic strife. Uruguay is dependent upon its neighboring countries' economies. Devaluation in Brazil (1999), for example, made Uruguayan goods less competitive. Later, economic problems in Argentina seriously weakened Uruguay's economy. The weakened economy resulted in decrease exports and tourist revenues, which led to more fiscal damage. All of these factors also helped to increase unemployment by unprecedented numbers. In 2002, the government removed the exchange rate and allowed the peso to float freely. This resulted in the USD rising almost 60% against the peso. The devaluation of the peso lowered consumer purchasing power and increased inflation from 4% to 26% in 2002.
The government attempts to reduce inflation by increasing exports to its Mercosur partners (a Latin American Trade Coalition), countries in the European Union, and North America. Uruguay's relationship with investors is positive, which is helpful in times when the economy is weak.
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