•Uruguay regains the investment grade status positioning itself as a safe country for investments.
•Analysts asseverate there is still room for a qualification improvement.
The credit rating agency Standard & Poor´s praised the “solid growth path” of the country. The agency’s analyst for Uruguay, Sebastián Briozzo, said in a statement that “if the predicted fiscal framework from the authorities’ budget that includes a projected deficit of about 1% and the current growth forecast develops and if the political support from the government coalition continues to consolidate, there is a chance that we further improve the qualification.”
The restitution of the investment grade status that had been taken out on February, 2002, was received with great satisfaction by the government who noted the lag on the Uruguayan grade improvement. This puts Uruguay again on the map as an attractive country for investments. According to vice-president Danilo Astori, it is not only relevant that the same credit agency that downgraded the investment grade of the country has given it back, but that this agency is an important referent on a world level, for that reason in a very short time other agencies will tend to follow the same path. For the Minister of Economy, Fernando Lorenzo, the investment grade status recovery “puts an end to the 2002 crisis period.” While most of the things that had an impact during that crisis were already reverted, this step was missing.
On the other hand, president of the Central Bank Mario Bergara said this “opens a wide spectrum of institutional investors” for Uruguayan sovereign debt such as “American and European pension funds” that were not present because some are allowed only to invest on investment grade countries. He also highlighted that this allows to be placed on “the group of better behaved countries”, and that is “a seal worth having.” Meanwhile the Debt Management Unit director, AzucenaArbelache, points out another factor, that consist on the value of possessing an investment grade status that serves as a differentiation from other countries during a period of financial turbulences. “In a scenario of volatility, investors firstly sell debt and assets of a lower risk qualification.”
The fact of being placed amongst investment grade countries gives Uruguay a distinctive that will attract investment funds. Analysts highlighted the cover letter significance of an investment grade in the world for Uruguay and the positive effect that can be achieved through the arrival of more investment funds.Deloitte’s partner Pablo Rosselli said to El País that this “enlarges the number of investors that have access to Uruguayan debt and projects that were previously unavailable for them because regulatory requirements demand an investment grade for such institutions as pension funds of other countries.” He also highlighted the significance of the opening to funds for the financing of Private Public Participations works. He added that “even if on the short run we don’t see a change on the bonds, we don’t rule out a price increase and a lowering of the interest rate.”
In line with Rosselli, PricewaterhouseCoopers economist Ramón Pampín said with this announcement “we gain in access power to more fearful funds that demand their administrators to conform portfolios with a high degree of exposure to investment grade assets.” According to Pampín investors were already “assigning a risk for Uruguayan papers in line with an investment grade” but with the announcement the country has gained “the seal.” “This seal eases and expedites the process of explaining an investor, from the ones that want to establish a business to the ones seeking to invest on a paper, were the country stands on a macro-economic level.”
“The prudent management of Uruguay’s economy resulted in an economic diversification, an improved external position and a softer debt amortization profile, that reduces Uruguay’s vulnerability to potential external impacts,” explains S&P. The agency adds that the forecast for the Uruguayan debt is “stable”, because it is expected that the government “sustains its commitments of fiscal prudence, including under the most severe external conditions.” To regain the investment grade was the goal for the country’s economic team, and after much effort they managed to achieve it. Now they propose a new goal that is not only to maintain the investment grade, but trying to improve it.