Uruguay Looks to Moribund PPP Law to Cushion Economic Slowdown

Uruguay’s success in cushioning the slowdown afflicting the rest of South America while curbing spending hinges on convincing private investors to plow money into infrastructure, a senior government official said.

Growth in the South American nation is expected to slowdown to 2.7 percent a year through 2019, according to Finance Ministry forecasts, after expanding at a 4 percent rate in the first quarter from the year earlier.

To help the economy weather measures to trim the deficit, the government is looking to kick-start a moribund public-private participation law passed four years ago, said Alvaro Garcia, director of the Planning Office of the Presidency. Only one PPP contract, a $97 million prison, has been signed to date, and that took three years to negotiate, he said in Montevideo.

“If we have very good results from these types of projects there will probably be an impact on the economy and that could improve our growth forecasts,” Garcia said.

Uruguay’s $55 billion economy has enjoyed more than a decade of uninterrupted growth thanks to high prices for its soy and beef exports and billions of dollars of foreign investment. After expanding 5 percent on average between 2010 and 2014, growth will now slow, Garcia said.

Complicating matters for President Tabare Vazquez, who started his five-year term March 1, his administration plans to cut the fiscal deficit to 2.5 percent of GDP by 2019 from 3.5 percent last year.

“The main objective is to keep our debt sustainable” and protect the country’s investment grade credit rating, Garcia said.

Infrastructure Deficit

The International Monetary Fund said in a March report that a lack of investment in transportation infrastructure could hinder foreign direct investment. Uruguay’s potholed roads alone require an “investment shock” of more than $2.5 billion, according to a report by construction industry research group CEEIC.

Yet, the budget proposal will include lower capital expenditures at state companies and increases in public works funding that won’t exceed inflation, Garcia said.

“The country has important infrastructure needs and they can’t be solved only with public resources,” he said.

The Public Works Ministry said in May that it plans to offer as many as eight PPP road projects for $663 million.

The infrastructure projects could seek financing on the local capital market thanks to a pool of more than 291 billion pesos ($10.8 billion) managed by pension funds.

The funds could eventually invest as much as 20 percent of their portfolios in infrastructure-related securities, said Ignacio Azpiroz, a money manager at Union Capital Afap.