Frente Amplio presidential candidate pledges to achieve primary fiscal surplus in Uruguay

Uruguay’s leading presidential candidate, Yamandu Orsi of the opposition Frente Amplio ("Broad Front") coalition, would aim to achieve a primary fiscal surplus by the end of his term and might narrow the country’s inflation target range if he wins the October election, according to his pick for finance chief, economist Gabriel Oddone. 

In an interview, Oddone emphasised an Orsi government in the short term would maintain the current annual inflation target range of three to six percent, while keeping with the current administration’s fiscal rules. Over time, Oddone said he would seek to get Uruguay’s primary fiscal surplus close to two percent of gross domestic product toward the end of Orsi’s five-year term. He also would also weigh reducing the inflation target range to three to five percent. 

“The fiscal deficit has to improve during that period,” Oddone said in an interview in Montevideo. “If the fiscal situation isn’t under control sooner or later, Uruguay ends up in a messy situation.”

The hawkish central bank leadership, appointed by outgoing president Luis Lacalle Pou of the ruling centre-right coalition, has kept consumer price gains within its target range for an unprecedented 15 months. However, the government’s fiscal deficit this year is coming in larger than it originally forecast.

Orsi on Monday named Oddone, 61, to serve as his finance minister if he wins.

Oddone, who chairs local think tank Agora, previously worked more than two decades at Uruguay’s largest legal and consulting firm CPA Ferrere.

The Frente Amplio delivered almost uninterrupted economic growth when it governed Uruguay from 2005 to 2020 thanks to the global commodities boom and investor friendly policies. But inflation averaged about 7.7 percent per year and the last Frente Amplio government ran high deficits even with tax hikes.

The Frente Amplio won’t seek major changes to the tax code given an already high tax rates, Oddone said. Orsi would offer multinational companies operating in Uruguay fiscal incentives to pay all or a portion of their corporate taxes in the country to comply with the 15 percent global minimum tax recommended by the OECD, he said.

“We are going to do it as slow as we possibly can, but we can’t stop it from happening,” Oddone said. “I have to respect existing contracts that are protected by investment treaties.”

Uruguay, a country of 3.4 million people sandwiched between Argentina and Brazil, holds general elections October 27, when 11 parties including those of the ruling coalition will field candidates. If no candidate wins an absolute majority the two with the most votes compete in a run-off election in November. Polls show Orsi beating the Partido Nacional’s Alvaro Delgado next month, but falling short of the votes needed to avoid a run-off.

Both candidates are campaigning on pledges to revive an economy that has grown about one percent per year in the last decade. 

Orsi’s plans leans heavily on tax incentives to attract investment, cutting red tape and the selective use of industrial policy to support agriculture that is a lynchpin of the economy, high tech sectors and labor-intensive manufacturing. Those measures should eventually deliver the 2.5 percent to three percent growth Uruguay needs to reduce poverty that affects almost one in five children and extend the welfare state to about 300,000 people who live on the margins of society, Oddone said.

Voters will also be asked to approve two plebiscites in October, including a sweeping overhaul of the social security system. The latter would set a minimum retirement age of 60 in the constitution and abolish pension fund companies that manage more than 948 billion pesos (US$23.7 billion), among other measures. Election jitters have helped make the Uruguayan peso the worst performing South American currency this month with a loss of 4.6 perrcent against the US dollar.

A plebiscite win would probably force the next government to adopt a combination of tax increases, borrowings and spending cuts to cover about US$1 billion in transition costs, Oddone said.

“It will cause us a huge headache and distract us from critical areas if approved, but this isn’t the end of the world,” he said. “We’ll find a solution.”