Uruguay: A Quiet Latin Success Story

Posting has been erratic today because I've been at the Latin American Borrowers' and Investors' Forum in midtown. While I was there, I was very happy to bump into an old friend: Carlos Steneri, the director of Uruguay's public debt management unit. Steneri is a classic behind-the-scenes technocrat, who deserves vast amounts of the credit that usually accrues to investment bankers and other flashier individuals.

Steneri got me caught up on what Uruguay's been up to over the past year, and it's incredibly impressive: the country borrowed a total of $3 billion on the international capital markets – that's an eye-popping 15% of GDP – and used it to pay down debt maturing in the short term, to finance its budget deficit, and to wipe out at a stroke all of the money that the country owed to the IMF, the World Bank, and the Inter-American Development Bank.

We've now reached the point at which the private sector can fund Uruguay much more cheaply than the public sector: Uruguay was paying about 9.5% on its loans from the World Bank and IDB, while it pays only about 7% on the dollar bonds it issues. The debt wipe-out is good news for Uruguay, which no longer needs to worry about IMF conditionality, but it's bad news for the international financial institutions: they need to lend money in order to survive, but who are they going to lend to if even Uruguay can get much cheaper funding from the international capital markets?

Steneri has been at this game for a very long time: he was not only instrumental in Uruguay's ground-breaking 2003 restructuring, but also in earlier restructuring around 1991. He knows full well that the markets which seem so generous today can close up overnight – and that in that case, he will need the IMF to help out. He's also quick to deflect praise for orchestrating Uruguay's debt-management operations: it wasn't him, he says, it was the flood of global liquidity which made all this possible. In fact, it's a combination of both.

One of the reasons that Uruguay has proved so successful and resilient over the years is the fact that it has a very sophisticated set of technocrats such as Steneri, who are adept at doing the right thing no matter which political party is in power. SAIS professor Riordan Roett, at the same conference, noted this morning that across the region, leftist governments are doing a very good job at insulating their finance ministries from political pressure – you can see it in Uruguay, Chile, Brazil, even Peru. Would that the same thing could happen in the US.