Latin America’s impressive little guys: Uruguay and Paraguay

by Dave

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beyondbrics |

Talk about Latin America’s rising stars and the focus is often on Peru or Colombia. But don’t overlook the little countries: Paraguay and Uruguay are punching above their weight – and both have just been upgraded by rating agency Standard’s & Poor’s.

That’s a tribute to their economic performance: Uruguay rode out the global crisis without recession, while Paraguay is growing at its fastest rate in 30 years. Both are also catching the attention of some foreign corporate investors.

After 2.9 per cent growth in 2009, Uruguay is now on course for 6.5 per cent this year. S&P has moved its sovereign debt rating to double B minus. That’s within two notches of investment grade, which is what Uruguay lost in 2002 during an economic crisis that spilled over from neighbouring Argentina. Its president, José Mujica, wants to regain [investment grade] status before his term ends in 2014.

Uruguay last month hosted a business promotion seminar organised by the Council of the Americas, whose president, Susan Segal, said US investors were looking with interest at agriculture, biotechnology and technology exchange opportunities in the Atlantic-coast country. Uruguay sees natural resources as key to future growth: it is already exploiting a gap in the market left by declining Argentine beef production, and is seeking to develop what it believes are large offshore hydrocarbons resources. But Mujica has also appealed for young people to “fall in love with maths and scientific analysis” to lay the foundations for a tech-savvy future.

Paraguay, a landlocked country whose population is unique in Latin America by still speaking the language of its Indian ancestors, Guaraní, is also emerging as a promising investment destination. Rio Tinto Alcan is planning to invest $2.5bn in an aluminium smelter. To give a sense of the project’s scale, the investment is equal to virtually half the reserves of the central bank. What’s more, Paraguay’s economy is on fire – set to grow at around 9 per cent this year, a 30-year-high according to Gabriel Torres, analyst at Moody’s Investor Service.

Central bank reserves have doubled in the last three years and political stability has increased under the presidency of Fernando Lugo, who took office in 2008 after 61 years of one-party rule.

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