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TRADE WARS
Paraguay set against Venezuela pact role
by Staff Writers
Asuncion, Paraguay (UPI) Mar 27, 2013


Uruguay's real estate-driven boom worrying
Montevideo, Uruguay (UPI) Mar 29, 2013 - Uruguay's real estate-driven economic boom is clouding the outlook for growth in the Latin American country, amid fears that optimism over property price escalation may not last.

Uruguay's national earnings rose 3.9 percent last year, largely due to a rising momentum of construction. The rise came amid predictions the Central Bank's target of 4 percent growth during 2012 could not be met.

The 3.9 percent growth was achieved mainly due to economic recovery in several sectors during the later part of the year.

Uruguay's economic performance in recent months has given rise to disagreements among economic groups analyzing the country's data. A slowdown of the economy began early in 2012 amid warnings that growth would be much lower than 6.5 percent in 2011.

The government of President Jose Mujica has been battling inflation and applied price freezes on utilities in a bid to discourage an upward spiral in prices.

Despite steady industrialization and growth in processing industries related to its agricultural resources, Uruguay depends heavily on exports of natural agricultural and livestock produce.

Dairy products and meat, rice, leather products and wool are major mainstays of Uruguayan economy and the government has struggled to reduce income disparities between native and non-European nationals and Uruguayans of European stock.

Central Bank data showed that "a strong expansion of domestic demand" continued to drive gross domestic product.

That demand has impacted on key sectors of building, communications and transport. Each reported dramatic growth in 2012 -- 8.9 percent in construction, 6.7 percent in communications and transport. Growth in other sectors exceeded expectations at 36.9 percent, the data indicated.

Analysts said some of the trends could spell trouble. The rising demand has already affected Uruguay's trade balance and a 13.6 percent jump in imports contrasts with 1.6 percent increase in exports.

Despite upbeat government forecasts, independent analysts said the growth target of 4 percent for 2013 was at risk and a shortfall in growth couldn't be ruled out.

Analysts said Uruguay faced a continuing problem of a weaker U.S. dollar making imports more attractive than before and warned that imports could continue to rise.

The Central Bank's monetary committee said that "inflation continues to be one of the main concerns in the map of risks" of Uruguay's economy.

Uruguay's inflationary rate rose in February to 8.89 percent from 8.72 percent in January -- well above the bank's target of 4-6 percent. Central Bank data suggest consumer prices could rise 8 percent, more than an average forecast in January.

That outlook puts at risk the country's growth and financial standing, analysts said. In last year's ratings actions, Uruguay's credit rating was raised to investment grade after the country reduced debt and diversified exports but this year's outlook raises new questions about the economy's direction.

The death of Venezuelan President Hugo Chavez has widened the gulf between his country and Paraguay, the landlocked nation that was suspended from regional trade bloc Mercosur just before Caracas received a long-awaited invitation to join the group as a full member.

The circumstances in which Venezuela assumed Mercosur's full membership shortly after Paraguay's suspension remain as murky as when the episode began with a political crisis in Asuncion in June 2012.

Paraguayan opposition to Venezuela entering Mercosur was the last stumbling block in the way of Chavez's ambition to play a major role in Mercosur. But on June 22 the country's Senate voted to impeach President Fernando Lugo, prompting his resignation.

Mercosur reacted by calling Lugo's impeachment a constitutional coup. The political and economic group suspended founding member Paraguay from its ranks and invited Venezuela to join, which Caracas promptly did.

The speedy musical chairs that isolated Paraguay became part of a regional diplomatic effort by Argentina, Brazil and Uruguay to have the country banned from other forums, including the Organization of American States. The ploy didn't work but created ill will between Paraguay's incoming caretaker President Federico Franco and the rest of Mercosur.

Chavez's death March 5 raised hopes Mercosur and Paraguay could erase bitter memories of 2012 and resume normal ties.

Mercosur interstate trade has suffered as the quarrel continues. Paraguay's estranged partners have made repeated attempts to heal differences. Having made grand gestures against Paraguay last year, leaders of Argentina, Brazil and Uruguay have struggled to row back on their pronouncements without losing face.

Paraguay this week made clear it won't accept anything short of full restoration of its Mercosur membership and, through that restoration, its right to preside over the next group summit.

Venezuela is set to preside over the summit in June. Who'll represent Venezuela at the summit in Uruguay isn't clear, as Acting President Nicolas Maduro is one of several candidates in that country's April 14 election.

Paraguay's presidential election is to take place April 21. Franco isn't a candidate and Horacio Cartes of the center-right Colorado Party is favored to win.

Whatever the outcome in the two elections in Paraguay and Venezuela, divisions caused by last year's events are unlikely to be resolved soon.

In January Paraguay condemned Mercosur's incorporation of Bolivia as a new member and denounced Uruguay for taking presidency of the group for the current six-month term which, it said, violated rules on the rotating leadership.

Paraguayan Foreign Minister Jose Felix Fernandez Estigarribia said the country wouldn't flinch from its position that Paraguay should hold Mercosur's presidency in the next rotation beginning June.

Maduro said he expects Venezuela to lead the summit.

"Venezuela according to our criteria still has not been legally incorporated to Mercosur, since it is violating the original treaties which refer to the constitutions of the group," Fernandez Estigarribia said.

He said Paraguay's April elections will restore the country to full democracy, a fact recognized by the OAS and EU partners. Paraguay's new government will take office Aug. 15.

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